Greetings, and welcome to the Belkom Corporation Second Quarter 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.
Martin Bengtsson. Please proceed.
Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending June 30, 2019. 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'd like to read our forward looking statements. 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 the 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, ladies and gentlemen, and welcome to our conference call. This morning, we reported quarterly consolidated net sales of $161,600,000 which resulted in 1st quarter net income of $19,800,000 or $0.61 per share on a GAAP basis. Our 1st quarter non GAAP net earnings of $25,200,000 or $0.77 per share reported in our press release earlier this morning 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. These non GAAP net earnings of $25,200,000 or $0.77 per share represent an increase of $700,000 or 2.9 percent compared with the prior year quarter of $24,500,000 or $0.76 per share.
We also delivered quarterly cash flows from operations of $26,300,000 for the Q1 of 2019 with quarterly free cash flow of $20,100,000 The quarterly net sales of 161 $600,000 were 1.3% lower than the prior year comparable quarter. We achieved sales growth in 3 of our 4 segments with all time record quarterly sales in specialty products, record second quarter sales in our Human Nutrition and Health and Animal Nutrition and Health segments, which were more than offset by the decline in our Industrial Products segment, where our volumes related to oil and gas fracking remained low compared to prior year. The impact of foreign exchange to our sales was a negative $1,300,000 due to the weaker euro, driving a negative 80 basis point impact to our year over year growth. Our Q2 consolidated gross margin dollars of $53,900,000 were up $500,000 or 0.8 percent compared with $53,500,000 for the same period in the prior year. Our consolidated gross margin percent was 33.4 percent of sales in the quarter, up 70 basis points from 32.7 percent in Q2 of 2018.
The increase was primarily due to mix, partially offset by lower feed grade tolling volumes and margins in the European monogastric business as a result of increased competitive activity. Consolidated operating expenses for the Q2 2019 were $27,500,000 as compared to $26,400,000 in the prior year. The increase was principally due to incremental operating expenses related to the Chemogas acquisition and increased bad debt expense. Excluding non cash operating expense associated with amortization of intangible assets of $6,100,000 operating expenses were $21,400,000 or 13.2 percent of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG and A infrastructure.
2nd quarter GAAP earnings from operations were 26 $400,000 which decreased $700,000 or 2.6% compared to prior year. On an adjusted basis, as detailed in our earnings release this morning, earnings from operations of $33,300,000 were down $900,000 compared to $34,200,000 in the prior year. Adjusted EBITDA of $40,000,000 was $600,000 or 1.4 percent below the $40,500,000 posted in the Q2 of 2018. Interest expense for the Q2 of 2019 was $1,500,000 and our net debt was $186,900,000 The company's effective tax rates for the Q2 2019 2018 were 20.3% and 21.5% respectively. The decrease in the effective tax rate is primarily attributable to discrete items.
Consolidated net income closed the quarter at $19,800,000 up $200,000 from the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.61 for the current year, flat with last year's comparable quarterly result of $0.61 On an adjusted basis and as detailed in our earnings release, our 2nd quarter adjusted net earnings were $25,200,000 or $0.77 per diluted share, up $700,000 or 2.9 percent compared with $24,500,000 or $0.76 per diluted share in the prior year quarter. We generated quarterly free cash flow of $20,100,000 an increase of 16.7% compared to the prior year quarter, and we closed out the quarter with $41,700,000 of cash on the balance sheet, which reflects revolving loan and acquired debt payments of $32,200,000 and capital expenditures of $6,200,000 in the Q2 of 2019. Before passing the call back to Martin to cover the detailed results by segment, I would like to update you on a few of our key strategic activities and growth initiatives. Last quarter, we announced the definitive signing of an agreement to acquire Chemogas MV, a privately held specialty gases company headquartered in Brimbergen, Belgium.
And on May 27 this quarter, we formally closed this acquisition. Chemogas with its production facilities in Europe and Asia is a strong fit with our existing ethylene oxide repackaging business within the Specialty Products segment. We are focused on leveraging this acquisition to create a global specialty gases business that services our customers' needs for Ethylene oxide and other products worldwide, which we will call Balchem Performance Gases. Cross functional integration team has been tasked with pulling the businesses together efficiently, while ensuring the continuation of the high level of performance of the Chemogas business of the recent years. As we work to integrate Chemogas into Dow Chem, we see potential synergies on revenues, manufacturing and raw material costs and SG and A and are working hard to realize those synergies over the coming months.
We're excited about the opportunities this acquisition creates for Balchem. Within our Human Nutrition and Health segment, as we have discussed on previous calls, Balchem invested in a follow on study to Cornell University choline supplementation study during pregnancy to see if the cognitive benefits seen in the 1st year of life during the initial study persists into later childhood. The researchers at Cornell have conducted extensive neurologic and cognitive testing on the same children who are now 7 years old, who are now affectionately referred to as the COAL kids. We are pleased to report that the preliminary results have been presented at several international scientific meetings and show that an increasing maternal choline does indeed improve attention, memory and executive function at 7 years of age. This is highly consistent with the large body of animal data demonstrating the lasting effect of maternal choline on cognitive function in offspring.
The results have been submitted to peer reviewed journals and we look forward to their publication hopefully by the end of the year. We are extremely excited about the results of this study and believe that these findings will further advance the awareness and use of choline for mother and child health. With regards to Curemark and their work to develop a unique treatment for autism, we are pleased with the results of their recently completed Stage III clinical trial, also known as the BLOOM trial. These results were presented on May Society of Autism Research Meeting in Montreal. The presentation titled pancreatic replacement therapy with CMAT is associated with reduction in maladaptive behaviors in preschoolers with autism was presented by Doctor.
Deborah Pearson, Professor of Child and Adolescent Psychiatric at the University of Texas Houston. 190 preschool children ages 3 through 6 years old meeting the established criteria for autistic disorder participated in its randomized double blind placebo controlled 12 week clinical trial. The objective of the study was to ascertain if behaviors such as irritability and hyperactivity in pre scores with autism could be improved with CMAT. After the relatively short timeframe of 12 weeks, the participants in the BLUEEN trial who received CMAT showed statistically significant reductions in maladaptive behaviors associated with autism, specifically in irritability, hyperactivity and inappropriate speech relative to the placebo group. After Joan Fallon, CEO of Curemark summarizes the findings of the wound trial in her press release dated May 6, 2019 as follows: Our data suggests that CMAT has an effect on core and non core symptoms, including communication in children ages 3 through 6 with Ociviram.
These are promising findings given the limited treatment options for this youngest patient population. Balchem continues to work closely with Curemark to prepare their biologics license application for filing with the FDA and to ensure that patients enrolled in ongoing open label trials have a ready supply of CMAT. And lastly, as we have discussed in previous quarters, we have embarked on an important project to consolidate our 5 DRP systems into 1, Microsoft Dynamics 365. This $12,000,000 initiative is critical for the continued growth and operational efficiency of the company. After a year or so of planning, implementation started in April of last year, first with financial consolidation and then with a staged ERP implementation across our businesses and network of manufacturing sites.
We now have almost 1 third of our users and revenue on the new system and believe we are on schedule to have 100% of our company on the new system by this time next year. I'm now going to turn the call back over to Martin to go through the detailed results for each of our segments.
Thanks, Ted. For the quarter, our Human Nutrition and Health segment achieved record 2nd quarter sales of $85,900,000 an increase of $900,000 or 1% from the prior year. The sales increase was primarily driven by higher sales in our human nutrition and pharma business, particularly choline nutrients for the infant formula and supplement markets and our ingredient solutions business, partially offset by a decrease in cereal system sales. Human Nutrition and Health segment also delivered record 2nd quarter earnings from operations of $12,300,000 an increase of $2,700,000 or 27.4 percent compared to prior year, primarily due to higher sales, favorable mix and lower operating expenses. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $4,900,000 adjusted earnings from operations for this segment was $17,200,000 an increase of $2,100,000 or 14% compared to $15,100,000 in the prior quarter.
Sales for our Animal Nutrition and Health segment were $43,500,000 an increase of 3.4% or $1,400,000 compared to the prior year and a record for the Q2 despite the one time benefits we saw in prior year due to the Chinese choline supply disruptions. Sales of product lines targeted for ruminant animal feed markets increased by $1,200,000 or 12% compared to the prior year, driven by increased volumes. Sales into the global monogastric species market increased $200,000 or 0.8% from the prior year, with higher sales of chelated minerals being partially offset by a decline in feed grade choline product sales. The impact of foreign exchange is most notable in our A and H segment with a negative $800,000 impact in the 2nd quarter, driving a negative 2% impact to year over year growth. Animal Nutrition and Health quarterly earnings from operations of $5,000,000 were down from the prior year quarter of $7,000,000 primarily due to lower volumes and margins in the European monogastric business as a result of increased competitive activity negatively impacting pricing and margins and also due to increased operating expenses driven by investments in sales, marketing and research and development in our ruminant business.
Specialty Products 2nd quarter sales were $24,900,000 as compared with $22,900,000 for the prior year quarter. The increase of 8.9% was driven by higher sales of ethylene oxide for the medical device sterilization market due to both the contribution of Chemogas and higher legacy volumes, partially offset by lower volumes in the plant nutrition business driven primarily by unfavorable weather conditions. The Specialty Products segment achieved all time record quarterly earnings from operations of $8,900,000 versus $8,700,000 in the prior year quarter, an increase of $200,000 Excluding the effect of non cash expense associated with amortization of intangible assets of $1,100,000 2nd quarter adjusted earnings from operations for this segment were $10,000,000 compared to $9,400,000 in the prior year. The increase was primarily driven by higher sales, partially offset by higher operating expenses, driven primarily by the Chemogas acquisition. In the Industrial Products segment, sales of $7,300,000 decreased 6 point 5 from the prior year, primarily due to reduced sales of choline and choline derivatives used in the shale fracking applications.
As logistical solutions to oil and gas transportation are completed around the Permian Basin, we believe that fracking activity will start to improve in the second half of twenty nineteen, but we've not seen any indication of that yet. We remain cautious about this historically cyclical market, and it's hard to accurately forecast the ups and downs. Our earnings from operations for the Industrial Products segment were $900,000 a decrease of $1,700,000 compared with the prior year quarter due to the lower sales volumes. I'm now going to turn the call back over to Ted for some closing remarks.
Thanks, Martin. In the Q2, we delivered year over year revenue growth across 3 of our 4 segments with solid consolidated net earnings and cash flows from operations, while facing certain previously noted comparative headwinds within our monogastric business as well as our oil and gas business. We have strong positions within the markets we serve and we believe we are well positioned to generate healthy growth over the years to come. We are very excited about the acquisition of Chemogas NV. The combination of our 2 companies clearly creates the global leader in the critical supply of ethylene oxide to the medical device sterilization industry, which will significantly enhance our ability to service and support our customers on a more global basis.
We are pleased with the progress made on our key strategic growth initiatives in Q2 2019, and we believe that we are well positioned to capitalize on the growth opportunities in our markets. We will continue to strengthen our company by focusing on our core strategies, exercising disciplined cost management and seeking value creating acquisition opportunities. I would now like to hand the call back over to Martin, who will open up the call for questions. Martin?
Thanks, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions.
Our first question comes from Brett Hundley of Seaport Global Securities. Please proceed with your question.
Hey, good morning guys.
Hey, Brett. Good morning, Brett.
I wanted to start on the human choline side. Martin, you had mentioned in your prepared remarks how your HNH segment sales were in part driven by higher nutrition and pharma business, noting choline in the supplements there. And just as a follow on to your last call, you both were talking about the choline findings that you referenced earlier today. And I just wanted to get an understanding of how conversations might be going between you guys and your customer set in light of these choline findings. I know they still need to be published, but can you just take us through some of the conversations that you're having and give us a sense for how you see your pipeline developing there?
That would be really helpful.
Yes. I'll take a stab at that, Brett. We were really pleased with the increased choline nutrients sales in Q2. Sales were up approximately 12% year over year in the quarter after a bit of a soft start to the year in Q1. And the conversations that we're having with the customers today really are at, I think, a higher level than they have been in a long time, at least in part fueled by the original Cornell study that we've talked about as well as the follow on study relative to the 7 year olds.
This is getting a lot of attention and are really encouraging results relative to the sustainability, at least till 7 years of the cognitive benefits of maternal choline. So this is getting a lot of attention. We're talking, I think, at a higher level scientifically with our customers. And as we've talked about before, as we look at our pipeline, the prenatal vitamin area really is front and center as far as the best and most significant opportunity for us here and now. And 2 years ago, choline was rarely included in prenatal vitamin regimen, and I think that's dramatically changing.
We've seen big name brands like Pharmavite with Nature Made come out with new prenatal vitamins, including choline and even on the label, promoting the fact that the new product contains choline. So really, from our perspective, it's pretty exciting and positive. And that's the here and now, but it is opening up other discussions around multivitamins, adult cognition, fatty liver opportunities and even issues associated with diabetes. So these are all things where choline can play a role and prenatal vitamins is kind of first on the docket, but it's all creating, I think, a higher level discussion that's kind of leading us down this path of growth.
And Ted, I don't know if you agree with this. This situation kind of reminds me of another one that I've seen out there. 1 of your ingredient peers for a long time had been producing this product squalane, and it had a number of skin benefits, a number of other benefits. And the company kind of instead of waiting for its traditional customer set to develop the products, it went out itself and developed branded CPG products using squalane and really kind of created a consumer buzz for the product. And then that just created more and more sales itself into the ingredient channel with its customers.
When it comes to choline, have you guys thought any further about developing branded TPG products yourself? Or is this something where you generally want to remain a B2B seller?
We have thought about that, Brett. And while it remains an option for us, we are really focused on that B2B sales opportunity, working with leaders like Pharmavite and thinking about co branding. We are getting some of our customers to include Balchem or vidicholine as our brand for choline on their labels and even doing kind of co marketing with those companies. So that really is our focus today and we really do feel like we're getting their attention as well as the industry's attention and that's our primary focus at this point.
Great. And then one more for me and I'll jump back in queue is I wanted to ask you a question on your Animal business. So if we can talk about pricing and formulas on the Animal Products side, the energy complex, which has kind of been bouncing around all over the place as of late, do you expect relative stability for your product pricing on animal side as you move into 2020 here?
Yes, we do. We've obviously seen in late 2017, early 2018 an unusual situation where supply out of China dried up and our prices moved up as did our volumes in filling that void. And clearly, they've come back now, and you're seeing that in our margins in the business and some pricing is down. And that really is somewhat unique lead to our European business where the Chinese play a major role. But elsewhere, our feedstocks are relatively stable.
Our pricing is relatively stable, and we see that carrying on into 2020. And we see that the European situation has kind of gone to a sort of a new normal and we don't expect any significant changes. We were really pleased with the revenue performance of Animal Nutrition in Q2, the fact that we were actually able to grow our monogastric business despite that year over year comp issue was encouraging for us. Arun and Business had a good quarter. So overall, we are pleased and specifically relative to pricing, we think we don't really see anything right now materially impacting it.
And demand should continue as it has. The African swine fever situation hasn't significantly impacted our demand picture, although we are starting to see signs of integrators in the U. S. And Europe increasing production and that should start benefiting supply. We've actually just recently done a study around choline balancing and found that some of the corn and soybean choline contents are not as they were in the past and could require little increases in choline inclusion in diet.
So all in all, we feel reasonably good about the business and specifically to your question around pricing.
I'm sorry, just did I hear you correctly that you said the European situation is normalizing from Q2 as it relates to Chinese competition? Yes. Okay. All right. Thank you so much.
Thanks. You bet.
Our next question comes from Tim Ramey of Pivotal Research Group. Please proceed with your question.
Thanks so much. Good morning. I guess I'm going to sort of continue where Brett left off on the animal side, if I could. I'm wondering if margins can recover. Is what you mean by stabilizing that margins can recover from the levels in the 2Q for that segment or we're sort of stabilizing at those margins?
I know you don't give specific guidance, but it would be helpful to know if we're flatlining or recovering?
So I think that we have an opportunity in Q3 to recover some margins from Q2. When I talk about stabilizing, I'm really talking about the competitive dynamics. The Chinese are clearly back. They came back slowly at first and now are back that largely recaptured the share that they're going to capture. And I think we should see some margin benefit in Q3 of that stabilizing.
So I do think Q2 is a little lower than what we'll ultimately see going forward.
Sounds good. And the longitudinal study on choline in infants, how did can you explain a little bit more about what the dose was or would it be consistent with your current view of what prenatal supplementation should be on calling? I mean, that was a long time ago, so views may have changed.
So actually, the dose that was said to the pregnant women in the 3rd trimester was a high dose of choline. It was really double the what is known today as the kind of the daily recommended intake for women. And so it was a high dose of choline that generated the favorable positive results. And so that's part of the opportunity and test we have ahead when choline is included in a multivitamin, it's often included at, let's say, a 55 milligram level. That's about 10% of the daily recommended intake, but maybe only about 5% of what the Cornell study would suggest that a pregnant woman should be taking.
And so we see that an opportunity. Okay, we'll take the inclusion of the 10% of the daily recommended intake, but how do we increase that? How do we actually get as part of the daily regimen for prenatal vitamins to be a standalone choline single tablet or even 2 single tablets to get to that significantly higher dose.
Just doing the math on what you just said, it sounds like something closer to a gram is what this trial? Yes.
Yes.
Interesting. That would be nice.
Okay, good.
Thanks so much.
I'll hand it back.
Thanks, Tim.
Our next question comes from Raghuram Selvaraju Wainwright. Please proceed with your question.
Good morning. This is Edward Marks on for Ram. I appreciate you taking the questions. Just a few for me, spreading on a little bit. Just wondering with the ban on ethylene oxide products in Illinois, Just wondering how this might prevent Sterigenics from reopening its facility and just how this might impact your presence in the arena, especially after these Chemogas acquisition that might then hopefully considerably expand the ethylene oxide possibilities?
Yes. So we have talked thanks for the question. Obviously, this is an important issue and we're spending a lot of time on this and there certainly has been a lot of progress made in the last 3 months or so. So after the Sterigenics site in Willowbrook, Illinois was shut down in mid February, I think it was. They have finally come to an agreement with the State of Illinois, which will enable the facility to resume operations.
So we view that as a very positive step. So it is not a ban on ethylene oxide. They have lowered the exposure limits for the State of Illinois and Sterigenics believes with some additional equipment and so forth that they can, in fact, meet those new lower emission standards. So they are planning on reopening. Obviously, their plan needs to be approved by the Illinois EPA before they reopen.
But from our understanding, they're moving forward and certainly plan to reopen. Certainly, from our perspective, the shutdown of this facility was brought about by pretty seriously flawed risk assessment that the U. S. EPA integrated risk information system or as it's called Iris, published in December of 2016. And I think also very positively in the last few months, the American Chemistry Council has filed a petition with the EPA seeking correction to the EO risk assessment that was done by Iris.
And the ACC has presented scientific evidence to support their correction. And also very positively and maybe more so than even the ACC, the Texas Commission on Environmental Quality, really the Texas EPA has determined that the iris value was not adequately supported by scientific data. So Texas the Texas EPA and therefore published their own assessment value, which is significantly different to the iris. And so I think EPA now has multiple assessments to evaluate as they decide what to do. We do think ultimately this will all lead to because even the Texas and ACC assessments would suggest tightening emissions controls and exposure limits.
But we believe now the EPA has multiple assessments that they can use to decide what levels to set for emission controls and exposure limits. And we believe that what they ultimately decide will be something that the industry and the market can work toward and lift within. So we'll continue to work closely with all the appropriate stakeholders as this situation evolves to ensure that good science is being used by the regulatory authorities to make exposure limit decisions and also, of course, to ensure that Balchem is prepared to meet any new regulations that may come from all of this. But we do see it as positive that Sterigenics is planning on reopening and that the ACC and Texas EPA have come out with new assessments that will provide, we think, certainly good scientific data to challenge the iris assessment and use as they set new exposure assessment and use as they set new exposure limits.
Perfect. I appreciate you going into all that detail. So moving on to the industrial products, you mentioned choline in the Permian Basin a little bit. I was just wondering if any of the oil price volatility and prospects for maybe some prolonged geopolitical conflicts over in the Middle East might have impacted any of the shale deposit production timelines? And how that might affect demand for choline maybe in the past quarter and as you're looking into second half and into 2020?
Obviously, this is a significant disappointment for us in the quarter, the overall volumes associated with oil and gas. We really don't think that oil price has played a significant role at least in the last quarter. Oil price, of course, does matter. And if there was a significant geopolitical issue where oil prices ramped up rapidly, that would benefit the choline. Right now, we really see 2 primary drivers of the poor performance.
1, clearly in the Permian Basin, there is slowing fracking activity, at least in part related to the anticipation of the pipelines being completed and transportation costs coming down once those are completed. And so there's less activity in anticipation of that. And we still expect, once those are completed, that there will be a pickup in production. But secondly, the operators new capital discipline and focus on kind of staying within their free cash flow is impacting us both, I think, from an activity perspective, but just as a reduced levels of choline being including in fracking fluids. There's clearly a move toward cost cutting, sorry, and that's playing a role.
I mean, they really are looking at every avenue to lower costs. And one way to do that is to I'll use the word skimp, but skimp on fracking fluid components even if they do make things more efficient and make sense to include. And so those are what right now we see as the 2 biggest drivers in the quarter and really over the last few quarters, less so oil price, but that's clearly a long term driver.
Got it. Those are good points. And then just finally, really quick, I may have missed this in the prepared remarks, but in terms of the immunoSure XM hormone protective, the methionine product, I'm just wondering how that rollout is currently going?
So that's going well. This is really the next generation Methionine product. On a positive note, milk protein prices are picking up. We just got and milk protein prices this morning. And balancing with amino acids, specifically methionine really do make sense at these kind of protein levels.
So we're encouraged that we're launching a new product in a more favorable environment for milk protein. So that's positive. Right now, we have leading dairy nutritionists around the country trialing the product, incorporating the product in their clients' feed formulations. I think we've got received good levels of interest in the product and the new technology. And so we're encouraged by the initial response.
We have kind of pushed some product into the supply chain and really waiting to see that the dairy farmers realize the benefits that we've seen in all of our studies. So sort of more to come on that, but we're at least encouraged by the initial receptivity to the technology.
Excellent. Well, glad to end on a high note. That's all for me. So thanks for taking the questions.
Thank you.
Our next question comes from Lars
Would you be able to send me or anyone who wants it a copy of that May study in Montreal, CMAT? And secondly, what's happened since then? June, July, here we are in August, haven't heard a word. And I wonder if you comment why it is that I know you can't speak for her, but why it is all they do is put out a press release with a few brief paragraphs of her interpretation of what the study said and really say nothing. You summarized it and she said nothing about any detail of the study.
The study was lengthy, I presume. And you just had a couple of sentences, which is all she had in her press release.
Sure, Larry. Thanks for the question. The study that was presented in Montreal, we don't have access to that. But really all we have access to is what she decides to put in a press release and it is what it is and you accurately stated we really don't have any control over that. We did have someone attend the presentation in Montreal.
And again, there was more detail there. And I think at the end of the day, it certainly supported her primary conclusion, which is what we included in our comments today and what's included in the press release. And that is that CMAT did in fact statistically improve those core and non core areas. And that was really the ultimate finding and the ultimate result of the study. So we're pleased with that.
I think that's a significant milestone and very positive results. And again, I really don't can't get into, don't have access to
Can the person who attended tell you what statistically the number was? What percentage? What anything? I mean, the word statistically is a word,
right?
X or Y percent.
Yes, absolutely. And so that was presented. And I believe that there was an abstract submitted in Montreal. And I also think that there is a way to for the general public to get access to that abstract. So we'll look into seeing how people can get access into that more detailed abstract and let you and others know how to possibly do that.
Our next question comes from Mitra Ramgopal of Sidoti and Company. Please proceed with your question.
Yes. Hi, good morning. Thanks for taking the questions. First, just a couple of questions on Chemogas. I was wondering how much it contributed in the quarter?
And in terms of the revenue and cost synergies, is that more 2020 expectation? Or should we look for that as early as second half?
Yes. Mitra, this is Martin. I mean, Chemogas contributed in line with our expectations for the 1st month. We closed on them at the end of May. So we had 1 month of their revenue and earnings here in the second quarter, and they essentially came in just in line with our model the way we had modeled it.
So we're quite pleased with sort of the consistency and delivery from them. And from an integration and synergies, etcetera, it is more of a 2020. I think we disclosed earlier that we would expect run rate synergies in the $1,500,000 range. We see a clear path to that. Here in the beginning, we also have some, obviously, integration costs associated with it.
So you're not really going to start seeing these benefits until 2020.
Okay. No, that's great. I don't know FX is a headwind for you this quarter in terms of trying to get the margins up even more. I was wondering in terms of raw materials or commodity costs, are you seeing any headwinds there?
Yes. Raw materials for us in the second quarter were actually somewhat favorable, about $1,000,000 of favorability in the quarter from raws. If you remember, when we went in the Q1 release, it was not a driving factor in the Q1 for us, and we had about $1,000,000 of benefit in the second quarter. And this is almost exclusively showing up in our Human Nutrition and Health segment, which is also why you see strong margin growth in our Human Nutrition and Health segment. For the other three businesses, raw materials was not a key driver.
It was actually slightly unfavorable in the other three segments.
Okay. That's perfect. And Ted, I know you said the ERP initiative is on track. I just want to get a sense also in terms of the $12,000,000 that's been allocated to that. How far along are we on that?
Yes. We're progressing well on D365. As we've communicated before, we view this as approximately a $12,000,000 project. We've incurred between CapEx and expense for that one close to $7,000,000 out of the $12,000,000 as we sit here project to date. And as we look into the future here and completing this, we are very confident that we will come in under budget or at least not exceed budget.
So we feel quite comfortable with how this is progressing.
Okay. Thanks. Martin, also on the tax rate, I know that obviously, this move down the last couple of quarters and this quarter some discrete items. Is 25% still a fair number to use going forward?
I think for 2019 this year, I would revise the 25% to a 24 because we had a discrete item here in the Q2 that will impact the full year outlook, and we'll have a little bit more of a a discrete item in Q3. So as we look on a full year basis, I would model based on 24 instead of 25. Then as we return to future years, I don't predict any discrete items that we're aware of. So then I would use 25% again going forward in 2020.
Okay. That's great. And Ted, just coming back to the Animal Nutrition segment, I know one of the things you were looking at is the companion animal market. I was wondering if you're getting any traction there?
Yes, we are. I mean, we've launched this line of PetShure products that I've talked about and we've always been in the pet food business. And so this really is kind of trying to build off of that existing positive position that we have. But actually, the small new line of products grew by about 36% in Q2. And so we really did have a nice quarter.
It's a small base, so it's not so material to talk about. But since you asked, we are getting traction. It's certainly an attractive part of the monogastric market. It's growing faster than the broiler part of the market, and we feel like we have some unique differentiated products that are penetrating the market well. So we were pleased with the quarter.
I think it's going to be a little bit of an up and down story going forward, but we feel again positive about the receptivity to the products and the trends in the market. And Q2 was a great indication of things to come.
Okay. Thanks. And then just finally, again, I know there's only so much you can say on this, but obviously, Chemogas is a nice fit. And I was just wondering about the acquisition pipeline, if this recent transaction kind of precludes anything near term until we get this integrated?
It really doesn't preclude anything. I mean, our balance sheet is strong. Our net debt to EBITDA around 1.2%, sub-1.2%. We've had a really good track record with our strong cash generation of kind of paying down debt after making an acquisition. We'll continue to do that.
So it doesn't preclude us. This is really now being almost fully managed by the business unit as part of that business unit and our corporate development team is free to focus on other things. And the pipeline is reasonably healthy. There are opportunities out there. We've, I think, done a good job in the past of identifying ones like Chemogas or IFP, that are a little bit off the radar screen and we continue to see opportunities like that out there.
Okay. Thanks again for taking the questions.
Thank you, Mitra.
Our final question comes from Tony Pollock of Aegis Capital. Please proceed with your question.
Good morning. Do you have any idea when the BLA will actually be filed?
Yes, Tony, that's one of the tougher questions to answer, partly because we've been wrong about what we have thought in the past. I do think that the BLA versus the NDA does delay things somewhat. And if it were an NDA, I think we would be saying this is a 2020 project that should start to show some positive results in 2020 with the filing. I think now it's more of a 2021 2022 type timeframe for us to start realizing material benefits from this. So there's no question the BLA delayed things somewhat, but obviously there are benefits with the BLA as well like the 12 years exclusivity and so forth.
But again, that's a little bit of speculation on our part. It's an informed speculation based on people we talk to in the industry and expectations, but it certainly could vary from that as well.
Do you know when the I mean, she seems to have already statistically shown that the product works. So why is that held up so much, not knowing the process?
Yes. I think it really is now largely around putting the BLA together, doing the right manufacturing work, quality work, shelf life stability work that will all go into the BLA. So I think that that's really the work at hand here and the work that really will be the limiting timeframe work as opposed to anything else. That's at least our understanding of the situation.
Okay, thanks.
Thanks, Tony.
Gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Ted Harris, CEO for closing remarks.
I'd just like to thank everybody for joining the call today. I'm sure we will be talking with many of you in the coming weeks at various forums. But thank you for your continued interest and support, and we look forward to reporting out our Q3 progress in November. So thanks a lot, and goodbye for now.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.