Balchem Corp (BCPC) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen. and welcome the Balchem Corporation third quarter 2008 earnings conference call.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Frank Fitzpatrick, CFO for Balchem. Thank you, Mr. Fitzpatrick, you may begin.

Ladies and gentlemen, thank you for joining our conference call this afternoon to discuss the results of Balchem Corporation for the period ending September 30, 2008.

My name is Frank Fitzpatrick, Chief Financial Officer, and hosting this call with me is Dino Rossi 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. This release does contain or likely will contain forward-looking statements which reflect Balchem's expectation or belief concerning future events that involve risks and uncertainties.

We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from our expectations including risks and factors identified in Balchem's Form 10K. Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9:30 am Eastern time.

I will now turn the call over to Dino A. Rossi, our Chairman, President and CEO.

Thanks, Frank.

Good afternoon, ladies and gentlemen, and welcome to our conference call. We were pleased to report record net earnings of $4.8 million on consolidated revenue of $58.2 million for the quarter ended September 30, 2008. This sales level was approximately 15.3% ahead of the $50.5 million result in the prior year comparable quarter. All three segments achieved revenue growth this quarter, with the animal nutrition and health segment very strong, up 15%, due to strong organic growth out of the core basic choline products, which was up 13%, and specialty animal nutrition and health products which was up 28%.

The food, pharma, and nutrition business posted 18% organic growth, with particular strength in the domestic and international food markets, human grade choline, and calcium products. The ARC specialty product segment generated record quarterly sales of $9.3 million, 12.7% over the prior year quarter, due to strong volume growth in EL and PL, and price increases to offset cost increases.

As previously noted, consolidated net income closed the quarter at $4.8 million, up from approximately $4.5 million in the prior year quarter, or an increase of approximately 7.5%. This quarterly net income translated into diluted earnings per share of $0.25 or a 4.2% increase from the $0.24 we posted in the comparable quarter of 2007.

Looking between the top and bottom line, you will see that our consolidated gross profits of $12.7 million were equal to 22% of sales in the quarter. This level of profitability continues to reflect the impact of the acquisitions in the animal grade choline business, which generally carry lower gross margins. We did, however, realize a 1.2% increase sequentially from the second quarter of 2008 results, even as we continued to realize increases in key raw material costs in the third quarter that are largely petroleum derivative.

While oil and natural gas prices have recently declined, we were not a beneficiary of this activity until very late in the quarter as our raw material costs actually rose early in the third quarter before modestly declining. Some costs were passed on to customers, which helped lead to the noted sequential quarterly gross margin improvement. Additional price increases have been and will be implemented where we are contractually able to do so in the fourth quarter, and the first quarter of 2009. We do have an expectation that we will see more relief from these higher raw material costs for the balance of 2008.

At the consolidated operating expense level, you will note a very modest $70,000 increase to $5.5 million for the quarter, versus the prior year quarter. We incurred approximately $117,000 of commercial development expenses toward our pharmaceutical market initiatives in the quarter; and higher G&A expenses due to increased fees associated with audit, tax accounting, and non-cash stock-based compensation recognition. However, with these increases, operating expenses were 9.4% of sales or 1.3 percentage points less than the operating expenses as a percent of sales incurred in last year's comparable quarter.

We continue to leverage off of our existing infrastructure, and going forward we will exercise tight control over variable controllable operating expenses. Overall, it was a strong quarter, especially with the unfavorable raw material cost in the ARC and animal nutrition and health commodity feed grade choline business segment. We did realize approximately $9 million of EBITDA in the quarter, which translates into $0.47 per share; and when including our non-cash stock-based compensation charge, we generated nearly $9.5 million of EBITDA in the quarter.

Net interest expense of $205,000 was approximately $371,000 lower than the previous year quarter. This is in direct relationship to the reduction of the long-term debt that was incurred to achieve the prior year acquisitions, and is equal to $0.013 per share on a tax affected basis. Other expense of $85,000 for the quarter is primarily the result of unfavorable fluctuations in foreign currency exchange rates between the U.S. dollar and the euro.

The Company's effective tax rate for the nine months ended September 30, 2008, is 33% as compared to 35.2% in 2007. This increase or decrease, sorry, in the effective tax rate is primarily attributable to a change in apportionment factors relating to state income taxes as well as a change in the income proportion towards jurisdictions with lower tax rates.

Noting our strong EBITDA, we plan to continue to accelerate our debt reduction. During the past year, we have aggressively reduced our acquisition related borrowings of $40 million to $17.1 million at September 30, 2008, reflecting accelerated payments of $15 million. We will continue to reduce our debt load as aggressively in the coming months and quarters, driving off of our strong cash flow, reducing interest expense and improving earnings to generate even more accretive results from the recent acquisitions.

In an effort to detail our consolidated results better for our shareholders, I'm now going to have Frank Fitzpatrick discuss the ARC specialty products and the food, pharma, and nutrition segments.

The ARC specialty products segment posted a new quarterly sales record of approximately $9.3 million or 12.7% over the prior year comparable quarter. This increase in sales was derived principally from increases in volume and selling price of ethylene oxide an propylene oxide. Our quarterly business earnings increased 15.5% to $3.4 million versus the prior year comparable quarter. Even at this improved level, this result reflects the impact of the continued escalating petrochemical raw material increases in this third quarter especially ethylene oxide.

In this segment, we did successfully increase some prices to help offset a significant portion of the cost increases. We do have an expectation that we will see relief from these higher raw material costs for the balance of 2008. We also continue working on a number of initiatives to broaden and build on the ARC business model with particular development work on a novel licensed technology to repackage, distribute, and deliver another chemical for the fruit ripening industry.

For the quarter, the food, pharma and nutrition segment realized an 18.1% sales improvement, $9.4million over the prior year comparable quarter. Business segment earnings of $1.6 million is an improvement of 25% over the same period of last year, improving to approximately 16.7% of sales; up significantly from the 15.8% level in the prior year comparable quarter. This third quarter result saw significant improvement in the choline and calcium sectors of the food, pharma, nutrition business. Most notably, the human choline nutrient product revenues were up 26% over the prior year quarter.

We continue to see increased consumer recognition of the benefits of choline; hence, choline inclusion in more supplements and fortified drinks. A number of new independent research studies on the benefits of choline have been completed and recently published. We continue to position choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages, leveraging off the baby infant formula requirement.

We also saw continued improvement in our calcium line, which improved 19.8% over the previous comparable quarter. A number of new product developments have been introduced into the nutritional supplement marketplace using our calcium platform and we expect to see additional new product launches beginning the first quarter of 2009. In addition, the domestic food market was up 19%, and the international food market was up 55% over the prior year quarter, as volumes increased 14% and 50% respectively.

Our pharmaceutical delivery systems commercial development effort continues, but as previously noted is a long process. We did generate modest R&D milestone revenue in the quarter, and remain confident that these efforts will yield good end results. In the near term, this sector is still a net expense to the business segment.

Sequentially from the second quarter, this entire segment was down approximately 1.2% in sales, and approximately $100,000 in earnings. At the August shutdown in Europe and the Verona plant operating technology change for choline, negatively impacted our sequential results. We continue to see some fluctuating results in this growth segment due to product mix and customer order patterns, but overall steady growth.

I will now turn the call over to Mr. Rossi for him to discuss the animal nutrition and health segment.

Thanks, Frank.

In the animal, nutrition, and health segment we realized a 15.3% sales improvement to $39.6 million over the prior year comparable quarter. This improvement was led by strong sales of equus choline, choline derivatives for specialty industrial applications and also strong sales of specialty animal health products, notably, Nitroshure, Keylates, and Reashure.

Feed and industrial grade choline product sales grew approximately 13.2% or $3.9 million over the prior year quarter, principally from increases in volumes sold and modest increases in an average selling price. Sales of choline into the North American feed segment have begun to feel the pressure of production cut backs in the broiler poultry market. These market conditions coupled with the impact of the two Gulf Coast hurricanes, Gustav and Ike, resulted in a sequential decline in choline product sales.

Earnings from operations for this entire segment declined to $2.3 million as compared to $3 million in the prior year comparable quarter, largely due to the continued price increases in petrochemical commodities, most notably ethylene oxide, and dry methalamene, which are the key components in the manufacture of choline chloride. As noted earlier, while oil and natural gas prices have recently declined, we were not a beneficiary of this activity until very late in the quarter. Our raw material costs actually rose early in the third quarter before modestly declining; and while some costs were passed on to customers, our pricing initiatives in the quarter were not enough to offset the cost increases.

In addition, the Company had to temporarily shut down production during the quarter at its facility in St. Gabriel, Louisiana as a direct result of Hurricane Gustav. The plant did not sustain any direct damage and was idled in a controlled fashion, but was without utilities for the better part of two weeks. It was then restarted, only to be taken down when Hurricane Ike threatened about one week later. Ike hitting the Houston Gulf Coast area directly, proceeded to cause raw material supply chain interruptions for both the St. Gabriel, Louisiana and Verona, Missouri sites further affecting negatively our ability to efficiently run both sites.

This also resulted in our not pursuing export business as aggressively as we had in the second quarter this year, and logistically deferring approximately $1 million of U.S. revenue into October. Also in the quarter, our results reflect the typical seasonal slowness associated with the summer holiday period in Europe, affecting additional unfavorable manufacturing variances at the Marano Ticino, Italy facility.

So, with the impact of the two hurricanes in the U.S. and the European holiday in August, combined with the raw material cost and interruption issues, we worked diligently to supply all of our customer commitments; but it did severely impact the profit of this segment in the third quarter. We believe the majority of these issues are now behind us. While we did implement price increases where contracts allowed, this positive was easily overwhelmed by the noted negative. Additional price increases have been and will be implemented where we are contractually able to do so in the fourth quarter, and we do have an expectation that we will see some relief from these higher raw material costs for the balance of 2008.

With the bulk of the feed grade choline going to the poultry market, we are very sensitive to the large and mounting losses of the large poultry integrators. Feed ration costs are at near highs, largely due to corn costs and high energy costs, but we expect to see corrections soon. We will continue to monitor closely our raw material costs for all segments of our business and implement cost pass-throughs. This should cause our margin percentages and gross margin dollars to improve.

As noted in previous calls, we still have some roller coaster effect quarter-to-quarter in the various market sectors; but we are very pleased with the overall volume and revenue growth in all segments. We continue to strengthen our global growth platform and are confident that more business will be generated based on the unique platform of the products that we offer or soon will offer the market.

Our business portfolio continues to create good balance, yielding continued growth through the various challenges of any single product line. Overall, we continue to build the financial strength of the Company, as noted earlier. We will continue to manage the asset base aggressively, which will also assist in yielding improved financial results. Near term, we remain focused on implementing operational improvement and new product development. We also continue to explore alliances, acquisitions, or joint ventures to continue building and leveraging our technology and strong human asset base.

This now concludes the formal portion of the conference. At this point, I will open up the conference call for questions.

Thank you.

Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS).

Our first question comes from the line of John Putnam with Dawson James Securities. Please proceed with your question.

Yes, thanks very much and given the--all of the things that were going on in the quarter, I think it was a really good quarter for you guys and you managed well.

Thanks.

I guess two questions. One, on the ethyloxide and propyloxide, what kind of price increases did you see in the quarter, do you know?

Well, to be sure, we did not implement it across the board, a lot of it had to do with contracts; but I would say on average it was probably about 12%.

That was the raw material price increase?

That's correct. I'm sorry, no. I'm talking about the price increases that we placed into the market.

Okay.

I guess what I'm wondering is how much did your raw material prices increase in those?

Well, we had actually seen the bulk-up of the--the bulk of the raw material cost run-up happen in the first six months where we, quite honestly, thought it was going to transition and start to decline and we had not pushed through price increases. So the increase actually had been taking place through the earlier part of the year. So to a large degree, this was put in place to offset kind of where we had gotten to at that point rather than what really happened in the quarter.

Okay.

My second question is could you talk a little bit more about the poultry market, what the growing cycle is or the--the turnover and what you kind of see happening here in the fourth quarter?

Yes, I think, in particular, we're focused on the broiler poultry market rather than the egg laying poultry market, but certainly if you follow Pilgrim's Pride and/or Tyson's and there's details of what's going on there, these guys are kind of struggling with their business, in particular, Pilgrim's is. Pilgrim's is the largest producer in the U.S. of poultry. So we do watch that pretty closely.

But the reality is the market overall, the latest news this morning is that placements in this market are down 12%; and placements are actually the number of chicks or--yes, being processed on a weekly basis. So the most recent week is down about 12%. Chicks normally grow to their slaughter to about seven weeks. So this is a stat that obviously changes very quickly, either up or down, and I would say that this 12% stat that I just referenced is, as of this morning, the most recent and probably earlier in the week or late last week, actually, the number was anywhere from 3% to 7%.

So definitely there's an adjustment taking place here and I think a lot of it has to do with the profitability, and at the end of the day it's about getting higher prices for chicken. I think definitely you're seeing a production cut-back in an effort to try and get prices up. Let alone exports have declined, Russia has banned importing poultry from the U.S. from at least 19 different plants; and I think until there's a little bit of a correction there and/or price increases and/or feed ration cost reductions, we're likely to see continued pressure on those placements. And what that translates to is likely less choline to be sold into the poultry market.

So could that last for more than a quarter, do you think?

Well, I suppose that's a very, very good question, actually. We've seen the decline transition here in a very quick period of time. There's a lot of news out there about what's going to happen with Pilgrim's, given their financial situation. I would venture to guess that we'll probably stay at a lower level, if you will, for a period longer than the quarter. I don't think it will be a year or anything like that, because I think at the end of the day people are still going to consume poultry and poultry is the least priced protein meat out there. So I do think that there will be some bounceback, but how quickly it takes place, to be seen. I really don't have a crystal ball, but I don't think it will go a year, but I don't think it will be resolved very quickly here either.

Thanks very much.

Our next question comes from the line of Jonathan Lichter with Sidoti & Company. Please proceed with your question.

Hi. Good afternoon.

Can you talk a little bit about the new product introductions, what the lineup will be for those in the fourth quarter and first quarter?

I'll talk generally.

I mean, in particular, there's going to be some new calcium products rolled out here. I think as I mentioned in the last conference call, Walgreen's launched their own brand of calcium chewables that actually has gone quite well. I will tell you they're looking at using that calcium platform for a number of other products. There's a couple of pharmaceutical companies, one in particular that we're already doing some business with, that really, as well is quite excited about the calcium platform and is looking to use that probably as a mode to market a multi-vitamin of sorts, but using the calcium as the platform for that.

We have gotten choline approved in a rather large beverage company that has their own line, a couple lines, actually, of either sport or mineral waters. It's been approved, expect to see that launch late this quarter. So that's another, I think, key area and obviously human grade choline is a major focus for us on a go-forward basis.

So those are probably the two I would say of most significance. With one exception, and that's that a couple weeks ago in the animal, nutrition and health space, we introduced encapsulated lysine, which is our brand name amino sure L product at the World Dairy Expo in Wisconsin. This is the product the market's been looking for for actually a number of years and I would say a product that we've worked on for a number of years. It was very well received there. We're in the process of building up our commercial production capability and expect to start moving some of that product as well here in Q4.

Okay. And how quickly do you expect various commodities to come down?

Well, I think certainly as I mentioned, in the month of September we really started to see some of the decline that perhaps we were expecting, as much as two months earlier than that. So I think that given oil prices staying down, and I would say the general state of the economy, which is not creating a demand for a number of other chemicals out there, we expect to see our key raw materials continue to move down.

How aggressively, I'm not real sure, because as I said once before, I was a little bit disappointed they hadn't move down quicker already. But definitely there's room for them to continue to move down, based on the key cost drivers. I think that here in October, again, we'll see some reduction and how quickly they'll come down, I think to be determined; but we look for another significant adjustment here in--as we open up the fourth quarter.

Okay. And how much long-term debt was repaid this past quarter?

I believe it was right at about $2 million.

$2 million.

Yes.

Okay. Also, do you have handy the breakdown of the various operating expenses?

Yes, I have them. Selling, $3.068 million; R&D, $681,000; G&A, $1.737 million.

Thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from the line of Greg Garner with Singular Research. Please proceed with your question.

Yes, hello, gentlemen.

Good quarter in the face of some pricing difficulties here, which is what I want to follow up on, some of the pricing discussion. With the price decline or the cost decline in some of these petroleum products, does this affect what price you may be able to charge? Are you going to have to bring the prices down with the cost decline also, or how does that work?

Well, I think what we'll do is monitor pretty closely what kind of declines we really do incur. What I would tell you is I think we were very, very slow to some degree lagging, passing on price increases into the market, certainly through the first six months of the year; and in fact, the one area where we probably did it probably the most effective was over in the ARC specialty products side beginning here in Q3.

We still really have not significantly passed on increases in the poultry--in the choline/poultry marketplace and that's because of contracts that we had in place that actually protected the customer and stopped that from happening. We have implemented some in Q3, where contracts allowed, and certainly from the point of the last increases to now, even still yet cost increases have taken hold and still leaves, I think. an understanding in our customer's minds to accept a price increase.

So I--our plan is that we're going to increase prices here at the beginning of Q1, in particular for the poultry marketplace where a number of the contracts come due. And with--I would say having had a lot of discussion already with the market in an effort to help them understand that this is going to happen as we go forward. And the fact that in the face of a marketplace where a number of feed ingredient costs have soared over the last year, we've probably been one of the ingredients that's remained quite constant for them. So we've had a lot of discussions and expect to have pretty good success with price increases here come January 1.

So with the placement of the chicks down 12% for Pilgrim's as they've announced, does this mean--if there's a low placement in this current quarter, and let's say there's flat choline revenue sequentially, does that mean profitability could still increase because of the price to cost differential.

I think certainly there's that possibility. The other thing that I would tell you, though is in Q2 and I mentioned here in the earlier discussion, in Q2 we were pretty aggressive going into the export market; whereas in Q3 we've pretty much backed off given the hurricanes and the interruption of raw material supply. So I would tell you that we would look to be more aggressive again going into the export market if the U.S. market does remain on the light side from a placement standpoint.

So from a geographical standpoint, I think we can go after more market share. I'm not going to sit here and pretend it's going to be easy; but there are opportunities to pursue business certainly offshore that in the past has worked out quite well for us. So I think there's a lot of things here to balance and counter balance, if you will, but we feel pretty good about kind of what's happening with the cost reductions. I also think cost reductions, in general, will help this industry so that they don't have to get as much price increase in that finished product if maybe they were feeling they needed to a quarter ago. Which will make it a little bit easier for them to recover as well.

Was there any potential that they--that your end customers may decide that we don't need to use as much choline? Is that a possibility?

Choline for a long time has been in the ration. There's probably one other alternative product that has been used from time to time. I think that that has already been out there. I don't see that they would really cut it back in a dramatic way. I mean, at the end of the day, all our cost to that poultry producer is actually quite small, the level of choline is actually very, very small.

And in the ARC business, is this new initiative, is this having to do with the acquisition that was mentioned previously, or is this something different or can you tell us a little bit more about that?

Yes. No, it has nothing to do with the acquisition. It's a separate initiative. We licensed a piece of technology, probably about six months ago, and it has to do with controlling the release of a gas and the--kind of through this exercise, we discovered that there might be an opportunity to deliver a known chemical, if you will, into the fruit ripening industry. One that they already use, but changing the packaging and distribution of the product to facilitate their operation. And so from that standpoint, it's entirely new, if you will, and we've begun doing some trials, in particular, with a couple of large fruit producers, distributors, and so it's still yet early on.

We're in round two, going on round three of some of these, so obviously early indications are positive as we continue to move forward. So we feel good about it, but obviously we're breaking into an entirely new space here with the product for us, anyway, so we're learning a little bit along the way as well. But generally, it's pretty positive, and I think it does have pretty good upside potential. It's a rather large market out there today. I don't think that we'll capture the entire market, but it has the opportunity to contribute quite nicely to the top line, maybe 5% to 10% within a couple years; and certainly if priced as we think, it could be nicely profitable.

When you say the 5% or 10% contribution, is that total revenue reference?

Yes, that's revenue reference.

Okay. Total revenue, not just the ARC.

Correct.

Okay. And--okay. I did have one last question. On the food, pharma and nutrition, the improvement international, does this have to do with new geographies or is it a better penetration, or is it taking the existing products in the U.S. and moving them overseas, just want to get a sense for what's happening?

I think it's certainly building on, I would say, the platforms that we have mostly established here in the U.S.; but probably the most significant thing is that we've changed over some distributors over there. We really don't have any of our own people on the ground in Europe.

We work through distributors, tend to be specialty distributors; but we decided to make some changes because, quite honestly, we just weren't happy with the growth or lack thereof that was happening with them. So we made some turnovers and I think, knock on wood, it's been positive and they're really stirring up some new business for us, I mean truly new business.

But with existing products and existing known applications. So there's no new products there, really. There's no new applications. I think a reenergized sales effort, if you will.

And the growth in the food, pharma and nutrition is really volume related; is that right?

Absolutely, yes.

Okay. Okay. Thank you, gentlemen.

Thank you.

We do have a follow-up question from the line of Jonathan Lichter with Sidoti & Company. Please proceed with your question.

Yes, I may have missed this earlier, but did you talk about the possibility of getting some milestone payments from some of the pharma companies in '09?

We made reference that we did generate a little bit of revenue here in Q3, a little over $100,000. Basically, as we've progressed in particular with one of those entities; and so that one in particular is probably moving the quickest. Actually, instead of pulling it away, they're probably going to do some clinical trials here. We believe, certainly, they should happen in Q4, if not early Q1 of '09. And get a read on how that product is going here, certainly somewhere in Q1 of '09.

How quickly could that--could something like that be commercialized, just a year or two?

This particular product, I mean, what we know about the product and where we are, I would tell you that there's an expectation that it could begin to ramp up late next year, if the trial is successful.

Thank you.

Our next question comes from the line of Tony Polag with Maxim Group. Please proceed with your question.

Hi.

On this product, is this a Phase III trial product or is this something different?

It is actually a Phase III trial and so it's--nothing different than that. It just--what I would tell you from Phase III standpoint, it's a product that actually gets trialed over a very short period of time. For me that's what I find very encouraging. It's one that probably would trial itself even though there's going to be staggered trials across the United States, it's going to last no more than 60 to 90 days, at which point they will gather the information, analyze it, and figure out what the next steps are.

Is this a--is the likelihood of it being approved--I mean, is this an existing product that's already approved and your encapsulation product is making the efficacy a lot better, or--?

No.

No?

It's actually a new product into this space, and so while--I mean, certainly we're stepping in with our encapsulation technology to assist in the delivery of, it is a new product into the space where they're trying to sell it.

Okay. But is it sold as an existing product now for other uses or not?

Oh, yes, it's--it is consumed for other uses, but this is certainly a new application for it, yes, sorry.

Could you give a breakdown of the R&D where the--I think it was $700,000 went to in the quarter?

Yes, I think that in the quarter, probably about 120 of that was kind of committed to the pharmaceutical area, for sure. And then probably another 80,000 or 90,000 of that goes into applications work exclusively for food applications. And then the balance is pretty much new product development, new product and/or process development for, I would say, any or all of the products that we work, whether it's human, food, pharmaceutical and/or animal health.

This product for the ARC for fruit, is there some pretty substantial projections, I won't say projections, but possibilities; are we talking a year, three years, five years?

Well, the projection was is probably I'd say two to three years out, maybe as little as two years. I think probably by Q1 we'll know a whole lot better, given the progress of the next trial, the next trial right now is cued up to happen in December. So, again, positive indications, for sure. So I think come Q1 of '09 we can probably answer that question a whole lot better.

Do you have depreciation amortization for the quarter?

About $2 million.

Okay. Thanks. Great quarter.

Thank you.

Gentlemen, there are no further questions in the queue at this time. I'd like to hand it back to you for some closing comments.

Okay.

Again, I want to thank everybody for joining the conference call and certainly I--hopefully we painted an appropriate picture here of perhaps a number of the difficulties that surfaced in the quarter for us. I think it was certainly a number that were not anticipated. I do think the Company, the people in particular, rose to the equation very neatly, dealing with the issues and I feel very pretty about that. Hopefully, the majority of those are behind us; and I think with the new products that we're looking at and some relief finally on raw material cost, looking forward to posting some exciting numbers.

Thanks, again. We'll talk to you soon. Bye.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.