Neogen Corp (NEOG) 2013 Q1 法說會逐字稿

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. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. 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 was stated today we will be reporting to you on the results of our first quarter, which ended on August 31.

To start with I would 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, and the actual results may differ from those that we discuss 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 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 will entertain questions from participants who are joined on this live call. And I am 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 are 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 of the currency translation, our revenues would have been approximately 12% ahead of the prior year.

As many of you know, in addition to the US dollar, Neogen does business in pound sterling and euro and the Mexican peso and the Brazilian real. And since about 42% of our total revenues come from outside the US, these translations have been difficult to predict in the 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 this quarter. I like to always keep that count going, that this quarter has marked the 82nd quarter in the past 87 when Neogen reported revenue increases as compared to the previous year. That is a standout span now of almost 22 years. And by the way, the last time we missed a quarter was 30 quarters ago or a little over seven years.

Though I think we should be able to step up the rate of revenue growth a bit as we move throughout the rest of this year, I am pleased with the basic fundamentals that we are now -- that are all now coming aligned. Many of you know that a significant part of our operating strategy has been to hold operating profits at about 20% of revenue. We are cautious if they start to dip below that mark, and we are also cautious if they rise much above that mark.

As a barometer we feel that when the number gets much above 20% it is 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 will note a small change. If you have seen the copies of the operating statement you will notice a small change in the way net income is disclosed in the operating statements having to do with -- 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 in the call on that.

We will continue to build our infrastructure going forward to keep pace with our great growth opportunities. During the last fiscal year you may 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 two decades.

These new products, though, hit the market just as grain producers and processors worldwide were faced with new testing needs as a result of challenging growth seasons that we have 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 US has created another problem in US corn.

We will talk more about both grain conditions -- the drought and the overall impact on our food system a little later this morning.

While our international sales have continued to grow, our Neogen Europe operation has continued 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 have 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 a 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.

This -- and I bring 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. As 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 will 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, our 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 Brasil continues to gain traction in penetrating the growing Brazilian market, with 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 lineup, 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 have now placed instruments with end users in the US, Canada and Mexico, and have sold multiple instruments to distributors in Latin America and 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 are 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 of 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 FY12. The Igenity business greatly expanded Neogen's capabilities in using information derived from 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's 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 at 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 through an OEM customer used to help promote that customers 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 coal 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 rodenticide 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 am 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 advertising and distributor marketing support.

So while we are still leading sales, to some extent I believe the strong organic growth in the fourth quarter of FY12 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 costs remain relatively low at less than 4% of total revenues. As indicated in the conference call on our FY12 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, foodborne allergens and natural toxins. New products released in the last three to six 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 topline 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 five-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 will 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 are going in the future.

Let me take the next few minutes and give you some feel of what we think we are seeing in the markets and what we may be giving you an idea of how they may impact our business over the next three 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 had 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 UK and Germany and France as it finds its way through the marketplace, it is out of the field now, so the harvest is completed, and probably the big surge in test kits sales will slow down.

A bigger weather-related surge is now underway as a result of the drought-stricken areas across the US 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 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 US is not mandatory, selling in the US any grain with over 20 parts per billion is a violation of the US 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 this second quarter, which we are 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 is plenty of damage, but it is spotty, and not across an 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 five-year average when we only used to have about 9% of that crop out of the field. We will have a little bit better idea of what the corn crop situation looks like on Thursday when USDA issues its next grain stock report.

Our folks are continually on the line with customers scattered all across the US, 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 that are trying to find places to be able to buy clean corn already at this point.

I think it is kind of interesting to look at corn in light of the food security issues that we talk about. Though this year's corn crop of approximately 10.7 billion bushels has pushed the cash price up to over $8, it is still a very big crop. 20 years ago the US produced about 5 billion bushels compared to the 10.7 billion bushels that we will produce this year.

This is just one indication, I think, of the pressures that were are going to be -- that is 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 have seen over the last 20 years.

Though 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 is some liquidation in hog numbers occurring especially across the Midwest. While pork supplies go down and feed cost 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 -- Animal Safety products, but it is certainly not going to be disastrous.

There is also some movement in dairy cattle numbers, but due to the intensity of milk production we would 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 cowherd we have 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 have 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 of Disease Control at FDA last month, shows that the instances of foodborne 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 US increased 19% in just the second quarter of the year as compared to the first quarter of the year. And undeclared allergens were, again, a primary cause of the second-quarter recalls and accounted, I think, for about 40% of the total recall.

There were 156 companies that had recalls during the second quarter, with 12 of those companies having more than one recall. Over one-third of those recalls were on a nationwide basis as compared to a more confined single or a 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 put 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 is imported into the US.

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 the world demand, the problems of food safety get more complex. By design, Neogen is a leader in the continued development and 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.

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, there are just no big deals seemingly to be done right now.

Having said that, smaller acquisitions have proven successful for Neogen as we have made, now, I think, 21 acquisitions in the last 12 years, all of which were accretive at both the topline 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 your doing so just as soon as possible.

And along with the 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 of the morning and we will now open the call for any questions from participants.

(Operator Instructions). Matt Hewitt, Craig-Hallum Capital Group.

First, a very, very strong gross margin here right out of the gates here in FY13, and I am curious how sustainable you feel 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, you know, but we have been talking for several quarters -- I didn't this specific one, but I bring up 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 that increase in sales in the first quarter with less direct labor and overhead than we had last year.

And the mix certainly has something to do with that. To the extent we continue to develop these new diagnostic products and have a higher percentage of our sales come from that, that is going to drive that gross margin rate up.

Matt, it is going to fluctuate from quarter to quarter. This one was above our internal budgets, but we are pretty confident that we can maintain gross margins above 50%, and we will continue to see the benefits of those improvements that we are making in our operations so that over time it will drift up. It was a particularly good quarter, and it was -- we just had a favorable mix of products across all of our operating units.

Okay, that is 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?

Let me intervene here real quick. I'm better at making excuses this morning and than Lon is. I think we got to look at the second quarter, and our product mix is -- I think you know, Matt, that our product mix varies from quarter to quarter based on seasonality. As we move into the second quarter we will be increasing our revenues in this September/October/November. We see people start to stock up on rodenticides. We are 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 GeneSeek program. So it is -- we will continue to see some variation, but what we would see here, I think, is going to help as far as the mycotoxin testing in the US is concerned. But we are also going to see some other things that are seasonal begin to come into play that make it very difficult to say, well, we are going to do the same thing next year -- or next quarter that we have done this quarter.

Okay, along those lines, the rodenticides you mentioned as having better gross margins than the disinfectants, but correct me if I'm wrong, aren't some of the grains used in the rodenticides, and so how are you helping offset or how are you offsetting the higher cost of those -- the inputs in the rodenticides?

Yes, you are exactly right. And that is one of the things that is going to impact gross margins going forward is that we are a significant buyer of wheat, of corn and oates that are going into the rodenticides. Just general, it is just really animal feed with the technical added to it that kills the rodents.

So we did -- we had 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 are 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, as I mentioned in my comments, will come down. But it is going to impact our normal margins as far as rodenticides are concerned to the extent that we will see some more fluctuations in the grain market. So, no, you are exactly right to pick that up.

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

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, legal activities are sometime unpredictable. We think we are very predictable in this situation.

The numbers are in excess this quarter compared to last quarter where six digits. And we're not through with it. We will probably see -- we can see this litigation -- depending upon the appetite of our adversaries, we can see this litigation continue on for probably close to the next year.

We are never seemingly without some legal expenses as it relates to intellectual properties. We are just in that kind of business, whether it is concerned about somebody in France that is counterfeiting our detectable needles or whether it is somebody that is using a trademark illegally or something else. So we are just in that kind of business. But given the current situation with the litigation I probably don't want to go much further with a discussion on it, other than just to call it to your attention.

Okay, thank you very much.

Tony Brenner, 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?

I think they are [looking up] that number for you. You're looking for total revenues for that group of products that deal with natural toxins, is that --?

Correct.

Yes, 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 is a sizable segment for us.

The very first diagnostic test that we developed, gosh, 28 years ago now, was for the detection of aflatoxin in grain.

Right.

So we were, I guess, probably the first one out with a biotechnology-based product, and have continued to do quite well and being a leader in that area, Tony.

Okay. And along those same lines, the international business I think you said was 42% of the total. What does Europe -- Neogen Europe represent now 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 are up to that. They have been growing, as we have reported, for quite some time now. They have been strong double-digit organic growth for a number of years. Had a couple of slow quarters at the beginning of last fiscal year, but even in the midst of the difficulties in Europe have come back strong in the last three quarters to report double-digit growth.

We are [helped] over there, Tony, by the fact that we've got our own sales organization on the ground in the major countries. We have our own sales group. It is headquartered out of Ayr, Scotland and in the UK and Germany and France and Holland. And then we also serve our distributors in the rest of those EU countries -- or typically most of them are EU countries, roughly 40 countries involved in total.

So they are mostly distribution. Most of the products that they sell is produced in the US -- goes over there. But we are up to about 100 people there now. So it is helpful to have a little more control over what is happening in those troubled financial markets than if we were just on the outside with the (multiple speakers).

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

No, it is just under 25% of our total international business, but it is about 10% of our total revenues for the Company.

Right.

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 is a fair statement. For the first quarter there was not a lot of movement in the currency.

Okay. Thank you.

(Operator Instructions). Paul Knight, CLSA.

Could you go over to the international one more time? The South American group is what percent of total Neogen sales now?

I am not sure we can break out -- maybe they can. I'm not sure if we can break out of South America per se. We have got our Brazilian operations, which are Company-owned, separate from our distributor organizations.

We are in every country in South America, in fact, every country in Central America also. But we are in every country, but we have two 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 Sao Paulo that cover all or Brazil.

We can get -- I am sure Steve can get to the numbers, but whether he can -- whether his Ouija Board is fast enough to do that in the next 30 seconds, I am not sure.

That is good off-line. And then the Asian operations, what was the growth there in the quarter?

Specifically to the Asia-Pacific RIM?

Yes, thanks, Lon.

Yes, I think our growth there was right around in that -- right around 15%, 16%. I know I combined their reported Latin America and Asia Pacific RIM on the Food Safety side, but I think they were both up certainly double-digit growth.

And then the -- there was 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 is 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 as they had a real strong quarter. Food Safety Group's inventories rose by about $600,000, and they were building product for the aflatoxin outbreak.

So overall cash from operations we generated about $4.4 million. So I think we're going to see that kind of trend quarter-over-quarter.

And then last, how fast will the GeneSeek business grow?

Well, it is growing from several aspects. You know we started out with that business -- it had grown very rapidly. We introduced -- in addition to just the overall genomics testing business, we have introduced more of our own bioinformatics products. That is what the acquisition of Igenity did coming in there.

No, 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, there are other areas coming in. We are doing some things -- we represent now on the beef side of things the top 11 breed associations, which we do all the genomic work for those registered animals. We have always had, or for a number of years had the Angus business, which is the number one of the beef breeds. But we also now have the other four that are right behind them, which would be Hereford and Charolais and Limousin and Simmental.

So that side of our business is growing. This is new business. We just picked up the -- this past month, just picked up the Charolais business. Those of you who don't follow cattle breeds, that is the white animals that originated in France. They are probably the third largest breed in the US, but we get Charolais business from all over the world too.

So it is 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 will continue to see it do well.

Thank you.

(Operator Instructions). Gregory Halter, Great Lakes Review.

Regarding the ANSR product line, I just wonder if you could frame Neogen's opportunity in that particular area of what you guys see going forward?

Let me look at the overall side. There are a number of places -- the size of the overall testing market out there today, gosh, around -- I can't remember what the latest numbers say it is, but it is 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 is a test for the natural toxins like we talked about. There is a test for food allergens like we talked about. There is a whole test bracket for drug residues as we have discussed from time to time -- and two or three more that fit in there.

The biggest of all of those is a testing for 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 are the four ugliest ones.

Those are the biggest testing markets that have the biggest concern worldwide. We have not been the dominant -- we have not been in any way dominant in that market, oh, for probably 10 years. At one point in time we were the first one out with the test for E. coli, 15787, that the US Department of Agriculture was using for surveillance for that particularly in ground beef and hamburgers. Our business has been okay there, but we have had plenty of competition.

We were searching for a new platform that would let us have a test that is more sensitive and faster. That is the whole name of the game is easier, faster, cheaper. And so this new technology that -- or what we have branded as our ANSR technology, we think provides us that and puts us in a position to be more competitive against, oh, probably on a worldwide basis, probably half a dozen people that are in some way playing in that pathogen market.

Now having said all that, that is the political side of the speech, but I'll let Lon give you the more specifics of what we are seeing out there.

Well, Jim is right, of all of our product lines that we talk about and mention we have the smallest market share in that market that is testing for specific pathogens. So the part that we were missing was the high-volume throughput users, the biggest two of which are right now testing is for salmonella and Listeria. And so the ANSR platform gives us access to that market.

And we have been pleased with the launch. I think we have got 20 instruments already in placements at end users. We have another 10 or so in the hands of distributors that are now offering those. We have got well in excess of 50 active prospects that we are working. Only limited really by the number of people we got in the sales force to be able to go out and sell it.

So we are 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 give us the broadest product line, because you will 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 have got a nice full product line out there to gain access to what is the biggest single testing market for specific pathogens. So 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 there was not much impact on operating income even though the topline was $1 million or so impacted?

Well, that comparison was to last year. That is basically saying that if sales were made at the same rate as last year's first quarter our sales would have been $1.2 million higher this quarter. But what we are talking -- what actually ran through the P&L due to currency for 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?

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

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

Capital spending was about $1.9 million, and the depreciation/amortization was $1.6 million.

All right, thank you.

Steve O'Neil, 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 by 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?

The only two 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 generated the significant increases that drove that 12.5% increase. So that Centrus line of products was flat. The biotesting was up, but the placement 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 is 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.

And that is fine. So AccuPoint was up, but Soleris was about flat, you said?

Yes.

Okay, great, that clears it up. Thank you.

[Peter Coil], Private Investor.

I have a comment and a quick question. The comment is I want to congratulate you on your record quarter, and for being on track with your five-year goal for $200 million in revenue.

And the question is concerning rodenticide, you say it rebounded strongly this quarter. I am 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 of $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 particularly from buying product. 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 we -- 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 have got. We had some good success with some of the animal protein producers. And we're continuing to work on developing some new formulations there to continue to keep that product line growing as we go forward.

Fine, thank you very much. Keep up the good work.

Peter, those of you that -- Peter has been with us for a while. We announced five years ago when we crossed over the $100 million mark that in five years we wanted to double the size of the Company and be at $200 million, which would be the end of this fiscal year of -- the 2013 fiscal year. And, yes, we are on track to be there at year-end. So it is 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 got a proxy you hadn't voted, well, we would appreciate you vote.

It has been a good morning. Thank you again for the support, and we will 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.