Balchem Corp (BCPC) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Balchem Corporation First Quarter 2014 Earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Frank Fitzpatrick, CFO for Balchem. Thank you, Mr. Fitzpatrick, you may begin.

Good morning. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending March 31, 2014. My name is Frank Fitzpatrick, the Chief Financial Officer, and hosting this call with me is 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 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 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 a.m. Eastern time.

I will now 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.

This morning, we reported a new first quarter record for consolidated net sales of $86 million, resulting in net income for the quarter of $8.9 million or $0.29 a share. As disclosed in this morning's press release, these Q1 results included certain unusual items that impacted our results. And I'm happy to provide additional details for you on those items as we proceed through the call.

As mentioned, for the first quarter, we reported earnings of $0.29 per share on a GAAP basis. This result includes several certain non-operational items that I would like to highlight. The largest item is a pretax charge of approximately $1.3 million, related to the execution of the definitive agreement to acquire Performance Chemicals & Ingredients Company (d/b/a SensoryEffects) that we announced in April of this year, and our January announcement of an agreement to build and operate a choline chloride facility together with Taminco Corporation. On an after-tax basis, these transaction charges totaled $0.9 million or $0.03 per share.

I'm happy to report that we are on schedule to close the SensoryEffects transaction on May 7th. We have integration teams assembled, and much progress has been made since the announcement of the deal. We do expect to incur some additional expense in the second quarter, related to the closing and integration of this transaction.

Our first quarter sales of $86 million were 1.6% greater than the $84.7 million result of the prior-year comparable quarter, and were up 5.3% on a sequential basis. In the quarter, our specialty products segment generated first quarter sales of $12.8 million, which was equal to the prior-year quarter. Sales of ethylene oxide used for medical device sterilization increased in the quarter; however, was partially offset by decreased sales lines of propylene oxide we used in certain industrial applications.

Animal Nutrition and Health sales of $61.1 million were up very modestly with the comparable quarter. Global feed grade choline sales increased; however, sales of the encapsulated animal specialty product line were behind the prior-year quarter. Sales for industrial applications comprised approximately 33% of sales in this segment for the three months ended March 31, and grew 2.5% over the prior-year period, with the increase coming principally from the higher sales of products for usage in fracking.

Food, Pharma and Nutrition segment net sales were $12.2 million for the three months ended March 31, as compared with $11 million for the prior-year quarter, an increase of $1.1 million or 10.4%. Increased sales of human choline products for both food applications and supplements, along with increased sales into the food sector for baking and food preservation end markets, were the principal reason for the overall improvement in sales.

Earnings from operations of $13.4 million declined $2.5 million, as our business was impacted by a number of items. In particular, as I mentioned: the costs relating to the aforementioned acquisition and joint venture of $1.3 million, higher raw material costs relating to an unexpected methanol surcharge of approximately $200,000, unfavorable plant variances relating to weather and related order patterns in the early part of this quarter, and production issues at two of our Animal Nutrition and Health plants, along with product mix accounted for the balance of the $2.5 million. And we'll talk further about these issues in the individual segments as we move forward.

As previously noted, consolidated net income closed the quarter at $8.9 million, down from $10.9 million in the prior-year quarter. This quarterly net income translated into diluted net earnings-per-share of $0.29, or $0.32 excluding transaction costs, as compared to the $0.36 we posted in the comparable quarter of 2012.

Looking between the top and bottom line, you will see that our consolidated gross profits were $23.2 million or 27% of sales in the quarter, down from 28.6% in Q1 of 2013. As mentioned earlier, raw material increases had an unfavorable impact on our choline products again this quarter, and our reference to methanol surcharge along with ethylene molecule.

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.

Also, extreme cold weather throughout most of the United States in the early part of the quarter contributed to both reduced sales and production levels, as we seek the raw materials, were delayed, due to severe weather causing production interruptions and inefficiencies. Even though sales with oil and gas fracking space increased 5.2%, they too were adversely impacted by weather, principally in the oil and gas fracking space.

As operations at well sites were forced to slow down due to weather affecting local equipment, and supply chain interruptions, resulting in soft sales in the early part of the quarter. These sites are now operating at normalized levels, and we are again experiencing growth in this sector. Also negatively impacting the gross margin percentage, was the overall product mix, with a heavier weighting towards choline products in the quarter.

At the consolidated operating expense level, you will note a $150,000 increase in operating expenses excluding the $1.3 million of costs relating to the acquisition and joint venture, which would equal 9.9% of sales, which is comparable to the prior-year run rate. As mentioned earlier, we do expect to incur some additional spend in the second quarter related to the closing and integration of the SensoryEffects transaction. We expect to continue to leverage off of our existing SG&A infrastructure, and exercise tight control over all controllable operating expenses.

Overall, we're a bit disappointed with our earnings from operations for the quarter, and do expect a strong rebound from the slow start through the balance of 2014. The Company's effective tax rate for the three months ended March 31 in 2013 was 33.5% and 31.4% respectively. The increase in the tax rate is primarily attributable to both the timing and delay of certain tax credits and deductions.

Our first quarter results generated approximately $16 million of EBITDA in the quarter, which translates to $0.51 per diluted share. And when including our non-cash stock-based compensation charge, we generated $17 million of EBITDA or 20% of sales in the quarter, equaling approximately $0.55 per share or $0.59 per share excluding transaction costs. Our balance sheet continued to strengthen, and our cash flow remained strong, as we closed out the quarter with $207 million of cash.

We're well-positioned to move forward with our acquisition of SensoryEffects. As mentioned, earlier we are scheduled to close on this transaction on May 7th. As a reminder, SensoryEffects is a privately held supplier of customized food and beverage ingredient systems, founded in 2005 by Charles Nicholas, and headquartered in St. Louis, Missouri.

The purchase price is $567 million in cash. SensoryEffects expect to have 2014 annual revenues of approximately $260 million, and 2014 earnings before interest, tax depreciation, and amortization of approximately $53 million. The acquisition purchase price reflects a multiple of 10.7 times estimated 2014 EBITDA, excluding any deal related costs and synergies.

The transaction will be financed with existing cash, and a new senior secured credit facility consisting of a $100 million revolver and $350 million term loan. As previously mentioned, SensoryEffects provides customized technology driven food and beverage solutions, including ingredients, basis and finished food systems for leading multi-national and emerging high-growth food and beverage customers. SensoryEffects' management team will continue to lead the food and beverage ingredient business, which will be merged with Balchem's Food, Pharma and Nutrition reporting segment, strengthening its market position.

The acquisition of SensoryEffects accelerates Balchem's strategic growth plans into health and wellness markets, human food, and possibly animal nutrition systems. Both Balchem and SensoryEffects have strong foundations in innovation, customer focus, and cost efficient business models. The expanded team delivering SensoryEffects solutions and Balchem's functional-based offerings will be a powerful combination.

Some additional facts relating to SensoryEffects are: they have 6 manufacturing sites in the US, 3 R&D sites with pilot plants, 20 R&D scientists, and approximately 480 employees. Geographic focus is on North America, and early development in South and Central America.

I will be happy to answer questions relating to the transaction in a few moments. But first, in an effort to detail our consolidated results better are for our shareholders, I'm now going to ask Frank Fitzpatrick to discuss the ARC Specialty Product and the Food, Pharma and Nutrition segment.

Thanks, Dino.

The ARC specialty product segment posted quarterly sales of approximately $12.8 million, which is equal to the prior-year comparable quarter. Sales of ethylene oxide used for medical device sterilization increased 2.2%, primarily due to modest price increases to offset rising raw material costs.

The previously noted decline in medical device utilization persists, as companies and consumers for [applewood] shifts and health care policies, and economics resulting in slightly lower volumes for products sold into this space. Poor weather also had an impact on volumes sold in this sector, as plant logistics were adversely impacted, resulting in delayed sales.

In the quarter, we also realized decreased sales of volumes of propylene oxide for use in certain industrial applications. Our quarterly business earnings declined approximately $100,000 to $4.8 million versus the prior-year comparable quarter. This decrease is principally due to the noted higher raw material costs and increased operating expenses.

During the quarter, we did realize increases in the cost of certain petro chemical commodities, and we also incurred additional expenses pursuing other new end market applications. Wherein, the products handled today by us may have new opportunities.

For the quarter, the Food, Pharma and nutrition segment realized sales of $12.1 million, up approximately 10.4% over the prior-year comparable quarter. Correspondingly, business segment earnings of $2.6 million were up approximately 3.7% from the prior-year quarter, largely due to increased volumes sold. However, partially offset by unfavorable manufacturing variances, due to product mix.

These positive results were achieved from increases in sales in the food sector, and of our human choline products for nutritional enhancement. We continue to focus on building consumer awareness of the benefits of choline, positioning choline with food and nutritional supplement companies as an essential [degradient] with excellent therapeutic benefits for all ages. We continue to utilize the structured function claims awarded to Balchem by EPSA in Europe, support additional scientific and research externally, and are excited with the growing number of projects in the pipeline targeting choline and other nutritional inclusions.

Also contributing to the higher sales, were increases in sales in the food sector, principally from the encapsulated ingredients for baking and food preservation end markets. Strong results for our food products in this quarter were principally realized in the domestic market. Results for this segment continued to [refresh] for the roller coaster effect of pipeline fills, inventory level management, and customer marketing initiatives.

Our pharmaceutical delivery development efforts continue. As previously reported, the licensing of our technology being used for treating autism concluded a phase III clinical trial, has conducted a successful pre-new drug application meeting with the US Food and Drug Administration, and is 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'll now turn the call over to Dino for him to discuss the Animal Nutrition and Health segment.

Thanks, Frank.

In Animal Nutrition and Health segment, we realized sales of $61.1 million, a very modest increase as compared to the prior-year comparable quarter. However, up approximately 10.7% on a sequential basis. Sales of the A & H second sector were approximately flat at $41 million.

This result; however, reflected 2.4% growth or $0.7 million of the monogastric species, with particular strength in the European markets served by our Italian operation, which was somewhat offset by a soft North American result. Volumes sold in these markets are strongly influenced by the various dynamics of our customer base, predominately the poultry production industry, but also the 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. However, the most recent estimate for broiler meat production for 2014 is down slightly, as production fell by 2.8% in January, due to a decrease in the number of birds slaughtered and a slight growth in average weight.

In Europe, sales of feed grade choline increased in the quarter, as Chinese competitors in this space were adversely impacted by GMO contamination issues in the EU market. The ruminant species results were off 11.6% or $1.3 million, with softness in our AminoShure and chelated mineral volumes, largely due to production issues, which have since been resolved. Milk prices remained strong in the quarter, and expectations of reasonable feed prices and continued demand strength in US and export markets are all positive indicators that should support growing utilization of these products.

Sales of the industrial grade products grew approximately 2.5% from the prior-year quarter, largely due to growth in the North American fracking market. 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 approximately 5%. This growth in the fracking space was impacted by the severe cold weather, which swept across the United States, interrupting drilling and fracking throughout Q1.

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

Our earnings from operations for this entire segment fell to $7.3 million, as compared to $8.4 million in the prior year-comparable quarter, primarily due to the higher raw material costs, which could not be passed timely through to customers. Also negatively impacting the gross margin percentage was an unfavorable product mix with a heavier weighting towards choline and some production issues, which have since been resolved. We continue to challenge the raw material price volatility, and seek to implement price adjustments within our contractual guidelines.

In January of this year, we announced that Balchem and Taminco had reached a joint venture production agreement to build and expand on the existing footprint of our choline chloride facility in Saint Gabriel, Louisiana. We expect that 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 will choline chloride. Balchem and Taminco will market the product through 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 a reliable supply chain 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 the clay stabilizer in oil and gas drilling and hydraulic fracturing applications. We will be keeping you apprised of the progress we've make towards completing this facility in future conference calls.

Overall, we continue to see a bit of the revenue roller coaster quarter-to-quarter within the various product and market segments. This quarter was no different. We remain committed to organic growth, as we look to continually expand our product offering, and move into new geographies.

We expect to strengthen our global growth platform, and are confident that more businesses can 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 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 have focused on integrating the previously announced acquisition of PCI a. k.a. SensoryEffects, which we are very excited about without taking our eyes off operational and logistic improvements, new product development, and new product introductions across all business segments.

We will continue to explore alliances, acquisitions and/or joint ventures to build and leverage on our strategic marketing direction, technology, and strong human asset base, which more than doubles with the SensoryEffects acquisition. These efforts can and will impact operating expense levels beyond the normal levels we have seen in the past, but is consistent with the noted strategy to compliment our organic growth.

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

(Operator Instructions)

Mike Ritzenthaler, Piper Jaffrey.

My first question is on SensoryEffects, and around potential revenue synergies. How important were potential revenue synergies as you evaluated how SensoryEffect would fit into your portfolio?

Mike, I guess when you say revenue synergies, normally people are talking about cost synergies. So when you say revenue synergies, are you looking at our ability to leverage off of each other --

Yes, exactly. And I know you haven't -- yes, exactly right. I know you haven't guided to anything specific, but as you look at the different products and where they're placed how that played into how you thought about that acquisition?

I think you know that we've basically been an ingredient supplier into the food and nutritional industry, whereas Sensory is there with solutions. And that solutions is really incorporating a number of different ingredients, and quite honestly, leveraging their ability to bring a broader-based solution to individual customers. The customer overlap between the two business actually is not that great, which we found attractive.

The ability of cross-selling, we think, is going to really result in some really nice opportunities. In fact, the opportunities that gets more inclusion of our ingredients into their solutions, I think is very attractive as well.

So all of those played through I think in the decision to look and aggressively pursue Sensory as a transaction for us. But if we thought we could really leverage pretty neatly off of both parts of theirs as well as ours, to really grow much more aggressively in these spaces.

Thanks for that. So to what extent does the new leverage, so the $350 million term loan and the revolver, how does that play into your thoughts on M&A going forward? And does it inhibit what you're looking at, or in size wise or anything like that as you think about further M&A?

I think we did look at that real hard. And in fact, I think you all know, we were quite underleveraged. But our view even with it is that we're still rather underleveraged, if you will. We're going to be less than 3X on the EBITDA versus debt load.

So the intent certainly is to drive that down, and really feel that we still have a lot of dry powder to continue to execute additional transactions. Certainly, part of the growth of Sensory has been around M&A, rather aggressively. And so there's been a lot of discussion through the process too, about our commitment to continue to do that, which we're certainly very interested in doing.

Let alone, I think looking at the balance of our business portfolio and opportunities that are going to be presented there. So I think our view is that we still have a lot to work with, if you will. And certainly, an expectation that we're going to continue to move down that path.

Okay. And one last one from me. On the implications for the tax rate post acquisition, is there any reason to revisit the 33% expectation for 2014?

Yes. I think that our view is that it might tick up a little bit from that number. I think the purchase accounting is not done yet, i.e. levels of goodwill and intangibles that go with it. So we're not there. If I had to hedge any way, I'd probably hedge up maybe 0.05 point.

Okay. Thanks very much.

Daniel Rizzo, Sidoti & Company.

You indicated that increased competition was something in the quarter in the Animal Nutrition and Health segment. Is that the same thing we saw two years ago, where the competition showed up for about a month and then went away? Do you expect a similar scenario to unfold?

Well, I think that part of it for sure is the Chinese in particular. And they get aggressive, and then they back off. They get aggressive, and they back off.

But depending on I think what's going on with their raw material costs situation. So -- but I think the other part is that Taminco has I'm going to say indirectly entered this market as well. Clearly interested in the oil and fracking side of the business.

So that too was part of the discussion that we entered into this joint venture. So I think that will probably be there in more permanence, probably out a year, year and half if you will. But to be honest though, I think our view is that the market is going to continue to grow at a rate where it can easily consume, if you will, what's going to be this additional capacity being built into this space, and with good quality product, probably is the more important thing.

But I do think that there's definitely -- it's like anything else is, when it gets so good, people sit up and pay attention. And that has happened, but I also think that we'll continue to be positioned as a low-cost producer and be able to deal with that marketplace.

Okay. All right. Thank you.

Lawrence Goldstein, Santa Monica Partners.

So from the numbers you gave us on performance solutions, you've got a forecast for an EBITDA and revenue, and margins, and effect. Do you have one for Balchem?

Yes. We do. Typically, we're not giving guidance.

Right. But you chose to forecast the other.

Well, I gave that I think to help everybody understand the purchase price a bit more. But you know we typically don't give guidance.

Okay. I'll give you that. So tell us this, can we, when the dust settles, and in the fullness of time, see the margins of the full Company? Or maybe I should ask are the margins of performance solutions as you think about them comparable to yours?

Historically, return on capital over 19%, return on capital, and the profit margins, the return on equity, and so forth, and because based on the raw material that you gave us, they're going to have an EBITDA margin just over 20%. And yours last year was just under 23%, 22.6% or something.

And so, our overall, how's it going to be? Is this going to enhance or the historical margins and returns? Or is it going to be comparable, or what? What's it all about?

I think --

By the way, I hope your comment about being an ingredient company and they being a solution company isn't going to be like what I really hate. When I go to my dermatologist and he says, oh on the way out, pick up a can of that ointment. That'd be $10 for that. It's so unseemly.

Are you going to run into that kind of thing, them selling -- or you can buy -- here's the solution, and the ingredients you can buy from our other division?

No. I don't think so. Our intent is going to be to merge this as effectively as possible. I do think that there's going to be some customers who will continue to want to buy an ingredient, if you will. But clearly, there's a trend in the industry to go to these multiple ingredient-based solutions, and just looking at the performance of century points that out as a perfect example of those. And I could probably point to some other companies in the industry that have done the same maybe in slightly different markets. But, I think there's -- (multiple speakers)

Full-service, would that be the idea?

Well, I don't know about full-service. But it's certainly a significant effort to go to a one-stop shop, maybe without absoluteness there. But certainly, with the idea that a lot of that can be combined and perhaps even needs to be combined in a certain way to give full effect to this solution in the market. So I think there's value in that.

And clearly, if you look at the Sensory results up close, you're going to see that they've been able to prove that out in the market. Certainly, our expectation is that that's going to continue to grow. I think the idea of incorporating our ingredients into their solutions in a much larger way makes that solution even more attractive, if you will, to those end markets with higher quality and novel offerings into this space.

So coming back to your first question in terms of the margins, we've studied that and do think that there is upside opportunity here on those margins. Both I think individually on their business, as well as in combination with hours.

I alluded to this earlier, product mix and we've talked about this back-and-forth. To some degree, this offsets the lower end of our profitability, which is choline, with a product line that certainly runs higher. And so, as product mix and percentage of the business waits more now to the food, you could argue that it should help to at least minimally keep the margins where they are if not move them up.

I see. By the way, is that $53 million and $260 million, where the $53 million, let's put it that way, of EBITDA, is that as a private company or is that how you see it as a public company? In other words, as a private company we've got to assume they had expenses that you wouldn't have. No? Yes?

We sorted through that pretty intently when we did the analysis and ran through their quality of earnings. So I think that, arguably, there's expenses that maybe they were incurring that they won't incur under our umbrella because we're already incurring them. So that I think that number looks to be what we expect that business to do after adjustments.

And you said it would be additive to the bottom line. So that's only several million, isn't it? After taking into consideration the interest you're going to pay for this year?

Yes. I think -- well, a lot of that should be sorted out this year. I think it's going to be more than $2 million. But certainly, the interest expense will play through it and offset against that early on for sure.

Okay. Thank you. We've been waiting. And you did it.

Thanks.

(Operator Instructions)

Leslie Sturgeon, Appaloosa Management.

I had two follow-ups on the SensoryEffects business. As we try to understand that business a little better, who are the best comps there? Is it someone like Ingredion? And then second question, is the texture ingredients or solutions segment one in which you see additional expansion opportunities in the pipeline?

Well, I guess on the first question, I don't know that Ingredion necessarily is a good comp. There's a fair bit of that business that was CPC, which was more commodity, if you will. But certainly, more perhaps along the line of National Starch margins might be a better comp. So I don't know that you're going to get a pure comp play out there.

There some other big companies in the space, like Kerry, but they really aren't exactly the same either. So I don't know that there's an absolute comp of a publicly-traded company that you could run to and try to draw too many conclusions from. So I couldn't necessarily give you a direct point of comparison there. As far as the textured solutions, I assume you're talking about the powder business of Sensor?

Right.

And certainly, I think our view is that a significant part of their business result revolves around powders, whether it's called, powder solutions, or [flavor] solutions, or and different end markets for sure in particular into the dairy and beverage marketplace. Where we historically have not really played very aggressively. So we think that those represent nice upside opportunities to move more of our ingredients into that channel.

And certainly, I think as we've studied the business, the expectation is that that really does have a lot of upside opportunity. And in fact, a couple of the acquisitions that they've recently done have really been geared to picking up additional capacity to be able to deliver on that growth projection. So -- and I would say even on a go forward basis, a number of the acquisitions that they have targeted are clearly in that space to grow with those powder blends.

Great. That's very helpful.

Tony Polak, Aegis Capital.

Could you give us an idea of the growth of Century over the last few years? Where they've come from, and is it similar growth to yours? Less? More?

Actually, Sensory is all of eight years old. So they've grown to $250 million, $260 million over that window of time. And it's been through a number of acquisitions, for sure. It started from zero about eight years ago, so it's been a tremendous growth story that it's been organic as well as through M&A.

So if -- it's hard to draw a growth percentage number, given I'm going to say, how it's grown so quickly via acquisition and/or organically. But over the last couple years, you're probably talking 30% or 40% a year. So it has been very aggressive, and again, leveraging off of those acquisitions, and clearly, growing organically as well on the back of those. Complementing each one, I think.

Okay. In terms of the autism drug and anything else you're working on, is there any timetable or is there any feel for other potential deals like the deal with Curemark?

I would say that clearly far and away that's the one that's furthest down the pipeline, and I think it's beyond the pipeline. We continue to support them. We've done everything we need to do with them.

They have begun their filing. And so, as far as we understand, everything is on track. As we've talked before, it seems to take longer than not to do these things, but recent meetings certainly indicate that things are on track and moving forward. And our view right now is, perhaps early next year we may begin to see some revenue generation there.

Is there any statistics that show how many kids that were originally in the trials are still taking the drug? Or what is it called, is it called a drug?

Yes, it is. And while the fact of the matter is, is that we continued to make some products available, if you will, for the kids that have stayed in the program. Kids that have, quote-unquote, aged out, and the FDA has agreed to up that upper limit of the age. Clearly, because there was performance seen and decisions made to keep these children on the product.

So I think that those indications are still very solid out there. And so, as we're not aware of huge volume of kids stopping to take the product or anything like that. So, and again, I can't say that we are privileged to know all of those details, better directed to Curemark themselves probably.

Okay. Thanks.

Thank you. At this time, out turn the floor back to Mr. Dino Rossi for concluding comments.

Well thanks, everybody, for sitting in on the conference call today. As I said, I think we were a little bit disappointed with the results, but we feel pretty confident that we understand why and the fact that we're looking for this to rebound pretty neatly here in Q2. So with that, I'll say thanks again, and appreciate all your support.

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

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