Balchem Corp (BCPC) 2015 Q1 法說會逐字稿

Greetings, and welcome to the Balchem Corporation First Quarter 2015 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. I would now like to turn the conference over to Bill Backus, CFO for Balchem Corporation. Thank you. Please go ahead.

Ladies and gentlemen, thank for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2015. My name is Bill Backus, Chief Financial Officer, and hosting this call with me is Dino Rossi, our Chairman; and Ted Harris, our President and CEO.

Following the advice of our counsel, auditors, and the SEC, at this time I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements, which reflect Balchem's expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements will prove correct.

And various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 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 Rossi, our Chairman.

Thanks, Bill. Good morning, ladies and gentlemen. And welcome to our conference call. Before we begin the formal portion of the conference call, I'd like to take this opportunity to telephonically introduce Ted Harris, who will be making a brief introduction.

Thanks, Dino. Good morning. Let me begin by saying that it is a real privilege to be here as the new leader of the Balchem team. I've spent my first few days meeting with the team, and conducting detailed strategy and business plan reviews with the Board of Directors.

Based on what I learned during those reviews, I believe Balchem's current strategies are good ones, and ones that I fully support. As the Board meeting progressed, it was also clear to me that there is strong alignment between our Chairman, the Board of Directors and management around the priorities for 2015, and the strategies for the current planning horizon.

My goal is to sustain and where appropriate and possible, accelerate and expand on these strategies so as to maintain Balchem's strong performance. In the coming months I will continue reviewing the various Balchem businesses and operations with a focus on achieving strategic organic growth initiatives, and pursuing acquisitive growth opportunities to deliver quality returns to shareholders over the long term.

I am very excited to be with Balchem, and look forward to meeting with many of you in person at conferences or road shows. I will now turn the call back over to Dino.

Thanks, Ted. This morning we reported record first quarter consolidated net sales of $144.9 million, which resulted in record first quarter net income of $15.2 million, or $0.48 a share. As disclosed in this morning's press release, these first quarter results include business relating to the acquisition of SensoryEffects that we initially acquired on May 7, 2014.

SensoryEffects, a privately-held supplier of customized food and beverage ingredients systems, is now reported in consolidation with the legacy FPN sector. We're happy to provide additional details for you on these items as we proceed through the call.

As mentioned, for the first quarter we reported earnings of $0.48 per share on a GAAP basis. This result includes a significant non-cash item that I would like to highlight, amortization expenses of $6.6 million for acquisition-related intangible assets were recorded in these first quarter GAAP financial statements. This charge is a direct result of acquisition valuation and purchase accounting rules. Consequently, our non-GAAP earnings reported in our press release earlier this morning exclude this expense to facilitate comparative evaluation of this current period of operating performance versus the prior-year period.

Our first quarter sales of $144.9 million were 68.5% greater than the $86 million result of the prior-year comparable quarter. Excluding the impact of the SensoryEffects acquisition, net sales were up 5% compared with the first quarter 2014, or up 8.7% currency adjusted.

In the quarter our Specialty Products generated record first quarter sales of $13.6 million, and grew 6.2% over the prior-year quarter. Animal Nutrition and Health sales at $42.7 million were up 4.5% over the comparable quarter. However, sales in the ANH rumen ingredients sector were particularly strong, increasing approximately 38% from the comparable prior-year quarter, primarily due to higher volumes sold and a changing product mix, with particular strength in rumen-protected choline and amino acids.

Monogastric product sales decreased 6.7%, primarily due to slightly lower volumes of choline sold in international poultry markets, and unfavorable foreign currency translation. Products with a companion animal and aqua culture species were slightly softer than the prior-year quarter as well.

Industrial product sales were up 3.1% from the prior-year comparable quarter, as volumes sold to various choline and choline derivatives for industrial applications, notably for shale fracking, increased, particularly early in the quarter. However, the volume increase was offset by lower average selling prices, resulting from pressures related to recent trends to curb hydrocarbon production costs and the industry activity downturn.

In the SensoryEffects segment, which includes the former Food, Pharma and Nutrition, net sales were $67.8 million, an increase of $55.6 million from the comparable prior-year quarter. Net sales from the acquisition of the SensoryEffects business contributed $54.5 million of this overall increase. And we also realized 8.8% growth in the sales of legacy FPN, with particular strength in encapsulating ingredients for baking and food preservation in both the domestic and international markets, even with the negative impact of the strengthened US dollar, as we are an exporter into the international markets served.

Our consolidated gross profits were $43.1 million or 29.8% of sales in the quarter, an increase of $19.9 million, or 86%, and up from 27% of sales level in Q1 of 2014. The gross margin improvement was primarily due to the noted favorable product mix, particularly in the ANH segment, beneficial manufacturing efficiencies resulting from the noted higher sales volumes, and certain lower raw material costs.

Gross margin percentage for the ARC Specialty Products segment increased by 60 basis points, primarily due to manufacturing efficiencies and cost decreases of certain key petrochemical raw materials. Gross margin percentage increased for the Animal Nutrition and Health segment by 950 basis points, primarily due to the favorable product mix, production and logistic efficiencies, as well as cost decreases of certain key petrochemical raw materials.

Industrial Products gross margins declined slightly by 60 basis points, highlighting the favorable change in volumes, product mix, efficiencies in manufacturing and favorable purchase prices of certain raw materials, which were more than offset by lower average selling prices.

As experienced since the acquisition, gross margin for the combined SensoryEffects segments was lower, primarily due to the acquisition, resulting in our product mix now being more heavily weighted towards the powder and flavor systems of SensoryEffects, which typically generates a lower gross margin.

Consolidated operating expenses for the three months ended March 31, 2015 were $18.1 million, or 12.5% of net sales, as compared to $9.9 million, or 11.5% of net sales for the three months ended March 31, 2014. The increase was primarily due to the inclusion of SensoryEffects operating expenses and increased amortization expense of $5.5 million related to the acquired SensoryEffects intangible assets. Excluding the $5.5 million of SensoryEffects amortization, operating expenses were $12.6 million or 8.7% of net sales.

Looking forward, we expect to leverage off of our existing SG&A infrastructure, and exercise tight control over all controllable operating expenses.

US GAAP reported earnings from operations of $25 million is an increase of $11.7 million, or 87.5% from the prior-year comparable quarter. On a non-GAAP basis, as detailed in our press release early this morning, earnings from operations of $31.7 million increased $16 million or 101.7% from the prior-year comparable quarter.

As previously noted, consolidated net income closed the quarter at $15.2 million, up from $8.9 million in the prior-year quarter. This quarterly net income translated into diluted net earnings per share of $0.48 as compared to the $0.29 we posted in the comparable quarter of 2014. On a non-GAAP basis and as detailed in our earnings release, our diluted net earnings per share were $0.62 as compared to $0.34 in the prior-year quarter or an 82.4% increase.

Interest expense for the three months ended March 31, 2015 was $1.9 million, and is related to the term loan for the acquisition of SensoryEffects. The term loan has a remaining balance of $323.8 million at March 31.

The Company's effective tax rate for the three months ended March 31, 2015 and 2014 was 34.3% and 33.5%, respectively. This increase in the effective tax rate was primarily attributable to the impact of the SensoryEffects acquisition, a change apportionment relating to state income taxes, and income generation in jurisdictions with higher tax rates. As outlined in our earnings release, our first quarter results generated approximately $36.1 million of adjusted EBITDA in the quarter, which translates to 25% of sales, and equals approximately $1.15 per diluted share.

Our balance sheet continued to strengthen and our cash flow remained strong as we closed out the quarter, with approximately $57 million of cash. And this reflects $9.3 million of dividend payments, principal payments on long-term debt of $8.8 million, and $6.4 million of capital expenditure funding in the quarter.

I'm now going to have Bill Backus discuss the ARC Specialty Products, Animal Nutrition and Health, and Industrial Products segments.

Thanks, Dino. The ARC Specialty Products segment posted quarterly sales of approximately $13.6 million for the three months ended March 31, 2015, as compared with $12.8 million for the three months ended March 31, 2014, an increase of 6.2%. These higher sales were derived from increased volumes of ethylene oxide products used for medical device sterilization, and higher volumes of propylene oxide for industrial applications.

ARC quarterly earnings from operations were $5.7 million, an increase of $895,000 or 18.6%. This increase is due to the noted revenue growth, manufacturing efficiencies, cost decreases of certain key petrochemical raw materials, and tight control of selling and administrative expenses. During the quarter we did continue to incur additional expenses pursuing other new end-market applications.

In the Animal Nutrition and Health segment we realized sales of $42.7 million, as compared with $40.9 million for the three months ended March 31, 2014, an increase of $1.9 million, or 4.5%. Sales of product lines targeted for ruminant animal feed markets increased by $3.9 million, or 38% from the prior-year comparable period, most notably from increased sale volumes of ReaShure, AminoShure and chelated minerals.

The health of the US dairy industry continues to support strong demand for our products. Lower feed prices along with continued strong demand for milk in Q1 were key factors. These positive indicators provide support for greater expected utilization of our products, which are targeted to maximize results of production animals. The ruminant product line provides a significant growth platform for us, as we look to continually penetrate the market, gain market share, and develop new and novel products to satisfy global market demands.

Global monogastric species sales, included feed-grade choline products, decreased $2 million or 7%, primarily due to slightly lower volumes of choline and chloride sold in international poultry and aqua markets, and a negative impact from foreign currency. North American choline volumes sold increased, and typically tracked closely with broiler chick placements and egg sets. As lower feed prices and favorable economic conditions provide incentive for broiler integrators to expand production, there has been an increase in egg sets and a higher number of chicks placed for grow-out with the USDA reporting broiler production being up 2% to 3% in 2015.

ANH quarterly earnings from operations were $8.5 million, an increase of $4.4 million or 104.6%. This increase was a benefit of the favorable product mix, production and logistic efficiencies, as well as cost decreases of certain key petrochemical raw materials.

In the Industrial Products segment sales grew 3% over the prior-year period, principally due to volume increases of various choline and choline derivatives for industrial applications, most notably for shale fracking, with particular strength early in the quarter. However, as previously noted, the volume increase was offset by lower average selling prices, resulting from pressures related to recent trends to curb hydrocarbon production costs, and the industry activity downturn.

There are headwinds in this industry, as lower oil and gas prices have had an ultimately negative impact on fracking. However, we remain confident in the competitiveness and efficacy of our products, and believe there is still opportunity to gain additional market share through both our existing product portfolio, and the development and introduction of more cost-effective alternatives.

Our earnings from operations from the Industrial Products segment were $3.1 million, equivalent to the prior-year comparable quarter, and reflect the offsetting impacts of the favorable change in volumes, product mix, efficiencies of manufacturing, favorable purchase prices of certain raw materials, and lower average selling prices.

I will now turn over the call to Dino for him to discuss the SensoryEffects segment.

Thanks, Bill. As previously noted for the quarter, sales of our consolidated SensoryEffects segment were $67.8 million, an increase of $55.6 million from the comparable prior-year quarter. Earnings from operations for this segment was $7.7 million, versus $2.6 million in the prior-year comparable quarter. Excluding the effect of non-cash expenses associated with amortization of SensoryEffects acquired intangible assets, non-GAAP earnings from operations for this segment was $13.3 million.

We experienced certain sales positives and negatives in this segment, with higher sales in choline nutrient, flavors and inclusions, and particular strength in encapsulated ingredients for baking and food preservation in both the domestic and international markets, but reduced sales in powders. The powder business was affected by order timing, certain customers working down inventories and softness in specialty beverage product line.

The profitability of this combined segment is strongly contributing, as we continue to realize improved efficiencies and improve the value proposition and related margins of our product portfolio.

Sequentially, earnings from operations from this segment increased 9.4% due to product mix, manufacturing efficiencies, cost decreases in certain key raw materials, and tight control of selling and administrative expenses.

In this segment we continue to focus on integration activities of the combined SensoryEffects. We're building consumer awareness of the benefits of choline, positioning choline with food and nutritional supplement companies as an essential ingredient to be included in existing, new and novel sensory solutions, which we expect to introduce to the market later in 2015. We are supporting additional external scientific research, and are excited with the recent FDA proposal that an RDI, recommended daily intake, for choline be accepted.

As previously discussed, our pharmaceutical delivery development efforts continue. We continue to work closely with the licensee of our technology who as completed Phase 3 clinical for their drug to be utilized in the treatment of autism. The new drug application is being filed with the US FDA, and we are collaborating as required. In the near term, this sector remains a net expense to the business segment.

We're always looking to expand our product offerings, particularly via new end-use applications, and moving globally, particularly in the human and animal nutrition market. Our business continues to provide good balance, yielding profitable growth opportunities across the served value chain. We remain focused on helping our customers generate reinvestment level returns, while maintaining our own operating discipline.

As we continue to build the financial strength of the Company, we continue to explore possible alliances, acquisitions, and/or joint ventures to build and leverage on our strategic platforms, technology and strong human asset base. I'm now going to turn the call back over to Ted for some closing remarks.

Thanks again, Dino. We are very pleased with the first quarter record sales and earnings. And these results underscore the value of our diversified portfolio, particularly in light of the headwinds we have been facing in the shale fracking market, the strength of the US dollar, and certain global economic weakness.

We realized improved operating margins, due largely to a shift in product mix, manufacturing efficiencies, and a focus on management of base costs. Cash flow remains strong. And during the quarter we generated $27 million in cash flows from operating activities.

Looking ahead for 2015, we expect to capitalize on the strength of our diversified portfolio and the end markets we serve, while continuing to manage our business in an uncertain geopolitical and economic environment.

This now concludes the formal portion of the conference. At this point we would like to open the conference call for questions.

(Operator Instructions) Tim Ramey, Pivotal Research Group

Good morning. First, let me say welcome to Ted, and congratulations Dino, on what has been truly a remarkable record at Balchem. What a great growth company you've developed, and your legacy is strong. So congrats on that.

Just a nuts and bolts question, the amortization of intangibles sounds like it was mostly in SensoryEffects, but some in another segment. Can you give us a breakdown on that as well as the breakdown of the $0.995 million for last year as well, Bill?

Yes. So you're right. Most of the amortization is absolutely SensoryEffects. There's total amortization of about $6.6 million in the quarter, of which $5.6 million is related to Sensory from the acquisition. The other $1 million is legacy Balchem amortization from prior deals. We've done, as you know in the past, we acquired Aberco. We had the Chinook-- a customer list that we acquired. And we're still amortizing some of those intangibles from those deals.

So, just for modeling purposes, should I throw that in ARC? Or--

No. Most of it it's going to be ANH.

ANH, okay. So $1 million in ANH, and then just if you recall the $995,000 from last year, was that in SensoryEffects, or where did that relate to?

The $995,000 from last year?

Yes.

So again, the biggest piece is probably customer lists that we acquired, and that's not Sensory, definitely not Sensory. So you would add small pieces in FTN, you would add small pieces in ARC, like I said with Aberco. But predominantly the amortization there, that $995,000 is absolutely going to be related in particular to the Chinook customer list that we acquired back in 2007. So there's still going to be a full year of that amortization this year rolling out.

Okay. So I mean there is some in what is now called SensoryEffects, even though it was before the acquisition, but mostly in ANH.

That's correct, and a little bit in ARC. There's not too much in legacy FTN, but there is some. Most of it though, by far, is absolutely the SensoryEffects acquisition in that SensoryEffects segment at this point.

That's helpful for the model. And thanks too for the further disclosure on industrial products. And it's notable that I think you fessed up to headwinds, or you agreed that are real headwinds there, which is a change from what you experienced in the fourth quarter.

Do you have a sense of how that business evolves? I mean it looked like there was some margin pressure, or at least pricing pressure on decent volume. Is this still a decent volume story? Or do you think it flattens?

I think to your note, in our previous call, we talked about still yet having seen strength in the industry. I'd say midstream in Q1 is where we saw it start to fall off. And even the language that we talked about. It was still strong in Q1, and then drifting off towards the end of Q1. And I think we'd like to think we're at the bottom of that right now. But I don't know that anybody has a crystal ball and can say so for sure. But our view here going forward, I mean we're still shipping products into this space, and expect them to continue to frack. But certainly I think to think it's going to be at the level that it was volume wise anyway, like in Q4 which was very strong, Q3 very strong. We're certainly not of that near-term view. And I think it probably won't turn until we see the price of the barrel recover a fair bit.

And then just a question on the ANH comments relative to choline chloride, I was surprised sales weren't slightly better in North America. You indicated they were up, but it was FX and Europe was weak enough to drag the whole basket down. Is there anything in particular going on in Europe? Did you lose a meaningful customer or just a little color there?

Yes. Not really. I mean so we sell not only into the poultry industry, but also into the aqua industry over there. And we saw a little bit of softness. We haven't lost any accounts. But I think that certainly the FX is playing through that international piece. And that's been there all along. I mean we do have pretty good performance out of that European operation. And so with the euro drifting that certainly didn't help. Volume wise, like I said, it was a little soft. But I'm not going to pretend to not be concerned. But I think from our view, we expect it to continue to pick up here through the balance of the year, and continue to see a strong year out of that market.

So there's some things going on over there in terms of their raw material positions versus what's going on here in the States, and some competitive environment there as well. I think you might remember that in early last year Q1 is when there was the Chinese issue in the contaminated product rolling into Europe that got shut down. So clearly, that kind of changed the volume of movement then. Perhaps they've clearly clawed back. I said they'd be back. So they've clawed back. They've corrected their issues. And so we're seeing that reflected in these numbers a little bit, but not too very dramatic.

I think accounts that we picked up at that point in time have pretty much stayed with us. And certainly with an expectation that that market is going to continue to be pretty decent through the balance of the year.

And one more quick one, Bill did you happen to calculate the FX impact on EPS?

No. I can give you the number. And so it's going to be about-- let me give you the pre-tax number here on sales, just on the sales number. It's $3.1 million. But in terms of-- I can follow up with you Tim, if you want to go through some of the other stuff though for your model.

Thanks so much.

Mike Ritzenthaler, Piper Jaffray

Yes. Good morning. I just want to kick it off with a question on SensoryEffects revenues. To what extent is the top line still showing some of the effects of pruning lower margin business? And I know that you don't provide specific guidance. But can you just walk us through how you're thinking about top-line growth expectations in 2015, and maybe just how much natural seasonality do you see in the Q1 versus Q4 numbers?

Yes. I think certainly there's some seasonality that we realized with that business. And it's probably more in line with the flavors part of-- the absolute flavors versus if you will, powders. And so we noted here that the flavor part of the business actually we saw an increase year over year, so some recovery going on there in frozen desserts and ice creams and things like that that have played through pretty neatly.

I would tell you that there is always an ongoing program here in terms of quote-unquote "pruning," if you will, to improve the margins of that business. And I mean you'll note overall that the margin improvement did happen. And I think that that's always going to continue to be there. But with that said, I don't know that I would sit here and say we're looking to really cut away from much more business that we picked up through the acquisition that really wasn't meeting the guidelines of what we thought would be acceptable.

I think a lot of that is behind is now. So on a go-forward basis, it's really more about just continuing to grow the business.

I think overall our view of the growth this year, given the start that we've had, is probably going to be a little bit less than clearly the 10% mark that we talked about. Especially beverages has started out a little slower than certainly we expected. We expect some recovery there.

So I think overall we're probably looking at maybe a 7% kind of growth in that business organically. But I don't know that I can give any more guidance than that right now.

No that's very helpful. Thank you, Dino. So another question on-- the international choline sales, I was just curious about what that would be-- what that was excluding currency. I can't remember if you specifically pointed that out. And then secondly on choline domestically I guess, is the impact of avian flu, how that has flown through the P&L and passed, like international instances where we've seen more widespread choline. So just choline sales internationally, excluding currency. And then the avian flu piece.

Yes. So I think that we mentioned that on the international side it's mostly related to, I would say sales coming out of the Italian operation, which are sales that go into a number of different countries, not only the EU. And when I say a little bit of softness, I think of no real alarm here, if you will. And so I don't think that that's going to have a lasting impact for sure.

Switching over to the avian flu impact, historically we've not really been impacted by that. And while there are pockets today here in the states, I really wouldn't even say that that's impacted our numbers here in Q1. So I think our view of that is that poultry is going to be continued to be consumed from around the world, wherever. I think in the past, probably the US has stepped up and exported. Which you might argue would be better for us, knowing that we're predominantly North American based with that choline, short of what we do out of the Italian operation.

But right now, I would tell you that we're not looking at the avian flu issues that are at least currently out there, unless they really do pick up and run in a big way, as being a note to be too very problematic about.

Okay. Fair enough. On raw materials, is there a way to quantify year over year the change in raw materials in the gross margin? That seemed to be a pretty material needle mover this quarter.

Yes. Well, certainly I think a lot of it revolves, but not entirely, around petrochemicals. And I think everybody knows that with the barrel price coming down that it's certainly rippled through. If you read a lot of the other specialty chemical announcements that are out there, they're talking about prices of key raw materials coming down.

And I think up through last year, there was a lot of questions, even on calls too, about why our cost really wasn't drifting off a little bit here, given what was happening with the barrel of oil and natural gas prices. But that has started to ripple through. So we're starting to pick up of the benefit of that here, at least in the quarter.

I think that the key here is that as quick as we say that, I can also tell you that in certain parts of Europe and other parts of the world, some of these petrochemical prices are starting to move back up, whether it's because of turnarounds in plants, or an explosion in China, or things like that. And a lot of this has become very quote-unquote "global" in their pricing schemes, if you will.

So I don't think that there's any one particular area that's going dictate what happens here with these prices. But certainly there has been relief. And you're seeing some of that reflected in these numbers. I think the difficulty as it relates to us is also that our product portfolio has changed. And where choline in and of itself used to be a significant impact here. But in Q1 we talk about flatness in the shale fracking. That's altering, if you will, what choline is as a percentage of our business, and accordingly margins that go with choline versus Specialty Products and specialty ruminant products for that matter.

I mean these numbers reflect a significant change in that product portfolio. We've talked about, hey, we really like the fact that the ruminant business is growing. I think these numbers reflect that more and more. And yes, I'd like to not see any of the businesses be trailing off. That would be ideal. But I think these percentage shifts that you're seeing play through here are reflecting a lot of that, also reflecting the change in our portfolio.

That makes sense. I'll wrap it up here with a question for Ted maybe. With the strong cash generation within the business that's just sort of inherent in the business, how do you think about allocation, just philosophically capital allocation between the debt pay-downs that's kind of been historically Balchem's outlet for some free cash versus dividends and the other pockets of allocation?

Thanks Mike, for the question. Obviously I'm new to the Company. I've been here a few days, and it's been a great few days. And as we've gone through our strategic plans with the Board over those last few days, we clearly have significant investment that we want to make organically in the businesses, both capital investment as well as R&D investment. We have a lot of good projects, both on the capital side as well as the R&D side. But we also have, what I would call, a very healthy pipeline of acquisitions that we're reviewing. I think we're committed to the dividend and Balchem has had a long history of providing a dividend, and we're committed to that.

And at this point in time, I think it's balancing between organic growth and acquisitive growth and where really we can create the best returns for the Company and balancing investments in both of those areas.

Fair enough. Thank you very much.

Debra Fiakas, Crystal Equity Research

Thank you for taking my question. First I was hoping to maybe put Ted on the spot just a little bit by asking what in your prior experience-- you have lots of experience with Ashland and FMC, what in your prior experience do you think will be of most value to you in your new position with Balchem? And by the way, congratulations.

Great. Thank you very much. I think that I've been in the specialty chemical industry for 28 years, managing a series of businesses, both smaller than Balchem and actually much larger than Balchem. And I think that specific experience around investments in R&D, new product development I think will be of benefit here, as we continue to try to differentiate ourselves through new products.

And secondly, I have spent a lot of time in my life both living and working abroad, and managing global businesses. And as Balchem continues to grow internationally, I think that that will come to good use. And I think thirdly my experience in making acquisitions and integrating acquisitions that's been an important part of my career over those 28 years. And I think the acquisitive history of Balchem and the interest in continuing that and my experience sit well. So I'd point to those three areas specifically that I can draw on to help continue the strong performance of Balchem going forward.

Excellent. Thank you. And then for Mr. Rossi, you've had what-- four days off now? I was wondering if you had had some thoughts about how you want to craft your role as Chairman of the Board. What will change in the coming months and quarters in your role as Chairman?

Well, I think it's been all of four days. But I don't know that there has been a whole lot of change in net-net. I think as was mentioned before, it's all about transitioning here with Ted near term. But I think on a go-forward basis, as the Chair position, I was the Chair before. And certainly I believe it's going to be a lot that's same as what was in terms of that particular role, if you will.

But I also think it will take into consideration, with Ted on board now, if there's any modest changes in direction or anything like that, does it impact who we should have on the Board, bringing any other kind of experiences onto the Board to help facilitate those things. So we'll study that real close. But for the next near term, I think it's really going to be business as usual, and continue to support, if you will, management with whatever needs to be done to help facilitate the growth.

Excellent. Thank you. And then just one housekeeping question. I wanted to return to the topic of amortizing the intangibles. I just didn't quite hear everything that was said when the previous caller asked about the amortization. Is-- what portion, if any, of the-- I think it was $5.6 million for Sensory, related to the Sensory acquisition? Was there any portion of that that's non-recurring?

No. No. It's all recurring amortization. And it will run out through its useful life (inaudible).

Okay, and what time period? What was the time period?

Well, it depends on the intangible. But for example, the customer relationships which is a big one. Typically it's 10 years. And that's where we're at, at this point.

Okay. Excellent. Thank you.

[George Libsener], Private Investor

Just a word of kudos for Dino for all his accomplishments and the growth and the foresight he gave to the Company. I just wanted to wish him luck, and thank you on behalf of the investors, and also wish Ted success in his new role.

Thanks George. And thanks for all the support over the years. I really appreciate it.

I wish you the best.

Carson Yost, Yost Capital

I just wanted to say, thank you Dino. And Ted, I look forward to you compounding our stack at 18% per annum for next (inaudible).

Set the bar high for me, thanks.

My first question about the avian flu was already answered and asked. So I only have one question which was, where's the competition on price coming from for oil services? And that's number one. And number two, I was pleasantly surprised to hear that volumes were okay, despite the fact that the rig count fell off so much. So if you could tell us how you're achieving such great customer wins or market share wins, or whatever that is. Thanks.

Well I think on-- the price pressures are coming from oil field service players out there in the market today. And I'm sure you read about what's going on with whether it's Schlumberger, Haliburton, BJ-- there's a lot of pressure there. They're laying off hundreds of thousands of people now. And so it's not a pretty picture. A lot of that clearly is I think being generating because of the decline in the drilling activity itself, so kind of the front end of the process, if you will.

But it's rippling through. I mean we're starting to see that. As I said, we've reported-- I'm going to say a decent Q1 here. Towards the end of Q1 it certainly started to drift off a little more in terms of volume. But there's a lot of ongoing conversation with that customer base to understand what is going on out there. There are certain fields that are continuing actually to do quite well.

Certainly, I won't say at the expense of others, because the overall market is down, but there are certain ones that are doing better than others for sure. And we continue to push product into those particular markets.

But it's about continuing to be a quality supplier into the space, giving them good service. They've tightened up the supply chain for sure. It's a lot about just in time and having inventory in the right places to service that. So we're going to continue to stay as close as we can. But I will tell you when I say just in time, it's just in time. I think many of these guys don't know for sure if they're going to be fracking a well on Monday on the Friday before. It's that tight out there.

But just the idea of staying as close as we can to them and working with them to help facilitate the pressures that they're feeling as well.

Okay, great. It's not some new supplier or something like that?

Not really. You know, we talked before about some Chinese material coming in, a little bit from Europe. But no new supplier outside of that.

Cool. Thanks. Have a great day.

Garo Norian, Palisade Capital Management

Hi guys. I was just wondering if you could give an update on the joint venture which is now with Eastman I guess.

Yes. Certainly the plans are place to continue to move forward. Engineering work is going on. So I think our opinion, and I think this is a shared opinion with Eastman, although maybe if you want a separate answer you should get it from them. But the view is that this JV was being done in light of what was going on in the fracking industry. Our view is that the fracking industry is going to continue to be here going forward. Certainly there's a little speedbump here right now that we've hit. How long or broad that's going to be, I think, is still yet to be determined.

But I think the consensus view is this technology is here to stay. With that said, our view is that the market will require more product. You might argue exactly when right now. And I wouldn't disagree with that. So I think we're having discussions about the prudent way to proceed here jointly. But as of right now, it's still moving forward. And maybe not as hastily as we were six months ago, but certainly still moving forward.

I guess just on timing, is it still expected later this year?

I think that that might slip a little bit by design, if you will, probably into 2016. And I think we'll see yet here how things are playing out, and always keeping an eye on what's happening from the construction standpoint down in the Gulf, available crews and those kinds of things, and price points that are going on because of what's going on in that market. That might be all good reasons to slow it down a little bit.

But I won't project that too hard, other than I think it's now probably going to be in 2016 rather than 2015.

Good to hear. Thanks.

Tim Ramey, Pivotal Research Group

Yes. Maybe just a follow-up for Ted. I know you went through this couple-day strategic review session. And is there anything that kind of jumps off the table as particularly interesting from your new perspective with the Company that you would care to highlight?

As I reflect on those couple of days, and again they were great days, but only two days. So let's put it into context. But I would say three things come to mind. One is just around I think the great work that is being done, both from an R&D and a marketing perspective around differentiating choline in food, in feed, and even in industrial applications. I think that Balchem has a good pipeline of differentiation-enhancing efforts that I think are exciting, and that will continue to allow us to grow in those areas.

I also think the Agglomeration investment is a very positive investment that really kind of gives us turnkey specialty powder capabilities that we haven't had in the past. And I think the team is excited about what that can do for our powder business. And that really caught my eye as an exciting opportunity to continue to grow SensoryEffects.

And then as I mentioned earlier, I think the robust acquisition pipeline. That to me is exciting. I think there is good mix of small acquisitions and larger ones that enhance technology, geographic span, as well as new market penetration. So those three areas come to mind as I'm not sure surprises, but particular highlights of the three days.

And maybe ask a question another caller did a different way, but coming from your background which I believe is more kind of industrial rather than food, although I know you've had food assignments. Are there opportunities that you bring to the table that might be kind of plug-and-play for the Company?

I do, as I reflect again back on those couple of days, and really getting into the different businesses. My six years or so managing FMC's food ingredient business really kind of-- that that experience and the talk of the competitors and the opportunities, really has all kind of come back to life again. And so I think that I certainly can draw off of those experiences as we try to grow in the food space here at Balchem.

I think the international experience that I've had comes to mind as well. I've experienced building plants in China and managing plants and businesses in Europe and South America and across Asia. And as we went through the strategic plans, I would say each of the businesses is contemplating opportunities in those regions of the world. And I think that some of my experience in starting new businesses there, managing old ones and growing them, I think will come to particular use in trying to accelerate those efforts.

Thanks so much.

Thank you. This concludes today's question-and-answer session. I'd like to turn the floor back to management for closing remarks.

So I'll just say-- this is Dino. I'll say thanks everybody, for participating on the call. And thanks for your support. And we look forward to talking to you again at the end of the next quarter. Thanks.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.