Earnings Call: Q3 2015

Nov 3, 2015

Greetings, and welcome to the Balchem third quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bill Backus, CFO for Balchem Corporation. Thank you. 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 30th, 2015. 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 Balchem's expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9:30 A.M. Eastern Time. 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 third quarter consolidated net sales of $140.1 million, which resulted in third quarter net income of $14 million, or $0.44 per share on a GAAP basis. This result includes significant non-cash amortization expenses of $6.8 million for acquisition-related intangible assets, and one-time non-cash equity compensation of $1.5 million, both of which were expensed in these third quarter GAAP financial statements. The amortization expense is a direct result of acquisition valuation and business combination accounting rules. While the one-time equity compensation expense is associated with the retirement from the company of the former CEO and current Chairman of the Board of Directors, Dino Rossi. Consequently, its non-GAAP earnings of $0.61 per share, reported in our press release earlier this morning, exclude these expenses to facilitate comparative evaluation of this current period operating performance versus the prior year period. Our third quarter sales of $140.1 million were 12.7% lower than the $160.5 million result of the prior year comparable quarter. This sales result was unfavorably impacted 9.6% by the significant downturn in the fracking market, and 1.8% by the foreign currency translation. Excluding the negative impacts related to fracking and foreign currency, net sales decreased 1.3% compared to the prior year comparable quarter, largely due to reduced export sales. In the SensoryEffects segment, net sales were $73 million, an increase of $1.2 million from the comparable prior year quarter, and up $5.7 million sequentially compared with the second quarter, with particular volume strength in the domestic food markets. Animal Nutrition & Health volumes were flat year-over-year and up 1% sequentially, while sales at $39.9 million decreased 12.8% over the comparable quarter, or a 7.9% decrease when adjusting for foreign currency, and decreased $1.7 million sequentially from the second quarter 2015. While global monogastric species volumes were relatively strong, our ruminant species volumes fell far short of expectations, primarily due to significantly lower export sales as a result of very challenging global dairy market dynamics, combined with the ongoing strength of the dollar. Lower average selling prices of monogastric products, driven by lower raw material costs, also negatively impacted sales. In the quarter, ARC Specialty Products generated record third quarter sales of $13.8 million and grew 1.2% over the prior year quarter, with particular strength in sales of ethylene oxide products for medical device sterilization. Industrial Products sales decreased 54.2% from the prior year comparable quarter as volumes sold of choline and choline derivatives for industrial applications, notably for shale fracking, decreased due to the well-publicized significant downturn in the fracking market. Additionally, average selling prices were lower as a result of pressures related to this industry activity downturn and operators' desire to curb hydrocarbon production costs. Our consolidated gross margin percentage was 30.8% of sales in the quarter, up 310 basis points from a 27.7% of sales level in Q3 of 2014. The gross margin improvement was primarily due to a favorable product mix and lower raw material costs, which were partially offset by the impact of previously noted lower volumes and lower average selling prices. Gross margin percentage for the SensoryEffects segment increased by 410 basis points, primarily due to improved product and customer mix, lower raw material costs, and plant efficiencies. Gross margin percentage decreased for the Animal Nutrition & Health segment by 40 basis points, primarily due to an unfavorable product mix, partially offset by cost decreases of certain key petrochemical raw materials. Gross margin percentage for the ARC Specialty Products segment increased by 370 basis points, primarily due to product mix, manufacturing efficiencies, and cost decreases of certain key petrochemical raw materials. Industrial Products gross margin declined by 580 basis points, reflecting the reduced volumes and lower average selling prices, which were slightly offset by favorable purchase prices of certain raw materials. Consolidated operating expenses for the three months ended September 30th, 2015, were $20.3 million, or 14.5% of net sales, as compared to $19.2 million, or 12% of net sales for the three months ended September 30th, 2014. Excluding non-cash operating expenses associated with amortization of intangible assets of $6.4 million, and the noted one-time equity compensation, operating expenses were $12.4 million, or 8.8% of sales. Looking forward, we expect to leverage off of our existing SG&A infrastructure and exercise tight control over all controllable operating expenses. U.S. GAAP earnings from operations were $22.9 million, a decrease of $2.4 million, or 9.4%, compared with the prior year comparable quarter. On a non-GAAP basis, as detailed in our earnings release this morning, earnings from operations of $31.0 million decreased $1.7 million, or 5.3%, from the prior year comparable quarter, but were up sequentially $600,000, or 2.0%. As previously noted, consolidated net income closed the quarter at $14 million, down from $15.2 million in the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.44 as compared to the $0.49 we posted in the comparable quarter of 2014, or a 10% decrease. On a non-GAAP basis, as detailed in our earnings release, our diluted net earnings per share were $0.61 as compared to $0.65 in the prior year quarter, or a 6% decrease. Interest expense for the three months ended September 30th, 2015, was $1.6 million and is related to the term loan for the acquisition of SensoryEffects. The term loan has a remaining balance of $306 million at September 30. Our net debt at September 30 was $225 million. The company's effective tax rate for the three months ended September 30th, 2015, and 2014 was 34.0% and 34.6% respectively. This decrease in the effective tax rate was primarily attributable to a change in the apportionment relating to state income taxes and a change in the income proportion towards jurisdictions with lower tax rates. As outlined in our earnings release, our third quarter results generated approximately $35.7 million of adjusted EBITDA in the quarter, which translates to 25.5% of sales and equals approximately $1.12 per diluted share. Our balance sheet continued to strengthen, and our cash flow remained strong as we generated $29 million in cash from operations and closed out the quarter with approximately $82 million of cash. This reflects scheduled principal payments on long-term debt of $8.8 million, along with $12.8 million of capital expenditure funding in the quarter. I'm now going to have Bill Backus discuss the segments. Thanks, Ted. As previously noted for the quarter, sales of our consolidated SensoryEffects segment was $73 million, an increase of $1.2 million from the comparable prior year quarter and up $5.7 million sequentially from the second quarter 2015. The higher sales were primarily due to volume increases, particularly in powder and cereal systems and choline nutrients. Earnings from operations for this segment were $11.6 million versus $8.7 million in the prior year comparable quarter, an increase of $2.9 million, or 32.7%, and we're up sequentially $2.5 million, or 27.7%. Earnings from operations from this segment increased due to the noted higher sales, improved product and customer mix, lower raw material costs, and manufacturing efficiencies. We are pleased with the third quarter SensoryEffects results, especially when considering previously mentioned top-line challenges, in part driven by our efforts to cull lower-margin business and certain customer softness in their market space, particularly the single-serve coffee and specialty beverage market. We remain optimistic regarding the opportunities presented by our pipeline, the agglomeration initiative, which is on track for the end of 2015, and the new and novel products we are introducing to the marketplace. This segment has continued to see margin expansion as we realize improved efficiencies, manage supply chain costs, and improve the value proposition of our product portfolio. Q2 and Q3 do tend to be our strongest quarters from a margin perspective, as there is some favorable product mix due to seasonality. We also continue to build consumer awareness on the benefits of choline, positioning choline with food and nutritional supplement companies as an essential ingredient to be included in existing, new and novel sensory solutions, which we have recently started to introduce to the market. We are supporting additional external scientific research and remain excited about the FDA proposal that an RDI, recommended daily intake, for choline be accepted. As previously discussed, our pharmaceutical delivery development efforts continue. We continue to work closely with the licensee of our technology, who is in the process of performing a third phase III clinical for their drug to be utilized in the treatment of autism. Their new drug application is being filed with the U.S. Food and Drug Administration, and we are collaborating as required. In the near term, this sector remains a net expense to the business segment. As noted, Animal Nutrition & Health segment volumes were flat year-over-year and up 1% sequentially, while sales at $39.9 million decreased to 12.8%, or $5.9 million compared to the prior year comparable quarter, or a 7.9% decrease when adjusting for foreign currency, and decreased to $1.7 million sequentially from the second quarter 2015. Global monogastric species sales, including feed grade choline products, decreased $2 million or 7%, due to the noted negative impact of the currency exchange and lower average selling prices, which were driven by lower raw material costs. Lower feed prices and favorable economic conditions provide incentive for broiler integrators to expand production, and the USDA has reported broiler production being up 4% in 2015. Sales of product lines targeted for ruminant animal feed markets decreased by $3.8 million or 25% from the prior year comparable period, most notably from decreased export sales volumes of AminoShure and NitroShure, and primarily due to the noted challenging global dairy market dynamics and the strength of the U.S. dollar. While low milk prices have persisted for some time, milk protein prices fell to historic lows in Q3, further challenging the inclusion of nutritional ingredients in feed rations. These dynamics have been particularly challenging for us in export markets when coupled with the strength of the U.S. dollar. While these global market dynamics are increasingly impacting North America, we were pleased that we were able to deliver 12% growth of our flagship ReaShure product line in North America through these tough conditions. We believe these dynamics to be relatively short-lived and expect overall milk and milk protein prices to rebound. We remain confident long term as we prove the value proposition of our innovative and efficacious product portfolio, further penetrate the market and gain market share, and develop new and novel products to satisfy global market demands. A&H quarterly earnings from operations were $5.6 million, a decrease of $1.3 million or 19.1%. This decrease was a result of the noted lower sales and unfavorable product mix, partially offset by cost decreases of certain key petrochemical raw materials. The ARC Specialty Products segment posted quarterly sales of approximately $13.8 million for the three months ended September 30th, 2015, as compared with $13.7 million for the three months ended September 30th, 2014, an increase of 1.2%, and primarily due to higher sales of ethylene oxide products for medical device sterilization. ARC quarterly earnings from operations were $6 million, an increase of $725,000, or 13.6%. This increase is due to product mix, manufacturing efficiencies, cost decreases of certain key petrochemical raw materials, and tight control of selling and administrative expenses along with the noted revenue growth. During the quarter, we continued to incur additional expenses pursuing other new end market applications. In the Industrial Products segment, sales declined 54.2% from the prior year comparable quarter, as volumes sold of various choline and choline derivatives for industrial applications, notably for shale fracking, decreased due to the well-publicized significant downturn in the fracking market. Additionally, average selling prices were lower as a result of pressures related to this industry activity downturn and operators' desire to curb hydrocarbon production costs. While our industrial product sales were modestly up sequentially, the headwinds in the oil and gas industry are likely to extend into 2016. We will look to continue to leverage the competitiveness and efficacy of our products, capitalizing on opportunities to gain additional market share through both our existing product portfolio and the development and introduction of more cost-effective alternatives, while also aggressively managing supply chain costs. However, as indicated, we remain cautious about this industry. Our earnings from operations for the Industrial Products segment were $1.1 million, a reduction of $3.7 million or 76.5%, compared with the prior year comparable quarter, and primarily a reflection of the reduced volume and lower average selling prices, which were only slightly offset by favorable purchase prices of certain raw materials. I'm now going to turn the call back over to Ted for some closing remarks. Thanks, Bill. Our solid third quarter earnings continue to underscore the strength of our business model, particularly in light of the significant macroeconomic headwinds we have been facing in the shale fracking market and the global dairy market, coupled with the strength of the U.S. dollar. While certain sales segments in particular were negatively impacted by these factors, we realized overall improved margins, due largely to an improved product mix, lower raw material costs, and a focus on management of base costs. Cash flow remains strong, and during the quarter, we generated $16 million in free cash flow. Strategically, I am pleased with the progress being made on our important capital investments. The new agglomeration unit is being installed as we speak, and we will be up and running by January 1st as planned. We are also making progress in research and development and are encouraged by the activity in the marketplace, in the supplement and food fortification markets relative to the pending RDI for choline. At the same time, we are actively pursuing several acquisition opportunities to strengthen and expand our existing market positions. Looking ahead, while the macroeconomic headwinds we experienced in Q3 are likely to continue in Q4 and into 2016, we will continue to drive our strategic growth initiatives and add value to the markets we serve, capitalize on supply chain strengths, and control selling, general, and administrative spend. I would now like to hand the call back over to Bill, who will open up the call for questions. Thanks, Ted. This now concludes the formal portion of the conference. At this point, we will open the conference call for questions. We'll begin the question and answer session at this time. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes to the line of Jeremy Hellman from Singular Research. Please proceed with your question. This is Deborah in for Jeremy today. You mentioned the agglomeration project a couple of times in your opening remarks, and I'm glad to hear that it's on schedule to begin in January. Could you review with us again why we should be excited about that? What is that new capability going to give to us? How will that impact your sales going forward? Sure, Deborah. Thanks for your question. We're excited about it. It really is a natural extension of our spray drying capability and provides us really with unique and new capabilities from a particle size perspective. We're now going to be able to build products with larger particle size, better solubility, and more consistency, and are preselling to the market. We've gotten a significant amount of interest from existing customers as well as new customers, and it really allows us to expand our service offering beyond our traditional spray drying capabilities. That's really what it does for us. Again, it allows us to participate more broadly with our existing customers and gain new customers. Okay. When you say new customers, just to follow up, when you say new customers, are these new customers of a certain type? Does this new capability open you up to, say, a new customer category? Could you just give us a little more color on how that might be working for you? Sure. It will broaden our participation, particularly in the single-serve market where, for example, in the beverage single-serve market, most products there are agglomerated, and today we've participated pretty significantly in that market, but not in the agglomeration aspect to it. Our products typically would be shipped to somebody who has agglomeration, or we miss out on the opportunity because we don't have that capability. This will give us the ability to provide a broader solution to those single-serve customers. Excellent. Thank you for that added color. Thank you. Our next question comes to line of Tim Ramey from Pivotal Research Group. Please proceed with your question. Thanks so much. Bill, can you update us on the total size of the CapEx, and is most of it related to the agglomeration unit? Any initial thoughts about 2016 CapEx? I would assume your cash flow improves quite a bit in 2016. Yeah. Tim, as far as this year, our expectations are probably we'll do maybe another $15 million in Q4. We'll finish the year somewhere around $43 million in CapEx. A portion of it is the agglomeration unit for sure, but there are other ROI projects, other capacity enhancements for ourselves, and other types of improvements, too. It's a mix of different projects in there for sure. Next year, in 2016, our expectations at this point are will be somewhere from $25 million-$30 million of CapEx. Kind of circling back to the previous question, is there any way to quantify what the new facility could mean to sales, or is that just unknown until you actually get in the marketplace? Yeah, we've viewed the agglomeration project as kind of presenting us with about a $25 million sales opportunity over the course of the next three years. That's great. Thanks so much. The next question comes to the line of David Bellin from Brown Investments. Please proceed with your question. Two questions. You implied, or you actually stated that next year you are optimistic about results improving quite a bit. I wondered what you based that on. Second question, you have not mentioned Joan Fallon and Curemark. Recently she, at a conference at Columbia University, spoke and mentioned CMAT, mentioned a billion-dollar sales potential, which I would assume would imply a $40 million plus or minus royalty for this company. I wonder why you all don't pin her down to the floor and get some detail, in detail, an understanding of why she's taking so damn long after having finished FDA phase III studies without any difficulty two years ago, why she's involved in a second set of studies, exactly what in the world is going on that she hasn't come to market. She also mentioned that she has presented her documentation and so on to the British equivalent of the FDA. She mentioned this back in early September. What in the world is going on there? Thirdly, are you making any product for her samples for her CM-4612, for her Parkinson product, her schizophrenia product, her fourth product, which is for addiction, which she's always talking about? Would you get into some detail there? I can't understand why with so much potential for Balchem, your predecessor simply said that you don't know much about it and so on, why you don't get in there and find out a lot about it. Yeah, Larry, I'll take a stab at that. We are very excited as a company about the Curemark opportunity. Bill did talk a little bit about that in his prepared remarks. Obviously, it's taken a long time to come to fruition, we remain confident that toward the end of next year that she will indeed get NDA approval for the drug for autism. We are making that product today for the trials. We do spend, in fact, I'm having lunch with her on Thursday. We do spend a fair amount of time with her and believe we understand fairly well this process. In fact, we just this month spent some time with some clinical trial experts in the industry to help educate ourselves around the process. Again, feel comfortable with certainly her plan and the progress she's making. We do believe clearly that this is the last and final trial, a necessary part of the process. She has made some announcements recently about a billion-dollar drug. She's received some equity income and hired some staff, she's certainly building up her capabilities to either go it alone to market or potentially to sell the business. We are excited about it. We're watching it very carefully. We believe that it's on track relative to what we've been saying over the last few quarters. We're optimistic that we should see, in fact, even some benefits from this toward the end of next year. Going back to your initial question, why you're optimistic about next year, I think that's really reflective of the Animal Nutrition & Health business, where we continue to feel the SensoryEffects business is a growth business for us and starting to see some of the growth that we've been talking about as delivered in Q3 of this year. I think the ARC business is very strong. Both of those will continue into next year nicely. Obviously, Animal Nutrition & Health is facing some headwinds, but when you step back and look at the macroeconomic trends behind the dairy market, which is where we're seeing particular headwinds today, they're very positive. Our products are solidly positioned. We do see, most people are forecasting milk prices to increase again, milk protein prices to increase, and that will return the business more to normal levels, and we believe that will happen over the course of the next six months or so. We are optimistic about that business turning around and moving into 2016. What about the other four products of Curemark? Are you making any of those? Yeah. We likely will participate in that, technically, we are not making any samples at this time for those products. Is somebody else making samples for it? No, I think that right now it's more sort of lab scale type thing. Well, do you stand in line to make the samples if she needs them? Yes. Absolutely. Okay. Thank you very much. Yep. Our next question comes from line of Mike Ritzenthaler from Piper Jaffray. Please proceed with your question. Yes. Good morning. Sorry to hop on the call late here. Just a couple of follow-ups, I guess. One within SensoryEffects. It's certainly nice to see the organic growth and margin expansion in that business this quarter. I'm wondering if you can provide a bit more granularity around the pockets of strength that are there beyond sort of the domestic food sales. I think Bill provided a little bit more context in his prepared comments. I guess the nature of the question is around the sustainability of that growth, as we look into Q4 in 2016. I know you don't provide any specific guidance, but I think it'd just be helpful directionally if that's where that business is headed. Right. Hey, Mike. Thanks for the question. We are really pleased with the results of SensoryEffects for Q3 as well. We really saw growth across much of the business. choline nutrients were up nicely. Our powder systems business was up year-over-year. Our flavor systems, when you exclude the hot beverage, the specialty beverage part was up very nicely. We are still seeing year-over-year negativity from the specialty beverage segment, as well as from some of the culling. Flavor systems, excluding that for dairy and beverage, was up strongly. Cereal systems actually was up nicely as well in the quarter. We saw fairly robust growth across most of the product lines. Our international sales were down a little bit. Again, I think that's more reflective of currency than anything else. Like I said, we're still seeing some negativity from the specialty beverage segment. Q2 and Q3, there is some seasonality in our results, both from a sales perspective as well as a margin perspective. Our margin profile in Q2 and Q3 tends to be better than Q4 and Q1. That will be reflected in Q4 and the sales are not quite as strong typically in Q4 as Q3. Other than that, I do think that the results are sustainable. The culling is starting to largely be behind us. The specialty beverage is starting to largely be behind us and stabilized, I'm encouraged, relative to that segment going forward. Okay. That's all helpful commentary. I guess within ANH, maybe if we can just dive into a little bit more of the details there of, is there something structural that's causing these protein prices to be so low? Just looking at North American, like Class III milk prices have been pretty stable in the $15, $16 range, I think all year. The currency headwinds certainly aren't new this quarter. I'm wondering if there's something more underneath those exports being soft, I guess maybe a similar forward-looking question, I guess, into Q4 that it sounded like a lot of those headwinds might still be in place in Q4, but just maybe some additional commentary on there would be helpful. Yeah, I do think those headwinds are largely still in place in Q4. I think that you're right, certainly about the currency has been with us for a while, given the further reduction, we really have seen milk prices come down, inch down as the year went on. Obviously milk protein prices dramatically came down in the quarter. As well as some competitive products, soybean meal prices are almost at historic lows. They came down dramatically in Q3, those provide competition to some of our products. For example, our NitroShure product, if soybean meal prices get to extremely low prices, that impacts our ability to sell NitroShure. Those trends have been going on for the last few quarters, I would say accelerated and worsened in the last quarter, that coupled with the exchange rate really impacted particularly our export sales. We see prices, kind of forward-looking prices, do show prices starting to climb, particularly in Q1 and Q2 of next year. Again, to your point, I think we'll be seeing the similar effects in Q4, should start to see a turnaround in Q1 and Q2. Okay. All right, that makes sense. I guess the Would it be fair to say that your North American ruminant performance was maybe excluding NitroShure, I guess, because of the soybean dynamics. Would it be fair to say that mostly North American performance in ruminant was within expectations? Generally speaking, some of the reduction, particularly in the milk protein market, you're right. Milk prices have been relatively stable in North America and hasn't had much of an impact on us. We did see some impact in our amino acid business as a result of the lower milk protein prices. Generally, you're correct. We highlighted the fact that ReaShure, which really is not impacted by milk protein prices, remains strong. We should be able to grow that product line by 20% this year. We saw a little bit lower growth of that in Q3, largely because of a very unusually high September last year. We see that product line growing about 20% for the year and continuing at that pace going forward. We feel like we've gone from 20% penetrated, as we've talked about in the past, to something getting closer to 25% penetrated, and we've got a long way to go. We're still pretty bullish about that product line. Just to give you a data point, Mike. Sure. Sorry, Mike. It's Bill. Just to give you a data point. Yeah. The milk protein prices are at the lowest level since 2001, 2002. Okay. All right. That's interesting. Ted, maybe just the last question from me on M&A, and maybe I guess a subtle question for Bill, too, but on the M&A pipeline. I think, Ted, just some of your high-level thoughts on what you're seeing out there in terms of properties and valuation. Then Bill, I think it'd be interesting to get a perspective on how much cash is needed to really lubricate the business versus what can be deployed. We're seeing a real mix of opportunities. The kinds of opportunities we're looking at obviously range in size and range from smaller privately owned companies to larger properties and obviously seeing a range of valuations. We do see opportunities. We see some privately owned companies seeing that this is a good opportunity to sell, and when coupled with synergies that bringing them together with Balchem can bring, we believe the valuations are reasonable. We're actively working at it. We're certainly spending a lot more time on the pipeline today than we did a year ago, when we were focused on integrating SensoryEffects. We see opportunities out there that are reasonably valued. Again, we're spending a lot of time on that. I would say, Mike, and just to add on to what Ted said, there's large acquisitions we're looking at, smaller acquisitions, the bolt-on tuck-in type acquisitions. When you look at our credit facility and the fact that right now on a net debt basis, our leverage is about 1.6 times, we absolutely have the opportunity to go out and get funding for anything we're looking to do. Obviously, we have other opportunities to use other types of currencies, too, for something larger in terms of a more transformational transaction. I think certainly we have the capacity to get the funding that we need for any type of deal, we believe at this point. We're constantly meeting, obviously, with investment bankers as well as our bank syndicate to discuss these things. I think there's obviously benefits that can happen from some of these smaller bolt-ons, and those are, I won't say they're easier to integrate, but they can bring quick benefits. I don't think we're concerned sitting here right now saying, "How are we going to execute a transaction if it comes along? That makes sense. Thanks, gentlemen. Thanks, Mike. Our next question comes to the line of Leonard Dunn from Freedom Investors Corp. Please proceed with your question. Yeah. Good morning. A decent quarter and certainly the future, particularly for 2016, looks pretty bright from the things that I've heard discussed. We may want to continue to add to our position. Just one thing. In the past, you've had these three for two or five for four various splits. To add a little liquidity, because the transaction cost when we buy tends to be higher than we'd like because of the spread on the stock, can you consider when you meet in December doing a split so that the bid-ask spread isn't quite as bad as it's been? Yeah, Lenny, this is Bill. We do every year take a look at this. It's part of what we do with the board of directors. There are certainly thoughts behind it. If you go back historically when it was done, there were liquidity issues, those are some of the reasons that those stock splits occurred. We always do the analysis and take a look at it, certainly one of the considerations that is a con to doing it is the cost of doing it when you're listed and the cost of having those additional shares out there. We will consider it, we always do, make the right decision based off of that. Okay. It just costs us more money to buy because of the spread. You can sit there on the bid and be patient, but maybe it scares the offer up. It's a difficult stock to accumulate without paying more than we like in transactions costs. We do have a substantial position, I'm just giving you our input. Yeah. Understood. Thanks, Lenny. Okay. Our next question comes from the line of Tony Pollock from Aegis Capital. Please proceed with your question. Good morning. Do you have any timing on the RDI for choline? Unfortunately, I would say the update on the RDI for choline is no real news since the last call. It continues to progress. The public comment period's over. There were no unfavorable comments relative to choline. We do anticipate the final rule late this year, early 2016, with choline on the labels by January 2018. We are seeing, as I noted in my comments, a lot of anticipation in the market around the RDI. I'd say food companies, supplement companies, and so forth, are expecting it, and we have a fair amount of activity in anticipation. We think that, particularly 2017, in anticipation of the 2018 label change, we'll start to see some real incremental sales volume from it. Do you have any projections in terms of whether that is $5 million, $20 million, or any number you can give us? Our existing choline nutrient business is about a $20 million business. We can see, obviously, we need to execute and deliver. We can see that business doubling over three, four years, assuming that, again, we get some real benefit in the supplement market, the One A Day market, as well as increased food fortification. Okay. Thank you. New products. Occasionally, you create new products there. Are there anything on the horizon from that? We are, again, in that area. We've had to develop some new products relative to the RDI to make choline more functional, if you will, or easier to work with in some of those applications. That's something that we're working on. I would say in our SensoryEffects business, we're constantly coming out with new solutions. I talked more recently about our pea protein products and our egg replacement products. Again, those can't claim a whole lot of new incremental sales, but we're getting a lot of interest and working on various projects with those products. Of course, in Animal Nutrition & Health, we're constantly working on new and improved ruminant stable nutritional products. Again, we haven't launched any new products since last quarter, but we're working in that area as well. Do you have an R&D line item, or does it just come in the normal operating expenses? We just report it publicly in operating expenses. Yeah. If you go to when we publish the 10-Q or look at some of our previous filings, you'll see the R&D line item broken out on that P&L. We just condense it when we do the earnings release. Okay. Could you give us an idea of the CapEx in the third quarter? What the majority of that was for? Yeah. There was certainly some related to the agglomeration project. We continue to do some expansions in our Verona facility, and I think those are probably the biggest ones that we're probably talking about. Also, in our Covington facility, we've done some additional work there, also some capacity enhancements. It sort of goes across the business lines, Animal Nutrition & Health as well as the SensoryEffects segment, primarily are the segments that we'd be talking about. All right. Do you have any numbers on a possible return on investment on the agglomeration project? Well, I think part of this is, like Ted said, we're looking at $25 million of sales here, potentially over a number of years. We've looked at it. I think part of it's going to come down to some of the margin that we get on some of the existing business we may already have, where we have this sort of vertical integration, and then some of the new business that comes along. Typically, when we look at investments, we're looking and using a WACC about 12%. Okay. Could you give us an idea of how much you're spending on Curemark per quarter? It's not very significant. It's really not. I think Ted's described it in the past as sort of high reward, low risk at this point for us. Okay. Okay, thank you. Thank you. The next question comes on the line of Garo Norian from Palisade Capital Management. Please proceed with your question. Hi, just first wanted to make sure. The amortization of intangibles that you guys back out of the non-GAAP number, is that all within Sensory Effects segment? No, that's all in, Garo. This is Bill. It includes what we've done. Most of it, by far, is related to Sensory Effects. Yeah. It is all in. Okay. Is that going to be broken out in the Q? I can give you an approximation here, if you bear with me, of how much for the quarter was SensoryEffects. It's about 5.6 of it is SensoryEffects. Okay. Then secondly, just thinking sequentially into the fourth quarter, you guys highlighted the seasonality, certainly of SensoryEffects. Is there any segment that you'd highlight likely sequential improvement in moving into the fourth quarter? Yeah, I think that, again, seasonally, SensoryEffects Q2 and Q3 tend to be the strongest. We talked about ANH kind of continuing to face some of these headwinds. I think our sterilization business, again, we'll see kind of similar performance in that. Our oil and gas business is one that we haven't talked much about today and continues to be extremely volatile. That's one that we certainly could not, at this point in time, forecast any improvement over Q3. All right. Thank you. Thanks. Okay, it appears there's no further questions at this time. Management, would you like to make any closing remarks? I just want to, I guess, thank everybody for being on the call. We appreciate it. We appreciate the support, and we look forward to speaking with you soon again. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.