Neogen Corp (NEOG) 2014 Q4 法說會逐字稿

Welcome to the Neogen's Fourth Quarter and FY14 Earnings Result Conference Call. My name is Danny and I will be your operator for today's call. (Operator Instructions)

I will now turn the call over to Jim Herbert. Jim, you may begin.

Thanks, Danny. Good morning and welcome to our regular quarterly conference call. Today, we'll be reporting to you the results of the fourth quarter, as well as of course our fiscal year-end that ended on May 31. I'll remind you that some of the statements 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. And those risks that are associated with our business are covered in part in the Company's Form 10-K that's filed with the Securities and Exchange Commission.

In addition to those of you who are joining us today by live telephone conference, I would also welcome those who may be joined by way of the simulcast on the World Wide Web. Following comments this morning, we'll entertain questions from those of you who are participating in this live conference. And I'm joined today by Steve Quinlan, our Chief Financial Officer.

Earlier today, Neogen issued a press release announcing results of our fourth quarter and of the year-end FY14. Looking first at that fourth quarter, revenues were $67.3 million or a 20% increase over revenues for the same period last year. Income for the fourth quarter was approximately $7.5 million as compared to approximately $7 million in FY13. This equates to $0.20 a share compared to $0.19 a share a year ago, when all adjustments were made for the stock split and the increase in average number of shares outstanding.

For FY14, for the whole year, revenues increased by 19% from the previous year to approximately $247.4 million. Net income for the year was $28.2 million and that was compared to the prior year $27.2 million. Again, adjusting for changes and shares outstanding, earnings per share for the current year were $0.76, as compared to $0.75 a year ago. And both the revenues and the net income for the 2014 year were, of course, establishing new all-time highs for our 32-year old Company.

On that same note, this fourth quarter was the 89th quarter in the past 94 that Neogen reported revenue increases compared to the prior year. This now spans twenty three and a half years. It's kind of like that our [930] employees are saying to us the record won't get spoiled on my watch and they continue to do a great job.

This quarter, we have a new firm with [strong] analysts that's writing research on the Company. And when I was putting together my comments I remembered that somehow I just continue to forget to talk about the firms that are following our Company and have done a good job over long periods of time, informing our shareholders and prospective shareholders. And I think I would like to make sure I mention those today.

I'll start with Steve O'Neil at Hilliard Lyons firm who I believe has the longest unbroken chain of research on the Company. And Tony Brenner at Roth Capital for years has told me when he thought we were doing good, but he also never failed to tell me on those few occasions when I might have disappointed him. The other four in close successions would include the Stephens Group from Little Rock and Craig Hallum and Janney Montgomery Scott from Great Lakes Review, and we have been joined this quarter by William Blair & Company and we welcome Brian Weinstein as a new analyst to join this group.

Steve and I would like to spend some time with you this morning reviewing the highlights of the year that we just finished and then talk about the New Year prospects. First should be a follow-up on the press release that was issued last week, announcing Steve Snyder's resignation as Chief Operating Officer of the Company. It was back in September that we announced Steve's taking that position and this is a disappointing result, but Steve is doing this strictly for personal reasons. We are already off and running and recruiting for someone to fill his position. And in the meantime, senior management is not really concerned for the short-term. We'll all just carry a little bigger load and maybe sleep a few less hours.

But looking back over the past several years, this year was just one in a succession of some pretty good years. Our compound annual growth rate and revenue for the past five years has been 15%. That revenue growth has traditionally brought a strong increase in assets and an increase in net income commensurate with the topline growth. And, of course, this year we didn't see that bottom line growth.

The big difference was of course the phenomenal year that we had in 2013. That year we had a 21% increase in net income on a 13% increase in revenues. Those of you that have followed the Company will remember everything just lined up and we sure took advantage of it. There was a bad grain crop in the U.S. that called for more testing and similar problems occurred in Brazil and Europe. Currency conversions didn't hurt us. Some guys in Ireland decided to mix horse meat with ground beef and the industry started testing for the presence of horse meat. With our product it had almost no competition.

Our stock dividend declared back in October had a significant -- a significant number of stock options were exercised, which gave us almost a 2 million share increase in total diluted shares at the end of our current year, compared to where it was at the beginning of the year. However, the 2% decline in net income percent and net -- and operating income percent is the real story, is that dropped from 19.6% to 17.5% for the year. As most of you know, we've always used operating income as the major metric in our management strategy.

We just try to hold that at 20%, loosening up a little with little more expenses when it topped over that and pulling back on expenses as they would drop below. And once again the answer goes back to the mix of products. Some ask if acquisitions could have been a problem and the answer to that's no. All three have been good contributors and Steve will talk some more about that in a few minutes. Others wondered if we have been seeing a price deterioration and that was hurting our margins and the answer to that one is also no.

So, even though it was a tough year for comparisons, Neogen's 2014 year was great in many respects. We brought in three acquisitions this year that had their great strategic fits and they were things that we have been looking for. Doing three acquisitions and we've got to manage to six months is a little more aggressive than we'd normally tackled, but they are integrating well and they're accretive at both the top and the bottom lines.

Our acquisition of SyrVet, and later in the year, Prima Tech strengthened our worldwide positions in the veterinary instrument field. The January acquisition of Chem-Tech put us in a position that we wanted to be as part of our five-year plan for biosecurity and the animal safety business. In many ways, biosecurity for animal protein production is just really kind of food safety back inside the farm gate. Biosecurity products include both the cleansers and disinfectants and rodenticides, where we are already strong, but until the Chem-Tech acquisition, we didn't have a strong product offering for insect control, which is the third important piece in a biosecurity program.

Looking a bit around the Company in some other places, as far as performance is concerned, our animal genomics business group at GeneSeek continued its strong growth. I believe that our 18% increase there last year should have given us some market share increase. For the first time ever, we analyzed 1 million samples in our laboratory this past year. All this, of course, has led to the need for more people and more space and the space had to come first. I'm very proud of the new animal genomics lab that we dedicated in Lincoln, Nebraska this month.

On the international front, our Scotland-based subsidiary continued its growth, being up 24% for the year. In addition to genomic services that helped increase our revenues there. Our sales throughout the European Union countries and allergen test kits and meat speciation testing has continued to be strong. Even our food safety group is running against strong comparables for the prior year. They got their revenue growth up to 10% and that was totally on organic sales.

Maybe this is a good place for me to stop and ask Steve Quinlan to cover some of those food safety highlights and some of the other true color behind my comments here this morning. Steve?

Well, thanks, Jim. And welcome to everyone listening on the conference call, as well as those joining us via the Internet. Jim has given you the overall sales and profit performance for the 2014 fourth quarter and full fiscal year. And I'd like to add echo his comments that overall we were pleased, but not satisfied with the results. We were able to integrate three acquisitions during the year and achieved 19% revenue growth, but fell short of our double-digit bottom line increase goal. In the next few minutes I'll address some of the significant highlights for the quarter and the year.

As Jim mentioned, the Food Safety segment delivered a solid year, with overall revenue growth of $10 million or 10% and all of that growth was organic. Food Safety struggled all year with comparisons to an unusually strong 2013, when there were significant mycotoxin outbreaks in the US corn crop and European commodity grain crops, which resulted in sales of our aflatoxin test kits increasing 43% over 2012. In last year's harvest, which was our FY14, the US crops were relatively clean, and this resulted in a 29% decline in sales of our aflatoxin test kits in the US. In spite of this decline, our Lansing-based diagnostics group was able to grow overall revenues for the year, and did so across almost all of our market segments and product lines, excluding the natural toxins.

Revenues for our industry-leading product line to detect inadvertent allergen contaminations, such as milk, processed soy, peanuts and [glyodens] were up 24% in the US and 18% worldwide for the year. This product line continues to grow rapidly due to increasing regulations regarding product labeling, loss in brand equity resulting from product recalls and heightened awareness of the adverse effects of allergenic contaminants in food.

Our AccuPoint product line, which tests environmental surface cleanliness, rose by 12% in the fourth quarter and 18% for the year, due to market share gains, particularly in the beverage industry. The Company invested more than $1 million in new manufacturing equipment in the past year to accommodate the expected future growth of this product line.

The Soleris line of optical microbial test systems used in the detection of spoilage organisms, like yeast and molds, had solid gains for the year, with new marketing programs driving placements of instruments up 40%. And the related disposable vial sales increased by 10%.

Revenues from other products, such as ampouled media and filters to use -- to test and monitor water quality at beverage manufactures rose 25% in the quarter and 32% for the full year, reflecting continued market share growth for these products.

Our international operations, which are primarily focused in the food safety area, were strong in 2014, led by Neogen Europe business unit with sales up 24% for the year. This increase was driven by strong sales of genomic services, up 47%, as we continue to grow our market share in Europe and allergens, which rose 14%.

For most of the year, increased speciation testing in Europe resulting from the horse meat scandal of 2013 was a nice tailwind for Neogen Europe's growth. Although speciation testing fell off in the fourth quarter, the new baseline level of testing is higher than the old. And we believe that increased levels of speciation testing will continue into the future.

Neogen do Brasil continued to make inroads in penetrating the growing Brazilian market, with sales up 19% in the fourth quarter and 39% for the full year, with strong growth in sales of test kits to detect drug residues in milk and increases in mycotoxin and allergen test kits. And revenues at Neogen Latinoamerica, our Mexican subsidiary, were up 18% overall for the year.

Our Animal Safety group recorded overall revenue increases of 37% in the quarter and 29% for the full year, aided significantly by the three acquisitions the Company completed during the year, which provided the Company with $21.9 million in revenue in FY14. Each of these acquisitions are essentially bolt-ons. Although their gross margins are at the mid-30%, lower than the overall Animal Safety average, they added minimal incremental operating expenses, resulting in operating earnings, which were in line with the Animal Safety segment. As an example, Chem-Tech operating earnings were 20% in the five months that we owned them, expressed as a percentage of revenue.

Organic growth for the segment for the year was 6%. Strength in our existing Lexington-based business came from our line of patented detectable needles, which were up 11%, biologics which were up 10% and increases in our line of animal care products. These gains more than offset a 14% decline in our line of small animal supplements.

Our line of rodenticides and cleaners and disinfectants had mixed results. Rodenticides, which have been weak most of the year due to poor weather and credit risks in a couple of our key international markets, had 10% growth in the fourth quarter, but for the year revenues were 4% lower than the prior year. Sales of cleaners and disinfectants were strong all year, aided by outbreaks of avian flu and the porcine virus, which [in a way] raised awareness of the need for these products. And sales were up 22% for the year.

GeneSeek, our agrigenomics testing business, recorded revenue increases of 18% worldwide for the year, as we were able to successfully commercialize a number of new proprietary product offerings for cattle. Additionally, canine genotyping rose significantly as a result of our relationships with the largest canine breed associations.

For the quarter, gross margins were 47.6%, compared to 50.7% in the same period last year. And for the full year, gross margins of 49.6% represent a 320 basis point decrease compared to last year. The change for each comparative period is the result of a shift in overall revenue toward animal safety products and product mix shifts within each segment. There was minimal margin deterioration caused by pricing or cost pressure on our existing products. The overall decline was almost entirely due to product mix.

In the Food Safety segment, the lower mycotoxin sales I discussed earlier were replaced with increased sales of products, such as Acumedia and AccuPoint, which have margins 30% to 40% lower, and that resulted in gross margins declining from 63.7% in 2013 to 62.5% in 2014.

In the Animal Safety segment, gross margins were 38.1%, compared to 41.3% last year, the result of the three acquisitions, product mix shifts within the segment and lower gross margins at GeneSeek due to the completion of a number of large, lower margin projects and inefficiencies resulting from the 36% increase in the number of samples processed during the year.

The Company purchased and renovated a 26,000 square foot building in Lincoln, Nebraska, beginning in the summer of 2013, spending a total of $2 million, creating a world-class agrigenomic testing facility, which the business moved into in May of 2014. The new building and the installation of additional automation equipment to reduce the manual handling of samples should improve efficiency and accommodate future growth.

Operating expenses were up 16% in the quarter and 15% for the full year, less than the rate of growth in revenues. Sales and marketing expenses were up 22% in the quarter, 14% for the full year. The largest component to this increase are personnel-related expenditures, reflecting our increased headcount this year, as well as the full-year impact of hires made in the prior year.

As we have grown, we've continued to make additional investments in our sales and marketing infrastructure to better serve our customers' current and future needs. These expenditures don't always immediately benefit the current period, but we believe that they will pay dividends in the very near future. Other increased expenditures, such as shipping, royalties and distributor support directly result from the increases in revenues.

Our general and administrative expenses rose 11% for the quarter and 21% for the year, reflecting increased salary and fringe costs for increased personnel, depreciation for investments made in the Company infrastructure and operating systems in the past couple of years, higher amortization expenses relating to businesses acquired and increases in stock option and legal expenses from a year-ago levels. Research and development expenses were 7% over the prior year. Now, this group is working on a number of promising new products and some improvements of existing products.

For the quarter, our revenue growth was 20.1% and operating income was 7.4% over last year. For the full year, revenue growth was 19.2% and operating income increased by 6.6%. And expressed as a percentage of sales, our operating income for the year was 17.5%, compared to 19.6% last year. The decrease was primarily due to the lower gross margins discussed earlier. Currency losses included in other income and expense were $700,000 in 2014 versus $170,000 in 2013.

Moving over to the balance sheet, our inventory grew by $12.9 million during the year; $8.7 million of that increase came with the businesses we acquired. We will continue to rationalize our product lines during 2015 and we have programs in place at each operation to improve our inventory turns. Our receivable balance grew faster than the increase in revenues during 2014. And some of that increase is due to sales to international customers in the last half of the year and these sales do take longer to collect.

We were able to fund the $39 million for the acquisitions that we did this year and $11 million in investment in property and equipment from available cash balances, and finished the year with $76 million in cash and investments.

At this point, I would like to recognize and thank the 930 Neogen employees worldwide whose effort makes these results possible. The integrations this year of the SyrVet, Prima Tech and Chem-Tech businesses into Neogen have gone extremely well and required a tremendous amount of effort and coordination throughout the Company. Special mention goes to the Lexington operations group which was responsible for the integrations of the acquisitions, and GeneSeek, which absorbed significant incremental sample volume and did not miss a beat while moving to its new building in May. They left their old building on a Friday and were open for business the following Tuesday. I think these are great examples of what makes this Company special.

So summarizing, conclusion, there were significant investments made in the business this year, which I believe position the Company well to resume double-digit organic growth in FY15. We have the right products and people, and our markets are continuing to grow. Thanks for your continued support and attention. At this point, I'll give it back to Jim.

Thanks, Steve. Let's take the remainder of the time to look at where that future growth opportunities might be, and I think I'd like to sort of divide those growth opportunities into three segments. I'd like to talk a little bit about the trends that are occurring, talk some about some of our products that fit into that growth area and then take a quick look at geography.

Maybe, first take a look at the trends that are occurring. I think as we look out, things are happening in the market out there that are going to be advantageous to us. I think for one, we'll be looking at the detection of genetically modified plant material more in the next couple of years than we have been. This time there won't be -- whether the genetic modification to plants is going to be permitted, but instead to identify on the labels if approved product has GMO content.

I think they will be more concerned about if animal protein production can satisfy demand. There is no doubt that as this middle-class develops worldwide, there is going to be a bigger demand for animal proteins. However, some may begin to question where that is going to be produced. The U.S. now has the smallest beef cattle herd it has had since the 1940s. And in many places we are seeing almost doubling in the price of hamburger.

There is some pressure worldwide to improve dairy production numbers, where there's going to be a growing demand for per capita consumption of milk in places like China. At the same time, there is some downward pressure on whole milk consumption in the US, as soy and almond-based milk is beginning to pick away at the cow's milk market. Both of these trends play right into our strength, since we have products at both places.

As the world ocean waters are becoming warmer, food safety concerns are present in geographic areas where they were never a concern before. This includes the issues like shellfish toxins, due to ocean algal growth. Our recently developed test for paralytic shellfish poisoning and the other two prevalent toxins in shellfish may get an early boost as a result of some of this.

Shifting over from trends and talk about products, several of our products are focused in just the right market position. Our new generation of AccuPoint product that's used to detect overall cleanliness and sanitation levels is coming just at the right time. As Steve mentioned, I think in his comments, sales of that product for the last fiscal year were 18% ahead of the prior year and our production equipment was running 24x7. That's about -- I've checked, that's about all we can get. And they were increasingly facing downtime due to wear and tear of that automated system. So it's good to have the new product and new system up and running this coming month.

Our Soleris product line, which enjoyed a 17% growth this past year is destined to continue in its popularity. This almost fully automated system to detect spoilage organisms and predict shelf life, allows product to be monitored before they are released to manufacturer's warehouse. We've just begun to uncall all of the product opportunities for our agriculture insecticide business as a result of the Chem-Tech purchase.

Well, shifting from products, talk just a bit about geographical opportunities for the next year. These will continue to be strong. Our Neogen Europe operations, they are going to have a tough comparable to stand up to, but they are going to be in good shape, we think, going forward, along with both Brazil and Mexican operations, since they all be operating from a stronger base.

The opportunities in China will be even bigger, as we look over for the next year as to what we might be doing there. It will be a challenge for us to keep up with that growth I think as we expand our China operations, both the market share increases, as well as some possibilities of some acquisitions there.

Though I don't think the financial results from the establishment of an India base will be anything to write home about this year, I do believe that, as I said once before, it is time for us to get positioned in India to have satisfied the needs of that growing middle-class population.

Our resources in all of these areas -- for all these areas, I think, is adequate to capitalize on the new year opportunities. We continue to expand our staff in most all of the critical area. As Steve mentioned, our balance sheet is strong with cash now over $76 million and no borrowing. There are several interesting acquisition opportunities that are on the radar, though, we don't currently have any Letters of Intent in place. I think we've learned that even though we've done 26 well-positioned acquisitions since the year 2000, we still don't take it for granted that every acquisition would be a fit for our mission.

Now that we are operating from a higher base, we should be able to push that operating income number back closer to our 20% goal, which of course increases income on an after-tax basis.

I think I'll stop there and Danny open the line up to invite any questions that you might have for either Steve or myself.

(Operator Instructions) Paul Knight, Janney Capital Markets.

The question I have is what was organic growth in Food Safety in Q4, organic, and the animal side on Q4 as well?

Organic for Food Safety was 4.4% in the quarter and Food Safety was basically flat in the quarter -- I'm sorry -- Animal Safety was flat in the quarter.

And then food, 4.4%?

Yes. Food was 4.4%, animal flat.

And were you seeing the demand for porcine testing in the quarter and could you talk to the zero growth in animal? I guess it goes back to the horse contamination a year ago, right?

Yes, that affected horse -- our friends in Scotland call it [horse gate] -- that affected -- the first big quarter there was the fourth quarter of the previous year. So they were up against pretty tough comparable in the fourth quarter, which that -- those numbers get folded into Food Safety. So that was a part of that reason. Animal Safety, there were two or three things there. One of the -- probably one of the big ones was the prior year -- there's three manufacturers of T4 tablets for thyroid treatments in dogs and we are one of those. We've been substantially on the spot all the time. We are the new player in that marketplace. And from time-to-time, one or both of the other players have been moved -- been pushed out of the market by FDA under some compliance problems they might have.

So I think we had unusually strong fourth quarter last year on the Animal Safety side as a result of some of that. But also in the fourth quarter last year had bigger sales of our vaccine for equine botulism. That number was considerably ahead of where it finished up this year. We are the only player in that market for equine botulism. So it was just a matter of what might have been in somebody's inventories or what might have been happening, it wouldn't -- certainly wasn't that the market has dissipated any or that the competition had taken any of the product away from us.

And then porcine testing, you were seeing some of that in the 4Q?

Yes. That's still -- I think maybe you're think about -- we do some porcine testing for a couple of different porcine diseases as a part of our GeneSeek operations. That would have been for (inaudible) traditional, I think that was there. I think you may be thinking about maybe pig virus, maybe pig diarrhea problem. That -- we are not a major player there as far as testing is concerned. It is a difficult thing to send samples around to test for and it is pretty easily found at the production operation. There is not much guessing as to what's your problem is when it shows up. Where we've been a bigger player there is that we've got two products that are approved is disinfectants to control that. And all of these populations, typically, when they clean them out, after they have had an outbreak like that, they go in and clean and disinfect. And fortunately we've got two -- I'm not sure how many products are approved, but not very many that are approved has been able to take care of killing that virus.

So [that said], of course, it will continue to help us going forward on the, maybe, pig virus. The report is out this month, I read last night, they continue to be there. I think there is fewer outbreaks in a number of cases, but the population of pigs involved is -- they were a bit higher. We thought that we could immunize by self immunization that once the sow has contracted the disease, it's passed from the sow to the baby pig. Once the sow has contracted the disease, she develops her own immunity. And so, there have been programs out there that once these things broke out, I think we have 29 states now where there is problem. And once it broke out they have been immunizing sows, so they can help develop an immunity. But now there is some question as to whether that immunity is holding. So, there is still some uncertainty. We should be in a good place to be a player in health industry, though, regardless of what that outcome is.

Tony Brenner, ROTH Capital Partners.

Could you break out for the fourth quarter the sales change for natural toxins and allergens?

Could you repeat that Tony? I'm not sure I got you.

Yes. The fourth quarter change in natural toxin sales and allergen sales. I know you gave allergen for the full year, but not for the quarter, [same] as natural toxins?

Steve is going through numbers here. The mycotoxin is going to be down obviously compared to the prior year. And allergens are going to be up. Now, Steve, all you've got to do is fill in the blanks.

Okay. Natural toxins for the year are down 3%.

And for the quarter? He won't know the quarter, I think, the way he was looking for it. Right, Tony? He want to know about the fourth quarter.

Okay. Natural toxins for the fourth quarter were down 3%. And Allergens for the fourth quarter were up 3%.

Okay. Mycotoxin scaled off sharply I think beginning in the second quarter. If that's right, any read on the crop conditions for the new year and what that trend might look like, Jim?

No, it's -- in fact, I've not been reading this week, but I think we were seeing some DON vomitoxin available in the wheat crop in the northern grain belt. Is that still true, [Spotty] coming in, [Ed Bradley] sitting at his table was on this everyday and we are seeing some pretty high levels and some places come in. So I'm going to guess, our sales of that mycotoxin test kit, there is a couple of them for that problem will be up in this first quarter and probably up at this point.

So that would pick up, I don't know, probably Southern Illinois, going Central Illinois, maybe going all the way up to the Canadian border. There is going to be some spotted problems there. Weather was cool and wet at a time that crop was flowering, which is where the offset -- onset of the fungal infection takes place. That said, the crop is awfully good, the current crop is in the ground now. We got late -- there were late plantings, there's all kinds of reasons to be concerned early in the season, but as I rode around some -- across part of the country in the last week or two, it is come on pretty strong. In Central, Northern corn belt is got the corn now, that's already begun to tassel, which is -- we are not at the yet end of July. Some of that I'm sure is probably has to do with plant varieties that are planted. I think we are going to have plenty of moisture in most of the major producing corn belts. So there is not likely -- of course it is still early to make a prediction. It could get hot and dry in August and we could have a problem.

The western side -- fortunately there is not a lot grain produced there, but the western part of the U.S. is still hit pretty hard with drought and that crop is going to be concerned. I don't know, but I think right now I'd have to say we color a normal year.

Steve, you said allergens were up 24% for the year. Why only 3% in the fourth quarter?

That was -- Tony, our meat speciation test kits are in allergens. So the fall-off at Neogen Europe really impacted that number.

Got it. One other question. DNA testing, which I think includes GeneSeek, up double-digits for the year, down 11.5% in the fourth quarter. It looks like it was -- I think there was an earlier mention that there was special launch product for GeneSeek in the fourth quarter last year. Was that the reason for that metric or something else?

Yes. That was true, Tony. Last year, if you remember, our fourth quarter at GeneSeek was an absolute -- that was blowout and so the fact that they've moved in May of this year, as well as the comparison to last year's fourth quarter really are reflective of that decline in revenue. Business there is very, very strong.

Yes, that's not just the U.S., Tony, but probably I'd say dozen, at least 10 countries are feeding that supply. Our growth in genomic testing where animals coming out of Europe is good. That stuff goes through Neogen Europe and funnels its way into Lincoln, to those labs, most of it does. Same thing is true in Brazil, where we have major program down there with Zebu-type [novaric] cattle. These are the guys, for sure, Brazil is going to -- one of those is going to help produce meat protein for the middle-class going forward.

And we are getting some samples out of China, where the Chinese are concerned about -- [they have] replacement programs, (inaudible) as they build their opportunities there.

So GeneSeek, we tend to think about it sometimes as US and think about it as being located in Nebraska. It is really worldwide.

When you say you are looking for acquisitions in China or you might make some acquisitions in China, would these be distributors or testing companies or (multiple speakers)?

[It would be] for improved distribution, Tony.

Brian Weinstein, William Blair.

This is actually [Matt], asking the question for Brian. Just want to quickly follow up on the previous question about the GeneSeek opportunity. Obviously you've been very positive about it and with the new addition facility in Lincoln, certainly can be positive moving forward. When might we see the actual revenue start escalating, start ramping, sort of see some return on these investments you've made?

I'm not sure I answered the question. Let me answer the first part of it. We are already -- beginning next quarter, we will see an improvement. Our depreciation on the facility is less than our cost -- our cost of occupancy in our own building is less than what our least cost would have been in the facilities we moved out of. So we've reduced our cost. And we've certainly streamlined operations as a part of that new facility. I'm still excited about it. It's one that we built for something to be twice or three times that size. So we got a lot of capacity, lot of straight flow-through. Nobody really ever had the opportunity to build an animal genomics laboratory before, because this is such new technology, but our guys did the engineering on it, and worked our way through with it and just did a super job.

So we are going to reduce cost as a result of being in a new facility. So, if you are wondering about what the payout is going to be, when are we going to see a return, we are already seeing good return there. This is just going to enhance it. So maybe there is something, Matt, I've missed as part of that question. Steve?

Matt, were you looking for revenue growth? Is that --

Yes. Sorry, that's specifically what I was looking for, as when we might start seeing a ramp on the revenue side? Sorry, I supposed to be more clear there.

18% I think is a pretty good ramp. We were up 18% this year compared to last year. Our sample numbers were up. Steve, what was in your figures, 37%? We ran 37% more samples through that facility. So I'm not sure that 18%, 20% growth, I kind of think it might be all right. I'm not sure we can handle a lot more than that from year-to-year.

And then just a follow-up thinking about operating margin share, I'm sure Jim, you brought up again that 20% has sort of been that watermark where you have targeted over the years. Obviously a bit below that now. When do we start seeing -- I think you said pretty quickly here, but what is that ramps look like back up to 20%? Is that four quarters, is that eight quarters? How should we think about things kind of getting back up to that level?

We are in the final throes of budget right now. I can't exactly remember where -- when we see that breaking out. It begins to break out certainly this quarter. There was some cost related to those acquisitions that -- were acquisition cost-related. We expense them now and used to -- we could -- [and drive] them over time. So I'm sure some of those things impacted us in the prior year that we won't feel that impact coming on this year. We still got some customer-based intangibles to get figured in. Those are costs that are noncash costs, are FASB-related, since we got to try to figure out how to take the mistakes of getting goodwill off the balance sheet and those we have to begin to deal with. We will see it in the year that we are in now, in the current fiscal year. I don't remember exactly what the increase goes from quarter-to-quarter, since I'm just now beginning to learn to live with these new budgets. Steve, you've got a better memory?

We are going to see operating margins move up probably 1% each quarter or so next year. So we will be back knocking on the 20% door by the end of the year, Matt.

Charles Haff, Craig-Hallum.

I had a question about your ContraPest and the SenesTech press release that you put out June 16. I'm wondering if you could give us some idea of market sizes for ContraPest? Maybe if you could share any estimated royalty rates and if there are any manufacturing capacity issues at your facilities for producing ContraPest?

You are pretty perceptive, Charles. I got the call yesterday, I wanted to know who is this guy from -- wanted to know about Neogen and the ContraPest. And I said, well, he is okay, you can talk to him. So as I know you have been nosing around and found our partner in Arizona down there, and he said that you had been asking a lot of probing questions.

I think it's a little bit premature to do a lot, other than -- we felt like we needed to announce it. It's a technology that's been getting a good bit of attention over the course of the past year. There were a number of people who wanted to do something with the technology, wanted to license it from the SenesTech people, they'd own it now. We have been working with them all along. And we felt like it was time to announce that it was out there and we're going to do something.

It is a product that will control population, as a -- it is a contraception device to be fed through as a bait to essentially sterilize males and put females into menopause -- premature menopause. If you can think about female rats in menopause, they don't live but a couple of years anyway, unless they have to get in the wrong fight, but we think it's going to be a good contributor to help hold down population. It won't replace our current rodenticides, but it will take care of that portion of the population that becomes bait shy. We think it's going to be helpful. It's the only technology like it that is available today. It is all patented and we've been working with that group all along for at least past year. It is -- I think the final applications go into EPA for approval sometime probably in the next 60 days. And I think it will be on the fast track when it gets to EPA.

You never know, I think we could see that product approved and ready for sale sometime -- probably sometime early next calendar year before it gets on the street. In the meantime, we are doing a lot of work with it, beta-side work. We got some going right now in some of the strongest rat production areas in -- on the East Coast, Southeast Coast. I talked to the guys yesterday, they said they thought that there was a lot of rats in New York subways, but they were nothing compared to what they saw in a hog farm.

So we think it's going to be helpful. We will manufacture the product. We are in the process of putting together the additional materials that we are going to need for manufacturing. We do have facility space at our Randolph, Wisconsin plant to do that. So we are gearing up to be ready to go. It's just a little premature to predict exactly when.

And when you guys were doing the work on this, did you or Greg Hastings kind of estimate the market size?

Yes, we estimated the market size. But I'm not sure I want to talk about that.

Okay, fair enough. And how about Australia? Can you talk just for a second about your operations in Australia that you currently have? What do you have on the food and safety, food and animal side in Australia?

Really I'm not sure where the question came from. We've got a couple of good distributors down there that are handling product for us. But I would say we are not real strong in Australia. I mean we are there, we are a player, but we don't have any of our own feet on the ground down there.

(Operator Instructions) Jason Rogers, Great Lakes Review.

Would you provide the year-over-year growth in the quarter for the international operations in total, as well as Europe, Latin America, and Brazil?

You wanted year-over-year revenues, that's what you were looking for, Jason?

Correct.

I know Steve's got it.

I do have it, because I was just handed it. So our international growth year-over-year is about 16%. And so that will put us at a total of about 38.8% of our overall sales -- our international. Then you'd asked about Europe?

Right. Europe, Latin America and Brazil.

Did you want that in terms of the Company? You know what, I'll give you the -- Europe is about $46 million with all of our --

I think he wants to know what the percents were, we got the percents in there. Europe was up 24% I think, and I've got year and quarter mixed up, but you've got those --

Europe was a 24% increase, Brazil 38% and Latin America is up 18%.

And what are your projections for the CapEx for FY15, as well as the tax rate?

We are still putting the budgets together, but I think CapEx is going to be somewhere in the $9 million, $9.5 million range. And I think our effective tax rate is going to be somewhere around 35.5%.

And we have no further questions at this time. Mr. Herbert, please go ahead.

Yes. Well, thank you for joining us this morning. I ought to make sure and mention to you, if you haven't already got the word that our invitation for our Investors summer picnic takes place this week on Thursday afternoon. If you haven't already made arrangements, well please contact Terry Maynard, our Shareholder Relations Manager here at the Company, or in fact, Steve, [Brian] any one of us. It's our time for big fun under the tent and talk about what we were doing and get a chance to visit with everybody and we will have a number of scientists and sales people, as well as a number of customers in. So we would certainly make sure to invite you to be there.

And then thank you for your continued support throughout Neogen's FY14, and we look forward to continue to share the good news with you as we finish up what's now the first quarter of 2015. So we don't have any other comments from here. Have a good day.

Thank you, everyone. And thank you, ladies and gentlemen. That's concludes today's conference. Thank you for participating. You may now disconnect.