Good morning, and welcome to the Neogen First Quarter Fiscal 2017 Earnings Results. My name is Brandon, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. And I'll now turn it over to Mr. Jim Herbert. You may begin, sir.

Good morning, and welcome to our regular quarterly conference call for investors and analysts. Today we'll be reporting to you the results of our first quarter of our 2017 fiscal year, which ended on August, 31. 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 risk and uncertainties. The actual results may differ from those that we discuss today, but again call your attention to the fact that 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 via live telephone conference, I would also welcome those who may be joined by way of simulcast on the World Wide Web. Following the comments this morning, we will entertain from here questions from participants who are joined in this live conference. And I'm joined today by Rick Calk, Neogen's Chief Operating Officer; and Steve Quinlan, Neogen's Chief Financial Officer. Today, Neogen issued -- earlier today, Neogen issued a press release announcing the results of our first quarter that ended on August 31. Revenues in that first quarter were $83.6 million, a 12% increase as compared to revenues of $74.9 million in the first quarter of last year. First quarter net income increased by 6% to $9.9 million or net it was $0.26 a share. This compares with the previous year's first quarter of $9.3 million or $0.25 a share. As you would expect, both the revenues and the net income represent first quarter records for our 34-year-old company. The quarter also adds to a long string of consecutive growth quarters. This is the 98th quarter…

Well, thank you Jim, and welcome to everyone listening. Jim has already reported on the overall sales and profit performance for the first quarter of our 2017 fiscal year, and I'll try to provide some more detail on the performance of our Food Safety segment as well as offer some perspective. As stated in the press release, revenues for our Food Safety segment increased 13% during the first quarter compared to the prior year's first three months, aided in part by the acquisitions of Lab M and Deoxi in the past year. Organic growth for the Food Safety segment was 9% for the quarter. Sales of Neogen's rapid test for food allergens such as gluten and peanuts increased 17% in the quarter compared to the prior year. Neogen developed the first rapid test for food allergens in 1988, and we have remained the leading provider of food allergen test kits ever since. With increasing industry and regulatory efforts to reduce food allergen contamination, our food allergen product line, which now detects 15 allergenic foods, should remain one of our Food Safety growth drivers going forward. In the quarter, sales of General Sanitation products, which includes our AccuPoint Advanced ATP sanitation monitoring system, increased 9% compared to the prior year. And like many of our food safety diagnostic products or test kits, AccuPoint is a key product to help food manufacturers comply with new regulations that require companies to test their equipment and facilities for contamination to reduce the risk of any food contamination. With AccuPoint, you can almost instantly know if a surface is clean or if it requires further attention. Last week, we announced that the AccuPoint Advanced system is the only product to receive approval from AOAC Research Institute. The AOAC is an influential independent organization that verifies…

Thanks, Rick. Steve Quinlan talks some about the highlights of the Animal Safety Division for quarter and go back and fill in the blanks on the financial results that I opened up including my favorite subject of currency issues if you would.

All right, thanks Jim. As Jim indicated, we got off to a solid start for fiscal '17 with the 12% increases in revenues in that first quarter. And we were able to achieve these results despite the withdrawal of the ThyroKare product and the ongoing impact of currency primarily affecting our Neogen Europe operations' quarter as the pound devalued against the dollar following the Brexit vote in June. As Jim indicated, the pound was down 10% immediately following the vote, and hasn't yet recovered. Additionally, although the peso stabilized against the dollar late in last fiscal year, for the comparative quarters it was down an average of 14%. And the negative impact of the stronger dollar on our comparative revenues, primarily from those two currencies for the quarter was $1.9 million, and the cost at the bottom line was approximately $0.02 a share. Now, Rick has already discussed some of the key highlights of our growth in the Food Safety business, so I'm going to focus on the Animal Safety Segment. Animal Safety recorded an overall revenue increase of 10% for the quarter, and that was aided by the Preserve and Virbac acquisitions in the latter half of our prior fiscal year. Organic growth was actually negative 1% primarily due to our market withdrawal of ThyroKare, that thyroid replacement supplement for dogs. But during the first quarter we removed ThyroKare from our distribution channels, and issued credits for return product totaling $1.1 million to our customers. In last year's first quarter, our sales of this product were $1.8 million. Now, this resulted in a $2.9 million negative impact on revenues for the quarter. So if you exclude the impact of ThyroKare, Animal Safety would have recorded organic growth of 6% for the quarter. And as Jim mentioned, even though this…

Well, thanks Steve, and let me talk a little bit more about what's happening on the international front. We talked about currency swings, but there is a lot of positive things going on out there. In the past number of quarters, our international business had been growing, but hadn't been keeping up with the rate of our domestic business, but in the quarter we just finished we made some gains in this first quarter. Our international sales were up almost 19% over the prior year as compared to total revenues being up 12%. That pushed our international sales up to about 35% of total revenue for the quarter, and this was of course this bite those adverse currency translations that we continued to mention, but even despite that our Scotland-based Neogen Europe operations showed revenue increases of 24%, our Mexico-based Neogen LatinoAmerica sales increased by 28%, our Neogen do Brazil revenues grew by 43%, and China sales were up 21%, even though of a little bit smaller pace. The drivers that impact Neogen's growth are all continuing to be strong as both Rick and Steve have talked about, the Food Modernization Act that Rick mentioned, fortunately the compliance as a number of industries now scurrying in order to get into compliance. Fortunately for the industries and for the agencies, staff and for consumers various facets that surround this Food Modernization Act don't all come do it one time and that way gives the food industry some time to continue their compliance activities. We think that we will continue to see increases in our diagnostic business as a result of this. At the same time we are seeing regulatory pressure increase, we're also seeing some similar pressure coming from what I would call consumerism activities. Some consumers even though perhaps small…

Thanks, Jim. We will now begin the question-and-answer session. [Operator Instructions] And from William Blair, we have Brian Weinstein on line. Please go ahead.

Hey, thanks for taking the question. First, kind of a revenue side, on ThyroKare, you talked about $1.8 million in the quarter and then you had the $1.1 million, Steve, I think you mentioned for credits. So as we just try and think about that business going forward, is about -- is removing about 1.8 million a quarter the right way to think about it? And are there going to be any of these additional credits going forward? A – Steve Quinlan: Brian, there won't be any additional credits. We took all the product out of the market. Sales for that product last year were about 6.6 million. So, now I would just kind of annualize that for the remaining three quarters. Q – Brian Weinstein: Okay, and then on gross margin, it was up sequentially, still down year-over-year, but you've talked a lot about you trying to get these acquisitions up to the corporate average. Can you talk about how far below the corporate average they are and what the process is to kind of get them up to corporate average? How long does it take and what are the specific steps that you guys are taking on that?

Well, thank you, Brain. That gets us from a couple of aspects, and first to talk about the gross margin side, we just brought the Preserve operations onboard, and that's a sizable piece in Cleaners and Disinfectants. We got operations in Turlock, California and Memphis, where neither of those two markets that we operated before. We had some changes as we increased -- moved around where the products came from, we ended up with some extra shipping costs coming out of California that in the future will probably get shipped out of Memphis. We had changes in personnel. We ended up with some people, I guess, it's safe to say we're not compliant with international citizenship in one of the locations. So we had -- came on with the part of the baggage with the business that took us a little while to get some of that reorganized. So, as Steve said, it's exciting, and that piece of the business is exciting. At the same time, the Deoxi operations in Brazil are small, but we're getting that one churn to get a lot of stuff done. Some of our business, not an acquisition, but some of our business in Neogen Europe related to the genomics, we're beginning to hit our stride out there with some expenses that are now being well covered by increase in revenues. So it's a number of places. I think probably the most telling is what happened at the G&A expenses. And you know I mentioned months before that the new – I’d say not new, but the current FASB rules require that you expense acquisition expenses the quarter in which you spend them, we used to be able to put those in as a part of purchase price and amortize them over some period of…

From ROTH Capital Partners we have Tony Brenner. Please go ahead.

Thank you, and good morning. I have two questions. First, Jim, you've indicated previously I think that 40% of your European business is denominated in pounds. And given that devaluation I'm wondering what the effect has been on your European volume, your customer demand, and your pricing strategy as a result?

Gosh, that's a mouthful, Tony. Let me see if I can go back. The growth I think is real. We've had good growth. Sometimes I have to get out the Ouija board to figure out what's happening. Neogen Europe sales product in Euro is a product in -- actually it still sells some product in dollars and they sell a lot of product in pound sterling. They bring all of that into Neogen Europe, and then restate it at pound sterling is which is how they report it. The pound sterling numbers come over here, and we then translate those back to U.S. dollars, but…

So it's perfectly clean.

Yes, that's right. Sometimes I wonder which shell the pea is under when we start moving things around, but they struggled a bit last year because of -- and we were strongly competing with some international competitors over there. This quarter started off really strong, and really good and I'm awfully pleased with it. We did some more consolidating over there with our Lab M business, that’s the dehydrated culture media business that we bought some eight weeks [ph] or so ago. We did some more consolidation with that this quarter. They report through the Neogen Europe operations headquartered in Scotland. So I'm feeling good about where we are with the Neogen Europe Operations. And Brexit is I think everybody has decided whatever is going to happen is not going to happen tomorrow anyway. And that's two to three years in the process. So we're looking at an acquisition or two over there. And Dr. Lily [ph] came the morning after said, "Do we want to change our thoughts?" And I said, "No, we still got strong movements over there, and this too shall pass." So I don't know whether I answered your question or not but we're pretty comfortable with what's happening here.

Second question is would you discuss the economics of your involvement with Contrapest?

I really can't discuss much. I can say to you that our people out -- and in fact I was on the phone with our people yesterday. Our people continue to -- they were there last week. We continue to have ongoing dialogues as it relates to the manufacturing of the business and where they are. And the reason I can't say much is that this is a NASDAQ company with whom we have a license as one on the Street filing for an initial public offering. So it would be inappropriate. And I'm so cautioned by our attorneys that I shouldn't be saying anything one way or another other than our relationship continues there. And I don't know when they might expect that to go final, but anyway there's an SEC offering document under consideration and on the Street. You know better about the status of S1s than I would, Tony. But that's probably all I should say.

Okay, thank you.

From Janney Montgomery Scott we have Paul Knight. Please go ahead.

Hi, Jim. On the veterinary equipment and supply line that was a little soft. Could you talk to that? And then also I know your cattle prices are down 30% year-over-year on feeder prices along with corn prices down. Is that agricultural market affecting your product demand?

Yes, it's affecting some. And, you know, as some of you know I can speak first-hand on the cattle side. I was talking to one of my ranching friends the night before last, and he was lamenting the fact that he sold feeder calves this week for $1.21 -- last week for a $1.21 a pound and got $2.20 for them last year. And I reminded him that I'd advised him last year to take a picture of that check and put it on the wall because he'll never see another one like it. I think we're seeing that. The opposite side of it is it's all kind of funny out there right now. We look back in 2013, corn was $8.50 a bushel and now it's $3.5 a bushel. So, you know what a big change there. We saw cattle -- feeder calves and the whole beef increase go up. And now that's come back down toward reality. It's probably impacting anybody that's buying -- well, it is impacting anybody that's got capital assets to sell. John Deere is not real happy. We're probably selling a few less syringes in cattle obstetrical equipment than we would and making the old stuff work a little longer. I don't think it's going to have any material impact on what we're doing on the vet instrument side. We got enough new stuff coming on the vet instrument side. I think we were down a little steep for the quarter, but we supply a lot of OEM stuff for big pharmaceutical companies that are out with a new vaccine or out with a new pour-on product, and then needed advise to be able to administer it. Sometimes they buy those devices from us and give it to the end ranch or user as a premium to sell our product. And I think we probably had a little bit of that a year ago, we didn't have it now, but I'm really excited about some of the things we've got coming on vet instruments. They're working on some new electronic instrumentation now. All this get's to be tied more and more together with RFID tags in animals ears, and scales you can run them up the headgate and it tells you how much they weigh. And you can record all this to permanent records. I think we're seeing a new era of that happening. And we just got to get used to $3.50 corn and $1.20 feeder calves, yes. And we'll still make it. I can remember feeder calves when they were $0.50, so that's maybe long ago, most people won't remember, but we can still make it out there.

And then lastly, I know international expansion is a priority for your company now, Jim. How was demand in the quarter, specifically China, South America? And then any traction on getting more footholds in those markets from your [ph] acquisitions? And again, does it continue to be a top priority for you?

Yes, it does continue to be top. And our expansion in Brazil, we're continuing to look at Brazil, and that's the only thing I can announce today, but we've got our own people on the ground down there, and we are calling on major food processors and producers directly. We're working through a group of distributors for our Animal Safety cleaners and disinfectants. We're manufacturing actually cleaners and disinfectants in the country now to ship in water all across the world and paying high tariff costs to come in. That's beginning to work for us. There's obviously the real to the dollar compared to where it was a year-and-a-half ago is not favorable, but if you're buying the real to the dollar, maybe say there's some bargain opportunities there. Maybe not bargain, it's probably the wrong word, but more justly priced. I think we're looking at some opportunities there again. Nothing new we can report, but Brazil is important to us. China is important to us. We continue to build that business. I was with a major U.S. company that's a major producer in China a week ago. And we talked about what's happening in the China market. They've got to have more animal protein to satisfy that demand of that population. It's happening. We sometimes are a little impatient about how. But we're clearly in the right place there in China, and with Brazil as a supplier. India is there, and not a lot I can say about India. I said at the end of last fiscal year, if we could break even in India in the first year I'd consider it to be an accomplishment. That's kind of by the way we are now, but some great opportunities there beginning to occur in India now. So Mexico is strong, and getting stronger. Mexico, our Mexican operations have not taken on a direct responsibility for a lot our food industry distribution in Central America. So we've got our own boots on the ground that are working there in addition to some distributors that we had. So I feel good about what we're doing there. Nobody knows -- Brazil, we had some [technical difficulty] on the political front but Brazil is still solid as a producer. And I think that too will pass, we'll get that behind us. It certainly doesn't look like Venezuela. But Venezuela has got some marks. We got hurt a little bit in Venezuela because you can't –- there's demand down there but you can't get your money back out. So Venezuela, I think is where we're -- as year wears along, it will look a little better.

Thank you.

From Great Lakes Review we have David Stratton online. Please go ahead.

Thanks for taking the question. Can you talk a little bit about the timeline of the thyroid dog supplement as you say you're trying to get it registered or reregistered? A – Jim Herbert: Yes, and anytime you deal with the FDA you can tell you what we're going to do, I can't tell you what they're going to do. They have to be concerned. It's a pretty good -- I think they do. They have to be concerned that it's a pretty good size -- a big market that was served by half-a-dozen customer or half-a-dozen suppliers at one time, and now down to one supplier in that marketplace. And from time to time that supplier, well it's kind of anybody, can hit an FDA problem in which they have to shut down manufacturing. If that's going to happen you've got millions of dogs in this country that are going to be needing a product on a daily basis. So I can't see FDA trying to keep that –- I'm sure they're not going to try to keep it as a monopoly. But I think they would be encouraged to have it certainly not a monopoly. We are in dog studies now. It's kind of interesting. We've been selling this product of years. It's been used to treat millions of dogs. We know that it works. We know that it's safe. That's been proven over, and over, and over. But in order to get the registration we've got to go back and put more data down on paper to show that it's safe, and to show that it is efficacious. And it'll probably take us six months to get through that as it's now -- as what we're looking at now. So if it takes us six months, and…

And then the third quarter you talked about the competition from a German competitor due to the currency at that time. I was wondering, is that still a headwind given the changes that have transpired since or if you could talk about that for a second, please. A – Jim Herbert: You know, I've been ridiculed by our own staff so much, I hate you brought that up again. They said, Herbert, you really misled the market. You had the Germans whipping us out there. And the answer was, no. No, we had more competition from a German competitor than we'd been accustomed to. And I guess they probably come out one of those weeks in which we had to reduce prices in order to stay competitive somewhere out there. But we've got several good competitors scattered around the world. This happens to be one that's -- they've got some diagnostic tests that they're used to detect food allergens. You know we were first out there, and it's kind of nice to be first. So they compete with us. The market is better as a result of competition. But I still think that by and large we're taking market share. I haven't seen anything this quarter that would indicate that we're losing market share. Our market share is either stable to gaining where we are today. And the break on the devaluation for the European Union really wasn't the Euro; it was the pound sterling was where the break was. So we're still -- we're in kind of the same monetary situation we were with the Euro even after the Brexit break.

All right. Well, sorry for opening it up. A – Jim Herbert: Oh no, no. No, that was okay. I deserved it, yes.

All right, thank you. A – Jim Herbert: Yes.

From Craig-Hallum we have Charles Haff online. Please go ahead.

Hi, thanks for taking my questions. I appreciate all the detail on the call. Jim, you talked about acquisitions a little bit. You had a couple of targets in the U.K., anything else that you see in the pipeline over the next year or so that you can talk about how robust is your acquisition pipeline right now?

It's pretty robust. I mentioned that we missed a couple that went at pretty exorbitant numbers I thought. They were pieces, they were you know not -- you know, they were double-digit kind of revenues. I don't remember exactly where 16 million, 18 million, 20 million that would have been to pick them up, but we've done well in the past by sticking with what we think we know in acquisitions. Number one, we need to understand the technology. Number two, we need to have the ability to manufacture it. Number three, we have to have access to the marketplace. And they didn't quite, neither one of those quite fit there, though we were bidders. We just didn't -- we weren't successful bidders, neither one of those. I mentioned that there's a lot to cash out there, and I'm sure all of you are seeing it not just in our little area, but in other places where you got equity capital as earnings; two-tenths of 1% if you leave it in a bank somewhere and the people are looking for better opportunities. So they're looking for those places, where we probably have I don't know whether it's a -- you call it a "Disadvantage," but we're playing on a different playing field because we go out and buy a company and we pay a real high premium for it. Then we've got to do something with that goodwill. If I'm an equity capital guy and I've only got to report to the use of my cash, it's not such an issue, but Steve reported this time about the amount of expenses we had that were actually non-cash expenses. And part of that is amortization of what we used to call "Goodwill," and now we restate it and we call it "Customer-based intangibles," and so it's a non-cash expense, but nevertheless it affects our earnings per share. So we're pretty sensitive to not overpaying something though we got cash. It's going to affect our earnings per share and you're going to judge us based on that whether it's cash or non-cash. So I think there'll be some more. There is some consolidation going on. I suspect as we look on the horizon, that's probably one or two competitors. They compare it to say one piece of the market that may decide to not stay in business, or may decide that they want to sell it especially when they see the high multiples of the business are being so forth. So I think we'll have some fun. And fortunately, we're in a position where we pretty much got things integrated. We got little work that we need to scurry around and get finished up, but we're pretty stable with our management force and we got cash in the bank, so…

Okay, great. And then, Steve, you rattled off a couple of numbers there, I just want to make sure that I got them right. On the CapEx, did you say $3.4 million in the quarter?

Yes, I did, Charles.

Okay. And the stock comp was $3 million? Did I hear that right?

Stock comp, wait a second here. It was $1.5 million. The $3 million number I gave you was the combination of stock comp and amortization.

I see. Okay, thank you. And then operating cash flow in the quarter, what was that? A – Steve Quinlan: $20.3 million.

Great, thank you. And then on the genomics tests, Steve, on the DNA business, so moving or opening up the Scotland facility there and you obviously probably are -- you were serving some customers in Lincoln, European customers that is, and now I guess they're being served out of the Scotland facility. Roughly how much would you approximate kind of the delta is from customers that were previously served through the Lincoln facility, but now are serving -- being served through the Scotland facility on the DNA business? A – Steve Quinlan: For the first quarter, Charles, that number was pretty close to $800,000.

Okay, great. Okay, perfect. Thanks for taking my questions. A – Steve Quinlan: You're welcome. Q – Charles Haff: Thank you, Haff.

[Operator Instructions] In from Hilliard Lyons we have Kurt Kemper on line. Please go ahead.

Thanks for taking my questions. Most of them have been answered, but I wanted to go back to vet instruments quickly. I know last year had some tough comps, but a couple of products were mentioned as being weak in the retail market, and then one of your retail partners recently issued weak guidance. So I was just curious for this quarter how much of that weakness was from retail versus, you know, if you're seeing any buying power increased in the vet clinics market? A – Jim Herbert: Yes, that's a good question. He's referring to tractor supply, which -- gosh, we took a lick this morning based on our results, but boy, they really took a lick based on this. And I own a little bit of that stock, and it fell out of the map in one day. I was in tractor supplies though it interestingly this past week and you know, they're still solid, they're strong. I guessed it was a disappointment to some analysts that caused that one to drop. I think they're still a good strong company. I don't think their -- they didn't have any impact on movement of our vet instruments going through retail you know, realizing that our veterinary instrument business, some of it goes through retail like the tractor supply businesses. They are exclusive tractor supplies, exclusive, and without their instruments around the United States, but we've got similar situations in other places in the world. I think our sales of detectable needles maybe down a little bit for the quarter. That's a product that's used particularly in the swine business to make sure -- it's a patented product to make sure that if a needle were to have to be broken in an animal while it was being vaccinated, it would be detected when it went through the metal detectors in the process implant, not end up in somebody's pork loin on Sunday morning, but those -- that has to do with probably the swine numbers being down a little bit that might have impacted that, or quarter door, quarter changes or where the inventories were. I think it's still strong. I don't -- I think going forward, I can get kind of excited about what I see is going to happen. It's spread out in the vet instrument area over the next 12 to 18 months, but I see as this kind of life is normal in the next couple of quarters as we'll go forward. Is that right, Steve?

Yes. Kurt, this is Steve. Our tractor was actually up quite nicely in the first quarter for us.

Tractors were attractive… A – Steve Quinlan: Yes.

Okay. A – Steve Quinlan: Okay.

Okay. Yes, that's helpful. That's all I had. Thanks.

And those are all at decent margins too.

Okay.

No further questions at this time. We will now turn it back to Mr. Herbert for closing remarks.

Well, don't let me forget to remind you that we have our annual meeting coming up on October the 6th at 10 o'clock here at in Lansing, Michigan at the University Club of Michigan State. If anybody is in the vicinity, or could be, we'd love to have you. Probably every bit is important or more important. If you hadn't voted your proxies, please find them and vote them. We've got Steve, who shared me this morning we have enough proxies in to have a formal holder [ph] meeting, but we still like to get all those proxies. And if you got some proxies that you hadn't voted, well, please get those in for us, so we can get a full cap. So, it's -- thank you for staying with us this first quarter. I'm excited, and I think we're going to have an interesting year to report. So, once again as Rick said, we will look forward to seeing you in a couple of weeks if you can be here. Have a good autumn. Bye now.

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