Q1 2020 Earnings Call
Greetings welcome to the Balchem Corporation financial results call at this time, all participants are in listen only mode.
Brief question answer session will follow the formal presentation.
If anyone should require operators isn't sort of the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Martin, Thanks, and Chief Financial Officer Mr. Basin. Please go ahead.
Good morning, everyone. Thank you for joining our conference call. This morning to discuss the results Balchem Corporation for the quarter ending March 31st 2020.
My name is Smarten banks, some chief financial Officer.
Hosting this call with me as Ted Harris, our chairman CEO and President.
Following the two I swear accounts in order to personally I see see at this time I'd like to read our forward looking statement.
It really 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 expectations reflected in forward looking statements will prove correct and various factors could cause results to differ materially from our expectations, including risks.
Factors identified about comes form 10-K forward 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.
Before I get ended the quarter I'd like to discuss our response to the Tobin 19 crisis.
As we shared in the press release. This morning, the Kevin 19 response effort has been the primary focus for the company since early in the first quarter.
Having to other three manufacturing facilities in Europe, located in Italy, one of the first countries to be impacted by the pandemic. We got off to an early start to this situation something that prepared us well for actions that needed to be taken in the rest of the world. That's a pandemic became more widespread.
We were early to take actions around the safety of employees, such as international and domestic travel restrictions site visitation restrictions to both internal and external personnel strict protocols to deal with necessary visitors to sites for example delivery drivers.
Emanation of large groups gatherings mandatory work from home for all Nonmanufacturing, a non research and development employees.
Separation of employees into smaller work groups to reduce density within work teams and new protocols relative to personal protection equipment, including face masks and sanitation procedures.
We also moved to ensure the continuity of our business and our ability to serve our customers with the important products and services they need by examining our supply chains and lowering risk by increasing inventory levels, where appropriate as well as prepositioning certain goods in various locations in case, one specific facility.
I would be disruptive.
Very early on we activated our crisis management team or CMT to manage the day to day activities relating to the pandemic response efforts and to make timely decisions.
Some examples of the early decisions made by the CMT are holding a special board of directors meeting to ensure board engagement and involvement in the response plan creation of an individual response plan for the eventuality of positive cases within our employee base based on the centers of disease control in prevention or CDC guidelines.
Execution of a communication strategy to keep employees and customers informed of requirements decisions and outcomes.
An approval of special bonuses to nonexecutive employees to recognize the hourly and salaried workforce attendance and hard work during the pandemic.
The combination of the various actions taken and the commitment and resilience of our employees have enabled us to keep all of their manufacturing sites open and running at near normal conditions, allowing us to keep our customer supply our research and development teams advancing our innovation efforts and all of our other.
Employees carrying on their responsibility isn't functions remotely we.
We have had to employees that we are aware of out of their approximately 1400 employees test positive for curve at 19. Both cases, we're early in the stages of they pandemic in both employees are recovering well, we manage the cases effectively using our individual response plan, which is based.
On the CDC guidelines and believe our early adoption of exposure mitigation actions played an important role in mitigating the impact of these cases on our employees and our company.
<unk> financial perspective, the impact of the pandemic on Balchem in the first quarter was limited.
However, the pandemic is far from over the longer it carries on the more likely it will be that impact on demand for our customers will be more significant and therefore, we are studying the markets that we serve very closely and at the same time, staying attuned to our customers needs to aid in our ability to respond to demand shifts.
We have stress tested our balance sheet and liquidity position under various significant downturn scenarios and given our relatively low net debt position of 1.1 times trailing 12 months adjusted EBITDA cash on hand access to our undrawn revolving credit facility and expected free.
Cash flows we are pleased with the strength of our balance sheet towing and going into this uncertain market environments.
Despite this relative strength, we are taking actions to reduce capital expenditures and non critical cash expenses wherever possible to preserve cash.
As we look ahead sales over the next few quarters will be challenged by weaker demand in food services, the animal protein markets, including dairy protein medical device sterilization due to fewer elective surgeries and lower fracking activity.
We anticipate that there will be somewhat offsetting potential strengthening demand in grocery store food products functional technologies, aiding food preservation needs immunity, strengthening minerals and nutrients and certain benefits from lower raw material costs Oh.
Well, we understand the market dynamics impacting these downsides and upsides is very difficult at this time to tell the specific dimensional impact of these forces, but our overall expectation is that we will experience sequentially lower overall revenues in the second quarter and for the duration of the pandemic given the six.
Terrific and disruption when economic activity across global markets, We will watch each of these markets very closely and remain nimble flexible and ready to respond accordingly.
Outcome has dedicated significant resources to the covered 19 response over the first quarter and we're pleased with the results today, given the circumstances I would like to take this opportunity. Thank all of the approximately 1400 employees of balchem across the world for their tremendous and compassionate response the panned out.
That we're all living through I cannot be more proud to be part of the balchem team.
Now with regard to the first quarter of 2020. This morning, we reported record quarterly consolidated net sales of $174.4 million, which resulted in record first quarter net income of $19.8 million or 61 cents per share on a GAAP basis.
A record first quarter non-GAAP net earnings of $26.4 million for 81 cents per share exclude tax adjusted noncash amortization and other items as detailed in our earnings release. This morning of $6.7 million to facilitate comparative evaluation.
Operating performance versus the prior year period.
Just first quarter record non-GAAP net earnings of $26.4 million for 81 cents per share represent an increase of $2.7 million or eight cents per share compared with the prior year quarter of $23.7 million or 73 cents per share.
We also delivered solid quarterly cash flows from operations of $22.6 million for the first quarter of 2020 with quarterly free cash flow of $17.4 million.
Our quarterly net sales of $174.4 million were 11.1% higher than the prior year comparable quarter.
As noted in our earnings release this morning in order to align with our strategic focus on health and nutrition, our allocation of resources and our evaluation of operating performance and given the previously reported 2019 reduction in portfolio scale of industrial products, we have revised.
They're reporting segment structure to three reportable segments, human nutrition, and health animal nutrition health and specialty products. This realignment has been retrospective Lee applied industrial product sales and production and other minor business activities are included in other in unallocated.
Achieved all time record sales in all three of our reporting segments with these record sales, partially offset by a decrease in sales related to business formally included in the industrial product segments, driven primarily by a decline in shale fracking activity.
Impact of foreign exchange to our sales was a negative zero point $5 million due to the weaker euro driving a negative 33 basis point impact to our year over year sales growth.
Our Q1 consolidated gross margin dollars, a $55.3 million were up $6.2 million or 12.7 per cent compared with $49.1 million for the same period in the prior year.
Our consolidated gross margin percent was 31.7% of sales in the quarter up 46 basis points from 31.3% in Q1 of 2019.
46 basis point increase was primarily due to mix and certain lower raw material costs.
Consolidated operating expenses for the first quarter of 2020 or $29.1 million as compared to $22.6 million in the prior year. The increase was principally due to incremental operating expenses related to the chemo gas and zumbro acquisitions and the prior year benefiting.
From the timing of an insurance recovery.
Excluding non cash operating expense associated with amortization of intangible assets of $6.3 million operating expenses were $22.8 million or 13.1% of sales.
Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing has seen a infrastructure.
GAAP earnings from operations for the first quarter were $26.3 million, a decrease of zero point $2 million or 0.8% compared to prior year.
On an adjusted basis as detailed in our earnings release this morning.
Earnings from operations of $34.7 million were up $1.6 million for 4.9% compared to $33.1 million in the prior year.
Record adjusted EBITDA of $42.4 million was $2.7 million or 6.8% above the $39.7 million posted in the first quarter of 2019.
Interest expense for the first quarter 2020 was $1.7 million and our net debt was $179.6 million with an overall leverage ratio on a net debt basis of 1.1.
The company's effective tax rates for the first quarter 2020 in 2019 were 19.3% and 24.2% respectively. The decrease in the effective tax rate is primarily attributable to lower enacted tat tax rates from several states.
Consolidated net income closed the quarter at $19.8 million up 5.2% from the prior year quarter.
This quarterly net income translated into diluted net earnings per share of 61 cents for the current year, an increase of three cents from last year's comparable quarterly result at 58 cents.
On an adjusted basis and as detailed in our earnings release, our first quarter. Adjusted net earnings were $26.4 million or 81 cents per diluted share up $2.7 million or 11.4% compared with $23.7 million or 73.
Three cents per diluted share in the prior year quarter.
We generated quarterly free cash flow of $17.4 million and we closed out the quarter was $74 million of cash on the balance sheet.
Im now going to turn the call back over to Martin to go through the detailed results for each of our segments.
Thank you Ted.
For the quarter, our human nutrition and health segment achieved all time record quarterly sales of $95.5 million, an increase of $10.4 million or 12.2% from the prior year. The sales increase was primarily driven by higher sales within food and beverage markets strong sales.
Growth of key late and minerals and Colin nutrients and the beneficial impact of this Umbro acquisition, we closed in December 2019.
Partially offset by the elimination of sales associated with the reading, Pennsylvania manufacturing site that we divested and 2019.
The impact of the covert 19 pandemic on our HMH business was relatively limited and the first quarter. However, we do expect to see some impact are coming quarters as a portion over HMH HMH business serves the food service markets were end market demand has been negatively impacted by all the shutdowns.
Our human Nutrition and health segment also delivered first quarter earnings from operations of $12.1 million, a decrease of $1.6 million or 11.4% compared to prior year, primarily due to higher operating expenses, resulting from the prior year benefiting from that.
Coming up an insurance recovery, partially offset by the aforementioned higher sales.
Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $4.8 million and then inventory valuation adjustment of 0.2 million adjusted earnings from operations for this segment were $17.2 million decrease a 1.5.
A million dollars or 8% compared to $18.7 million and the prior year quarter. The decrease as mentioned earlier resulted from the prior year benefiting from the timing of an insurance recovery.
Our animal nutrition and health segment delivered all time record quarterly sales of $48.6 million, an increase of 12.2% or $5.3 million compared to the prior year.
The increase in sales was primarily the result of higher volumes in both the ruminant and want to gastric markets.
Ruminant volumes were up over 17% with strong demand for reassure our rumen protected coleen aswell as strong demand for Aminoshure XM rumen protected Matthias thing that we launched in mid 2019.
In terms of the dairy economics, we spoke on the last two earnings calls about the healthier environment with improved milk protein prices for us to market. Our unique line of products for the health and attrition of their brick house.
With the current Cobot 19 pandemic this environment, it's highly volatile at the moment with a high degree of uncertainty and it's hard for us to predict what impact. This may have on demand for our products.
Monogastric volumes were up approximately 10% with solid demand for Aequus and dry coleen strong growth in our key laid at minerals and further supported by strong growth in our companion animal offerings, we continue to experience competitive price pressure in Europe, and we expect us to contain.
When you in the near term.
Additionally, we noted increased demand related to certain European customers, increasing their stock due to the cobot 19, uncertainties and we estimate that this contributed to eight a. and h. growth of approximately 200 basis points and the first quarter.
Animal nutrition and health quarterly earnings from operations of $8 million were up $2.8 million or 53% from the prior year quarter, primarily due to the aforementioned higher sales and certain lower raw material costs.
Excluding the effect of non cash expense associated with amortization of acquired intangible assets sub zero point $2 million adjusted earnings from operations for this segment were $8.2 million, an increase of $2.8 million or 51.2% compared to $5.4 million and the prior year quarter.
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Our specialty product segment delivered all time record quarterly sales of 28.0 million dollarss as compared with $18.4 million for the prior year quarter.
The increase of 52%, what's 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 as well as increased volumes and the plant nutrition business.
The impact of the Cobot 19 pandemic on our medical device sterilization market has been relatively neutral with a decline in schedule surgeries, largely offset by an increase in other medical equipment and supplies used to fight the cobot 19 pandemic.
The specialty product segment also achieved record first quarter earnings from operations of 8.0 million dollarss versus $6.7 million and the prior year quarter, an increase of $1.3 million or 19.2%.
The increase was primarily driven by the aforementioned higher sales, partially offset by mix and higher operating expenses due to the acquisition of chemo gas.
Excluding the effect of non cash expense associated with amortization of intangible assets of $1.6 million.
First quarter adjusted earnings from operations for this segment were $9.6 million compared to $7.4 million than the prior year, an increase of $2.2 million or 29.6%.
Sales relating to business, formerly included in the industrial product segment were $2.3 million, a decrease of $7.8 million or 77.3% from the prior year quarter.
Earnings from operations, where loss of zero point $2 million, a decrease of 1.9 million compared with the prior year quarter.
Driven primarily by decline in shale fracking activity further accelerated by the sharp decline in oil prices.
Im now going to turn the call back over to Ted for some closing remarks. Thanks, Martin Balchem team has responded extraordinarily well to the cobot 19 pandemic with especial caring for one another and a strong sense of purpose with the safety of our employees as a top priority. We have continued to provide.
Sterilants to the medical device industry coleen to the infant formula manufacturers minerals and nutrients the prenatal vitamin makers.
Mineral micro nutrients to the agricultural industry vital nutrients and minerals to the animal protein market and food ingredients to food manufacturers, given the criticality of air products and services to our customers in global health and nutrition supply chain chains.
These extraordinary efforts by the Balchem team helped to deliver solid sales growth in all three of our business segments.
Allowed us to deliver the strong net earnings and free cash flow that we reported today for the first quarter.
The Cobot 19 response effort has been the primary focus for the company since early in the first quarter and we'll continue to have to be the leading focus for some additional time period as we head into the second quarter. We will once again have to dedicate substantial resources toward the response and we recognize that there will be.
The more impact on our company in the coming quarters, the resilience of our business model combined with our net debt leverage ratio 1.1 times trailing 12 month, adjusted EBITDA strong balance sheet cash generation and access to liquidity will allow us to continue to invest in our key growth initiatives.
Long term positioning of the company, while maneuvering our way through today's uncertain global market environment.
I would now like to hand, the call back over to Martin who will open up the call for questions Mark.
Thanks Ted.
This now concludes the formal portion of the conference at this point, we will open up the conference call for questions.
Thank you.
I'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone indicate your line is in the question Q.
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Well, we totally poll for questions.
Thank you.
First question is from line of from selling Russia with HC Wainwright. Please proceed with your question.
Thanks very much for taking my question I was just wondering it's been a general sense you could comment on how differential the coated 919 impact is that you're seeing in the U.S. versus international markets, particularly Europe.
Yes.
Thanks for joining and thanks for the question.
Yes, we certainly saw an earlier impact in Europe than we did in the U.S., that's sort of the obvious.
The statement, but I think generally speaking we also saw more significant.
Pre buying activity from our customers. So when we highlighted that about 200 basis points of the overall strong growth we saw an age was.
From.
Cobot 19 related pre buy almost all of that we would say was.
In Europe, so yeah, the impact for us regionally, which is what your question was focused on was really that it was much earlier in Europe.
And.
The pre buying impact that we saw was was almost a 100% in Europe. We just did not see the same sort of pre buying activities.
In the U.S. and that may have been because.
Manufacturing sites in Europe, two of the three are we're really in they call. It the epicenter of Europe being in Italy.
And so part of our strategy was to work very closely with our customers and asked them to preorder, whereas of course in the U.S. we have plants.
Across the United States in various.
Different states and Didnt necessarily feel like we're in the in the center. So that's really been the difference regionally from from my perspective.
Specifically within the U.S. since you mentioned that you have plan spread out across the U.S. and clearly we're seeing differential responses by the individual state regarding reopening could you maybe give us some granularity on the locations up your plan relative to.
The responses to the pandemic in particular with respect to how they're going about the reopening process. How you expect that to impact the operations on an individual plant basis to whatever expense you can't.
Right, So I think at.
First important to note that that all of our manufacturing sites weather in Italy, and the epicenter or in Louisiana, or New Yorker, Ohio, Utah, Missouri, and so forth across the country have continued to operate at near normal conditions through through the.
A pandemic.
And so as states start to open up.
It really.
We'll only facilitate I would say shipments availability of of drivers and things like that that you know weve manage reasonably well through the pandemic too.
Yeah ship, our products relatively on time and.
To the full demand of our customers so.
I think that that be opening up by the states will.
Facilitate things, but not change.
The performance of the plants drastically what it will start to impact is when air.
Office employees and our sales organization start to go back to work in and work normally and and I think on that.
We've done a really good job of managing those functions remotely, whether it's it's finance or marketing or.
I T or what have you sales.
We've been managing those those relatively well, which which indicates to me we can be a bit conservative on how quickly we rush back to get everybody back in the office is obviously, we're going to do that but but we're going to take over time, because we have been able to manage those functions pretty well I'll just give a.
One anecdote we for for a long time in our animal nutrition and health business have been giving.
Seminars bye bye bye phone or video and.
Normally we get 30 or 40 people to sign up and and 20 or 30 may actually attend the call.
The ones that we've had over the last month or so we've had something like eight or 900 people sign up and six or 700 actually participate.
On the call so.
We feel pretty good about how we've been able to manage even difficult function like that sales and how we've been able to manage that.
Using tools digital tools and video conference and so forth.
Remotely so.
The opening up of the states I think it's just a real positive sign for all of US its light at the end of the tunnel.
But it won't have a significant impact on how we're operating our manufacturing sites at this point.
With respect to the demand for certain specific lines of product I wanted to App typically about three.
In the context of the pandemic do you expect ethylene oxide demand right. Secondly, I was wondering if you could elaborate on.
Human nutrition and health product you expect to see the largest increase in demand due to the pandemic for example, because the potential immune boosting capability that things like that and then lastly on the animal nutrition and health product side do you expect there to be any negative impact from livestock, calling you did this.
Corruption in the meat and dairy processing industries, which weve a quarter of course heard a lot about guarantee you out, but not really sure how that would impact Youre CNH division that all.
Right.
So obviously a lot in there and all really important topics and we tried to highlight those in our preferred prepared remarks and of course. The the caveat is it's just incredibly difficult to tell but ethylene oxide to date.
We have seen relatively.
Equal or balanced positive and negatives in the negative has been.
The reduction in elective surgeries definitely impacts.
The sterilization market, but the rush to.
Good.
Whether its respirators or other medical devices to the appropriate places.
To respond to the covered 19.
Pandemic has largely offset that so.
We reported that we did see legacy volumes.
Up in in Q1 modestly like they normally have ban I'll speak to as we've gone into April we've seen.
In the early part of April a little bit more of a negative and we're talking you know low single digits type negatives.
Associated with the.
I think the delay of elective surgeries, but towards the end of April was seen that that picked back up again, so I think it's going to be.
A bit dynamic we don't see a huge boom from.
The sterilization of masks and other things, we don't think ethylene oxide will be the chosen sterilant for those applications.
But we also see and I guess going back to your earlier question relative to demand perspective, it's nice to see certain states start.
Allowing elective surgeries and I think that that will be fairly short lived blip and we'll we'll see that.
Business pick back up so overall ethylene oxide I think relatively.
Balanced.
Positives and negatives.
On the.
A human nutrition side, we were.
Really pleased to see continued growth in minerals and coleen and there are certain minerals that are viewed as.
Immunity boosting minerals.
And those are zinc and iron and Lenny.
But I think just generally speaking people are.
Yes, focusing on their health and taking vitamins and minerals and so forth and so we're seeing.
Real strength there in.
Q1 hour volume of Coleen was up.
18% year over year minerals was 24% year over year on a volume basis.
Which are very healthy growth rates and part of that's driven by continuing work that we're doing relative to awareness part of that is the immunity nature of some of those minerals and part of that I think as people.
Increasing there.
Just intake of minerals and vitamins, so we do see those.
Continuing into Q2 and beyond that I think may actually have a lasting.
Effect as as we get used to thinking about immunity and our health. So make your question was what specifically jumping out to two those those.
Our two areas, specifically and then any animal nutrition and health.
Business.
Obviously, we were in a very very healthy environment in the first part of.
Q1, as we were in Q4, I would say business really was.
Was booming and and milk prices were high.
Protein exports were increasing and it was a very positive environment and I would say that's the area where there is the most uncertainty today milk prices have come down.
Not quite as far as we thought and have actually picked up a little bit here protein prices have come down not as much as we thought may continue to come down.
April has continued to actually be quite healthy for our animal nutrition and health.
Business, so we're not necessarily seeing.
Impact yet, but given all the shutdowns of the processing sites the backlog of.
And Tories Euthanizing of.
Some animals and the discarding of milk.
Inevitably will have some impact on what our business. It just is.
He will be linked to how quickly can the processors get those get those plants cleaned and back up and running and.
And filling that backlog and and.
Getting the milk to the you know the appropriate places and so forth. So a lot of uncertainty there we haven't quite seen it yet we had an incredibly strong Q1, we're really pleased with the results for an H. in April has continued to.
Move along nicely.
But theres just a tremendous amount of uncertainty and we're talking to their animal nutrition and health team. It really is almost a day by day.
Change in that in that market. So we're watching it very.
Closely and in our prepared remarks thought it was appropriate to bring that up as a potential.
Concern or challenge going forward.
Okay and then just three very quick things I was just wondering if you expect to take any goodwill impairment charges, specifically as a result of the covert 19 pandemic. Secondly, if you are weighing the possibility of exiting the industrial coleen segment entirely sometime over the course so.
The next few months or if you intend on staying in it for the long term pending a recovery in the U.S. fracking industry and then lastly in a general sense are you sort of making any internal predictions at this time regarding how long you expect pandemic related impact to lap that sort of two or three quarters or.
That on your end pretty open end. Thank you.
Yes.
In trying to remember all three of those but the goodwill.
Question is no we absolutely do not expect we feel like we've got plenty of cushion.
As we've gone through the audit and closing of the quarter and looked at the.
Various businesses. So no we do not expect anything from that perspective.
Relative to exiting the industrial business, we do not have plans to exit the business. It you know again, we've obviously changed our reporting structure. It just.
Didn't seem to make sense to us to be reporting out on a on a segment that's 1.3% of our revenue.
And really not aligned with our overall strategic focus.
From a corporate perspective, but as we've talked before these are sales said that.
Leverage existing assets that would not go away.
If we were to stop selling into that market I will say that we expect very minimal.
Sales into the industrial market.
Like we saw in Q1 for the foreseeable future.
But.
Do not expect to exit at.
At this point in time and relative to the length of the pandemic I do think it is encouraging to see states open up countries open up and so at this point in time, we do feel as though Q2 really is the.
Quarter, where if were to see more significant impact it will be and.
In Q2 and then.
Starting to come back after that again, if you think about.
The parts of our business that are impacted by the pandemic. You know it is elective surgeries that that are one of the first things to start coming back and there's a backlog. There. So we think that will come back pretty quickly.
Service you see.
Various chain, whether its young brand, making announcements about how many thousands of stores will be opening up over that.
Coming months and so forth all those things are positive for.
Our our company and some of the strength that we talked about like the immunity minerals and just.
Nutrients and so forth generally speaking I think will endure and and.
We think that the opening up we'll we'll get some of these.
Businesses that impact us.
Up and running and instead of being down 80, 80% there will be down.
50%, 30% and so forth and have lessened lasting impact on us so so.
We think Q2 is the the bigger quarter and then we'll see improvement from there.
Thank you very much should stay safe and healthy and I think you guys are doing very creditable job managing through this crisis be well thanks, great. Thanks.
As a reminder to ask a question today My press Star one.
Weve question coming from the line of Mitra Ramgopal with Sidoti and company. Please proceed.
Yes, hi, good morning, Thanks for taking the questions just wanted to start did a couple of housekeeping items.
If you could give us the relative contributions from both sides umbrella chemo gas in the quarter.
And also the.
Sensual lost.
Sales that were eliminated with the sale of.
Getting manufacturing site that was divested.
Sure mate.
Zoom rowing chemo gas together contributed approximately $15 million.
And the readying divestiture went the other way for about 2 million in a half.
Thanks.
And.
Just wondering if you have a sense, obviously with co bad.
Being compliant and being safe et cetera, a number of companies.
I'm sure, including yourself or incurring a lot of incremental costs.
Difficult.
Time.
But I don't if you could give us a sense as to when we look at.
The quarter into margins et cetera, how much.
Incremental cost.
You are getting impacted by as a result.
Yes, yes, so maybe I'll take a stab at that.
We.
Saw in Q1, you're right significant incremental costs, we decided not to adjust those out for various reasons. So they are included in our.
Numbers.
And the biggest part of our costs were associated with the.
Incentive extra incentive pay or bonuses that we gave to our hourly and salaried employees.
Obviously nonexecutive, but.
Primarily the frontline folks who continue to.
Operator manufacturing sites and working our labs and and.
And so for us and and that was about.
$600000 $700000 for the quarter, we'll see something similar to that in Q2.
And I would roughly take double that number to say what the overall incremental expenses.
For us we're in the in the quarter associated Cobot 19 response and that would include extra cleaning.
Yes, very we had to buy a bunch of laptop computers and printers and things like that.
So I you know one $1.2 million.
In Q1, something similar maybe in Q2, and and we expect that to be.
Okay I noticed the that's great.
And.
Still on the subject of costs I was wondering if I can give us a sense as to where you R&D.
The implementation and how is being impacted.
Like opened 19.
Yes. So so we were really pleased with with how we are progressing and I think the last we reported out we add something like 60% of our revenue and insights and people on the new system its.
It's operating well and we're on budget and on on plan. We have had to pause. The go lives that additional sites and so as you know.
The way we are implementing this was really not a big Bang theory approach, but more of the.
One two sites at a time and we have pause that and so we think that overall, we will now.
Be implementing through the end of 2020 and into the first quarter of 2021. We added originally hoped to be finished you know and the.
Kind of mid year. This year early second half of this year. So were delayed probably six to nine months. Some of the new acquisitions are contributing to that but we still think that we can come in under budget. We had originally budgeted $12 million for the project, we can come in under budget and we're taking this time to.
Refocus the resources on the project.
On optimization and you know, we basically had a planned.
Leave optimizing until the end answer we're kind of taking this pause period to dedicate resources to optimization efforts and actually finding that to be a great.
Great things so.
It's delayed still on budget and we're still kind of pleased with the overall project.
Okay. Thanks, Lydia update.
And then just on the.
Our balance sheet financial is obviously.
Very strong balance sheet relatively little that.
Cash on hand, et cetera, but I know you did.
And you are reducing.
Capex and looking to preserve cash and.
Just curious on terms of how does that any.
Potential changes to the dividend.
And in terms of.
Potential acquisition activity.
So wondering if the current environment is.
Maybe.
I think in some opportunities that might not have been there before.
Yes, let me just start and I'll quickly handed over to Martin, but but.
Yes, I think as we particularly I would say in February early March when we're faced with the.
Extraordinary unknown of the pandemic.
Thats when we started the originally due the stress testing and and.
Good serving of cash just for concern of the unknown I'd say much of that has subsided.
Now as we.
I have a bit of a clear picture, while there's still a lot of uncertainty is a little bit clearer picture about about this and feel really good about our balance sheet and the likely impact of all of this on one our business going forward. So we've actually even in the last month paid down a little bit of debt that was some.
Thing, we were not doing to preserve some cash so.
Yes, we really have.
No concerns from that perspective, and as some of that language is really more related to very early on response to this but I'll, let martin get into specifics sure I mean may try we're obviously in a fortunate position going into this was a strong balance sheet in a low debt.
Level.
Benefiting us and if you think also about our access to liquidity.
You know we're in a good spot the revolving credit facility that we have is for 500 million, we're using about half of that so that's another 250 million round numbers.
Though we can draw on at our discretion and should we need to do so.
And that one runs through June 2023, so there's no debt coming due here.
In the near term, but.
But that same time, we keep generating favorable cash flows and asked me mouse model various scenarios various sort of potential sizes of of disruptions and downsize that can happen.
Most scenarios, we will continue to generate favorable cash flows overall, so it's a good good strong balance sheet as we sit here today.
From a capex perspective.
Obviously, it's we're preserving cash at the moment, just an abundance of caution spending less I think we had guided originally at the beginning of the year that we're planning on spending 30 to 35 million of cash and.
We're not going to be spending that amount this year, just due to the delays.
It's also hard to do bigger projects in this kind of environment.
So I could see that go down by at least 5 million in terms of Capex if not more.
For the year in terms of spend.
Thanks, and then again, obviously I would assume it's.
If at all to be contemplating.
And to do acquisitions in this environment obviously.
And that's something you always keep an eye on.
Might be some opportunities that.
Could be resulting as a result of this environment.
But again I would assume it's just difficult to get anything done now.
It's obviously, a little harder to do a due diligence right now when it's hard to go see people I would say the environment overall, we keep evaluating a number of target any one point in time as we always do at that.
We're always looking at a couple of different options.
And we continue to do so so there is what I would call still in.
An inflow and work processes that are going on to evaluate.
Targets, they move a little bit slower you, it's hard to go into a potential due diligence face et cetera.
If we should wish to do so.
Obviously, there the bid ask spread I think is widening a little bit in an environment like this between sellers and buyers based on the environment.
But overall, we're continuing to doing what we have been doing for the last few years and push forward with.
Just sort of the strategic areas, we're looking for and.
Ill leave it at that to say can't predict the future really there.
No that's great. Thanks, and then finally, just obviously I know the tax rate is always tough one.
Right and I know into first quarter was a little.
And I was expecting I was just wondering how we should.
For the rest of the year.
Yes. It was it was a little bit low where we had call it six or seven states. There that's changed their rates, which are the favorable impact to us, particularly on our deferred tax liabilities, which we appreciate.
We had previously said sort of to use for your modeling a tax rates around 23% or so I believe when when we had this call last time I think given our first quarter or so we probably have an opportunity to be somewhere in that range between 22, and 23 on a full year basis.
So I would use somewhere in that range.
Okay.
Thanks again for taking the questions.
Hi, Thanks Mitra.
Our next question comes from the line of Lawrence Goldstein with Santa Monica Partners. Please proceed with your question.
Got you are out of question otherwise I wouldn't have asked this one.
Good.
No.
What you thought you.
No.
Okay and.
Yeah.
Well.
My question.
Yes, Thanks, Larry Hope you are doing well.
Staying safe appreciate the question so.
Ethylene oxide I would say as a sterilant.
Doesn't have any necessarily special use relative to the pandemic, but there are syringes that are sterilize with the show there are.
Catheters sterilized with the show.
Some of the.
Other equipment forgetting the name of.
The ventilators, sorry, our sterilized with that with Eo so.
As there was a real strong push for.
You know getting those supplies to the right places and manufactured you know that's that's been.
Beneficial there there was some discussion around could ethylene oxide play a role in the.
Sterilization of of masks.
So called Dirty mass or mass that have already been Ben used in and it's not.
They could do that and there are some who are promoting protocols for for that but it's not ideal for that application given the need to have a period of time of off gassing and so forth.
So that's not a special added.
New opportunity for Us where it has benefited has really been you know just the kind of build up of getting you know kind of the adequate number of ventilators out in and.
And so on and so forth and I've said, we were kind of probably been negatively impacted a little bit here from the delay in and.
Elective surgeries, but I think theres, a real pent up demand my wife is one she needs a knee surgery and she's been waiting and waiting waiting in the first day that she can get it she's going to go and get it so.
Not that I want to extrapolate her experience to the whole market, but we do think that there is a pent up demand there and and as that works itself out over the year.
You know, we will see sort of normal.
Demand for ethylene oxide.
Right.
Thanks, Thanks, Larry.
Our next question is still line of Tony Polak was ages capital. Please proceed with your question.
Right.
Good morning, Tony how you doing.
Okay.
Right.
Just wanted to know on Curemark.
I know you did mention.
Nothing new.
Could you give us a little feedback.
Are there still going on.
Sure.
Okay.
Yes, so you're right Tony there really is no no news there you know caremark continues to work on there there.
Side of things.
And we are continuing to.
Work on our optimal manufacturing strategy ultimate manufacturing strategy. So there is work continuing its you know I would say the pandemic situation, while it has delayed certain things it really hasn't had an impact on this as far as.
We're concerned so.
We continue to advance those things that were responsible for and and cure markets doing the same men and hopefully we'll have more to update you on next quarter.
Okay. Thank you.
Thanks, Tony stay safe.
Thank you at this time Weve reached the end of our question answer session I'll turn the floor back to 10 Harris for closing remarks.
Great. Thanks, Rob once again, thank you very much everybody for joining the call today and your continued support of the company. We really are very pleased with a strong record Q1 results. The resilience of our business model in the face of difficult market conditions than.
I can't say enough the extraordinary response of the Balchem team.
Just to let you know on May 14th we will be participating in the 15th annual BMO farm to market conference that will of course now be virtual but we'll be making a presentation and have a full day of one on one meeting schedule. So I'm sure. We'll we will be talking with some of you then so.
Thanks again for participating in the call today, and we look forward to reporting out Q2 results in late July.
Thanks again.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.