Balchem Corp (BCPC) 2013 Q4 法說會逐字稿

Greetings and welcome to Balchem Corporation's fourth quarter 2013 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, Frank Fitzpatrick, Chief Financial Officer for Balchem Corporation. Thank you, sir, you may begin.

Thank you. Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending December 31st, 2013. My name is Frank Fitzpatrick, Chief Financial Officer, and hosting with me is our Dino Rossi, our Chairman, President, and CEO.

Following the advice of our council, 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 beliefs concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflecting 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 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 turn the call over to Dino Rossi our Chairman, President and CEO.

Thanks Frank. Good morning, ladies and gentlemen, and welcome to our conference call. We are pleased to report quarterly net earnings of $10.7 million on quarter consolidated net sales of $81.6 million, achieving new fourth quarter records for both earnings and sales. These fourth quarter sales of $81.6 million were 2% greater than the $80 million result of the prior year comparable quarter, in the quarter our Specialty Products segment generated fourth quarter sales of $12.7 million, a modest 2% decline from the prior year quarter. This result was principally due to a slight decline in volume sold for propylene oxide for use in nut meat fumigation and ethylene oxide products for medical device sterilization.

Animal Nutrition and Health at $56.9 million was up 1% over the prior year comparable quarter. The AN Specialty Ingredients, largely targeted to the ruminant animal market realized an approximately 12.8% sales increase from the prior year comparable quarter, led principally by strong volume growth of ReaShure and NitroShure. Our AminoShure and chelated product lines also had another very solid quarter. Sales of choline, choline derivatives and other products for industrial applications were down approximately $300,000 from the comparative prior period, particularly due to slower product sales in Europe. Sales for choline for monogastric animals, poultry and swine, were also down in the quarter with product sales into the international markets particularly slow in the quarter. Food, Pharma, and Nutrition sales at $12.1 million were up 13.2% led by strong double-digit sales growth of human choline for nutritional enhancement, and sales of encapsulated products sold into both the domestic and the international food markets.

Earnings from operations of $16.1 million improved $1.1 million, or 7.4% over the prior year quarter, improving 1 full percentage point to equal 19.8% of sales. As previously noted consolidated net income closed the quarter at $10.7 million up from $9.9 million in the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.35, as compared to $0.33 we posted in the comparable quarter in 2012, an increase of 6.1%.

Looking between the top and bottom line, you will see that our consolidated gross profits were $23.8 million, or 29% of sales in the quarter, up from 28% in Q4 of 2012. We continue to focus on maximizing plant efficiencies and de-bottlenecking, as we continue to realize strong sales volumes in our various plants. Raw material increases had an unfavorable impact on our choline products again this quarter. As mentioned in previous conference calls, we continue to monitor and challenge raw material cost increases, and seek to adjust prices timely within contractual guidelines. Our businesses are likely to be affected by these types of fluctuations going forward.

On the consolidated operating expense level you will note a $275,000 increase totaling $7.6 million for the quarter, which equals 9.4% of sales versus the prior year metric of 9.2% of sales. This level of spending represents certain increases in staffing, along with additional expenses relating to recruiting, relocation and certain marketing programs which are investments in the future growth of the Company. We also incurred additional legal expenses in the quarter associated with the previously-announced production JV with Tomiko, and other strategic growth initiatives. We continue to leverage off our existing SG&A infrastructure, and exercise tight control over all controllable operating expenses. Overall we are generally pleased with our earnings from operations from the quarter, especially considering the ongoing challenging economic environment in North America and European markets that we serve.

The Company's effective tax rate for the three months ended December 31, 2013 and 2012 was 33.7% and 34.5% respectively. This decrease in the effective tax rate is primarily attributable to the timing of certain tax credit and deductions. Our annualized effective income tax rate for all of [24] is currently estimated to be approximately 33%. As previously noted net income of $10.7 million equated to $0.35 per common diluted common share, which is a 6.1% improvement over the comparative prior year quarter. These results generated approximately $18.8 million of EBITDA in the quarter which translates into $0.61 per diluted share, and when including our noncash stock based compensation charge we generated $19.7 million of EBITDA, or 24% of sales in the quarter equaling approximately $0.64 per share.

Our balance sheet continues to strengthen, and our cash flow remains strong as we closed out the quarter with $209 million of cash. We have spent $8.2 million of capital for the 12-months ended December 31, 2013, which includes normal stay in business, plant de-bottlenecking, and capital spend relating to the new manufacturing facility in Virginia. Capital expenditures for all of 2014 are expected to be approximately $20 million, including key projects for energy savings in Europe, additional plant expansion, and participation in the production JV with Tomiko. As you can see in our balance sheet, we continued to aggressively manage all areas of working capital, driving strong cash flow, improving cash earnings, and generating quality organic results from our core businesses. In an effort to detail our consolidated results better for our shareholders, I am now going to have Frank Fitzpatrick discuss the ARC specialty products and Food, Pharma, & Nutrition segments.

Thanks, Dino. The ARC Specialty Product segment posted quarterly sales of approximately $12.7 million, or approximately a 2% decline as compared to the prior year comparable quarter. This decrease was principally the result of relatively minor declines in volume sold of both ethylene oxide products for medical device sterilization and propylene oxide for nut meat fumigation. The previously noted decline in US hospital admissions has continued, affecting the number of operations, medical device utilization, a trend that may persist as companies and consumers grapple with the shifts in health care policies and economics. Both of these product lines did however show modest volume growth on a sequential basis.

ARC quarterly business earnings declined 5.8% to $5.2 million versus the prior year comparable quarter. This decrease is principally due to the noted sales softness, higher raw material costs, and increased operating expenses. During the quarter we did realize increases in the cost of certain petro chemical commodities. We also incurred additional expenses pursuing other end of market applications, where in the products handled today by us may have new market opportunities. However, on a sequential basis operating income did grow 7.1%. For the quarter the Food, Pharma and Nutrition segment realized sales of $12.1 million, up approximately 13.2% over the prior year comparable quarter. Correspondingly business segment earnings of $2.7 million were up approximately 15.3% from the prior year quarter, largely due to increased volume sold and the product mix.

These positive results were achieved from a 20% increase in sales in the food sector, and a 15% increase in sales from our human choline products for nutritional enhancement. And if we continue to focus on building consumer awareness of the benefits of choline, positioning choline with food and nutritional supplement companies as an essential ingredient with excellent therapeutic benefits for all ages. We continue to utilize the structured function claims awarded to Balchem by SVA in Europe, support additional scientific research externally, and are excited with the growing number of projects in the pipeline targeting choline inclusion. As also mentioned, contributing to the higher sales was a 20% increase in sales in the food sector. Particularly from encapsulated ingredients for baking and food preservation end markets.

Strong results for our food products were realized in both domestic and international markets. Results for this segment continue to reflect the rollercoaster effect of pipeline fills, inventory level management, and customer marketing initiatives. Our pharmaceutical delivery development effort continues. As previously reported, the licensing of our technology is being used for treating autism, concluded a Phase 3 clinical trial, has conducted a successful pre and new drug application meeting with the US Food and Drug Administration, and has begun filing its New Drug Application. We continue to work closely with them in support of the NDA filing. In the near term this sector remains a net expense to the business segment.

I will now turn over the call to Dino to him to discuss the Animal Nutrition and Health segment.

Thanks Frank. In the Animal Nutrition and Health segment we realize sales of $56.9 million, a modest increase of 1% as compared to the prior year comparable quarter. ANH ruminant product sales realized a 12.8% increase from the prior year comparable quarter, as mentioned in this morning's press release, this increase was led principally by strong double-digit volume growth of ReaShure, NitroShure, and AminoShure, and chelated minerals. Milk prices remained strong in the quarter and expectations of moderating feed prices and continued demand strength in US and export markets are all positive indicators that should support growing utilization of these products.

Our global feed grade choline product sales were down 2.3% as volumes internationally declined in the quarter. We constantly evaluate export choline sales opportunities for the poultry market, but again found Q4 to be a somewhat challenging export market, when factoring in raw material cost increases and foreign competitor activities. In the coming quarters we may elect to be more aggressive in seeking to win additional business, depending upon the then current cost, export market conditions, and capacity availability.

Domestic sales of feed grade choline were approximately flat with the prior year quarter. In addition volumes sold in these markets are strongly influenced by the various dynamics of our customer base, predominately the poultry, production industry, but also swine and aquaculture markets. North American choline volumes sold typically track closely with broiler chick placements and egg sets. The current USDA forecast for broiler meat production continues to forecast modest growth for the balance of 2014, especially due to the lower projected corn and soybean meal prices.

In Europe sales of feed grade choline declined in the quarter. Competition from offshore producers in the European markets due to unfavorable costs and market conditions were the principal reasons for this modest decline, but we do expect to rebound into Q1 with market conditions constantly evolving. Sales of industrial grade products were down approximately 1.7% from the prior year quarter, largely due to activities in European markets. Sales of methylamines, derivatives, and choline for industrial applications in Europe were down in the quarter, while sales of industrial grade products sold into the North American fracking market grew marginally. Our growth in the fracking space was impacted by the severe cold weather which swept across the mid United States interrupting drilling and fracking.

In addition our success in the space continues to attract competition from offshore producers. We do, however, remain confident these products will continue to show strength in 2014 driving the steady to increasing levels of sales. We continue to evaluate other industrial opportunities with other core technology to determine how we may drive innovative solutions into this and other markets. We derive the most positive value.

Even with the noted modest sales growth in the quarter, our earnings from operations for this entire segment grew to $8.3 million as compared to $7.2 million in the prior year comparable quarter, principally a result of the favorable product mix. While these earnings improved nicely, we were unfavorably impacted by increases in certain raw materials during the quarter. We continue to challenge raw material price volatility and seek to implement price adjustments within our contractual guidelines.

In January of this year we announced that Balchem and Tomiko had reached an agreement to build and expand on the existing footprint of our chloride facility in St. Gabriel, Louisiana. We expect the additional capacity from this production JV to be online in the second half of 2015. As stated in our press release, the joint venture will manufacture choline chloride. Balchem and Tomiko will market the products with separate and fully independent channels. This collaboration will lead to a state-of-the-art unit using the most advanced technology, generating advantages of scale and providing customers a high quality product and reliable supply at competitive costs. This new capacity will help to serve the growing North American market, which is underpinned by increasing demand for choline chloride, a quaternary compound functioning as a clay stabilizer in oil and gas drilling and hydraulic fracturing applications. We will keep you appraised of the progress being made towards completing this facility in future conference calls.

As this quarterly result exhibits, the profitability of the ANH segment continues to be achieved with a constant reevaluation of global raw material costs, product reformulations, currency review, and the ultimate ability to economically meet market needs from our various global facilities and logistic strategies. The opportunity to capitalize in this fashion has been a direct result of constant multi-plant operational benchmarking and de-bottlenecking,marketing strategies, and the ability to leverage all aspects of our business model.

Overall we continue to see a revenue rollercoaster effect quarter-to-quarter within the various products and market segments. This quarter was no different. We remain committed to organic 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 can be generated on the unique portfolio that we offer to markets we serve. Our business continues to create good balance, yielding profitable growth opportunities across the served value chain. We also remain focused on helping our customers generate reinvestment level returns while maintaining our own operating discipline.

We continue to build the financial strength of the Company managing the working capital base aggressively, and yielding solid financial results to be a quality supplier. Near term we remain focused on implementing operational and logistic improvements, new product development, and new product introductions across all business segments. We continue to explore alliances, acquisitions, and/or joint ventures to build and leverage on our strategic marketing direction, technology, and strong human asset base. These efforts can and will impact operating expense levels beyond the normal levels we have seen in the past, but it is consistent with a noted strategy to compliment our organic growth.

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

Thank you. (Operator Instructions). One moment please while we poll for questions. Thank you. Our first question comes from the line of Mike Ritzenthaler with Piper Jaffray. Please proceed with your question.

Good morning. Dino, I was wondering if you wouldn't spend a few minutes on the JV with Tamiko, and just provide a bit more context on the genesis of that decision, and why it makes sense for Balchem?

In the past if you were to go back and visit some of these other conference calls, we talked about the need to grow the choline capacity in particular in this North American market space. There have been a lot of discussions about what was required to do that. One of the key raw materials we have pointed to in the past was in tight supply. That probably earlier on was a rate limiting factor in the decision to expand earlier. As things have developed, clearly Tamiko who is the largest amines producer globally, and a key supplier of trimethyl amine to us, and also in the choline business in the European market and the Asian market, really decided that they had an interest in coming into this North American market, and clearly we had an interest in continuing our supply position.

They announced and are working on expanding their methylamine facility in Florida. Clearly we have continued to use them, and expect to continue to use them as a quality supplier of trimethyl amine, and with that we managed to strike what will be a good deal for both parties. For us, securing longer term supply of the amine that we need,without making a significant capital investment, and those guys getting some choline production locally, and quite honestly in lieu of importing product. I think it was kind of playing all ends toward the middle here, and striking this Joint Venture production agreement.

That makes sense. Just a brief question on the raw material environment. As we look out through 2014, should we expect to see continued tightness in certain key raw materials as 2014 unfolds? We will start to lap some of the times when that pet perked up later this year. I was curious as to how we see that playing out?

I think as it relates to our key raw materials, certainly the expectation is, as I just mentioned Tamiko's expansion will greatly alleviate any tightness. Even though I would say that we are not in a tight mode today. But I think certainly going forward as they bring that facility online it will help with additional capacity. And I think there is always a question of what happens with the ethylene molecule. The tightness kinds of comes and goes. The plants are up and down, and there are cycled if you will. It is a relatively tight space today. Clearly if you just run the numbers on boiler plate capacity you will find that there is enough capacity. That industry also looks to export derivatives of the ethylene molecule as well. I think we are fine from that standpoint, and just remember too, that all of these materials for us are under contract. They do have a formula that goes back to a key driver in there, and that is really what will cause price movement which is maybe the real point of your question rather than availability. I think the availability will be fine, but certainly the formulas are going to dictate what happens with those prices.

That makes sense. Switching to the ruminant side which saw really good growth this quarter, I am curious about your current penetration in the ruminant animal business with ReaShure, et cetera?

Our largest position there far and away is here in North America. Although we are beginning to see more sales into Europe and also into Asia. So those are all positive things. But looking at, so I would say market penetration in rest of the world is pretty small on average. If it is 1% it is probably a lot. Here in the North American market I think our view is we probably have about 25%, maybe 30% market penetration of available and maybe target cows, if you will.

That doesn't mean there is alternative product out there supplying the other 75%. It is a market that we are growing. There are a couple other players in this space, but I would say they have modest market position. Again looking at the total available market, it is not so much a question of competitors fighting for market share, as it is good competitors growing the market. That's probably our level of penetration today. So again a lot of upside opportunity there.

And just one last one from me then. on AminoShure. This is a question that we get a lot. With the sampling and things like that, that need to be done, having AminoShure pulled I guess it was last year or 2012, but your thoughts on timing there, and what still needs to happen from Balchem to get that product placed back in the market?

There is a lot of work going on in the background for sure. It is fair to say that we are disappointed. We don't have the product back out there today. As I said, we are not going to bring the product back until we are really comfortable that it is truly robust enough to service the industry as the industry desires. I think minimally this is nothing but a thumbnail. We are probably a year, year and a half away. Like I said, a lot of work going on in the background, looking at a lot of different scenarios to deal with everything from feed stability to rumen stability, to bioavailability. All things to play through in building the product. So we are a little ways away yet.

Thank you.

Sure.

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

Hi, guys.

Hi, Dan.

You indicated that Food, Pharma & Nutrition is going to be somewhat volatile based on pipeline and just inventory, and it just seems like it has been fairly strong now for six months, and most of the past three quarters except for the first half of 2013, is this something we can expect going forward? Have you just reached critical mass where it is growing much faster because your efforts are finally being realized, or will it be up and down I guess in 2014 like it has been somewhat in the past?

I won't rule out the volatility, but you are right. There has been a pretty steady up trend here over the last six months. We are pleased with that. We have seen pipeline conversions I am going to say more steadily happen. To some degree they are a bit unpredictable exactly when that customer will go, when they will make the marketing decision to launch the end product into the market, which is somewhat out of our control. We do have a pretty rich pipeline there, and feel pretty comfortable that we should be able to see this growth continue.

The other thing we can't predict is at what moment an end product consumes our product that for other market reasons gets pulled off the shelf. That's outside of our realm of influence if you will. To be honest, they always happen. The question is whether it happens with a product where we have a larger presence than not. But right now I wouldn't say there is any indications that we are looking at any of those kinds of situations.

We are seeing really good uptake in the international markets. We changed and put new distributors in place, people on the ground over there. We are real pleased with the products that has taken place, and moving some of those food platforms into that European market place. We have made significant efforts in the past, and I think that maybe a lot of that groundwork that was done is starting to yield some good results. Clearly we are bringing some new products to the market as well. Working closely with those customers as they want to have new products brought to market, and clearly it is nice we have that position with them where they are working with us, and have the opportunity to develop those new solutions for them.

Okay. And then you guys did a pretty good job of controlling costs even with some of the challenges with input costs. The operating market was still up a sizable amount year-over-year. Is it something that you changed a little bit structurally where we can expect better results going forward? Is that something we can look forward to?

There is always going to be some volatility in that. We are going to continue to invest in the SG&A area. I think the flip of that getting down to operating income is that you saw the improvement in the gross margin. Part of that is product mix, but we have made improvements in our plant operations, so we are trying to continue to wring costs out of that, and to some degree maybe plow some of those monies into R&D efforts, regulatory efforts, again trying to open up new market places. You are right. It has been a nice little uptick there that has happened. I think I would tell you, I would like to tell you that it is our objective to hold onto that kind of margin. But I think on the flip side we are managing it for the future, and any given quarter you might see us slip back a little bit and then fall back again. So I don't know if I would sit here and predict it consistently quarter-to-quarter, but certainly it is an objective of ours to be in that range.

Thank you guys.

Thank you.

(Operator Instructions). Our next question comes from the line of Paul Sage, a private investor. Please proceed with your question.

My question is whether you can make any comment on all of the insider selling that was mentioned on the internet, which I think was disquieting to small investors who might have large positions in the Company?

Well, I think the easy explanation is that a lot of the activity that was there was done under 10-5b-1 filings. There was no secret the activity was going on. These programs are out there in advance for everybody to read. Coincidentally in December there was also some vesting of options, and some of the sell activity, while some was not very large, the number of people went up, but it was really to deal with the tax issues associated with that activity. Short of that I think you would find that those people are not there actively selling, but it was to deal with that issue. That quite honestly has it happened the last few Decembers. That part was not really new.

So some of these are just aging options that quite honestly require some activity, and that is what was going on there. I don't think anything particularly unusual. And again short of that, I think it was a 10-5b-1 programs that were out there, where I'm going to say predefined sales over as much as six-month windows were put in place and exercised. Again, I don't think it was one-off. I see the comments that are out there, and the idea that management is panicking I don't think is at all what the message should be. Again, these were, the majority of the shares were well advanced and documented for everybody to know about. I don't know what else I can tell you other than that is really what transpired.

Thank you.

Thank you.

Our next question comes from the line of Tony Pollack with Aegis.

Good morning.

Hi, Tony.

Can you give us a little clarity on going forward? I noticed three different things which in the quarter which were sort of quarter related, avian flu, the cold weather, and the Affordable Care Act. Could you comment on those going forward whether they have abated? I'm certain the cold weather has not, but if you can comment on that I would appreciate it?

Yes, I won't pretend to be the weather man, but everybody can see what is going on. But what I do think is that with the abatement of the cold weather we will see an uptick on the fracking side. We know for sure there was slowness there. We can track that pretty readily. It is not just us saying that. I think you would find the industry noting issues including equipment freezing up, and not being able to effectively function. I think that is going to abate and get back to normal rates on a go-forward basis. I think that the consumption of natural gas has been tremendous through this entire period. I always say, there are mixed stats out there, but our belief is that inventory levels have declined, I think that there will be a push to get the inventory levels back up, and certainly natural gas prices have moved up, which is always an easier decision for these guys to frack more.

Going to your question of the avian flu, I think our view is that it is being corrected, so I think in particular in Mexico we have seen some correction there, and the major bird producers down there are absolutely talking about getting back to normalized production rates. China is a little bit more difficult to read, because it seems that their frequency of the event is, I won't say common, but maybe more frequent at least. There too I think our view is it has not abated. It still has a little ways to go, but certainly when you look at the demand for chicken, they want to get that result and I think they will. That part will fix itself. The third?

The Affordable Care Act in the ARC.

I don't want to say too much about the Affordable Care Act other than I think it has still caused confusion. I think you still have a large population of people who either aren't insured, or are not sure how they are insured. What we do see and we do take a close pulse on admissions, if you will. Still has not bounced back and I think if you ask the hospital industry, I think if you pay close attention you will see hospitals are still consolidating and laying people off, and a lot of that has to do with admissions. Until that is remedied, and again I do think it will be remedied. There is a little bit, certainly there is less of a requirement for medical devices if people are not in there having operations. We see that and certainly the medical device manufacturers are keeping the inventory levels I would say closer to the vest. They are not looking to go along on anything, given that level of uncertainty that sits out there as well. It all ripples down. I think we all know that people are going to medically be taken care of when they have to. Maybe elective stuff gets postponed. Certainly the uncertainty with coverage is affecting a lot of that as well.

In terms of Caremark, do you have any more feel for timing when it hopefully gets approved?

I can't honestly tell you that I have that absolute insight there, we have done everything from our standpoint to assist Caremark, and all of the requirements that they need to continue to do their rolling filing care. So that is all moving forward as far as we know, and certainly some of the conversations we are having with them, it continues to track, albeit I will admit everybody knows it has been somewhat slow, but I think it is part of the process. It hasn't been because anything was purposely delayed or not that we are aware of, any kind of findings that have been negative. It continues to track. I think it would be inappropriate for me to predict when they are going to get into the market. As far as we know everything, conversations we have, it is tracking to be out there, and again I won't ponder a time frame. Probably a question better directed to the executives at Caremark.

Acquisitions or all of the money that we have, is that getting close ever, or you just can't find things to buy?

We have been close. I have mentioned that in the past. Deals have quite honestly fallen off of the table. I think it is also fair to say that we continue to look, and we continue to work on transactions. I am optimistic that we will definitely have something done this year. Deals are never done until they are done, so again I won't predict. We have a couple things on the front burner, that we are pretty excited about, and we expect to push forward with the idea of getting transactions concluded here timely.

Good. Is it true that the income tax rate was a lot higher in the third quarter than the fourth quarter, and if so why?

I will let the accounting/finance guys answer that.

Hang on a second.

Any other questions while they are looking at that?

Any other applications in pharmaceutical products that we are working on?

There are a couple, I would say that are off in the distance right now. I think we are keenly focused from a pharma standpoint of making sure that we are doing everything for Caremark, but there are, again a couple of projects in the background. They are definitely off in the distance.

Okay. Thanks.

Tony, was your question on a sequential basis third versus fourth?

Yes, third versus fourth.

Go ahead, Bill. Bill is here, he will answer.

Hi Tony. It is really discrete items, related to truing up the provision to the return from the prior year in Q3. Which we filed our returns and did a true-up, and there were some favorable effects from that.

Okay. Thanks. Great job.

Thank you.

Our next question comes from the line of Pamela Streed, a private investor. Please proceed with your question.

Yes, good morning. Thanks for taking my call. Hello? Yes. Good morning. Thanks for taking my call.

Okay. Thank you.

What impact do you see on your fracking product sales from the more restrictive rail transport rules?

I think it is a great question. As we see it today, a lot of those transport rules are going to heavy oil, which we don't really play into that market much, but I would not look past the fact that there is not a strong infrastructure system in place today to handle the natural gas. A lot of talk about getting these gas lines in place, but clearly not yet. I think the demand for the natural gas is there, and it continues to be there, and it will continue to be there. I think that they will get these gas pipelines in place. As it relates to some of the restrictions that are being talked about hauling by rail, again not so much affecting the natural gas side of things as it is the oil side.

Thank you. I have another unrelated question. What is your market penetration in nut fumigation? Is it still primarily almonds, or have you branched out to other nuts?

Others are treated as well including pistachios and walnuts, and certainly far and away almonds are the largest. We are into these other nuts. I mean there is alternative technology out there. We compete with it. Clearly we are looking to continue to expand with other nut meats as well, and continue to work with those different, if you will, those particular Nut Boards, other than the Almond Board to get propylene oxide approved. I will say in the background too, we continue to explore other technologies for fumigation to deal with, there are lots of different issues with different nuts because of the oils and what not, that are affected by whatever the treatment methodology is. We continue to explore other technologies as well.

Okay. Thank you very much.

Thank you.

Mr. Rossi, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you. Thank you everyone on the call today. Again I think we feel pretty good with the way the quarter and the year turned out. I think it is pretty much consistent with what we had talked about in terms of at or near, close to double-digit growth and nearly all organic. So pretty pleased with that. As noted, challenges at different spots, but I think we have effectively dealt with that, so we are pretty pleased. Thanks again for your participation and your support, and we look forward to talking to you next quarter. Thanks. Bye.

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