Q3 2022 Balchem Corp Earnings Call
Greetings and welcome to Balcombe Corporation's third quarter earnings call.
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Question and answer session will follow the formal presentation.
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Please note the San Francis is being recorded.
I'll now turn the conference over to Martin Bengtsson, Chief Financial Officer, Mr. Vincent You May now begin.
Good morning, everyone. Thank you for joining our conference call. This morning to discuss the results about <unk> Corporation for the quarter ending September 30th 2022. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our chairman President and CEO .
Following the advice of our counsel auditors and the SEC at this time I would like to read our forward looking statement.
Statements made in today's call that are not historical facts are considered forward looking statements. We can give no assurance that the expectations reflected in forward looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in <unk>. Most recent form 10.
K 10-Q, and 8-K reports the company assumes no obligation to update these forward looking statements today's call and commentary include non-GAAP financial measures. Please refer to the reconciliation in our earnings release for further detail.
I will now turn the call over to Ted Harris, our chairman President and CEO .
Thanks, Martin Good morning, and welcome to our conference call. This morning, we reported our third quarter results with both strong revenue and earnings growth our revenues of $244 $3 million were up 23, 4% and our adjusted earnings from operations were <unk> 44.
$4 $8 million up 13, 3% versus the prior year quarter.
Our third quarter net income of $25 $2 million, an increase of 0.9% resulted in earnings per share of 78 cents on a GAAP basis on an adjusted basis, our third quarter non-GAAP net earnings were $32 $4 million in.
Increase of 8%, resulting in earnings per share of $1 on a non-GAAP basis.
Cash flows from operations were $41 $6 million for the third quarter of 2022 with quarterly free cash flow of $26.8 million overall, another solid growth quarter for bell, Ken with performance that highlights the strength and resilience of our business model in a very challenging.
Zing market environment.
Before passing the call back to Martin to cover more detailed financial results I would like to make a few comments about the overall market environment and our most recent acquisitions as well the current market environment, we find ourselves operating within is very challenging inflationary pressures rising interest.
<unk>, the geopolitical and macroeconomic environment and general market uncertainties are having an impact on costs supply chain efficiencies labor availability and increasingly on the overall demand picture. We are starting to experience increased demand volatility to varying degrees across our three.
Three reporting segments as a result of customer destocking in risk management activities as well as some moderating slowing of real demand, particularly in Europe . We.
We are very pleased with how we have been able to maneuver through all of these challenges to date and in particular, how we have been able to raise prices to offset much of the inflationary impact on our costs. We were also pleased with the growth delivered in the third quarter and believe that despite the increased demand volatility.
And the ongoing challenges associated with the political and macroeconomic environment that the strength and resilience of our business model coupled with the contribution from our recent acquisitions will enable us to continue to deliver growth in Q4 and into 'twenty two 'twenty three.
I also wanted to spend a little time talking about our most recent acquisitions on August 30th of this year. We completed the acquisition of Cardinal Associates, Inc. Operated as Bergstrom nutrition or simply Bergstrom.
Leading science based manufacturer of metal sulfinyl methane or M. S M based in Vancouver, Washington.
Bergstrom, which was privately owned by the founding family and other investors was a company that we had our eyes on for some time. So we're very pleased that we were able to acquire bergstrom once the family decided to sell.
M. S. N is a widely used ingredient with strong scientific evidence supporting its benefits for joint health sports nutrition skin and beauty healthy aging and pet health.
<unk> M. S M Bran Hep D. M. S M delivers the highest quality and purity M. S. M. On the market and is the only brand of M. S. M with a U S gras or generally regarded as safe designation Bergstrom.
Bergstrom will be integrated into both our minerals and nutrients business unit within the human nutrition, and health segment, and our companion animal business unit within the animal nutrition and health segment.
We acquired 100% of Bergstrom for an enterprise value of approximately $68 million prior to net debt and working capital adjustments funded out of our existing credit facility in.
In addition to the purchase price the sellers have an opportunity to receive an additional earn out payment in 'twenty 'twenty four ranging from zero to $16 million based on growth and other performance targets established for the 'twenty 'twenty three calendar year. This transaction represents.
Enterprise value to EBITDA multiple of approximately 10 times based on the 20th twenty-three forecast EBITDA post synergies Bergstrom forecast 20 twenty-three revenues are approximately 25 million U S dollars I want to take this opportunity to welcome Bergstresser.
Approximately 25 employees into the Balcom team. We are excited to have you join our team and we are looking forward to the opportunities that lie ahead as a result of our expanded team and the expanded portfolio of nutritional product offerings for our customers. Additionally.
Additionally, we are now one quarter into the ownership of Capa Bioscience. The reaction from both campus and Bal Cams legacy customers has been very positive as they see the clear fit between our two companies and the opportunity for a broader solution offering.
Teams are collaborating well together and we are identifying opportunities to drive additional growth. The business is experiencing some of the same demand volatility and destocking as other parts of the company, but we remain excited about the long term growth prospects for vitamin K, two and our differentiated K two vital.
Product offerings and with that I will now turn the call back over to Martin to go through the detailed financial results. Thank you Ted as.
As Ted mentioned overall, the third quarter was another quarter of solid growth for biochem, our third quarter net sales of $244.3 million or 23.4% higher than the prior year and we delivered sales growth in all three segments human nutrition <unk> health animal nutrition.
Fishing on health and specialty products.
Organic growth was approximately 20% year over year, while the impact from foreign currency exchange driven primarily by the weaker euro had a negative impact to our sales growth of approximately 2%.
Our third quarter gross margin dollars of $68 4 million were up $7.5 million or 12.3% compared to the prior year.
Our gross margin percent was 28% of sales in the quarter down 278 basis points compared to 38% in the third quarter of 2021.
The gross margin rate was negatively impacted by approximately 80 basis points in the quarter by the purchase accounting increase related to our recent acquisitions.
We also continued to see inflationary pressure on our raw materials not only from a year over year perspective, but also sequentially versus the second quarter.
And while the rate of increase is moderating and varies by category, it's still on an upward trajectory as it relates to our overall spend.
As we've discussed on previous calls we're pleased with our efforts to recover these cost increases through pricing actions with some delay, but the grossing up of revenues and costs have a dilutive impact on the gross margin percentage. Despite the fact that we continue to grow our gross margin dollars.
Additionally.
With the previously mentioned increased demand volatility we took some destocking actions in the quarter to lower our inventory levels, where appropriate leading to manufacturing inefficiencies, which had a negative impact to our gross margin in the third quarter.
Consolidated operating expenses for the third quarter of 2022 were $34.8 million as compared to $28 $4 million in the prior year.
The increase was primarily due to incremental expenses and amortization from the capa and bergstrom acquisitions and an increase in outside services, partially offset by a reduction in compensation related costs.
GAAP earnings from operations for the third quarter were $33.6 million, an increase of $1.1 million or three 4% compared to the prior year quarter.
On an adjusted basis as detailed in our earnings release. This morning, non-GAAP earnings from operations of $44.8 million were up $5.3 million or 13, 3% compared to the prior year quarter.
Adjusted EBITDA of $53.8 million was $5.4 million or 11.2% above the third quarter of 2021.
Interest expense for the third quarter 2022 was $3 $6 million and our net debt was $406.1 million with an overall leverage ratio on a net debt basis of 1.9.
The company's effective tax rates for the third quarters of 2022 and 2021 were 18, 8% and 22% respectively.
The decrease in the effective tax rate from the prior year was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions.
Consolidated net income closed the quarter at $25 $2 million up 9% from the prior year.
This quarterly net income translated into diluted net earnings per share of 78 cents, an increase of one cent or one 8% from last year's comparable quarter.
On an adjusted basis, our third quarter, adjusted net earnings were $32.4 million or $1 per diluted share up 8% compared with the prior year quarter.
Cash flows from operations were $41.6 million and we closed out the quarter with $56.5 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 quarterly sales of $142.7 million, an increase of 28, 3% from the prior year.
The increase was driven by sales growth within food and beverage markets.
Contribution from the recent acquisitions as well as sales growth within the minerals and nutrients business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.
The two recent acquisitions contributed approximately eight percentage points to the overall growth of the human nutrition and health segment.
Our human nutrition, and health segment delivered quarterly earnings from operations of $20.6 million, an increase of 4% compared to the prior year.
Primarily due to the aforementioned higher sales and higher average selling prices, partially offset by higher manufacturing input costs higher amortization and operating expenses related to the recent acquisitions.
And the timing of an insurance reimbursement received in the prior year.
Excluding the effect of noncash expense associated with amortization of intangible assets of $6 $1 million.
And amortization of the fair value step up of the recent acquisitions acquired inventory of $1.5 million.
Third quarter adjusted earnings from operations for this segment were $28 $2 million, an increase of 16.1%.
As Ted mentioned earlier, we're starting to experience increased demand volatility across our human nutrition and health segment as a result of customer destocking and broad risk management activities as well as some slowing of demand, particularly in Europe , but also in the U S.
At this point in time, it's hard to predict the magnitude and duration of these evolving market challenges, but we remain confident that our strong market position will enable us to continue to deliver growth in human nutrition and health in Q4 and into 2023.
Our animal nutrition, and health segment generated quarterly sales of $65.6 million, an increase of 16, 7% compared to the prior year.
The increase in sales was the result of higher sales in both mono gastric and ruminant species markets.
The contribution from the recent acquisition of Bergstrom, which included a small animal nutrition business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.
The recent acquisition contributed approximately one percentage point to the overall growth of the animal nutrition and health segment.
Animal nutrition health delivered earnings from operations of $8 million, an increase of 8% from the prior year quarter.
Primarily due to the aforementioned higher self at higher average selling prices, partially 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.
Third quarter adjusted earnings from operations for this segment were $8 $2 million, an increase of 4.7%.
Similar to what we're experiencing in human nutrition and health. We're also starting to experience increased demand volatility across our animal nutrition and health segment as a result of customer destocking and broad risk management activities as well as some slowing of demand, particularly in Europe .
Within animal nutrition and health, it's also difficult to predict the magnitude and duration of these evolving market challenges, but we remain confident that our strong market position will enable us to continue to deliver growth in animal nutrition and health in Q4 and into 2023.
Our specialty products segment delivered quarterly sales of $29 $6 million, an increase of 7.3% compared to the prior year quarter.
Due to higher sales of products and the performance gases business, partially offset by lower plant nutrition sales and an unfavorable impact related to changes in foreign currency exchange rates.
Specialty parts delivered earnings from operations of $7 $1 million, an increase of 10, 1% versus the prior year quarter.
The increase was primarily due to the aforementioned higher itself, partially offset by increases in manufacturing input costs exclude.
Excluding the effect of noncash expense associated with amortization of intangible assets of $1 million and excluding the prior year expenses related to the flash flash flood event.
Third quarter adjusted earnings from operations for this segment were $8 $1 million, an increase of five 8%.
Within specialty products, we expect to continue to see year over year growth in Q4 and into 'twenty 'twenty three as our performance gases business continues to stabilize and fully recover in both the U S and in Europe .
Following the negative impact that we experienced during the COVID-19 pandemic.
I'm now going to turn the call back over to Ted for some closing remarks, Thanks, Martin Valkyrie solid financial results for the third quarter of 2022 reported earlier this morning with revenue and earnings growth in all three of our business segments continue to show the resilience of our business model.
And our ability to manage through challenging and dynamic market environments. We are very pleased to welcome Bergstrom nutrition to the back Balcom family here in the third quarter with the acquisition of <unk> Bioscience in the second quarter and Bergstrom in the third quarter. We have added two great product offerings to our <unk>.
<unk> nutrition portfolio and two great companies to the Valkyrie family that share our passion in delivering trusted innovative and science based solutions to the nutrition and health markets.
<unk> team continues to do a great job of finding creative solutions to manage through a challenging macro and geopolitical environment and I would like to once again take this opportunity to thank all of our employees for the incredible work they do for our company our customers and all of our stakeholders.
Now I'd like to hand, the call back over to Martin who will open up the call for questions Martin. Thank you Ted.
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. Thank you.
Thank you. Our first question is coming from the line of meat you forgot with Sidoti. Please proceed with your question.
Yes, good morning, Thanks for taking the questions for.
Just trying to get a sense, you've obviously had nice success implementing a price increase.
<unk> helped mitigate the impact youre seeing on raw material distribution costs et cetera, just curious.
How much more room, you think you have on that front.
And are you starting to see increased pushback.
Yeah.
From clients.
Thank you Mitra.
Yeah, I mean, you're you're right, we're pretty happy with our actions to date in terms of recovering the price increases sort of.
For dollar as we've discussed on previous calls to tend to be a little bit of a delay between us seeing the cost increases from our suppliers and our ability to to recover it with our customers and <unk>.
By business, but usually it takes it you know a quarter one to two quarters for us to fully recover all of those costs in terms of recovering it we've been effective in I would say, we're pretty much there in terms of.
Further increase this we did see some sequential cost increase in Q3 over Q2, it's really moderating the pace, but it's still a slightly inflationary environment for us overall.
We think that we'll be able to pass through also what we've seen here, but I think it is fair to say that it is becoming more challenging.
To just turn around and pass it through to the.
To the end customers and that Youre, starting to see some of that Oh, no demand impact that you would expect eventually as you just continue to race and raise prices.
Sure.
Yeah, I think that that's a you know your your comment around.
You know is it harder and harder there. There's no question that you know we're using the term you know kind of price increase fatigue.
Out there in the marketplace, but but bottom line as as costs go up we need to pass those costs on and our customers need to pass those costs on to their customers and certainly to date, we've been able to do that and we think that given our market position, we should be able.
To continue to do it doing that as we experience a more more inflation.
Okay now that's great and just a follow up on the cost side I'm just curious.
If you feel you have.
Some room internally as it relates to maybe running an even leaner operation as you look at things like SG&A costs et cetera, I know, it's already pretty lean, but just wondering if you have any more flexibility on that front.
Yeah. The short answer to that nature is is absolutely yeah, we have and adding staff are I would say you know in a very disciplined way, but for a certain growth outlook for for the March.
Kits and in our company and as that changes we.
We have opportunity to to manage our costs in a in a different way. So I think a lot depends on on you know how long this period of of demand volatility exists.
Exist, how deep it goes, but but certainly we sit here.
Today are recognizing that a there is a cost opportunity if the market.
Conditions warrant it.
Okay. Thanks, and then as it relates to adding personnel on the Bergstrom acquisition I'm not sure if they had their own internal sales force for distribution or.
Is that an area, where you might need to add.
I think the answer and I'll really speak to both Capa and Bergstrom is as there is is more opportunity for consolidation between our three companies then the need to add additional people, yes, bergstrom had its own sales.
Organization.
Capa has its own sales organization Balcom of course had its own sales organization that we do believe as we bring these three companies together there will be opportunities to be more.
More efficient so we are not sitting here today, feeling like we need to add additional staff because of those acquisitions. We are you know it's quite the opposite sitting here today.
Looking at you know how do we effectively bring our three companies together to be the most efficient we can be while servicing the customers and and ensuring we have the right organization for growth. Because you know we are bullish about the growth of the legacy company long term as well as Berg.
Drum and end cap.
Okay. Thanks.
And Ted you mentioned, you're starting to see some softening of demand, especially in Europe .
All signs pointing to.
Actual recession next year in the U S. Just curious if you can remind us.
How was balcom held up in periods of an economic downturn.
You know Mitra I didn't know whether whether are you and other folks on the call. You know, it's it's I'm getting a little tired of hearing the word unprecedented times, but but you know, it's probably the right word to <unk>.
To describe the times.
When have we ever seen.
No a recessionary environment in this kind of inflationary environment at the same time it really is unusual.
So historically.
We have done quite well I would say during recessionary times, our markets tend to be not very cyclical tend to not be highly impacted.
By recessions that doesn't mean to say that they're immune to recessionary.
Factors, but we've done reasonably well and better than certainly the average market and we don't.
Expect this to be any different but the the significant inflation. You know is a kind of a new factor. If you will to add to that mix and and I think that that that adds to you know our you know caution.
In around looking forward because.
As Martin commented, we've seen significant inflation and in the last three or four quarters.
And we continue to see inflation escalate during the third quarter. So that does add a little bit of an unknown, but generally speaking you would think that the the animal protein the food the.
Nutrition markets.
Will be less impacted overall.
By these recessionary.
Factors than a lot of other markets and we've seen that in the past, but I'm just kind of word of caution around this inflation adds kind of another factor to the mix, Yeah, I would add a small comment mitra.
If you go back to the Oh wait Oh, nine time period and look at that.
Biochem experienced a 5% decline in sales.
Therefore, one year, but it actually grew earnings but that was due to.
Lower input costs.
So now we're in an environment, where we're not necessarily seeing lower input costs, yet at least so it will depend greatly on on the trajectory of of the inflationary pressures, but that's sort of how.
How we fared last time it was a little bit of a reduction on the topline, but actually a continued growth of the bottom line.
And I think that's a great point Martin Thanks for making that you know the other the last point I would make is you know where we are in this period of time, where.
Theres, clearly destocking going on and our customers' customers and our customers you know, we even made some comments about we're managing our inventory more tightly all prudent activities and this sort of uncertain environment and it does mask.
How much of the impact on demand is associated with what would be really more of a shorter term destocking activity versus maybe a longer term impact to two real demand. So it is a period of uncertainty again.
I'm really pleased with our overall growth and in Q3 and the overall results of the company feel confident that we will continue to be able to deliver growth in Q4 and into next year, but it's clearly an uncertain market environment we're living in.
Okay, No really appreciate the color there.
And then finally for me just on the M&A front, you've made two nice acquisitions.
And still in the process of integrating those.
I noticed you also.
Some debt reduction in the third quarter. So just curious going forward. If we should just expect a pause on the M&A front.
And <unk>.
Priority now shifting a little to debt reduction, especially in higher interest rate environment.
Mitra, that's a really.
Good question and I I would simply answer that question by saying you know I do think that a short pause.
Is or overall.
<unk> at this point in time really given the combination of everything we just talked about with the market uncertainties and and.
Rising interest rates and honestly also the likelihood that that asset multiples will come down somewhat.
In this environment so.
I think that that it does make it make sense to you know take take a short pause having said that internally.
Give the message to ourselves and the organization as we we want to continue to feed our pipeline. We want to continue to have a healthy pipeline if that that perfect <unk>.
Acquisition.
Were to arise and of course, it's always you know acquisitions are very difficult to time.
If that perfect acquisition were to arise we certainly have the borrowing capability to do it we still have quite a conservative balance sheet.
And would be prepared to move.
Move on that but in an ideal world, we would like to take a brief pause fully integrate these two recent acquisitions pay down a little bit of debt make sure our pipeline is.
Robust and vibrant and move forward with further acquisitions after a short pause.
That's just a very transparent view into how where we're thinking about it within Dow com.
No I really appreciate that and thanks again for taking all the questions.
Yeah. Thanks Mitra I appreciate it.
Our next question comes from the line of Bob <unk> with CJS Securities. Please proceed with your questions.
Good morning, Thanks for taking my questions.
Hi, I wanted to start with and I understand this is going to be hard to do given your niche leadership.
Leadership positions.
How has volume trended versus price this year and obviously, there's also destocking component to that as well, but generally speaking you know give us can you give us a sense of volume versus price and and how are you thinking about.
Those factors for next year in general as well.
So maybe I'll take a stab at that and then then Mark Martin can chime in.
Within Q3, when when we look at.
Price versus volume and mix the vast majority.
The growth was associated with with price.
If you look at at certain of our food business was up.
Volume wise.
Our human nutrition and health business was up.
Volume wise in the quarter.
Our sterilant business was was up volume wise, but there were some declines in volume, but price certainly offsets are set that so in Q3. The vast majority of the growth was was more price related than volume.
And in Q2, I would say it was more balanced and in Q1 it was.
Stronger volumes are overall, so I volumes are not necessarily the best measure of our growth because we have certain businesses that are fairly low price low margin high volume and and and you know volume changes sort of.
You now have a larger impact on our overall volume but.
Q3, the vast majority was was certainly price related and I think that we would expect Q4 to see something similar.
As these destocking activities continue that started I would say in the latter part of Q3 and will carry on into two Q4, but that after that we should be getting back into a more.
More of a volume growth type of environment.
As we get through some of this unsettled.
Period, another important kind of note on on you know.
Some of the acquisitions for example, capa.
Capa.
Is used in micro grams, so significant growth and and capo you know won't even show up on air.
Volume side of thing again, just another example of why volumes not necessarily the.
The best indicator of our overall growth, but hopefully that gives you a little bit of a feel for your question.
Yes, absolutely that's great color. Thank you and then just sticking with capital for a second there.
I may have done the math wrong, but backing into the acquisition contribution it looks like high single digit millions of dollars, which is slightly below the.
Kind of run rate that I think you talked about for Capa I assume that's from the Destocking that you highlighted just can you give us a sense of your thoughts on on the market outlook and growth for Capa and if that is indeed, the destocking that may have lowered.
Lower quarterly revenues and when do you expect to get back to sales in line with with the demand.
Yes, Youre absolutely right, Bob that's exactly what it is you know a couple of other factors. There are the vast majority of the sales are in euros, so that that business, probably more than others or is impacted by <unk>.
Currency translation as well as you know, we we acquired cap.
Third quarter is kind of a slower European quarter end and our you know.
The vast majority of the businesses is in Europe , but it's also the destocking as as you said so.
Your math is absolutely correct.
And so we think that will certainly are going to experience the currency.
Headwind for a little while we're going to experience.
The destocking for a little while we are obviously out of the European summer months.
So we expect for the next few quarters to deliver a similar type of results in that that are heading into 'twenty 'twenty three we should see some return to top line growth. There you know we're working on a lot of.
Ah interesting opportunities. This is another product a little bit like our choline for human nutrition that is yeah growth is largely driven by success in building awareness and and and getting the nutrient included and new product launches and so.
For US then and.
We remain very encouraged about the opportunity for for growth longer term from those types of activities.
Okay, Great and then last one for me just on the FERC from acquisition.
I think he said it contributed both to HMH and A&H, maybe just talk to us a little bit about the opportunity in A&H said they'd previously sell there is that a.
Growth opportunity for you or how are you looking at the growth overall from from Bergstrom, and maybe by segment a little bit.
Yeah, So maybe I'll take that one as well I don't Wanna Overblow, the animal nutrition Ah <unk>.
Aspect to Bergstrom, but we are a.
Very excited about the animal our pet health.
Part of Bergstrom.
MSM is included in and pet food pet supplements.
And.
Honestly up until today bow Cam has identified pet supplements as a really attractive interesting opportunity for both our minerals and our choline.
But we haven't really been successful and in penetrating the pet supplements.
Market. So that's like you know yes.
No.
Bones to know on it treats and things like that and.
And as well as just supplements like humans steak and.
So we're excited that bergstrom has an existing business and pet food supplements and you know where where we believe that we'll be able to leverage that position to pull through some of our products and build a.
Pet supplement business within our companion animal.
Portfolio of products. So it's a small part of our bergstrom, but it's a you know it's kind of right in our sweet spot as far as areas of growth focus for animal nutrition nutrition and health business and so we're we're excited about it but it's small.
But as we look at the Bergstrom results, we will be.
You know putting them into both the human nutrition, <unk> health business as well as the.
Animal nutrition and health business.
Super Thanks very much.
Okay. Thanks, Bob.
Our next question is from the line of Raj <unk> with H C. Wainwright. Please proceed with your question.
Alright, thanks, very much for taking my questions.
I was wondering if we could delve a little further into.
Across your different operating segments.
<unk>.
Meaningful differences emerging with respect to the level of.
This increase which you either expect to see or are starting to see indications of demand destruction.
Yeah.
Yeah, So I'll take a stab at that Rob Thanks for the question.
I would start with the area that we're seeing the most impact.
The impact would be in our animal nutrition, and health business and I would say, particularly.
And in Europe .
From that perspective, we've always talked about I think on the last few calls that in our ruminant business, which is again kind of our dairy business, where choline is not an essential nutrient for life are considered an essential nutrient for life. It is viewed as.
A product that addresses fatty liver that ultimately results in better milk production and efficiency out of the cow, but not not classified as an essential nutrient.
That in that market, where margins because of milk prices have been fairly tight lately you know a an option for the dairy farmers to take it out so we've always been leery, and we've talked quite a bit about that and you know.
I would lead with across to our businesses and segments that is at the high end of the scale as far as where.
We see demand destruction or demand slowing largely tied to the.
Inflationary cost increases of the products.
Next I would say in Europe relative to just kind of broad animal proteins.
A lot going on in the European markets are you've probably read a little bit about bird flu and Europe , we're experiencing a significant bird flu situation in the U S.
Certainly Europe is I think even more significant than the U S and in Europe , what's happening in some cases, there's just not a replenishment of those birds that are being called that that's actually reducing the market.
And impacting overall feed demand and in that environment.
We are seeing some demand destruction from from inflation. So I would put kind of the animal protein or really the other part of our animal nutrition <unk> health business kind of second on that scale, particularly.
And in Europe .
And and you know and then.
No I would say the rest of the portfolio is largely in the middle on the pet food side, where we're really seeing a oh no.
Impacts there on the performance gases business I would say, we're seeing a little bit of impact on on you know, we repackage a whole host of gases, but ammonia for example for refrigeration, where we're seeing some impact to demand.
Demands there because you know prices are up three X.
But on the sterilization medical device sterilization business, we're seeing no impact because that business. You know it was going to continue no matter. What so we do have a wide array of of impacts and hopefully that gives you a little bit of color what's at the high end and what's at the the low.
Oh and of being impacted.
No that's very helpful.
Follow on with respect to vitamin K to it.
Can you talk a little bit about some of the strategy.
Paul Guard to introduce thing this from the Capa lineup into the U S market.
What you expect the potential trajectory of market adoption to be and what the competitive landscape looks like right now specifically with respect to the U S.
Yeah, absolutely the U S is a really important part of you know our growth thesis if you will.
Four four K too, but I don't want.
Anybody to think that that cap prior to the acquisition didn't have existing business in the in the U S. They absolutely did they have oh.
Good sales organization.
In the U S existing direct relationships with customers and existing distributor relationships. So.
It's not like they werent present in the U S. But of course, you know about <unk> legacy business has just has broader deeper.
Customer relationships and now we have the ability to you know.
And you can't Understate. This you know the ability to have just a broad or you know are more compelling discussion with our customers around more solutions and more combinations and and.
And so forth. So you know a big part of our strategy is to pull those two.
Organizations together in in North America.
We do think we need to do a few more studies to help support the science.
And train the combined organization on all of the products and go to market as as one.
In the U S with with a real force and that's that's.
Really our focus the competitive dynamics in the U S. I would say are are quite similar to what they are in in in Europe . There are four primary competitors to speak of and they're all president in the U S to varying degrees I would say capo was a little bit.
Late two to the U S and so probably has a little less share in the U S than in the others.
But the competitive dynamics are similar.
As they are in Europe and.
Val Cam, formerly Capa has that synthetic unique.
Cap of vital product that we really think is differentiated in and will allow us to grow differentially in the U S.
Great. Thanks, just a couple of quick ones for Martin.
Martin can you comment on what you expect the pace of debt repayment.
On the credit facility to be in coming quarters. If you expect it to be similar to what was reported that $41 million in the most recently reported period or if.
You guys are going to look to accelerate debt repayment and also if you can just comment on whether you expect the effective tax rate.
Going forward.
As we enter 2023.
To be reflective of the tax rate.
Applicable in the most recently reported period.
Yes, absolutely.
I think there's two dynamics there in terms of the debt repayments are we would absolutely sort of as we have in the past prioritizing paying down our debt with sort of excess cash flows that we have after we've done our organic growth investments and we'll continue to do so.
In terms of how much you would say now you almost have to combine that a little bit with the rising interest rate environment as well.
So as interest rates go up we generate a little bit less cash so that repayment pace will also be a little bit lower.
If you were to say, okay. What would you think as a sort of reasonable number per quarter that we would pay down.
It'll be less than the 40 that we did here in Q4, probably may be in that $20 million to $30 million a quarter of paying down.
Depending on the interest rate environment.
So that's what I would say 20 to 30 per quarter seen over time.
From a tax rate perspective, I wouldn't expect.
Any significant changes to our sort of run rate ongoing tax rates going forward are these acquisitions, you know they change things slightly but not not where it really moves the needle significantly for us.
So having that call it 23% GAAP rate between 23 and 24 as a planning assumption is a good assumption to use as we've said in the past.
So that's where I would that's where I would peg it.
Thank you very much.
Thanks, Rob.
Thank you at this time I will turn the floor back to Mr. Ted Harris for closing remarks.
Great. Thanks, Rob and once again, just thank you all very much for joining our call today, we really appreciate your support as well as your time today and look forward to reporting out our I can't believe how time flies Q4, and full year 2022 results in February of next year and.
In the meantime, we will be presenting at a few conferences actually next Tuesday at the Baird Global Industrial conference in Chicago will be there in person and then the C. J as our Investor Conference in January So hopefully we can see some of you at one of those conferences or elsewhere. So thanks again for joining today.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.