Q3 2020 Balchem Corp Earnings Call
Greetings welcome to Balchem Corporation financial results Conference call.
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Sure and answer session will follow the formal presentation.
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Please note this conference is being recorded.
I'll now turn the conference over to your host Martin Banks think you may begin.
Thank you <unk>. Good morning, everyone. Thank you for joining our conference call. This morning to discuss the results of Balchem Corporation for the quarter ending September Thirtyth 2020, My Name's Martin Bank, Some chief financial Officer and hosting this call with me is Ted Harris, our chairman CEO and President following the advice of our counsel auditors.
So on the FCC at this time I would like to read our forward looking statement. This.
This release does contain or likely will contain forward looking statements, which reflects 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, including risks.
Factors identified and Balchems 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 that.
Thanks, Martin Good morning, and welcome to our conference call.
This morning, we reported quarterly consolidated net sales of $175.1 million, which resulted in third quarter net income of $21.6 million or 66 cents per share on a GAAP basis.
On an adjusted basis our third.
Third quarter adjusted non-GAAP net earnings were $26.9 million or 83 cents per share cash flows from operations was $35.4 million for the third quarter of 2020 with quarterly free cash flow of $28.3 million.
Our third quarter net sales of $175.1 million worth 10.4% higher than the prior year comparable quarter and were an all time record.
We also achieved all time record sales in our human nutrition, and health segment and record third quarter sales in our animal nutrition and health segment. The impact of foreign exchange tourist sales was a positive $1.2 million, primarily due to the stronger euro driving a positive 76 Boe.
Basis point impact to our year over year sales growth.
Q3, consolidated gross margin dollars, a $56.4 million were up $2.4 million for 4.4% compared with $54 million for the same period in the prior year.
Our consolidated gross margin percentage was 32.2% of sales in the quarter.
Now on 187 basis points compared to 34.1% in Q3 of 2019, the 187 basis point decrease was primarily due to mix.
Consolidated operating expenses for the third quarter of 2020 were $27.3 million as compared to $28 million in the prior year.
The decrease was principally due to lower selling expenses driven by reduced travel and a decrease in bad debt expense, partially offset by certain higher compensation related costs.
Excluding non cash operating expenses associated with amortization of intangible assets of $6.2 million.
Operating expenses were $21.1 million or 12% 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 third quarter were an all time record $29 million, an increase of $3 million or 11.5% compared to the prior year quarter on an adjusted basis as detailed in our earnings release. This morning non-GAAP earnings from operations.
Patients of $36.3 million were up $2.8 million or 8.3% compared to $33.5 million in the prior year.
All time record adjusted EBITDA of $44.4 million was $4.1 million or 10.1% above the $40.4 million posted in the third quarter of 2019.
Interest expense for the third quarter 2020, it was $1 million and our net debt was $115 million with an overall leverage ratio on a net debt basis of 0.7.
Strong cash flows in the third quarter enabled the company to make $25 million of repayments of its revolving debt.
The company's effective tax rates for the third quarter, 2020, and 2019 were 22.7% and 15.4% percent respectively. The increase in the effective tax rate was primarily attributable to a reduction in certain tax credits and lower.
Tax benefits from stock based compensation, partially offset by lower enacted state tax rates.
Third quarter consolidated net income closed the quarter at $21.6 million up 4.3% from the prior year quarter. This.
This quarterly net income translated into diluted net earnings per share of 66 cents for the current year, an increase of two cents from last year's comparable quarterly result of 64 cents on an adjusted basis, our record third quarter adjusted net earnings were 20.
$6.9 million or 83 cents per diluted share up zero point $6 million or 2.3% compared with $26.3 million or 81 cents per diluted share in the prior year quarter. These adjusted non-GAAP net earnings.
Exclude tax adjusted noncash amortization and other items as detailed in our earnings release. This morning of $5.4 million to facilitate comparative evaluation of operating performance versus the prior year period we.
We generated quarterly free cash flow of $28.3 million, and we closed out the quarter with $79 million of cash on the balance sheet.
Third quarter cash flows from operations were negatively impacted by approximately $8.2 million of second quarter tax payments, which were deferred to the third quarter as part of the cares Act Bill.
Before passing the call back to Martin to cover the detailed results by segment.
We'd like to update you on the impacts of COVID-19 on our company as well as a few of our important strategic activities and growth initiatives.
As we shared in the press release. This morning. The COVID-19 response effort has been a primary focus for the company since early in the first quarter.
Our focus has been on employee safety first keeping our manufacturing sites operational satisfying customer needs preserving cash and ensuring strong liquidity and responding to changes in this dynamic market environment as appropriate to date all of our manufacturing sites are operating at near normal.
Conditions nave, allowing us to supply our customers with the important products and services they need our research and development teams are advancing our innovation efforts and all of our other employees are effectively carrying on their responsibilities and functions remotely.
The puts and takes of the cobot impact on our company largely offset each other in the third quarter.
While certain while uncertainty continues to exist we believe that the markets. We serve will remain largely intact in a post pandemic environment and that balchem will be well positioned to continue to serve our customers effectively.
We'll continue to watch each of these markets very closely and remain nimble flexible and ready to respond accordingly.
Meanwhile, on the research front, we continue to advance the science behind our solutions through collaboration with leading research facilities to enhance the portfolio of scientific studies and the awareness around the beneficial impacts of our products.
Highlight a few more recent studies pertaining to our animal nutrition and health segment.
Dr. Peep Hansen's lab in the University of Florida, published a study demonstrating the positive benefits of supplemental coleen in embryonic survival in dairy cattle the paper entitled effects of Coleen on the Pheno type the cultured bovine pre implantation embryo the study.
Demonstrated with an in vitro model that increasing the level of coleen and the surrounding medium increased embryo development the expression of specific genes and overall DNA methylation.
This foundational research set the stage for further follow up studies and is suggesting possible expansion of the value proposition of reassure our rumen protected coleen for both dairy and beef animal producers.
In support of Arab monarch, gastric coleen business. The third quarter also saw the publication of the key research trial in the International Journal of Poultry science, demonstrating the advantages of feeding coleen as a methyl donor for growing broilers. The work completed at the University of Tennessee was docked.
Sure Michael Smith demonstrated the benefit that increasing levels of coleen had on broiler, Paul or Footpad scores and lower litter moisture. This work help to validate the advantages of using coleen with broilers, even during periods of heat stress.
Another study published during the quarter highlighted our key sure organic trace minerals and the benefit they showed versus alternative inorganic minerals.
Work was led by Dr., Zack Lowman from Balchem in conjunction with North Carolina State University.
And help to demonstrate the advantage of key sure on Paul scores further scores and overall body weight gain.
On the human nutrition and health front, while there have not been any major publications during the third quarter, partly as a result of the pandemic. We know that good progress is being made in the important Cornell seven year follow up study, where we expect a number of publications to be coming out over the coming 12 months supporting the Bennett.
Official impacts of Coleen, one child cognition.
When our minerals side. We also achieved important sta grass are generally recognized as safe self affirmation of ferric hell or high absorption iron mineral for infant formula and as both calcium bisque life Nike late and think displacement key lake.
Further in our continuing effort to advance our environmental social and governance efforts in the third quarter Falcon proudly joined the United Nations Global contact.
This commitment to the global compact principles is another step in our continuous improvement journey relative to our corporate social responsibilities.
And achievement of our higher purpose of making the world a healthier place for more information around their environmental social and governance ideals I encourage you to read our sustainability report that you can find on our web site, where we consolidate all of the great work that Balchem has been doing for many years into a consolidated report.
We're proud that our EPS GE accomplishments to date and look forward to sharing updates with you as we progress or initiatives as well as our higher purpose of making the world a healthier place.
And lastly, as we have discussed in previous quarters, we have embarked on an important project to consolidate our five ERP systems into one Microsoft dynamics 365 active.
Activities related to this project, which were pause during the second quarter due to travel restrictions and our global pandemic response efforts resumed in the third quarter.
We brought three more manufacturing sites onto our new platform in the third quarter and we continue to prepare for additional go lives in the fourth quarter, while optimizing the system for sites already on the system. We currently have approximately 75% of our annualized revenues on the new ERP system.
And we believe that we will be able to implement the full project by the middle of next year and within our 12 million dollar budget. Despite the pandemic related delay.
I'm 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 generated record quarterly sales of $103.6 million, an increase of $17.4 million or 20.3% from the prior year. The sales increase was primarily driven by higher sales within food and beverage markets strong.
Sales growth of key late in minerals and beneficial impact from the Zimbra acquisition. We closed in December 2019, partially offset by lower sales to food service related markets and the elimination of associate of sales associated with the reading, Pennsylvania manufacturing site that we divested in 2019.
Our human Nutrition and health segment also delivered record quarterly earnings from operations of $17.5 million, an increase of $4.3 million or 32.6% compared to prior year primary.
Primarily due to the aforementioned higher sales and lower selling expenses as a result of reduced travel and a decrease in bad debt expense.
Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $5 million adjusted earnings from operations for this segment were $22.5 million, an increase of $4.5 million or 24.9% compared to 18.
Million dollars in the prior year quarter.
Our animal nutrition and health segment also delivered record third quarter sales of $46.4 million, an increase of 9.6% or $4.1 million compared to the prior year the.
The increase in sales was primarily the result of higher sales and volumes in the ruminant species markets.
Ruminant volumes were up over 17% with strong demand for Aminoshure, our rumen protected finding and reassure our rumen protected coating.
In terms of dairy economics milk and milk protein prices have been volatile and have fluctuated quite significantly which makes it difficult to predict exactly where they will go next while clearly uncertainty continues futures pricing or at a relatively healthy levels.
Monogastric sales were essentially flat and the third quarter. After a strong first half of the year, we experienced volume growth and book, he led and minerals and and the pet food markets, but this was offset by softness in both aequus and dry cooling.
Animal nutrition and health quarterly earnings from operations of $7 million were up $8.9 million or 14.5% from the prior year quarter.
Primarily due to the aforementioned higher sales certain lower raw material costs and reduced travel partially offset by an increase in certain compensation related costs.
Excluding the effect of non cash expenses, so associated with the monetization of acquired intangible assets a point $2 million adjusted earnings from operations for this segment were $7.2 million, an increase of $8.9 million or 14.1% compared to six point.
$3 million from the prior quarter.
Our specialty product segment delivered quarterly sales of $23.0 million as compared with $24.9 million for the prior year quarter.
The decrease of 7.6% was primarily due to lower sales of ethylene oxide for the medical device sterilization market, which has been negatively impacted by reduced elective surgical procedures during the pandemic.
The platen attrition business declined approximately point threemillion compared to the prior year quarter. However, we're pleased with achieving double digit growth for this business in the first half of the year the seasonally stronger portion of the year.
Specialty products will continue to be somewhat challenged due to our expectation that ethylene oxide sales will continue to be negatively impacted by the reduction in elective surgeries for the duration of the pandemic. We are however, somewhat encouraged by the very gradual improvement in the business that we saw through the quarter.
Which we believe coincides with a modest pickup in elective surgical activity.
The specialty products segment had third quarter earnings from operations of $5.3 million versus $6.7 million in the prior year quarter, a decrease of $1.4 million or 20.2%.
Decrease was primarily due to the aforementioned lower sales.
Excluding the effect of non cash expenses associated with a more to station of intangible assets of $1.5 million third quarter adjusted earnings from operations for this segment were $6.9 million compared to $8.4 million in the prior year, a decrease of $1.5 million or 17.4 per.
Percent.
I'm now going to turn the call back over to Ted for some closing remarks.
Thanks, Martin we are extremely pleased with Balchems financial results reported earlier. This morning in the third quarter, we delivered record consolidated sales and strong revenue growth in both our human and animal nutrition and health segments with record third quarter consolidated GAAP net earnings and record third quarter now.
Non-GAAP adjusted net earnings and solids solid cash flows from operations, while continuing to face and overcome significant challenges and uncertainties related to the global pandemic. These.
These very strong results reported today are a direct result of the extraordinary talents and efforts of the Balchem team as.
As well as the strength of our market positions and the resilience of our business model I would like to once again take this opportunity to thank each and every one of the approximately 1400 balchem employees across the world who helped make it happen every day.
We further strengthened our already strong balance sheet this quarter by reducing our net debt by $27.6 million, finishing the quarter with a net debt leverage ratio of 0.7.
We have strong positions within the markets, we serve and these unique positions coupled with our strong balance sheet will enable us to generate healthy growth over the years to come now.
I'd now like to hand, the call back over to Martin who will open up the call for questions Martin.
Thank you to US. This now concludes the formal portion of the conference at this point, we will open the conference call for questions.
At this time, we'll be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad, a confirmation code word indicate your line is in the question queue. You May Press Star two if you like to remove your question from the Q.
Disagreed using speaker equipment, it may be necessary to pick up your handset before question Im sorry.
One moment, please while we pull for questions.
Our first question is from.
Bob Labick from CJS Securities. Please proceed with your question.
Good morning, congratulations on the quarter.
Thanks, Bob.
Thanks.
So you mentioned, obviously record results and H. and H. and highlight a few of the drivers I was wondering if you could give us a little more color on both the food and beverage and keeley mineral strength and talk about the sustainability of the strength you're seeing.
Sure. Yes, we were very pleased with the overall results in Q3 for for H. and H. sales were up 20%.
And earnings were also very strong up almost 25%.
The nutrition in pharma part of the business did very well it was up about 3.5% with.
Very strong continued minerals growth.
So were continuing to see.
What we believe is an ongoing trend toward focus on.
Obviously health and immunity minerals for example.
And as far as the sustainability of that you know it it it has.
Slowly declined throughout the.
The quarter in and since the pandemic started but still.
We're seeing strength in that segment and we believe that that will continue for for some time to come possibly.
For the foreseeable future. So we're quite bullish about our mineral nutrition portfolio of products and the growth that we have seen and the growth that we expect to see going forward.
The food ingredient part of the business really had an exceptional quarter. It was up almost 25% in the.
In the quarter, obviously benefited a little bit from the Zumbro acquisition.
But if you strip that out on an organic basis, our food ingredient portfolio was up over 15%.
And really coming from.
All of our product.
Product lines, all of our product line showed growth year over year, but.
I always did see particular strength in our powder systems business and our cereal systems business and you know some of some of those are really benefiting from the work from home.
Experience for example, we're an important supplier to correct, Dr Pepper and their business is doing very well with the.
We sell non coffee related systems for their K cups, and that's doing very well and various other customers. Similarly that that are benefiting at at this.
At this point in time so.
Feel really good about the performance of that business and.
We believe that those trends will continue for some time as.
As you know.
Consumer demand to adjust to the sort of the new normal and and.
So so we feel really good about that business and the future.
Okay, Great and then you talked about how basically you're operating at.
Near normal or essentially normal as much as you can be in this environment can you talk about just the ability to keep the new product development happening over the past six seven months and going forward and where you know where you stand and how that how your new product pipeline is looking are shaping up.
Yes. So obviously, that's that's been a little bit of a challenge, but really since day one we.
Have treated as our R&D efforts much like our manufacturing efforts, so or labs have stayed open.
And we've been able to keep them functioning very well and we are progressing our.
Our key R&D project. It you know some of these projects are dependent on customer.
Interaction and it's a bit of a two way street and we do see some customers have slowed their activities or maybe haven't even kept some of their laboratories open so.
Some of those activities have been slowed I would say specifically customer related.
Activities, but where we're developing really new broader science for the market.
By and large we have been able to keep those activities growing.
We've seen a return to unit, sometimes we use universities to test our products and so forth and.
We've seen those now come back there was a slight pause I would say in the second quarter, but those have come back so.
That slowed things for us a little bit but.
We've now been able to ramp that up pretty well and continue with those efforts. So for the broader more significant R&D efforts, we feel really good about our ability to to continue to progress those for maybe our smaller one on one customer related efforts, that's been a bit more difficult.
But seems to be getting.
Getting better as as everybody gets.
More used to the situation and then starts to find ways to continue those R&D efforts and its just as I kind of watch watch our call reports come in from customers. There certainly seems to be.
More ability to start working on those.
Customer specific projects than there were there was three or four months ago.
Okay, Great and last one from me I'll jump back in queue, but can you talk a little bit about obviously, you mentioned the strong cash flow and a very strong balance sheets or maybe talk about the M&A pipeline and the opportunity again, given the you know cobot disruption is there.
The ability to go out in due diligence deals or how has that progressed how's that looking going forward.
Yes, I think our pipeline still.
Remains very healthy and we feel really good about the pipeline of of.
Ideas, we have and opportunities we are exploring I have to admit that that you know there was.
A bit of a pause.
In this area for a few months there in the early stages as it was tough to.
Really think through how can you, possibly do due diligence.
Remotely because we're so accustomed to visiting the manufacturing sites and meeting the people.
In person, but you know I think not only balchem, but you know the market as a whole has has kind of gotten over that and figured it out and and.
We have some really.
Talented folks on when our board, who do a lot of EMV.
M&A activity.
And.
That really helped us through this and and.
Help guide us as far as the ability to do plant tours, virtually and with somebody Karen and I pad.
Around the manufacturing sites. So you know work sort of back on on the mission to find the right opportunities we feel good about our.
Type line and I think even in you know banks.
Banks would say that that M&A activity is has heated back up again so.
We're encouraged about our ability to.
And find opportunities and get them done as as appropriate.
That sounds great. Thanks very much.
Thank you.
And our next question is from.
Mark Connelly with Stephens incorporated. Please proceed with your question.
Thank you.
Ted you mentioned several studies and you've said in the past how important those studies are too to get into word out can you talk a little bit about your broader relationships with universities and how those relationships affect your pipeline.
Sure. Yes, we you know we tend to work with I think the most.
Prestigious universities in the in the fields that that.
That we work in we have strong relationships there, sometimes we may be even our fun.
Funding graduate students.
But certainly investing in studies using there.
Scientists using their resources, they often times have access to to animals and.
And so forth and it's really important that that we align with.
They have the leading institutions because credibility is.
Utmost criticality here and so you know we've had long standing relationships with these universities.
Some of them did have to pause activities.
During the early stages, but by and large have resumed those and our long standing relationship you know has us.
You know kind of.
And the top of the line if you will to continue the studies that we need to do but but.
Now at the end of the day, we need to.
Show the effectiveness of our products in whether its humans are animals. So these studies are very important and and.
Our selling process often times on the nutrition side as you know a bow cam nutritionists selling too.
A.
Customer nutritionists or nutritionists hired by multiple customers. So it's a very technical sales Alan.
Data.
And various studies are critical to that process. So so it's an important part of what we do and and.
We're pleased that you know that is we think back as it needs to be and so we have several ongoing studies.
As we speak to that we're looking forward to the results coming out of those in the coming months and quarters.
Super.
It would be just switch gears.
Clearly the consumption of cow's milk.
We had a nice benefit here during the current period, if we were to assume that consumption of cows milk.
First to its previous negative trend.
Do you think that would help or hurt your market penetration.
I'm curious, whether it's going to put more pressure on pharmacy.
Or close to bigger pull back in volumes.
Yes, you know I think how to answer that question by just stepping back a little bit.
What we most care about is overall dairy protein consumption.
And so you know as part of your question you're speaking to historically fluid milk has been declining for some years and through the pandemic. It has picked up some makes makes sense people.
People are working from home they are more likely maybe to have a bolus cereal.
As opposed to.
Grab in a bar and running.
Yes to the card and the train and parents are making sure their kids are drinking milk.
They're at home and so they can do that so so fluid milk has has picked back up but the reality is over all of this period of time milk protein consumption has been growing despite fluid milk up and down and that's been largely driven by cheats.
And yogurt and cheese consumption has been growing up and there is really it is almost like a.
Maybe don't quote me on this but tend to one ratio between fluid milk and cheese. So growth in cheese is really much more important than than the fluid milk number and and as long as that.
Continues I think it's it's.
It's good for Arab.
Our business because the market's growing demands growing and so forth to your point a little bit if if there's a decline.
Yes, likely what will happen is.
Dairy cows will be taken out of the system, but we still believe that that the farmer is going to want.
Cal to be as efficient as it possibly can be.
That would suggest support for and interest in our products almost no matter what but.
But.
We don't see that happening we see continued strong demand overall.
Dairy protein and that's really the best for US is when the market is growing and there's you know.
Interest in making their cows that much more efficient.
That's very helpful. I mean that and we see that generally across agriculture that when.
When markets get weaker farmers.
Pull back from the things that don't contribute increased efficiency.
So that's giving.
Giving them, giving them the efficiency gains Im just one simple last question is it fair to assume that we are seeing pretty much full benefit us as number acquisition at this point.
I would say I would say not yet.
I think theres more to come there.
Weve taken all the actions in terms of of the cost synergies that we had planned.
We have consolidated one of their manufacturing sites as we had intended to do have driven the procurement synergies that weve intended to do and made some other changes so sort of from a cost perspective, we've taken the actions we planned.
Cove, It had a little bit of a negative impact to the commercial side, where they had exposure to the food service side. So we do expect an uptick in the contribution from Zumbro EPS. We go forward EPS that starts coming back so I would say, it's not at its full potential yet.
Super Thank you very much.
Thanks Mark.
Yes.
And our next question is from major Ramgopal with Sidoti and company. Please proceed with your question.
Yes, hi, good morning, Thanks for taking the questions first I was just wondering if as a result of the surgery or seeing a number of European countries again, if if you're seeing signs of.
Already stocking by some of your customers there.
Hey meet your hope you're doing well thanks for the question.
No we have not seen that yet obviously were overall concerned about the.
The the pickup in cases or the spike in cases in Europe, and then all of the uncertainties that that that brings.
With it.
We in fact just had.
And in local employee in Europe test positive a couple of days, they go and Belgium, and it just seems like.
Those countries are really struggling right now.
Well, we haven't seen.
Real impact on the business yet, we obviously have to watch it carefully from our perspective the supply chains in the border crossings are still.
Fairly effective we're not seeing any shortages in raw materials.
We're not seeing any difficulties and shipping products across borders like we did very very early on in the pandemic and so we haven't seen.
A lot of preordering going on.
As a result.
The recent spike, but you know that that is a possibility in the weeks and months to come. It's just one of those things that we.
We need to watch very carefully, but I'd say, we haven't seen anything right right as of right now.
Okay, No that's great.
An honest specialty product side I know.
You've talked about.
Throughout the quarter things are starting to pick up a little the speaking to sell.
Anyways, they fall under space, they basically are saying.
Where we probably hit a low back in March April and May be 30% of volumes and some of them are saying, you're seeing 60% they expect to be as much as 80, 85% by year end.
I'm not sure if it's going to be a little slower for you.
So.
Building over the next few months or are you starting to see that acceleration.
Yes.
This is one area, where you know it has been a little bit difficult for us to get really good data around what is exactly happening relative to medical device sterilization relative relative to medical procedures, we do talk to.
Yes folks within our customer base, we talk to leaders in medical device manufacturers, we even talked to some hospitals.
And we it does seem as though a medical procedures on average you know our may be down about 25%.
And that's also the low and slowly has been improving over.
The course of the of Q2 and Q3 of course your first question around the Spike one of their.
Questions is that going to be an ever.
Reverse the positive trend weve been seeing relative to medical procedures.
Improving.
But that is has to be seen.
So we have seen improvement we think overall the market is down about 25% our business overall is in the ethylene oxide space is down about 10%.
And you know as I said, we've seen that improve probably at the low we are down maybe 15 16, 17% so.
So we are seeing an improved.
But as very slow and with the.
Spike that are going on around the world. We are expecting a very slow recovery and wouldn't be surprised if we stall a little bit here as we grapple with the.
Further spread of the pandemic.
Okay, that's great and then finally.
Martin I was wondering if we'll just give an update on the.
New ERP system in terms of.
How much we invest.
Investment still to be incurred to complete that then.
Should we expect.
From just maybe efficiencies margin expansion standpoint, once that's in place.
Yes, absolutely I Miss I mean, like I said, we're about 75% through.
In terms of coverage of our revenue base.
We got the primary sites, we have coming up here as our international sites right. So we got in.
In Belgium as to you know.
Major go lives coming here.
So from a spend perspective, we set out with a budget of about $12 million.
We think that we're within that budget. So we don't expect any any over on based on what we can see right right now.
We have spent about 9 million to date.
On this project.
So you could think about us another 3 million, which ties fairly well to where we're at and also from a from an implementation perspective.
We also spend more in the beginning that you do in the end right and then setting up some of the infrastructure, which is why we feel confident coming in within our budget from an efficiency standpoint.
I wouldn't say that were baking in an expecting.
Huge cost savings et cetera. This is not only a primarily a cost play for us. This.
This is more from an efficiency and visibility and access to data.
It's very difficult to manage and five six systems just from having good data for decision making.
So we look at it more actually from the perspective of how we can leverage today that bring visibility to analytics and it's hard to.
Estimate what kind of.
Well kind of a.
Cronto profits will drive from that but if you're asking from the.
Having gone line of between 65 does that mean that you're going to cut out you know a million or 2 million or 3 million of costs.
That's not really what we're going for here were going for visibility.
Okay, Diana and efficiency in operations.
Okay. That's great. Thanks for taking the questions.
Thanks, John.
Yes.
And again, if anyone has any questions you May press star one on car T shirt.
Sure. Thanks.
And our next question is from Ram Selvaraju with HC Wainwright. Please proceed with your question.
Hi, Thanks, very much for taking my question I was wondering if you could provide us with some insight into how joining the UN global compact might affect.
Your future sort of operational initiatives, how you manage the ethylene oxide business or if we really shouldn't be expecting any change or impact.
There going forward.
Thanks, Rob for the question Yeah, we're pleased to join.
The compact.
We really think it just represents who we are in and where we want to go.
I don't think it has any impact specifically on how we manage the ethylene oxide business. We've always managed that business very responsibly we.
Do.
I would say an incredible job of recycling hazardous waste in that.
And that business.
Which is I think a really important and environmentally responsible.
Activity for Us and we will continue to be striving I think part of the.
The you know the principle, if you will of of our SG focus and.
The global compact is continuous improvement so can we find ways to improve the 99% recyclability that we've achieved from a from a corporate perspective on hazardous waste to 100%.
We've we've made some significant investments recently.
Moving to natural gas.
From a from a power perspective, we're investing in solar.
Energy systems in our site in Belgium.
It's all those kinds of things that I think we'll just continue to accelerate and are joining the compact just reaffirms our commitment to continuous improvement and these ideals, but but relative to the ethylene oxide business I think it is just another commitment to continuously improve the managed.
Men at that business and and.
And seeking.
Improvements across the board, but but.
I don't think it implies any.
Significant pivot or.
Shifting and how we're managing it other than just again continuous improvement, which we've been doing for some time.
Okay very helpful.
Next two questions are.
Mark I think firstly I just wondered if there's been any change in the way you prioritize paying down debt or if that's effectively the same kind of philosophy internally that you had previously or if you're going to be prioritizing it more going forward or less and then last.
If you could give me a sense on where you expect effective tax rate to trend over the course of the coming quarters. Thank you.
As Rob in terms of the capital allocation priorities that short answer that's not changed.
We're still going to prioritize our organic growth opportunities first.
And then you know M&A us as those opportunities come around but as you know they're lumpy when that happens and in the meantime, you know well.
Well well be paying down debt you know, what we'll protect our dividend and we will continue to to pay down debt.
So it's really I think the timing of M&A that will shift a little bit you know when we pay down debt and when we don't but we will always continue on the strategy that we're on so no no change really.
From an LCR perspective.
This quarter was a little bit higher than the prior to and I think EPS you modeled for a full year for an effective tax rate I would approach.
Probably use something maybe like a 22% or so.
That's our best estimate at the moment.
For a full year rate.
Thank you very much.
Thanks, Rob.
And we have recently entered a question and answer session and I will now turn the call over to Ted Harris for closing remarks.
Thank you once again, just like to thank everybody for joining our call today and more importantly, your continued interest in our company. We're really pleased with the strong Q3 and year to date results. The resilience of our business model in the face of these difficult market conditions.
And really the extraordinary response of the Balchem team.
I appreciate your time, we look forward to reporting out Q4 and full year results in late February in the meantime, we will be presenting at several investor conferences, hopefully we can see some of you at one of these but.
We're presenting at the Baird Global Industrial Conference 2020 on November 12, the Stephens investment Conference 2020 on November 17th and Sidoti is January small cap Investor Conference on January 13th So again, hopefully we can at least virtually meet with some of you at one of those comp.
Francis.
Other than that thanks again for joining us today, we really appreciate it.
And this concludes today's conference you may disconnect. Your line at this time. Thank you for your participation.