Q2 2022 Balchem Corp Earnings Call
Greetings and welcome to the balcony Corporation second quarter earnings Conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn this conference over to your host Mr. Martin Bengtsson Chief Financial Officer. Thank you Sir you may begin.
Thank you Laura good morning, everyone. Thank you for joining our conference call. This morning to discuss the results about <unk> Corporation for the quarter ending June 30th 2022. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our chairman CEO and President.
Following the advice of our counsel auditors and the FCC at this time I would like to read our forward looking statement. This release does contain or likely will contain forward looking 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.
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 will now turn the call over to Ted Harris, our chairman CEO and president Thanks.
Thanks, Martin Good morning, welcome to our conference call. This morning, we reported very strong second quarter results with both strong revenue and earnings growth our revenues of $236 $7 million were up 17% and our adjusted earnings from operations were <unk> 40.
$6 $7 million up 13, 6% versus the prior year quarter.
Our second quarter net income of $29.8 million, an increase of 31% resulted in earnings per share of 92 cents on a GAAP basis, one on an adjusted basis, our second quarter non-GAAP net earnings were $34.4 million an increase of 30.
14.3%, resulting.
Resulting in earnings per share of $1.07 on a non-GAAP basis cash flows from operations were $48 $2 million for the second quarter of 2022.
With quarterly free cash flow of $37 $8 million overall, a great second quarter for bell curve with performance that highlights the strength and resilience of our business model.
Before passing the call back to Martin to cover the detailed financial results by segment I would like to make a few comments about our recent acquisition of Capa Bioscience, a S or simply Capa as previously announced on June 21st Falcon acquired Capa are leading science based manufacturer of specialty.
<unk> K too for the human nutrition industry headquartered in Oslo, Norway with.
With the acquisition of Capa, we accelerate our strategic vision of building, a global health and nutrition company strengthen our human nutrition and health segment and further support our higher purpose of making the world a healthier place.
<unk> is a leading science based manufacturer of vitamin K two for the human nutrition industry. The company was founded by two brilliant chemists, who are both still active in the company Inger Reagan our crest and Marcel Sandburg. They had noticed a growing need for vitamin K, two and set out to find a new more efficient.
<unk> way of producing the vitamin on a large scale with improved purity and at an efficient cost position to.
Together, they invented a new chemical synthesis that laid the foundation for what has become Cabot today.
<unk> unique technology enables them to produce a highly pure vitamin K, two with leading quality and stability that is offered into the marketplace under the brand K two vital.
Cap is K two sold either as an oil or a powder, but is also available as a unique double micro encapsulated product under the brand K two vital delta, which provides superior stability in formulations compared to competitive products vitamin.
Vitamin K two is a vital vitamin needed by our bodies to support bone and cardiovascular health it controls the transport and distribution of calcium making sure. The calcium gets to wherever it is really needed K. Two is important at all life stages from pregnancy to early life to.
Old age.
It is critical for building and maintaining healthy bones and teeth and at the same time, preventing harmful calcium deposits and soft tissues.
Additionally, vitamin K two plays a significant role in immune function and protection, serving as a synergistic partner with vitamin D. Three together vitamin D three and vitamin K to strengthen the immune system and support the body's capacity to manage inflammation.
We are very pleased about this acquisition and the addition to our company of captains deep scientific expertise patent portfolio and premium branded products. Therefore strategically important elements to this acquisition one we fundamentally believe the K two is an important and critical specialty.
Vitamin for human nutrition, and health that will see strong growth for the foreseeable future as the science further evolves and market penetration increases to cap is market, leading science space vitamin K two position expands our portfolio of products and provides us the opportunity.
To expand both companies sales to a broader combined customer base three the combination of caf as strength in Europe , and balkin with strength in North America will provide an opportunity for accelerated growth for both the legacy <unk> products as well as campus K two we're already seeing some evidence of this.
And just the first few weeks and for.
We believe that the combination of the scientific expertise and market leading positions of both companies will aid in the understanding of the interconnectivity between our existing portfolio of minerals and nutrients with vitamin K two and subsequently our ability to provide enhanced solutions for our customers.
This strategic rationale combined combined with a strong margin and growth profile of the business make cap a very attractive addition to biochem.
We acquired 100% of Capa for an enterprise value of approximately 3.2 billion Norwegian kroner prior to net debt and working capital adjustments that translates to approximately 320 million U S dollars, which we funded out of our existing credit facility. In addition.
And to the purchase price the sellers have an opportunity to receive an additional earn out payments in 'twenty 'twenty four ranging from zero percent to 16% of the enterprise value based on growth and other performance targets established for the 20th twenty-three calendar year.
This transaction represents an enterprise value to EBITDA multiple of approximately 18 times based on the 2022 forecast EBITDA, reflecting the strong growth trajectory, we expect over the coming years.
Campus forecast 20, twenty-two revenues are approximately 50 million U S dollars with a strong growth and margin profile accretive to <unk> overall profile.
<unk> has a strong position in a rapidly expanding market, where vitamin K two is expected to be one of the fastest growing vitamins over the next five years. The vitamin K two market has been growing at rates exceeding 30% over the last few years and has now reached an approximate market size of 170.
$5 million in 2022, while we expect the growth percentages to moderate somewhat as the market gets larger we still expect the case to market to grow at rates exceeding 15% compound annual growth rates over the next five years.
The transaction is expected to be accretive to <unk> earnings per share in 2022 on an adjusted basis and accretive on a GAAP basis in 'twenty 'twenty four I.
I wanted to take this opportunity to give a warm welcome to cap a 75 plus employees into the Balkan family. The Capa team has strong experienced and committed they know and understand the vitamin K two market and have made the K two vital brand the most recognized and well regarded brand and the.
K to market through their commitment to quality science and trends transparent communication. We are very excited about what we can achieve together and the opportunities that lie ahead and with that I will now turn the call back over to Martin to go through the detailed financial results for each of our segments.
Thank you Ted.
As Ted mentioned overall, we delivered strong financial results in the second quarter, our second quarter net sales of $236 $7 million were 17% higher than the prior year, we delivered sales growth in all three segments human nutrition, <unk> health animal nutrition, <unk> health and specialty products.
We drove strong pricing performance across the portfolio recovering the continued inflationary increases that we're seeing across our manufacturing and distribution input costs.
Our volumes were mixed across the portfolio with volume growth in our human food ingredients and minerals and nutrients businesses as well as our mono gastric animal nutrition business, while we saw volume declines in our ruminant portfolio and our specialty products portfolio.
Impact from foreign currency exchange, driven primarily by the weaker euro had a negative impact to our sales growth of approximately 1.6%.
Our second quarter consolidated gross margin dollars of $71 $9 million were up $12 $4 million or 29% compared to the prior year.
Gross margin percent was third 30.4% of sales in the quarter up 99 basis points compared to 29, 4% in the second quarter of 2021.
Input cost inflation continues to be significant and it's hard to predict at this time, how this will evolve over the next few quarters.
We've been fairly successful so far in racing Abrin average selling prices to help offset the inflationary pressures, but it continues to have a dilutive impact on margins. We're also starting to see some demand destruction in certain areas, resulting from the increased prices.
Consolidated operating expenses for the second quarter were $32 million as compared to $28 $9 million in the prior year.
The increase was primarily due to higher compensation and related costs and higher advertising and marketing expenses.
GAAP earnings from operations for the second quarter were $39 $9 million, an increase of $9.3 million or 35% compared to the prior year quarter.
On an adjusted basis as detailed in our earnings release. This morning, non-GAAP earnings from operations of $46 $7 million were up $5.6 million or 13.6% compared to the prior year quarter.
Adjusted EBITDA of $56 $5 million was $6 $3 million or 12.6% above the second quarter of 2020 one.
Interest expense for the second quarter of 2022 was $1 million and our net debt was $357.4 million with an overall leverage ratio on a net debt basis of 1.8.
The company's effective tax rates for the second quarters of 'twenty, 'twenty, two and 2021 or 24, 1% and 24, 3%, respectively with no significant change year over year as various items largely offset each other.
Consolidated net income closed the quarter at $29 $8 million up 31% from the prior year quarter. This quarterly net income translated into diluted net earnings per share up 92 cents, an increase of 22 cents or 32, 4% from last year's comparable quarter.
On an adjusted basis, our second quarter adjusted net earnings were $34.4 million.
Our $1.07 per diluted share up 13, 3% compared with prior year quarter.
Cash flows from operations were $48 $2 million, and we closed out the quarter with $76 $2 million of cash on the balance sheet.
As we look at it from a segment perspective.
For the quarter, our human nutrition, and health segment generated record quarterly sales of $131.6 million, an increase of 18.1% from the prior year.
The increase was driven both by sales growth within food and beverage markets as well as higher sales within the minerals and nutrients business.
Our human Nutrition and health segment also delivered record quarterly earnings from operations of $23 $7 million, an increase of 24, 6% compared to the prior year, primarily due to the aforementioned higher sales higher average selling prices and the timing of cost associated with the recovery from it.
Fact flash flood event in the prior year, partially offset by higher manufacturing input costs and distribution costs.
Excluding the effect of noncash expense associated with amortization of intangible assets of $4 million and excluding the prior year expenses related to the flash flood event second quarter adjusted earnings from operations for this segment were $27.7 million an increase of nine 2%.
Our animal nutrition, and health segment generated quarterly sales of $62 $6 million, an increase of 14, 9% compared to the prior year.
The increase in sales was the result of higher sales and mono gastric in companion animal markets, partially offset by lower sales in ruminant animal markets and an unfavorable impact related to changes in foreign currency exchange rates.
We're currently seeing a mixed demand picture in our animal nutrition and health business in the U S. We continue to see solid demand for our mono gastric business as well as our companion animal business, while we see weaker demand on the ruminant side with dairy farmers struggled with profitability in this inflationary environment.
In Europe , we've seen a slowdown in both born of gastric and ruminant markets as the inflationary environment and geopolitical tension in the region has generated a very volatile demand situation and some customer destocking actions in the quarter.
Animal nutrition and health delivered earnings from operations of $7.6 million, an increase of 113% from the prior year quarter, primarily due to the aforementioned higher sales higher average selling prices and the timing of cost associated with a recovery from a flash flood event in the prior year pause.
Actually offset by increases in manufacturing input costs and distribution costs.
Excluding the effect of noncash expense associated with amortization of intangible assets of <unk> $1 million and excluding the prior year expenses related to the flash flood event second quarter adjusted earnings from operations for this segment were $7.7 million, an increase of 49, 7%.
<unk>.
Our specialty products segment delivered record quarterly sales of $36 $6 million, an increase of seven 7% compared to the prior year quarter due to higher sales of products in the medical device sterilization market, partially offset by lower plant nutrition sales and an unfavorable impact related to the changes.
Foreign currency exchange rates.
Volumes into the medical device sterilization market increased sequentially for the third consecutive quarter, but was slightly below prior year volumes, but it's encouraging to see the gradual recovery in this business that was negatively impacted by the pandemic.
Specialty products delivered earnings from operations of $9 $9 million, an increase of 2% versus the prior year quarter.
The increase was primarily due to the aforementioned higher sales, partially offset by increases in manufacturing input costs and distribution costs.
Excluding the effect of noncash expense associated with amortization of intangible assets of $1 $1 million and excluding the prior year expenses.
Expenses related to the flash floods flash flood event second quarter adjusted earnings from operations for this segment were $11 million a decrease of one 8%.
Lastly, before turning the call back to Ted for closing remarks, I would like to share that on July 27th 20th tranche. Two we entered into a new credit agreement with lenders in the form of a senior secured revolving credit facility due July 2027.
This new revolving credit agreement allows for up to $550 million of borrowing and replaces the existing 500 million revolving credit facility June 2023.
Having this facility in place for the upcoming five years provides us with great flexibility to support the growth that lies ahead.
Now going to turn the call back over to Ted for some closing remarks.
Thanks, Martin we are extremely pleased with <unk> financial results reported earlier this morning, and the strong second quarter of 2022, we delivered all time record revenues with revenue growth in all three of our business segments and record adjusted earnings and what continues to be a very difficult.
<unk> market environment.
We're also extremely pleased with the acquisition of Capa and are excited to have the capa team join the <unk> team together I know, we will find new ways to make the world a healthier place. Despite continued disruptions within global supply chains. The extreme inflationary environment, we are facing and the broad.
Market uncertainties, we remain cautiously optimistic about the remainder of the year given the strength of our market positions and the resilience of our business model. The biochem team continues to do a fantastic job of finding creative solutions to challenges never seen before I would like to once again take this opportunity.
Thank all of our employees for the incredible work they do for our company our customers and our key stakeholders 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 our questions.
At this time will be conducting a question and answer session.
Question. Please.
Sure.
Telephone keypad.
<unk>.
The question queue, you May press.
A question from the queue for participants using speaker equipment.
Sir.
Your handset before pressing the star keys.
One moment, while we poll.
For questions.
Our first question comes from the line.
Yeah.
Bob.
C. J S Securities you May proceed with your question.
Good morning, and congratulations on another strong quarter and on the Capa acquisition.
Thanks, a lot Bob.
Absolutely yeah, no very exciting so maybe starting there.
Could you tell us more about the the drivers of growth for vitamin K two in <unk>.
Maybe how it's similar or different from the choline growth opportunity and maybe you know what where they sell into versus choline and and and you know potential synergy sale synergies going forward.
Yeah.
So again, thanks for your comments and and we really are excited about the addition of of Capa to to bow Cam and yeah. The drivers are of growth really are around yeah, the science behind <unk>.
Vitamin K two I mean, it's clearly a an essential vitamin are needed by our bodies for support of our bone health and cardiovascular health with an aging population. These are important factors become increasingly.
Important.
I mean, that's a that's an important driver unto itself is just the overall aging population, but another important driver is just increased our science.
And knowledge around the effectiveness of K, two and the importance of K two I also talked about.
In the prepared remarks, the synergy between K two in vitamin D. Three and as you know the world becomes more.
Aware and focused on immunity and building your immune systems like vitamin K two plays a really important role a relative.
Relative to our building immunity at particularly given its synergistic effects with vitamin D. Three so I would say those are two really important overall drivers of growth are you know one is the aging population and number two.
As a as a kind of awareness around immunity and the desire for people that continue to focus on.
Building their their immune systems, and then I guess thirdly, just the overall science behind K. Two I think is evolving which I think is a key driver and so you know those things are ours are similar relative to to Colby I mean choline science continues to evolve.
<unk> to choline, we think the ultimate addressable market of choline is far larger than the existing market as science evolves awareness builds.
Penetration ultimately happens exactly the same thing with our with vitamin K two yeah. The other similarity is that that co.
Choline really plays a role and and all aspects of life, whether it's in a pregnancy early life old age cognition and K too as well, we're really excited around you know one of our strengths and Malcolm and our company is around.
The prenatal choline in early life choline, while we think there is a role for choline through through all.
All stages of life.
K two plays a really important role in in early life as well and that's a you know.
Really strong part of who we are and our value proposition. So I think we're really excited to take our prenatal early life expertise that we bring to our customers add K two to that and bring that to our air are our customers and so.
You know all of that touches a little bit on some of the obvious synergies.
We're really excited to take K two and include that in airport folio to bring to our existing customers and similarly.
Capa has access to customers that you know, we haven't necessarily penetrated over the years and we're really excited about.
The you know the capa.
Leads are and relationships and so forth to bring our mineral and choline a technology I also talked a little bit about just the regional element from a synergy perspective campus strength really is Europe , they're present in U S and in Asia, but their strength is Europe .
<unk>.
Yeah like US are you know we have presence in Europe , we have presence in Asia, but our our strength really is in the U S. And so we really believe that we can accelerate our K to penetration in the U S with our strength and we also think that the cabinet team can accelerate choline and mineral.
<unk> growth for us in Europe through their strength and in Europe , So that really touches on it we were we don't feel like there are a lot of cost.
Cost synergies necessarily even from a procurement perspective that raw materials are very very different to two hours I'm sure. We will find you know some cost synergies as we go but it's really more about a market synergies and those synergies I described.
Okay, Great. That's really helpful and can you talk about the choline market size right now relative I think you gave the cap of sizes of 175 million globally, whereas called human calling you know right now and I think it's behind that size for the K to what does it take to you know.
Get to that higher level, and then beyond for chromium.
And so so you know when you look at choline. The one big difference about choline as that choline also has a role and animal nutrition that is very very significant today. So yeah. We think of the choline market probably is being a bank.
Out $500 million.
From a overall market size for for choline.
Human choline market is is far less than that it's probably more like $50 million.
K two today is primarily a human.
Nutrition vitamin we do think that there may be some elements in animal nutrition that may make a lot of sense, but you know that's really not part of the opportunity today. So that hopefully gives you a kind of a size comparison.
Okay, Great and I'll ask one more and I'll jump back in queue, just changing subjects, a little bit obviously over the last several quarters, you've been you know I guess, putting a position based on raw material prices.
Our Ontario costs rising to raise your prices as well you mentioned, some but for the first time some modest demand.
Structured, but maybe talk a little bit about what you've learned about the price elasticity or the elasticity curve and.
Given your niche leadership position in so many areas how do you see kind of prices.
Playing out if raw material prices or when.
Gold prices ultimately pullback I mean have you discovered that maybe you were under priced in certain markets might there be an opportunity to hold some of that or.
Looking ahead, where do you think are the pricing environment goes if and when raw material inputs normalize.
You know it's a.
Complicated, but really good question, Bob Yeah, we're really pleased with the market positions that we have that have allowed us by and large to to raise prices and recover the majority of our input costs we're still.
Behind <unk>.
And we still see margin degradation. So we we have a ways to go we're continuing to raise prices selectively. We're raising prices are you know August 1st in certain areas. So.
We're behind but we believe that we have the market positions and the ability to offset the cost.
Cost increases I wouldn't say that that anywhere with you know recognize that we were under pricing and and we you know we were doing.
Doing a poor job of pricing in the past, but I think what we have substantiated is that that are you know we are bringing differentiated products to the market. We do have strong market positions and that we have been by and large able to to raise prices why were behind.
And is typically because of contractual agreement that that forces us to be behind because you know we have a quarter lag basis based into our AR and our contracts.
It will obviously be very interesting to see how how the market evolves and as raw materials do do flatten out yeah. There's no question in certain markets were going to give some of those price increases back to to our customers as raw materials.
Come down and and likely we've been in this environment of lagging and and and in a period of margin compression because because of that lag and as things flatten out you know, there's there's a high likelihood that we'll see some margin expansion.
Spansion as we get it get ahead of that are on the way down.
Got it Super Okay. Thank you I'll hop back in queue. Thanks.
Thanks.
Our next question comes from the line of.
Graham.
You May proceed with your question.
Hi, Thank you very much for taking my question, So I wanted to get.
A little bit about the broader long term strategy and human health and nutrition.
Based on not only the Capa acquisition, but also what you're seeing is the emerging trends in the space that you expect them to be particularly advantageously positions us to capitalize upon.
Specifically I was hoping that you could talk a little bit about what you plan to do with the cap of portfolio, especially from an intellectual property perspective, if youre going to look at potentially developing new co formulated product and also if we should be thinking about the capa.
Acquisition as more indicative of what you intend to do in the <unk> space relative to potentially some other strategic choices that you may have like for example, exploring an entry into prescription medical foods.
Yeah.
So again, thanks for your questions ROM lot lot in there.
On the is this more indicative of of our future.
Gross I.
I really think that that are the acquisition of Capa as you know we kind of think of the the our pipeline is a bit of a radar screen and I would say that the capa acquisition is.
Yeah right there in the middle of the bullseye relative to the margin profile relative to the specialty nature of it relative to the brand strength of the brand relative to the science behind it relative to the fact that it is an essential nutrient and adds to our our health and.
And focus so I do think that it's a very clearly in the bullseye.
Of what we wanted to do and just you know.
So you don't think it's only human nutrition, you know I think there are certainly plenty of of those kinds of nutrients on the animal side that are in the middle of the bull's eye as well.
But you know we continue to have a pipeline that has you know various acquisitions in it and and.
Investments in technology that May include a medical foods. They may include a broader food ingredients and and and so forth. So you know we are looking at a broad array of of acquisitions two to strengthen our company as a whole, but this is firmly in the bullseye.
Of what we're going to do.
From a patent portfolio I think it is worth worth relative to cap a I think it is worth noting that you know we're quite pleased with the existing a patent portfolio of Capa and and I think there you know, it's probably accurate to say that they're there.
Science.
And the protection of the business.
It's not really just all wrapped up in the filed patents, there's quite a bit of proprietary technology know how that exists and very deliberate decisions made around you know when to file a patent and when to keep it as trade secret and and so forth. So when we look at that whole.
<unk>, we feel like.
It's quite strong and we like that.
But there are three or four I would describe key patents around the synthetic approach to manufacturing.
K too that have some good length to them and some real strength to them and then you know a handful of others that that have.
I'll, maybe describe them as variant products are.
The broader application of K, two and in human health and your specific question.
Can I can I see a broadening of this the inclusion of various other.
Ah Ah products potentially synergistic with our existing products around immune health and so forth.
Absolutely I mean, we've talked about Microencapsulation, we look at ourselves as one of the world leader in micro encapsulation, one of our products is micron capsulate. It I think there's a role for microencapsulation here in in K, two so might we bring something there and we also feel like there are.
Some synergistic.
Opportunities with with choline, various minerals, whether it's zinc or magnesium and so forth.
That that we will we're really excited to get our technology group together with cap as to.
See what we can.
Fine there.
So so hopefully that that answers your question and the first part of the question was around the long term strategy of.
H N H and it really I think it it mimics our overall strategy as a company too.
Build a human health and nutrition company that is global.
That is broad that is based on science based.
Technology based specialty.
Ingredients and nutrients that are a differentiator.
She hated that Ken.
You know broaden our ability to solve our customers' problems both from a food and nutrition perspective, and we really have I think you know we talk a lot about our growth platforms and we do have a broad array of growth platforms that I think that will allow us to do.
<unk> that are going forward and I think again capital fits perfectly in that.
Just to clarify when do you expect the principal patents from capa to expire.
You know again like all you know when you have a multitude of patents are you know we have some that expire in 'twenty 36, some in 'twenty 'twenty nine.
And kind of through that that timeframe.
So we feel good about the length of our patent protection and again as I said, it's really not we're not reliant on any one patent there's a lot of.
Trade secret proprietary information in fact, there's a you know.
Work, that's been done recently to optimize the synthetic path that has been very deliberately decided to not patent.
That we feel will give protection for many years to come.
Okay, and then just a very quick question for Martin on the debt side I understand that you did acquire some depth in the conjunction of the Capa acquisition transaction and just wanted to see if you could give us a quick snapshot of the current debt picture.
Overall, and specifically, whether you're looking to restructure or refinance any of the cap of that or if you feel that it's okay to go forward servicing it as usual and to what extent that really represents a meaningful component of the overall debt position of the company.
At this point thank you.
Yes.
In terms of the death that cap are carried at the time, we acquired them. It wasn't in round numbers about $30 million, which we paid down at closing so caf I no longer have any debt in the cafe entities.
Obviously, we increased our debt as we found funded the transaction. So if you look out about camps overall balance sheet right. Now you will show about 430 million or so all outstanding debt.
Which is just part of our normal revolving credit facility.
Which was previously $500 million and as mentioned in the prepared remarks, we just refinance that two days ago for a new five year period with a $550 million revolver. So we currently have $430 million of debt out of the $550 million credit facility.
So we feel that we're in good position there if you take that against the backdrop of how much free cash flow. We generate every year. We expect that we will pay that down you know pretty pretty quick.
And in terms of the interest rate environment, and what's going on there.
Simple math you can do obviously on for authorities that every every percent as you know little over $4 million.
We refinanced debt at sort of a very attractive margin spreads that actually.
Lightly improved depending on on debt leverage to what we had before.
But you know we follow the.
What used to be the LIBOR, it's now the sofa plus a margin spread on the debt we carry.
But our expectation is that we'll we'll delever. The 1.8 times net debt leverage that we have at the moment pretty quick here with the cash that we're generating.
And just lastly on the currency markets picture.
Can you just comment a little bit on what you expect continued strength in the U S. Dollar. It can mean for your ongoing businesses and especially you know if you expect for example, meaningfully greater growth for the cap of businesses in the U S versus Europe going forward relative to what capa with originally able to achieve.
I don't know whether that is indeed, the case, but it would be helpful for you to clarify that.
If that's going to have an impact on your being able to offset any potential negative implications of a stronger dollar. Thank you.
Yeah, I think from the currency perspective, with a with a strong dollar an hour where the euro is almost a one one to one right. Obviously it has a translation impact on our European business.
If it last year average sort of in the $1 14, $1 15 range, that's a 15% translational impact on our on our European business. When we translate it back in terms of impacting the underlying fundamental business itself I would say not to a great extent.
You know, we do a lot of our sourcing and ourselves locally for our regional businesses. So a lot of our European business is sourced locally and sold locally.
So therefore, it has a lesser and lesser impact on the same thing for our U S business, where you know, we're obviously you know 70% plus U S based and a lot of that is sourced locally and sold locally so the.
The FX changes are more of a translation impact to us than an actual sort of driver of underlying business performance. We can always find a small exception somewhere but but overall.
It Shouldnt change things too much.
And just relative to cap at.
All of the competitive product is either made.
In Europe or.
In Asia.
And therefore, you know we're not in a necessarily in a position of strength relative to the market or competition with with European production and the U S market. So we don't really see this this.
Arbitrage opportunity as something that will differentially impact capa.
Thank you.
Thanks, Rob.
Our next question comes on line.
Mitra <unk> with Sidoti you May proceed with your question.
Yes. Good morning, Thanks for taking the questions first.
First I know, we're only a month into the third quarter, but maybe you can give us a sense as to what youre seeing on the manufacturing input and distribution costs relative to Q.
And maybe your expectations for the rest of the year on that front.
Yeah. Thanks Mitra.
Yeah.
Inflationary and an input cost perspective, I would first kind of highlight that it has continued on an upward trend.
As we look back here for the first half of the year. It has continued to tick up a little bit every month as we've gone through the year. So.
It would be hard for me to sit here and say that it has plateaued and started to materially or significantly decrease I cannot say that based on what I see obviously, depending on which raw materials. If you look at you'll see a different pictures some have turned around.
And you see deflation in some materials, but others are still there.
[noise], an inflationary environment and overall for our overall spend it has continued.
With slight inflation sort of month over month quarter over quarter, and we're seeing a similar trend for July .
So I would say no change so far in terms of what we've seen indicating any dramatic change compared to the last few quarters.
It's not us.
An aggressive of a curve in terms of the trend line how steep status.
Not as steep but it's unfortunately still pointing upwards.
Okay now that's very helpful. Thanks.
I know you highlighted are a couple of areas that were a little soft and.
In terms of the lower ruminant sales and also on plant nutrition.
Just curious in terms of their expectations for the remainder of the year and longer term outlook there.
Yeah, I mean, Canada, the ruminant has been a little bit softer and we've seen that and we've talked about that are on some of the previous calls that where the input costs for the daily farmers go up we tend to see a little bit more sensitivity in there.
Willingness to to put our products in there despite the value proposition that they have because they just don't have cash to spend and we see that decline, which is what we're seeing in this high inflationary environment.
How that will play out going forward I am not going to speculate in is it depends a little bit on the input costs for the dairy farmers.
And your soybean me on your corn et cetera et cetera.
Platen attrition, where we saw a little bit of softness in Q2.
On a year to date basis, they're actually still up but they were they were down in Q2, they had an exceptionally strong Q1.
Where the season started a little bit earlier. This is our most seasonal business in our portfolio for the planting season.
And I think our customers sort of took the opportunity to maybe order a little bit earlier than normal given longer lead times and securing they had what they needed going into the season, given all the supply chain disruptions over the last few years. So we saw.
So there's a bump earlier.
And that made Q2 look look a little bit lower year over year.
In terms of other businesses.
Many of them are still doing very well with strong demand.
And strong order books here us as we go forward.
But we're obviously very very caution as cautious as we keep seeing higher cost unless we keep pricing up.
Inevitably you would think that at some point you know the increased prices will have to start having an impact on demand and that's why we're sort of cautious as we look in the outlooks, but.
The order books are looking looking pretty healthy at the moment.
Okay. No. That's that's great and then just coming back to the Capa acquisition I was just curious if you.
You need to hire additional personnel in terms of sales etcetera to support.
The growth there or is that something you can immediately yeah elaborate give me your existing workforce.
Maybe I'll I'll take that one mitra.
Yeah, I think the simple answer to that is no not really.
We are hopeful that that you know really the entire Cabot team remains a as part of Bal Cam and engaged and so far we.
We believe that to be the case capo you know was growing really rapidly and so they have been on a hiring trajectory and certainly our plan is to continue that so.
We will be hiring you mentioned salespeople. We you know we have a plan to hire some salespeople in several regions as part of the existing cap a plan and we will be executing on that and adding people as they had had planned but.
At this point in time, and obviously, it's a little early we don't necessarily see the need to augment that.
There clearly will be some synergies now we've got access to the broader balcom sales organization in North America et cetera.
But we also at the same time do believe that we'll we'll continue to add the people that cap are felt.
They need in order to execute the plan because we think they have a really good plan.
Okay. Thanks, and then just finally on cap again, I think Ted.
Ted you had mentioned 175 million market potential number is that the U S. Now for the U S or is that global.
That's that's air Air.
Estimate for the global market of K two.
And we believe that that capa.
<unk> had approximately a 30% market share of the global market.
Okay. Thanks for clearing that up and again, congrats on a really nice quarter given the environment.
Great. Thanks, Matt.
Our last question comes from the line of Tony Polak with Aegis you May proceed with your question.
Ladies and gentlemen.
On today's question and answer session I would like to turn the call back over to Mr. Ted Harris for closing comments.
Okay, I'm not sure what happened to Tony there, but Tony if you'd like to talk give us call. We're happy to answer any questions you might have.
So once again, thank you very much for joining our call today, we really appreciate your support as well as your time and we look forward to reporting out. Our Q3 2022 results in late October early November in the meantime, we will be presenting at a few conferences. The Sidoti fall conference on September 21st in 'twenty.
And the Baird Global Industrial conference on November 8th ninth and 10th in Chicago. So we hope to see some of you there and are in the meantime, thanks again for joining today and have a great day. Thanks.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Jay.
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Yeah.
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Yeah.
Uh huh.
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Yeah.
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