Balchem Corp (BCPC) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Balchem Corporation fourth-quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 Corporation. Thank you, Mr. Fitzpatrick. You may begin.

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Again, greetings, and welcome to the Balchem Corporation fourth-quarter 2011 earnings results conference call. At this time, all participants are in a listen-only mode. A brief 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 Corporation. Thank you, Mr. Fitzpatrick. You may begin.

Thank you. Good morning, ladies and gentlemen. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending December 31, 2012 (sic -- see press release).

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 statements. This release does contain, or likely will contain, forward-looking statements, which reflect Balchem's expectations or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. 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 morning, ladies and gentlemen, and welcome to our conference call. We're pleased to report fourth-quarter net earnings of $9.5 million on consolidated sales of $69.7 million for the quarter ended December 31, 2011. These fourth-quarter results bring to a close a record year for Balchem, where we saw our net sales increase 14.4% to $291 million, versus $255 million in 2010. Our full-year 2011 earnings were also a Balchem record, increasing 16.5% to $38.8 million, generating $1.28 per diluted share, versus net earnings of $33.3 million or $1.12 per diluted share in the prior year.

These outstanding results translate to earnings per share improvement of 14.3% for all of 2011. And during this period of time, we saw our shareholders rewarded, as publicly noted, with our market cap exceeding $1 billion at the end of 2011, and increasing our cash dividend.

Focusing back on our fourth-quarter results, sales of $69.7 million were even with results of the prior-year comparable quarter, and were arrived at with various sector-favorable activities, as well as various sectors of softness.

In the quarter, our Specialty Products Segment generated record quarterly sales of $12.3 million, a 6.9% improvement over the prior-year quarter, principally a result of increased in sales volumes of packaged ethylene oxide in the quarter. Animal Nutrition and Health, at $47.8 million, was up slightly over the prior-year comparable quarter. And we realized another very strong quarter for our Animal Nutrition and Health ruminant sales, which were up 21%, but was offset by lower sales coming from our basic choline and industrial products which were down 4% in the quarter.

Food, Pharma and Nutrition, at $9.6 million, closed off approximately 11%, while strength in the human-grade choline product, which were up 26%, was offset by lower quarterly sales of encapsulated products sold into the food market. This revenue result also reflects a $300,000 decline in the calcium product line, which was sold late last year.

As previously noted, consolidated net income closed the quarter at $9.5 million, up from approximately $9.4 million in the prior-year quarter, for an increase of approximately 1%. This quarterly net income translated into diluted earnings per share of $0.31, which was equal to the $0.31 we've posted in the comparable quarter of 2011.

Looking between the top and bottom line, you will see that our consolidated gross profits of $20.8 million for equal to 29.9% of sales in the quarter. This level, although a modest decline as a percentage of sales from the prior-year quarter, does reflect gross margin improvement in both the ARC Specialty Products and Food, Pharma and Nutrition segments. These improvements were, however, offset by lower gross margins in our Animal Nutrition and Health segment, principally a result of lower sales volumes in the quarter and higher costs of certain key raw materials. These raw material increases, largely, were petroleum derivatives; or, in part, realized due to a few force majeure events and particularly affected unfavorably our ANH segment.

As mentioned in the last conference call, certain raw material costs continued to rise at a very swift pace in the quarter, with a few leveling out. And while some increases were passed on to customers, additional cost increases have been realized. And our current view is that our businesses are likely to remain affected by these higher costs in 2012.

We continue to work on operational efficiencies, and did achieve improvements in the fourth quarter. But they were more than offset by the raw material cost increases and volume declines, hence the slight decline in gross margin noted.

At the consolidated operating expense level, you will note expenses totaling $7.2 million for the quarter, which equaled 10.3% of sales versus the prior-year 10.7% level. This spending level reflects a decrease in expenses related to a slight decrease in employee headcount, medical expenses, and no M&A consulting expenses.

On a quarterly sequential basis, operating expenses were down approximately $290,000, due principally to the lower consulting fees and bonus program accruals. We continue to leverage off of our existing SG&A infrastructure, and exercise tight control over all controllable operating expenses.

Overall, it was a solid bottom-line quarter, especially considering the softer sales results from the FP&N and ANH segments, as well as the continued escalation of raw material costs. Consolidated earnings from operations percentages remained strong and finished at 19.6% of sales, or $13.7 million for the quarter.

Other income of $79,000 relates principally to favorable fluctuations in foreign currency exchange rates between the US dollar and functional foreign currencies.

Our effective income tax rate for the fourth quarters of 2011 and 2010 were 31% and 32.6%, respectively. This decrease in our effective rate for the quarter was principally a result of favorable adjustments, related to changes in state income tax apportionment.

Our annualized effective income tax rate for all of 2012 is currently estimated to be approximately 33%. Net income of $9.5 million translated to $0.31 per diluted common share, which is equal to the comparative prior-year quarter, generating approximately $16.1 million of EBITDA in the quarter, which translates into $0.53 per diluted share. And when including our non-cash stock-based compensation charge, we generated $17 million of EBITDA in the quarter, equaling approximately 24% of sales.

At December 31, 2011, our outstanding borrowings were approximately $1.4 million, but $0, net of our cash, of approximately $115 million. We continue to aggressively manage all areas of working capital, driving strong cash flow, which also results in improved earnings to generate quality organic results from our core businesses.

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 in the Food, Pharma and Nutrition segment.

Thanks, Dino. The ARC Specialty Products segment posted record sales of approximately $12.3 million, or a 6.9% increase over the prior-year comparable quarter. This increase in sales was derived principally from both increased volumes sold and increased average selling price of ethylene oxide products, which were implemented to offset rising raw material costs.

These increases also reflect a 9% increase in small EO canisters, sold internationally for hospital autoclave units, along with steady growth of PO for the nut fumigation market. ARC quarterly business earnings increased 10.6% to $5 million, versus the prior year comparable quarter. This increase is largely a direct correlation to the increased volumes sold of ethylene oxide products; and, as previously reported, some higher average selling prices on certain products. We continue to challenge the raw material price escalation, and only seek to implement price increases within contractual guidelines for this reason.

For the quarter, the Food, Pharma and Nutrition segment realized 10.6% sales decline to $9.6 million from the prior-year comparable quarter. Business segment earnings of $2.7 million were, however, up approximately 6.9% over the prior-year quarter. As stated in this morning's press release, we realized double-digit growth in sales of our human choline product for nutritional enhancement. We continue to focus on building consumer awareness of the benefits of choline, positioning choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages, and are now utilizing the three structured function claims awarded by EFSA in Europe.

Food sector sales did have a slower quarter as compared to the prior-year results. This was primarily from a reduction in demand, largely in the month of December. As in the past, results for this segment continued to reflect the roller coaster effect of pipeline fills, inventory level management, and delayed marketing initiatives. Our growth drivers do, however, remain intact for this sector. And despite some inventory level management and product launch delays, we expect continued revenue and earnings growth year over year in 2012.

Switching briefly over to the calcium product line -- as previously reported, late in the fourth quarter of 2010, we did successfully close on the sale of this business line. We exited our leased facility at the end of the second quarter in 2011. Exiting this business line had an unfavorable impact on our sales level in this segment for the quarter. However, it did, as expected, nicely contribute to improved operating income for the FP&N segment in the quarter.

Our pharmaceutical delivery development efforts continue. In the quarter, we did not generate any R&D milestone payments. However, a licensee of our technology concluded a Phase III clinical trial utilizing our technology. We await the unblinding of this trial and are cautiously optimistic that the trial will yield good end results. In the near-term, this sector remains a net expense to the business segment.

I will now turn the call over to Mr. Rossi, for him to discuss the Animal Nutrition and Health segments.

Thanks, Frank. In the Animal Nutrition and Health segment, we realized sales of $47.8 million, an increase of $279,000 or 1% as compared to the prior-year comparable quarter. Within this segment, ANH ruminant product sales realized 21% growth from the prior year comparable quarter, as excellent product performance and dairy economics continued to support greater demand for our products. These increases are principally a result of improved volumes in the AminoShure-L and -M, our rumen-protected amino acids, and ReaShure, our rumen-protected choline. We continue to be pleased with the progress we have made on the new AminoShure launches, as more prospective customers trialing the product are also experiencing positive results.

These overall increases clearly coincide with the dairy economy that has been very stable during 2011. However, we continue monitoring this very closely, as potentially higher feed prices could pressure milk producer economics.

Despite rising feed prices, milk production continues to advance, as milk output is expected to rise again in 2012. US dairy herds are also expected to decline slightly, with most of the contraction coming in the second half of the year. But improved milk production and output per cow and are expected to more than offset this decline in the herd count. To this end, we are currently planning to break ground on an additional plant capacity very shortly, to assist in the expected growth of these product lines.

As noted in our press release, our global feed-grade choline product sales for equal to the prior-year comparable quarter, but volumes were lower in the quarter. Volumes sold in these markets are strongly influenced by the dynamics of our customer base, predominantly the poultry production industry. As previously reported, data from USDA broiler statistics projected that broiler chick placements and egg sets would be lower for the fourth quarter, due to continued high grain prices along with only minor improvements in the domestic economy. And we did anticipate lower volumes as a result of this. These volume declines were, however, entirely offset by higher average selling prices, principally a result of raw material price escalation. And, as previously reported, we do continue to evaluate export sales opportunities for the poultry market, but found Q4 to present a very challenging export market, combining raw material cost increases and foreign competitor activities.

Exports of liquid and dry choline from all of our plants declined slightly, due to the heightened level of global competition. In the coming quarters we may elect to be more aggressive in seeking to win additional business, depending upon event current costs and market conditions.

Sales of industrial products and derivatives had their first soft quarter of the year. Methylamines and other industrial products, including a [toll] produced methylamine derivative from our Italian operation, specifically for Europe, was slow due to the general poor economic climate in Europe. We continue to see solid sales of choline derivative products for various industrial applications in North America, especially for the gas fracking opportunities; however, not at the same level as the prior-year comparable quarter. This softness in sales can be attributed to a combination of a recent trend toward increased oil-directed drilling in the United States as opposed to gas drilling, which does not have the same clay stabilization requirements. This redirection of rig utilization was due to natural gas prices trading at or near 10-year lows, and unusually high levels of natural gas inventory. In addition, our success in this space has attracted new competition from imports, which also contributed to this slower quarter.

We continue to evaluate these industrial opportunities, with other core technology, to determine how we can drive innovative solutions into this market and derive the most positive value. The performance of this sector has improved in the early part of the first quarter. And we remain fairly confident that these products will continue to show strength in 2012, driving increases in sales and profitability.

Earnings from operations for this entire segment was $6 million as compared to $6.8 million in the prior-year comparable quarter, largely due to a lower volume sold. These earnings were also unfavorably impacted by increases in petrochemical commodities used to manufacture choline. These key raw materials rose at a very swift pace in the quarter. And while some were passed on to customers, our pricing initiatives in the quarter were not enough to offset all of the cost increases.

Additional price increases have been and will be implemented in the first quarter, as our businesses are likely to remain affected by these higher costs for the balance of 2012. The profitability of the ANH segment continues to be achieved, with a constant reevaluation of global raw material costs, product reformulation, currency review, and our ultimate ability to meet market needs from our various global facilities and trans-load sites. The opportunity to capitalize in this fashion is a direct result of our effective integration of acquisitions, growth strategies, and the ability to drive costs out of our business model.

Last quarter we announced the beginning of commercial production of a new encapsulation technology, targeted to growth opportunities in the ruminant animal market. I'm pleased to report that we have successfully launched and ramped up these new process technology expansions. These new products lower our overall costs for certain products, facilitate higher throughput in our encapsulations process, and reduce the production animal dosage cost to herd managers to the point where that we are already planning our next expansion in this product capacity.

With the bulk of the feed-grade choline predominantly going to the poultry and swine markets, we are very sensitive to the continued economic pressures on large production animal integrators. Feed ration costs have modestly corrected near-term. But retail poultry prices remain low, keeping significant downward pressure on profitability for this global end-market. We continue to closely monitor raw material costs for all segments of our business. And where absolutely necessary, we implement cost pass-throughs as appropriate.

As noted in previous calls, we, at times, see a revenue roller coaster effect quarter-to-quarter in the various products or market sectors. We are extremely pleased with our entire 2011 results, and remain committed to growth as we look to continually expand our product offerings and move into new geographies. We will continue to strengthen our global growth platform, and are confident that more business will be generated, based on the unique portfolio of products that we offer to markets we serve.

Our business continues to create good balance, yielding profitable growth opportunities through the various market challenges of any single segment or product line. We remain focused on helping our customers save and make money in this tough economy, while maintaining our own operating discipline. Overall, we continue to build the financial strength of the Company, managing the asset base aggressively, reducing debt, and yielding improved financial results.

Near-term, we remain focused on implementing operational and logistic improvements, new product development and new product introductions. We also continue to explore alliances, acquisitions and/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 the conference call for questions.

(Operator Instructions). Tim Ramey, D.A. Davidson.

Dino, you mentioned the twin pressure of input cost inflation as well as declining markets in poultry. How should we think about the margin outlook for that product line as we look at 2012? Is that likely to be a little more competitive and a little bit more difficult to maintain margins?

Yes, I think, certainly, the North American market in and of itself is likely to be flat, maybe plus 1% or 2% at best. And certainly that is our largest position, on a global note, is in the North American market.

The raw material costs increases clearly have continued to run up. I'd say, probably, more and quicker than what we had thought that they would. Our projections right now is that there's going to be some relief, maybe starting as early as Q2, but I don't -- to be honest, I don't think it's going to be significant. I think that, again, a little bit of weakening will happen there. There's been a number of outages taking place right now in major chemical producers that are keeping pressure on those key raw material costs. So it's more a function of capacity at that level that's driving a lot of this. As ethylene costs have come down, it's not being translated into finished cost of raw material.

So I do think that will start to happen. It's going to take capacity coming back online at those major producers of those products before we really see much relief from that.

But I don't, also, think it's going to continue to pressure up much. So I'd like to think we're at the peak, and look for it to decline here over the next quarter.

And if I could -- on the EO business, margins were spectacular there. And growth has really been I think, above my expectations. How would you characterize that market? Do you think that the mid-single-digit revenue growth is representative of the number of procedure -- hip replacements and knee replacements, and the number of end-market demand for surgical kits? Or was there something about 2011 that was anomalous in any way?

Well, I think a little bit of apples and oranges in there, because we did have the full year of the Aberco propylene oxide acquisition, as well as what was going on in the EO. And, clearly, the EO is still yet the largest part of that segment.

So there was a little differentiator there, in terms of just timing of the PO acquisition business being in there or not. But as you look at these last couple of quarters, which are certainly comparable, we've seen nice growth -- still, single-digit, but 6%, 7%, 8% I think. And, clearly, contributed nicely from the EO side of things. Our expectation is that that market is going to continue to grow in that single-digit kind of zone. Our market share in that space, versus radiation, continues to be about the same. So I think the overall market is growing slowly -- a number of operations clicking along -- aging population and whatnot, I think are contributing to that. So, our view is to still see solid single-digit growth in that segment.

You mentioned earlier in the call that you hadn't made any M&A consulting payments in the quarter. Should we interpret that to be that the environment is less target-rich right now, or was that just a --?

That's a fair question. I wouldn't say it's less target-rich. I think we had engaged, in particular, looking at certain transactions. Quite honestly, those are now, I'd say, at best, back-burnered. So it's not requiring any additional monies to be paid.

We still have a number of targets that we are looking at; just haven't elected to engage what I would say is really consulting-type activities with those acquisitions.

Thanks a lot.

Daniel Rizzo, Sidoti & Co.

Is there any update, maybe I missed it, on what you are doing with encapsulations with Caremark? Are we just sitting and waiting for the FDA?

Yes, there is no update. I think that there's -- it's pretty much as was reported last time -- no new news in the background. We know things are, I would say, progressing. But, still, the data has not been unblinded so we don't know what that is. But, our sense is that they're working forward. I'm going to say that no news is probably good news at this moment, as they look to get there and i's dotted and t's crossed.

Do we have any timeframe whatsoever?

I've had a number of conversations with them. And I think that, maybe consistent with what I said before, we would probably expect to see anything -- might be Q4 of this year.

Thank you, guys.

[Glenn Freeman], private investor.

Dino, you mentioned that sales in your industrial products group is down 11% from your prior year. And I guess you attribute it to, in part, the natural gas prices being at 10-year lows. You also mentioned that the space attracted new competition from offshore producers. Are they, basically, putting any extreme pricing pressures on you that could affect your margins going forward? In addition, do you see any way that you can basically reverse the trend, as well?

That's a great question. Certainly, the reason they are here is because they dropped their prices and elected to be very, very competitive. I could probably challenge the profitability of their business, and maybe at a certain moment we will. But their only calling card is a cheap product, so I think that they definitely have put pressure. The volume that they have brought in is not been huge, but clearly they have found the market and have been attracted to it. I would say in a significant way, from very little early on in the year to picking up through the year, but then to balance with you backing off in December and January. Again, I think consistent with some slowdown in the end-market here.

Can we reverse that? I don't know that we can actually reverse that. I do know that their raw material costs, too, have risen, as ours have. And I think that changes their price point and their ability to be competitive -- in particular, the Chinese. Our experience has been, when their cost points go up, they will just disappear. And I firmly believe that their margins are not large enough to sustain any kind of long view to this business.

So it's a bit disruptive, but our view is that we're going to work through this. We have, in fact, gotten a little bit more aggressive in the space, as well -- and, so, to some degree, reacted to that. But clearly they have found a market. And I don't know that it will ever be gone again. But we'll continue to fight for a low-cost position and have a significant good-quality product in this space.

Thanks, Dino. And one other part -- in your Food, Pharma and Nutrition segment, you mentioned that there is soft demand in your base business -- the encapsulated ingredients business -- due to pipeline prospects that basically didn't convert. Now are these some of those delays you are referring to with the roller coaster effect? And are they delays in actual orders? Were there cancellations? And going forward, do you expect that roller coaster effect to kick in and make up for the orders that they didn't place this past quarter?

I wouldn't say it was any order cancellations, for sure. We just saw a little bit of a trending down in those orders being placed with us. This is not unusual. I've alluded to this before. The key for us is to have a rich pipeline of opportunities there. You're going to win new pieces of business. Life cycles and of these products are becoming shorter and shorter. So the key is to have a rich pipeline that is going to convert. I think there's definitely been additional pressure. Again, if you read the press -- P&G is cutting people and curbing marketing efforts in response to what their profitability looks like.

So I think there's pressure in that end market. And, at moments, we feel that. So for the key for us is to continue to get new product development in the forefront with those customers. And then there will be all these new products brought to the space, whether it is the brand guys or the non-brand guys. So we're looking to broaden our view there to appeal to more of the entire market. But I think, definitely, we've also had some conversions here in Q1. And we'll see those start to pick up here.

So I think it's just like I said -- I hate to use the word roller coaster, because it is up and down -- but there is that, in that space, that has been there as long as I've been here. And I think it's likely going to continue. But like I said, the key for us is to have that rich pipeline.

Thanks, Dino, I appreciate it.

Lenny Dunn, Freedom Investors.

Actually, I have a request and some questions. The request is because looking at these cash flows -- which look terrific, especially next to earnings -- is it possible to put a non-GAAP-type report out along with the normal GAAP report? Because the cash flows look exceptional; the earnings look okay. So I wouldn't mind seeing that in the release so we could follow that little better. Because following the cash is very important to my analysis, at least. I think other people may look at it the same way.

And, otherwise, if you look at the balance sheet, it looks terrific at the end of the year compared to last year. And it didn't look bad last year. So, clearly, there was a big improvement here that is not reflected in the GAAP earnings.

We can certainly have that discussion. That's actually the first time anybody has requested that of us. So let us have some discussions and --

Yes, I'm not looking for anything to blind people, put out the GAAP earnings. But the non-GAAP earnings are that strong by comparison, let people see what's going on. Unless I'm misreading this, but the cash flows look great.

Lenny, I think your observation is correct. We'll see what we can do to try to convey that a little bit better.

Otherwise -- the question is, are you doing something more to hedge these things -- the raw material costs, which are going to vary, obviously, spike up -- were a little better protected?

We have structured our contracts, I'm going to say, almost as aggressively as we can, trying to get back the key cost drivers, not just the raw material that we are buying. And, given our size than the volumes that we purchase, we feel like we're probably back about as far as we can, short of becoming basic in the production of some of those, which from time to time, we even weigh that as a possibility to further strengthen our buying position.

But I think, straight up, based on staying in a net buying mode of those key raw materials, we're probably back as far as we can get with the key drivers to give us a position.

It's an interesting market because of force majeure events, unplanned and planned outages that, quite honestly, are continuing to support a spot market and that is very high. And even in the face of good contracts, it creates challenges because of what has happened with those key drivers that are now being pulled in a couple of different directions, in particular, in the chemical industry.

So it has created challenges. Believe me, we're always looking to see if we can try to become stronger buyers, if you will.

And we're getting large enough now, you would hope, be stronger buyer. But you guys are the experts and in general, you do very good job. So I'm not complaining. I'm just throwing some things out there.

John Hudson, Greywolf Capital.

I just wanted to circle back to the revenue drop on the industrial products. Was lower prices or lower volume the biggest factor in that drop?

I would say, it's a little bit of both, but probably the bigger driver was volume. And again, I think if you want to look at the volume in and of itself -- the import versus the market -- I think you're going to find that the market closed down even more, which contributed most significantly to that. And again, that goes back to the rig counts -- I should say, the shift in the rigs from oil to gas. And the slowdown there because, in particular, definitely because -- and there's a lot of press out there about what's going on with natural gas prices, extraordinarily low. Long inventories to the point where these guys don't have any place to go with it. So, definitely has curbed, if you will, the fracking.

And if you look at -- the shift in the rig count has gone to more oil drilling, but still in the shale. So is your product just not used for oil at all, even if it is in shale?

Well, it just really depends in the certain shale play, whether or not -- how much clay stabilizer is needed, or a percentage of. But, typically, if they are going for oil, we have found that they're not looking to use those clay stabilizers. I won't say they don't need them at all. But we have found that they just update when they are drilling for natural gas, specifically.

Just one last thing -- Frank, I didn't catch it. In your earlier comments, you were talking about something in the Specialty Product segment -- about small canisters or autoclaves or something -- what was that?

Yes, we have a product line where we repackage small canisters, single-use canisters of ethylene oxide for sterilization. Most of it is going to one particular customer, 3M, a very strong fourth quarter for that business. And I don't know if it's -- we'll see where that goes here into 2012, in terms of its sustainability -- but just a nice strong quarter.

Great. Thanks, guys.

Fred Russell, Fredric E. Russell Investment Management.

I've always thought of Balchem as a company that could crank out pretty steady increases in earnings and cash flow. And so what I'm hearing now is that there has been a combination of raw material price increases plus competition, practically foreign, in many, many areas. I'm wondering whether the Company is losing some of its competitive advantages here, whether you're experiencing a loss in control over some of these markets.

I hear some comments such as growth drivers, other kinds of things that you hear on conference calls, but is the nature of the Company changing? Or is this quarter and this year an aberration? What is the competitive position of the Company? I appreciate it.

And I do second the gentleman's request for a cash flow statement, or at least a non-GAAP earnings report. I think a cash flow statement would be more important to a Company, the net income results. Thank you.

I don't think that we're changing, as an entity, what we're about. I think we continue to have a very good and strong financial position, and I would encourage you to look at the year, not just the quarter. And certainly our expectation is that we're going to continue to grow. We continue to bring new products to market. We certainly have, the last couple of years, grown if you will, our choline franchise where it is a significant part of our business. So I think that there's definitely been some ups and downs in general of those particular economies where we're selling it, whether it is a poultry production and/or into the industrial space. It is clearly out of our control, but I think we still have a very, very strong position.

With that said, too, we continue to expand in the Animal Nutrition and Health space, in particular with the specialties that I mentioned, where we're leveraging off of the existing technology and, I'll say, growing technology; technologies that we've picked up through acquisitions, let alone organically continued to develop. So, expect to see continued strong growth in almost those counter-sectors, if you will, while we hit a little soft spot in some of the other sectors. I think that in 2011, we had a window there where, quite honestly, it's like all eight cylinders were firing, and everybody loves it when that happens. But I think we can point to any entity out there, that now and again is going to have a soft spot. And I think we had one of those here in Q4.

But I still certainly believe very, very strongly in, I think, a lot of the technology that we have -- the base, strength base of our production technology and certainly, the human assets we have to drive continued growth.

So you would say, then, that there has been no significant loss in market share in any of your major areas?

I would say -- I think when you talk about the industrial fracking side, I quickly pointed out that there was -- (multiple speakers) I wouldn't say that was huge by any stretch of the imagination. Can you clearly say because there are imports that we lost to market share? The answer would be yes, in the face of what was a smaller quote-unquote market. So I think that those played through, almost extrapolating on those factors, to cause more of a significant difference than otherwise would have been.

I guess the answer is no, then, within most of your operating areas.

Yes, I generally would say that. Would I say that there was a little bit of erosion? Yes. Alarming to me? I wouldn't say so.

When you say not alarming, there's a suggestion that you can combat any erosion that you've experienced. Would that be true?

We've talked and, earlier people have asked about, some of these imports coming in. And I think I've been pretty quick to point out that the only thing that they bring to the game is a cheaper price. Everybody likes to make money. We like to make money. Shareholders like for us to make money. Sure, we can go out there and drop our price and still make money and be as competitive and hold onto market share. I'm not sure that that's the right thing to do. And that's probably what we evaluated pretty heavily here. And I even talk about the export business that we did not chase in Q4 -- probably our lowest export market, maybe ever. But people have gotten very aggressive out there to the point, I think, of being silly. And I would tell you, it's not a sustainable business model.

Thank you.

Lawrence Goldstein, Santa Monica Partners.

Last August 3rd, the last question of the conference call was, do you still have a buyback in place? And you said quote, we do. The stock at that time, that day, was actually $43 and change. And as we speak -- you probably don't know it, but I've got a quote machine -- it is $31 and change. So my question is, what about utilizing that buyback?

Well, I'll reinforce the statement that we do have a buyback. And I think Larry, we continue to watch it. Our desire, certainly, is to use the cash for acquisitions and other growth opportunities. And I think we can talk about how the market is reacting to this quarterly news all day long, and try to step in and, if you will, prop up the price. I think the Wall Street Journal today had a very good article on lecturing people about the value of buybacks. And there's right way to do them and wrong ways to do them. So I won't say that there's not value in them. But I think that, still yet -- we're always looking close at it, is what I would say. And I also know other things that we're looking to do with the strength of our balance sheet. And we will weigh that, I think, as things continue to unwind here in the next few months.

May I just say one more thing? You did say you had a buyback in place.

We do.

That's not to say, if you find something to acquire, or to use the cash, it's a better thing to do or not a better thing -- I don't question that, nor your judgment.

And you also don't have to do anything to support the price. Let me point out that the daily volume of our shares is 152,000 shares a day. And here it is, not even noon, and the share volume is 382,000 shares -- well over more than twice. So all you need to do is hold a basket -- not to be aggressive, but to sit there with a basket, catching.

Larry, I'll just say we'll look at it real hard.

[Patrick Kirksi, Premier Capital].

Can you share with us an approximate percentage of your revenues that are sold into the North American gas fracturing market?

Frank is looking for that information right now.

And reading through the transcript from the third-quarter earnings conference call, you talked about seeing continued strength in North America, and you thought that that would continue into 2012. Did I hear correctly that you said that, at least so far in the first quarter, you are starting to see a little bit of a recovery, at least in some of the soft-demand metrics in the natural gas fracturing area?

Patrick, I would say yes. I think, though, we've learned that these guys kind of turn on a dime pretty quickly, too. But we've seen some improvement. And what I would tell you is that, me announcing this also tells my competition that I'm seeing improvements. And believe me, they don't get a read to our volumes and whatnot, whereas we get a read to theirs because of import data. So, but, to be sure that we are seeing some improvement early this first quarter.

Great. I know you didn't provide a statement of cash flow in the press release. Could you maybe just share with us what the operating cash flows were for the quarter?

Hang on one second, I'm just still working in your first question here. Probably the industrial pieces of our total revenue -- about 16%, 17%.

And is that predominantly natural gas fracturing? Or is there also some other components in there?

Probably a solid 10% of that 16% is natural gas fracking, and then the balance are other products.

Gotcha. Great.

Hang on a second, let me look at my cash flow here.

Now, last quarter you guys also talked about -- despite all the headlines over in Europe -- that you had actually seen some continued industrial strength in the European markets. That appeared to have reversed a little bit this quarter. Any view on how the first quarter is shaping up, at least over in Europe on the industrial side?

I would say January started out a little slow. February seems like it's picking up right now. But not a further decline, for sure. So that's encouraging. And so, we expect it's going to continue to grow from what was a bit of a slow Q4.

Great. Thanks a lot, guys. Appreciate it.

Just real quick, on a year-to-date basis, our net cash provided by operating activities is about $44.9 million. Total cash used for investing activities was a use of about $6.6 million. And so, that resulted in an approximate increase in cash and cash equivalents of about $37.5 million for the year.

Thanks, guys.

Gerald Mason, GIC Group.

You guys continue to do pretty well within the rumen space, particularly AminoShure and ReaShure. For the 2011 campaign, if you would, what could you say as the revenues per product within the North American space?

Frank's looking for some numbers.

Have you guys got it?

I think on the Shure Solutions line of products that you're talking about, in particular -- in 2011, we probably did about $20 million of revenue. And that -- yes.

And for ReaShure or AminoShure? Because, I believe, AminoShure came out with a new version in December. I want to know how that's doing, was it widely accepted? And what revenues can be brought in for this year?

The AminoShure product line contributed probably about between $8 million and $9 million. And I would say that the largest piece of that, certainly, was on the new and improved products that came out here, launched mid-Q3. And, certainly -- I alluded to about us doing the plant expansion here that we're studying right now. That's really based on the strength of this product line continuing to move very, very strongly.

And in terms of the choline chloride space, you guys are pretty good at finding new and diverse markets in there, too. Is there a particular space that you may envision choline chloride playing a significant role, as was the natural gas fracking space?

You mean additional markets?

Yes.

I think there's a couple of other applications that we are studying right now. I don't know that it would be a straight up choline chloride product as much as it might be a derivative of that we're working on, in response to what we know to be some open markets there. I'd say they are more industrial applications than they are animal at the moment. But I also wouldn't rule out further growth, yet, in the animal. It may not be in the poultry, but some other space as well.

I'd say, predominantly, the work is being done is looking at other industrial applications.

The last question -- in terms of M&A, activity this year was nonexistent. Is there a particular space that you may find attractive for future growth or to complement what you guys already have?

I don't know that we're being -- I say that there's a couple of things that we had targeted in particular that -- well, to some degree, with backward integration as well as forward integration. Certainly, we're looking to aggressively grow our animal health position globally. I think that Food, Pharma and Nutrition offers, as well, opportunities for growth in larger way.

Probably our ARC Specialty Products business is one that is a little bit more challenging to match things up with. But I think the other two segments, for sure, offer that upside opportunity.

Okay. Thanks, guys.

Mr. Fitzpatrick, there are no more questions at this time. I'd like to turn the floor back over to you for closing comments.

I just say, thanks to everybody for attending the conference call. Certainly was a little bit of a challenging quarter, I think, by all past expectations, perhaps. But we still feel very confident in the bases that we have, the new products that are being launched, new technologies, expanding in other areas where we have been seeding opportunities. So, we do expect to continue to grow here in 2012.

So, thanks for tuning in today, and we'll talk to you soon. Thanks.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.