Good morning. Welcome to the Techne Corporation earnings conference call for the second quarter of its fiscal year 2014. Hosting the call today is Chuck Kummeth, Chief Executive Officer of Techne Corporation. [Operator Instructions] It is now my pleasure to introduce Chuck Kummeth.

Thank you, Chelsea. Thank you, and welcome to Techne Corporation's second-ever quarterly conference call. Today we will discuss the earnings results for the second quarter and the first 6 months of fiscal 2014 that we released earlier this morning. As stated in this morning's press release, I'm very pleased with the progress that we have made during the past few months in fiscal year-to-date. Changes made in our operations have improved efficiencies in our Biotech segments allowing us to focus more on sales growth. Gross margins have remained strong and expenses are within our plans as we invest in new people, leaders, technologies and regions. While sales growth in the second quarter was less than the first quarter, our progress is steady, and especially considering the difficult market situation in the academic and government sector. You will hear more about this progress as we provide greater detail during this call regarding our recent financial results and strategic progress. Kathy Backes, as the company's Controller, is with me on the call today. Our plan this morning is for Kathy to provide a review of our financial results for the second quarter and first 6 months of fiscal 2014. I will then address several topics and be open to your questions.

Before discussing the financial details for this quarter, allow me to remind you that some of the statements made during this conference call may be considered forward-looking statements. The company's 10-K for fiscal year 2013 and 10-Q that will be filed for the fiscal quarter ended December 31, 2013, identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K and 10-Q as well as the company's other SEC filings are available through the company or online. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable GAAP measures are available in the company's press release issued earlier this morning or on the Techne Corporation website at www.techne-corp.com. Sales as reported increased 11.9% to $84 million for the second fiscal quarter ended December 31, 2013. Organic sales increased 0.4% in the quarter. These organic sales exclude $8 million of Bionostics product sales and $643,000 of favorable foreign currency exchange rate fluctuations. Adjusted earnings were $27.8 million or $0.75 per share for the second fiscal quarter of 2014, a 2.4% increase over adjusted EPS of $0.74 in the second quarter of fiscal '13. Adjusted earnings and adjusted earnings per share excluding intangible asset amortization and cost recognized upon the sale of inventory that was written up to fair value as part of acquisition. For the 6 months ended December 31, 2013, sales as reported increased 13.0% to $169.7 million. Organic sales increased 2.8% in the first 6 months of fiscal 2014. These organic sales exclude $14.2 million of Bionostics product sales…

Thank you, Kathy. I'd like to add a few supplemental comments regarding our financial results for the second quarter of fiscal 2014 in the markets we serve. I'll also make a few comments regarding our product offerings and a couple regarding the progress we are making with our strategic plan. Our results for the quarter and 6-month period that ended December 31 supports the belief that our customers are facing a number of stresses, particularly in the U.S. academic market. This customer segment is now down to 12% of our consolidated Biotech segment sales. While we've endured over 2 years of sales declines and uncertainty in this customer segment, we are approaching the anniversary date of sequestration. This should make our comparative results a bit easier. We cannot wait for the markets to strengthen. We need do more. The Fisher Scientific distribution agreement that was announced last Friday as one of our strategies to gain deeper penetration into the academic market. Fisher agreement is for 3 years and allows us to leverage Fisher Scientific distribution channels in the United States and Canada. Fisher Scientific is a premier customer channel brand with internal Fisher Scientific and has a leading position in the life sciences market. We believe Fisher Scientific's broad customer reach and proven record of customer service and support will help accelerate our sales growth. As preferred supplier, we will be able to leverage the commercial strength of the Fisher Scientific channel through its large sales force and highly trained life science application specialists. Additionally we will be well positioned to take advantage of the many Fisher Scientific marketing programs including advanced e-commerce solutions that will occupy a promising [ph] division of Fisher Scientific catalog. We will continue to market and provide technical support for our existing customers, as well…

[Operator Instructions] Our first question comes from Amanda with William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: I just had a question on the Thermo Fisher, the Fisher Scientific distribution agreement. Could you just talk a little bit about how those economics work to the extent that you're able to share? And then also in context of that agreement, how you're thinking about sales force in North America for Techne internally?

Sure. Well, as you know, Amanda, we had nothing more than inside sales group when I arrived. Now we have an army of 5 individuals in the key markets that are very technically oriented and can help create demand and drive local growth in these mostly larger accounts, as well as prospecting as needed. But aside from that, it's nice to have a little more channel support. Now we do have some sales third-party through [indiscernible] Fisher always have, but the opportunity is there and has been there to leverage similar what they do with BD. And they have pretty large force of technical sales specialists that know our model already because of the BD arrangement. And you know how well how neutral Fisher is. This leverages an army of over 1,000 reps and in what's called a platinum-level arrangement. We're the top tier category for commission, so we'll -- they'll be out there trying to really do more for us. The arrangements are very sound. I can tell you at the past present that Thermo, they're better than any deal I had internally. They're very good. Thermo wants content and of a life tech deal they just did obviously proves that. And so they've been really after more product classes like we have and are coming for years. And they're really -- it's a high priority for them. Clearly with the consumables and instrumentation, they can surround the customer with everything but content, and that content is a very big strategy for them, so we were able to find very, very good terms, and I'm just hoping for a lot of incremental growth. I won't give you the specifics, but I will tell you that they are largely paid on incremental growth, not on just pure -- on your…

Yes, we had another, as you saw, very, very strong quarter in China. We're now at year-to-date roughly 35% growth. It is interesting place as you know. We have probably a little more than doubled our employee count there, and things are going quite well. We have the office opening in Beijing with a big success. We have some extraordinary talent that we have found in China. I'm just really, really impressed, been working China for many years, in much bigger organizations. So it's very hopeful. With that all said, we've got to do more. We've got to get more local. We've got to get local brand identified, and we're very close to many of these things. And so they're all work in progress and these reports and us [ph] is probably assuming more than that. But right now we're kind of riding a good growth wave there. It's probably lower hanging fruit. As I mentioned in the past, it's a lower base for us, but now it's 6%, but if it keeps at this rate, it won't stay small for long, so...

Our next question comes from Jeff with Robert Baird. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: My first question is on operating margin. Obviously I get the mix shift here, but can you talk through -- was 47% the level that you expected? And how should we think about the margin going forward?

The big shift in gross margin was generated [ph] by Bionostics. The rest of it from there is really coming from different -- the way we run our business, and actually we're well within our expense levels we expected to be. We're actually under planned to be honest. So we're fine there in that mix. We have actually had a slight increase in our gross margin, and our biotechs have [indiscernible]. I've talked in the past about our operations redesign. And that's allowed us to have a portion of the business, the company are focused on productivity like a factory model that should, there have never been here before. And that's yielded some early results. We have some new arrangements with FedEx. We have a lot of efficiency programs in place, some lean programs in place, and there is substantial costing, about $1 million or so year-to-date here, which is improving the gross margins in that part of the segment. So if you ask about the rate we should be at, we'd be a little higher with the extra volume if we had to add it [ph] probably, but that's all coming. So I think you have to look at it more in a 6-month level than the quarter-by-quarter. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Got it. Okay.

And also I should make one comment too on stock option expense for the director for your seasonal. So this is the quarter that hit, it might have some impact. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Got it. So it sounds like that we could see a small step up in the second half of the fiscal year?

We should. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just on the organic revenue growth, can you talk about what kind of pacing you saw during the quarter? I get we had the government shutdown. Did you see a step off during the shutdown and kind of a recovery afterwards? Or what did it look like during the quarter? And then you talked about seeing a recovery during the current quarter, can you talk about what you're seeing there now?

As you know, the shutdown was October, so it was kind of off pace right away from the very beginning of the quarter, and I really don't think we ever really fully caught up, to be honest. And then the holiday season was a weird year, right, with a Wednesday, so we knew we were going to take really a couple of day hit on that. So I don't think -- all in all, we probably should have forecasted maybe a little better on those on the holiday situation, but the shutdown definitely hurt us some. We'll see. Still, growth, given the things we saw and the pressures I've seen, I think there's still upside in the near 3% 6-month rate. We're probably within the area of our range where I see for moving the model here so. If -- we should -- with Fisher, with the things we're putting in place and all the things I've talked to you guys all off-line and stuff on it, it should be slowly improving. I've never we should ever get really above mid-level single-digit growth in the quarter here organically until we get new platforms and extensions and adjacent markets we've talked about and other things. So it's early days here, but staying in the positive territory, especially in this hopefully the last season of the sequestration, I think is a good thing.

Our next question comes from Dan with Leerink.

I've had some technical difficulty, so if I'm asking a question that's been asked before, I apologize. But Chuck, a follow-up on Amanda's earlier question on the Fisher agreement. What does this mean for incremental margin? So as the deal is structured to over and above prior sales to given Customer A, does Fisher take 30% of that? And thus far -- and thus your incremental gross margins are going to be meaningfully lower?

I want to be careful how I answer this because one, we're not banking everything on Fisher. We have other channels as well as other partners. I can tell you that the terms are very favorable. Nobody sells completely at list anyway, even us, and so there's definitely room, and the margin loss is very acceptable and nearly immaterial really unless there's some major surprise. We've been promoting and discounting heavily since, I think, this company has never done it. We've talked about the low-end of the portfolio here and our rising competition, especially at the easier to make money [ph] level products. So we've been promoting and you still haven't seen much material difference with our numbers. It will be likely the same, unless these guys blow it out of the water. I mean if they come in and it's something 10% or above percent growth off of that, then there may be some move, but I would take that trade-off in that kind of growth. But in our model of what we think we see likely for incremental growth shouldn't be that big a deal.

Okay. And my follow-up. How does this coexist? Or how are you able to negotiate a coexistence between your product portfolio and what Thermo has now brought on board from Life, who offers a number of the same products?

Great question. I guess you just have to be an ex-Thermo person to fully, really understand the neutrality of Fisher. Fisher is neutral. They stand for convenience and choice for their customers. And to the great frustration of every division president within Thermo Fisher Scientific, they're a partner but also it's a complicated situation. It's that they're channel of choice, but they also realize that they have to compete for that channel like with other competitors. As an example, when I ran in LG non [ph] in the lab consumer [ph] for Thermo, I had to compete against Corning [ph] with my own channel. It's actually quite healthy, and it works quite well, and there are numbers to prove it right at Thermo. So it's a very successful model. I know it very well, and I know that we can trust this bunch and they'll be very good to us, and it's all about being platinum level and being a good partner and working with them and supporting the products with the technical backup and creating the demand as they work with you. And Life Check [ph] will have to earn their place like every other part within Thermo Fisher Scientific. There may be some people who are actually waking up there asking us and like [ph] and wondering what's happened. But they'll soon realize just how important Fisher is and how neutral it is, and you have to earn the right to get them playing ball on your side. Did that help?

We have another question from Jeff with Robert Baird. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: My question is on Bionostics. Can you talk about the how the integration is going? And what kind of synergies you've been able to achieve on that?

Sure. Large part is it's never a ton of synergy to be expected. It's an OEM model. It's an extension of platform comprised of -- related to ours, same company but different products. So in terms of synergies, their synergy is in some of the functional heads and different things like that, but there isn't -- not at all sales force per se and things like that to worry about. So I guess on that, we're okay. On the growth side, I think we're just a little bit less than where I'd like to have been. But it's within the range of our model. We're very, very happy with the leadership there and the overall integration into our company and within -- in the systems, et cetera, for that part of the integration. It's not a difficult acquisition to integrate. It's just largely a bolt-on and incremental. And the people there are good. The locations are wonderful to work at. And we have -- they were -- it was PE owned before, and the leader there, the CEO was grooming the person for years there to take over, and that person is in charge for us, and it's going quite well.

Our next question comes from Steven with Craig-Hallum.

In terms of a couple of questions that haven't been asked, in terms of what you're doing in Europe with your direct operations with roots efforts and with your indirect initiatives through J.P., can you update us on what you've tried to do there? And whether or not you think we've started to see some of the benefits of those actions?

In Europe?

In Europe and then also international with J.P.?

Oh, I see what you're saying, okay. Well, Europe is the one place where we do have a true commercial model. We have roughly 20-some different reps. We are -- probably our longer term strategy will to be to work a little closer and pick up some of the distributors that we're working with, like we have in the past with Germany where we are direct. We're mostly run out in the U.K. as you know and 100-plus employees overall. And it's kind of up, it's kind of down. It's definitely in a slightly positive territory year-to-date here, and we are all banking on it and hearing about the winds are back in the sails in Europe, this maybe a decent year there, so we're expecting to ride that as well. So we're a little better than flat. It's rising slowly, so it's working, but it's through normal commercial kind of operations. There isn't any really sort of bolt-on coverage like we're trying to pull off here in the U.S. but with added coverage in the major regions as an example. In Asia, with J.P. there in our managed distribution, that's actually going quite well, and he is busy working on, I would say, streamlining our distributor partners. We had lots of channel conflicts. We had in some countries too many distributors fighting each other. There were lots of things to work on. We are down to a distinct strategy now and in some cases singular dedicated distributors in smaller territories. We are looking at going even direct in some other areas like Australia is an example, which pretty -- everybody does. It's just too far away to manage distributors. It has been for most companies. India is going quite well. Korea is going extremely well. Japan, we're having a…

Great. And then a follow-up, Chuck, can you hear me? I'm not sure that I'm muted or live?

I can hear you fine.

Okay. In terms of the success you are pointing to with your commercial sales people in the field in the U.S., has that success so far been driven more by getting deeper into key accounts and better penetrating those full accounts? Or really better covering the whole ecosystem? All their customers around the key accounts, feeder accounts? So far, what's happened, and what do you think happens from here?

I think a little all of the above. Let me explain a little bit. Also you get back to -- essentially we're hiring these rock stars with lots of experience that it kind of depends a little bit on what they're like and their relationships, and so it varies a little bit. Some of them are little better at prospecting, some are really good at high-level key account whale hunters, bigger deals pulling in orders of a couple of $100,000 or more. We have a little of all of the above. The original design was to take these inside sales people that are being worked to death here locally with $18 million account representation and try and get a partner out there in the major markets to work with. And that's been working quite well. So we've divided these territories between the inside professional here with that external person, and it's a combination of breaking up the relationship from major accounts to where they both have been -- where they have these relationships established, and then allowing the local person to really do the prospecting portion of the workload, okay, and working hand in hand with support back here with the inside person, all right? And it's working fairly well. I think we're actually maybe short. I think we're looking for a second person in the Bay Area, and we may look for one in Houston. We may expand in Boston. As I've said, I don't see us ever going above 10 or 12 for this model. I think it's fine. We have to supplement all of this, of course, with an even better website, which we're working on. There has to be very, very quick and good access to products with these many, many customers for this model to…

There are no further questions in queue. [Operator Instructions]

While you guys are thinking, I want to follow-up on one of the questions about Europe. I will tell you that our -- Germany does remain very strong. U.K. and France are a little bit weaker. The academic areas are still this soft. We have still a large pharma issue in Europe. As you know, it's been moving out. Growth in terms of small and midsized pharma and biotech customers, and it's more the midsized levels in Germany is really in the package [ph] in terms of our success, and I think that kind of nears what I read in what's going on over there. Let's just hope it all continues, and U.K. can follow soon. So far so good. It's so far much better year-on-year, and I expect they will continue to be...

We have another question from Steven with Craig-Hallum.

Just one follow-up question. I think I heard in the financial discussion either from Chuck or Kathy that you said on an apples-to-apples basis, biotech gross margin was actually up. Are you referencing from a year ago period on an adjusted basis from Q1 period? I guess there's a fundamental question of did I hear you correctly? But maybe you could flesh that out just a little bit more for us?

That would be both, year-over-year and quarter-on-quarter. It's not a big move. But it's -- we're roughly $1 million or $2 million off in the volume that we wanted to have in expectations and it would flow to the bottom line. I think that's where -- any initial adjustment would be. And yet we held really well and that is because the biotech segment was up in gross margins because of about $1 million in savings on different truncated programs, the FedEx deal we did and some other things. And so that's been a little bit helpful, but that's good that we're -- We have to do this. I'm a Six-Sigma-trained kind of guy. And as you invest for growth, you have to also do what you can on the savings side, and there are a lot of efficiencies to be done here, which we're working on. And Kathy may have something to add here as well.

Right. Regarding the biotech segment, yes, the margins for the quarter and the 6 months were slightly up from prior years, and I believe also from first quarter. But again, they were just slightly.

Our next question comes from Paul with Janney Montgomery.

I guess the answer on the operating margin impacts from the Thermo relationship is that it's unclear at this point. I mean my question -- my concern would be, will customers bounce around on the 2 websites and price shop? I mean, what's to prevent that?

It's almost nearly the same. Unless they really blow up their numbers on huge growth, there will be no noticeable change in terms of our margin to this. It's my prediction. That's our model.

And your...

And again, you got to realize that we've structured a deal that gives them what they want in terms of content, and we're not after just channel swap, right? So we're after incremental growth, and they're really incentivized on true growth. And this is a much different model than us shipping a lot of goods and going into their giant, automated-driven warehousing. We don't see a real report of where things were going to what customers. We're shipping everything to customers from here, so we know where it's all going. We'll know what's due to us, what's due to them. So we're able to really, really well manage the scorecard of what they're contributing to this model and how that compensation occurred. And it's largely based on incremental growth. If -- like I said before, if there's a material shift in growth from this, which I don't expect, then there may be a noticeable decrease in real margin overall. But again, we're -- at the level where we're at, it's a tradeoff I'd love to have, to be honest, for that kind of growth.

Do you think incremental margins in the future will be at 48% or higher -- kind of your current level or higher, if you had incremental growth above this current level of organic?

Probably in that range. I'd say it's not far off the mark. It's hard to know. We're adding a lot of new things here too and looking at new areas, and as I stated repeatedly, staying north of the 50% operating margins and trying to grow back at levels we need to grow is virtually impossible.

Yes. And then the other question was the cash per share, I think you said $3.49. On that long-term asset on the balance sheet, is that cash or is that ChemoCentryx? And then what's going to happen with ChemoCentryx?

ChemoCentryx is in a short-term available-for-sale investment number. The remainder of the available-for-sale are all mostly municipal bonds that are liquid, but just had a longer dating [ph].

And in terms of the future of ChemoCentryx is we're a closer partner than we have been in the previous few years. We've been with them a long time, as you know. They've had some bumps in the road. They had some positive bumps recently, and things are bouncing back. We're very bullish on ChemoCentryx with their pipeline of 8 different molecules, any one of those hits, and this is going to be a great story for them and for us with our position. After being involved for over 15 years together, I mean the pains are mostly behind us. I don't see any reason to not just be supportive and ride this and see where it goes. We're very supportive. I think we're very -- I think we see success. I don't think it's this year or next year. It could be 2 to 3 years, but I -- we believe in what they're doing and it's cool stuff, I think. We don't need the cash for anything desperate enough for this anyways, so it's a good story, I think.

There are no further questions in queue. [Operator Instructions]

We'll give it a minute here. We have 5 more minutes, but if not, we'll start winding up here. Again, summing, it's a reasonable quarter for us, we feel. We're moving a lot of parts here, changing a lot of things that were well under plan in our expenses. Our margins are really exactly we expect them to be. They'd be a little better here if we had the extra little bit of volume we thought we might get, but we're in the range of what I thought and we told all of you. It's not a short-term gain here, and we're looking to the long term. We're investing for long term, and that's the way we intend to be and to be more strategic. And anyway, thank you for calling in, listening and asking your questions. And this is #2. I promise to be back for a #3 in another quarter. Thank you.