Q4 2019 Earnings Call
Greetings and welcome to the Balchem Corporation quarterly conference call for the fourth quarter 2019 financial results.
At this time, all participants will be listen only mode.
A question answer session will follow the formal presentation.
If anyone say should require operator assistance during the conference. Please press star zero on your telephone keypad.
No. This conference is being recorded.
At this time I'll turn the conference over to Martin thing to see Chief Financial Officer, Mr., Ben you may now be get.
Thank you Rob good morning, everyone and thank you for joining our conference call. This morning to discuss the results about kind of corporation for the quarter ending December 31st 2019.
My name is Martin banks, <unk>, Chief Financial Officer hosting this call with me as Ted Harris, our chairman CEO and President.
Following the advice to our council or are some of the FCC at this time I would like to read our forward looking statements.
This release does contain or like you will contain forward looking statements, which reflect balchems expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward looking statements will prove correct and various factors could cause results to differ materially from our expectations include.
And risks factors identified him about comes form 10-K.
<unk> looking statements are qualified in their entirety by this cautionary statement I will now turn the call over to Ted Harris, our chairman CEO and President.
Thanks, Martin Good morning, and welcome to our conference call.
Before I get into the corridor I would like to reflect for a few minutes on some of the significant accomplishments the balchem team achieved over the past year.
2019 was another strong year for Balco financially, we delivered sales of $643.7 million with year over year sales gross and three or four segments.
Human nutrition, and health animal nutrition health and specialty products all delivered record sales performances in 2019.
These sales drove record adjusted net earnings of $103.7 million compared to $97.8 million from the prior year, an increase of $5.9 million or 6.1% and record adjusted EBITDA of $160 million an increase of 0.7.
Million dollars, 4.5% from the prior year.
And free cash flow remains strong at $96.1 million in 2019.
Strategically we also had a good year as a company, we're striving to make the world a healthier place by providing innovative solutions for the health and nutritional needs of the world and at the same time operating with excellence a strong stewards of all our stakeholders, we're making progress on coleen mineral enemy.
You know acid nutritional understanding and awareness and our investments in new product development external studies and new science development are making a difference for the future advancement of our chairman animal and plant nutrition franchise.
[noise], most notably as a result of internal developments, we launched several new products to the market that are making a difference including a line of silica freaky laded minerals and an improved compaction calcium said trade maliki laid in mineral for human nutrition and health.
We expanded our pets your line of products for the companion animal market to include century inclusions for pet treats and we introduced Aminoshure XM. Our next generation rumen protected my signing that delivers enhanced bioavailability and superior feeds stability.
And we launched an organic key laid it potassium micro nutrients holier applied product to fill out our line of organic micro nutrients for plant nutrition.
At the same time correct startled research and studies are also making a difference including work we're doing with our partners within human nutrition and health one child cognition. The development of a coleen biomarker exploration of the synergies between coleen and D.A.J. absorption the invention if.
Jason magnesium tea leaves.
The development of a unique treatment for autism and all of the work we are investing into explore the broad ranging benefits of coleen mineral and amino acid nutrition for mana, gastric and ruminant species within animal nutrition and health.
We also remains active on the acquisition front completing the acquisitions of chemo gas in May of 2019, and Zumbro River brand Inc. in December we have effectively completed the integration of chemical gas into air specialty product segment, and we have been realizing identified synergies as we leverage this.
Acquisition to create a global performance gases business, that's services, our customers' needs for ethylene oxide and other products worldwide.
We have also been progressing the integration of zumbro and already realizing some synergies and we further enhance our portfolio of solutions in the food and beverage industry, particularly through his onbrez unique high protein products and extrusion manufacturing capabilities. Both of these acquisitions contributed nicely in 29.
18 to our financial performance in our strategic positioning and capabilities.
From a corporate perspective.
We significantly progressed, our effort to consolidate our five ERP systems into one Microsoft dynamics 365.
This 12 million dollar initiative is critical for the continued growth in operational efficiency of the company.
After all of the planning implementation started in earnest in 2019, as we significantly progress the stage ERP implementation across our businesses and network of manufacturing sites ending the year with approximately 60% ever users and revenues now on the new system.
This has been a tremendous amount of work, but we're very pleased with the progress to date and we look forward to full implementation in 2020.
We also executed a modest stock repurchase program to both offset the dilution associated with our equity incentive plan and provide a return of capital to our shareholders.
We largely offset the dilution by repurchasing approximately 230000 shares at an average cost of $88. Since 58 cents per share. This stock repurchase program is one component of our overall capital deployment strategy that focuses primarily on investing in organic growth opportunities.
Provide an attractive return.
Renting our organic growth through strategic M&A, where appropriate paying down debt and maintaining a strong balance sheet and retaining and growing our dividend to our shareholders.
And lastly, Balchem released its first sustainability report in 2019, which captures the company's commitment to managing our environmental social and governance or E.S.G. performance. While this is our first formal sustainability report we have spent the past 50 years passionately engaged and.
Bring innovative solutions for the health and nutritional needs of the world, while operating our facilities and business as to the expectations of all of our stakeholders. Our ambition is to build a stronger and more vibrant company that meaningfully contributes to making the world a healthier place.
And this report shares the foundation, we have built and communicates our commitments to these objectives, we look forward to making further progress on our SG initiatives in 2020 and into the future.
All in all another strong year for Balchem, both financially and strategically and we look forward to continuing our momentum into 2020 and beyond.
Now with regard to the fourth quarter of 29 team. This morning, we reported record quarterly consolidated net sales of $166.5 million, which resulted in fourth quarter net income of $20.4 million or 63 cents per share on a GAAP basis our.
Fourth quarter non-GAAP net earnings of $28.4 million or 88 cents per share exclude tax adjusted non cash amortization and other items as detailed in our earnings release. This morning of $8 million to facilitate comparative evaluation of operating performance versus.
As the prior year period.
These record non-GAAP net earnings of $28.4 million or 88 cents per share represent an increase of $3.3 million or 11 cents per share compared with the prior year quarter of $25.1 million for 77 cents per share.
We also delivered quarterly cash flows from operations up $33 million for the fourth quarter 2019, with quarterly free cash flow of $26.3 million.
Our quarterly net sales of $166.5 million for 1.8% higher than the prior year comparable quarter, we achieved sales growth in three of our four segments with all time record quarterly sales in our human nutrition, and health and animal nutrition and health segments and fourth.
Record fourth quarter sales in our specialty product segment, which were partially offset by the significant decline in our industrial product segment, where volumes related to oil and gas fracking room, but remain low compared to prior year.
The impact of foreign exchange to our sales was a negative zero point $7 million stewards of the weaker euro driving a negative 43 basis point impact to our year over year sales for us.
Our Q4 consolidated gross margin dollars $54.3 million were up $3 million or 5.9% compared with $51.3 million for the same period in the prior year.
Our consolidated gross margin percent was 32.6% of sales in the quarter up 125 basis points from 31.4% in Q4 of 2018.
The 125 basis point increase was primarily due to mix and certain lower raw material costs.
Consolidated operating expenses for the fourth quarter, 2019 worth $30.7 million as compared to $24.1 million in the prior year. The increase was principally due to incremental operating expenses related to the CMO gas and zumbro acquisitions increased transaction.
In integration costs higher bad debt debt expense and a non cash restructuring charge in the human nutrition and health segment.
Excluding noncash operating expense associated with amortization of intangible assets of $6.4 million operating expenses were $24.3 million or 14.6% of sales.
Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SGN a infrastructure.
GAAP earnings from operations for the fourth quarter were $23.6 million, a decrease of $3.6 million or 13.2% compared to prior year on an adjusted basis as detailed in our earnings release. This morning earnings from operations of $33.1 million were down 0.5.
$5 million for 1.4% compared to $33.5 million in the prior year.
Adjusted EBITDA of $40 million was zero point $4 million or 1% above the $30 million to $39.6 million posted in the fourth quarter of 2018.
Interest expense for the fourth quarter, 2019 was $1.2 million and our net debt was $182.9 million with an overall leverage ratio on a net debt basis of 1.1.
The company's effective tax rates for the fourth quarter, 2019, and 2018 were 8.9% and 19.5% respectively. The decrease in the effective tax rate is primarily attributable to discreet items, particularly related to tax reform clarifying regulations incremental.
R&D tax credits and certain lower state taxes.
Consolidated net income closed the quarter at $20.4 million up 0.2% from the prior year quarter.
This quarterly net income translated into diluted net earnings per share of 63 cents for the current year flat with last year's comparable quarterly result of 63 cents on an adjusted basis and as detailed in our earnings release, our fourth quarter. Adjusted net earnings were 28 point.
$4 million or 88 cents per diluted share up $3.3 million or 12.9% compared with $25.1 million for 77 cents per diluted share in the prior year quarter.
We generated quarterly free cash flow of $26.3 million, and we closed out the quarter with $65.7 million of cash on the balance sheet.
I'm now going to turn the call back over to Martin to go through the detailed results for each of our segment.
Thank you Ted.
The quarter, our human nutrition and health segment achieved all time record quarterly sales, some $90.3 million, an increase of $3 million or 3.4% from the prior year. The sales increase was primarily driven by higher sales and our ingredient solutions business, partially offset by lower series.
Systems volumes.
Our human Nutrition and health segment also delivered fourth quarter earnings from operations of $9.2 million decrease of $3.1 million or 25.3% to compared to the prior year, primarily due to several discrete items, including certain manufacturing inefficiencies higher bat.
Against this largely attributed attributable to the Dean foods bankruptcy and a non cash restructuring charge associated with the exiting although a small underperforming product line, partially offset by the aforementioned higher sales.
Excluding the effect of noncash expense associated with amortization of acquired intangible assets of $4.8 million $1 million sub restructuring costs and an inventory valuation adjustment of 0.1 million adjusted earnings from operations for this segments were 15.2 million.
$1, a decrease of $2.4 million or 13.8% compared to $17.6 million and the prior year quarter.
Our animal nutrition and health segment delivered all time record quarterly sales of $48.4 million, an increase of 2.8% or $1.3 million compared to the prior year.
The increase in sales was driven primarily by higher volumes and improved product mix within both our Mona gastric and ruminant businesses.
Ruminant sales were up approximately 7% and we're encouraged by the rice in class three milk prices to levels not seen since 2014.
Which is a welcome change from a long period of poor day, Rick economics, creating a healthier environment for us to market our unique lineup products for the health and nutrition of day recast.
I want to gastric volumes were up approximately 5%, but we continue to experience competitive price pressure in Europe, and we expect us to continue in the near term.
The impact of foreign exchange is most notable in our animal nutrition health segment with a negative 0.4 million dollar impact in the fourth quarter driving a negative Cerro 0.8% impact two year over year growth.
[noise] animal nutrition health quarterly earnings from operations were an all time record of $9.4 million up $2.4 million or 34.9% from the prior year quarter, primarily due to the aforementioned higher sales and certain lower raw material costs.
Partially offset by the continued competitive pressures on pricing in the European Monogastric business.
Our specialty products segment delivered record fourth quarter sales up $24.0 million as compared with $17.6 million for the prior year quarter.
The increase of 36.8% was driven by higher sales of ethylene oxide for the medical device sterilization market due to both the contribution of chemo gas and higher legacy product sales, partially offset by lower volumes and the plant nutrition business.
The specialty products segment also achieved record fourth quarter earnings from operations of $6.2 million versus $5.8 million than the prior year quarter, an increase of zero point $5 million or 8%.
Excluding the effect of non cash expense associated with amortization of intangible assets of $1.7 million fourth quarter adjusted earnings from operations for this segment were $7.9 million compared to $6.5 million in the prior year an increase of one.
$4 million or 20.7%.
The increase was primarily driven by the aforementioned higher sales, partially offset by mix and higher operating expenses due to the chemo gas acquisition.
And our industrial product segment.
Sales of $3.8 million decreased $7.8 million or 67.3% from the prior year quarter, primarily due to reduced sales of coleen and calling derivatives used in shale fracking applications.
We continue to experienced significantly lower demand within the industrial product segments, not only due to slower fracking activity, but also due to operators starting to recycle more fracking fluids as well as eliminating additives where possible in order to reduce cost and preserve cash.
We're not seeing any recovery in the fracking activity at this time and we're not expecting in a recovery in the short term as such we remain cautious about this historically cyclical markets.
Our earnings from operations for the industrial product segments, where zero point $3 million a.
<unk> decreased a 1.8 million compared with the prior year quarter due to the lower sales volumes I.
Im now going to turn the call back over to Ted for some closing remarks.
Thanks Martin.
Fourth quarter, we delivered year over year revenue growth across three of our four segments with strong consolidated net earnings and cash flows from operations, while facing the previously noted challenging market conditions within oil and gas and certain discrete cost items in human nutrition and health.
Our net debt leverage ratio of 1.1 times, adjusted EBITDA strong balance sheet and revolving credit facility provide us the flexibility to capitalize on both organic and inorganic growth opportunities.
Strong positions within the markets, we serve and we believe we are well positioned to generate healthy growth over the years to come.
We're pleased with the progress made on our key strategic growth initiatives in Q4 and throughout 2019, and we'll continue to work on strengthening our company by focusing on our core strategies exercising disciplined cost management and seeking value, creating acquisition opportunities now like to hand, the call back over to Martin who.
Open up the call for questions Barden. Thanks. Good said this now concludes the formal portion of the conference at this point, we will open up the call for questions.
Thank you to ask a question today. Please press star one on your telephone keypad and a confirmation tell indicate your line is in the question Q.
You mean press star to affiliate your move your question from the Q.
Participants that are using speaker equipment, maybe necessary to pick up your handset before pressing the star Keith.
One moment please poll for questions.
Thank you.
First question today is coming from the line of Brett Hundley with Seaport Global. Please proceed with your question.
Hey, good morning, guys.
Right.
I have a few housekeeping questions. If we can move through them pretty quickly because I do want to ask you a couple of questions about the H. and H. segment.
So just first Martin is your tax.
[noise] expectation for 2020 still in that 24% range and if so.
Maybe I can flip the question to both of you because.
By my math, that's kind of present about a 20 cents headwind too.
Yes for 2020.
Which could play around with the optics on the EPS line, but but if that is the case.
I know you don't want to give formal guidance, but what's your expectation at least be that you would intend to grow EBITDA during 2020.
Let me comment on the tax rate first.
I would say that.
Rob 23%.
Based on what we know today, where we see the tax rate for 2020.
You solve as the in 19, we were able to drive a much lower rate due to certain discrete items, but if we just take what we know today I would plan for about 23% from a tax rate perspective.
On your question regarding whether we're planning on growing EBITDA I would say were quite well positions, where we sit today in terms of our outlook for 2020 it.
Putting some nice growth to both our top line and our bottom line in 2020.
Thank you for that.
And.
The other one I wanted to ask you was on chemo guess.
And can you explain that contribution in Q4 on the topline your specialty segment.
Grew net net by about $6.5 million would you put the contribution from chemo gas in that same ballpark.
Yeah, Chemo grass contributed approximately 7 million you around to the closest full million.
Were you had a little bit of it down tick was on the plant nutrition part of.
Specialty products.
Yes.
Okay perfect perfect.
And.
Maybe I'll, maybe I'll go into my questions on H. and H. and then.
Get back into queue, but.
So my first question on H. and age. Thank you for calling out the Dean foods bankruptcy during the quarter I want to try and understand that discrete item a little bit better and then also ask about the manufacturing inefficiencies.
So have you changed your exposure to Dean at all given the announcement you know there is some talked at the effect could come in.
And by some assets, but have you have you changed your exposure there at all and given that they have lined up some financing.
Would you expect.
No the risk profile or that particular discrete item to to go away in subsequent quarters here I'm, sorry that I'm asking you a question about a specific customer.
And then secondly.
The circumstances around the manufacturing inefficiencies are they tie it all to the ERP implementation or would it be something else, where you can give us confidence that we might not see that see them in subsequent quarters.
Let me comment quickly on the bad debt Brent first now that Ted chime in as well in terms of the exposure. We have obviously changed at terms. So we're not taking any risk with deem that the moments where still delivering product to them since they need our ingredients, but they are paying us in advance now so there's no.
We're not building up any exposure to them or or DFI. In this case, that's looking to acquire that.
That's the second part of the question going into the manufacturing inefficiency.
As it related to the ERP I would say no.
Doesn't have anything to do with the ERP piece.
We had.
I would call it unusually high yield losses, and off spec material and the fourth quarter, particularly within our ingredient solutions business.
Which was no result out of the ERP implementation.
You know weve addressed a number of these here in the fourth quarter and we're still working through some of them here early in the first quarter.
We would expect to be back up and running as normal here in the foreseeable future.
Yeah, we held just kind of add on to margins comments, we had about $4 million of what I would describe as unusual additional costs and hair human nutrition and health business. In Q4, we already spoke about the bad debt, which again round numbers was about.
A million dollars.
Yes that really is behind us highly unusual for us to have bad debt very rare occurrence in our business. We don't have any further risk associated with Dean foods and at least we do have.
We don't like to rely on hope at some hope that we may get some of that back over time as a critical vendor to dean foods or or de essay.
We had $1 million, the restructuring, which was a noncash event.
This is a part of the plant that made a very specific product.
Is underperforming and we just decided to exit that business, because we really needed the room.
To add some additional equipment to really try to grow a new piece of business and then we had the manufacturing efficiencies, where which again, we're about $2 million.
Rounding out the the 4 million then.
And I think.
Martin covered those well.
Obviously that was a significant hit two to Q4, but we understand what they were they were completely internally driven and we do believe.
They are partially behind us and over the course of of Q1.
We will address.
And full and.
And those issues will be behind us.
Okay, that's really helpful and so if I can maybe just summarize the last part there.
Including maybe any normal seasonality that we see in the model.
We can we can build a bridge potentially from Q4.
To Q2.
And maybe there'll be some some improvement in the Q1 margin.
Q4 relative to Q2, and then we should be back at kind of that full run rate margin. In Q2 is that is that fair.
Absolutely Okay. Okay, perfect and then just my last question before I jump back in the queue, Ted I thought that the.
The Zumbro acquisition was really interesting and and I wanted to ask about it.
In the sense of the.
The nature of your B to B business, and the H. and each segment and I mean.
So what zumbro signifies is nothing new you guys have.
Have been involved and what I'll call co manufacturing for a while now and as I look at your H. and H. business I kind of think about it in multiple ways. I think you guys have that b to B business, where are you sell ingredients to.
You know food manufacturers and the like and then you also you know seemingly are moving into this business, where where you can have b to b options into the retail set where were you almost operate as.
I'm, a private label producer and called manufacture.
Do you think that I'm, describing it well there and does umbro further signify a potential move by Balchem, where you see more and more opportunities on the co man side.
Given growth and maybe even a potential margin profile there I hope that question makes sense.
Yes, it does Brett, but I don't think that December acquisition signifies a move more toward.
So manufacturing I think.
The way we view this umbro acquisition was really I think twofold one is they.
Had some unique capabilities in an area, where we're already engaged they they're extruding products, we extruded products.
And they have a unique product offering in and high protein extruded products for snacks.
Snack bars and and so forth.
And we've struggled to get into that.
Side of the market before so this is an example of.
Really not to manufacturing. It's an example of us manufacturing AG unique product in offering it to that to the.
Snack market and.
We liked.
Capability and they we thought that it would be synergistic with our other capabilities and allow us to have a broader offering to the to the snack market.
Yes, there is a co manufacturing part of this than I think the strategy there was a opportunistic opportunity too.
Consolidate the market somewhat take costs out and improve the operating performance of.
Zumbro by integrating it with the larger balchem and those really solely where the too.
Strategic.
Lenses I guess that we we looked at the zumbro acquisition through and ultimately decided to do it.
Great. Thanks for the clarification on I'll jump back into queue.
Thanks.
Our next question is from the line of Ram Selvaraju with HC Wainwright. Please proceed with your question.
Hi, Thanks, very much for taking my questions, maybe you could start off with some borough.
I was just wondering what you had disclosed regarding the metrics surrounding that acquisition.
If any.
So maybe I'll just kick this off and then Martin can give you specifics. So we had signed an agreement with.
With the former owners of Zumbro initially too.
Not announce specifics, but we are free to disclose some specifics to you now so so Martin can go ahead and share with you to some of the numbers, yes, absolutely idea the enterprise value, we paid sort of on a cash free debt free basis for some ROE was $52 million.
So that represents a multiple of about nine times 2019, adjusted EBITDA for them.
And.
1.6 times sales.
So.
It's a it's a sub 10 multiple that we paid for this acquisition.
We do expect some brought to be accreted to us.
Both from a GAAP and adjusted EPS perspective.
In 2020.
And.
In terms of synergies, we expect to drive about 5% of their revenues.
In synergies.
Where the majority of that is cost synergies that we have a pretty pretty clear line of sight too.
Okay perfect. That's very helpful and while we're on the subject of synergies I was wondering if you could give us an updated picture on the realized and projected synergies if any.
The wake up the key merger chemo gas acquisition integration.
Sure. So again Martin you can.
Verify but but we had said similarly about 5% of.
Sales relative to two synergies and I would say in the middle of January late January.
We really.
I think we're operating at a run rate that amount and so it took us a you know the remainder of 2019 too.
Get the costs out but.
Early here in Q1, I think we're operating at at at that run rate. Martin you can maybe give some specific no no that's.
But as a factual statement so.
Okay.
And that was really a combination of of.
Largely of costs organizational cost and art purchasing costs.
And we do have some sale synergies there they're coming but the.
The cost synergies really have have added up to.
The total number already so yes.
Okay, and then just a couple other quick ones I was wondering if you could comment on whether you're seeing additional interest internationally within the age in each segment for.
You are coleen product, particularly in light of the possibility of essentially combining them with existing.
Supplement courses or supplement regimens are supplement products.
So by folks.
Internationally, particularly for example in Asia Pacific Region, and if you think that there might be potential for additional collaborations that could be synergistic with are incremental to your existing each in each business because the recent clinical data that's been presented advocating for enhanced incorporation of colina.
Some of those regimens.
Yes, yes, the short answer is absolutely we think that that.
We have strong opportunity and and.
The Asia Pacific region.
Europe and in the Americas based on the clinical data.
That.
Has been developed is being developed and we really believes that the.
Opportunity at hand, as we speak as is first and foremost in the prenatal vitamin.
World and the.
Companies that were working with.
Tend to be fairly global they may be run regionally, but fairly global than we do see.
In products being introduced in one region, leading to opportunities and another region for example, PNG.
I think formally Mark just launched a new.
Prenatal vitamin that includes a fairly nice.
Dose of Coleen in it and this is a product that's been on the market for years. It's just been relaunched now to include Coleen and that came from work that was done in the Americas and and and so forth. So.
We do see the you know.
Interest in nutrition and globally as a as a real opportunity for us and we are seeing.
Yes specific opportunities get across the goal line in really each of the regions.
Okay, and then just two other quick items on the European monographs strict pricing front can you comment on whether you expect to see trends that.
I have already emerge.
2020, or do you think there microessentials, we'd be additional improvement on that front and then lastly with regard to the.
Industrial product segments because of the challenges that have been seen the fracking industry, which don't appear to be going away anytime soon are you strategically reevaluating outcomes positioning.
Business line.
Kind of on a more comprehensive basis and would that potentially be the possibility that you might look to exit that business entirely or are you still hopeful that at some point or turnaround will that's it. Thank you.
Sure.
Start with with monarch gastric in Europe and.
From our perspective, obviously.
Much of this is drip being driven by China and competitors from from China.
And and they're being impacted significantly by the African swine fever, and now you know probably to some extent by the Corona virus and yes. So it's.
I guess part of my answer is it's really a.
An uncertain environment and it's it's fairly hard to tell but but our perspective is that.
The the situation is relatively stable.
We are seeing a higher prices now out of China, which we don't necessarily want to.
Take to the bank, but I think it's an encouraging sign that may be driven by internal logistics within China driving up.
Raw material costs, and so forth because of the Corona virus, not 100% sure about that but we think minimally it stable potentially some some positive signs of things changing a little bit there.
And but we're certainly kind of planning on at least it you know it being stable, where we've seen it for the last few quarters and having to deal with that.
For the entirety of 2020, but but some positive signs.
Relative to fracking you know we do continue to believe that coleen is an important part of that clay stabilization.
Mix and we do feel if and when the market comes back there's an opportunity for for growth.
But having said that we're always looking at our businesses from a strategic lens you saw us actually divest to small business.
In 2019 that was underperforming and we just didnt feel like it had.
Future gross to it and.
So we did to decide to divest it.
But.
We don't have any plans at this point this is a comp complicated.
Business for us because it's very synergistic with there.
Animal nutrition, and health business, and the and the product that manufacturers that manufacturer.
Essentially selling coleen, which is very similar to the coleen that we're selling in the animal nutrition and health space.
But well continue to look at it strategically and and.
Relative to what we think.
The growth opportunity is long term versus the.
Investment at cost of remaining in the business.
Great. Thank you very much.
Thank you as a reminder, in your press Star one to ask a question. The next question is from the line of Mitra Ramgopal with Sidoti.
Given your question.
Yes, yes. Good morning, thanks for taking the questions, perhaps just wanted to start to the housekeeping one.
I'm not sure if could give any impact of the transaction and integration costs for the quarter.
In terms of just total transaction costs.
Yes, the impact on that from a dollar.
Yes, we had in the fourth quarter about sort of a million 1.2 million of transaction costs in the fourth quarter.
Okay.
Thanks, and then on ERP I know you said you're about 60%.
Finished with that or 6% of the businesses on the system I was just wondering.
When you expect to have that completely.
Finished and I was sort of looking for maybe already 2020, but it sounds like it might go beyond that.
Yeah, I think that that.
What weve.
We are targeting at today is I would say mid 2020 as opposed to early 2020, maybe late summer.
Yeah, we do have.
Some flexibility here too too.
Kind of manage this timeline as we see fit but but the current timeline has us has us.
Fully implemented.
Excluding I would say zumbro at this point in time, the new acquisition by late summer.
Okay.
Chemo gallons or no part of the plan so yeah no.
Okay. Okay. Thanks.
Just to be clear I think Ted obviously, it's a little too early.
In any impact on Corona virus, but do you think it could potentially.
Benefiting similar to what we sell but did disruption back.
A couple of years ago.
You know.
Obviously, it's tough to say, but you know I would say, we're we're watching it very closely and its you know, it's just hard to predict.
Our direct exposure is relatively limited we have about $5 million of sales.
Into China, we buy about call it $10 million of raw materials.
From China.
All of which we are somewhat concerned about we are seeing some impact on that $5 million with with lower orders.
We think that this it that is is just temporary.
But yeah, it's starting to impact.
What is a relatively.
You know minor part ever overall companies sales.
Yeah, we've been taking proactive actions trying to build a little bit of inventory of raw materials in finished goods.
To give our supply chain, a little bit of a have a buffer.
Yeah, we're starting to see even.
Some.
See shipments and container availability issues shifting from Europe to the middle East.
Because of.
As issues in a in China. So there's some indirect impact so as well and I would not describe any of them as major at this point, but we're watching it very closely and as I said trying to.
Execute on some mitigating strategies, where possible, yes as a positive.
Upside that may be referred to.
You know sort of yet to be seen but it's just another.
Complexity of buying.
Products from China for our customers, who look at our products versus Chinese supplied products and and you know there could ultimately be some positive lift there for us, but again, that's that's really yet to be seen.
We certainly havent havent seen any yet and probably more focus right now on the those direct impacts.
But but you're right there there could be that positive impact as well.
Going forward, we'll have to say.
Okay, that's great and then.
I was just curious.
Any updates on the.
Yes.
And as it relates to the drug development.
Yes, there's there's nothing significant to update.
You all on relative to two that we are in the process as we have been in trying to.
Build their supply chain for ultimate launch of the product but.
I know that that a.
Sure Mark is in the midst of raising additional funds and and kind of moving their plans forward, while we work with the.
The consultants that we need to work with in order to prepare our part for the the be law and that's really where we are not nothing.
Nothing new to report of significance there.
Okay and then.
Finally, I'd just Martin how should we think of.
Capex for 2020.
30 to 35.
In that range.
Okay.
Well, thanks again for taking the questions that's it for me.
Thank you nice feature.
Our next question is from the line of credit something with Seaport Global. Please proceed with your question.
Hey, Thank you for a follow up just had two of them.
As we look out it 2028.
And your plant nutrition business.
I would expect this year to be much more normalize I guess, we'll find out but just as a reminder.
Should we expect you to lap some of those issues from 2019 in Q2 this year or was it was there some in Q1 as well.
For platinum attrition, specifically that that's correct yes.
Yes, I mean, it what it was down year and obviously if were don't have the same wet spring in California that will certainly help we also had a de stocking happening in India was one of our major customers there that de stock during 19 that held too much inventory coming into the years, you would expect thanks to normalize as well as.
They burned through their inventory this year.
So I do think we will lap it over the first in the second quarter and get back to more normal run rate for plant nutrition.
So again I I cant guarantee whether in this case.
Barring anything unusual there I do expect it to be back to normal.
Okay and.
Then on on the and each segment.
I wanted to ask you Martin I mean.
The way I'm looking at my model and looking at your on your sales growth I see the potential for Q1 to be.
A particularly strong.
Performance on on the sales growth side, and an age I mean, you're you're you have an easy comp in Q1 and it just feels like you're building some real momentum sequentially.
And in both ruminant and motto.
So I guess I wanted to.
Run that by you and see if you would moderate my expectations at all or if indeed, you do believe that you could see quite a strong sales growth number and an age during Q on.
Yes, I you know again not not knowing your exact numbers I think.
You're absolutely right, we've really had.
Strong couple of quarters out of.
In age and it's really been.
Fundamental change in market.
The launch of particularly Aminoshure XM that that's a that's driving growth.
And you know I think a few wins that we've had a across the market as well. So it's a combination of of things all that we believe our.
Our sustainable the performance in Q4 really was.
Very strong because if you recall Q4 of last year was a very strong.
Corridor and so too.
Laughed that and build off of that we were very pleased and to show some growth in the year given 28 teens.
Yes positive gains that we saw from the lack of the Chinese in the market in Europe.
Really was encouraging and milk prices seem to be.
They've come down a little bit from the peak in Q4, but they are staying at a healthy level milk protein prices are a healthy level.
And you know we do expect.
No strong year out as our H. business building off the last couple of quarters and strengths and having that momentum continue through 2020.
That's helpful. I appreciate it.
You guys are doing a great job running the company keep up the work.
Thanks, a lot Brett I appreciate it.
Our next questions from the line of Tony Pollack with Aegis capital. Please proceed with your question.
Good morning.
Could you give us a little more update on mature mark in terms of the timing on when.
When they actually filed the phase three results and what does the timeline expected there.
Yes, so so again, it's it's.
[music].
Somewhat hard for us to exactly predict, but but our expected timeline would be for late.
2021.
Maybe into 2022 filing of B.L.A., that's certainly the.
Timeline that Curemark has us on relative to.
Getting the supply chain.
In place getting all of their quality controls and and paperwork in order.
Such that you know we are really curemark would be ready to file along that that that's sort of timeframe. So thats what were.
Working toward that.
At this point.
Okay, and I assume there.
Plan is to go it themselves as opposed to selling it to a big.
Big pharma.
Yeah. This is now just you know speculation on maybe Ted Harris is part, but but I can't help but think that they would be.
Looking at both options. There's there's no question based on what we see that they are doing their prepared to go it alone. They believe you know the market in this case, the autism market and the concentration of kind of the medical communities there allow.
Lets them to to go it alone.
So we definitely see signs in what they're doing and either hiring and their plans that they are preparing to go it alone, but I can't help but think that they.
Well our are exploring.
Either licensing or selling.
This to two big pharma.
Again, thats a little bit of speculation there we're not on their board, where we're not privy to that but we.
We certainly believe.
Believes that they are probably exploring both options okay.
Can you tell me how much they're planning trying to raise it this fundraising do you know that.
I don't know the exact number that they're they're trying to raise I do not know that Tony.
Do you know how many employees I have personally.
I do not know how many employees. They have presently I think I you know I would speculate at sub 10, but I'm not a 100% sure that.
Okay. Thanks, Great results. Thanks, Tony.
Thank you at this time, we reached the end of our unlike a portion of question and answer I'll turn the floor back to management for closing remarks.
Yes, I once again, just like to thank you all for joining our call today and your continued interest in our company also like to let you know we will be attending several conferences over the next few months on March 10th we will be attending the JP Morgan Industrials Conference in New York City on.
On May 14th also in New York City, we will be attending the 15th annual BMO farm to market conference.
And we're headed to Boston on a non deal road show with C.J.S. on March 24th So hope to see some of you at one of these events over the next few months and.
Otherwise, we look forward to reporting out Q1 2020 results in early May so thanks again for joining.
Thank you.
Today's conference you may disconnect your lines at this time, thank you for your participation.