Greetings. Welcome to the Balchem Corporation Financial Results Conference Call.
At this time, all participants are
in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.
I will now turn the conference over to
your host, Martin Bengtsson. You may begin.
Thank you, Shamali. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Bakken Corporation for the quarter ending September 30, 2020. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, CEO and President. 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 OutKam'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 ks. Forward looking statements are qualified in their entirety by this cautionary statement. I will now turn the call over to Ted Harris, our Chairman, CEO and President.
Thanks, Martin. Good morning, and welcome to our conference call. This morning, we reported quarterly consolidated net sales of $175,100,000 which resulted in 3rd quarter net income of $21,600,000 or $0.66 per share on a GAAP basis. On an adjusted basis, our 3rd quarter adjusted non GAAP net earnings were $26,900,000 or $0.83 per share. Cash flows from operations were $35,400,000 for the Q3 of 2020 with quarterly free cash flow of $28,300,000 Our 3rd quarter net sales of $175,100,000 were 10.4% higher than the prior year comparable quarter and were an all time record.
We also achieved all time record sales in our Human Nutrition and Health segment and record 3rd quarter sales in our Animal Nutrition and Health segment. The impact of foreign exchange to our sales was a positive $1,200,000 primarily due to the stronger Europe, driving a positive 76 basis point impact to our year over year sales growth. Our Q3 consolidated gross margin dollars of $56,400,000 were up $2,400,000 or 4.4 percent compared with $54,000,000 for the same period in the prior year. Our consolidated gross margin percent was 32.2% of sales in the quarter, down 187 basis points compared to 34.1% in Q3 of 2019. The 187 basis point decrease was primarily due to mix.
Consolidated operating expenses for the Q3 of 2020 were $27,300,000 as compared to $28,000,000 in the prior year. The decrease was principally due to lower selling expenses driven by reduced travel and a decrease in bad debt expense, partially offset by certain higher compensation related costs. Excluding non cash operating expense associated with amortization of intangible assets of $6,200,000 operating expenses were $21,100,000 or 12% of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG and A infrastructure. GAAP earnings from operations for the Q3 were an all time record $29,000,000 an increase of $3,000,000 or 11.5% compared to the prior year quarter.
On an adjusted basis, as detailed in our earnings release this morning, non GAAP earnings from operations of $36,300,000 were up $2,800,000 or 8.3 percent compared to $33,500,000 in the prior year. All time record adjusted EBITDA of $44,400,000 was $4,100,000 or 10.1% above the $40,400,000 posted in the Q3 of 2019. Interest expense for the Q3 2020 was $1,000,000 and our net debt was $115,000,000 with an overall leverage ratio on a net debt basis of 0.7. Strong cash flows in the 3rd quarter enabled the company to make $25,000,000 of repayments of its revolving debt. Company's effective tax rates for the Q3 2020 2019 were 22.7% 15.4 percent respectively.
The increase in the effective tax rate was primarily attributable to a reduction in certain tax credits and lower tax benefits from stock based compensation, partially offset by lower enacted state tax rates. 3rd quarter consolidated net income closed the quarter at $21,600,000 up 4.3% from the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.66 for the current year, an increase of $0.02 from last year's comparable quarterly result of $0.64 On an adjusted basis, our record 3rd quarter adjusted net earnings were $26,900,000 or $0.83 per diluted share, up $600,000 or 2 point 3% compared with $26,300,000 or $0.81 per diluted share in the prior year quarter. These adjusted non GAAP net earnings exclude tax adjusted non cash amortization and other items as detailed in our earnings release this morning of $5,400,000 to facilitate comparative evaluation of operating performance versus the prior year period. We generated quarterly free cash flow of $28,300,000 and we closed out the quarter with $79,000,000 of cash on the balance sheet.
3rd quarter cash flows from operations were negatively impacted by approximately $8,200,000 of 2nd quarter tax payments, which were deferred to the 3rd quarter as part of the CARES Act. Before passing the call back to Martin to cover the detailed results by segments, I would like to update you on the impact of COVID-nineteen on our company as well as a few of our important strategic activities and growth initiatives. As we shared in the press release this morning, the COVID-nineteen response effort has been a primary focus for the company since early in Q1. Our focus has been on employee safety first, keeping our manufacturing sites operational, satisfying customer needs, preserving cash and ensuring strong liquidity and responding to changes in this dynamic market environment as appropriate. Today, all of our manufacturing sites are operating at near normal conditions, enabling us to supply our customers with the important products and services they need.
Our research and development teams are advancing our innovation efforts and all of our other employees are effectively carrying on their responsibilities and functions remotely. The puts and takes of the COVID impact on our company largely offset each other in the 3rd quarter. While uncertainty continues to exist, we believe that the markets we serve will remain largely intact in a post pandemic environment and that Dow Chem will be well positioned to continue to serve our customers effectively. We will continue to watch each of these markets very closely and remain nimble, flexible and ready to respond accordingly. Meanwhile, on the research front, we continue to advance the science behind our solutions through collaboration with leading research facilities to enhance the portfolio of scientific studies and the awareness around the beneficial impacts of our products.
To highlight a few more recent studies pertaining to our Animal Nutrition and Health segment, Doctor. Pete Hanson's lab in the University of Florida published a study demonstrating the positive benefits of supplemental choline in embryonic survival in dairy cattle. The paper entitled effects of choline on the phenotype, the cultured bovine pre implantation embryo, the study demonstrated with an in vitro model that increasing the level of choline in the surrounding medium increased embryo development, the expression of specific genes and overall DNA methylation. This foundational research has set the stage for further follow-up studies and is suggesting possible expansion of the value proposition of ReAssure at rumen protected choline for both dairy and beef animal producers. In support of our monogastric choline business, the Q3 also saw the publication of a key research file in the International Journal of Poultry Science, demonstrating the advantages of feeding choline as a methyl donor for growing broilers.
The work completed at the University of Tennessee with Doctor. Michael Smith demonstrated the benefit that increasing levels of choline had on broiler pall or foot pad scores and lower litter moisture. This work helped to validate the advantages of using choline with broilers even during periods of heat stress. Another study published during the quarter highlighted our T shirt organic trace minerals and the benefit they showed versus alternative inorganic minerals. The work was led by Doctor.
Zach Lowman from Balchem in conjunction with North Carolina State University and help to demonstrate the advantage of Kiesure on Pall scores, feather scores and overall body weight gains. On the human nutrition and health front, while there have not been any major publications during the Q3, partly as a result of the pandemic, We know that good progress is being made in the important Cornell 7 year follow-up study, where we expect a number of publications to be coming out over the coming 12 months supporting the beneficial impacts of choline on child cognition. On our mineral side, we also achieved important FDA GRAS or generally recognized as safe self affirmation of FerroCal, our high absorption iron mineral for infant formula and as both calcium dysglycemic chelate and zinc dysglycemic chelate. Further, in our continuing effort to advance our environmental, social and governance efforts, in the Q3, Balchem proudly joined the United Nations Global Compact. This commitment to the Global Compact's principles is another step in our continuous improvement journey relative to our corporate social responsibilities and achievement of our higher purpose of making the world a healthier place.
For more information around our environmental, social and governance ideals, I encourage you to read our sustainability report that you can find on our website where we consolidate all of the great work that Balchem has been doing for many years into a consolidated report. We are proud of our ESG accomplishments to date and look forward to sharing updates with you as we progress higher purpose of making the world a healthier place. And lastly, as we have discussed in previous quarters, we have embarked on an important project to consolidate our 5 ERP systems into 1, Microsoft Dynamics 365. Activities related to this project, which were paused during the Q2 due to travel restrictions and our global pandemic response efforts, resumed in the Q3. We brought 3 more manufacturing sites onto our new platform in the Q3 and we continue to prepare for additional go lives in the Q4 while optimizing the system for sites already on the system.
We currently have approximately 75% of our annualized revenues on the new ERP system and we believe that we will be able to implement the full project by the middle of next year and within our $12,000,000 budget despite the pandemic related delay. I am now going to turn the call back over to Martin to go through the detailed results for each of our segments. Thank you, Ted.
For the quarter, our Human Nutrition and Health segment generated record quarterly sales of $103,600,000 an increase of $17,400,000 or 20.3 percent from the prior year. The sales increase was primarily driven by higher sales within food and beverage markets, strong sales growth of Chelated Minerals and beneficial impact from the Zumbro acquisition we closed in December Redding, Pennsylvania manufacturing site that we associated with the Reading, Pennsylvania manufacturing site that we divested in 2019. Our Human Nutrition Health segment also delivered record quarterly earnings from operations of $17,500,000 an increase of $4,300,000 or 32.6 percent compared to prior year, primarily due to the aforementioned higher sales and lower selling expenses as a result of reduced travel and a decrease in bad debt expense. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $5,000,000 adjusted earnings from operations for this segment were $22,500,000 an increase of $4,500,000 or 24.9 percent compared to $18,000,000 in the prior year quarter. Our Animal Nutrition and Health segment also delivered record 3rd quarter sales of $46,400,000 an increase of 9.6 percent or $4,100,000 compared to the prior year.
The increase in sales was primarily the result of higher sales and volumes in the ruminant species markets. Ruminant volumes were up over 17% with strong demand for AminoShore, our rumen protected methionine and ReaShore, our rumen protected choline. In terms of dairy economics, milk and milk protein prices have been volatile and have fluctuated quite significantly, which makes it difficult to predict exactly where they will go next. While clearly uncertainty continues, futures pricing are at relatively healthy levels. Monogastric sales were essentially flat in the 3rd quarter after a strong first half of the year.
We experienced volume growth in both chelated minerals and in the pet food markets, but this was offset by softness in both aqueous and dry cooling. Animal Nutrition and Health quarterly earnings from operations of $7,000,000 were up $900,000 or 14.5 percent from the prior year quarter, primarily due to the aforementioned higher sales, certain lower raw material costs and reduced travel, partially offset by an increase in certain compensation related costs. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $200,000 adjusted earnings from operations for this segment were $7,200,000 an increase of $900,000 or 14.1 percent compared to $6,300,000 in the prior quarter. Our Specialty Products segment delivered quarterly sales of $23,000,000 as compared with $24,900,000 for the prior year quarter. The decrease of 7.6% was primarily due to lower sales of ethylene oxide for the medical device sterilization market, which has been negatively impacted by reduced elective surgical procedures during the pandemic.
The plant nutrition business declined approximately $300,000 compared to the prior year quarter. However, we're pleased with achieving double digit growth for this business in the first half of the year, the seasonally strong proportion of the year. Specialty Products will continue to be somewhat challenged due to our expectation that ethylene oxide sales will continue to be negatively impacted by the reduction in elective surgeries for the duration of the pandemic. We are, however, somewhat encouraged by the very gradual improvement in the business that we saw through the quarter, which we believe coincides with a modest pickup in elective surgical activity. The Specialty Products segment had 3rd quarter earnings from operations of $5,300,000 versus $6,700,000 in the prior year quarter, a decrease of $1,400,000 or 20.2 percent.
The decrease was primarily due to the aforementioned lower sales. Excluding the effect of non cash expense associated with amortization of intangible assets of $1,500,000 3rd quarter adjusted earnings from operations for this segment were $6,900,000 compared to $8,400,000 in the prior year, a decrease of $1,500,000 or 17.4 percent. I'm now going to turn the call back over to Ted for some closing remarks.
Thanks, Martin. We are extremely pleased with Balchem's financial results reported earlier this morning. In the Q3, we delivered record consolidated sales and strong revenue growth in both our human and Animal Nutrition and Health segments with record Q3 consolidated GAAP net earnings and record Q3 non GAAP adjusted net earnings and solid cash flows from operations, while continuing to face and overcome significant challenges and uncertainties related to the global pandemic. These very strong results reported today are a direct result of the extraordinary talents and efforts of the Dow Chem team, as well as the strength of our market positions and the resilience of our business model. I would like to once again take this opportunity to thank each and every one of the approximately 1400 Balchem employees across the world who helped make it happen every day.
We further strengthened our already strong balance sheet this quarter by reducing our net debt by $27,600,000 finishing the quarter with a net debt leverage ratio of 0.7. We have strong positions within the markets we serve and these unique positions coupled with our strong balance sheet will enable us to generate healthy growth over the years to come. I'd now like to hand the call back over to Martin, who will open up the call for questions. Martin?
Thank you, Terence. This now concludes the formal portion of the conference. At this point, we will open the conference call for questions.
Our first question is from Baav Levik from CJS Securities. Please proceed with your question.
Good morning. Congratulations on a nice quarter.
Hey, Scott. Hi.
So you mentioned obviously record results in H and H and highlighted a few of the drivers. I was wondering if you could give us a little more color on both the food and beverage and chelated mineral strength and talk about the sustainability of the strength you're seeing?
Sure. Yes. We were very pleased with the overall results in Q3 for H and H. Sales were up 20% and earnings were also very strong, up almost 25%. The nutrition and pharma part of the business did very well.
It was up about 3.5% with very strong continued minerals growth. So we're continuing to see what we believe is an ongoing trend towards focus on obviously health and immunity minerals, for example. And as far as the sustainability of that, it has slowly declined throughout the quarter and since the pandemic started. But still, we're seeing strength in that segment. And we believe that, that will continue for some time to come, possibly for the foreseeable future.
So we're quite bullish about our Mineral and Nutrition portfolio of products and the growth that we have seen and the growth that we expect to see going forward. The food ingredient part of the business really had an exceptional quarter. It was up almost 25% in the quarter, obviously benefited a little bit from the Zumbro acquisition. But if you strip that out on an organic basis, our food and ingredient portfolio was up over 15% and really coming from all of our product lines. All of our product lines showed growth year over year, but we did see particular strength in our powder systems business and our serial systems business.
And some of those are really benefiting from the work from home experience. For example, we're an important supplier to Keurig Doctor Pepper and their business is doing very well with the we sell non coffee related systems for their K Cups and that's doing very well. And various other customers similarly that are benefiting at this point in time. So feel really good about the performance of that business. And we believe that those trends will continue for some time as consumer demand adjusts to the new normal.
And so we feel really good about that business and the future.
Okay, great. And then you talked about how basically you're operating at near normal or essentially normal as much as you can be in this environment. Can you talk about just the ability to keep the new product development happening over the past 6, 7 months and going forward and where you stand and how that how your new product pipeline is looking or shaping up?
Yes. So obviously, that's been a little bit of a challenge. But really since day 1, we have treated our R and D efforts much like our manufacturing efforts. So our labs have stayed open, and we've been able to keep them functioning very well. And we are progressing our key R and D project.
Some of these projects are dependent on customer interaction and it's a bit of a two way street and we do see some customers have slowed their activities or maybe haven't even kept some of their laboratories open. So some of those activities have been slowed, I would say, specifically customer related activities. But where we're developing really new broader science for the market, by and large, we've been able to keep those activities growing. We've seen a return to uniform sometimes we use universities to test our products and so forth. And we've seen those now come back.
There was a slight pause, I would say, in the Q2, but those have come back. So that slowed things for us a little bit, but we've now been able to ramp that up pretty well and continue with those efforts. So for the broader, more significant R and D efforts, we feel really good about our ability to continue to progress those for maybe our smaller 1 on 1 customer related efforts, that's been a bit more difficult. But seems to be getting better as everybody gets more used to the situation and starts to find ways to continue those R and D efforts. And just as I kind of watch our call reports come in from customers, there certainly seems to be more ability to start working on those customer specific projects than there was 3 or 4 months ago.
Okay, great. And last one for me, I'll jump back in queue. But can you talk a little bit about obviously, you mentioned a strong cash flow and a very strong balance sheet. So maybe talk about the M and A pipeline and the opportunity, again, given the COVID disruption. Is there the ability to go out and due diligence deals?
Or how has that progressed and how is it looking going forward?
Yes. I think our pipeline still remains very healthy and we feel really good about the pipeline of ideas we have and opportunities we are exploring. I have to admit that there was a bit of a pause in this area for a few months there in the early stages as it was tough to really think through how can you possibly do due diligence remotely because we're so think not only Balchem, but the market as a whole has kind of gotten over that and figured it out. And we have some really talented folks on our Board who do a lot of M and A activity and that really helped us through this and helped guide us as far as the ability to do plant tours virtually and with somebody carrying an iPad around the manufacturing site. So we're sort of back on the mission to find the right opportunities.
We feel good about our pipeline. And I think even in banks would say that M and A activity has heated back up again. So we're encouraged about our ability to, again find opportunities and get them done as appropriate.
That sounds great. Thanks very much.
Yes. Thank you.
And our next question is from Mark Connelly with Stephens Incorporated. Please proceed with your question.
Thank you. Ted, you mentioned several studies and you've said in the past how important those studies are to getting the word out. Can you talk a little bit about your broader relationships with universities and how those relationships affect your pipeline?
Sure. Yes. We tend to work with, I think, the most prestigious universities in the fields that we work in. We have strong relationships there. Sometimes we may be even our funding graduate students, but certainly investing in studies using their scientists, using their resources.
They oftentimes have access to animals and so forth. And it's really important that we align with the leading institutions because credibility is of utmost criticality here. And so we've had long standing relationships with these universities. Some of them did have to pause activities during the early stages, but by and large have resumed those and our long standing relationship has us kind of in the top of the line, if you will, to continue the studies that we need to do. But at the end of the day, we need to show the effectiveness of our products in whether it's humans or animals.
So these studies are very important. And our selling process oftentimes on the nutrition side is a Balchem Nutritionist selling to a customer nutritionist or a nutritionist hired by multiple customers. So it's a very technical sale and data and various studies are critical to that process. So it's an important part of what we do and we're pleased that that is how we think back as it needs to be. And so we have several ongoing studies as we speak that we're looking forward to the results coming out of those in the coming months quarters.
Superb. And if we could just switch gears. Clearly, the consumption of cow's milk has had a nice benefit here during the COVID period. If you would assume that consumption of cow's milk reverts to its previous negative trend, Do you think that would help or hurt your market penetration? I'm curious whether it's going to put more pressure on farmers to use your product or cause a bigger pullback in volumes?
I think I'd answer that question by just stepping back a little bit. What we most care about is overall dairy protein consumption. And so as part of your question, you're speaking to historically, fluid milk has been declining for some years and through the pandemic, it has picked up some, makes sense. People are working from home. They're more likely maybe to have a bowl of cereal as opposed to grabbing a bar and running to the car, to the train and parents are making sure their kids are drinking milk and they're at home and so they can do that.
So food milk has picked back up. But the reality is, over all of this period of time, milk protein consumption has been growing despite fluid milk up and down, and that's been largely driven by cheese and yogurt. And cheese consumption has been growing up and there's really there's almost like maybe don't quote me on this, but a 10:one ratio between fluid milk and cheese. So growth in cheese is really much more important than the fluid milk number. And as long as that continues, I think it's good for our business because the market's growing, demand's growing and so likely what will happen is dairy cows will be taken out of the system, but we still believe that the farmer is going to want that cow to be as efficient as it possibly can be.
That would suggest support for an interest in our products almost no matter what. But we don't see that happening. We see continued strong demand overall in dairy protein and that's really the best for us is when the market is growing and there's interest in making their cows that much more efficient.
That's very helpful. I mean, and we see that generally across agriculture. That when markets get weaker, farmers pull back from the things that don't contribute increased efficiency, they don't pull back from the stuff that's giving them the efficiency gains. Just one simple last question. Is it fair to assume that we are seeing pretty much full benefit of the Zombro acquisition at this point?
I would say not yet. I think there's more to come there. We've taken all the actions in terms of the cost synergies that we had planned. We have consolidated one of their other changes. So sort of from a cost perspective, we're taking the actions we planned.
COVID had a little bit of a negative impact to the commercial side where they had exposure to the food service side. So we do expect an uptick in the contribution from Zumbro as we go forward as that starts coming back. So I would say it's not at its full potential yet.
Super. Thank you very much.
Thanks, Mark.
And our next question is from Mitra Ramgopal with Sidoti and Company. Please proceed with your question.
Yes. Hi, good morning. Thanks for taking the questions. First, I was just wondering if as a result of the surge we're seeing in a number of European countries again, if you're seeing signs of early stocking by some of your customers there?
Hey, Mitra. Hope you're doing well. Thanks for the question. We have not seen that yet. Obviously, we're overall concerned about the pickup in cases or the spike in cases in Europe all of the uncertainties that that brings with it.
We in fact just had a local employee in Europe test positive a couple of days ago in Belgium, and it just seems like those countries are really struggling right now. But we haven't seen a real impact on the business yet. We obviously have to watch it carefully. From our perspective, the supply chains and the border crossings are still fairly effective. We're not seeing any shortages in raw materials.
We're not seeing any difficulties in shipping products across borders like we did very, very early on in the pandemic. And so we haven't seen a lot of pre ordering going on as a result the recent spike. But that is a possibility in the weeks months to come. It's just one of those things that we need to watch very carefully. But I'd say we haven't seen anything right as of right now.
Okay. No, that's great. And on the Specialty Products side, I know you've talked about throughout the quarter, things are starting to pick up a little. Just speaking to some companies that fall in the space, they basically were saying where we probably hit a low back in March, April, maybe 30 percent of volumes. And some of them are saying you're seeing 60% expect to be as much as 80%, 85% by year end.
I'm not sure if it's going to be a little slower for you in terms of building over the next few months or you start to see that acceleration?
Yes. This is one area where it has been a little bit difficult for us to get really good data around what is exactly happening relative to medical device sterilization relative to medical procedures. We do talk to folks within our customer base. We've talked to leaders in medical device manufacturers. We even talked to some hospitals.
And we it does seem as though medical procedures on average are maybe down about 25% And that's also below and slowly has been improving over the course of Q2 and Q3. Of course, your first question around the spike, one of our questions is, is that going to reverse the positive trend we've been seeing relative to medical procedures improving, but that has to be seen. So we have seen improvement, we think overall as market is down about 25%. Our business overall is in the ethylene oxide space is down about 10%. And as I said, we've seen that improve probably at the low.
We are down maybe 15%, 16%, 17%. So we are seeing an improve, but it's very slow. And with the despite that are going on around the world, we are expecting a very slow recovery and wouldn't be surprised if we stall a little bit here as we grapple with the further spread of the pandemic. Okay.
That's great. And then finally, Martin, I was wondering if you can just give an update on the new ERP system in terms of how much investment still to be incurred to complete that? And what should we expect from just maybe efficiencies margin expansion standpoint once that's in place?
Yes, absolutely, Amit. I mean, like I said, we're about 75% through in terms of coverage of our revenue base. We got the primary sites we have coming up here is our international sites, right? So we got in Belgium, major go lives coming here. So from a spend perspective, we set out that with a budget of about $12,000,000 we think that we're within that budget.
So we don't expect any overrun based on what we can see right now. We have spent about $9,000,000 to date on this project. So you can think about it as another $3,000,000 which ties fairly well to where we're at also from an implementation perspective. But we also spend more in the beginning than we do in the end, right, and then setting up some of the infrastructure, which is why we feel confident coming in within our budget. From an efficiency standpoint, I wouldn't say that we're baking in and expecting huge cost savings, etcetera.
This is not necessarily primarily a cost play for us. This is more from an efficiency and disability and access to data. It's very difficult to manage in 5, 6 systems just from having good data for decision making. So we look at it more actually from the perspective of how we can leverage the data, bring visibility to analytics. And it's hard to estimate what kind of incremental profits will drive from that.
But if you're asking from the having gone line of D365, does that mean that you're going to cut out $1,000,000 or $2,000,000 or $3,000,000 of costs? That's not really what we're going for here. We're going for visibility of data and efficiency in operations.
Okay. That's great. Thanks for taking the questions.
Thank you,
And our next question is from Ram Selvaraju with A. C. Wainwright. Please proceed with your question.
Hi, thanks very much for taking my questions. I was wondering if you could provide us with some insight into how joining the UN Global Compact might affect your future sort of operational initiatives, how you manage the ethylene oxide business or if we really shouldn't be expecting any change or any impact there going forward?
Thanks, Ram,
for the question. Yes, we're pleased to join the compact. We really think it just represents who we are and where we want to go. I don't think it has any impact specifically on how we manage the ethylene oxide business. We've always managed that business very responsibly.
We do, I would say, an incredible job of recycling hazardous waste in that business, which is, I think, a really important and environmentally responsible activity for us. And we'll continue to be striving. I think part of the principle, if you will, of our ESG focus and the Global Compact is continuous improvement. So can we find ways to improve the 99% recyclability that we've achieved from a corporate perspective on hazardous waste to 100%. We've made some significant investments recently moving to natural gas from a power perspective.
We're investing in solar energy systems in our site in Belgium. It's all of those kinds of things that I think will just continue to accelerate and are joining the compact just reaffirms our commitment to continuous improvement and these ideals. But relative to the ethylene oxide business, I think it is just another commitment to continuously improve the management of that business and seeking improvements across the board, but I don't think it implies any significant pivot or shift in how we're managing it other than just, again, continuous improvement, which we've been doing for some time.
Okay, very helpful. The next two questions are for Martin. I think, firstly, I just wondered if there has been any change in the way you prioritize paying down debt or if that's effectively the same kind of philosophy internally that you had previously or if you're going to be prioritizing it more going forward or less? And then lastly, if you could give me a sense on where you expect effective tax rate to trend over the course of the coming quarters? Thank
you. Yes,
Rob. In terms of the capital allocation priorities, that short answer, that's not changed. We're still going to prioritize our organic growth opportunities first and then M and A as those opportunities come around. But as you know, they're lumpy when that happens. And in the meantime, we'll be paying down debt.
We'll protect our dividend and we'll continue to pay down debt. So it's really, I think, the timing of M and A that will shift a little bit when we pay down debt and when we don't. But we will always continue on the strategy that we're on. So no change really. From an ETR perspective, this quarter was a little bit higher than the prior 2.
And I think as you model for a full year for an effective tax rate, I would probably use something maybe like a 22% or so as our best estimate at the moment for a full year rate.
And we have reached the end of
the question and answer session. And I will now turn the call over to Ted Harris for closing remarks.
Thank you. Once again, I'd just like to thank everybody for joining our call today and more importantly, your continued interest in our company. We're really pleased with the strong Q3 and year to date results, the resilience of our business model in the face of these difficult market conditions and really the extraordinary response of the Balchem team. We appreciate your time. We look forward to reporting out Q4 and full year results in late February.
In the meantime, we will be presenting at several investor conferences. Hopefully, we can see some of you at one of these, but we're presenting at the Baird Global Industrials Conference 2020 on November 12, the Stevens Investment Conference 2020 on November 17 and Sidoti's January Small Cap Investor Conference on January 13. So again, hopefully, we can at least virtually meet with some of you at one of those conferences. Other than that, thanks again for joining today. We really appreciate it.
And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.