Neogen Corporation (NEOG) Q1 2013 Earnings Report, Transcript and Summary

Welcome to Neogen's First Quarter Fiscal Year 2013 Earnings Results Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] Please note, today's conference is being recorded. I will now turn the call over to Neogen's Chief Executive Officer, Jim Herbert. Sir, you may begin.

Thanks, Christine, and good morning and welcome to our regular quarterly conference call for investors and analysts. As we stated today, we will be reporting to you on the results of our first quarter, which ended on August 31. To start with, I'd remind you that 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. The actual results may differ from those that we discussed today. These 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. And our new Form 10-K for the 2012 fiscal year was filed with the SEC at the end of July and is now available. In addition, to those of you who are joining us today by live telephone conference, I'll also welcome those who may be joined by way of simulcast on the world wide web. These comments, along with some exhibits, will be available on the web for about 90 days. And following our prepared comments this morning, we'll entertain questions from participants who are joined on this live call. And I'm joined today by Lon Bohannon, Neogen's President; and Steve Quinlan, our Chief Financial Officer. Earlier today, Neogen issued a press release announcing the results of our first quarter of the 2013 fiscal year. And once again, we were able to report record numbers. Revenues for the company's first quarter were approximately $49.7 million or about 9% ahead of the first quarter last year. Though regarded as good growth, currency translation compared to prior year actually reduced that number by almost $1.2 million. Had it been absent, that negative impact to the currency translation, our revenues would have been approximately 12% ahead of the prior year. As many of you know, in addition to the U.S. dollar, Neogen does business in pound sterling, in euro and the Mexican peso and the Brazilian real. And since about 42% of our total revenues come from outside the U.S., these translations have been difficult to predict in recent quarters and can be large. Shifting then to net income. For the first quarter, the net income for the company increased almost 12% compared to the prior year of approximately $6.7 million or $0.28 per share, and this compares to net income last year of about $6 million or $0.25 per share. We continue to be proud of the consistent growth that the company has enjoyed to this quarter. I'd like to always keep that count going. This quarter has marked 82nd quarter in the past 87 that Neogen reported revenue increases as compared to the previous year. That's a span now of almost 22 years. And by the way, the last time we missed the quarter was 30 quarters ago or a little over 7 years. So I think we should be able to step up the rate of revenue growth a bit as we move for -- throughout the rest of this year. I am pleased with the basic fundamentals that were now -- that are all now coming in line. Many of you know that a significant part of our operating strategy has been to hold operating profits at about 20% of revenue. We're cautious if they start to dip below that mark, and we're also cautious if they rise much above that mark. As a barometer, we feel that when the number gets much above 20%, it's an indication that we should be investing more for the company's future growth. In the quarter that we just finished, the number came in at just under 21%. You'll note a small change. If you've seen the copies of the operating statement, you have noticed a small change in the way net income is disclosed in the operating statements having to do with the dealing with minority shareholders. It seems that as regulators strive more to protect shareholders, the report seems to get more complicated. Steve can answer any questions that you might have later on the call on that. We'll continue to build our infrastructure going forward to keep pace with our great growth opportunities. During the last fiscal year, you might remember that we hired about 100 new people to allow us to better take advantage of these future growth opportunities. And increasing the management team, along with that total employee count is clearly helping with growth and we believe that it will enable us to step up the rate of that growth. Our Food Safety group led growth this quarter with approximately a 12.5% increase in sales as compared to a year earlier. A part of this is due to new diagnostic products that are coming through the pipeline. An example is our new line of diagnostic tests that are used to detect natural toxins in grain. This is an area where Neogen has been a leader now for over 2 decades. These new products though hit the market just as grain producers and processors worldwide were faced with the new testing needs as a result of challenging growth seasons that we've just encountered. We had cold, wet early summer in Europe. It created one set of problems with wheat and small grains whereas the drought across major portions of the U.S. has created another problem in U.S. corn. We'll talk more about both grain conditions, the drought and the overall impact on our food system later this morning. While our international sales have continued to grow, our Neogen Europe operations continue to turn in impressive numbers when considering the financial problems in a number of the countries that they serve such as Greece and Spain and Italy. Their revenues for the first quarter were up 18% as compared to the first quarter of last year. Even more impressive, profits from operations for our Neogen Europe group showed an increase of 34% as compared to a year earlier. Sometimes, I think, we probably don't talk enough about the important technology base that underpins our products. In addition to the ever-expanding base of biotechnology upon which our business was originally built, we've expanded in newer technologies. Adding to the developments coming through our own research group, we have, through the years, taken advantage of licensing opportunities of technologies used in the human health market and used those to apply to our markets. We pay royalties now to over 1 dozen universities, government agencies and private companies to access technology that helps keep us in front of competition. At the same time, we collect royalties from several companies because their products would otherwise infringe our patents. I'm bringing this up because in this particular quarter, we had significant legal expenses compared to the same quarter last year for litigation where we believe that a firm is infringing our patents and is misusing trade secrets. So with something less than a great stop, let me stop at this point and turn it over to Lon Bohannon to give you more color related to the first quarter's operation and the impact of some of our new products that are coming from the R&D group. Lon?

Thank you, Jim, and welcome to everyone listening on the conference call, as well as those joining us on the Internet. Jim has already reported on the overall sales and profit performance for the first quarter of our 2013 fiscal year. I would like to reinforce his comments that our first quarter results were very good, indeed. I was especially gratified to see us exceed our internal budgets for sales, gross margins, operating margins and net income in the first quarter. I think it is also worth repeating that applying the same currency rates that were in effect in the first quarter of last year to our revenues for the first quarter of this year would have resulted in Neogen reporting sales at just under $51 million and double-digit organic growth. In the next few minutes, I will cover noteworthy highlights for the first quarter and we'll begin by discussing the exceptional performance achieved within our Food Safety division. The Food Safety segment of our business delivered an outstanding first quarter with revenues up 12.5%, virtually all of which was organic growth. The sales growth was broad based across a number of market segments and product lines. Of the 14 different market segments tracked separately within the Lansing Food Safety division, 12 experienced solid sales growth in the first quarter compared to the prior year led by revenue increases ranging from 14% to 32% in the pet food, milling and grain, and commercial lab markets. International sales were also strong in the first quarter for Food Safety. As Jim discussed earlier, the Neogen Europe operations led this strong international growth, with sales up more than 18% despite the tough economic conditions that persist in the EU. Neogen do Brazil continues to gain traction in penetrating the growing Brazilian market. Sales up 54% in the first quarter led by increases in sales of disinfectants, mycotoxin test kits and tests to detect drug residues in milk. Sales of Food Safety diagnostic test kits going into Canada and countries in the Asia Pacific Rim and Latin America, excluding Brazil and Mexico, which are reported separately, were also up a solid 16% in the quarter. Many product lines also contributed to Food Safety's strong first quarter results. For example, natural toxin product sales increased 21% in the quarter as the company experienced strong sales of test kits, readers and accessories used to detect aflatoxin in the domestic corn harvest and vomitoxin in European wheat. Sales of our industry-leading product line to detect inadvertent allergen contamination, including diagnostic tests for milk, processed soy and gliadin, were up 18% in the quarter. Neogen continues to make improvements to its allergen test kit line up, including the popular 3-D lateral flow format and also released new allergen diagnostic tests to strengthen our position in this rapidly growing market segment. Sales of products used in monitoring general sanitation, including our AccuPoint readers and samplers, increased 13% in the quarter. Revenues from products used to detect specific pathogens like E.coli and Salmonella were up 17% in the quarter, led by sales growth of the company's Reveal lateral flow devices to detect Listeria and our recently introduced ANSR instruments used for detection of Listeria and Salmonella. The launch of our new ANSR pathogen test platform continues to make good progress. We've now placed instruments with end users in the U.S., Canada and Mexico and have sold multiple instruments to distributors in Latin America and in Asia. We had numerous evaluations underway, with prospects interested in the ANSR technology to test for both Salmonella and Listeria. And we're also proceeding with efforts to gain AOAC approval for ANSR Listeria. We already have AOAC approval for Salmonella, and we're pursuing additional third-party approvals in Europe for the unique ANSR pathogen test platform. The Animal Safety segment achieved overall growth of 5% in the first quarter. Our GeneSeek genomics-based testing and bioinformatics business had an outstanding quarter with sales growth up 20% compared to the prior year. In addition to increases in overall testing services at GeneSeek, we continue to make solid progress in integrating the Igenity business acquired from Merial at the end of FY'12. The Igenity business greatly expanded Neogen's capabilities in using information derived from the sample testing to help animal protein producers speed genetic improvement efforts, and better manage economically important positive and negative genetic traits in food animals. The first quarter also saw a return to double-digit organic growth in Animal Safety Hacco division. Hacco produces rodenticides and disinfectants that are an important part of effective biosecurity programs maintained by animal protein producers. Of particular note for Hacco was that its growth was driven by a 30% increase in sales of rodenticides. And since rodenticides carry higher margins than disinfectants, Hacco's gross margins and operating margins also increased significantly in the first quarter. The excellent growth performance at our GeneSeek and Hacco operations was partially offset by lower sales in the first quarter at the company's Lexington division. The decline is primarily due to tough comparisons for the Lexington division as the prior year included some nonrecurring revenue and inventory stocking orders for distributors not repeated this year. For example, sales of private label needles and syringes to an OEM customer used to help promote that customer's vaccine in last year's first quarter did not recur in this year's first quarter. In addition, last year's first quarter included significant sales to distributors as several vitamin-injectable products, which are supplied to us by third-party tool [ph] manufacturers, came off back order. The strong sales growth in the Food Safety diagnostic test kits, combined with better gross margins contributed by the Igenity business and increased rodenticides sales helped drive gross margins to over 53% in the first quarter. Gross margins were also helped by improved efficiencies and productivity within our operations groups as direct labor and overhead expense actually declined in the first quarter, even though total revenues were significantly higher than the prior year. This improvement in gross margin represented an increase of 300 basis points over the prior year and was the primary reason that the operating profit came in at a very strong 20.8% of total revenues for the quarter. I'm sure you noticed that operating expenses were up 19% in Q1, reflecting our commitment to continue to build sales, marketing and research capabilities to take advantage of significant opportunities in our expanding Food and Animal Safety markets. The majority of the increase in sales and marketing expense occurred in the areas of salaries for new staff, related travel expense and also in advertising and distributor marketing support. So while we're still leading sales to some extent, I believe, the strong organic growth in the fourth quarter of FY '12 and, again, in the first quarter of our current fiscal year, provides evidence that we are gaining traction and that our increases in staffing are starting to pay dividends in organic sales growth. Although research expense was up over the prior year, total R&D cost remained relatively low at less than 4% of total revenues. As indicated in the conference call on our FY '12 of year-end results, we continue to benefit from what is coming out of our R&D pipeline in the form of new products. Earlier in my comments, I mentioned first quarter increases in sales of test kits for the detection of specific pathogens, food-borne allergens and natural toxins. New products released in the last 3 to 6 months contributed to the sales growth in each of these product lines, and as many as 12 to 15 additional new products are scheduled for launch as we move through the rest of our 2013 fiscal year. I was very pleased with our top line and bottom line performance in the first quarter, and I remain encouraged regarding our prospects to achieve double-digit organic growth this fiscal year. In addition, management expects to see the completion of our stated 5-year goal to achieve $200 million in annual sales in our 2013 fiscal year, and we intend to build on that important milestone to achieve success for greater growth in sales and profitability in the years to come. At this point, I'll turn the call back to Jim for his closing remarks.

Well, thanks, Lon. Though, I guess I might be likely branded as an eternal optimist, I always get a bit more of an optimistic buzz each time I hear Lon talk about where we're going in the future. Let me take the next few minutes and give you some feel of what we think we're seeing in the markets and what we may be giving you an idea of how they may impact our business over the next 3 quarters. First of all, let's look at weather conditions. I mentioned and Lon in his comments then, that parts of the European grain areas were hit by cold, wet weather in the late spring to early summer. This brought on an increase in the instance of one of the natural toxins deoxynivalenol, or DON. This problem helped to bolster a part of the Neogen Europe revenues that I talked about earlier. This was evident when I was over there in June. It was -- we could already begin to see some incidents of these toxins forming in the field. And though that crop will continue to be tested in the U.K. and Germany and France, as it find its way through the marketplace, it's out of the field now. So the harvest is completed. And probably the big surge in test kit sales will slow down. A bigger weather-related surge is now underway as a result of the drought-stricken areas across the U.S. and the impact on the nation's corn crop. This has been particularly critical since the major grain states across the central Midwest were the hardest hit by the high temperatures and inadequate rainfall. This kind of weather gives rise to another of the mycotoxins that come from molds that grow on corn kernels during a hot wet -- hot, dry seasons and puts them under stress -- this toxin is known as aflatoxin. Aflatoxin is the most potent of the naturally occurring carcinogens and has maximum tolerable levels now in over 100 countries. Though testing in the U.S. is not mandatory, selling in the U.S. any grain with over 20 parts per billion is a violation of the U.S. Food and Drug regulations. Neogen began to see the impact of this problem as our sales of tests of aflatoxin begin to increase strongly at the end of the first quarter and now continuing into the second quarter, which we're in today. Good news, I think, has developed over the past month that indicates the damage is not as bad as we had earlier feared as far as overall damage to the crop. In most places, damage seems to be spotty. There's plenty of damage, but it's spotty, and not across in the entire state. However, this means that more testing will likely have to be done in order to segment the crop, the good grain from the bad grain. As of last week, 26% of the nation's corn crop has already been harvested, which is considerably earlier than the 5-year average when we only used to have about 9% of that crop out of the field. We'll have a little bit better idea what the corn crop situation looks like on Thursday when USDA issues its next grain stocks report. Our folks are continually on the line with customers scattered all across the U.S., both producers as well as processors. They told me -- the group out of our milling and grain division told me yesterday morning that they had worked straight through the weekend working with grain elevators and with companies from areas like the pet food industry, they're trying to find places to be able to buy clean corn already at this point. I think it's kind of interesting to look at corn in light of the food security issues that we talked about. Though this year's corn crop of approximately 10.7 billion bushels has pushed the cash price up to over $8, it's still a very big crop. 20 years ago, the U.S. produced about 5 billion bushels compared to the 10.7 billion bushels that we had produced this year. This is just one indication, I think, of the pressures that were going to be -- there's going to be placed on food security. As our population grows and the corn requirement for human consumption for ethanol, fuel production, as well as for animal feeding, will likely continue to grow at the kind of pace that we've seen over the last 20 years. So corn prices will continue to be higher than in recent years. As I said earlier, many believe that the crop is a little bit better than we expected and therefore, we expect to see -- some expect to see some prices -- some price drop, which would make it more compelling to increase production of animal proteins. There is an indication now -- we look at what may be impacting our business, there is an indication that there's some liquidation in hog numbers occurring especially across the Midwest. While pork supplies go down and feed costs go up, we should see some decent equilibrium beginning to aid profitability in pork production. The reduction in hog numbers may have some impact on a few of Neogen's Food Safety or Animal Safety products, but certainly not going to be disastrous. There's also some movement in dairy cattle numbers. But due to the intensity of milk production, we do not expect to see those economics to have much impact at all on our second quarter. The beef cattle business is problematic. We have the smallest beef cattle herd we've had since the 1950s. This fall and next spring's calf crops will likewise be smaller. Our Animal Safety group could feel the impact of this, even though the cow calf business will be financially rewarding to cattlemen. Let me shift away a little bit. We've talked a good bit about the grain and the drought and the weather. Let me shift away and talk here in conclusion about some other things that are happening. A new report which just came out from the Centers for Disease Control at the FDA last month shows that the instances of food-borne illnesses last year are about the same or have increased as compared to earlier years. The Salmonella, E. coli and Campylobacter all showed increases. A report from another group that came out last week shows that the number of food recalls in the U.S. increased 19% in just the second quarter of the year as compared to the first quarter of the year. Undeclared allergens were, again, the primary cause of the second quarter recalls and accounted, I think, for about 40% of the total recalls. There were 156 companies that had recalls during the second quarter, with 12 of those companies having more than 1 recall. Over 1/3 of those recalls were on a nationwide basis as compared to a more confined single or multi-state level. And now meanwhile, more groups are calling on the Obama administration to move ahead on regulations to implement the FDA Food Safety Modernization Act that was signed into law in January of 2011. However, here we are 18 months later, much of that law has not been implemented and the deadlines that were set by the Congress for publishing final rules have long since passed. The law puts into place regulations concerning pathogen control in fruits and vegetables, preventative controls for most human foods and animal feeds, and perhaps, most important, regulations to govern the safety of food that's imported into the U.S. So I guess, drawing all this together, the next several months promise to be most interesting for a company dedicated to food safety and food security. As we produce more food faster in order to keep up with the world demand, the problems of Food Safety get more complex. By design, Neogen is a leader in the continued development in marketing of products to help with those concerns. Our balance sheet, if you noticed the press release this morning, continues to strengthen with adequate cash reserves, and roughly a 5% increase in shareholder equity already at the end of the first quarter as compared to May 31. But we continue to look at several interesting acquisitions that could be synergistic to our business. Even though I don't have any announcements for you today, it is possible that we could get something done in the current quarter. However, they're just no big deals seemingly to be done right now. Having said that, smaller acquisitions have proven successful for Neogen as we've made now, I think 21 acquisitions in the last 12 years, all of which were accretive at both the top line and the bottom line and are all still revenue and profit producers for the company. This -- in conclusion of our prepared comments this morning, let me remind you that the Annual Meeting of Shareholders will be held here in Lansing, Michigan on October 4. If you have proxies that you have not yet voted, we'd appreciate you doing so just as soon as possible. And along with 750 other Neogen employees, let me once, again, say thank you for your support as we strive to make this an even bigger and better world-class company. Now this concludes, operator, our prepared comments this morning. And we'll now open the call for any questions from participants.

[Operator Instructions] First question comes from Matt Hewitt from Craig-Hallum Capital Group.

First, very, very strong gross margin here right out of the gates here in FY'13. And I'm curious how sustainable you feel that, that 63% is as we look out later into the year.

Well, it was very strong gross margins, and it wasn't just specific to the Food Safety side. The Animal Safety side gross margins were strong in the quarter. Well, we've been talking for several quarters -- I didn't this specific one, but I bring out periodically the kinds of things we continue to do. I give our operations groups a lot of credit for continuously looking at ways to improve productivity and efficiencies. I, frankly, was a little bit surprised that we could generate all of that increase in sales in the first quarter with less direct labor and overhead than we had last year. And the mix certainly had something to do with that to the extent that we continue to develop these new diagnostic products and have a higher percentage of our sales come from that. That's going to drive that gross margin rate up. It's going to -- Matt, it's going to fluctuate from quarter-to-quarter. This one was above our internal budgets. But we're pretty confident that we can maintain gross margins above 50%, and we'll continue to see the benefits of those improvements that we're making in our operations so that over time it will drift up. It was a particularly good quarter, and it was -- we just have a favorable mix of products across all of our operating units.

Okay, that's helpful. As I look at Q2 though, you're going to have some of the similar impacts or positive impacts as far as aflatoxin and maybe a little bit more DON in Europe. But -- and those are very high margin, some of the diagnostic mix shift that you benefited from -- in Q1, you should still have in Q2. Is there any reason that it would dip below 53% in Q2?

Well, let me intervene here real quick. I'm better at making excuses this morning than Lon is. I think we're going to look at the second quarter. And our product mix is, I think you know, Matt, our product mix varies from quarter-to-quarter based on seasonality. We move into the second quarter. We'll be increasing our revenues in this September, October, November. We see people start to stock up on rodenticides. We're going to have a lot of cleaning and disinfecting activities that are going to be going on. We love those businesses, but they don't have quite the same kind of gross margins as we enjoy out of our bioinformatics that are a part of our DC [ph] programs. So it's -- we'll continue to see some variation. But what we see here, I think, is going to help as far as mycotoxin testing in the U.S. is concerned, but we're also going to see some other things that are seasonal begin to come into play. That make it very difficult to say if we're going to do the same thing next year and next quarter that we've done this quarter.

Okay. Along those lines, the rodenticides you mentioned is having better gross margins then the disinfectants. But correct me if I'm wrong, you think, aren't some of the grains used in the rodenticides. So how are you helping offset or how are you offsetting the higher cost of those -- the inputs in the rodenticides?

You're exactly right. And that's one of the things that's going to impact gross margins going forward. We're a significant buyer of wheat, of corn and oats that are going into the rodenticides. Just general, it's just really animal feed with the technical added to it that kills rodents. So we have done a pretty good job of booking our wheat in advance. We did not anticipate this kind of reaction out of the corn crop. We're buying corn on a hand-to-mouth basis now, so we, like the cattle feeders, are paying over -- around $8 a bushel for it. We think that, that price is, I mentioned in my comments, will come down. But it's going to impact our normal margins as far as rodenticides are concerned to the extent that we'll see some more fluctuations in the grain market. So you were exactly right to pick that up.

Okay, one last one for me, and I'll jump back in queue. You mentioned there was some incremental legal expenses in the quarter. I'm wondering if you could provide a little more color, maybe along the lines. What that's related to you and how much there was that impacted this quarter, whether or not that will occur in the next couple of quarters.

Yes, I really probably don't want to add any more color to it. We are confident that we are in a winning position as it relates to this. By the same token, you know legal activities, are sometimes unpredictable. We think we're very predictable in this situation. The numbers in excess, this quarter, compared to last quarter, were 6 digits. And we're not through with it. We'll probably see and we can see this litigation depending upon the appetite of our adversaries. We could see this litigation continue on for probably close to next year. We're never seemingly without some legal expenses as it relates to intellectual properties. We're just in that kind of business whether it's concerned about somebody in France, it's counterfeiting our detectable needles, or whether it's somebody that's using the trademark illegally or something else. So we're just in that kind of business. But given the current situation with the litigation, I probably don't want to go much further with the discussion on it. I'll then just call it to your attention.

The next question comes from Tony Brenner from Roth Capital Partners.

Could you give a sense of the size in terms of revenue generation of that natural toxin business on an annual basis?

You're looking for total revenues for that group of products that deal with natural toxins, is that right?

Correct.

I anticipate that business is probably exceeds or close to $20 million annually for us. When you factor in all the sales that we have in Europe and South America and Latin America, it's a sizable segment for us.

With the very first diagnostic test that we developed, Tony, 8 years ago now was for the detection of aflatoxin in grains. So I guess, we're probably the first one out with the biotechnology-based product and continue to do quite well and to be a leader in that area, Tony.

Okay. And along the same lines, the international business, I think, you said was 42% of the total. What does Europe -- Neogen Europe represent now say as a proportion of your international business with Brazil and China and Mexico coming on so strongly?

There are about -- I think, Neogen Europe would be in that 9% to 10% range of our total revenues. They're up to that. They've been growing as we've reported for quite some time now. They've been strong double-digit organic growth for a number of years and a couple of slow quarters at the beginning of last fiscal year. But even amidst of the difficulties in Europe, have come back strong in the last 3 quarters to report double-digit growth.

I think over there, Tony, by the fact we've got our own sales organization on the ground in major countries. We have our own the sales group that's headquartered out of Ayr, Scotland and in the U.K., in Germany, in France and in Holland. And then we also serve our distributors and the rest of those EU countries, typically most of them are EU countries, roughly 40 countries involved in total. So they're mostly distribution. Most of the product that they sell is produced in the U.S., goes over there. But we're up to about 100 people right now. So it's helpful to have a little more control over what's happening in those troubled financial markets than if we were just on the outside with the...

So your 9% or 10% is -- in other words, are you saying Europe over all is less than 25% of your international business, or just your own distribution part?

Yes, it's just under 25% of our total international business, but it's about 10% of our total revenues for the company.

A lot of growth opportunity there, Tony.

Okay. And then lastly, it sounds like foreign exchange, in terms of its income impact, was negligible. Is that, looking at the income statement anyway, is that right?

Yes. That's a fair statement. For the first quarter, there was not a lot of movement in the current...

[Operator Instructions] The next question comes from Paul Knight from CLSA. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: Could we go over the international one more time? The South American group is what percent of total Neogen sales now?

I'm not sure we can break out -- maybe they can. I'm not sure we can break out South America per se. We've got our Brazilian operations, which are company-owned, separate from our distributor organizations. We are in every country in South America and in fact every country in Central America also. We're in every country, but we have 2 different sets of distributors, some for the Animal Safety side of our business, some for the Food Safety. And then we have our own operations in São Paulo that cover all of Brazil. We can get -- I'm sure Steve can get to the numbers. But he can -- well, his Ouija Board is fast enough to do that in the next 30 seconds, I'm not sure. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: That's good offline. And then the Asian operations, what was the growth there in the quarter?

Specifically to the Asia Pacific rim? Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: Yes.

Yes, I think our growth there was right around in that -- around 15%, 16%. I know I combined and reported Latin America and Asia Pacific rim on the Food Safety side. But I think, they were both up certainly double-digit growth. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: And the -- there's a working capital demand for cash last year that seemed to -- working capital seemed to lessen up and generate some cash in Q4. Is that right? And then, what's the trend on working capital here this year?

Working capital -- we used a little working capital in the first quarter. Receivables grew by about $2 million. Inventories were basically flat. You saw some GeneSeek's inventory levels dropped by $500,000 or so. And as they had a real strong quarter, our Food Safety group's inventories rose by about $600,000 and they were building product for the aflatoxin outbreak. So overall, we -- cash from operations we generated about $4.4 million. So I think, we're going to see that kind of trend quarter-over-quarter. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: And then last, how fast will the GeneSeek business grow?

Well, it's growing from several aspects. We've started out with that business. It's grown very rapidly. We introduced -- in addition to just the overall genomics testing business, we've introduced more of our own bioinformatics products. That's what the acquisition of Igenity did coming in there. It will be a good strong double-digit producer for us. We are doing business throughout the world. Sometimes, I think, we had some significant testing business out of New Zealand this past quarter, which doesn't occur every quarter. But by the same token, as other areas are coming in, we're doing some things. We represent now on the beef side of things, the top 11 breed associations as we do all the genomic work for those registered animals. We have always had -- for a number of years, had the Angus business, which is #1 of the beef breeds. We also now have the other 4 that are right behind them, which will be Hereford and Charolais and Limousin and Simmental. So that side of our business is growing. This is new business. We just picked up -- this past month, just picked up the Charolais business. Those of you who don't follow cattle breeds, that's the white animals that originated in France. They're probably the third largest breed in the U.S. But we get Charolais business from all over the world too. So it's going to grow. I think, as it begins to get its footing, it probably won't be on a very steady same growth rate every month compared to the prior month. But I think, we'll continue to see it, if you will.

[Operator Instructions] The next question comes from Gregory Halter from Great Lakes Review.

Regarding the ANSR product line, just wondered if you could frame Neogen's opportunity in that particular area on what you guys see going forward.

Yes, let me look at the overall side. There are a number of places, but the size of the overall testing market that's here today, I can't remember what the latest numbers say it is. But it's a huge potential market. The largest of those market segments is for the detection of pathogens. So if you think about the testing market, there's some test for the aflatoxins. Like we talked about, there's a test for food allergens. Like we talked about, there's a whole test of bracket for drug residues as we've discussed from time to time. And 2 or 3 more that fit in there, the biggest of all of those is the testing for the microbiological contamination, and that includes those products that will make you sick, but not likely kill you. And then you get to the pathogenic bacteria, which is typically Salmonella, E. coli, Listeria and oftentimes Campylobacter, the 4 ugliest ones. But those are the biggest testing markets that have the biggest concern worldwide. We have not been the dominant -- we've not been in any way dominant in that market for probably 10 years. At one point in time, we were the first one out with the test for E. coli O15787 that the U.S. Department of Agriculture was used into -- for surveillance for that, particularly in ground beef and hamburger. So our business has been okay there. But we've had plenty of competition. And we were searching for a new platform that will let us have a test that is more sensitive and faster. That's the whole name of the game is easier, faster, cheaper. And this new technology what we've branded is our ANSR technology, we think, provides us that and puts us in a position to be more competitive against probably on a worldwide basis, probably half a dozen people that are somewhat playing in that pathogen market. Having said all that, that's the political side of the speech. But I'll let Lon give the more specifics of what we're seeing out here. Lon?

Well, Jim is right. Of all of our product lines that we talked about and mentioned, we have the smallest market share in that market that's testing for a specific pathogen. So and the part that we were missing was the high-volume, throughput users. The biggest 2 of which are right now testing is for Salmonella and Listeria. And so the ANSR platform gives us access to that market. And we've been pleased with the launch. I think, we've got 20 instruments already in placements. Our end users have another 10 or so in the hands of distributors that are now offering those. We've got well in excess of 50 active prospects that we're working only limited really by the number of people we've got on the sales force to be able to go out and sell it. So we're off to a good start with it. It gives us access to the biggest chunk of the specific pathogen testing market. And I think it really gives us -- has really helped us give us the broadest product line because you remember we do have lateral flows for quick screening in that market for specific pathogens and also have our dehydrated culture media that can be used to grow up those bugs for testing. So we've got a nice full product line out there to gain access to what's the biggest single testing market for specific pathogens. So the ANSR is a big part of our growth opportunity going forward.

Okay. I appreciate that. And back on the foreign exchange and the impact on operating income, did I hear correct that there was not much impact on operating income, even though the top line was $1 million-or-so impacted?

Well, that comparison was to last year. That's basically saying that if sales were made at the same rates as last year's first quarter, our sales would have been $1.2 million higher this quarter. But what we're talking -- what actually ran through the P&L due to currency this first quarter was about $27,000 of loss basically.

And would you happen to have available the operating profit by segment, the Animal Safety and Food Safety?

We -- the operating profit by segment will be released with the 10-Q, which will be released on Friday.

Okay. And finally, for the quarter, just wondering what the capital spending was, as well as depreciation and amortization.

The capital spending was about $1.9 million, and the depreciation and amortization was $1.6 million.

The next question comes from Steve O'Neil from Hilliard Lyons.

Just one quick question. I think, you mentioned that pathogen sales were up in the upper teens, so were -- or sales of sanitation monitoring equipment were also up at double digits. I don't think the whole category was up that much. So I'm just wondering if there were some areas of weakness within there.

Well, the only 2 areas I didn't mention was the drug residues, most of which right now are testing for beta-lactams in milk, and the Soleris instrument technology. It wasn't that they were bad, they just -- I just tried to focus on the ones that were -- generated the significant increases that drove that 12.5% increase. So that Centrus line of products was flat. The biotesting was up, but the placements of instruments were different from last year and stuff. We see that from quarter-to-quarter. And the drug residue testing was up, I don't know, 6%, 7%, but it's just not the kind of thing that drove the overall 12.5%. So you're right, they weren't as strong as the others, but they still did very well.

All right, and that's fine. I just -- so AccuPoint was up, but Soleris was about flat, you said?

Yes.

The final question comes from Peter Coyle [ph], a private investor.

I have a comment and a quick question then. The comment is I want to congratulate you on your record quarter and for being on track with your 5-year goal for $200 million in revenue. And the question is concerning rodenticide. You say it rebounded strongly this quarter. I'm wondering why that may be, and was there a particular area in this country or in some other part of the world that may account for that?

I think it was -- Peter, thank you for the comment on $200 million. As it relates to rodenticides, some of that growth is due to the fact that the first quarter was negatively impacted last year by the risk mitigation decision that EPA had put in place that stopped some of those retailers, and particularly from buying products. Some of that has been resolved. And the other thing was we had a very good effective program in the first quarter to rebound. And frankly, we put more sales and marketing emphasis on that area on the Animal Safety side because it is an important part of the biosecurity programs that we've got. We had some good success with some of the animal protein producers, and we're continuing to work on developing some new formulations here to continue to keep that product line growing as we go forward.

Thank you, Peter. Peter, for those of you that -- Peter has been with us for a while. We announced 5 years ago when we crossed over the $100 million mark that in 5 years, we're going to double the size of the company and be at $200 million, which would be at the end of this fiscal year -- for 2013 fiscal year. And yes, we are on track to be there at year end. So it's kind of good to be able to fulfill your campaign promises.

That was the last question for today. Please go ahead with any final remarks.

Good. Well, thank you for your continued support. Thank you for joining us this morning. Don't forget our Annual Meeting next Thursday, any of you that are in town and can be here. And if you've got a proxy you haven't voted, well, we'd appreciate you vote. It's been a good morning. Thank you, again, for the support, and we'll look forward to talking with you as a group at the end of the current quarter. And we're off.

Thank you for participating in Neogen's First Quarter Fiscal Year 2013 Earnings Results Conference Call. This concludes the conference for today. You may all disconnect at this time.