Welcome to the Neogen Second Quarter Fiscal Year 2018 Earnings Announcement. My name is Richard 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. And now, I'll turn the call over to Mr. Jim Herbert. Mr. Herbert you may begin.

Thanks Richard and good morning again and welcome to our regular quarterly conference call for investors and analysts. As Richard stated we will be reporting to you today the results of our second quarter of the 2018 fiscal year which ended back on November the 30th. And I'll remind you that some of the statements that are made here today could be termed as forward-looking statements. And these forward-looking statements, of course, are subject to certain risks and uncertainties. And actual results may differ from those that we discussed today and as a reminder the risks that are 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 today by the live 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 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. For those of you who were on the September conference call you'd remember that John, as you all remember now that John has assumed the role as President and Chief Executive Officer and did that back in mid-July meaning he will soon be on Board for about six months now. I've retained the title of Executive Chairman and John and I are sharing responsibilities, as he gives the opportunity to get up to speed . Earlier today Neogen issued a press release announcing the results of the second quarter, announcements for the quarter introduced several new factors, so as not to be confusing let me pick apart the quarter one piece at a time.…

Thank you, Jim. And welcome to everyone listening. Jim as already reported on the overall sales and profit performance for the second quarter of our 2018 fiscal year. I will provide more detail on the performance of our food and animal safety segments as well as offer some perspective. Those of you have followed Neogen have often heard Jim detail Neogen's four legged growth strategy; first, increased market share, second development of new and innovative products that our customers need. Third, grow internationally and fourth, growth of acquisitions. We have successful years to all four strategies for the last 35 years to grow the business and it's an important to monitor the contribution of each. While growth for acquisition and innovation is a core competency, those strategies are subject to timing and cannot be relied upon quarter in and quarter out to drive consistent growth. Organic growth is what we need as a foundation for consistent performance that our shareholders expect from us and what we expect from ourselves. In my first six months here, I focused on working with our sales and marketing teams to drive that growth. I'm pleased to report that our second quarter results included significant organic growth in a number of our core product lines which is particularly impressive considering we had to overcome difficult comps relating to a terminated distribution agreement and a clean crop of North America this year. Now for the animal safety side of our business. Sales of our veterinary instruments increased 19%, the line includes disposable and durable needles and syringes including our patented detectable needles that help processors keep needles out of meat in the supermarket. We have recently opened a 40,000 square foot facility in Lansing to accommodate our need for future growth. Our animal care products grew…

Well thanks John. As Jim and John both indicated the second quarter of fiscal 2018 was a solid one, helped in part by the adoption the new accounting standard that I'll discuss in further detail in a few minutes. Cool we had relatively minor impact on the quarter on an overall basis revenue was approximately $900,000 higher in the second quarter on a constant currency basis with a pound sterling, the euro, peso and riyal all somewhat stronger relative to the dollar than this time last year. On split adjusted basis there was no impact earnings per share due to currency fluctuations. Looking at the financials, our gross margins are 48.4% compared to the 48.1% in last year's second quarter. Improved gross margins at GeneSeek due to raw material cost decreased and favorable product mix within the segments contributed to the increase in overall growth margin and for the year-to-date margins were 48.3% first 48.2% last year. Our operating expenses overall were up 17% for the second quarter and 16% for the year-to-date period. Sales and marketing expenses rolled by 14% for both the quarter and year-to-date. The largest component for this increase were shipping expense and personnel expenses such as salaries, fringes and travel, the result of increased staffing and higher sales. Our general and administrative expenses was 27% for the quarter and 20% for the year-to-date. Salaries of due to new positions and compensation increases, amortization of intangible assets resulting from the recent acquisitions and cost associated with IT projects and infrastructure were the main drivers of the increase. We're continuing to invest in the information technology to better deliver data and solutions to our customers and to improve and protect our internal data and network systems. Our R&D expenses were 7% over the prior quarter, prior year…

Thanks John and Steve. Let me cover a couple of areas that we have not yet covered. First, take a look at our genomics business. We've built this business through a series of acquisitions, following each with good organic growth as we've made the acquisitions. Revenues of the genomics group increased by 19% in the second quarter and 23% on a year-to-date basis. I think that what we have done here is a good example of our international strategy and product areas. We bought the first pace of the genomics business back in mid-2010 with a revenue base at that point of about $12 million. We added to that another acquisition in 2012 and then another in mid-2013. From this base of three acquisitions we then established a new genomics laboratory in Ayr, Scotland, where we already had good lab facilities to provide easier access to the European markets. At the end of 2016 we acquired the Deoxi genomic business in Brazil which was the largest animal genomics lab there in order to give us better reach into that important cattle business and to that part of the world. And then our most recent move was the acquisition of the genomics business located near Brisbane, Australia. Though this might be termed, I guess is a forward-looking statement that I warned you bet in the very beginning, I would speculate that revenues from this worldwide genomics business well likely touched a $50 million mark by year end and that's a growth of over four times. We're using that same worldwide growth strategy for our complete line of biosecurity products as John mentioned earlier, this includes cleaners and disinfectants, rodenticides and insecticides. We began to build this strategy almost 13 years ago through the acquisition of a couple companies here in the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question on line comes from Mr. Kevin Ellich from Craig-Hallum. Please go ahead.

Good morning. Thanks for taking the questions. John, good to reconnect with you. I guess Jim wanted to start-off with some of your comments about management, specifically how soon do you expect to have a replacement for Ed in Food Safety and do you have some good internal candidates, are you looking mainly external?

I don't know, we want to elaborate right on that. We are searching for -- we do have a search underway for someone to succeed in. John will run slightly different kind of a management organization as he is on board. In the meantime, as I mentioned there is at least 15 or 20 people that worked for this through the last decade to build this program where it is. So, that's one of the great legacy he is leaving behind, which we all hope to leave behind when we leave job, we leave within good hands of other people. So, I think it's too early that we are not going to be in a big rush. It is too early to make an announcement as to exactly how long that it might take us. But, in the meantime, rest assured that John has got is fingers on that folks and it's one of the areas of John's responsibility, if we were to drop the ball which he won't. I can't pick it up and generally run this way. So, I think we are well covered. I understand where your concern might be but this had nothing to do with the change at the top, this is something, Ed had been worked hard for a lot of years. And they have been able to accumulate the money to go with that. He won't find time to enjoy. I don't blame him. I'm not filing any suit though.

And then, just switching our way to John, you've been there now six months, just wondering if you kind of comparing, confess, what your expectations were before you took the job and what you've seen, what's better than you expected, what needs a little bit of work and I guess have you -- do you have any changes in the strategic vision or direction for the company?

For direction not really, Kevin. I think the pillars that Jim has used is really worked well and it allows us to have a very wide funnel to look at different places that we want to acquire and things that we want to do. So, I really like that strategy, I want to continue that going forward. Some of the things that were different than what I expected was the complexity and then the size of the product portfolio. We have a lot of different products from a lot of different spaces and kind of help a lot of different customers. So, while that was surprising, it was also very, very exciting because it gives us a lot of opportunity to really dive in and show value in a lot of different areas. So for me, I think one of the things that I have looked at is okay, how do we focus with all that opportunity, how do we get our manpower focus the teams on the area that are going to get us the greatest return. So, that's really the things that I'm kind of looking at here in the first six months and finishing out the year. And it's good to hear you again.

Yes. I know, absolutely. And then, I guess broadly speaking you talked about some of the new products that you guys have BetaStar advance and I guess the new method for detecting antibiotics in milk. Is that product, has that been launched and what's the reception been like?

So BetaStar is going to be launched soon. We beta tested. And that we are going to launch, but we have really high expectations for that product mix especially here and worldwide. So, we think it's a game changer. So, we are really excited about that product. And the other is our new Raptor platform that I mentioned. That really changes the way we are going to look at how we want to do testing from one machine and one test to really a very versatile platform to do multiple test on the same machine that's going to be a lot more convenient for our customer base.

Got it. And then, I just have a couple of quick ones for Steve. Administrative costs SG&A was higher than we expected, I think it was a little drag on the operating margin. Was that really due to salaries and stock comp or was there anything else that drove that increase?

No. As I said on the call, some of it was due, we have got an initiative this year where we are making some pretty serious investments in our IT infrastructure, a lot of that has to do with protection of our data, protection of our network, enhancements to our delivery of our data to our customers and our cyber security effort. So, all of that stuff cost me, and so that will be ongoing. But, we think well worth it. And we have had some additional incremental expenses from the acquisitions that maybe even have in your models that we knew when we bought the businesses that we would be incurring them. And we have always those expenses always leave the revenues. So that hit us a little bit this quarter.

Got you. So the IT infrastructure investment and can you give some more detail on to the quantifying or how much incremental expense that be this year?

I'm going to pass. I'm giving you a full details on the magnitude of that. I think what you saw this quarter though, maybe we can have further discussion but its -- the magnitude will probably continue for the rest of this year in terms of our IT spend. And actually even beyond that.

Okay. And then, tax rate obviously, we saw the benefit, sorry, again tax rate, I mean should we just drop at down the 21% or what do you think?

No. I don't think you can -- the statutory rate will be 21, but as we talked we had the impact of the stock options will hit us or benefit us in the next period. And then, we have also the transition impacts of the legislation. So, rest of the year, I don't know what that number is going to be because we are still working on it. But, it's going to be less than 35% for sure. But, there is going to be a lot of noise in the tax number the rest of the year.

Got you. Thank you. I will hop back in queue.

Thank you. Our next question from the line comes from Mr. Paul Knight from Janney Montgomery. Please go ahead.

Good morning. The organic growth rate, what was it, was it mid-single digits or did you say a point number Steve?

We didn't give an overall organic number. But, the number is -- it's about 6%.

Yes, 6% to 10%. As you know, Paul, we have talked before. It's kind of hard to figure out what's organic and what's acquisition. We as a rule what we say in the first 12 months, we call them acquisitions and after that we call them, they get lumped into the organic market share along with new products which make up organic. But, we mind our product company that's got $5 million in revenue but as soon as we put it into our system with our resources behind it. We could increase the revenue by 50% before the year is over. So, it gets to be harder and harder to track these to know exactly what they are. But, good organic growth in both sides of the business -- good growth coming up with our new product development, John talked a little bit, we had an earlier question a little bit about wonder we launched the new BetaStar for detection of drugs -- drugs that are used in milk, that's one. That one is a bit out of our hand, some say why haven't you launched before, now, well, it's like a number of products we have that requires some approval. This one requires the approval of the interstate milk shippers is a part of the Food and Drug Administration and it was all approved back in July. But, it takes a lot to rewrite the regulations and nothing moves based in the wheels of government. We might have that by Thanksgiving. Our share we would have it by Christmas and we didn't get it by New Year, but rumor last week was it ought to be pretty quick here in the next week or two. So, those are some of the new products that you want to really add to the organic growth too.

What are the elements that would cause you to pick up the pace of acquisitions, obviously, we have John on board now. Is there IT infrastructure you want do build up a little more, is it, now that you have got global footprint bigger you can acquire more or you at this point ready to pickup M&A?

Well, we are, but we have done 37 of these since 2000, they maybe probably done 44 or 45 since the beginning of the company. And [indiscernible] we have never lost one. Some had been quite as good as we thought. But, they all continue to be accretive at both top and bottom line. And that was a result of integration more so than the result of acquisitions. And I think I talked at the beginning of the first quarter about where we are and what we might see as acquisitions going forward. Probably the biggest, there are opportunities out there right now, like I didn't call a number, but, I think we have got, I believe we have got four on the radar screen now. And but, the whole issue is integration. And we have got a team that's [desperately tight] [ph]. So, we always know when we are right to check what we are going to do with them in the next morning. And I think that's important and where it has been a little bit more time with due diligence, I'm spending a lot of time there. I will always have Jason Lilly, our Vice President of Corporate Development is extraordinarily accomplished in this area. The good lord was near sighted when he want to put seven days in a week. And we had a little more time to aide in the integration we probably be moving faster. But, we are not going to let the money burn hole in our pocket. I have had bad wins, that I had to turn around and bring back and it's a lot more fun to build than it is to try to bring them. So, that's kind of -- that's a political answer for your question. But, maybe make some sense to you.

Yes. Thank you very much.

Thank you. Our next question on line comes from Mr. Brian Weinstein from William Blair. Please go ahead.

Gentlemen, hi, how are you? Happy New Year. Question for you guys talked about trying to thinking your comments and what we have heard from you in the past you talked about increased market share, new products, OUS and M&As kind of the keys here. We really talked about I think most of those, I'm curious on market share in particular, I haven't heard you guys talk a whole lot about share updates. Are you willing to provide any market share updates on some of the key product areas? Are there areas that you are taking significant share and because when we see in organic growth rate that's somewhere let's call at the mid to high single digit. That's about what the end markets in general have been growing at for your comments that you made in the past. So, just curious about areas where you are seeing significant market share gains and just any updates that you can provide there?

It's a very good question. And one that -- frankly we are in the process of -- spent some time yesterday trying to analyze what some of these markets look like with some of our bright young staff members that are accomplished in areas like analytics. But, there isn't -- our animal safety stat we pretty much know where we are because there is good reports that come several sources that you can get idea what our share is in any particular areas compared to competition. For instance we want to know what share market we got in the veterinary instrument business. We can go to a couple of basis there as to what sales and veterinary instruments might have been during the past year and we can kind of calculate where we might be. However, on the food side, it's not that easy number one, it's more global and number two, it's just a brand new market that nobody has tabulated that there is some people, there is some suggestions. So, I would say in some places we are clearly the market leader. We've got a spot or two where we have been the market leader and I think we still maybe are the larger --we still own the biggest share of the market. But, we have got three or four new competitors who have come out at us pretty hard and we have probably lost a little bit of share market compared to what we had before. We are aware of those that our product managers are diligently looking at where or how we can make any group of products better going forward. But, we will never underestimate a whole competition -- and what competition can do is good for the marketplace, but it makes you work harder.…

Great. Thanks for that. That answers. And then, as a second question, you talked a lot about the revenue growth that you have been seeing OUS, can you talk about the profitability that you are seeing from some of those geographies, you had in any kind of investments that you think you might need to make in those areas and where that profitability kind of long-term target is. Is it above or below kind of you are corporate rate or your corporate margins that we typically see? Thanks.

I know, how deep we want to go answer that question, turning that back to Steve, but we are profitable, we are not profitable in India. But, we are not losing a lot of money either. We plan it to India, and frankly, I thought we would probably profitable by now. But, it's a strategic positioning for us, and when we look at what's happening in the world of middle class development. You just have to be in India when you see what's developing there. I think people has been surprised about India, people thought this would be the year that -- maybe India is the third largest Asian economy that they would kind of overshadow what's happening in China. But, I think GPs is up, 6% or 7% which is not to be sneezed at but, it is less than what may be some of the economy start earlier. They gone through, just keep enough of what's happening there. They are going through some momentum, political turmoil as they try to get repositioned. But, we think we are in the right place. Brazil is -- speak to the profitability, the rest are all okay.

We've made some significant investments as we talked in prior conference calls in both Brazil and Mexico to put money into the infrastructure development there in the last few years. And both Brazil and Mexico are very strongly profitable and we think that they will continue to be so going forward. And the other biggest piece of our international operation is Europe which has done really well as we talked a lot on our calls and we have added genomic capabilities to Europe in the last couple of years and they are doing very well and their profitability is right above their corporate average.

And Brian, this is John. I think what's interesting is, if we look at how we do that go to market, we are -- first, we go through distribution and as we grow that business we put in physical assets and as we get in physical assets that reduces our costs from having to manufacture and transport, so we do see the profit profile similar to what we have in the U.S. So, it's a progression of how we grow these businesses to build those bottom lines and make them profitable and go around the world.

That was a great answer. Thank you so much. Happy New Year.

You too.

Thank you. Our next question on line comes from David Westenberg from CL King. Please go ahead.

Hi. Thanks for taking my question. And I guess to start, we anniversaried thyrocare and some of your OEM distribution deals and if so, I mean, what are we looking at in terms of organic growth rates in those businesses?

Annualize the bad news, is that your question?

That is the entire care and OEM distribution, yes.

Okay. John? I will forget the days, I think what I will suggest is…

But not on the distribution agreement that I have mentioned.

I think this quarter, I think we still are deriving and sitting around the third quarter, yeah.

Correct. Okay. And then, that distribution agreement, that was about $1 million aided to the top line this quarter? So, it's significant.

All right. That's very helpful. Then on the administration expense, I know you called out the IT part of it. Is there also maybe double -- maybe double executives and is there maybe some executives expenses that are coming up off the books as well or maybe some and what's the cost that we incurred in Q3 and Q4?

Yes. Certainly John was sitting next to me, so, I choose to not bring that up on the call.

You said the new CEO was really expensive.

There were some duplicate expenses in the third quarter for sure. Sorry, in the second quarter.

And then, those will be kind of rolling up slowly or how should we look at that rolling off in that administrative bucket?

Oh, they will be here because we got more people there. We got more people in the IT area. We have grown, we just -- I think we do all pretty well as far as we break down, when we look at that, we look at sales and marketing, we look at R&D and we look at accounting and we've looked at G&A and [indiscernible]. And I think we have done pretty well or done very well, I think in holding the accounting and general expenses but we are getting to a point that we just had to have a bigger bench there. So, we are adding more people in the accounting area that we didn't have before. We are not spending a lot of money in fact one of the things we look at is, one of the ten objectives of the company is, we are continuing to look and how do we increase sales per employee, we track that on a regular basis just tracked it last night, and where we are at the end of the first half of the year, what's our revenue per employee. So, make all that same, trying to make sure that we don't let the G&A expenses to outrun the growth of the company. And that's just not been the tradition there. But, we have -- we have needed and added some people. We have needed, added some expense in IT and we still do. We are probably buying where we need to be. We are buying where our luck was to be in IT. And long way to get there as you guys spend some money on people, you did.

I don't mean that people laboring the IT expense point, how should we think about in terms of growth of revenue of the business and where that IT expense is going to be ending up, I mean, and also in addition staffing. I mean, should we be looking at this kind of growing and then flat lining as the business grows or is this kind of stuff that as the revenue grows you are going to need more IT infrastructure that staffing is going to increase?

You got -- from the [indiscernible] in IT in the management team. But, we are getting to a point that -- we don't really know yet. We are still working on that. How much do we need to spend? Where are we? How much do we need to source on the outside? Which way are we going? I think that, yes, we have been as a percent of revenues, IT expenses have been growing, because they weren't pretty darn low to start with. So, any growth at all has been showing some growth. I think we are -- we should be nearing the point that is a percent of revenue, we shouldn't see those that cost continue to increase and we stabilize it, where it is now based on a share revenue, I would think so. Can we reduce that cost going forward, I don't know what's going to happen is the latest cyber problem or who is going to hack in later and we know we've had -- we haven't lost anything, but we have had our share of threats too and have to make us believe, you got to have those things in place whether you like them or not. You are non-productive. They don't add a thing to shareholder value which you dare not or taken so. I mean, I wish I had all the answers to your questions and we will them on board, we don't have them today.

All right. No problem. We appreciate you keeping your data set. So, anyway on valuations I mean you are disciplined buyer, are you seeing any changes in terms of what your particular acquisitions are asking foreign price and is that affecting, pulling the trigger, I know you guys make so many acquisitions or so many good acquisitions, we did kind of see it.

[indiscernible], I have got two right now that I worked under, Jason and I worked on the beginning of the month, like to start moving a little faster on. I think by and large we lost to that we got our bid on [indiscernible] it was a -- in both cases it was equity capital that was big positive money at home and they will compete with us and we will see who is best at competing I guess, over the next the year. But, they would fit for us, but not at the price. We are looking at -- let's say one now that's not an option, we are looking at a second one is not an option, we are looking at a third one, it's not an option. So, these are companies in fact all three of these acquisitions, or companies that we have known for a while and in one case, the company that we ran out on offer, back few years ago and they weren't quite ready to sell. So, we see -- when you get into the direct auctions, track big piles of money, then evaluations get up. We are playing now and unfortunately we don't have any big wins. But, where we are playing now they are still fairly priced.

Got it. And then, just one last, real quick one for Steve and just in our models we do have to try to incorporate tax reform on the books, so, is it a good way to start maybe looking at what your percent of U.S. revenue is and maybe you reduce proportionally like from 35% to 21% is -- that's 40% lower rate. Is that kind of the -- what we should maybe can do to start on your models and then maybe tinker as we get more information from you?

Yes. That's probably a fair way to go. Just, if you think about right now statutory or prior to this a statutory rate was 35, and we were right about 33, so if it's going to 21, we are going to be somewhere in the 19%, 20%, 21% area absent any of the other kind of noise. But, I think your approach is right.

My concern there, and again, trying to keep up with it, just to making that for my own personal standpoint. What's existing today, may not be existing tomorrow, in fact, they won't be tomorrow. So work on the tax credits are we going to get, how is the whole rule is going to change. So, if it's just I don't think we are just looking at a flat 35% to 21%, I'm not the one that already talked about taxes, but it's too early for me, they want to try to drive a stake in the ground I think that we better understand what's going to happen and I know that John and Steve have got out auditing group heavily involved in recently in some tax advise they are going to do our tax workforce, they are going to be giving us some tax advise which I think they are, but we feel and I know exactly where we are. They would be, well we would be in position to better answer that question if you come in Q3.

Thank you guys and have a happy New Year.

Same to you.

Thank you for your continued following.

Thank you. Our next question from the line comes from Gerry Sweeney from ROTH Capital. Please go ahead.

Good morning, Mr. Herbert, John and Steve, how are you?

Great.

Great, how are you doing?

Just one question, I know this call is been going a little bit longer, but it's a higher level, and it's a little bit of a different tact I mean there is been some talk about administrative costs, et cetera and then question was post to John as to as you were the company as six months in, I was curious as Neogen gets larger there is lot of products out there, is there an opportunity to even maybe reduce some of the product line and refocus on some of the higher margin on that necessary thing, anything is going to go anytime like, but there is slightly different view on cost expenses and focus on opportunity, complexity things like that?

Did you read my offers last night?

That's something we've talked a lot about and its really trying to understand what markets do we want to be in, whether it's in existing line we have and that profitability and understanding, where were we had a customer, what are we selling them and how can we expand that pipeline to the customer. And we will be and Gerry we are not going to be thinking about the product out, we are not going to be selling our product lines. Where we are, but where we need to be is streamlining those in, and we're honestly working on those right now and in fact we kept an extra next week, whenever it is I am going back to Europe and we're going to do some more work on rationalizing our product lines between the Lab M our culture media businesses located there and our product line here that's been operating under the another name. And then I'll, there will be one product, one name, one label rationalized and available around the world, there gets the big Neogen name on the product, with the flash beside this and we will do more to take care of our brand names. We've got a lot of brand names that we inherited with the companies and this serves our purpose, but its, this time now to look the size that we really are. So we will be exiting some brands, we got products today that, what I would say, while we are still making that product well we got just one customer and we won't make a change, and then if we change we don't like it, he might leave us and the answer is, if you can't sell along the new product is better than the old one, then maybe you would relieve us. But we've got some of that activity that's going on, but year-to-date on is the timing you will see more of it and hear more of it over the course of the next year.

Okay great and I appreciate it. So at the end its, there is an opportunity to tweak some products.

Absolutely, yes.

Got it, okay. Gentlemen, thank you very much I appreciate it.

Thanks Gerry.

Thank you. [Operator Instructions] Our next question on the line comes from Mr. Kurt Kemper from Hilliard Lyons. Please go ahead.

Hi guys, thanks for taking the question. Those are great review of kind of the Neogen's history and animal genomics. Can you kind of give a more condensed like 2017 review in terms of pricing and volume and competition?

You are talking about animal genomic specifically?

Yes.

That's the place where I think we are dominant in the marketplace. We've got one competitor of consequence that's of our size. That's Zoetis, a spinout of the former Pfizer Animal Health business. They are a good competitor. I say they are good, they take business away from us, they are not good, but they play fair. There is no price -- pricing fights in the marketplace to speak of . But they play for instance they play really and is about two market areas, where we are across the board, we do all of the genomic work for every beef breed in America and we are exclusive on every one of those beef breeds except for Angus, we share that with Zoetis , but I think we probably got a bigger share there in market than Zoetis does . We compete with each other in the diary heifer replacement program. They maybe ahead of us there, but we're running hard at them . And those are both very important and that's like $25 you can run a day, a day-old dairy calf through the system and tell what kind of mama cow she's going to be two years from now and what kind of milk she is going to give and whether she's going to have a problem rebreeding, et cetera. So, it's very economic and these industries are beginning to realize that. There are a few smaller companies around, we've made some acquisitions in the genomic side, we bought Deoxi in Brazil, because they are close to that Nelore cattle breed down there and pretty important we, they dominate that market. So, we still do, we are in China today, we are select not the China market, it's a piece of the China market and the diary side…

Yes that was very helpful. And veterinary instrument's strength, fiscal year-to-date, has there been more market strength or you all taking market share there?

I think we are probably taking market share; we evolve to be the only real veterinary instrument manufacturer in America. Our biggest competitor, produces products offshore New Zealand and it's not quite the same product line while we still got [profound some] metal based products. I am still using syringe that my grand daddy used, I don't know whether that's good or bad, but we are still playing that game. And our distribution is good, we are almost everywhere, we are spreading that internationally one of the things of course John Adent brought to the table was clear understanding of distribution and all those products all have to go through distributors. He's played that game for 13 years, there has been a huge benefit that our guys are looking at, not just the U.S. but around the world. We're seeing the same thing develop now in Europe as we add to our distribution over there. So, I think we will, it's that overall market probably not growing that fast , but I think we are going, we will make up for the lack of fast market growth by taking probably a little more market share.

Okay, thanks for answering my questions.

Thank you. And our final question on the line comes from Mr. David Stratton from Great Lakes Review. Please go ahead.

Hi, thanks for taking the question. And mine are a follow up to your tax rate questions. Essentially even though you can't breakdown where you see the tax rate going right now, what are your plans for the tax savings that you are expecting to realize as you drop from 35 around percent to, the low 20s. And does that change the way you view your capital structure specifically around the thought of dividends or debt, now that's you'll have some more cash freed up?

I think, I think David, part of that is the way we are looking at our cash today, this is going to be an increase in our cash flow that we have today and the way that we invest the cash today is going to not change. To Jim's point, we are going to be strategic on our acquisitions, we are going to continue to hire great people that are going to allow us to grow faster than the marketplace and continue to reinvest in the business. So, I view it as an opportunity for us to take a larger cash flow and put it back to work for shareholders.

All right.

We'll give you better answers in the next quarter or the end of the current quarter.

Thank you. We have no further questions at this time. Mr. Herbert, we'll turn it over to you for any concluding remarks.

Thanks Richard. Our concluding remarks is, we are halfway through a little more and halfway through our fiscal year and all the way through year 2017. I think it was been good, we really are appreciative of the callers and the interest that you have here today. I always leave this being saying, "[indiscernible] be able to better answer that question next time and I think that makes for better management. So, we appreciate your probing questions. And we also obviously appreciate your continued coverage. So thanks a lot and we will see you in a couple of months.

Herbert, have a Happy New Year

Thank you.

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