Q4 2022 Balchem Corp Earnings Call
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I would now like to turn the call over to Martin Bengtsson Chief Financial Officer. Thank you you may begin.
Thank you and good morning, everyone and thank you for joining our conference call. This morning to discuss the results of about Com Corporation for the quarter ending December 31st 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 S.
You see at this time I would like to read our forward looking statements.
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.
<unk> 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 details.
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 before we get into the quarter I would like to reflect for a few minutes on some of the significant accomplishments the biochem team achieved over the last year.
Overall 2022 was another strong year for VAALCO financially, we achieved record sales of $942 million growing almost 18% year over year with record sales in all three of our business segments. We also delivered record adjusted net earnings of 131.
$1 million, an increase of 12% and record adjusted EBITDA of $216 million, an increase of 14% from the prior year. In addition, we generated free cash flow of $89 million, while at the same time investing $49 million in capital projects.
<unk> to support our continued growth.
Strategically we had a very good year as well in 2022 we strengthened our company with the acquisitions of Kappa Bioscience and Bergstrom nutrition.
The addition of vitamin K, two and metal sulfinyl methane or M. S. M to our product portfolio will undoubtedly enhance our ability to provide innovative solutions for the health and nutritional needs of the world going forward.
We continue to innovate bring new products to market and expand and strengthen the supporting science behind many of our products. We are pleased that our new product development metric that measures the percent of sales coming from products commercialized over the last five years, and which really measures the vitality of our product portfolio.
Folio once again was close to 28% showing that we are indeed, bringing new innovation to the market.
A number of exciting new studies supporting the supplementation of choline minerals, including M. S M and vitamin K two were published or completed in 2022 that augment existing science and bringing new science to light that ultimately will support and strengthen our efforts to drive increased.
Market penetration of these important nutrients for example, while we have long known that higher levels of maternal choline intake is critical for infant cognition study published early in 2022 by Cornell University that suggested higher maternal choline intake has an enduring.
Effect on cognitive performance through early childhood was truly groundbreaking. Additionally.
Additionally, Cornell also published a separate study in 2022 that showed the importance of having adequate levels of choline for DHA absorption or status and while not published yet the study at the University of North Carolina to identify a choline biomarker was completed so hopefully we see there.
<unk> of this study being published here in 'twenty twenty-three.
This will be an important step in helping to identify choline deficiency and the need for supplementation in individuals' <unk>.
Several important studies were published or initiated in 2022 enhancing the science around vitamin K, two and M. S M as well in December the journal of dietary supplements published a study conducted at the University of Arkansas for Medical Sciences that provides compelling evidence that opt the MSM are branded as M. S.
Sam serves as a methyl downturn, which means M. S. M would then joined the club of methyl donors choline folate and vitamin B 12, so up the M. S M. As both a sulfur and a methyl donor which makes it even more nutritionally efficient than was evident before this study there.
We're also several studies published or initiated related to vitamin K two that go beyond the already established therapeutic area of bone health. These studies focused on vitamin K two's role in cardiovascular health immune health and muscle recovery among others. We believe the science around vitamin K two will can.
Turning to grow and helped drive significant market expansion over the coming years as more and more studies are completed.
Similarly on the animal nutrition and health side of our business. We continue to invest in outside research to advance the science around our portfolio of nutrients for companion production and dairy animals. One study of note was published in May showing the effects of dietary rumen protected choline supplementation.
Then when classroom yields quality and choline metabolites from dairy cattle. This was research done with reassure her flagship branded rumen protected choline at Michigan State University. The research demonstrated an 80% increase in classroom yield and reassure supplemented cows without any <unk>.
Decrease in classroom quality. It also demonstrated a large increase in coli metabolites in the classroom that would then be transferred to the newborn calf as it consumes her classroom.
Another reassures study conducted at the University of Florida and published in December in the Journal of Dairy Science show the effects of maternal choline supplementation on performance and immunity of progeny from birth to weaning. The research demonstrated that calves born to reassure supplemented cows had.
<unk> health status and survival and increased growth through two years of age within our companion animal business. There were several studies published from Auburn University related to our innovative use of micro encapsulation for our structure, forming fine of products. The research demonstrated a cost effective method.
For manufacturing nutritious pet products for greater sustainability by Upcycling protein co products with the use of air Microencapsulation calcium lactate with sodium alginate. These published studies combined with the pet sure Acidulant research from Kansas State University that was published in 'twenty 'twenty.
One which demonstrated the value added benefits of micro encapsulate it acids to control pathogenic Salmonella and fresh meat pet foods formed the foundation of our very successful customer attended pet sure Imaginarium that took place in November at all burn University with the Starkey Research Laboratory.
Overall, we are very excited about the opportunities that exist with our portfolio of products and we believe that as the library of science keeps growing the market opportunities for our unique portfolio of products and technologies will grow as well.
Additionally, we made important and significant new investments in plant and equipment in 2022 resulting in capacity additions for our human nutrition animal nutrition and plant nutrition businesses of particular note for the addition of European manufacturing capabilities for our human encapsulation pre.
Bottom line as well as our plant nutrition products, which should enable accelerated growth in the region. All of these new investments will help support our continued organic growth as we further penetrate the markets with our product offerings. We also made significant progress in 2022 relating to the company's efforts.
To advance, our environmental social and governance or ESG initiatives Biochem released its fourth sustainability report in 'twenty, 'twenty, two and which we provided an update on our progress toward our 2030 goals to reduce both greenhouse gas emissions and water usage by 25% and I am happy.
To report that we are well on our way to delivering on our goals. The report details many of the ways. We are advancing our environmental social and governance initiatives across the organization in alignment with widely accepted ESG reporting frameworks biochem sustainability efforts are fully integrated into.
Our business strategy, which remains unchanged as we continue to focus on our two main objectives, providing innovative solutions for the health and nutritional needs of the world and operating with excellence as strong stewards of our stakeholders as a result of our efforts bow cameras. Once again recently named one of America's most.
Responsible companies by Newsweek magazine for the third consecutive year.
And lastly in December we announced another increase to our annual dividend, taking the dividend from 64 to 71 cents per share an 11% increase year every year. This most recent increase marked the 14th consecutive year of double digit growth of our dividend, which once again real.
Forest, our commitment to our long standing dividend strategy all in all another strong year, both financially and strategically for biochem 'twenty 'twenty. Two is once again a year of unprecedented external market challenges, where the pandemic impact we experienced in 'twenty 'twenty and 2021 was.
Followed by the war in Ukraine significant supply chain disruptions and rapidly accelerating inflation.
The biochem team was able to step up and deliver strong results both financially and strategically under these challenging conditions. Once again proving the strength of our team and the resilience of our business models I would like to take a take this opportunity to thank all of our employees and broad group of stakeholders.
There's who supported us and contributed to our success throughout the year. Thank you all.
Now regarding the fourth quarter of 2022. This morning, we reported solid fourth quarter results, our revenue of $233 million was up 9% and our adjusted earnings from operations were $43 million up 13% versus the prior year quarter, our net income.
A $21 million a decrease of 14% resulted in earnings per share of 66 cents on a GAAP basis on an adjusted basis, our fourth quarter non-GAAP net earnings were $30 million, an increase of 9%, resulting in earnings per share of 94 cents on a non-GAAP .
GAAP basis.
And we continued to deliver solid cash flows cash flows from operations were $42 million for the fourth quarter and quarterly free cash flow of $28 million.
I am now going to turn the call back over to Martin to go through the fourth quarter consolidated financial results for the company and the results for each of our business segments.
Thank you Ted as Ted mentioned overall, the fourth quarter was another solid quarter for biochem, our fourth quarter net sales of $233 million or 9.1% higher than the prior year and we delivered sales growth in our human nutrition, <unk> health and specialty products segments, while sales in.
The animal nutrition and health segment were essentially flat.
Foreign currency exchange, driven primarily by the weaker euro had a negative impact to our sales growth of 1.7%.
Our fourth quarter gross margin dollars of $69 million were up $5 million or 7.1% compared to the prior year.
Our gross margin percent was 29.5% of sales in the quarter down 54 basis points compared to 30.1% in the fourth quarter of 2021.
We continued to experience input cost inflation in the fourth quarter compared to prior year as.
As we've discussed on previous calls we're pleased with our efforts to recover these cost increases through pricing actions, 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.
Consolidated operating expenses for the fourth quarter were $35 million as compared to $30 million in the prior year. The increase was primarily due to incremental expenses and amortization from the capa and bergstrom acquisitions.
GAAP earnings from operations for the fourth quarter were $33 million, a decrease of 1.5% compared to the prior year quarter.
On an adjusted basis as detailed in our earnings release. This morning, non-GAAP earnings from operations of $43 million were up $5 million or 13, 2% compared to the prior year quarter.
Adjusted EBITDA of $52 million was $7 million or 14.6% above the fourth quarter of 2021.
Interest expense was $5 million and our net debt was $374 million with an overall overall leverage ratio on a net debt basis of 1.7.
The effective tax rates for the fourth quarter of 'twenty, 'twenty, two and 'twenty, 'twenty, one or 17% and 24.7% respectively.
The decrease in the effective tax rate from the prior year was primarily due to favorable provision to return adjustments favorable fin 48 reserve adjustments and higher tax benefits from stock based compensation.
Consolidated net income closed the quarter at $21 million down 14.2% from the prior year, driven primarily by the higher interest expense and negative impact from amortization related to the recent acquisitions.
This quarterly net income translated into diluted net earnings per share of 66 cents, a decrease of 10 cents or 13.3% from last year's comparable quarter.
On an adjusted basis, our fourth quarter adjusted net earnings were $30 million translating to 94 cents per diluted per diluted share.
An increase of 10, 1% compared with the prior year quarter.
Cash flows from operations for the fourth quarter were $42 million and we closed out the quarter with $67 million of cash on the balance sheet.
As we look at it from a segment perspective.
For the fourth quarter, our human nutrition, and health segment generated sales of $130 million, an increase of 12.9% from the prior year.
The increase was driven both by the contribution from recent acquisitions as well as sales growth within food and beverage markets and higher sales within the minerals and nutrients business.
Our human nutrition, and health segment delivered quarterly earnings from operations of $18 million, an increase of 0.1% compared to prior year.
Higher sales and higher average selling prices were offset by the timing of an insurance reimbursement related to our flash flood event in the prior year high.
Higher manufacturing input costs, and higher amortization and operating expenses related to the recent acquisitions.
Fourth quarter adjusted earnings from operations for this segment were $24 million an increase of 11%.
As mentioned in our last earnings call. We are experiencing increased demand volatility across our human nutrition and health segment in particular, we're experiencing market demand softness in the dietary supplements market.
Which we see as a relatively short term impact on a market that has historically grown at mid single digits.
This market softness is being driven both by a normalization of demand following the very strong demand experienced during the pandemic given the immunity boosting nature of many supplements.
And a clear destocking of inventory across the value chain or supply chain disruptions have dissipated post the pandemic.
And customers adjust their inventories down to more normal levels.
Recent U S retail sales data provided by Nielsen for dietary supplements show negative double digit growth year over year.
Although sales levels remain above the pre pandemic period.
We will likely face this transition or a short term demand softness through Q1 and into Q2 as the situation normalizes over the course of the year and the supplement market returns to growth in line with its historical growth trajectory.
Our animal nutrition, and health segment generated quarterly sales of $65 million, a decrease of 0.3% compared to the prior year.
The decrease in sales was the result of lower sales into the mono gastric markets and an unfavorable impact related to changes in foreign currency exchange rates.
Really offset by higher sales into the ruminant market pricing actions and the contribution from the acquisition of Bergstrom, which included a small animal nutrition business.
On a constant currency basis, the animal nutrition and health segment grew three 1%.
Animal nutrition and health delivered earnings from operations of $9 million, a decrease of 10% from the prior year quarter, primarily due to the timing of an insurance reimbursement related to a flash flood event in the prior year increases in manufacturing input costs and higher operating expenses related.
To the recent acquisitions, partially offset by the aforementioned higher sales into the ruminant market pricing actions and the contribution from the acquisition of Bergstrom.
Fourth quarter adjusted earnings from operations for this segment were $10 million an increase of 16.5%.
Similar to what we're experiencing in human nutrition and health, our animal nutrition and health segment is also experiencing increased demand volatility, particularly in Europe .
The European food animal feed market has been hit hard by a combination of factors, including the spread of animal diseases higher utility costs, increasing costs linked to environmental an animal welfare policy measures.
And the economic impact of the war in Ukraine. This has resulted in lower feed demand in our key markets poultry swine and datary across much of Europe .
Lower utility costs and ultimately the containment of animals to see sits within Europe should allow for improved market conditions and a normalizing of demand as 'twenty twenty-three progresses.
Our specialty products segment delivered quarterly sales of $32 million, an increase of 16.2% compared to the prior year quarter.
Due to higher sales of products and the performance gases business and higher plant nutrition sales, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.
Specialty products delivered earnings from operations of $8 million, an increase of 20.4% versus the prior year quarter.
The increase was primarily due to the aforementioned higher sales.
Fourth quarter adjusted earnings from operations for this segment were $9 million an increase of 19.6%.
Within specialty products, we can continue to see a recovery in our performance gases business business in both the U S and in Europe. Following the negative impact we experienced during the COVID-19 pandemic.
We're still slightly below pre pandemic volumes, but the business has further state stabilized and we are well positioned to drive growth in 2023.
I'm now going to turn the call back over to Ted for some closing remarks.
Thanks, Martin we are pleased with the <unk> with <unk> financial results reported earlier. This morning for the fourth quarter of 2022 capping off another great year for Balco, a year in which we delivered strong growth in both sales and earnings while managing through a challenging environment.
We also continue to progress our strategic growth initiatives and remain encouraged about the long term growth opportunities ahead of us. Despite short term challenges our results show that we continue to evolve and strengthen our company and position ourselves in attractive markets, where we have capabilities to be successful.
Not only today, but also into the future I would like to once again take this opportunity to thank all of the biochem employees across the world who help make it happen every day. Thank you. So much I will now hand, the call back over to Martin who will open up the call for questions Arden. Thank you Ted This now concludes.
<unk> that form a portion of the conference at this point, we will open up the conference call for questions.
Thank you we will now be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad.
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Our first questions come from the line of Bob Leduc with C. J S. Securities. Please proceed with your questions.
Hi, good morning, it's actually for Bob I'm.
Just a couple of questions first to start I know you made some comments about a little bit of demand softness related to the sell through in the first half.
Half of 2023.
Can you talk to what the channel inventory situation looks like you know versus that core demand and when we expect things to kind of normalize.
Shirley Thanks for stepping in for Bob Good to talk to you soon.
So yeah Martin in the prepared comments talked really about.
The the slowing of demand that we've seen in two particular areas one being that the dietary supplements market, particularly obviously in the in the human nutrition and health business and then <unk>.
Secondly, the European.
Feed market demand slowing that's impacting animal nutrition and health So let's talk about both of those separately.
We saw as Q4 evolves that after a relatively strong start to the quarter.
That are weakening.
Demand progressed throughout the quarter.
Which ultimately we were pleased to see our we delivered organic growth in the quarter, but it was fairly modest at low single digits, but that really came from stronger.
Stronger growth in the early part of the quarter offset by negative growth in the latter part of the quarter and we see that continuing for the dietary supplements portion of our human nutrition health business.
In Q1 of 2023 and correcting itself in the early part of Q2, so we see a.
The second half of 2023 is as being certainly stronger than the first half and in many ways. It's a little bit of the reverse of what we saw in 2022, where we saw an incredibly strong first half.
Offset by slower demand.
In the second half so that's our perspective there.
We do.
Have more visibility into.
Retail sales demand in that in that channel as well as customer inventory.
So feel as though our air our view into that market evolution is relatively good at this point.
The.
Animal nutrition market and in Europe is a little bit more difficult for us to.
To really forecast.
We have seen a slow demand I would say really through the second half of 2022, which we see continuing in the first quarter of 2023, we do see some positive signs are the obviously energy costs have come down.
One from their peaks are still very high relative to historical levels, but they've come down from the there are peaks and that starting to ease some of the at least the cost pressure on the the market and so we see some some positivity coming.
Out of out of that so.
Where where are we we believe that that Q1 will continue to be soft but as that.
Positivity of the lower utility costs and energy costs starts to result in replacement of animals.
We will see that business start to pick up in Q2, and as 2023 evolves. So hopefully that gives you a little bit of a feel for those two specific markets, which is really.
The area that Martin highlighted in his prepared remarks.
That's very helpful. Just one more and I'll hop back in the queue.
It sounds like you've done a pretty good job of working with your customers to sort of raised prices on a dollar for dollar basis.
To cover your costs, but ultimately at the expense of your gross margin percentage.
Where are we related to the price cost balance and how should we think about when when certain raws start going back down.
Are your customers going to be willing to work with you to get back some of the gross margin percentage as we come out of the inflationary environment that we've been in.
So yeah, maybe I'll take a first stab at that and Martin can chime in to add any color that that's a that's needed you know first of all we are really pleased with our ability to raise prices.
That's that's been a major focus for us for well over a year and I think that's a really.
You know it just shows the strength of our market positions that we've been able to by and large offset the cost increases dollar for dollar at the expense as you pointed out.
Their margin historically.
We have seen a an unfavorable margin lag.
As.
Cost increase and we raised prices.
And historically, we've seen a favorable margin.
You know lag if you will.
As costs decrease.
And there's no reason to expect that the that that won't happen. We have certainly part of our customer base that is particularly in the animal nutrition world.
Is based on on contractual situations that have pass through raw material costs and.
Yeah. So we haven't built in negative lag when costs are going up but we also have a built in positive.
Lag when when when costs are coming down. So we do believe that that we will see that as we've seen it in the past and and are very focused as a company on on recapturing that margin.
Again pleased that we've been able to raise prices as we have in gross margin dollars have increased but an important part of.
Our.
Yeah, what kind of economic profile. If you will is our margin profile and so we're determined to.
Take what whatever steps, we need to in order to.
Gradually recover that margin to its historical levels.
And Lee if I, just add a comment or two I would say.
The dollar for dollar pass through has a I mean, it has a significant impact on that margin percentage for Q4. For example, it was approximately a percent and a half large an impact just from that dollar for dollar pass through and if you looked on a full year basis, it's over three full percentage points in the pass through math.
And for us to see the margins go back to where we want them to be and where we expect them to be you do need to see some easing in.
In the inflationary pressure.
Which hopefully will see soon youre, starting to see it and you're experiencing already on the chemicals side, where we're seeing costs coming down sequentially, but you're actually still seeing sequential inflation on the food commodities side. So net net overall for our portfolio. If you look at it sequentially kind of Q4.
Four versus the Q3 Ah Theres no easing yet in terms of the cost picture and obviously on a year over year basis still significantly up.
But the food commodities tend to lag sort of to the chemicals with some delay. So the fact that the chemicals are coming down should hopefully mean that the food commodities will also over a period of time here start easing often and that will will help our margins for sure.
I appreciate all the color I will hop back in the queue.
Alright, Thanks Lee.
Thank you. Our next question is coming from the line of from <unk> with H C. Wainwright. Please proceed with your questions.
Thanks, very much for taking my question.
A couple for you Ted could you comment on why to choline positioning versus other choline base.
Alex in the market and what you think is most likely to drive growth of this brand, particularly in light of the recent Cornell study findings.
Secondly, could you give us a sense of what you think long term directionality is in our growth prospects are for the specialty products business given the growth you saw in the most recently reported period and then I just had one quick one for Martin.
Given the lower than historical effective tax rate in the fourth quarter is this the most likely appropriate baseline to use going forward or should we expect a reversion to what the historical effective tax rate has been.
Yeah.
Okay, well thanks for the questions Ron will try to remember all three of those.
Choline positioning there there's no question that via choline, which for those of you who don't know is our branded.
Choline product that goes into the human nutrition market and there's no question. It is the leading brand globally.
From a market share perspective, as well as a technology perspective.
And it's and it's less based on the physical attributes of the product itself and more based on.
The fact that we have.
Multiple production facilities, one in Europe , one in the U S and our global position in this product, but really most importantly, just from a science.
Based perspective.
<unk> that we have done with our branded products. There's Cornell studies were done with fight of choline and really all of the studies that we've talked about over the years have been done with.
Our vital choline and so when we approach our customers when we approach the market, where clearly viewed as the technology leader the science leader.
And the kind of the innovator if you will of of of the product. So we feel really good about the positioning of that brand and believe that as our.
Our customers innovate with choline include choline and various new product launches that.
They will choose to do that with our clear market, leading brand and you do find that many of of those commercialized products will include our brand on their label and we're very proud of that and I think that speaks to the value that our brand.
Brings.
Relative to the long term direction and the growth of specialty products, we really were very pleased with the fourth quarter and and.
You know it was a combination of both a healthy growth in our performance.
<unk> performance gases business as well as our plant nutrition business.
So overall it was it was a good quarter for specialty products.
And we really see that continuing.
Certainly through the year.
We feel that.
That that long term the performance gases business as we've said for years is a low single digit type of growth business.
But you know we've been in this time of recovery. This is one of the businesses that was hurt during the pandemic a little bit of the opposite of the dietary supplement market that was benefited during the pandemic and we're seeing a little bit of a slowing as demand normalizes post pandemic similar.
Here this was hurt during that but opposite this was heart during the pandemic and we're seeing.
You know a bounce in growth back to.
Cat pre pandemic type levels, where we think we will get there in 2023, so we see in that business.
A combination of continued volume growth a little bit higher than historical levels plus.
Growth from pricing that has been a result of all of the inflation of those.
Products that we are.
Repackage and sell to the market. So we see healthy growth in performance gases and we're encouraged by the recent growth in plant nutrition that we delivered in Q4, and we believe that.
Uh huh.
Plant nutrition will have a very good year end 'twenty.
23.
Fueled a bit by the new assets that we've put in place in Europe . We're excited about that in Q4 with those assets our growth in Europe was.
Particularly strong so we do feel like we've we've made an investment in assets that will help facilitate growth there, but our plant nutrition business should be a double digit type of growth business.
Given the relatively small.
Global market position.
The efficacy of our products and the brand that we have in and so we really do feel like we should be able to grow grow that business at double digits and deliver an all round a strong year for for specialty products I guess the other point to note is that where we have yet to reach.
See it play out but were encouraged with all the rain that California.
Has gotten over the year, we hope it ends up not being too much rain for the planting season, but.
I think generally the the egg barometer is favorable at this point in time in the western part of the U S and so that that should also create a bit of a tailwind for us for that business. So I'll hand, it over to Martin for the tax question, Rob on the on the tax rate I think the.
<unk>.
Right planning rate is closer to 23% as opposed to the.
21% that we achieved in 2022.
I mean, our rates fluctuate a little bit we were at that 23% range. If you go back a year in 2021 and we were able to drive some unique items here in the year and they are hard to hard to predict and hard to forecast and if we look at it today I think we'll be closer to the 23, then the 'twenty one so not a new baseline.
From my perspective.
Thank you very much.
Thanks, Rob.
Thank you. Our next question is coming from the line of each of our Ram Gopal with Sidoti. Please proceed with your question.
Yes. Thanks, good morning, Thanks for taking the questions.
Firstly I might've missed if you mentioned it in terms of the.
Revenue growth you saw how much of it was volume driven versus price.
Yeah. The growth has been primarily price driven more than volume driven so primarily price.
Okay. Thanks.
Mitra just to add a little bit of color to that.
I think that's that's clear.
Clear and Q4.
And just to go back to my earlier comment around kind of a year of two halves in the first half of the year. It was primarily volume driven.
That subsided somewhat in the second half and became mostly price driven as we raised prices and.
Started recovering those those costs from inflation so.
Overall, we saw volume growth in the year, but certainly the second half of the year was less more price.
Okay, Thanks, and looking at the Brook Sherman cap of acquisitions I know, it's still early days, but in terms of your expectations for 2023, and being able to realize costs and even revenue synergies.
To drive our growth going forward, if you can maybe.
Listen in terms of how you're thinking about those acquisitions and 23.
Maybe I'll take a stab at that and again Martin you can chime in for any additional color. So.
So we're two quarters into the Capa acquisition, and let's say a quarter into the bergstrom.
Acquisition and <unk>.
Overall.
We are pleased with how the integration processes are going.
Essentially both companies have been integrated from a commercial perspective, so we have.
Our sales organization their sales organization combined in a single organizational structure and the cross training efforts are well underway to some extent done in some areas.
So feel good about the coming together of the the organizations. We have also fully integrated the functional organizations as well and feel like that's going.
Very well and are also pleased that both companies are already on our ERP platform, Microsoft dynamics 365.
So we feel like we've moved very very quickly. So overall, we feel really good about.
The integration of the organizations and I think to your specific point, yeah. We are starting to see yes. Some of those very early signs.
Of the cost synergies associated with the combination of the organization from both a cost perspective, but maybe more importantly from a sales and a growth perspective, yes, we have sales reps now calling on customers talking about the broad product line.
And we're seeing a lot more.
Call reports coming in that have identified opportunities.
Outside of the portfolio that that that person historically may have may have had so so I'm encouraged by the progress that we've made.
Relative to the integration of the companies that we are starting to see some signs of those those sales synergies and we have realized some of the costs that are that were.
We're expected so.
Very pleased with that continue to feel very good about the long term potential of the.
Two products MSM NK too, we feel like there's significant market penetration opportunity.
Available to us as we thought going in.
So I remain very excited.
Excited about that you know obviously, the short term slowing of and Destocking, that's going on within the dietary supplement market is impacting those businesses, they're not immune to that.
Situation.
So we are seeing some some slower demand than than we ideally would like as we are seeing across the nutritional portfolio.
But all in all feel really good about the integration and the opportunity ahead.
Okay. Thanks, and then just to be clear.
The customer Destocking, you see it as a temporary issue it seems like inflationary pressures are starting to E. So at least for the first half it'll continue to be challenging but.
Adding into second half and looking out to 'twenty four you feel much more comfortable.
In terms of where things are headed.
Yeah absolutely.
We're watching that Theyre nice Nielsen retail data very closely and so feel like we've got a good feel for that brick and mortar sales out there.
And you know sales continue despite the negative growth that was seen for for the last.
A few months.
Sales continue to be higher than pre pandemic levels.
So I think that's very encouraging that that certainly some of the balance that we are.
<unk> saw with the pandemic because of the immunity boosting nature of many of these nutrients.
You know that the the.
Growth is still there relative to pre pandemic levels, which is great. It's just not at the peak level that we once once saw so we think that's encouraging.
Anecdotal evidence that we have from all of the discussions that we have with customers suggest that the destocking will.
Start to slow.
I think really in the earlier part of Q2 and so you.
You know your comment was specific around what we should see things that are back.
Back to a normal type of growth level in the second half we absolutely believe that based on everything that we're seeing today and we feel like Q2 will be that transitional quarter. If you will to two.
The more normalized demand levels that we expect.
Okay. Thanks, and then Martin just a couple of housekeeping quest.
Questions, how should we think about interest expense going forward and also capex of 23.
Yeah on the interest expense side, we're currently sort of paying an effective rate of around 6% based on where the fed set at the moment. So that means you know 6 million of interest expense for every $100 million of debt than we currently have 440.
So if you do that math, you'll end up somewhere $26 million or so on an annualized basis. Obviously as you know as we generate cash we tend to pay down debt and we intend to continue to do so.
But that's sort of the simple back of the napkin math you can do as you as you forecast out.
And the.
The second part of the question around capital.
We did see higher capital in 2022 versus what you were used to seeing we spent $49 million in terms of expanding our capacities and also adding the acquisitions in there.
And as we took for 2023 we think the range for Capex will be between.
<unk> 40 and $50 million.
Depending a little bit on on the spend.
So that's kind of where we see the range for for Capex, We still are expanding our capacity surround vitamin K, two and completing a new facility that are here in 2023 that will drive some incremental expense, but in the range of $40 million to $50 million is where I expect 2023 to come out.
Yeah.
Okay. That's very helpful. Thanks, again for taking the questions.
Thanks Mitra.
Thank you there are no further questions at this time I would now like to turn the call back over to Chief Executive Officer, Ted Harris for closing remarks.
Thanks, Darryl once again, thank you all very much for joining the call today and we really are pleased with the results for the fourth quarter, particularly given the macroeconomic challenges we've been facing and 2022 as another very strong year for Bal Cam and one in which we set new records financially.
While continuing to make good progress strategically with the company. So we really appreciate your support through the year as well as your time today, we look forward to reporting out Q1 2023 results in April . Thanks, So much for joining take care.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time and.
Enjoy the rest of your day.