Neogen Corp (NEOG) 2008 Q4 法說會逐字稿

Please stand by. We're about to begin. Good day everyone and welcome to Neogen Corporation Fiscal Year 2008 Year-end Results Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. James Herbert. Please go ahead, sir.

Well, good morning and welcome to this regular quarterly conference call for investors and analysts. And as was just reported, we'll be reporting today on Neogen's fourth quarter and the full year that ended on May 31.

I'll remind you that some of the statements that are made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties. The actual results may differ from those that we discuss today and the risks that associated with our business are covered in part in the Company's Form 10-K that's filed with the SEC.

In addition to those of you joining us today by live telephone conference, I'd 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 approximately 90 days. Following our prepared comments this morning, we'll entertain questions from participants who are joined by this live telephone conference and I'm joined today by Lon Bohannon, Neogen's President, and Rick Current, our Chief Financial Officer.

Earlier today Neogen issued a press release announcing the results of the fourth quarter and the FY that ended May 31, 2008 and those of you who have seen the press release will see that we didn't break the tradition. We once again set a new record for the Company for both the quarter and the year.

However, let me turn over the program, at this point, to Lou Bohannon, Neogen's President and Chief Operating Officer, to fill you in on the details. Lon and his team can take justifiable pride, I think, in this very outstanding performance for both the quarter and the year. Lon?

Thank you, Jim, and welcome to everyone listening on the conference call, as well as those joining us via Internet. As Jim indicated, Neogen issued a press release earlier today describing our FY 2008 fourth quarter and year-end operating results.

2008 marked the achievement of an important milestone that many of us and I'm sure many of you have been looking forward to for several years. For the first time in our history, Neogen achieved total annual revenues in excess of $100 million. This significant accomplishment is a tribute to the hard work and the commitment of Neogen's total workforce. At the beginning of the year, our employees dedicated themselves to hitting sales of $100 million and then they worked as a team to make that goal a reality.

In a few moments I'll talk some more about year-end results, but I'd like to begin by providing just a few details on our outstanding fourth quarter that continued our string of exceptional top and bottom line quarterly growth.

Our fourth quarter revenues of just over $27 million represented a 20% increase compared to the prior year and continued our string of quarters showing an increase in revenues compared to the prior year, a record that now covers all but five quarters in the last 17.5 years.

I think even more impressive, that overall 20% increase in revenues resulted in a 46% increase in quarterly operating profits, compared to the fourth quarter last year. Not only was this our best quarter of the year, in terms of incremental percentage growth in operating profit, it extended our impressive run of profitability in consecutive quarters that now dates back over 15 years to the fourth quarter of our 1993 FY.

In spite of some very challenging economic conditions, Neogen was able to improve it's gross margins to 52%, compared to 51% in last year's fourth quarter. Both direct labor and overhead declined as a percent of sales due to cost-saving initiatives and better leveraging of facilities and staff that resulted in an overall improvement in productivity.

International sales remained strong for the quarter, coming in at 40% of total revenues. This strong fourth quarter performance helped push international sales for the year to more than 38% of total revenues and that kind of provides a nice segue for me to move on to a discussion of our year-end results.

Hitting $102.4 million in sales was not easy, but we were fortunate to get strong sales growth in most all of our operating groups. Most of the growth performance in these operating divisions was explained in some detail in the press release issued earlier today. So I thought I would spend some time in this conference call providing information on some of our top performing product lines in FY 2008.

One of Neogen's core product lines continues to be tests for the detection of naturally occurring toxins. In 2008, this 20-year-old product line achieved organic sales growth of 12%. International sales of the Mycotoxin Test Kits were particularly strong, led by exceptional performance in our Neogen Europe operations where sales of Mycotoxin and Histamine Test Kits grew more than 50%.

Another product line with strong growth in 2008 was our group of Diagnostic Test Kits to detect drug residues. Sales of tests for the dairy antibiotic residues in milk were up 25%, compared to the prior year, and our drug residue sales to the forensic market and animal racing industry increased 23% over the prior year.

Food Allergan Diagnostic sales experienced yet another year of superior growth, with an increase of 16%. Although recalls associated with harmful bacteria have garnered more headlines recently, inadvertent contamination of food allergens continues to be a major cause of food recalls.

Diagnostic Kits sold into the life science research market was another area of strength, with organic growth of 16% in FY 2008. This represents the third time in the last four years this group of products has achieved double-digit same-store sales growth.

Our two-and-a-half-year-old Soleris product line of Instrument-based Test Systems for the detection of general microbial contamination, spoilage organisms, had another outstanding year in 2008. This unique product line achieved overall organic growth of 36%, with expanded market penetration into the nutriceuticals market and placement of systems with distributors in a number of export markets.

Neogen's 80-year-old line of Veterinary Instruments continued their recent strand of double-digit percentage annual sales growth in 2008. Led by the introduction of new syringes and syringe/needle combos in a hard pack format, sales to OTC distributors, and large OEM animal health customers, increased 13%.

A 35% increase in 2008 sales of Dehydrated Culture Media was our best-ever annual growth performance for the Acumedia product line. Our Acumedia products also support sales of our test kits to detect specific pathogens like Salmonella and E. Coli, which also had a terrific year, achieving organic growth of 18%. And Neogen's AccuPoint line of products for general sanitation had another exceptional year, with growth of 15%, as we continued to gain market share in the beverage industry in several international markets.

Now I know that was a long list of percentages for a lot of different products, but I wanted give you a flavor of just how strong the year was and how broad-based our growth was across most all of our product lines.

The only real product line disappointment in FY 2008 was the rodenticide and disinfectant sales that fell below last year by approximately 5.0%. Most of this sales shortfall occurred in the area of rodenticide sales for the U.S. market. In fact, led by strong shipments to Mexico, international rodenticide sales were up 24% for the year.

I don't like to make excuses, but I do believe the market for domestic rodenticides was below normal for a large part of calendar year 2007 and I do not believe Neogen lost any significant market share in 2008. I guess, in addition, I'd also say that this product line did have an increase in sales of about 4.0% in our fourth quarter, compared to last year.

We also experienced a good year in terms of margins. Gross margins improved 30 basis points to 52% of sales, helping Neogen achieve a 33% improvement in operating profit, compared to that 19% increase in total revenues for the year. Our net income of $12.1 million, or $0.81 per share, was also up 33% over the prior year and I know this will be a tough act to follow in the year ahead.

When we look at FY 2009, we plan to make some investments in personnel in the area of the S&M, as well as R&D. In some cases, it will take six months probably to a year for some of these investments to start paying dividends in the form of new products and increased sales. However, we firmly believe that personnel investments in these areas are critical to maintain desired future sales growth, as we now turn and look at getting to $200 million in total sales for the Company.

I can assure you that management will continue to make every effort to ensure that earnings growth keeps pace and exceeds revenue growth. We certainly have an impressive track record of success in this area and I think we realize that we must be diligent in managing our expenses and raising prices where necessary to maintain acceptable margins.

We have already implemented price increases for virtually all products and we are monitoring all expense categories on a regular basis to determine when further adjustments may be necessary.

Neogen's balance sheet remains strong, with good cash reserves and no long-term debt. Cash flows for the year were sufficient to fund acquisitions and CapEx of more than $12 million and stockholder's equity increased 21% in the 12 months ended May 31, 2008.

Our excellent financial performance in 2008 was capped off by the announcement that Neogen has been selected for and is now part of the Russell 2000 Index. I think kind of the unsettled situation we're experiencing in the stock market largely offset the positive impact joining this prestigious index could have had on our stock price, but it's still an honor to be part of this widely-used and well recognized index.

So, obviously, our 2008 FY was a tremendous success from an operations standpoint. However, Jim Herbert has often said, quoting Irving Berlin, that, "The toughest thing about success is that you have to keep on being a success".

I do think that the Neogen management team understands that we need to remain focused on achieving double-digit same-store sales growth and increasing our market share with our core product lines. To that end, we are developing plans that will allow us to achieve even higher sales and earnings in the quarters and years ahead.

I think it'd be appropriate at this time to turn the conference call back to Jim, who will spend some time discussing Neogen's future outlook.

Thanks, Lon, and of course we all do take pride in the achievement of reaching the $100 million revenue level, but I can assure you that we won't spend much time basking in that accomplishment.

Instead, I think the rest of the staff, like myself, looks upon this as a milestone toward that next level and I have a great amount of confidence that we'll continue this performance as we move toward the $200 million goal and beyond. That confidence comes from several reasons.

First of all, I believe that the mission of our Company is clear in its own target. In the early days of Neogen we spent a great deal of time trying to explain and even sometimes justifying how you could build a company around food and animal safety. The vision, of course, was right and most of the things that we've done along the way were also strategically correct.

Though we use different salesforces and marketing groups for our Food Safety and our Animal Safety groups, they both operate toward the common mission of providing solutions for the problems that surround the world's food and animal production. Third party studies project that the food and animal safety market will grow somewhere between 3.0% and 7.0% annually over the next five years and some projections are even higher than that.

A second reason for my confidence is the fact that the world has truly become smaller. Better distribution logistics and consumer demands will continue to draw the world's consumers and suppliers closer together.

As an example, U.S. consumers now expect to eat fresh melons on a year-round basis. However, they don't expect to get Salmonella from the melons that came from Mexico. Retailers in Europe and the U.S. expect to be able to offer shoppers fresh seafood year round. But as the wild harvest continues to diminish, the world becomes more dependent upon aquaculture and these retailers, of course, can't afford to buy unsafe product from China that produces 70% of the world's aquaculture supply.

Pet food and manufacturers buy ingredients in the world market, but they can't afford to purchase wheat gluten from Asia that contains a harmful additive. European consumers want paprika that's bright red in color, but not because someone in India added a carcinogenic dye.

So the third reason that I'm confident about our future growth is because of production economics. Over the past year in particular, we've not only seen consumers suffer injury because of poor food quality but we've also seen a number of food producers suffer significant financial losses. Though the examples are numerous, we only have to look back a week or so to see what happened to U.S. and Mexican tomato producers as a result of the unsolved Salmonella problem -- millions of dollars of tomatoes have rotted in the fields in these countries because of consumer fears. Of course, as of today, that fear has now shifted to peppers.

The same can be said of animal producers, as it relates to animal safety issues. Animal disease has taken selective cuts at the worldwide beef producer's market. The U.S. couldn't export its beef to several significant countries, so Canadian producers couldn't send cattle to the U.S. for processing and that situation, frankly, has crippled the Canadian cattle industry.

The fourth reason for my confidence of our future growth is because of our current track record. I believe that Neogen has established traction with its products and with it's marketing strategy. This last quarter, as Lon indicated, was the 65th quarter in the last 70 in which Neogen has shown an increase in revenue compared to the same quarter in the prior year. That's over 17 years now.

Our compound annual growth rate for the past five years is approximately 19% annually and on top of that, we've expanded far beyond the U.S. to a point where now 38% of our revenues for the FY'08 came from sources outside the U.S.

So these are four of the reasons that I'm confident about the future. I can also tell you that we did a number of things during the past year to strengthen the Company and to strengthen that confidence.

We'll continue to grow the Company just as we've grown it in the past. We'll get a part of our growth from increased market share. We'll get a portion of our growth from the development of new products from our R&D groups and we'll also get a significant punch from strategic acquisitions that fit our mission of supplying solutions for both food and animal safety.

From the market share standpoint, we had several products during the past year that gained more consumer acceptance. As an example, one recent independent study indicates that our AccuPoint line of food safety products outpaced all of our competitors combined, based on the number of instruments that we sold during the past three years.

Both divisions are well positioned to grow with new products that are coming from R&D. Furthermore, we're greatly stepping up that effort. We announced a couple of months ago that were adding 23 new scientists to our R&D effort, which almost doubles that group and I can assure you that we've identified new product opportunities for both of our operating divisions that'll keep this group fully occupied in the years ahead.

There are a couple of great things about new products, as it relates to our business. First, we can identify those new product opportunities with a relative amount of certainty. And secondly, most of the products that we develop can be completed in a year or less, which means that we can bring a new product to market in a timely fashion with just a little bit of foresight.

During the past year we made good strides in growth through the synergistic acquisition area. The one that we completed last month marked the 14th acquisition that we've done in the past seven years and we haven't done a bad one yet. The three that we did during the past year were all bought at fair prices, were an extremely good fit with our businesses and provide continued growth opportunities.

The Rivard needle business, as an example, strengthened our worldwide patents and put us in a dominate position as a supplier of detectable hypodermic needles for animal injection, where there is a concern of a broken needle finding it's way into finished meat products. The product line that we acquired from DuPont, just a couple of weeks ago, also strengthens our animal safety position back inside the farm gate.

We already had a small group of disinfectants that were used by the producers of pork and poultry in North America to help keep farms free of bacterial, viral, and fungal diseases. However, our line wasn't complete. The 14 new products that we acquired from DuPont not only fill out the needs for animal producers, but also have given us access to more international markets since that group of products was sold in approximately 50 countries.

One of those countries where the DuPont product line was strong was Mexico. Just a few months ago we, as you may remember, we established our own subsidiary in Mexico to handle product distribution and to consolidate some strong but separate distribution that we've enjoyed in the past.

I just returned yesterday from several days in Mexico and I can reconfirm my belief that food production in Mexico and Central America will continue to grow and become an even larger supplier to the worldwide food system. As a result, there'll be increasing opportunities for Neogen in both the food safety and animal safety areas in that part of the Americas.

In closing, I am proud of our $100 million revenue attainment, but I'm even prouder of our growth in earnings for the past year of 33%, which, of course, surpassed the revenue growth. I'm optimistic about the future and I can't help but remember an old Texas adage that says, "If you're going to grow, go like hell and if you're not sure of your direction, don't use the spurs".

I can tell you that I know we're going grow and I believe that we know our direction. As a consequence, I think the Company will continue to make these kinds of tremendous strides in both revenue and earnings over the next few years and it's now our goal to hit the $200 million revenue with an ever-increasing EPS record.

That concludes our prepared comments for the morning and let me turn the conference back to the moderator for any questions from those of you who are joined by the live conference.

Thank you. (Operator Instructions) We're going to go first to Tony Brenner at Roth Capital Partners. Please go ahead.

Thank you, two questions. The first is, Lon, you mentioned that you've increased prices pretty much across the board. Can you indicate roughly when those price increases were implemented and approximately what a blended increased rate might have been?

Yes, thanks for the question, Tony. We started actually increasing prices toward the middle of our 2008 FY, so we had some price increases that were done in the November/December timeframe.

Certain of our groups went through additional price increases in April. Our Food Safety group put through a blanket price increase that will take effect on July 1st. We're having our monthly operations meeting for Animal Safety and we're talking about further price increases there, going in on July 1st.

I don't know that we have an overall average. We've had certain areas where we've had to do price increases in the 15 to 20% range. I know we had certain products in the Acumedia product line, for example, where we had to put in some of those kinds of price increases. I would say we're certainly in that 5.0 to 7.0% range, overall, in terms of trying to put price increases through and we would like to think that we could have some kind of impact like that over the year.

But we're going to have to continue to monitor the situation. We are not telling our customers that we can promise that we can put in a price increase and then not raise them again for 12 months. I mean, we know what the situation is like and we're going to do everything possible to hold down our costs and limit the impact of those and work with our customers to minimize the effect on them. But we're also going to do what we need to do to maintain our margins.

Thank you. The other question I had is I'm having a hard time reconciling the long list of double-digit sales increases for various product lines. On the Animal Safety side, with what apparently, according to the release, is virtually all of the sales increase for the year being contributed by the Kane and Rivard acquisitions.

No, well, Lon's probably got a closer number, but we did have same-store sales numbers. I don't know, Rick or Lon, you got a rough idea on that? It was in the single-digit area.

Yes, you got two different operating groups there. You've got the Hacco group that we talked about or that I talked about. Their sales were down 5.0% for the year.

Well, the release says that Kane and Rivard acquisitions contributed $5.4 million of the gain and for the full year, your Animal Safety sales look like they're up by 5.0% or 5.6%.

Yes that's correct. So it's overall, for Animal Safety, about a 1.0% increase. So you've got the Hacco that's down about 5.0% and then you've got the same-store sales for the Lexington division, which is the largest of all of our operating divisions that were up 4.0%.

Okay, thank you.

Steve O'Neil, Hilliard Lyons.

Good morning, Jim, morning Lon, great year and great quarter.

Well thanks, Steve.

Thanks Stephen.

Just a couple of, I guess, housekeeping items, because I couldn't quite write fast enough, in Veterinary Instruments. Can you break that down between the specialty needles and the OTC business for retail stores? You used a figure of 13% and I wasn't sure what that was for.

Yes, I think if you want that kind of breakdown we're going to have to go back. We don't break out, that I'm aware of -- Rick might have the number, but I'm not aware that we break out the retail segment growth separate from our overall Veterinary Instrument sales growth.

Not a normal reporting. We can get that (inaudible - multiple speakers).

I thought that you had mentioned it in the past.

We might have, but we roll that all together. In some cases it's the same product, the same syringes and needle combinations that we sell through the normal channels that we may put a private brand name on for somebody. And then that ends up getting classified as Specialty Needles if it's for one of the major vaccine and pharmaceutical groups, but we can get that for you, Stephen. We just don't --.

Well, actually, just from a qualitative standpoint, I mean, did you just qualitatively how did the Specialty Needles and the OTC to retail stores perform? Or were they both -- they both performed well during the year?

Yes. I think they were probably about equal for the year.

Okay.

We got a big punch last year, a bigger punch last year percentage-wise, probably from the Specialty Needle side, but in remembering back, I think they both had roughly the same good simultaneous growth.

Yes. That OEM Specialty Needle segment was up about 26% for the year. That is one that we break out. It's not as large as the Veterinary Instruments that go into the OTC market. So I know that those were double-digit, same-store sales growth as well; just don't have the specific details further breaking it down in terms of what that retail segment is. But we can get that information for you, but we continue to experience growth in that retail segment.

And that's fine. Are vaccines and biologicals becoming a less important product line? I noticed you didn't mention those.

Well, they're not less important from the standpoint of what they contribute to the operating profit. I mean, they're two of our high margin products. They just didn't have a year where we experienced growth in those particular products.

But that runs through -- a big chunk of that runs through distribution, particularly the international customer that we've got there and so they'll fluctuate from year-to-year, based on the timing of the large placement of orders, particularly, that occur around the fourth quarter timeframe.

But no, it continues to be a very important product line for us. We call it the Biologics group or product line and we actually have fairly sizable growth in the 2009 budgets for that particular area.

In microorganism testing you mentioned that being up 18% and then you also mentioned AccuPoint being up 15%. Is AccuPoint within that or are those -- or are you're speaking separately for those two products?

They're two separate product lines. The Acumedia Dehydrated Culture Media was actually up 35% for the year. Strong growth internationally and also strong growth to what we call the traditional market, which is where those products are sold to customers that then either repackage it or use it to go into poured plates.

I may have misspoke, Lon. I thought -- I meant to ask about AccuPoint in the microorganism sales.

Oh. No, AccuPoint is separate from the microorganism sales. AccuPoint is part of that general sanitation test system that we have and that was the comment that Jim made. We've gotten some very good third party information there that would indicate that we've placed more instruments in the last three years than all of our competitors combined.

You've made a nice turnaround, it looks like, in the microorganism testing business and any comments on how you've managed that?

Well, we still have a ways to go. We've slugged our way back in there. We lost sight of what was happening, primarily with the -- well, our product line didn't keep up quite as good as it should have and we were missing a few things on the sales and marketing side.

We've recovered, as you point out, Stephen, a good bit of that, but I think the best is yet to come. A part of this 23 new people that were added will be focused on the pathogen market area, including 3 new people totally in a new department in molecular biology, some great things in that pipeline that we expect will be coming out over the course of the next year.

And then also mycotoxin, it does continue to be a really nice business for you. Any weather-related comments on the performance in 2008?

A little bit, probably not showing a lot, but a little bit in France, as it relates to vomitoxin. It probably began -- it might have begun to show up in the tail end of '08. Most of it is probably coming in now. But weather conditions, you know we had a fairly clean profit in the U.S. last year when you look back over the last 12 months.

It's nothing -- I think we just picked up some extra market share. I don't think that the testing -- obviously there's a few spots where testing might have increased, when we looked at those international markets, but nothing big. I think it was just gain of market share.

I won't ask you for the whole list on fourth quarter, but in terms of your product performance in the fourth quarter, any particular standouts in the fourth quarter?

Again, I'd make the same comments for the fourth quarter that I made for the year. It was very broad-based. All seven of the operating groups showed positive growth compared to the prior year for the fourth quarter. Even as I said that the Hacco rodenticides and disinfectant product lines were up in the fourth quarter.

A particularly strong quarter for Acumedia, a particularly strong quarter for the Soleris technology that is used in detecting general microbial contamination and spoilage organisms, but very broad-based in the fourth quarter.

Great and then I'll ask one last housekeeping thing and then I'll let somebody ask a question. The other income, $7,000 versus $244,000 is a pretty big difference and I know that is a somewhat lumpy figure, just wondered if you could elaborate a bit on that.

It's really related to the transactions in foreign currencies in the current year and the prior year went the other way, Stephen. That's really the best explanation we've got.

Okay.

As you may remember, Stephen, because of the amount of money, the amount of revenues that we bring in based on Euro-based denomination, we do hedge the dollar versus the Euro.

Okay.

And other currencies, the Pound -- we operate European operations on the Pound, but we don't hedge the Pound and so you look at -- and we're true hedgers. We're not speculators. We hedge when look at where we are. We hedge and we roll out 90 days and we continue that hedge based on what's happening. So I think for part of the year our hedge was -- we'd hedged at below where the market was at the end of the month and right now our hedge is, oh, probably about even with where in the month. I think we're hedged at a $1.57 now, Rick?

No it's $1.58.

And so, but we think it's important enough that with enough business denominated in Euros that we don't want to be gamblers there.

Thanks very much.

Thank you.

(Operator Instructions) Vito Menza, Sandler Capital Management.

Hey guys, congrats on the nice quarter.

Thanks, Vito.

Thank you.

A question for you. You've mentioned some investments that we're going to make next year. I know you previously spoke about the R&D investments and now, today, you're speaking about some of the investments in sales and marketing. Now, with all that said, what kind of operating margin are you guys going to target next year?

Well, we try to space our expenses out, though we are typically leading the market by a year, particularly in sales and marketing and maybe a bit more than the year in R&D. We continue to try to strive to push that operating margin and put pressure to keep it going up.

So it'll be a little tougher battle as we move into next year, because of the money that we've invested in the R&D group, that new pipeline has not started to put -- will not have started to put product out. But I don't -- I think our budget's, Lon and Rick, are not -- we expect to continue to see some even slight improvement in operating margins, despite the fact that we got some early expenses.

Yes, I think that's right. You look at the quarter we had and it was just phenomenal in terms of the percentage increase in operating profit compared to the growth in revenues.

We're very much on track to continue to focus on getting same-store sales growth in the double-digit area, supplement it with acquisitions, so that overall we're going to continue to shoot for that 20% kind of number a year. And we think that's -- we know that there are opportunities out there to achieve that and historically, we've always gotten more than that percentage increase through the operating profit line and that too continues to be our objective.

We had this conversation a little earlier this week. I mean, overall, what we're trying to do is, at this juncture, is try to get that operating profit line up to be 20% of sales. We achieved 17.6% of revenues in FY 2008, which compared very favorably to the 15.7% that we had last year. And we're going to continue to look at ways to reduce our costs and improve productivity and get price increases and grow sales so that we can continue to get that moving in a positive direction.

So we fully expect that if we get a 20% increase in revenues, we'll be able to do better than that in the operating profit line. I just get a little bit nervous and don't want expectations out there to be 46% increase in operating profit whenever you get a 20% increase in revenues. It really was a spectacular quarter.

Understood and I think that a lot of times when Wall Street hears investment they automatically think margins down year-over-year, so it's an important point to clarify. I appreciate that.

No, if I appreciate the question. We knew that might come up and we certainly do not have any intentions of turning in any kind of quarters that would have a lower operating margin than what we did in the same quarter last year.

Thank you, guys, great job, nice quarter, nice year.

Thanks, Vito.

(Operator Instructions) Peter Coyle, University of Michigan.

Good morning, gentlemen, and congratulations on a great quarter and a terrific year. I mean, I'm sitting down here in Ann Arbor with my calculator and trying to figure out how many digits are going to be needed for your calculators up there and I did want to say congratulations for doing an outstanding job.

And I think Vito hit the major aspects of my question, which relates to research and you've added or going to be adding 23 new people and roughly what percentage of your revenues or your budget is going to be devoted to research? As I recall, it was somewhere around 6.0 or 7.0% in the past.

Yes, probably, if you look at the entire budget, Peter, it's still somewhere in that range, overall. But remembering that certain portions of our business and our product line -- and we're probably putting closer to 10% of revenue into R&D, where there's a need for new products -- there's a competitive race.

At the same time, we've got other sides of our business that don't require that kind of a research investment. The products are stable. They're there. We still are able to maintain or increase our market share. So, when you look at R&D as a percent of overall revenue, it could be somewhat misleading, since we're spending a bigger percent in those products that are driven by new development.

Well thank you very much and I'll look forward to a new nine or ten-digit calculator.

Well, next time you can send me one. Lon keeps showing me the one that you sent him and mine's short two or three digits.

Okay.

So when you run across one of those high powered ones, well remember me.

I don't know, maybe I can get a 20-digit one.

There you go.

That should take care of it.

Thank you, Peter. Well, again --.

(Operator Instructions) Steve O'Neil, Hilliard Lyons.

I couldn't let a conference call go by without asking about the BetaStar.

I would have been disappointed if you hadn't. Well, if there ever was a story of Murphy being alive and well it's sure been this project. Interestingly enough, we thought we were well through the FDA.

We got an AOAC approval on the product, which meant that everybody has looked at it, they said it performs great and it stands up to all of its claims and that's a part of what's necessary to get an FDA approval, in fact, the biggest portion of it. But it drug on and drug on and we couldn't understand what was happening with the project manager that was running that project at the FDA and it all came to light a couple three weeks ago.

We didn't know it, but that product manager was suffering from a terminal illness and died two weeks ago yesterday. So, as a consequence, well our project has now been reassigned to someone else. And we do have a meeting with the FDA on the 31st of this month, which I have every belief, at this point, that that's just a final place to pass the files over and then that approval will be forthcoming.

But it sure has been discouraging, Stephen.

I mean, it seems like a very good product. I know you're anxious to get it on the U.S. market.

And you know we're growing internationally with it. In all the other markets where we are, we've grown and we've gained some market share from competition. So we're anxious, obviously, to turn it loose in the U.S.

What is the breakdown for your dairy antibiotic sales? I know it's large. It's mostly international, but how much is in the U.S.?

Not enough to amount to anything, less than 1.0% in North America.

So it's almost entirely international business.

Yes, right.

Great. Thank you.

Good.

And Mr. Herbert, with no other questions in the queue, I'd like to turn the call back to you for any closing comments, sir.

Great. Well, first of all, those of you who have -- hopefully most of you on the call have received an invitation for our Annual Open House that comes up Thursday of this week. If somehow we've failed to get that invitation to you, well consider yourself invited. And hopefully -- that's one of the big things that we do for investors and analysts and customers and local friends and neighbors.

It looks like a clear day in Lansing, the sun will shine on us again and we'll have a great open house on Thursday afternoon of this week, I think starting about 5 o'clock. So those of you who are in a position to come, we'd love to have you -- 4 o'clock, I'm sorry. And but we'll run a lot longer than that. We'll run till the cold beer is out, so I'm sure it'll be longer than 4 o'clock.

But, at any rate, thank you for all of you who participated on today's call and all of you that have been supportive and participated during the past year. It's great to be able to report these kinds of results. But as Lon says, we know that the toughest thing about success is you have to keep on succeeding and we intend to do that.

So that concludes our comments and good day.

Thank you. That does conclude the call. We do appreciate your participation. At this time you may disconnect. Thank you.