Conference Call
Review of the financials released in press release
Revenues 28% increase - revenue increase 30 out of the last 32 quarters.
This is the first quarter being fully taxable.
11 cents EPS after taxes compares favorably to last years 2nd quarter 11 cents in which we paid virtually no taxes.
Since September there have been 20 announced recalls of food products that likely accounted for 100s of millions of dollars to the food processors.
In the last few days we released a test for egg allergens. This is an addition to our test for peanuts.
Neogen undisputedly provides the most complete line of diagnostic tests for food processors and food producers. We will have other new products that will be coming into the marketplace this year.
We were successful in our trademark lawsuit. The case cost us about $400,000 total over its lifetime and we are confident it won't be appealed. Expenses during the quarter where about $135,000 higher than the legal expense last year this quarter. That translates to a 2 cents increase over last year this quarter in legal expenses. We have one law suite left related to a patent claim that will go to court in late February 1999; we are confident that we will prevail; that will put to end our extra legal expense.
We continue to buy back shares and so far have bought back 128,000 shares, especially if it laying at the current price.
We think the 28% - 29% sustained revenue growth is acceptable. We are pleased with our EPS growth that is even better. The balance sheet continues to be stronger. We sitting with $10 million in cash and $10 million in credit. That continues to give us the ability for acquisitions, although we have not announced any, but we continue to pursue opportunities.
Our international sales are strong in a couple of areas. They are certainly holding their own despite the problems in asia. Just brought on two new people in the international area and expect revenue grow even stronger in the last half of this year.
We are not pleased with the price of our stock. We believe if continue to run the company right, our stock price will be higher.
Questions:
1. Ken Marvic(sp?) - Stock price? I see only three mutual funds that hold neog. What is the company doing to promote itself to funds?
Answer: Periodically we do mailings to funds and follow them up with phone calls. We are find that to some extent they are invoking minimum market cap standards that we don't meet. However there are some that have expressed interest that we have sent packages out to them. Its an area of interest to us and we want to continue to try and increase the number of institutions. We are trying to concentrate on those the specialize in small micro cap companies. I would encourage anyone that knows of a specific institution or fund manager that handles stocks our size they should call us and let us know and we will follow up.
2. Ken ???? - Tax rate is 36% is going to stay the same.
Answer: Yes 36% for the rest of the year.
3. Litigation expenses for the rest of year? Next year?
Answer: Bunch of discussion on the litigation expense numbers compared to last year. The answer ends up being close to 3 cents for the current quarter and will continue through the 3rd quarter at about the same rate. And then we have an expectation that we will get down to almost no legal expenses in the 4th quarter. They confirmed that it is possible that with no legal expenses that earnings could be 10 cents higher next year.
4. Economies of scale?
Answer: yes if you examine our results you will notice that on our operating expenses as a percent of sales they continue to go down because they tend to be fixed. That's why we are able to get 42% on our bottom line (pre-tax) on 28% increase in revenue growth.
5. Significant increase in after tax margin next year?
Answer: they hmmmed and hawed not wanting to predict the answer to this.
6. Sales in Asia?
Answer: Thailand mentioned. Jim Herbert just returned from China, there are no rapid tests for food safety currently in use in China. However as the economy continues to develop we see that is going to offer us some opportunities. China in some cases is an exporter. For own their own production there are huge opportunities if and when the market opens. One of the concerns in the past has been not being able to get out money out in US dollars; that is less of a situation now. 22% of revenues come for international sales.
7. Stock buy back price?
Answer: just under $7 on average. We bought back in the low $6s, recently we have been buying at $7 and higher.
8. Anything that can be done on R&D or acquisition to reduce taxes?
Answer: there might be something that could come up on an acquisition.
9. What is being done with the shares repurchased? Are they being retired?
Answer: they are being retired.
10. How big is your sales force? How do you react to a product recall in the press?
Answer: about 60 people, 36 people in the food safety area. Of the 20 recalls mentioned our test was not being used at any of these places. They have helped at least one these through their problem. We search for any recalls. We just finished our 4th year as supplier for E.coli tests to the Food Safety Inspection Service (USDA). We are going into the 5th year as exclusive supplier for the aflatoxin test to the federal grain inspection service.
11. Senate hearings this week mentioned E.Coli....
What is your industry trade show highlight of the year?
Answer: we attend over 50 trade shows. There is no premier show.
12. Overseas strategic distributors?
Answer: South and central america, we have one to two strong distributors in each of those countries. We do have some things we are doing with companies like E-Merck in Europe. Our strongest distribution comes on a country by country basis where we are working with strong distributors that already had an entre into our business and that our product helps complete their bag of products.
13. Do you have a backlog of orders?
Answer: nope, we keep up with the orders.
14. Aqua culture, seafood..why aren't your sales higher overseas?
Answer: one reason we went to China. China is largest aqua culture producer in the world, most for their own consumption. They seemed to be less concerned about the food they consume than the food they ship. The FDA haccp on seafood is alive but not well; that was a tremendous program they put in place a year ago; because of the unavailability of inspectors to keep up with that program; the implementation of the program is guessed to be less than about 50%. We see this as a growth area in the future but prompted by tightening regulations. We are seeing new regulations implemented on imports. We have more diagnostic tests for seafood than anyone else.
15. Haccp Jan 1999 regulations?
Answer: we don't expect open flood gates. We know some of the companies are implementing haccp, but we know that some will probably wait until they get the 1st inspection. |
