Greetings, and welcome to the Bao Chem 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, Terri Corleo, Chief Financial Officer for Balchem Corporation.
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, 2018. My name is Terry Coedho, 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 Balchem's expectation or beliefs concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward looking statements will prove correct and various factors could cause results to differ materially from our expectations, including risks and factors identified in Tenkan's Form 10 ks.
Forward looking statements are qualified in their clarity by this cautionary statement. I will now turn the call over
to Ken Harris, our Chairman, CEO and President. Thanks, Terry. Good morning, ladies and gentlemen, and welcome to our conference call. This morning, we reported record quarterly consolidated net sales of $163,700,000 which resulted in record 2nd quarter net income of $19,700,000 or $0.61 per share on a GAAP basis. This result includes non cash amortization expenses of $6,600,000 for acquisition related intangible assets, which were recorded in the 2nd quarter GAAP financial statements.
The amortization expense is a direct result of acquisition, valuation and business combination accounting rules. This quarter also includes $893,000 of transaction and integration costs largely related to the Hayfield, Minnesota plant closure associated with the acquisition of Innovative Food Processors or IFP. Consequently, our 2nd quarter non GAAP net earnings of $24,500,000 or $0.76 per share reported in our press release earlier this morning exclude these items to facilitate comparative evaluation of this current period operating performance versus the prior year period. These non GAAP net earnings of $24,500,000 or $0.76 per share or 19.5 percent or $4,000,000 above the comparable prior year quarter of $20,500,000 or $0.64 per share and were an all time record. Adjusted EBITDA of $41,000,000 was also an all time record and was $4,700,000 or 13% above the $36,300,000 posted in the Q2 of 2017.
We delivered quarterly cash from operations of $21,200,000 compared to $22,900,000 in Q2 of 2017. Our record quarterly net sales of $163,700,000 were 11.3 percent higher than the $147,100,000 result of the prior year comparable quarter. All 4 of our reporting segments delivered solid year over year sales growth in the quarter with Animal Nutrition and Health, Specialty Products and Industrial Products delivering double digit sales growth and both Human Nutrition and Health and Specialty Products achieving all time record quarterly sales. Our Q2 consolidated gross margin dollars of $53,500,000 were up $6,700,000 or 14.3 percent compared with the same period in the prior year and were an all time quarterly record. The increase was primarily driven by the higher sales.
Our consolidated gross margin percent was 32.7 percent of sales in the quarter, up 90 basis points from 31.8% in Q2 of 2017, primarily due to strong sales volumes, mix and certain higher average selling prices. Gross margin percentage for the Human Nutrition and Health segment decreased by 260 basis points to 29.9%, primarily due to higher raw material costs, mix, additional expenses related to manufacturing consolidation and expansion activities and the timing of a prior year insurance recovery. Gross margin percentage increased for the Animal Nutrition and Health segment by 7 40 basis points to 28%, primarily due to improved monogastric gross margins as a result of increased average selling prices and higher volumes driving improved throughput. Gross margin percentage for the Specialty Products segment decreased by 10 basis points as compared to the prior year comparable quarter primarily due to mix. Industrial Products gross margin increased by 610 basis points primarily due to the higher sales volumes.
Consolidated operating expenses for the 3 months ended June 30, 2018 were $25,800,000 as compared to $21,900,000 for the 3 months ended June 30, 2017. The increase was principally due to a prior year favorable indemnification settlement, additional R and D investments, certain higher compensation related expenses and the inclusion of IFP operating expenses, partially offset by lower transaction and integration costs. Excluding transaction and integration costs of $893,000 and non cash operating expense associated with amortization of intangible assets of $5,400,000 operating expenses were $19,500,000 or 11.9 percent of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG and A infrastructure. All time record quarterly GAAP earnings from operations were $27,600,000 which increased $2,800,000 or 11.2 percent compared with the prior year comparable quarter.
This increase was primarily due to earnings growth in 3 of our core segments, Animal Nutrition and Health, Specialty Products and Industrial Products. On an adjusted basis, as detailed in our earnings release this morning, earnings from operations of 34,700,000 dollars increased $3,600,000 or 11.6 percent from the prior year comparable quarter, again due to higher earnings in our Animal Nutrition and Health, Specialty Products and Industrial Products segments. These adjusted earnings from operations of $34,700,000 were an all time record quarterly achievement. Interest expense for the 3 months ended June 30, 2018 was $2,300,000 which includes a write off of $400,000 of deferred financing costs in connection with the credit facility in place through June 27, 2018, and our net debt on June 30 was $148,200,000 an improvement of $19,800,000 compared to Q1 2018 net debt. The company's effective tax rates for the 3 months ended June 30, 2018 and 2017 were 21.5% and 26.7% respectively.
The decrease in the effective tax rate is primarily attributable to the recently passed tax reform. As previously noted, consolidated net income closed the quarter at a second quarter record of $19,700,000 up $3,100,000 from the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.61 from the current year, an increase of $0.10 per share over last year's comparable quarterly result of $0.51 On an adjusted basis and as detailed in our earnings release, our all time record adjusted net earnings were $24,500,000 or $0.76 per diluted share, up $4,000,000 or 19.5 percent compared with $20,500,000 or $0.64 per diluted share in the prior year quarter. Our 2nd quarter results generated an all time record $41,000,000 of adjusted EBITDA or 25.1 percent of sales compared with $36,300,000 or 24.7 percent of sales in the prior year, an increase of $4,700,000 or 13%. As previously noted, our cash flow remains strong as we generated 2nd quarter cash flows from operations of $21,200,000 and closed out the quarter with 62 point $5,000,000 of cash on the balance sheet.
This cash balance reflects the growth in net earnings and $4,000,000 of capital expenditure funding in the quarter. Free cash flow for the 2nd quarter was $17,300,000 an increase of $2,200,000 compared to the same quarter in the prior year. Before passing the call back to Carrie to cover the detailed results by segment, I would like to update you on a few of our key strategic activities and growth initiatives. We continue to work hard to progress awareness around choline after the issuance of the reference dietary intake by the Food and Drug Administration and the European Food Safety Authority's first ever intake recommendations for this essential nutrient. We are pleased last quarter to announce the availability of choline singles in Walmart and Target stores across the country, effectively increasing availability of clothing.
Additionally, part of our increased research and development spending has been focused on a series of outside research efforts to support our market development efforts. 1 of those studies is a follow on study to the Doctor. Caudel study from Cornell University that shows benefits on infant neurology function from adequate and increased levels of co link implementations in mothers during pregnancy and early nursing. The researchers at Cornell have been conducting extensive neurologic and cognitive testing on the same children who are now 7 years old to determine if the positive benefits seen in the 1st year of life are sustained into childhood. We are excited to support this study and eagerly anticipate the findings to expand our understanding and appreciation of the critical role of choline in pregnancy and early childhood development.
Within our Animal Nutrition and Health segment, as previously noted, for the first time ever, researchers have clearly demonstrated the benefits of choline supplementation on the newborn baby calf, indicating a positive connection to choline in utero and through the milk. Calves born from others supplemented with choline and fed milk from those cows were healthier, faster growing and produced more milk as adults. Furthermore, we were very encouraged to see the results of 11 new research projects presented at the annual American Dairy Clients Association meetings. This growing body of evidence continues to demonstrate positive health and production benefits of our entire portfolio and will certainly help in our efforts to expand the penetration of ReAssure and our other products into dairy herds across the globe. While we have no new news on Curemark's progress in their post Phase 3 clinical trial data analysis work, Balchem continues to support Curemark in the manufacturing of validation batches for FDA inspection as part of the progress toward full NDA submission and approval.
We celebrated the 1 year anniversary of the Innovative Food Processors or IFP acquisition in early June. We are pleased with the performance of the business to date and the addition of the new products, services, complementary manufacturing capabilities and talented new employees has made Balchem a stronger company. Progress continues on the planned closure of 1 of the acquired manufacturing sites and transfer the production capabilities to our Fair Boat, Minnesota and Slate Hill, New York manufacturing locations. We believe these activities will be completed within Q3 effectively including the integration efforts for the IFP acquisition. And lastly, in late June, we entered into a new credit agreement with our lenders in the form of a senior secured revolving credit facility due in 2023.
The new revolving credit agreement allows for up to $500,000,000 of borrowing. We used initial proceeds from the new credit agreement to repay the outstanding balance on our senior secured term loan A, which was due in May of 2019. This new revolving credit agreement enhances our strong financial profile and provides increased flexibility. Available funds from this new credit facility in conjunction with our already healthy balance sheet and our strong cash flow strengthen our ability to execute on our growth plans. I'm now going to turn the call back over to Terry to go through the detailed results for each of the segments.
Thanks, Ted. For the quarter, sales of our Human Nutrition and Health segment were $85,000,000 a record quarter and an increase of $7,000,000 or 8.9% from the comparable prior year quarter. The sales increase was primarily driven by added sales from the IFP acquisition, higher powder systems and encapsulated product sales into food and beverage markets, strong chelated mineral volumes and increased choline nutrient sales, partially offset by softness in flavor systems. The 2018 powder systems improvement was due to modest successes related to PHO free products, growth in nutritional beverages and new market wins, including the plant based protein products. We are very pleased with the strength in chelated minerals, driven by both domestic and international growth.
In particular, our branded Albion organic magnesium products have experienced significant growth as the critical role of magnesium in human nutrition continues to be better understood among brand owners and consumers. Additionally, Latin America has long been one of our strongest bases in the use of Alcyone's branded organic iron products. And while last year was a slow year for iron sales into Brazil, this year we've seen a rebound of sales into this region. 2nd quarter earnings from operations for this segment were $10,100,000 a decrease of $1,300,000 or 11.1 percent compared with $11,300,000 in the prior year comparable quarter, primarily due to unfavorable mix, higher raw material costs, additional expenses related to manufacturing site consolidation and expansion activities, timing of the prior year insurance recovery and increased research and development spending. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of 5 $400,000 2nd quarter adjusted earnings from operations for this segment were $15,400,000 compared to $17,000,000 in the prior year quarter.
The Animal Nutrition and Health segment sales of $42,000,000 increased 13.5 percent or $5,000,000 compared to the prior year Sales of product lines targeted for ruminant animal feed markets decreased by $300,000 or 3% compared to the prior year, primarily due to lower ruminant product volumes resulting from challenging dairy economics, particularly in North America where milk and milk protein prices remained low in the 2nd quarter. Despite the poor economic environment in the dairy market, we continue to be pleased with the performance of our flagship brand, ReAssure, the market leading rumen protected choline, as sales for this product have continued to grow through these difficult market conditions. Sales into the global monogastric species market increased $5,300,000 or 19.9 percent from the prior year comparable quarter, driven by healthy demand in North America and Europe, higher average selling prices and additional sales realized as a result of the continuing supply disruptions of Chinese imports. As we indicated on our Q1 call, we expect this disruption to be short term and peak in the early part of 2018. We estimate the benefit for Q2 sales was approximately $3,000,000 to $4,000,000 and as expected should diminish through the second half of the year.
Animal Nutrition and Health quarterly earnings from operations of $7,100,000 were $3,400,000 or 92.8 percent higher than the prior year comparable quarter of $3,700,000 The higher sales, driven by increased monogastric volumes and higher average selling prices, coupled with improved throughput from the higher volumes, drove the strong margin expansion in the quarter compared to prior year. The Specialty Products segment achieved record quarterly sales of $22,900,000 for the 3 months ended June 30, 2018 as compared with $20,800,000 for the 3 months ended June 30, 2017. The increase of 10.1% was driven by strong sales of ethylene oxide for the medical device sterilization market along with record plant nutrition sales following a soft Q1. Specialty Products quarterly earnings from operations were $8,700,000 versus $8,100,000 in the prior year comparable quarter, an increase of $600,000 Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $732,000 2nd quarter adjusted earnings from operations for this segment were $9,400,000 compared to $8,800,000 in the prior year quarter, an increase of 6.8%. The increase was driven by the higher volumes across both businesses, in addition to the impact of certain pricing actions taken to help mitigate increased raw material costs as well as other rising costs where contract terms permitted.
In the Industrial Products segment, sales of $13,800,000 increased $2,500,000 or 22.5 percent from prior year comparable quarter, primarily due to higher sales of choline and choline derivatives used in shale fracking applications. Compared sequentially to the Q1 2018, sales were, however, $700,000 lower as we have seen oil and gas demand stabilize following significant growth throughout 2017 in particular. As we have discussed in the past, we are pleased with the year over year growth, but remain cautious about this historically cyclical market. Our earnings from operations for the Industrial Products segment were $2,700,000 an increase of $1,100,000 compared with the prior year quarter and primarily reflects the increased sales. I'm now going to turn the call back over to Ted for some closing remarks.
Thanks, Cary. We delivered year over year revenue growth across our 4 segments and operating earnings growth in 3 of our 4 segments, with overall record quarterly revenues of $163,700,000 up 11.3% year over year, all time record adjusted net earnings of $24,500,000 and operating cash flow of $21,200,000 despite challenges including raw material and other price inflation across all segments and unfavorable dairy economics impacting animal nutrition and health. We continue to generate strong cash flows and our net debt has been reduced to $148,300,000 as of June 30 for 0.9 times trailing 12 months adjusted EBITDA, further strengthening our balance sheet and our new revolving credit facility enhances our strong financial profile and provides increased flexibility, strengthening our ability to execute on our growth plans. The strong second quarter results once again highlight the strength and resilience of our business model. We do however continue to face a difficult, scary economic environment with the ruminant side of the Animal Nutrition and Health segment and some increasing uncertainty across most of the markets we serve from a macroeconomic perspective, particularly in light of likely global trade and foreign currency changes and ultimately a possible impact on demand, commodity prices and input costs.
While there is good momentum in each of the 4 segments, we will be watching these macroeconomic challenges closely as they evolve and implementing mitigating strategies where possible. We are pleased with the progress made on our key strategic growth initiatives, in particular, the growing awareness of choline as an essential nutrient, the exciting new research related to Balchem's rumen protected choline for newborn calf health and the integration of IFP. We will continue to strengthen our company by focusing on these and their other growth initiatives, exercising disciplined cost management and seeking value creating acquisition opportunities. I would now like to hand the call back over to Terry, who will open up the call for questions.
Terry? Thanks, Ted. This now concludes the formal portion of the conference. At this point, we will open the conference call for questions.
Our first question comes from Tim Ramey, Pivotal Research Group. Please proceed with your question.
Thanks so much and congrats on another amazing quarter. Thanks, Tim.
One of the
things that you seem to be really good at is doing these tuck in acquisitions, and you've got a lot more balance sheet capacity perhaps now than you've had in the past.
I wonder if you would discuss kind
of how target rich the environment is out there for future acquisitions? I know you're not going to give us specifics, but in broad strokes.
Thanks for your comments, Tim. Yes, we do think we've been pretty good at making tuck in acquisitions. And if we even go back to the Albion acquisition and put that with the IFP acquisition and the Pullman's acquisition have all really contributed nicely. And actually in those kinds of spaces, we think the environment is quite target rich. We have a fairly robust portfolio that we take very seriously.
We our entire team meets regularly to review progress towards specific goals that we set. A lot of it is courting families who own businesses that are attractive to us. And they do take time, but I really feel very good about opportunities that are out there. We spend I spend a significant amount of my time on these because we really do see that they can make companies stronger, provide acceleration, whether it's geographic expansion, acceleration or just general growth acceleration. So we think that the in these sort of smaller bolt on acquisitions, the environment is still quite target rich, while the maybe bigger, more transformative acquisitions, a little less so, I would say, just because of the lofty prices that are out there.
So, we're still very active, and we do think our new credit facility and just the cash we generate really gives us some flexibility when we are able to convert on some of these opportunities in our pipeline. That's great. And then, the specialty
segment, you discussed good growth in the plant nutrition area. And I recall there was some weakness in that a year ago. Back to what you view as normal levels there, did you get better than normal? Can you put some clarification on that?
Sure. So our volume in Q2 was about 11% higher this year than last year. So that was very positive to see. But as you know, Q1 was down. So year to date, we're about flat with last year.
And we do believe that Q3 will be a little bit better than last year. So ultimately we should be able to show some growth in that business over last year. Of course last year was an all time record, great year. But I think simply said, we do feel like we recovered with a good Q2 and are about where we should be and we expect to ultimately show a little bit of growth by a bit of a stronger Q3 than we might normally see.
Is that 11% relates to the entire segment or just plant nutrition?
Plant nutrition. Okay. The art business or what we call the art business, which is really the sterilization business, also had a very good quarter. That's a business that typically is pretty low growing in the sort of 2%, 3% range we would normally say. But we've seen volume we saw volumes in Q2 grow about 7%, which is significantly higher than normal, although Q1 also was a bit weak in that area.
But again, back on track after a little bit of a disappointing Q1. We had a very good Q2, and it's really because both of those businesses really got back on track and offset the 4Q1.
Our next question comes from Brett Hundley, The Vertical Group.
I wanted to ask about so Ted, you talked about momentum in each of your 4 business areas. And I wanted to ask you about ANH segment with regards to momentum. I mean, clearly, we all know what's been going on in dairy. And so I wanted to ask you about your thoughts on the monogastric side. When I sat down recently and tried to think about forward trends in mono, your concentration in the Chicken and pork industries.
When I think about profitability across both those areas, it looks like chicken and pork producers are going through some more difficult times here, at least in the States. And I know your entire business isn't just focused on the states and maybe you can remind us of your geographic mix on the mono business. But anyway, I just wanted to get updated thoughts from you on why you feel like you have momentum across ANH and maybe get some comments on things that I might not be seeing?
Sure, Brett. We can get into that in a little bit more detail. Our mono business just roughly is about 60% U. S. And 40% Europe.
And while we do export to some of the other regions, they're fairly minor. Overall, I'll get into your specific comments, but overall, we're really pleased with the A and H results for the quarter and really for the first half of the year, sales were up significantly, even if you adjust out the Chinese supply issues. And then just fundamentals like ReAssure continuing to grow through this very, I would say lousy dairy economic environment. Actually, our ReAssure volumes were up double digits in Q2. So, for the year to date, we're showing some growth in that market.
So A
and H overall has been pretty pleased really with the last three quarters. The fundamentals that you're getting to are certainly being challenged by the macroeconomic environment, particularly the tariff discussion, you probably saw the announcement from Tysons and the impact on poultry prices from the pork tariffs. All of those are things that we watch and we care about and the profitability of our customers is obviously very, very important. But while this uncertainty is out there, fundamentally choline is a critical part of poultry and swine diets. And we don't really see that changing.
We don't see based on profitability, the poultry and swine producers reducing the levels of choline in their diets. So the demand should stay relatively steady if you have an outbreak of a disease, typically those animals are replaced. And so we traditionally have not seen significant swings in kind of demand for choline based on the types of things that we're seeing. So while we're concerned about it, we're watching it, we really feel like fundamentally the outlook for coleen and poultry and swine is fairly solid. We historically, that market has grown at about 3% and we believe that once the Chinese shortages are passed, that we'll be back in the 3% to 4% type growth range.
So that's really how we view that. I'm not sure whether you're aware the fact that choline has been included on the threatened list of $200,000,000,000 of Chinese imports to receive either the 10% tariff or the 25% tariff may benefit U. S. Volume some, but we would be concerned if that went in place, what impact it might have on Europe and the positive that we may see in the U. S.
Could possibly be offset back in Europe as Chinese volume shifts from the U. S. To Europe. So again, some uncertainty there, but we really don't see any significant impact relative to a monogastric perspective despite some of these uncertainties. And we still are bullish on the dairy protein market long term.
We do think that this period is an extended downturn period. We don't really necessarily see it getting any worse. The futures for milk prices are trending somewhat upward, and I think that will be beneficial. And again, the value proposition for ReAssure in particular works in this environment as well. And so while it's harder for us, we think that we can continue to grow modestly our flagship product at least on the dairy side of things.
So that's how we're seeing it. It certainly is a little unclear, but fundamentally I think we're in a pretty good place.
That's really helpful. Thank you for going through that. And if I can maybe ask you a similar question as it relates to the forward look on the H and H business. I try to consistently think about the forward growth algorithm for your HNH business. And at least the way I do it is I can kind of divvy that business up into a number of different areas.
I mean, you have your human choline and the awareness that you're trying to drive there. You have your encapsulation and agglomeration business areas. And I would expect for that to continue to be a strong growth area, if not picking up pace in quarters and years ahead. I think about the chelated minerals that you bring to market. And then really beyond that, I think there are some of the more commoditized products that you might bring to market across your entire human nutrition area.
With that as a backdrop, I mean, do you have any updates for us on how your HNH business might progress in quarters years ahead just considering the various moving parts of that business?
Absolutely, Brett. And I think you think of it in the right buckets. It is a combination of really different products and services and solutions and they do have very different growth rates and growth potentials. And chelated minerals year to date our volume has grown a little over 20% in that business. I think that longer term that's probably a little higher than we would expect, but we certainly expect double digit growth in that product line.
We certainly expect double digit growth in our choline nutrients business, as you say, as we increase awareness. Of course, growth in both of those could even be more prolific if we're wildly successful, but certainly double digit growth there. Our NCAPPS business is highly specialized, highly unique, and we really do have the market leading products. And so while the food industry might be growing at 2%, 3% a year, we expect to grow that business at the higher single digit rate. And then you have, as you say, sort of the more mature food ingredient business.
Probably, we think we can certainly grow it double what the food business is or the food industry is growing as a whole. So instead of 2% or so, we can grow that business at 4%, 5%. So when we kind of put that all together, there's really fast growing bits are a bit smaller than the others, but we think mid single digit growth for this business is absolutely attainable and we are seeing that kind of growth now. We talked a lot last year of some of the struggles that we had in the Powder Systems business and we're very pleased. We've had a couple of quarters of reasonable growth there.
We alluded to some successes in the transition that way from Piaco products, and we feel like we were quite successful there and actually captured some additional business. So that business is now actually growing, whereas before it was declining. And so we feel much better about that business. And when you put all of the aspects of H and H together, mid single digit, I think, is a reasonable expectation to have for that business.
All right. Thank you. And I'm just going to ask you 2 more here quickly and then you have the floor. First is on inventory growth. Should we expect that
to really level off here
now just given that you've kind of lapped recent year acquisitions? That's my first question. And then my second one is just going back to the credit facility update that you were talking about with Tim. I mean that was nice to see. You guys subside the facility.
You obtained lesser financial covenants, particularly on the leverage ratio side. Should we not read too much into that? What type of flexibility was most important to you? Another one of my companies has done something similar and they've used that updated facility to be able to both make portfolio changes and invest behind their business. Is that really the same thing that you guys are looking at when you do something like this and look for looser financial covenants?
Just wanted to get you to address that too. Thanks so much.
So let me address the first one first around working capital. So you specifically mentioned inventories, and I think just the short answer to your question is yes, you should expect that to level off. And in fact, I think you should expect us to reduce our inventory by a few days over the coming quarters. Part of the increase has been driven by the acquisitions, but certainly part has been deliberate on our part in anticipation of the Hayfield plant closure and ensuring really smooth transition for our customers, we've built a fair amount of inventory there. And then we did have an efficiency capital project at a Verona site that we needed to build some inventory in advance of and we did that and you're seeing some of that.
And also we got caught a little bit with as you've seen industrial products specifically along caft as that prolific growth we are seeing quarter over quarter has started to slow and we get caught with a little bit too much inventory there. So absolutely, you'll see that level off and I think we'll take a couple of days out of inventory going forward. As far as the new credit facility, yes, I would not read too much into that. As we looked at the options that we had, flexibility was very high on our list of things that we valued. And we felt like this was a good alternative for us to the extent acquisitions come about or significant growth projects come about.
We wanted the flexibility and just the terms and conditions were very favorable to that. So that's why we fixed that scenario.
Our next
question comes from Ram Selvaraju, H. C. Wainwright. Please proceed with your question.
Hi, there. Good morning. This is Julian on for Ram Selvaraju. Congrats on the quarter. I just have one quick question.
Looking back, are you able to talk about how the disruption in Chinese imports this quarter compares to previous quarters as a percentage of your annual nutrition and health plans? I think you mentioned the benefit for this quarter was between $3,000,000 $4,000,000 Do you have a similar figure for the Q1 of this year as well?
Yes. So the Q1 of this year was a similar figure. I think we maybe were a little more specific and said 4,000,000 dollars It really is somewhat difficult to calculate. So I would say Q2 was similar to Q1 and we do see that diminishing in Q3 and essentially going away in Q4.
Okay, great. Thanks very much.
Thanks, Brian.
Our next question comes from Tony Pollock, Aegis Capital. Please proceed with your question.
Good morning. Hi, Tony. Could you give us a little flavor on the lower flavor system sales in the human nutrition and health?
Sure. Tony, it is an important part of our business and we've seen a couple of quarters decline. And really, the way I look at it is the core part of that business is solid and performing reasonably well. We had a great first half of twenty seventeen with lots of one aspect of this business is just around limited time offerings. So flavor of the month or flavor of the year and 2017 first half really benefited from some really good wins relative to limited time offerings and those just have not materialized to that extent in 2018.
And so that's really where we've seen the decline. We think that the core business is performing well and look forward to trying to win more of those limited time offerings going forward.
Could you talk about the increased R and D spend and where that is and what you expect from that?
Sure. It is somewhat an internal spend through headcount, but it by far and away is external spend. It's both in our Animal Nutrition and Health business. We talked about those 11 papers that were presented at the recent dairy show were partly funded by Bauchamps. So we really think a big part of what we bring to the industry is our expertise, yes, differentiated products, but also our vast library of kind of in essence clinical studies that show efficacy and the benefits of our products.
So we are investing pretty heavily in those areas. We are working on a few new product launches in animal nutrition and health that we're quite excited about that are maybe a year away, but in anticipation of those launches we really want to have the full library of field trials completed coincide with the launch of those products. And then in the human nutrition area, I mentioned 1, follow on Caudill study, we are funding that. We're funding a biomarker study at the University of North Carolina, as well as several other studies on choline and even a couple of mineral studies. So largely external spend and then we are beefing up internal spend a little bit as well.
You have a number on the increased R and D versus last year? And do you expect it to continue at this rate?
So last year, I think we're at 1.4% of sales and this year we're about 1.7% of sales. But kind of when you put the real math on it, our actual spending is up about $1,000,000 and in the 3 months in Q2, which is almost 50% increase. So, we are significantly increasing our research spend and I think in the right areas.
All right. In terms of the CapEx, could you give us a number on that? And what we expect from the CapEx expenditures?
So we have really talked about expecting $25,000,000 to $30,000,000 of CapEx similar to last year. Obviously, our year to date spending is, I think it's about $8,000,000 So it's certainly low relative to that target. Our spending does tend to ramp up as the year goes on. So I think the best guidance right now would be to say the low end of that range that we've been saying. We could come in even a little bit lower than that.
But we do have a few chunks of the year left and spending does tend to take up as the year goes on.
And is that maintenance or expansion?
It's a combination of both. It's we have had some spending this year still on the fire recovery and out in Utah relative to minerals. We are investing in some additional minor capacity additions at our plants and quality improvements. But the majority of it is sort of maintenance and business sustaining type capital.
Could you just give us a timeline update on the autism truck?
Sure. Obviously, as I said earlier, we have no new news around Curemark's progress relative to the data analysis. But we still believe that in 2018 that an NDA should be completed and filed and in the hands of the FDA. Again, based on the latest news that we have and the outside consultants that we talk to that guide us around what we should expect relative to timing. So that's still our expectation at this point.
And how soon after that would it be? Would it be 6 months for them to rule on
that? Yes. I think that, again, this is just an estimate and we do seek the guidance on this and advice, but I think minimally you should expect 6 months. I think that's about as quick as it probably can happen. And what benefits that is the fact that there has been this rolling MBA process and fast track process.
And just the nature of this drug treatment should facilitate sort of shorter rather than longer review from the FDA, you would think. But again, really need to caveat that, that once it's in the hands of the FDA, it is really difficult to tell.
Okay. Thank you. Thanks, Tony.
Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Ted Harris for closing remarks.
Sure. I'd just like to thank everybody again joining the call. We're really pleased with our first half results and look forward to updating everybody in November on our progress in Q3. In the meantime, I'd like to let you know that we will be presenting at the Jefferies Industrials Conference next week in New York City and also at the Credit Suisse Basic Materials Conference