Greetings, and welcome to Balchem Corporation's Third Quarter 2016 Earnings 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. It is now my pleasure to introduce your host, Bill Bachus, CFO for Balchem Corporation.
Thank you, Mr. Bachus. You may begin.
Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 2016. My name is Bill Backus, Chief Financial Officer and hosting this call with me is Ted Harris, our President and CEO. Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward looking statement. This release does contain or likely will contain forward looking statements, which reflect Valchem'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. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release. Before I hand the call over to Ted to go through our consolidated results, I would like to remind everyone that given the Q1's acquisition of Albion International, there are significant non cash acquisition accounting items as well as cash transaction costs impacting our results in this quarter. For this reason, we will focus our discussion primarily on adjusted results, which facilitate comparability to prior year and sequential quarterly performance. I will now turn the call over to Ted Harris, our President and CEO.
Thanks, Bill. Good morning, ladies and gentlemen, and welcome to our conference call. This morning, we reported Q3 consolidated net sales of $138,500,000 which resulted in 3rd quarter net income of $14,000,000 or $0.44 per share on a GAAP basis. This result includes significant non cash amortization expenses of $7,700,000 for acquisition related intangible assets and inventory fair valuation adjustment of $317,000 related to the Albion acquisition and transaction and integration costs of $62,000 all of which were recorded in these 3rd quarter GAAP financial statements. The amortization expense and inventory fair valuation adjustments are a direct result of acquisition valuation and business combination accounting rules.
While the transaction and integration costs are related to the Albion acquisition. Consequently, our 3rd quarter non GAAP net earnings of $19,500,000 or $0.61 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 19 point $5,000,000 or $0.61 per share were flat compared to the comparable prior year quarter. Adjusted EBITDA of $36,600,000 for the quarter was $900,000 or 2.6 percent better than the $35,700,000 posted in the prior year quarter. Our adjusted EBITDA margin expanded to 26 0.4%, up 98 basis points compared to 25.5% from the Q3 2015.
And we delivered record 3rd quarter free cash flow of $19,800,000 while also paying down $25,800,000 of debt, including $17,000,000 of accelerated payments. In October, we also paid down an additional $8,000,000 of revolver borrowings, which further reduced the balance to $20,000,000 from the $65,000,000 we borrowed to partially fund the Albion acquisition. We are proud that the team delivered these strong earnings results, especially when viewed in light of the ongoing macroeconomic pressures in certain segments of our business. Our 3rd quarter sales of $138,500,000 were 1% lower than the $140,100,000 result of the prior year comparable quarter with the contribution of Albion and volume increases in animal nutrition and health offset by the decline in industrial product sales of $7,200,000 due to reduced oil and natural gas fracking, lower average selling prices related to reduced raw material costs, unfavorable mix and reduced volumes in certain food and beverage markets. Our consolidated gross margin percentage was 32.2 percent of sales in the quarter, up 140 basis points from a 30.8 percent of sales level in Q3 of 2015.
Adjusted gross margin percentage adjusted primarily for the previously mentioned $317,000 inventory fair valuation adjustment and amortization expense as a direct result of acquisition valuation and business combination accounting rules of $600,000 was 32.9 percent of sales, up 200 basis points from a 30.9 percent of sales level in the prior year comparative period. The improvement was primarily due to a favorable product mix and lower raw material costs. Gross margin percentage for the Human Nutrition and Health segment decreased by 24 basis points, primarily due to lower volumes resulting in manufacturing inefficiencies. Gross margin percentage increased for the Animal Nutrition and Health segment by 199 basis points primarily due to increased volumes and cost decreases of certain key raw materials. Gross margin percentage for the Specialty Products segment decreased by 5.40 basis points primarily due to the inclusion of plant nutrition sales which carry lower margins than the legacy Specialty Products business and the valuation of acquired inventory of $317,000 Industrial Products gross margin increased by 220 basis points due to a more favorable customer mix and improved cost structure.
Consolidated operating expenses for the 3 months ended September 30, 2016 were $21,700,000 as compared to $20,300,000 for the 3 months ended September 30, 2015. The increase was principally due to the inclusion of Albion operating expenses and amortization expense related to the previously mentioned acquisition, partially offset by a prior year one time equity compensation charge of $1,500,000 Excluding non cash operating expense associated with amortization of intangible assets of $6,900,000 and transaction and integration costs of $62,000 operating expenses were $14,800,000 or 10.7 percent of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG and A infrastructure. U. S.
GAAP earnings from operations were $22,900,000 which was flat compared with the prior year comparable quarter. On an adjusted basis as detailed in our earnings release this morning, earnings from operations of $30,900,000 decreased $100,000 or 0.3 percent from the prior year comparable quarter. Interest expense for the 3 months ended September 30, 2016 was $1,800,000 all of which related to the debt financing of the Sensory FX and Albion acquisitions. Our net debt at September 30 was $267,000,000 The company's effective tax rates for the 3 months ended September 30, 20 162015 were 32.5% and 34.0 percent respectively. The decrease in the effective tax rate is primarily attributable to certain tax credits and deductions.
Going forward, we expect our annualized tax rate to be approximately 32% compared to 31.4% in the prior year. As previously noted, consolidated net income closed the quarter at $14,000,000 flat to the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.44 for the current year as well as the comparable quarter of 2015. On an adjusted basis and as detailed in our earnings release, our adjusted net earnings were $19,500,000 or $0.61 per diluted share compared with $19,400,000 or $0.61 per diluted share in the prior year quarter. As outlined in our earnings release, our 3rd quarter results generated $36,600,000 of adjusted EBITDA in the quarter compared with $35,700,000 in the prior year, an increase of 2.6%.
Adjusted EBITDA as a percent of sales for the quarter was 26.4 percent of sales, a 98 basis point increase over the prior year quarter and equals $1.14 per diluted share. As previously noted, our cash flow remains strong as we generated 3rd quarter free cash flow of $19,800,000 and closed out the quarter with $32,500,000 of cash. And this reflects scheduled principal and accelerated payments on long term debt of $25,800,000 along with $4,100,000 of capital expenditure funding in the quarter. Before I hand the call back over to Bill to go through the segment's detailed results, I'd like to update you on a few of our key growth initiatives. As we reported last quarter, the Albion International integration is progressing well and we are working hard to deliver on both our cost and sales synergies with results to date meeting our expectations.
As previously noted, on July 12 25, sorry, we had a fire at 1 of the 4 sites acquired as part of the acquisition. We implemented our contingency response plan and this plan of utilizing our existing manufacturing infrastructure along with selected partners has allowed us to minimize disruption to our business and our customer base. We continue to believe the overall impact on our company will not be material. As we mentioned last quarter, we are fully insured for the property and also have business interruption insurance to cover any lost income. I would just like to say again how very proud I am of the Balchem team and how efficiently and effectively they reacted to this incident and executed the contingency response plan.
We continue to make progress to leverage the reference dietary intake issued by the Food and Drug Administration and the European Food Safety Authority first ever intake recommendations for choline by building awareness around this essential nutrient as evidenced by the number of new articles and studies published just in the last quarter about choline nutrition. And at the same time driving inclusion of vidicholine, Balchem's premier brand of choline for supplementation into multivitamin supplement and food fortification applications. The 3rd Phase 3 clinical trial
for the Curemark drug to be utilized in the treatment
of autism is now enrolling at all of the 30 targeted clinical sites across the country. Now that all 30 sites are recruiting, we look forward to the completion of this clinical trial and the important milestone it represents. In the meantime, we continue to finalize the validation of our quality systems and supply chain and manufacturing capabilities to ensure preparedness for the production of initial launch demand upon FDA approval. And we are pleased with our recently announced strategic alliance with Purdue Agribusiness. This alliance will focus on advancing the science of precision feeding for dairy cattle and bringing new products to the dairy industry.
The initial efforts will be in the area of ruminant amino acid nutrition and will evolve into creating precision feeding systems for other nutrients such as minerals, lipids and carbohydrates. This alliance along with our previously announced collaboration with BASF, which focuses on improving feed hygiene, safety and overall animal performance in the swine industry signals our continued intention to provide science based innovative products to the animal nutrition and health markets. I'm now going to have Bill Backus discuss the segments in more detail. Thanks, Ted. For the quarter, sales of our consolidated Human Nutrition and Health segment were $74,900,000 an all time record quarter and an increase of $1,900,000 or 2.7% from the comparable prior year quarter.
The sales increase was a result of the contribution of the human nutrition portion of Albion and was partially offset by an unfavorable mix and reduced volumes in certain food markets, particularly related to Powder Systems. Contributing to the Powder Systems shortfall was a competitor's acquisition of a former customer of ours, warm weather negatively impacting the purchase of hot beverage products and increased competition. Sequentially from the Q2 2016 without the impact of Albion, volumes in HNH increased to 1.8% with particular improvement in Powder Systems. 3rd quarter earnings from operations for this segment were $10,500,000 versus $11,600,000 in the prior year comparable quarter, a decrease of $1,100,000 or 9.9 percent. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $6,000,000 adjusted earnings from operations for this segment was $16,500,000 compared to $17,200,000 in the prior year quarter, a decrease of $700,000 or 4.1%.
Earnings in this segment were negatively primarily by the previously mentioned lower sales related to Powder Systems. While we are pleased with the contribution from Albion and the sequential Human Nutrition and Health increased volumes, the year over year top line was challenged by the unfavorable mix and certain food sector softness. This segment has continued to see strong margins with an improved mix, management of supply chain costs and the enhanced value proposition of our product portfolio. The opportunities presented by our pipeline and now published RDI and FSR first ever intake recommendations, agglomeration and Curemark along with the Albion acquisition to help fuel future growth for this segment. The Animal Nutrition and Health segment sales of $40,900,000 increased 2.5% or $1,000,000 on a 6.6% increase in volumes compared to the prior year quarter.
Global monogastric species sales including feed grade choline products decreased $1,700,000 or 6.1 percent primarily due to lower monogastric average selling prices resulting principally from reduced formula pricing based on lower raw material costs and increased competitive activity. Due to stronger production driven by lower feed costs and strong international demand for relatively low priced meat protein, the USDA has increased its export forecast for both this year and 2017. Monogastric volumes did increase 2.8% from the prior year comparable quarter and were also up 2.3% sequentially from the Q2 16. Sales of product lines targeted for ruminant animal feed markets increased by $2,700,000 or 24.0 percent on a 36.4% increase in volumes, largely due to strong growth of our flagship ReAssure product line. We recently have seen milk and milk protein prices improve and the USDA forecasts improving milk prices through 2017.
Feed costs remain low and this coupled with higher milk prices should result in improved dairy farm income over feed costs and subsequently increased demand for nutritional ingredients. We remain confident long term in Animal Nutrition and Health as we further penetrate the market and introduce new and novel products to satisfy attractive end market demands through both organic development and strategic alliances such as the previously noted partnerships with BASF and Purdue Agribusiness. A and H quarterly earnings from operations were $6,800,000 an increase of $1,200,000 or 20.6 percent from the prior year comparative quarter. The increase compared to the prior year quarter was a result of the noted higher sales, favorable product mix and cost decreases of certain key raw materials. The Specialty Products segment achieved quarterly sales of $16,500,000 for the 3 months ended September 30, 2016 as compared with $13,800,000 for the 3 months ended September 30, 2015, an increase of 19.2% due to the contribution from the plant nutrition portion of Albion.
Specialty Products achieved quarterly earnings from operations of $5,200,000 versus $6,000,000 in the prior year comparable quarter, a decrease of $800,000 or 13.2%. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $800,000 and inventory valuation adjustments of $317,000 relating to acquisition accounting, adjusted earnings from operations for this segment were $6,300,000 compared to $6,200,000 in the prior year quarter, an increase of $100,000 or 1.6 percent, with the increase being due to the addition of the Albion Plant Nutrition business. As we have communicated before, the Albion Plant Nutrition business is seasonal with lower sales and profitability in the second half of the year as seen here in the 3rd quarter. In the Industrial Products segment, sales decreased $7,200,000 or 53.9 percent from the prior year comparable quarter, primarily due to significantly reduced volume sold of choline and choline derivatives for oil and natural gas fracking in North America, Compared sequentially to the Q2 2016, sales increased $900,000 or $900000000 or 17.4%. There remains significant uncertainty in the oil and gas industry and while the rig count in the United States continues to trend up, we still expect headwinds to likely continue although year over year comparatives should start to improve.
Our earnings from operations for the Industrial Products segment were $527,000 a reduction of $597,000 compared with the prior year comparable quarter and primarily a reflection of the reduced volume. Sequentially, earnings from operations increased by $269,000 I'm now going to turn the call back over to Ted for some closing remarks. Thanks, Bill. We are pleased that in the Q3 of 16, we were able to deliver strong earnings with adjusted EBITDA of $36,600,000 and record 3rd quarter free cash flow of $19,800,000 even as we continue to face top line challenges, particularly in the oil and gas business within industrial products, but also across certain other market segments. Additionally, our continued strong cash generation enabled accelerated debt payments of $17,000,000 above and beyond the regularly scheduled payments of $8,800,000 reducing our net debt to $267,000,000 on September 30 or less than 2 times 12 months trailing adjusted EBITDA, further strengthening our balance sheet and financial position.
In addition, we made an accelerated debt payment of $8,000,000 in October, reducing our outstanding revolver balance to $20,000,000 from the $65,000,000 that were borrowed in February to partially fund the Albion acquisition. While top line challenges remain, we delivered year over year revenue growth in 3 of our 4 segments, Human Nutrition and Health, Animal Nutrition and Health and Specialty Products. The global macroeconomic environment remains difficult and will continue to challenge our top line. Of particular note, the oil and gas market remains very challenging and despite recent increases in rig counts, we remain cautious about this market for the rest of the year and into 2017. We are encouraged that there has been improvement in milk and milk protein prices and are particularly pleased to have realized a 36% increase in our quarterly ruminant species volumes.
We're also pleased with the progress made on our key strategic growth initiatives and we will continue to strengthen our company by focusing on these initiatives, while at the same time driving supply chain efficiencies, exercising disciplined cost management and seeking value creating acquisition opportunities. I would now like to hand the call back over to Bill, who will open up the call for questions. Bill? 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 the line of Francesco Pellegrini with Sidoti and Company. Please state your question.
Good morning, guys.
Hey, Francesco. Hi, Francesco.
So thanks in advance for taking the questions. Just going through the press release, overall, it was really in line with what I was looking for on a consolidated basis. I think what you guys are doing in the industrial products makes sense just with where rig counts are. There's a lot of transparency there. The Animal Nutrition and Health, you're probably getting a favorable product mix with as you've been citing higher milk protein prices, so you're probably able to sell more amino acids.
But then when I start jumping into, I guess, the 2 remaining product segments, specialty products and the Human Nutrition and Health segment, I guess, one of the things that I'm struggling a little bit with is where your organic revenue declined within, I guess, the legacy Sensory FX businesses. Is there a way to quantify that for the quarter? I know you cited the poor powder product sales due to what sounds like a lost customer. Is there a way to sort of quantify that a little bit better?
Sure. You really had 2 questions there, Francesco. Maybe I'll answer the specialty products one first. I think the what you're seeing, obviously, Specialty Products revenues were up, largely reflecting the plant nutrition add to specialty products. The legacy business was about flat, both from a revenue and an earnings perspective.
And so what you're seeing in the growth side of things is really the contribution of the Plant Nutrition business. And about 70% of Plant Nutrition revenue, if not a little bit more, come in the first half of the year. So Q3 was really the first quarter that we've seen a fairly significant sequential decline in revenue and subsequently profitability. So there really wasn't any decline in the legacy difference in the revenue quarter over quarter is more driven by the plant nutrition business and the seasonality impact of that business. Hopefully that answers your specialty products question.
Okay. So let's move on then to H and H where really there is a lot going on in H and H. We're very pleased with the contribution of Albion despite the need to focus a lot of resources on the fire recovery. But the legacy business was disappointing. We're experiencing some general softness, I would say across the markets, certainly seeing some price deflation driven by lower raw material costs.
And that's probably about half of the legacy decline year over year. And I'd like to quantify that number, I guess, is about $6,000,000 I think, I'm looking at Bill.
And that's half of the decline.
Yes, about half decline is deflation. And then the other half is the volume losses really specifically in powder systems. And so our powder systems customer base is relatively fragmented, which I think is good. But we do have some larger customers, one of which was bought by a competitor of ours fairly recently. And they are really more of a co manufacturing type business for others.
They were customer of ours and our competitor has taken that business in house. And as Q3 came around with the hot beverage season picking up, it became more material in our overall sales and hence we're noting that. We're also suffering a little bit. It's been relatively warm fall so far. And so we've seen the hot beverage build that we normally have this time of year be less than what we expected and what we saw last year.
At this point, we still feel like the cold is coming. It may be overall muted the build, but we do feel like it's coming. And then we have seen just some increased competitive activity in the Powder Systems business. The market has stalled a little bit, I would say, as there is enormous refocus on PHO free reformulation. As you know, by the end of next year PHOs are mandated to be formulated out.
And so the whole industry is really focused on that reformulation. I think that's created some increased competitive activity. But I do also think that
gives us an opportunity going forward.
We really are on rapidly introducing our new PHO free solutions to the market in an effort to make that transition with our customers, but also to gain some share as the market goes to cleaner labels. So those really are the 3 items that you can or we can point to in the legacy business in addition to just some general deflation.
So is it fair to say that the legacy sensory effects business was down 16% year over year?
No, no, that's not correct. The legacy business was down 9% from a revenue perspective. And as I said, probably about half of that was price deflation and half was where those 3 volume issues that I talked about. Almost 60% was price deflation actually, Francesca.
Okay. Because I thought $6,000,000 was price deflation and the other $6,000,000 probably got $12,000,000
I'm sorry. Yes, I'm glad you clarified that. The overall was about $6,000,000 and half was price deflation. So 3% or I guess Bill saying 60% and the rest was were those couple of volume issues that I talked about.
Okay. That makes sense. And then, Ted, in the press release, you start talking about strong margins. And to be honest with you, what was released with the EBIT numbers, I really don't see strong margins year over year. I see I mean, I see strong margins for Animal Nutrition and Health and the Industrial Products segment, but those segments aren't large enough to really drive overall consolidated margin performance.
So when I see strong margins, I'm just wondering what margins you're pointing to for each segment?
Overall,
our gross margins and let me just talk about gross margins for a second, which largely falls down to the bottom. But our gross margins as a company were up about 200 basis points. So 32.9% versus 30.9% last year. H and H was up modestly about 0.5 percentage point. ANH was up 200 basis points.
And that really was driven by flattish margins in monogastric offset by higher margins in ruminant and then the resulting mix of the growth in ruminant, which clearly was stronger than the growth in mono. Specialty products were down and that was really just because of the mix of the addition of plant nutrition and actually plant nutrition margins were up a little bit and the legacy arc margins were flattish. So we I think fundamentally when you peel that onion back, if you take the mix out of it, margins were strong and have been strong. And industrial products were up a couple of 100 basis points as well. So when you kind of put that all together, you see our overall margins up 200 basis points year over year.
And I would also say margins have generally been strong over the last 12 months or so. So as we are able to continue to build off of already relatively strong margins, that gives us, I think, the confidence to say we feel like the margins were strong.
Okay. So you're talking about the gross margins, which we don't get, I think, until you release your Q. So the gross margins are strong, but it looks as if maybe lower operating leverage due to just lower volume within Human Nutrition could contribute to maybe some lower operating leverage, which sort of drove down the operating margin, which contributed to the EBIT margins for those two segments being experiencing the fall off, if that's a fair interpretation?
Yes, I think also Francisco, you got to keep in mind, you're looking at obviously U. S. GAAP numbers. So the Albion acquisition for sure, at least in industrial and H and H is being impacted by certainly the inclusion of those expenses, but also most relevantly, I think the non cash amortization. And so when you look at those EBIT margins that becomes a little bit diluted from the amortization, again, which is non cash.
That's why, obviously, we're trying to adjust for that to some degree. But there is some leveraging issues going on because you layer in Albion for sure and the sales are somewhat down, but I don't want to lose sight of the amortization and the impact that that has on the numbers either.
Okay. I'm going to jump back into queue, but I got a couple more questions.
Okay. Thanks. Thanks.
Our next question comes from the line of Garo Noren with Palisade Capital Management. Please state your question.
Hey, guys. A couple of clarifications. First, can you tell me what the intangible amortization in Animal Health and Nutrition was? I kind of backed into a number I think around, I don't know, about 85, 86, or 86,000,000 or 160,000,000?
Yes. Give me a second, Garo, and I'll get that answer for you here.
Okay. And then just I want to make sure I understood the tax rate comment. Is that 32% for the year? And so what should that imply for the Q4?
We expect to finish the year with the tax rate at about 32%. That's kind of where we think the year is going to wind up.
Okay. I mean, so should the 4th quarter approximate that? Because I was just looking at the last couple of years, I think, like the 4th quarter tended to dip down in order to, I guess, maybe kind of get to the full year tax rate?
Yes. I think it's going to be lower because of where we're at year to date through the Q3. So expecting to finish the year at 32% for sure. I want to point out, I think that it's a good opportunity to point out Q4 last year was unusually low. I mean, we had various items, certainly the R and D tax credit extension, which we got the full benefit in the quarter for the year since it was extended late.
There were some tax rate changes in individual states and some apportionment changes as we did our returns and we had a number of discrete items that hit Q4 last year. So if you go back in time and look at that, we finished the quarter somewhere just north of 24%. We are not going to be at 24% this year and that obviously impacted our earnings last year for sure. But I think you can expect it to be still fairly good rate for the 4th quarter sub 32% for sure. Somewhere in that 30% range, it's going to all depend obviously on the earnings we wind up with 2 in Q4, but it's going to be less than 32.
Right. And you guys have obviously a lot of kind of positive things going on that Ted ran through. I was just trying to see if you could help me get a sense of over the next 12 months, which things are likely to be impacting positively the most? And then separately, some of these recent announcements with Purdue Agribusiness and BASF. I mean that's kind of, I guess in my head, more of a 3 year out type of kind of we should see benefits from that type of relationships, how to think about
those? Garo, I think that I'll just start sort of where you ended with Purdue and BASF. I think there's going to be some sort of startup, if you will, in those relationships. But we do see some real benefit in 2017 from both of those relationships. I agree it'll take 2 or 3 years to get to something that's really meaningful.
But I would expect that we would And even in the Purdue relationship, I would say there was very minor, but we did get some contribution to our ANH results, which of course were broadly very good in Q3, but there was some benefit from Purdue there. So that's those 2, I think exciting new alliances for us. If you kind of go through the others, I do think benefiting from the choline RDI is going to show some benefit next year, but bigger more material impact will likely be in 2018 as companies take the next year, year and a half prior to the mid year 2018 label change implementation time to reformulate and hopefully we're working hard to include choline in there. I think we'll get some wins next year, but I think 2018 we'll see the bulk. I think Curemark is obviously very difficult to tell.
I think in the grand scheme of drug delivery approvals or new drug approvals, This will be relatively quick, but it's taking a while. I don't think we necessarily will see significant benefit in 2017. But based on where we are with the trials, I would like to think that approval will be gained in 2017 and we'll be often running from there. So we're still hopeful that we'll see some benefit toward the end of 2017. Other things that we've talked about, I didn't talk about a lot today, agglomeration within our Powder Systems business, I think that's going to be another investment that helps us return that segment to growth.
We've already got sales out of that business and we're starting to ramp up and I think we'll see some real benefit in 2017 from that. So I think that kind of touches some of the big ones. The other one is just simply ANH Animal Nutrition and the continued penetration of the market with ReAssure as well as our other rumen protected products. Really very encouraged by obviously our growth there is a little bit lumpy, but quarter over quarter overall our ruminant volumes were up 36% with ReoSure up, sales up 53% in the quarter, which is pretty remarkable. And I think when you combine that with something we have talked about in the past, the new National Research Council review of choline and the hopeful inclusion of choline within that feed recommendation as well as some improving dairy economics, I'm looking forward to delivering some growth in ANH next year based on all of those things.
So hopefully that gives you a little bit of a feel, Cara, for the timing of those strategic initiatives.
Yes, that's fantastic. Thanks so much for the color.
And I guess, Bill, coming back to you on I just wanted to clarify, Gary, you said Animal Nutrition and Health you were looking for, right?
Yes, yes.
And so on an annualized basis, amortization somewhere around $3,000,000 is amortization.
Got it. All right. Thanks so much.
You're welcome.
Our next question comes from the line of Tony Pulik with Aegis Capital. Please state your question.
Good morning. Hi, Tony. How are you doing? Good. Could you give a little on the capital expenditures, what they were for this quarter and what you see going forward?
Yes. So they were about $4,000,000 this quarter. Year to date, we're somewhere around $18,000,000 and we expect to finish the year probably about $25,000,000
Okay. Can you give us an idea of what that's for?
Yes. I would say the $4,000,000 is primarily stay in business type capital there. As you know, I think we spent about $43,000,000 last year versus the $24,000,000 or so this year and that included some pretty significant growth investments. 1 was the ReAssure expansion, another was the agglomeration investment which carried on into the first half of this year. But that $4,000,000 this quarter, I would say was primarily stay in business type investments across our manufacturing network.
And Tony, let me just clarify, I said $18,000,000 it's closer to $19,000,000 year to date through September. I just wanted to point that out to you.
Okay. And next year, any major capital expenditures or it's mostly maintenance?
We do have a couple of growth investments that we're looking into. So we think capital expenditures will be slightly higher next year, but call it 30 as opposed to 25 certainly not going back to the 40,000,000 of last year. And that's largely around taking our encapsulation business more internationally as well as making I think product improvements to increase our differentiation in our choline business, human grade choline business that we're contemplating for next year.
Okay, thanks.
Thanks, Tony.
That does conclude our Q and A session. I will now turn it back to Mr. Harris for further I mean, for closing remarks.
Just again like to thank everybody for being on the call today and we look forward to our 4th quarter call early next year. Thanks a lot.
This concludes today's conference. Thank you for your participation. You may disconnect your lines at this