Q1 2024 Balchem Corp Earnings Call

Greetings and welcome to the Bel Chemed Corporation first quarter 2024 earnings 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.

This conference is being recorded.

I would now like to turn the conference over to your host Mr. Martin Bengtsson, Chief Financial Officer for Bell Chemed Corporation. Thank you Sir you may begin.

Good morning, everyone. Thank you for joining our conference call. This morning to discuss the results about <unk> Corporation for the quarter ending March 31st.

2024, 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 FCC 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 10-Q, and 8-K reports.

The company assumes no obligation to update these forward looking statements today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations 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.

This morning, we reported strong first quarter financial results with record sales and adjusted EBITDA and strong margins driven by a favorable product mix.

Theodore L. Harris: I am, particularly pleased with the excellent results within our human nutrition, and health segment, which once again delivered strong growth and record sales and earnings.

Our consolidated revenues of $240 million were higher by three 1% versus the prior year Chris.

Gross margin grew 11, 4%.

And we expanded our gross margin percentage by 255 basis points to 34%.

Earnings from operations of $42 million were higher by 21.1% versus the prior year quarter.

And we delivered record quarterly adjusted EBITDA of $61 million, an increase of 8% with an adjusted EBITDA margin of 25.4% of sales.

113 basis points from the prior year.

Our first quarter net income of $29 million, an increase of 27.6% resulted in earnings per share of 89 cents on a GAAP basis on an adjusted basis, our first quarter non-GAAP net earnings of $34 million an increase.

<unk> of nine 8% resulted in earnings per share of $1.03.

non-GAAP basis.

Cash flows from operations were $33 million for the first quarter of 'twenty 'twenty, four with quarterly free cash flow of $27 million.

Overall, a strong quarter for Bal Cam with performance highlights the strength and resilience of our business model.

Before passing the call back to Martin to cover the financial results in more detail I would like to make a few comments about the overall market environment provide a brief update on our progress around sustainability as disclosed in our recently published 20 twenty-three sustainability report and share some progress we are making on the marketing.

Friday to drive increased awareness for Vida choline, Dow Kim's market, leading brand of the essential nutrient choline.

The current market environment continues to be dynamic and circumstances vary greatly across our portfolio.

As discussed on earlier calls we experienced destocking in the early part of 2023 with customers adjusting their inventory levels down as supply chains became more reliable and the demand outlook became more uncertain.

Since then we have seen a gradual stabilization of demand patterns in customers returning to more normalized order patterns. When we look across our portfolio of businesses. We are seeing excellent performance in our human nutrition and health segment led by our minerals and nutrients business, where we're seeing very strong.

And consumer demand for our unique portfolio of minerals nutrients and vitamins or human food solutions business has returned to more normalized order patterns also contributed nicely to the overall growth of the HMH segment or.

Our animal nutrition and health segment is going through a challenging time from a market perspective, we have discussed earlier, how our European feed grade choline business has been negatively impacted by low cost product flooding the market and we expect this to continue for some time.

We are looking into this unfair pricing behavior in an effort to understand if there could be potential for anti dumping or other tariff relief also the dairy economics impacting our animal ruminant business is going through a tougher cycle with reducing but still elevated feed costs.

And low milk protein prices. While this is currently having a negative impact we believe this to be more short term in nature and we expect this market to recover gradually for our specialty products segment. The primary business is our performance gases business, which continues to perform well in a store.

Cable market from an overall biochem perspective, I am pleased with how we have managed through this dynamic environment, our market positions and value propositions in the various markets. We serve have enabled us to maneuver through these volatile times and it has highlighted the strength of our overall portfolio mix and our ability.

To drive above market growth over time.

As we continue to drive growth, we are guided by our core values and our vision of making the world a healthier place supporting this is our dedication to corporate social responsibility.

Last month on Earth day, we published our 20 twenty-three sustainability report and I'm very pleased with the progress back him continues to make in advancing our sustainability efforts in 2023 Falcon exceeded our 2030 greenhouse gas absolute emissions reduction goal is 25%.

As we achieved a 32% improvement over our 'twenty 'twenty baseline.

And we remain on track to achieve our commitment to reduce water usage by 25% and 2023 biochem reduced its water withdrawal by 8% compared to our 'twenty 'twenty baseline.

And this latest report we also disclosed our scope three emissions for the first time.

And shared our internal assessment that determined that more than 70% ever product line revenues directly support three out of the 17, United Nations sustainable development goals or S. T. G. S. T. G. Two zero hunger S. D. G. Three good health and wellbeing and S. T G 12.

Responsible consumption and production.

Theodore L. Harris: Our performance towards our 2030 goals and our broad progress on all of our other initiatives shows our commitment to 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 people communities and shareholders. Additionally, as I mentioned earlier I would like to share with you. Some progress we are making on building consumer awareness for some of our market leading brands of vitamins minerals and essential nutrients yesterday, we were.

We're excited to announce that Vida coli balkin with market, leading brands. The essential nutrient choline has become a proud partner of the New York Jets, a major professional NFL sports team.

This is the first sponsorship for Vida choline and the first sponsorship and the nutritional ingredient category for the Jets. The partnership will help Vida choline reach a large and health conscious audience and promote its message of improving wellbeing of body and mind fight of choline is a nutrient that supports.

Both mental and physical performance by enhancing memory accuracy and muscle control raising awareness of the benefits and accessibility Aveda choline is an important aspect of the jets partnership to that and light of choline will become the presenting partner of the Jets official website, New York Jets.

<unk> com receiving prominent branding at the top of each page on the site might be calling will also have significant presence at Metlife stadium with impactful exposure on stadium signage.

Collines crucial role in pregnancy has been well established by experts for many years now.

Now with emerging clinical evidence showcasing its positive effects on adult mental performance and physical wellness. It's an ideal time to embark on this dynamic partnership with the New York Jets. We are excited about this opportunity to drive increased awareness.

We are very pleased with the early response from our customers, who manufacture and market the supplements nutritional beverages and fortified foods that contain our vide colleague to this unique partnership has they clearly see and values the opportunity for increased awareness provide a colleague we look for we just sharing Prague.

Yes, with you over the coming quarters on this advancement in our marketing efforts to drive market penetration provided coli and with that I'm now going to turn the call back over to Martin to go through the first quarter consolidated financial results for the company and the results for each of our business segments. Martin. Thank you Ted.

As Ted mentioned overall, the first quarter was a strong quarter for biochem with record sales adjusted EBITDA and strong margin performance, our first quarter net sales of $240 million or three 1% higher than prior year, driven primarily by strong growth in our human nutrition.

Health segment.

Our first quarter gross margin dollars of $82 million were up 11.4% compared to the prior year.

Our gross margin percent was 34% of sales up 255 basis points compared to 31.5% in the prior year.

The increase was primarily due to a favorable mix and decreases in certain manufacturing and put costs.

Consolidated operating expenses for the first quarter were $40 million as compared to $39 million in the prior year. The increase was primarily due to higher compensation related expenses and the impact of a gain on sale of fixed assets recognized in the prior year, partially offset by lower transaction.

Integration related expenses.

GAAP earnings from operations for the first quarter were $42 million, an increase of 21.1% compared to the prior year quarter on an adjusted basis as detailed in our earnings release. This morning, non-GAAP earnings from operations of $49 million were up seven 8%.

Theodore L. Harris: Compared to the prior year.

Theodore L. Harris: Adjusted EBITDA of $61 million grew 8% compared to the prior year with an adjusted EBITDA margin rate of 25.4%.

Interest expense for the first quarter was $5 million, a decrease of zero point $2 million compared to the prior year. This decrease in interest expense was due to lower outstanding borrowings, partially offset by higher interest rates.

We continue to use our solid cash flows to pay down debt and we reduced our debt by $8 million in the first quarter and ended the quarter with net debt of $241 million with an overall leverage ratio on a net debt basis of 1.0.

The effective tax rates for the first quarter of 'twenty, 'twenty, four and 'twenty, 23, or 21, 3% and 22% respectively.

The decrease in the effective tax rate from the prior year was primarily due to higher tax benefits from stock based compensation and certain lower foreign taxes.

Consolidated net income closed the quarter at $29 million up 27, 6% from the prior year.

This quarterly net income translated into diluted net earnings per share of 89 cents, an increase of 19 cents compared to the prior year.

On an adjusted basis, our first quarter adjusted net earnings were $34 million, an increase of 9.8% from the prior year, which translated to one dollar and three cents per diluted share.

Cash flows from operations were $33 million with free cash flow of $27 million and we closed out the quarter with $60 million of cash on the balance sheet.

As we look at the first quarter from a segment perspective.

For the first quarter, our human nutrition, and health segment generated record sales of $153 million, an increase of 15.1% from the prior year, driven primarily by higher sales within the minerals and nutrients business.

Our human nutrition and health segment delivered record quarterly earnings from operations of $33 million, an increase of 8.4% compared to the prior year.

This was driven by the aforementioned higher sales and lower manufacturing input costs.

First quarter adjusted earnings from operations for this segment were a record $39 million an increase of 43.3%.

We were very pleased with the overall performance of our human nutrition and health segment delivering record sales and earnings from operations. We saw strong demand growth of our minerals and nutrients and the overall demand picture continues to improve and the food and beverage markets.

Our animal nutrition, and health segment generated quarterly sales of $54 million, a decrease of 16.9% compared to the prior year.

The decrease was driven by lower sales in both of them on a gastric and ruminant species markets.

Animal nutrition and health delivered earnings from operations of $2 million, a decrease of 78, 3% from the prior year.

The decrease was primarily due to the aforementioned lower sales.

Really offset by lower manufacturing input costs.

Quarter adjusted earnings from operations for this segment were $2 million a decrease of 75, 8%.

Similar to what we discussed in our Q4 earnings calls our animal nutrition and health segment is experiencing challenging market conditions, particularly in Europe, but also in the North American dairy market.

The European animal feed market continues to show relatively soft market demand and continued competition from low cost imports flooding the market.

And then North American dairy market is still experiencing low U S milk and milk protein prices impacting demand for our rumen protected encapsulated nutrients in North America.

While animal nutrition and health is clearly going through a tough time at the moment. We continue to believe the animal nutrition markets provide a growth opportunity for <unk> over the longer term and we expect this segment to gradually improve as market dynamics become more supportive.

Our specialty products segment delivered quarterly sales of $32 million.

A decrease of 1.9% compared to the prior year due to lower sales in the plant nutrition business, partially offset by higher itself and the performance gases business.

Specialty products delivered earnings from operations of $8 million, an increase of three 2% versus the prior year, primarily driven by lower manufacturing input costs, partially offset by higher operating expenses.

First quarter adjusted earnings from operations for this segment were $9 million, an increase of 3.1%. We were pleased with the performance of specialty products in the first quarter as improved margins delivered good earnings growth.

So overall the first quarter was another strong quarter for biochem and a great start to 'twenty 'twenty four.

I'm now going to turn the call back over to Ted for some closing remarks. Thanks.

Thanks Martin.

We are very pleased with the strong financial results reported earlier this morning with record sales and adjusted EBITDA for the quarter, particularly in light of the continued economic and geopolitical uncertainties. We are facing in the marketplace at a consolidated level. We continue to show an ability to deliver results in a variety of <unk>.

Arc conditions, given our strong market positions and we remain confident in the long term growth outlook for the company.

I will now hand, the call back over to Martin 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 the conference call for questions.

Thank you.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two.

Like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Bob <unk> with CJS Securities. Please proceed with your question.

Good morning, and congratulations to Martin.

Raul.

Thank you Bob Thanks, Bob.

Absolutely so yeah, great quarter, obviously nice.

Cap there for us maybe we could dig a little more into the sea.

Significant margin upside on the human side.

What drove the record margins as it and like it and mix raw.

All materials are there one time benefits is it sustainable how should we think about the margin profile going forward.

Yeah, maybe I'll take a.

First stab at that and then Martin can chime in so.

Now to just simply say that there were no one time items of of of note. It really was driven by.

Primarily mix and the strength of the minerals nutrients and vitamins business, we saw significant year over year growth in that business and that really was the primary.

Driver, we have as you know over the last three or four quarters continued to see.

Margin improvement as.

Raw material input costs ease hubs.

So that played a.

Theodore L. Harris: More minor role, but it was primarily mix and just the indication of the significant growth we saw.

In the minerals and nutrients business, which of course has a fairly measurable.

Higher margin.

Margin profile than.

The rest of the food business.

Okay, Great Yeah, and maybe you know obviously over the last.

A couple of years.

<unk> gone through a lot in terms of inventory corrections demand.

Issues like the acquisitions you've made.

Could take a step back a half step back and just break down the kind of key sub segments.

Colleen Kay to an M. S N that youre, referring to related minerals, and encapsulation and flavors and powders or however, you want and.

The.

The outlook for each of those sub segments within our within the human side would be would be great right now.

Yeah, again, I'll try to tackle that one as well.

Long term as we have said for for quite some time, obviously that period of time during the pandemic.

Theodore L. Harris: Confuse the markets, a little bit, but but we really believe that the.

The organic growth potential of our human nutrition and health business.

Is mid single digits, and and we've achieved that historically, we believe that that will be the case going forward, then and that is a multiple plus of the overall inherent market growth.

Theodore L. Harris: What we're seeing today is that the the food markets have at least returned to growth, albeit very low single digits, but at least returned to growth. After this very volatile period of time.

The supplement market, which is the primary end market for our minerals nutrients and vitamins has returned to more healthy growth, let's say you know higher mid single type type growth.

Theodore L. Harris: But when you Peel that onion back in and look at the the vitamins minerals and nutrients that we sell.

Theodore L. Harris: Several of them are seeing much more significant growth than the market as a whole and I think it is a result of increased science around these.

These nutrients for example, vitamin K too.

Increased awareness around these.

These products as well and so we see particular yeah.

Significant double digit type growth in our vitamin K, two business and various minerals within our minerals portfolio high single digit growth you mentioned M. S. M. A.

With the M. S N product line and so it does have to do somewhat with the overall market returning to growth, which is always great to see but then specifically the the products that that are part of our portfolio and that was invested over time are indeed.

Growing significantly.

Significantly faster than the market as a whole and so we are very excited about that and obviously something that we talk a lot about is the potential for that significant growth, which is going to be driven by increased awareness increase science and ultimately increase Maher.

Theodore L. Harris: Penetration in and you know I think where we're seeing some of that here over the last two or three quarters and our investments in additional science our investments in marketing like yeah. The jets a partnership that we announced are all parts of our plan.

<unk> to drive that awareness and.

Theodore L. Harris: Further penetrate the market.

Okay, Great and maybe I'll just jump to that question, because it's pretty exciting.

And over here to hear about that partnership, but what do you hope to get or how will you measure I guess, maybe a better way how you measure the success of the partnership with it.

So I'm glad that I'm glad to hear that you're a jets fan you know where.

Chanting now it's part of our mantra Jets Jets jets here at.

Speaker Change: I apologize for all the pats fans out there, but yeah.

We're excited about this partnership and it's very interesting you know is that as we Americans sitting in the New York City area obviously.

Yeah.

We know the jets very well.

But yeah, our European and international colleagues have a very different perspective than the NFL is growing in popularity, but you know they they see you know the jet says yeah.

As any New York City, and and you know one of the most dynamic you have cities in the world and <unk>.

And you know we think of the jet says you know another kind of NFL team and so we're excited about this internationally as well and you know like all marketing efforts. It is a little bit hard to measure the success, but we really believe there's going to be an ROI of this.

Our investment.

Obviously, we're going to be looking at.

Sales of of these nutrients, specifically Vita choline relative to this campaign and are we seeing an unusual uplift in sales we will be able to look at that on a regional basis, even though the jets appeal may be more national and even international.

In scope, we think there'll be a regional element to look at from a sales perspective, but it gets even more granular than that you know we're we're looking at success and you sort of talk about how do you measure. The success. One thing is obviously, we want to drive more sales.

Speaker Change: We're going to be doing continue to do.

Yeah focus group studies around awareness of Avaya to calling so we hope to see those numbers tick up as.

Vita choline.

<unk> is prominently displayed at various jets games.

But we're also you know granularly looking at our customers who are those that manufacture the supplements in the nutritional beverages and so forth you know their interest and this is what I alluded to you know we're excited about our customers early.

You know kind of reception to this idea because we're getting increased interest and willingness and desire to co brand.

Speaker Change: Our products and we love to get you a vital choline our brand of choline on the back of a specific.

Supplement product or nutritional beverage and.

Our customers and this is resonating with them and they're seeing how this could potentially drive awareness in the market penetration. So yeah. One way. We're measuring success is by kind of measuring the number of co branded products that we have out in the marketplace and and we already have.

Some some early wins relative to our customers.

Not initially having co branding on their products, but now are doing just that so it'll be multifaceted, how we measure this but of course at the end of the day, we need to.

Drive higher sales and that'll be the.

The end, resulting metric that will be really focused on.

Okay, that's really exciting as I said, Okay last question and I'll get back in queue, and just jumping over to the animal nutrition and health and you alluded to a little bit maybe what actions can be taken in Europe to kind of improve the market potentially and have you seen anything like this in the Pea.

And how is it resolved you know last time, if there was any dumping or anything like that.

Yeah. So sure. So absolutely there are actions that we can be taking where this is not just.

Sit on our hands and wait for the market to turn around obviously there is a market element to this but there are things that we can be doing but maybe I'll address the latter part of your question first.

We have seen.

Situations like this over time.

Would suggest it hasn't been this challenging in the past but.

Low cost.

Imports into Europe have come and gone over the years and I would say in my.

10 years here I've seen it come and go probably three times and for various reasons and so you know there they're flooding in right now and it's impacting our business, but there are things that we can do one is simply continue to protect our business our main.

Maintain our volume because we do think that that ultimately this this market can turn around as well we can look at taking costs out of our system and we're working hard on that and we can investigate the possibility of of you know.

Defending these you know unfair practices and potentially look into the possibility of antidumping tariffs or other.

Types of tariffs I mean that you know there are well established processes through the governments to to try to address these kinds of unfair practices and so were certainly going to explore that as well so.

And you alluded to Martin's expanded roles in and are having a new leadership on the task as well and that will undoubtedly help accelerate the turnaround as well bottom line is it is very challenging but long term.

We continue to feel like the animal nutrition markets are attractive and and will ultimately return to.

Speaker Change: Healthier situation.

Super Thank you so much.

Thank you thanks, Bob.

Thank you. Our next question comes from the line of Ram Silverado.

Please proceed with your question.

Thanks, very much for taking my questions and congrats on continued strong operating performance.

Just first of all maybe you could give us a sense of what you expect to execute on this year, specifically in the U S market with regard to marketing and promotional activities, specifically around MSM vitamin K, two and by the choline and to what.

Marketing and promotional activities might be different from what you have done historically and as an adjunct to that if you could perhaps comment on the extent to which you envision the jets partnership among other things potentially extending beyond the bite of choline brand.

Into other areas like K two vital for example, which my understanding is it's also important for among other things a boosting athletic performance.

Yeah, Ron first of all thanks for joining and thank you for your comments and.

Yeah. We are really excited about this you've been covering us for a long time and you know I would yes proudly say Oh at are at our heart you know and so yeah. We are a technology company new product development Company, a science based company.

And a manufacturing company, but we haven't invested and in marketing to a great extent over the years and we're doing that now and we're starting to see some fruits of that labor, but.

Yeah, making an investment like this investment and the Jets partnership which.

You know again it is a is not.

He had that expensive, it's not a significant portion of our selling and marketing budget, but you know it's a it's still a lot of money and we need a return on it is certainly something we're viewing as a pilot case, if you will a test case and RF.

Expectations at this point in time is that.

We are going to see a nice return on investment of that and we will want to add products like absolutely K two vital delta might be the very next product that we put on.

This kinds of probe this kind of program so.

You know, it's a little bit because there's this you know type of marketing spend is a bit new to us, but it's also I think prudent to let's use this as a test case, but our expectation is we will be successful and that we will start rolling this out more broadly and as <unk>.

Far as goals I spoke to them a little bit in answering Bob's question, but we do expect.

As a result of this to start to see increased awareness of our products and our brands, which we can measure through these these studies that we do.

Speaker Change: We do expect to increase the amount of co branding that we have in our portfolio and we know what that is today and we can measure.

Successive it going forward and we do expect to you know meaningfully be able to impact the growth profile of of other revenues and yeah. There's certainly other metrics that I'm sure. Our marketing teams will be looking at but those are some of the most important ones.

Speaker Change: And you know this is not all about the the Jets partnership we're excited about that.

But you know we are doing our other investments from a marketing perspective.

That may be a little bit less visible from Reeves.

Speaker Change: Revamping our brand image revamping our website part of that the Jets campaign was to actually establish a new Vita choline consumer facing website, because our hope is that people are starting to see this partnership be announced and start to.

Google Vida choline and what is that and we want a not a you know and I'll disparage asked a little bit not a traditional balcom website page to be their landing page, but a much more consumer centric.

Speaker Change: <unk> for them to land on so you know.

It's those kinds of things I'll I'll I'll highlight one other program that I'm very excited about I think it highlights.

Speaker Change: That heritage that I talked about it being a science based manufacturing.

Company, but we're.

Calling it various things across different product lines, but one one of the product lines, we're calling our true quality program and it's it's a looking at it it's actually testing.

Consumer products that are on the market place.

And testing whether or not they contain what they say they contain an and this is a you know an issue in the nutritional supplement space. There is sometimes a bit of a class.

Cloud hanging over our these claims real and true and and do these products have what they say they have in them and I won't necessarily talk about the specific product, but with with <unk>.

<unk> done this analysis for <unk>.

One of the products that we sell in the marketplace and we took.

Yeah, something like 50 consumer products that contain this this nutrient and we analyze them and 70% of them did not have what they claim to have in the products.

A 100% of the products that had our ingredient had what they they claim and so we can use. These studies. This analysis and go to you know kind of consumer marketers the amazons of the world and so forth share. This are these data.

With them in this information and it's resulting in real change and real movement.

Speaker Change: And differential sales for our customers' products that include our products in them and so we're quite excited about this we've done this with a couple of our product lines and we think it's right for us.

The.

Yeah. So some of the other products and then you know lastly, maybe I'll get off my Soapbox here, but you know I think our social media activity is significantly.

Escalating and I think there is that you know of course consumers today are buying in a different way in and using tick tock and other social media platforms that get their information in and help them make decisions and so we are dramatically ramping up our efforts in that space.

And I can't can't say enough for air.

Speaker Change: Strong yet new marketing team and and are really excited about.

This added capability you know, we're not stepping away from that manufacturing heritage and that science based.

Our heritage, but a cat augmenting it with this strong marketing program hopefully that helps.

All very helpful.

Following on from that wanted to see if now that we are not anywhere near it corporately hot in an inflationary environment as has been the case for example in the first half of 2023 are in the back half of 2022.

You can comment on the degree to which your pricing strategy has evolved and may continue to evolve.

As we all I think hope inflation continues to come down.

Speaker Change: But certainly we are seeing multiple product lines that continue to be very demand in elastic.

That means that even in this more modulate it inflationary environment, there may be greater pricing flexibility there.

Wanted to see whether that also applies to specific product lines with alcan, particularly whether the H in each segment and then also with respect to H N H relative to animal health and nutrition, how do you think strategically.

Having these two business units within balcom is synergistic and beneficial or do you anticipate that it might be plausible.

Pertain a scenario in which Falcon focuses.

Mentally more and more on the Anh segment as opposed to the animal health segment.

Speaker Change: Okay.

Okay from well, there's a lot a lot in there and I'll try to capture it I'll remind me if I don't don't get too at all and maybe I'll just hit the the the last one first and then get back to our pricing and so forth.

Yeah, obviously, the animal nutrition and health business is going through a difficult time.

Right now, but we are confident that that.

Now our positions in the markets and our technology is solid and we will get through this period of time and a return to to grow. So we are not spending any time at this point thinking about.

Separation in and not being in the animal nutrition and health space.

Speaker Change: Our brand is is.

<unk> is really well respected and well known in the animal nutrition and health space and some of our technology and even the technology, we're working on and hopefully will.

Be launching into the marketplace over the course of the next year or so is very exciting and I think that the market needs. Some of this innovation.

To address some of the challenges it's facing yeah and there are synergies.

Colin the metabolism of choline in a in a cow versus a chicken nurses attached in and even on the human space. You know of course, all species are different but there is commonality, there and and the way we manufacture the product of courses is similar.

Or two and I would say that's true about our minerals business.

As well so we do think from a kind of a science perspective, there's quite a bit of synergy.

Despite the fact that you know that the customers are are different in the market by market is different but hopefully that that addresses.

Your your latter comment relative to two pricing again, if I go way back you know we were incredibly happy with their ability to raise prices in the extreme inflationary environment you're in can we certainly are.

<unk> always said that we were able to raise prices dollar for dollar for costs and that shows I think the strength of our position.

The differentiation we have in the pricing power that we have we lost margin.

Speaker Change: We've since regained that has inflation stopped.

And now that we are seeing some deflation we are giving a portion of that back and as you would suspect.

Where we're doing more of that tends to be on the more mature product lines product lines that have a little less.

Uh huh.

Competitive advantage than the others, but certainly.

We have many products that yeah.

Yeah, we're not having to give that back and we are seeing some.

Margin expansion and I think net net we believe that that will result in.

Now a modest margin benefit for for the company overall, but probably the most meaningful margin opportunity. We have is just what we saw on H and H are in this quarter was accelerated growth.

Speaker Change: Our higher margin product lines, and really getting that kick from that that the mix benefit.

Rather than.

Anything else.

Great and then just very quickly two quick questions for Martin Firstly I always ask this question.

And how are you thinking about our effective tax rate evolving going forward and do you think that the company may be able to maintain that below the 22% level or do you expect it to tick up over the course of the remainder of this year and then secondly, what's the company's current positioning with respect to share buybacks and how do you expect this to evolve.

What might be some of the inputs that you take into consideration as you evaluate how to how to move forward most appropriately on that front. Thank you.

For arms on the on the tax rate was a little bit lower here in the first quarter I do expect it to tick up as we go through the year.

Speaker Change: It benefited a little bit from a little bit higher of exercising of options and so on in stock comp expenses in the first quarter that pushed out of the rate a little bit. So I do expect that to tick higher as we go forward. So.

That's our planning rate I would not use 22, I would use more twenty-three ESD planning rate for modeling here going forward.

With regards to share.

Speaker Change: Share buyback.

It's been a few years now since we did that are as we've said in the past. It's it's part of our capital allocation, but it's sort of after we have first invested in our organic growth.

And continue to pay and increase our dividend.

And pay down our debt and that's why we've sort of used it in lieu of any active M&A where that needs the money.

Speaker Change: As we sit here today, obviously the leverage ratio is becoming lower so net debt leverage right now being 1.0 is getting down there to lower rates are so I think the sort of thought process or could it come into play becomes more relevant to have that discussion.

At the same time.

We continuously evaluate acquisitions and opportunities to to accelerate some of our strategic growth initiatives. So it may be that you know something happens along those lines here over the next year or so so it really depends a little bit.

Speaker Change: On that if we do another acquisition then you know share buybacks is not really part of it but if for any reason that.

That does not come into play that will give that more serious consideration.

Thank you so much.

Thanks, Rob.

Thank you. Our next question comes from the line of with Sidoti and Company. Please proceed with your question.

Speaker Change: Hi, good morning, everyone.

Hey, Ted.

I wanted to.

Hey, Good morning, guys, Hey, I wanted to follow up on.

One of one of the last couple of questions you mentioned <unk>.

Gross margin in this quarter overall percentage of sales was 34% came in better than we were expecting.

And it sounded like there's the potential for that to maybe improve a little bit going forward can you.

Maybe touch on that and talk about some of the puts and takes that we should be looking for.

No I think that that yeah. We were really obviously pleased with 34%, it's a kind of marks a bit of a high point.

Speaker Change: For us.

Part of my comments around the mix element then had success.

<unk>.

In minerals and nutrients business or in our I would say ruminant business in animal nutrition and health is.

Speaker Change: Is going to ultimately give us a tailwind relative to.

Margin going forward so as we.

Grow those growth businesses that are higher margin business at accelerated rate, we're going to see some margin expansion, but oh, you know I would just kind of caution you a little bit in that 34% was was really an.

Excellent.

<unk> for the quarter, there wasn't anything unusual in that.

In that number but as our animal nutrition business for example.

It picks back up again, you're going to see some natural mix dilution there part of the benefit you know and in this quarter was of course, the growth and the minerals and nutrients business, but also the decline in the animal nutrition <unk> health business. So you have to weigh that into the picture as well.

Yeah.

Got it okay. That's helpful.

And then also in the animal nutrition and health I was wondering if.

Speaker Change: Maybe you or Martin could expand on kind of the sequential change from what we saw in the fourth quarter to <unk>.

I appreciate the commentary.

Big picture, but just maybe wondering what was more impactful than in the first quarter.

Yeah on the <unk>.

Speaker Change: H perspective, the first quarter, if you compared it to two the fourth quarter was down a couple of million on sales of all top line and that was actually particularly driven on the ruminant sides. So U S. A theory of the mono gastric piece was a little bit more stable.

<unk>, while the ruminant came down a little bit, which also has a negative mix impact on margins for A&H and that's driven primarily by this I wouldn't call. It an all time low but exceptionally low milk protein prices right now.

So that's having a negative impact on the on the value proposition on some of our key products.

And therefore, it's driven a little bit of a second sequential decline.

As we look forward its hard to predict exactly how prices will evolve and end market pricing and so on but one would have to assume that this will normalize over some period of time here.

And whether it will start normalizing next quarter or the quarter after that or the quarter after that I cant guarantee but our assumption based on history is that it will sort of cycle back in and improve and with that our sales will come back and more.

Normalized levels so to speak.

Got it and maybe following on with that I understand that you know price.

Speaker Change: Prices are you know one of the leading dictators, but in the meantime is there anything the company can do to maybe boost sales of that category whether it's.

On the marketing or <unk>.

Product placement or anything like that.

Yeah, we certainly.

Trying so to speak and in looking at what the options are to.

<unk> as well as we can in what is a very tough market we have been successful.

On the choline side would I reassure our flagship product, where both new science and expanded science together with a refreshed our marketing materials and how to bring.

Speaker Change: Bring this message out into the to the marketplace has helped so if we look at our reassure product compared to some of our other products that one has held up much better as a result of that in this market.

So we're looking across the portfolio of how we can do similar things also for our other products and get the message out there around the value propositions.

So we're certainly trying to do that at the moment and hopefully we'll get some success there going soon.

Okay, great. Thanks for your time this morning.

Speaker Change: Thanks Kyle.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Harris for any final comments.

Thank you Melissa and once again, thank you all for being with US today, we really appreciate your time.

And we look forward to reporting out our Q2 'twenty 'twenty four results in July in the meantime, we will be participating in a few investor conferences.

The BMO farm to market Conference in New York City on May 16th the Deutsche Bank Global consumers Conference.

Tumor conference sorry in Paris on June 4th and the Wells Fargo Industrials Conference in Chicago on June 12th So hopefully, we'll see some of you at one or more of those events over the course of the next month or so so thanks again for joining have a great day.

Okay.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

Okay.

Okay.

Okay.