Q4 2020 Balchem Corp Earnings Call
Greetings welcome to Balcom Corporation's fourth quarter 2020 financial results call.
At this time all participants are in a listen only mode for.
A brief question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
At this time I'll turn the conference over to Martin Bengtsson, Chief Financial Officer, Mr. Pinkston, you may begin.
Thank you Rob.
Good morning, everyone and thank you for joining our conference call. This morning to discuss the results of about from Corporation.
For the quarter ending December 31, 2020, My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our chairman CEO and president for.
Following the advice of our counsel auditors on the SEC at this time I'd like to read our forward looking statement. This release does contain or likely will contain forward looking statements.
Statements, which reflect <unk> 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 and factors identified in <unk> form 10-K.
Forward looking statements are qualified in their entirety by this cautionary statement I.
I will now turn the call over to Ted Harris, our chairman CEO and president Thanks.
Thanks, Martin Good morning, and welcome to our conference call.
Before I get into the quarter I would like to reflect for a few minutes on some of the significant accomplishments.
[noise] balcom team achieved over the past year 2020 was another strong year for VAALCO financially, we grew nine 3% and delivered record sales of $703 $6 million with the year over year growth and record sales in all three of our segments.
We also delivered record adjusted net earnings of $107.8 million compared to $103.7 million in the prior year, an increase of $4 $1 million or 4% and record adjusted EBITDA of $174.
Clean dollars, an increase of $14 $2 million or eight 9% from the prior year. In addition, we generated strong free cash flow of $117 $7 million in 2020, and all time record while at the same time investing 32 point.
$2 million in capital projects to support our continued growth.
As we shared in the press release. This morning. The COVID-19 response effort has been a primary focus for the company throughout the year or.
Our focus has been on employee safety first keeping our manufacturing sites operational.
H S find customer needs preserving cash and ensuring strong liquidity and responding to changes in this dynamic market environment as appropriate.
We are extremely pleased with the fact that despite the challenging environment brought on by the pandemic, we were able to effectively supply our customers with.
<unk> products and services they needed throughout the year and ultimately we delivered significant year over year sales growth with nice contributions from both our organic and inorganic strategic growth initiatives. This really speaks to the resilience of both our employee base and our business model.
With the MTGE Glee, we had a very good year as well.
Within human Nutrition, and health, we continued to advance the science around the nutritional and health benefits of our existing and future products a number of outside academic research projects initiated and supported by balcom have been completed or significantly progressed.
Street in 2020 and are in various stages of data analysis, many script preparation or submission for publication.
This research explores the benefits of prenatal choline and neurological development and cognition the positive relationship between choline and DHA and the possibilities.
Of establishing a biomarker for choline in the National Institutes of health or NIH funded study.
In 2020, we also completed gras or generally recognized as safe self affirmations for chelate magnesium zinc and calcium.
Further advancing our leading position in this area.
And opening new applications for our products, we also strength in their marketing capabilities to accelerate awareness around existing science and to better showcase to our customers how they can incorporate and benefit from our products. For example, the leading consumer company then on launched several kids dairy products.
Under the horizon organic growing years brand with <unk> Vita choline as a key ingredient in several fast growing dietary supplement brands, including ritual smarty pants and needed launched dietary supplement products with our vital choline and Albion minerals.
Within animal nutrition and health science.
<unk> have continued to pursue the expanded application of our innovative products across both the ruminant and Mount a gastric sectors in areas, such as mature cow and calf immunity.
NATO in utero programming through choline supplementation.
And greatly improved formulations for swine and.
Poultry diets with better analysis and formulation for natural levels of choline within common feedstuffs.
We successfully continued to drive penetration of reassure our market, leading micro encapsulated rumen protected choline and in 2020, our efforts once again drove double digit growth for this product.
Helping to push our north American market penetration higher by several hundred basis points.
We also had great success with who has the <unk> XM, our micro encapsulate a rumen protected methionine that continues to capture market share by offering a superior value proposition to our customers within.
Within our companion animal portfolio of products and solutions, we captured significant growth for our pets share line of products, leveraging our micro encapsulation and inclusion technologies and enabling our customers to further innovate in the pet food space.
We also strengthened our marketing capabilities capabilities.
Abilities within the animal nutrition, and health segment, and launched enhanced E learning podcasts and Webinars focused on important animal nutrition topics.
Our educational and science based Webinars have been hugely successful attracting high attendance and enabling us to effectively reach and interact with an.
We ended target audience, despite the pandemic.
Within specialty products, our plant nutrition business returned to healthy growth levels benefiting from a good growing season in North America, but also new crop applications geographic expansion and very significant growth achieved from our organic.
And expect products that we had recently bolstered by the addition of a new organic potassium.
In 2020, we also completed the integration of our two 2019 acquisitions chemo gas and Zumbro River brands, which are now fully integrated both from a business and functional perspective, we have delivered.
Line of targeted synergies that we were hoping to achieve and we are very pleased having them be part of the <unk> family. Both businesses were negatively impacted by the pandemic as chemo gas experienced lower demand due to fewer elective surgeries and zumbro saw lower demand due to the pandemic impact on food services.
<unk>, but we view these impacts are temporary in nature and are excited about our positioning and ability to capture the demand as it returns.
In 2020, we also made a small investment in the emerging area of precision nutrition with an investment in a leading startup gene guided nutrition company.
Mrs S N P therapeutics VAALCO.
<unk> as a strategic investor with S&P, and we have secured a commercial agreement for our minerals and nutrient portfolio for when the company ultimately commercialize it's personalized solutions.
From a corporate perspective, we.
We significantly progressed our.
Called it to consolidate seven ERP systems into one Microsoft dynamics 365. This initiative is critical for the continued growth and operational efficiency of the company. We have successfully completed 20 out of 23 site deployments across our businesses and network of manufacturing sites.
Our effort ending the year with approximately 92% of our revenues now on the new system. This has been a tremendous amount of work, but we are very pleased with the progress to date and believe that we will be able to complete implementation of the project this year.
We also executed a modest stock repurchase.
<unk> come 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 purchase repurchasing approximately 137000 shares at an average cost of $98 54 per share this stock repurchase.
Program program is one component of our overall capital deployment strategy that focuses primarily on investing in organic growth opportunities that provide an attractive return augmenting our organic growth through strategic M&A, where appropriate paying down debt and maintaining a strong balance sheet and retaining.
Purchase growing our dividend to our shareholders.
Further in our continuing effort to advance our environmental social and governance efforts Biochem released its second sustainability report in 2020, and proudly joined the United Nations Global compact.
The commitment to the global compact principles.
And 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 we look forward to making further progress on our ESG initiatives in 2021 and into the future.
All in all another straw.
Long year for Balcom, both financially and strategically and we look forward to continuing our momentum into 2021 and beyond.
Now with regard to the fourth quarter of 'twenty 'twenty. This morning, we reported record quarterly consolidated net sales of $187 million, which resulted.
<unk> is an in fourth quarter net income of $22 $2 million or 68 cents per share on a GAAP basis, while delivering record quarterly cash flows from operations of $48 million at.
Our quarterly net sales of $187 million were eight five.
<unk> higher than the prior year comparable quarter and were an all time record with growth in all three segments. The impact of foreign exchange to our sales was a positive $1.7 million, primarily due to the stronger euro driving a positive 104 basis point impact to.
For set year over year sales growth.
Our Q4 consolidated gross margin dollars of $56 $8 million were up $2.5 million or for 5% compared with $54 $3 million for the same period in the prior year.
Our consolidated.
Our gross margin percent was 31, 4% of sales in the quarter down 119 basis points from 32, 6% in Q4 of 2019.
The 119 basis point decrease was primarily due to mix and manufacturing inefficiencies due to COVID-19.
<unk> endemic.
Consolidated operating expenses for the fourth quarter 2020, we're $27.9 million as compared to $37 million in the prior year. The decrease was principally due to lower transaction and integration costs and lower selling expenses driven by reduced.
<unk> payroll and a decrease in bad debt expense, partially offset by certain higher compensation related costs.
GAAP earnings from operations for the fourth quarter were $28 $9 million, an increase of $5 $3 million or 22, 3% compared to the prior year quarter.
Trap on an adjusted basis.
As detailed in our earnings release. This morning, non-GAAP earnings from operations of $36 $1 million were up $3 $1 million or nine 3% compared to $33 $1 million in the prior year adjusted.
<unk>, a $43 $6 million was $3 $6 billion for $8, 9% above the $40 million posted in the fourth quarter of 2019.
Interest expense for the fourth quarter 2020 was zero point $8 million and our net debt was 70.
EBIT billion dollars with an overall leverage ratio on a net debt basis of 0.5 times.
Strong cash flow in the fourth quarter enabled the company to make $30 million of payments toward its revolving debt.
The company's effective tax rates for the fourth quarter 2020 and 2019.
Nine were 21% and eight 9% percent respectively.
The increase in the effective tax rate was primarily attributable to the prior year benefiting from discrete tax benefits, particularly related to tax reform clarifying regulations and certain higher.
Here state taxes, and lower tax credits in the current year.
Consolidated net income closed the quarter at $22 $2 million up eight 7% from the prior year quarter.
This quarterly net income translated into diluted net earnings per share of 68 cents.
For the current year quarter, an increase of five cents from the last year's comparable quarterly result of 63.
On an adjusted basis, our fourth quarter non-GAAP net earnings of $26 $9 million or 83 cents per share exclude tax adjusted.
Noncash amortization and other items as detailed in our earnings release. This morning of $4 7 million to facilitate comparative evaluation of operating performance versus the prior year period. These non-GAAP net earnings of $26 $9 million or 83.
<unk> per share represent a decrease of $1.5 million for five cents per share compared with the prior year quarter, driven by a significantly higher tax rate this year compared to compared to last year's unusually low tax rate. Additionally.
Additionally, we generated quarterly free.
Cash flow of $35 million, and we closed out the quarter with $84 $6 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 segments Martin.
Thank you Ted for.
For the quarter, our human nutrition on health.
<unk> achieved strong quarterly sales of $103 8 million, an increase of $13.5 million or 15% from the prior year.
Sales increase was driven by strong sales growth of chelate minerals, and choline nutrients higher sales within food and beverage markets.
Segment and beneficial impact from the Zoom row acquisition, we closed in December 2019.
Our human Nutrition and health segment also delivered fourth quarter earnings from operations of $16 $3 million, an increase of $7 $1 million or 76, 9%.
Kits to the prior year, primarily due to the aforementioned higher sales and lower operating expenses.
Excluding the effect of noncash expense associated with amortization of acquired intangible assets of $4 $9 million adjusted earnings from operations for this segment were $21 1 million.
Comparison, an increase of $5 9 million or 38, 9% compared to the prior year quarter.
Our animal nutrition on House segment also delivered strong quarterly sales of $59 million, an increase of $2 4 million or 5%.
Donor to the prior year quarter.
The increase in sales was primarily the result of higher sales in the ruminant species markets, where we continue to street see strong demand for our encapsulated rumen protected products.
In terms of day or economics.
Milk and milk protein prices continue.
Compete or volatility and a fluctuated quite significantly but remain at overall healthy levels.
On a gastric sales were essentially flat in the fourth quarter. After a strong first half of the year, we experienced sales growth and chelate on minerals and our pet sure branded products for the companion animal market.
To see if this was offset by softness in the feed grade choline.
Animal nutrition on health quarterly earnings from operations of $8 $5 million were down $1 million or 10, 1% from the prior year quarter.
Due to lower gross margin than the mono gastric business unit price.
Due to certain higher raw material costs and manufacturing inefficiencies due to the COVID-19 pandemic.
Excluding the effect of noncash expense associated with amortization of acquired intangible assets of zero point $2 million adjusted earnings from operations for this segment were $8 seven.
Primarily.
Decrease of $1 million for nine 9% compared to $9 $6 million in the prior year quarter.
Our specialty products segment delivered quarterly sales of $24 4 million as compared with $24.0 million for the prior year quarter.
Increase of one 4% was primarily due to higher sales in the plant nutrition business, partially offset by lower sales of ethylene oxide for the medical device sterilization market, which has been negatively impacted by reduced elective surgical procedures during the pandemic.
We expect.
Specialty products will continue to be negatively impacted by the reduction in elective.
<unk> surgeries for the duration of the pandemic, but with gradual improvement over time.
The specialty products segment had fourth quarter earnings from operations of $5 $5 million versus $6 $2 million from the prior year.
The income a.
A decrease of zero point $8 million or 12, 5%.
This decrease was primarily due to mix and manufacturing inefficiencies related to the aforementioned lower sales from our ethylene oxide for the medical device sterilization market.
Excluding the effect of noncash expense associated.
Quarter amortization of intangible assets of $1 6 million fourth quarter adjusted earnings from operations for this segment were $7 million compared to $7 9 million from the prior year, a decrease of zero point $9 million or 11, 1%.
I'm now going to turn the call back to.
With him to Ted for some closing remarks. Thanks, Martin we are extremely pleased with <unk> financial results reported earlier. This morning in the fourth quarter, we delivered record consolidated sales with revenue growth in all three of our reportable segments and record adjusted EBITDA. We also generated.
<unk> record cash flows from operations, while continuing to face and overcome significant challenges and uncertainties related to the global pandemic.
We further strengthened our already strong balance sheet this quarter by reducing our net debt by $35 $6 million for.
Finishing the quarter with a net debt leverage ratio.
0.5 times.
These very strong results reported today show that we are well positioned in attractive markets, where we have the leadership and capabilities to be successful not only today, but also into the future 2020, with a unique and challenging year for all of us.
I would like to once again take this opportunity to thank each and every one of the approximately 1400 balcom employees across the world to help make it happen every day. Thank you all very much I would now like to hand, the call back over to Martin who will open up the call for questions Martin. Thank you Ted.
This now concludes the formal portion of the conference at this point, we will open up the conference call for questions.
Thank you.
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One moment, please while we poll for questions.
Okay.
It is star one to ask a question.
Yeah.
Thank you and our first question is from the line of Mitra <unk> with Sidoti. Please proceed with your questions.
Yes, hi, good morning, and thanks for taking the questions.
I just wanted to start with on the animal Nutrition segment I know you highlighted.
Once higher raw material costs on the manufacturing inefficiencies.
And I was just curious in terms of your ability for what youre still seeing that raw material costs. This.
This year, thus far and your ability to maybe mitigate the impact it via price increases or auto initiatives.
Yeah Mitra thanks.
For the question and thanks for joining today I'll, maybe start and then have Martin get into some specifics around the raw material cost increases, but but overall, we really were very pleased with.
The A&H performance. It really is actually was the strongest quarter.
<unk> of of the year, both from a revenue and <unk>.
And earnings perspective, so we really feel good about.
The growth that we delivered in the overall earnings obviously, it was down a little bit compared to an extraordinary Q4 last.
Last year that was impacted.
Somewhat by higher raw material costs and some of the inefficiencies were experiencing at the plants. You know this is one one business that that we do have relatively good ability to raise prices, but it takes about a quarter or so to.
You are to really.
Get the full full increase so you know in times of rising raw materials, we tend to be in a an unfavorable lag situation, but ultimately we are.
<unk> are able to get there we have appropriate contracts with our customers that we can.
Uh huh.
<unk> pass on raw material cost increases so we are in a negative lag period.
That will get out of one's a raw materials stabilize somewhat but maybe Martin can give you a few specifics.
I think you know the impact.
Ross.
Matrix for the fourth quarter was was unfavorable.
Little less than half a million dollars.
On a year over year basis earlier in the year, we saw favorability from raw materials on the first quarters of the year and that other than us sequentially turned.
Other way where it.
Now unfavorable other than as you look at it sequentially quarter over quarter, Youre seeing that trends it depends a little bit how things proceed here, but two to 10 point to Ted's point, we do have the ability to pass quite a bit of this through to our customers, but it is with a with a lag between the swings when raw materials are falling we.
We see a little bit of benefit and when they are rising we see a little bit of a negative impact on our gross margins due to that lag.
So hopefully that helps answer your question a little bit and certainly we are experiencing as I think many others are.
Raw material increase.
Increases across the board and so we expect ourselves to be in somewhat of this this negative lag mode for a for a few quarters I think maybe the one thing to add as well as debt.
You have the raw material piece and Youre also seeing quite a bit of what I would call.
Increases on the logistics and distribution side or other.
Covid impacts are disrupted that shortages of containers and shipping lines etcetera, So you're seeing a.
Pressure there on the cost and how long that will last I think will sort of go hand in hand, with the duration of the pandemic before that.
That normalizes, so I think that's transitory in nature, but but it's there at the moment, putting some pressure on the cost.
Okay, No that's great. Thanks.
And on the.
Human nutrition side.
You continue to see.
Nice growth within the food and beverage markets, but.
Yes.
Foodservice related markets remain.
We can and I was just wondering what your thoughts on that.
A piece of the business in terms of when you might expect that to.
Being a tailwind again in light of the uncertainty is wrong depend on Mexico.
Yes, so certainly.
Again really pleased with their.
Human nutrition <unk> health.
Results overall.
That 15% revenue growth was was really are.
A great result for the quarter. Despite as you point out the fact that we are seeing.
Seeing negative impacts from foodservice still.
I would say that that foodservice is is that we are starting to see some signs of recovery.
In foodservice and which I think is logical what we're all seeing in our daily lives.
And.
That's encouraging so we are starting to see some of those customers place.
Our orders for products.
And we think that that much like the.
Specialty products sterilization business will be a slow recovery. So I think that were.
It's going to take two or three.
<unk> quarters for that.
Fully recover.
But we at least have started to see some recovery there.
Okay, No that's great.
And then on the specialty products business. The one thing we've been hearing is elective procedures not quite back to pre COVID-19 level.
Levels have really picked up substantially over the last.
Few months.
And I was just curious in total what youre seeing halfway through the first quarter. This year on your expectations.
For 2021 for this segment.
So, yes, I think that again, just the high level.
We're pleased with specialty products. This this quarter was the first quarter and a few where we've actually delivered some growth.
And in that quarter year every year.
Albeit it was because we had a very strong plant nutrition quarter and the sterilization.
<unk> business was still down year every year, but it was less down than it is than it has been and so as we've said before.
Yeah really since the second quarter was seen very gradual small improvements in our sterilization business.
Since since Q2, and if I, if we just look at our North American stair.
Sterilization sterilization business, if you will it was down about 4% revenue wise.
In the quarter and that is down less than it was last.
Last quarter end and so we have seen steady improvement.
And we did see weak there and months that were more like down 10 or 15%. So.
With having the full quarter download on a 4% is certainly a strong sign.
Line that that business is.
On the starting to recover we still believe that it's going to be somewhat slow we do think that.
You know maybe three quarters ago, we probably were communicating more of that there is this huge pent up demand and all of a sudden it would pop back well that proved.
<unk> did not really be the case.
And I think there are some people who just still are not comfortable going to the hospitals and are going to delay.
Elective surgeries.
As long as they possibly can so I think it's going to be more of a steady gradual.
Recovery.
We do look at this very.
Very closely in the last few weeks have been a little bit better than the previous few weeks again, just giving more confirmation that we're now in this slow slow recovery. So we think that that will actually as we start to lap Q2 will be a little bit of a.
A benefit for us in 2021.
Okay, that's great.
And then just switching on the acquisition front I know, it's hard to get specific on it but I was just wondering what your appetite now in terms of the pipeline you are seeing.
How would you characterize the competitive environment.
And given the past year in terms of the impact of Covid.
Yes, I think that you know obviously M&A is an important part of our growth focus.
Firstly, we're really focused on making the internal investments and driving that organic growth, but acquisitive growth.
Inorganic growth is has been an important part of our growth as a company we will continue to be.
No question that we were scratching our heads a little bit in the early days of the pandemic around how are we going to.
Complete an acquisition.
Given the remote nature of.
The business today and.
Obviously, a lots and lots of companies have figured out how to do that and I think that we've.
We have certainly gotten over that hurdle and and are comfortable.
Doing that there's lots of activity out there that you can see by the numbers. So there are coming.
As you know being sold and bought and when.
We think our pipeline is reasonably healthy now we're kind of back.
Believing that we can actually do a transaction and it's all about having a willing seller.
And a willing buyer at the same time.
Company, but we think our pipeline is pretty healthy and we continue to.
A review of opportunities and we're hopeful that we'll be able to.
Really can contribute to our strategic position.
Strength of the company and our growth profile by making some acquisitions.
<unk>.
Now in the in the coming.
Year or so.
Okay. Thanks for taking the questions. Thanks Mitra from <unk>.
Yes.
Our next question is coming from the line of Bob <unk> with CJS Securities. Please proceed with your question.
Good morning, this is stefanos crist, calling in for Bob.
So hey Stefanos.
Good morning.
So can you maybe talk about new products in 'twenty and 'twenty, one maybe where you are in has there been any impact from the pandemic on on what your goals are for the year.
Sure again as you know.
Products are really important to.
On the valve Cam on air.
On sustainability report, we report out on the percentage of sales coming from products launched in the last five years.
Just kind of as a.
Preview of that I think that that number will end up being close to 25% again.
<unk>.
We're very proud of so new products are important we have been able to keep our R&D labs and facilities and teams operating throughout the pandemic.
Which was.
<unk> important to us given how important R&D and new products are to us so.
As far as our people coming into the labs and continuing to advance.
Work, we have done really well some of our external studies, which we also rely heavily on.
Really for that Lei slowed during the pandemic as you know University research studies and so forth slowed.
I would say by and large that's all back and to a.
Healthy level. So you know, we we didn't lose any momentum internally and now.
Debt at the momentum back externally and I think we will.
Continued to bring new products to the marketplace, where we're very focused on bringing next generation improvement products across our.
The animal nutrition line and.
Really.
A really new bringing new functional products.
In the human Nutrition line, where I talked about in my opening remarks, the gras status that we were.
We're able to get on three of our key.
Minerals, and we're really excited about the markets and applications that.
Now as it opens up for us that we've never really been able to go after without that that status so far.
Feel pretty good about it we lost some momentum on the external but I think we're back on track in and it'll be an important part of our 2021.
Perfect. Thank you and I'll just squeeze in one more.
Pretty good.
Stable strong free cash flow this year, how should we think about that and then on 2021.
Yeah.
Stefan Us it's Martin.
Yeah, I think you should continue to expect strong cash flow generation and good conversion on profits into cash for US you have seen in the past.
I'm not expecting anything structurally to changed I would you know.
Paint that story.
If you think about it from a <unk>.
Generation the cash from operations.
Going to happen and I don't see a significant depletion coming from working capital based on what we're doing.
From a capex perspective.
Spent a little over $30 million or <unk> $32 million to $33 million in 2020.
I think youll see that call it in that $35 million range here in the year as we go forward.
We're putting in you know almost $20 million for so an investor.
<unk> and various capacity and growth opportunities for us or even more than that.
But that's still not a dramatic change that should change sort of our ability to generate cash.
So the short answer is I think you should expect.
More on the same.
Perfect. Thank you so much and thank you for taking my questions.
Thank you.
Next question is from the line of ROM solve a Jew with H C. Wainwright. Please proceed with your questions.
Thanks can you hear me yes.
Yes, Rob.
Alright, Okay, so debt hi, thanks and congratulate.
And it's on a very solid year, just wanted to ask a few questions regarding first of all human nutrition on how I was wondering in the context of the pandemic and the market interest that is being shown with respect to things that boost the immune system, whether there are specific element of your product lineup.
That you see benefiting you know for as long as pretty much the pandemic lasts and particularly in the context of concerns that are emerging over variants that meet your V. Vaccines ongoing continued accumulation of new infections, and so on and so forth could you comment on that please.
Yeah, no absolutely and that was an important part of our year and well.
Very very high level, we'll talk about the many many puts and takes to our business in our P&L. This year largely offsetting one another.
You know some of.
The the the puts are the good guys where were very significant and you know you're honing in on one one of them right now in the human nutrition and health space.
Sure Chelating mineral sales where of course, we have the leading brand of human chelate.
Minerals, we sell we continue to sell it under the Albion brand.
You know our sales for the year were up.
Over 25% now we're used to double digit growth in that business, but but but not.
Yeah, 25%.
<unk> type growth. So there's no question that that business has been.
Materially benefiting from that.
The immunity boosting nature of of these are these products and just anecdotally for example, there were some months, we make a koolaid zinc as.
As you would assume and there were some months, where our sales of zinc were up 350%.
Year over year so.
Yeah, that's been very positive and and choline as well. We believe has really benefited in the human nutrition and health space.
Our Q4 sales for example of choline were up 25% for.
For the whole year, we were up about 15% and you know.
Traditionally we've been up you know maybe high single digits.
Just just around 10% so clearly there's.
Has some benefit there and I think the Big question is you know how long will that continue and I guess Ah.
You know, what we'll see but but I do think that there will be a maybe permanent is the wrong word but are lasting.
Element to this as as people really do seem to be taking more supplements more immunity boosting.
Supplements and I I think and we think that that will continue for some time.
And I would say, we haven't really seen.
Unlike you know, we're seeing some of the reverse and elective surgeries starting to come back.
Foodservice starting to come back we're not necessarily seeing the debt.
The minerals growth waning.
So you know we think it'll be.
Around for awhile.
So in addition to that I was wondering if you could comment on your plans with respect to potentially more aggressive marketing of choline.
Our product lineup, particularly within the context of human nutrition on health given the most recent clinical findings regarding the health benefits.
The choline and if you expect any of these potential initiatives to be a centerpiece of the human nutrition and health business in 2021.
For sure absolutely and I think that you know we have struggled as a company with.
With really.
Driving.
That marketing.
Those marketing campaigns and that that marketing messaging.
And and I think finally, we have.
It really started to materially change how we.
Market and that really start.
With with acquiring the right personnel the right capabilities and we've.
Dramatically.
Kind of boosted air for us for our marketing capabilities in 2020, we have a new leader.
For marketing who's built a team around him.
And.
And we're really excited about.
That new team and those those resources focused on marketing both our choline product center in our minerals and we have started to have some new campaigns.
That was never really.
Really I think effectively had in the past we are on.
In the fourth quarter, we you know Theres a study around the benefits of <unk>.
Choline for.
For cognition, obviously in in in our children and infants well proven we talk a lot about that but also.
For E sports.
And so we recently had a significant campaign around esports and.
Some of the significant supplement manufacturers are getting excited about the possibilities for choline.
Within the E sports and.
So you're going to see more.
Out of us in 2021.
Some of our marketing expense historically, we feel like given our new knowledge and expertise was kind of inefficient.
We will be spending more overall, but will the money that we spend will be spent more efficiently than it was in the past so.
So it's not going to be a dramatic increase.
Increase in spend but we have a renewed.
Energy and excitement around <unk>.
Marketing and H, and H and our ability to drive awareness and market penetration. So certainly more to come we'll make a point of talking about some of those campaigns in the coming quarters.
Quarters on.
And Rami if I can make a quick point I think where I've seen a significant change in improvement is.
Now we have gotten better at talking to our customers around how they can be successful with our products as opposed to just selling the ingredient really going to them with the research and the understanding of.
The end markets and how they position our ingredient as part of a broader campaign, that's very attractive to them and that was the skill set we didn't really have in the past.
And that we have acquired during the year and it's really starting to pay dividends for us.
And then just very quickly one more on the human.
And then help from them.
You were talking on earlier on in the Q&A with respect to <unk>.
<unk> opportunities on the M&A front and I was wondering if you know given the continually increasing interest overall in the supplement arena, whether youre specifically target.
Getting potential strategic acquisitions in the HMH space in order to broaden the supplement line up and then I had a couple of other questions on the specialty products for them.
So the short answer to that is yes, and and you're right. It is a very active space. It is you know I'm.
I loved this word but it's frothy.
Prices are high and there is a lot of competition out there, but we do feel like.
We have a good pipeline and we are we have some good opportunities that we're working on but yes, I think those core.
I'm not sure nutritional products lines that we have whether it's in animal nutrition or human nutrition are.
Really the bullseye so.
So to speak of our M&A focus and strategy that doesn't mean to say, we won't do things outside of that bullseye that makeup.
But.
You know building out our air nutritional.
Portfolio, adding geographic reach.
Two.
Our company are all important focus areas for M&A, so absolutely yes.
A lot of day, and then just a couple of related questions with respect to the ethylene oxide business. Firstly I was wondering whether you had visibility on when the elective surgical procedures aspect is going to improve and when you're likely to see an impact of that reflected in your core business, particularly.
Clearly in light of the pandemic, if you're looking at this and saying well it's too early to say what the picture is going to look like in 2021 and also I wanted to know if you could perhaps comment on the incoming administration clearly there is more of an accent on environmental issues protection of the environment et cetera.
Cetera, and was wondering whether you think that had any potential legislative implications for the ethylene oxide business. Thank you.
So relative to elective surgeries I already started by by saying that that business in Q4 was down 4%.
And we are seeing.
The business recover.
Have you know too.
Good ways to.
Get data information around it one is just you know significant contact with our customers and talking to them and understanding what their backlogs look like and what their fork.
Cash looked like and how busy they are in I would say anecdotally from that were.
We're seeing are getting feedback that that a thing.
Things are.
Starting to improve that there is a move toward.
Building some inventory.
<unk> of sterilized equipment for ultimate use, whereas the mode has been largely reducing inventories.
Even the uncertainty and we're seeing that as I've articulated in our numbers, but we also do have access into.
Perfect numbers, they tend to be a little bit delayed.
Good around surgical procedures that are happening and those statistics also would would lead you to say there is a slow improvement versus the Q2 trough our low point that we saw so we can kind of triangulate it a little bit from customer feedback.
Back and some data and get a sense that okay were down 4%, we don't think.
That's going to get worse at this point based on everything that we know and that we should see.
On a modest improvement over the coming quarters.
From that.
Relative to the new administration, I think that debt.
There are lots of aspects to the new administration that that.
We're very closely watching and and you know whether it's around tax policy.
Whether it's around.
Trade relations with China, both of which would would impact us with any significant shifts, but also as you mentioned relative to.
Environmental regulations and focus area.
Clearly.
We believe that the by the administration.
We'll have more.
A more significant focus on.
Environmental.
Controls and and.
And so forth.
They are starting to make some interim appointments.
And so we're starting to get a sense for you know who those people are in and so forth but.
<unk>.
Stepping back we really haven't over the last few.
Administrations when the Trump administration came in we didn't necessarily.
See a dramatic change you would think on the surface you might but we didn't.
We didn't see a dramatic change when the Obama administration came in relative.
To the Bush administration so.
While there are clearly.
Yeah.
No differences in focus.
We're not expecting a whole wholesale shift.
In an approach, but we're watching it closely and I think we'll just have to see over time.
Where they choose to focus in.
Interaction you know most of the people that we deal with in the in the E. P. A R. R.
Kind of professional EPA people aren't changing with the changing administration. So.
That's that's at least.
Some stability and encouraging.
Okay.
And then lastly, very quickly Martin I was wondering if you could provide any directional guidance on the effective tax rate for 'twenty 'twenty, one and if you expect it to stay the same as where it was in 2020 go up a little bit I'm not expecting there to be any significant decrease obviously, but any directional guidance you could provide on that would be very helpful. Thank.
Yeah, I think as you build.
Bell jar for your models and so on from a GAAP tax rate our effective tax rate I was you I would use you know 22% to 23% for your for your modeling purposes, if you're using a non-GAAP or adjusted tax rate I would use 23 to 24.
For for your models and I think that would be.
Directionally best bet, it always varies a little bit depending on what kind of discrete items happens in the year and so on so it's hard to predict but that's a very reasonable number to use sort of all other things equal.
Great. Thank you very much.
Thank you thanks.
Our next question comes from the line of Mark Connelly with Stephens. Please proceed with your great. Thank you.
Just a couple of things you mentioned operational issues.
Companies are telling us for the operational issues became worse in the fourth quarter. So I'm wondering if you can.
Give us a sense of what what's affecting you on whether it's affecting you or your customers.
So I would say were amongst those other companies.
We do we are through a lot of hard work in and specific actions.
We felt like getting through Q2 and Q3.
You know it was going to be the toughest part, but but our.
Q4, and I would say into Q1 has been a very.
Very difficult as the second or third wave, depending on what you want to call it really ramped up.
Only in this country, but also in Europe.
Just caused more.
People being out E, there, either sick or being quarantined.
We really struggled through the fourth.
<unk>.
To complete shifts.
Particularly in and really get the.
Appropriate number of people at our manufacturing sites.
Such that we could produce product at normal rates that was kind of the primary I would say.
Manufacturing inefficiencies, so you're paying more on overtime.
I am here may be paying more than temp labor, you're really doing whatever you can debt to get people in that has waned somewhat.
And you know kind of consistently with what we're seeing now.
With number of.
Positive tests coming down dramatically and hospitalization starting.
<unk> come down and that's being reflected.
And while it's it's still something that we're managing it has waned a little bit and now what's being replaced.
Or what's replacing that is more of the logistical.
Issues around truck availability.
Starting to particularly international shipment container availability in ship availability and and just those inefficiencies when you're expecting something to take three weeks and it takes six weeks and that would be inbound raw materials and obviously outbound finished goods. So all of those things you start to pay.
And for dieting charges for for freight in and and so on and so for us in.
So those are the kinds of.
Issues that we've been.
Talking about <unk> and.
Seeing and yes, I would say you know things ramped up in Q4.
Pay extra other than Q2 and Q3.
So are your backlogs of deliveries getting higher.
I would I would say in Q4 that really wasn't the case, we're starting to see some of that today and you know the big storm in the southern part of the U S.
For a more.
Certainly not helping we have one of our largest sites is in southern Missouri.
And it's really being affected by the storm, we have raw materials that are coming out of Texas, that's being affected but that aside that's obviously temporary.
Yes by and large we're managing it.
Inefficiently, hence the reason, we sort of talked about.
The inefficiencies.
But.
The backlogs are not extreme are extraordinary, but maybe a little bit higher than they normally would be.
That's really helpful.
Let's switch gears to looking at market penetration.
We've talked a lot about M&A, but where do you think the biggest untapped market penetration is within the existing portfolio.
My immediate what comes to mind.
Mark is is really two areas and I'll start with animal nutrition and health.
Yeah.
Sure.
Micro encapsulated rumen protected choline product that we sell under the brand reassure.
We've been selling that product now for for 20 years and are very proud of the fact that in the U S.
We are.
And that product revenue.
Protected choline is probably in about 35% of the cows in North America.
Absolutely no reason that that shouldn't be 50% or 60%.
Yeah. So.
Being able to double.
That business through further market penetration is as real and and when you take that to Europe very different market lots of different reasons why the penetration is much lower but it's only about 5% in Europe.
And again, no reason that that shouldn't be.
The 25% in Europe, maybe it won't be at the level that the U S market is and then we have you know other products in that area as well that are similarly penetrated in the market. So yeah short answer in animal nutrition is is there's so much debt that the.
Our world is learning around.
Nutritional supplementation of animals, and the health benefits that that it can bring relative to growth and mortality and so on and so for us. So.
We really do think there is tremendous.
Penetration.
Growth there and then on the on the animal side you know, it's it's somewhat similar yeah. The awareness around choline is still nowhere near where it should be the discussion around choline tends to be where.
It has been historically, where on an infant formula infant cognition.
<unk>.
And encana sell repair and and so forth and there's very little discussion around the benefits of choline.
For addressing fatty liver or adult cognition and.
Penetrating those markets.
Would be.
Tremendous and so.
There's lots of penetration there and I could say the exact same thing on on the mineral side without that grass status on those minerals, we really never could talk about medical food applications and our <unk>.
Nish Formula applications, we now can and.
So you know I guess, probably what youre hearing in my voice says, we really think that there is a lot of penetration additional penetration within both animal nutrition health and human nutrition health.
So while we talked earlier about M&A activity, maybe adding.
Additional products for our portfolio, we don't necessarily feel like that's a ah.
Must do because there is still significant growth opportunity within our existing product lines.
On what reliant on us building awareness and driving that penetration.
That's really helpful. Thank you very much.
Thanks Mark.
Thank you. Our final question is from the line of Tony Pollock with Aegis. Please proceed with your question.
Got.
Hey, Tony.
That's a little more clarity on the S N T.
You know what.
You put it in there how much money.
And what they do.
Yeah.
So sure Tony where we're really excited about S&P therapeutics, it's not something that we've done a lot of in the past these kinds of investments.
We invested approximately $350000.
I would call that sort of seed money, it's obviously a pre revenue.
Company.
But it really fits extremely well with with who we are and where we want to go and the founder of S&P Therapeutics is doctors.
<unk> size cell from the University of North Carolina, you've probably heard us mention in the past.
Who in many regards is probably the leading.
The human choline nutrition expert in the world.
And.
And we have worked with him for quite a long time he is doing that NIH.
Granted study relative to the biomarker he's done quite a few other.
Studies relative to choline and essentially what his mission.
Mission is to.
Study gene makeup and I'm, probably not the best person to do.
And for all the details of this but study Jean <unk>.
Make up of people to understand where there are errors in their gene makeup that may inhibit their ability to.
Ah absorbed and metabolized coli.
And he calls them snips.
And that's partly where the S&P therapeutics comes from but people who have.
Have these genetic errors don't necessarily know they have these generic Harris and may be arent.
Aren't taking enough choline supplementation and so we really like this for a couple of reasons. One is it's being led by somebody we have tremendous amount of respect and faith and number two he's he's really leading this this starting from a choline for.
Especially if that's where all his.
His researches he he has these algorithms that are put into this genetic modeling.
To really study people, who have that snap or air or relative to choline absorption is expanding that to other.
Snips that.
Neutral.
Trient.
Absorption.
But it starting with choline and and who better to to fund them to some extent and be a partner than the leading choline company in the world about him. So.
We're pretty excited about it it is a long ways off the ultimate goal would be.
For a day.
Damn to do genetic testing on people and then establish a personalized.
Nutrition platform for those people and ultimately even to make those.
Medical foods or supplements for those those intimate to individuals based on their genetic make.
Makeup and and we would see.
Supply.
The products that we make choline minerals and so forth into those those are are those products that they would ultimately sell so it's a long ways off.
But.
We think we're really excited about and we think.
It's important for us to be part of this other.
Its journey.
One more question speaking of a long way off on is there anything to do with it.
They look for from drug.
Yes, there is.
Little bit new there.
And it's really just around.
Our own prepare.
<unk> net and.
What we think today is the timing relative to the filing of the BLA we have.
Always planned on manufacturing. This this product through a third party, we are not a pharmaceutical manufacturer.
Factor of this is a pharmaceutical.
Product and and we needed our help and expertise and we have.
The move to a different provider of that service one that we are.
Very very confident and really bring sort of world renowned.
Our capabilities in manufacturing.
Pharmaceuticals in these kinds of products. So we have over 2020.
Shifting from one party to another and we're very pleased.
With with that and we really did it just from a.
Our confidence.
<unk> level around quality and capability and number two.
As I've spent time with with Joan Fallon over the last few months.
Relative to timing and we really do feel and this is consistent with now what we've been saying at least for.
Uh huh.
You have some quarters that that.
Yeah, Theres a good chance that she will be in a position to file the.
The BLA.
This year end.
And I think if it happens this year it will be late in the year. If it yeah. It may leak into next year, but but.
They right now have all hands on deck, a focus on filing the BLA. Prior to this you know they were talking about doing additional studies are clarifying studies for this and that.
But I think partly because of the pandemic.
They.
They are singularly focused at this point in time I would say on filing the BLA and so we're hopeful that that will.
Happened this year and so I think theres, a little bit more light at the end of the tunnel relative to that and obviously, that's a very important milestone that doesn't do anything unto itself.
But it's an important milestone.
Stone and that would be in the hands of the FDA and and.
We will go from there, but that's that's a.
Those are just a couple of updates on I think are noteworthy.
Okay. Thank you.
Thanks, Tony.
Thank you at this time I'll turn the call back to Ted Harris for closing remarks.
Okay. Thanks, Rob once again, just thank you very much for joining our call today and and you know more importantly, your continued interest in our company. We really are extremely pleased with the with our full year 2020 results as well as the Q4 cash.
Cap on on the strong.
<unk> results.
And we really appreciate your time today, we look forward to reporting out on Q1 2020, 2021 results in April and in the meantime, we will be attending just a few virtual conferences of note. The H C Wainwright fireside chat.
Strong next week February 24th and then the JP Morgan Industrials conference on March 15th So hopefully we can virtually see some of you are.
At one of those events and in the meantime.
Thank you again for for joining today.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.