Balchem (NASDAQ:BCPC) Q3 2020 Earnings Call

0:00 Greetings. Welcome to the BALCAM Corporation Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Martin Bengtsson.

0:22 You may begin. Thank you, Shamalik. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balcombe Corporation for the quarter ending September 30th, 2020. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, CEO, and President. Following the advice of our counsel, auditors, and the SEC, at this time, I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements which reflect BALCAM'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 BALCAM's Form 10-K.

1:12 Forward-looking statements are qualified in their entirety by this cautionary statement. I will now turn the call over to Ted Harris, our Chairman, CEO, and President.

1:21 Thanks, Martin. Good morning and welcome to our conference call. This morning we reported quarterly consolidated net sales of $175.1 million, which resulted in third quarter net income of $21.6 million, or 66 cents per share on a GAAP basis. On an adjusted basis, our third quarter adjusted non-GAAP net earnings were $26.9 million, or Our third quarter net sales of $175.1 million were 10.4% higher than the prior year comparable quarter and were an all-time record. We also achieved all-time record sales in our human nutrition and health segment and record third-quarter sales in our animal nutrition and health segment.

2:28 The impact of foreign exchange to our sales was a positive $1.2 million, primarily due to the stronger euro, driving a positive 76 basis point impact to our year-over-year sales growth. Our Q3 consolidated gross margin dollars of $56.4 million were up $2.4 million or 4.4% compared with $54 million for the same period in the prior year. Our consolidated gross margin percent was 32.2% of sales in the quarter, down 187 basis points compared to 34.1% in Q3 of 2019. The 187 basis point decrease was primarily due to mix.

3:17 Consolidated operating expenses for the third quarter of 2020 were $27.3 million as compared to $28 million in the prior year. The decrease was principally due to lower selling expenses driven by reduced travel and a decrease in bad debt expense, partially offset by certain higher compensation-related costs. excluding non-cash operating expense associated with amortization of intangible assets of $6.2 million. Operating expenses were $21.1 million or 12% of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG&A infrastructure.

4:06 GAAP earnings from operations for the third quarter were an all-time record Theodore Harris, Erin Gilson, George Graham, Martin Luther Reid all-time record adjusted EPIDA of $44.4 million was $4.1 million or 10.1% above the $40.4 million posted in the third quarter of 2019. Interest expense for the third quarter of 2020 was $1 million and our net debt was $115 million with an overall leverage ratio on a net debt basis of 0.7.

5:09 Strong cash flows in the third quarter enabled the company to make $25 million of repayments of its revolving debt. Company's effective tax rates for the third quarter 2020 and 2019 were 22.7% and 15.4% respectively. The increase in the effective tax rate was primarily attributable to a reduction in certain tax credits and lower tax benefits from stock-based compensation, partially offset by lower enacted state tax rates. Third quarter consolidated net income closed the quarter at $21.6 million, up 4.3% from the prior year quarter.

5:57 This quarterly net income translated into diluted net earnings per share of 66 cents for the current year, an increase of two cents from Last year's comparable quarterly result of $0.64. On an adjusted basis, our record third quarter adjusted net earnings were $26.9 million or $0.83 per diluted share, up $0.6 million or 2.3% compared with $26.3 million or $0.81 per diluted share in the prior year quarter. These adjusted non-GAAP net earnings exclude tax-adjusted non-cash amortization and other items as detailed in our earnings release this morning of $5.4 million to facilitate comparative evaluation of operating performance versus the prior year period.

6:55 We generated quarterly free cash flow of $28.3 million and we closed out the quarter with $79 million of cash on the balance sheet. Third quarter cash flows from operations were negatively impacted by approximately $8.2 million of second quarter tax payments which were deferred to the third quarter as part of the CARES Act. Before passing the call back to Martin to cover the detailed results by segment, I would like to update you on the impacts of COVID-19 on our company, as well as a few of our important strategic activities and growth initiatives. As we shared in the press release this morning, the COVID-19 response effort has been a primary focus for the company since early in the first quarter.

7:46 Our focus has been on employee safety first, keeping our manufacturing sites operational, satisfying customer needs, Preserving cash and ensuring strong liquidity and responding to changes in this dynamic market environment as appropriate. To date, all of our manufacturing sites are operating at near normal conditions, enabling us to supply our customers with the important products and services they need. Our research and development teams are advancing our innovation efforts, and all of our other employees are effectively carrying on their responsibilities and functions remotely. The puts and takes of the COVID impact on our company largely offset each other in the third quarter.

8:34 While uncertainty continues to exist, we believe that the markets we serve will remain largely intact in a post-pandemic environment and that Valchem will be well positioned to continue to serve our customers effectively. We will continue to watch each of these markets very closely. and remain nimble, flexible and ready to respond accordingly. Meanwhile, on the research front, we continue to advance the science behind our solutions through collaboration with leading research facilities to enhance the portfolio of scientific studies and the awareness around the beneficial impacts of our products. To highlight a few more recent studies pertaining to our animal nutrition and health segment, Dr. Pete Hansen's lab in the University of Florida published a study demonstrating the positive benefits of supplemental choline in embryonic survival in dairy cattle. The paper, entitled Effects of Choline on the Phenotype, the Cultured Bovine Preimplantation Embryo, the study demonstrated with an in vitro model that increasing the level of choline in the surrounding medium increased embryo development. The expression of specific genes and overall DNA methylation.

9:55 This foundational research has set the stage for further follow-up studies and is suggesting possible expansion of the value proposition of Reassure, a rumen-protected choline, for both dairy and beef animal producers. In support of our monogastric choline business, the third quarter also saw the publication of a key research file in the International Journal of Poultry Science demonstrating the advantages of feeding choline as a methyl donor for growing broilers. The work completed at the University of Tennessee with Dr. Michael Smith demonstrated the benefit that increasing levels of choline had on broiler pawl or foot pad scores and lower litter moisture.

10:41 This work helped to validate the advantages of using choline with broilers even during periods of heat stress. Another study published during the quarter highlighted our Keshure organic trace minerals and the benefit they showed versus alternative inorganic minerals. The work was led by Dr. Zach Lowman from Balchem in conjunction with North Carolina State University and helped to demonstrate the advantage of Keshure on PAL scores, Feather scores, and overall body weight gains. On the human nutrition and health front, While there have not been any major publications during the third quarter, partly as a result of the pandemic, we know that good progress is being made in the important Cornell seven-year follow-up study, where we expect a number of publications to be coming out over the coming 12 months, supporting the beneficial impacts of choline on child cognition.

11:39 On our mineral side, we also achieved important FDA graphs, or generally recognized as safe self-affirmation of Ferrokel, our high-absorption iron mineral for infant formula, and of both calcium bisglycinate chelate and zinc bisglycinate chelate. Further, in our continuing effort to advance our environmental, social, and governance efforts, in the third quarter, Valcom proudly joined the United Nations Global Compact. This commitment to the Global Compact's principles is another step in our continuous improvement journey relative to our corporate social responsibilities and achievement of our higher purpose of making the world a healthier place. For more information around our environmental, social, and governance ideals, I encourage you to read our sustainability report that you can find on our website where we consolidate all of the great work that Balcombe has been doing for many years into a consolidated report. We are proud of our ESG accomplishments to date and look forward to sharing updates with you as we progress our initiatives as well as our higher purpose of making the world a healthier place.

12:51 And lastly, as we have discussed in previous quarters, we have embarked on an important project to consolidate our five ERP systems into one, Microsoft Dynamics 365. Activities related to this project which were paused during the second quarter due to travel restrictions and our global pandemic response efforts resumed in the third quarter. We brought three more manufacturing sites onto our new platform in the third quarter and we continue to prepare for additional go-lives in the fourth quarter while optimizing the system for sites already on the system. We currently have approximately 75% of our annualized revenues on the new ERP system and we believe that we will be able to implement the full project by the middle of next year and within our $12 million budget despite the pandemic-related delay.

13:47 I am now going to turn the call back over to Martin to go through the detailed results for each of our segments.

13:54 Thank you, Ted. For the quarter, our human nutrition and health segment generated record quarterly sales of $103.6 million. An increase of $17.4 million, or 20.3% from the prior year. The sales increase was primarily driven by higher sales within food and beverage markets, strong sales growth of chelated minerals, and beneficial impact from the Zumro acquisition we closed in December 2019, partially offset by lower sales to food service-related markets, and the elimination of sales associated with the Reading, Pennsylvania manufacturing site that we divested in 2019. Our human nutrition and health segment also delivered record quarterly earnings from operations of $17.5 million, an increase of $4.3 million or 32.6% compared to prior year, primarily due to the aforementioned higher sales and lower selling expenses as a result of reduced travel and a decrease in bad debt expense.

15:01 Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $5 million, adjusted earnings from operations for this segment were $22.5 million, an increase of $4.5 million or 24.9% compared to $18 million in the prior year. Our animal nutrition and health segment also delivered record third quarter sales of $46.4 million, an increase of 9.6% or $4.1 million compared to the prior year. The increase in sales was primarily the result of higher sales and volumes in the ruminant species market. Ruminant volumes were up over 17% with strong demand for AminoSure, a rumen-protected methionine, and Reassure are rumen-protected choline.

15:56 In terms of dairy economics, milk and milk protein prices have been volatile and have fluctuated quite significantly, which makes it difficult to predict exactly where they will go next. While clearly uncertainty continues, futures pricing are at relatively healthy levels. Monogastric sales were essentially flat in the third quarter after a strong first half of the year. We experienced volume growth in both chelated minerals and in the pet food markets, but this was offset by softness in both aqueous and dry choline. Animal nutrition and health quarterly earnings from operations of $7 million were up $0.9 million, or 14.5% from the prior year quarter, primarily due to the aforementioned higher sales, certain lower raw material costs, and reduced travel partially offset by an increase in certain compensation-related costs.

16:54 Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $0.2 million, adjusted earnings from operations for this segment were $7.2 million, an increase of $0.9 million or 14.1% compared to $6.3 million in the prior quarter. Our specialty product segment delivered quarterly sales of $23.0 million as compared with $24.9 million for the prior year quarter. The decrease of 7.6% was primarily due to lower sales of ethylene oxide for the medical device sterilization market, which has been negatively impacted by reduced elective surgical procedures during the pandemic.

17:43 The plant nutrition business declined approximately 0.3 million compared to the prior year quarter. However, we're pleased with achieving double digit growth for this business in the first half of the year, the seasonally stronger portion of the year. Specialty products will continue to be somewhat challenged due to our expectation that ethylene oxide sales will continue to be negatively impacted by the reduction in elective surgeries for the duration of the pandemic. We are, however, somewhat encouraged by the very gradual improvement in the business that we saw through the quarter. which we believe coincides with a modest pickup in elective surgical activity. The specialty product segment had third quarter earnings from operations of $5.3 million versus $6.7 million in the prior year quarter, a decrease of $1.4 million or 20.2%.

18:35 The decrease was primarily due to the aforementioned lower sales. Excluding the effect of non-cash expense associated with amortization of intangible assets of $1.5 million, Third quarter adjusted earnings from operations for this segment were $6.9 million compared to $8.4 million in the prior year, a decrease of $1.5 million or 17.4%. I'm now going to turn the call back over to Ted for some closing remarks.

19:06 Thanks, Martin. We are extremely pleased with Balcom's financial results reported earlier this morning. In the third quarter, we delivered record consolidated sales and strong revenue growth in both our human and animal nutrition and health segments with record third quarter consolidated GAAP net earnings and record third quarter non-GAAP adjusted net earnings and solid cash flows from operations while continuing to face and overcome significant challenges and uncertainties related to the global pandemic. These very strong results reported today are a direct result of the extraordinary talents and efforts of the Valchem team, as well as the strength of our market positions and the resilience of our business model.

19:54 I would like to once again take this opportunity to thank each and every one of the approximately 1,400 Valchem employees across the world who help make it happen every day. We further strengthened our already strong balance sheet this quarter by reducing our net debt by $27.6 million, finishing the quarter with a net debt leverage ratio of 0.7. We have strong positions within the markets we serve, and these unique positions coupled with our strong balance sheet will enable us to generate healthy growth over the years to come. I'd now like to hand the call back over to Martin, who will open up the call for questions.

20:34 Martin? Thank you Ted. This now concludes the formal portion of the conference. At this point we will open the conference call for questions. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 start key. One moment, please, while we poll for questions. Our first question is from Bob Levick from CGS Securities. Please proceed with your question.

21:19 Good morning. Congratulations on this quarter. Thanks, Bob. So you mentioned, obviously, record results in H&H and highlighted a few of the drivers. I was wondering if you could give us a little more color on both the food and beverage and chelated mineral strength and talk about the sustainability of the strength you're seeing.

21:40 Sure, yeah. We were very pleased with the overall results in Q3 for H&H. Sales were up 20% and earnings were also very strong, up almost 25%. The nutrition and pharma part of the business did very well. It was up about 3.5% with very strong continued minerals growth. So we're continuing to see what we believe is an ongoing trend toward focus on obviously health and immunity minerals, for example.

22:25 And as far as the sustainability of that, it has slowly declined throughout the quarter and since the pandemic started. But still, we're seeing strength in that segment. And we believe that that will continue for some time to come, possibly for the foreseeable future. quite bullish about our mineral and nutrition portfolio of products and the growth that we have seen and the growth that we expect to see going forward. The food ingredient part of the business really had an exceptional quarter. It was up almost 25% in the quarter, obviously benefited a little bit from the Zumbro acquisition, but if you strip that out on an organic basis, our food ingredient portfolio was up over 15%.

23:25 And really coming from all of our product lines, all of our product lines showed growth year over year. But we did see particular strength in our powder systems business and our cereal systems business. And some of those are really benefiting from the work from home. experience. For example, we're an important supplier to Keurig Dr. Pepper and their business is doing very well with the, we sell non-coffee related systems for their K-cups and that's doing very well. And various other customers similarly that are benefiting at this point in time.

24:16 feel really good about the performance of that business. And we believe that those trends will continue for some time as the consumer demand adjusts to sort of the new normal. And so we feel really good about that business and the future.

24:44 Okay, great. And then you talked about how basically you're operating at near normal or essentially normal as much as you can be in this environment. Can you talk about just the ability to keep the new product development happening over the past six, seven months and going forward and where you stand and how your new product pipeline is looking or shaping up?

25:09 Yeah, so obviously that's been a little bit of a challenge. But really, since day one, we have treated our R&D efforts much like our manufacturing efforts. So our labs have stayed open, and we've been able to keep them functioning very well. And we are progressing our key R&D project. some of these projects are dependent on customer interaction and it's a bit of a two-way street and we do see some customers have slowed their activities or maybe haven't even kept some of their laboratories open so some of those activities have been slowed I would say specifically customer related activities but where we're developing really new broader science for the market.

26:06 By and large, we've been able to keep those activities growing. We've seen a return to, you know, sometimes we use universities to test their products and so forth, and we've seen those now come back. There was a slight pause, I would say, in the second quarter, but those have come back. That slowed things for us a little bit, but we've now been able to ramp that up pretty well and continue with those efforts. So for the broader, more significant R&D efforts, we feel really good about our ability to continue to progress those. For maybe our smaller one-on-one customer-related efforts, that's been a bit more difficult But it seems to be getting better as everybody gets more used to the situation and starts to find ways to continue those R&D efforts. And just as I kind of watch our call reports come in from customers, there certainly seems to be more ability to start working on those customer specific projects than there was three or four months ago.

27:26 Okay, great. And last one for me, I'll jump back in queue. But can you talk a little bit about obviously, you mentioned the strong cash flow and a very strong balance sheet. So maybe talk about the M&A pipeline and the opportunity again, given the, you know, COVID disruption, is there the ability to go out and due diligence deals? Or how has that progressed? And how's it looking going forward?

27:49 Yeah, I think our pipeline still remains very healthy and we feel really good about the pipeline of ideas we have and opportunities we are exploring. I have to admit that there was a bit of a pause in this area for a few months there in the early stages as it was tough to really think through how can you possibly do due diligence remotely because we're so accustomed to, you know, visiting the manufacturing sites and meeting the people in person. But, you know, I think not only Balcom, but, you know, the market as a whole has kind of gotten over that and figured it out and, you know, We have some really talented folks on our board who do a lot of M&A activity and they've really helped us through this and helped guide us as far as the ability to do plant tours virtually and with somebody carrying an iPad around the manufacturing site.

29:08 We're sort of back on the mission to find the right opportunities. We feel good about our pipeline. And I think even banks would say that M&A activity has heated back up again. So we're encouraged about our ability to, again, find opportunities and get them done as appropriate.

29:33 That sounds great. Thanks very much.

29:35 Thank you. And our next question is from Mark Connolly with Stevens Incorporated. Please proceed with your question. Thank you. Ted, you mentioned several studies, and you've said in the past how important those studies are to getting the word out. Can you talk a little bit about your broader relationships with the universities and how those relationships affect your pipeline?

30:04 Sure, yeah. We tend to... We work with, I think, the most prestigious universities in the fields that we work in. We have strong relationships there. Sometimes we maybe even are funding graduate students, but certainly investing in studies, using their scientists, using their resources. They oftentimes have access to animals and so forth. And it's really important that we align with the leading institutions because credibility is of utmost criticality here. And so we've had longstanding relationships with these universities.

30:59 Some of them did have to pause activities during the early stages, but by and large have resumed those. And our longstanding relationship has us kind of in the top of the line, if you will, to continue the studies that we need to do. But at the end of the day, we need to show the effectiveness of our products in Whether it's humans or animals, these studies are very important. Our selling process oftentimes on the nutrition side is a bowel chem nutritionist selling to a customer nutritionist or a nutritionist hired by multiple customers.

31:53 It's a very technical sale and data. and various studies are critical to that process. So it's an important part of what we do and we're pleased that, you know, that is how we think back as it needs to be. And so we have several ongoing studies as we speak that we're looking forward to the results coming out of those in the coming months and quarters. Super. If we could just switch gears. Clearly, the consumption of cow's milk has had a nice benefit here during the COVID period. If we were to assume that consumption of cow's milk reverts to its previous negative trend, do you think that would help or hurt your market penetration?

32:43 I'm curious whether it's going to put more pressure on farmers to use your product or cause bigger pullback in volumes.

32:52 You know, I think I'd answer that question by just stepping back a little bit. You know, what we most care about is overall dairy protein consumption. And so, you know, as part of your question you're speaking to historically, fluid milk has been declining for some years and through the pandemic it has picked up some, makes sense. People are working from home. They're more likely maybe to have a bowl of cereal as opposed to grabbing a bar and running to the car, to the train. And parents are making sure their kids are drinking milk and they're at home and so they can do that.

33:38 So fluid milk has picked back up. But the reality is over all of this period of time, milk protein Thank you very much. Thank you. continues. I think it's good for our business because the market's growing, demand's growing, and so forth. To your point a little bit, if there's a decline, likely what will happen is dairy cows will be taken out of the system, but we still believe that the farmer is going to want That cow to be as efficient as it possibly can be. That would suggest support and interest in our products almost no matter what.

34:57 But we don't see that happening. We see continued strong demand overall in dairy protein. And that's really the best for us is when the market's growing and there's interest in making their cows that much more efficient. That's very helpful. And we see that generally across agriculture, that when markets get weaker, farmers pull back from the things that don't contribute increased efficiency. They don't pull back from the stuff that's giving them the efficiency gains. Just one simple last question. Is it fair to assume that we are seeing pretty much the full benefit of the Zombrow acquisition at this point?

35:41 I would say not yet. I think there's more to come there. We've taken all the actions in terms of the cost synergies that we had planned. We have consolidated one of their manufacturing sites as we had intended to do. We've driven the procurement synergies that we've intended to do and made some other changes. So from a cost perspective, we've taken the actions we planned COVID had a little bit of a negative impact to the commercial side where they had exposure to the food service side. So we do expect an uptick in the contribution from Zumbro as we go forward, as that starts coming back. So I would say it's not at its full potential yet.

36:26 Super. Thank you very much. Thanks, Mark. And our next question is from Ram Gopal with Sidoti and Company. Please proceed with your question.

36:41 Yes, hi, good morning. Thanks for taking the questions. First, I was just wondering if as a result of the surge we're seeing in a number of European countries again, if you're seeing signs of early stocking by some of your customers there.

36:57 Hey Mitra, hope you're doing well. Thanks for the question. Yeah, we have not seen that yet. Obviously, we're overall I'm concerned about the pickup in cases or the spike in cases in Europe and all of the uncertainties that that brings with it. We in fact just had a local employee in Europe test positive a couple of days ago in Belgium and it just seems like those countries are really struggling right now. But we haven't seen a real impact on the business yet. We obviously have to watch it carefully. From our perspective, the supply chains and the border crossings are still fairly effective. We're not seeing any shortages in raw materials.

37:51 We're not seeing any difficulties in shipping products across borders like we did very, very early on in the pandemic. And so we haven't seen a lot of pre-ordering going on. as a result of the recent spike. But that is a possibility in the weeks and months to come. It's just one of those things that we need to watch very carefully. But I'd say we haven't seen anything right as of right now.

38:22 Okay, no, that's great.

38:24 And on the specialty product side, I know you've talked about throughout the quarter things are starting to pick up a little. Just speaking to some companies I follow in this space they basically were saying you know we probably hit a low back in March April maybe 30% of volumes and some of them are saying you're seeing 60% they expect to be as much as 80-85% by year-end. I'm not sure if it's going to be a little slower for you in terms of building over the next few months or are you starting to see that acceleration?

39:02 This is one area where it has been a little bit difficult for us to get really good data around what is exactly happening relative to medical device sterilization, relative to medical procedures. We do talk to folks within our customer base. We've talked to leaders in medical device manufacturers. We even talked to some hospitals. It does seem as though medical procedures on average are maybe down about 25% and that's off of the low and slowly has been improving over Thank you very much.

40:19 is in the ethylene oxide space is down about 10%. And, you know, as I said, we've seen that improve probably at the low. We were down maybe 15, 16, 17%. So we are seeing an improve, but it's very slow. And with the spikes that are going on around the world, we are expecting a very slow recovery and wouldn't be surprised if we

40:48 And then finally, Martin, I was wondering if you can just give an update on the new ERP system in terms of how much investment still to be incurred to complete that and what should we expect from just maybe efficiencies margin expansion standpoint once that's in place?

41:18 Yeah, absolutely. I mean, like you said, we're about 75% through in terms of coverage of our revenue base. We got the primary sites we have coming up here is our international sites, right? So we got in Belgium, you know, major goal lives coming here. So from a spend perspective, we set out that with a budget of about $12 million, we think that we're within that budget, so we don't expect any overrun based on what we can see right now. We have spent about $9 million to date on this project. So you can think about this as another $3 million, which ties fairly well to where we're at also from an implementation perspective.

42:07 But you also spend more in the beginning than you do in the end, right, in setting up some of the infrastructure, which is why we feel confident coming in within our budget. From an efficiency standpoint, I wouldn't say that we're baking in and expecting, you know, huge cost savings, etc. This is not necessarily primarily a cost play for us. This is more from an efficiency and visibility and access to data. It's very difficult to manage in five, six systems just from having good data for decision making. So we look at it more actually from the perspective of how we can leverage the data, bring visibility to analytics. And it's hard to estimate what kind of, what kind of, you know, incremental profits will drive from that.

42:55 But if you're asking from the having gone line of D365, does that mean that you're going to cut out, you know, a million or 2 million or 3 million of costs? That's not really what we're going for here. We're going for visibility of data and efficiency and operations.

43:12 Okay, no, that's great. Thanks for taking the questions. Thanks, Peter. And again, if anyone has any questions, you may press star one on your telephone keypad. Doing so will ensure that you are in the Q&A queue. And our next question is from Ram Selvaraju with AC Wainwright. Please proceed with your questions.

43:33 Hi, thanks very much for taking my questions. I was wondering if you could provide us with some insight into How joining the UN Global Compact might affect your future sort of operational initiatives, how you manage the ethylene oxide business, or if we really shouldn't be expecting any change or impact there going forward?

43:55 Thanks, Ram, for the question. Yeah, we're pleased to join the Compact. We really think it just represents who we are and where we want to go. I don't think it has any impact specifically on how we manage the ethylene oxide business. We've always managed that business very responsibly. We do, I would say, an incredible job of recycling hazardous waste in that and that business, which is, I think, a really important and environmentally responsible activity for us. And we'll continue to be striving.

44:45 I think part of the principle, if you will, of our ESG focus and the Global Compact is continuous improvement. So can we find ways to We've improved the 99% recyclability that we've achieved from a corporate perspective on hazardous waste to 100%. We've made some significant investments recently moving to natural gas from a power perspective. We're investing in solar energy systems in our site in Belgium. It's all those kinds of things that I think will just continue to accelerate and our joining the Compact just reaffirms our commitment to continuous improvement and these ideals. But relative to the ethylene oxide business, I think it is just another commitment to continuously improve the management of that business and seeking improvements across the board, but I don't think it implies any significant pivot or shift in how we're managing it other than just, again, continuous improvement, which we've been doing for some time.

46:10 Okay, very helpful. The next two questions are for Martin. I think I just wondered if There's been any change in the way you prioritize paying down debt, or if that's effectively the same kind of philosophy internally that you had previously, or if you're going to be prioritizing it more going forward or less. And then lastly, if you could give me a sense on where you expect effective tax rate to trend over the course of the coming quarters. Thank you.

46:42 In terms of the capital allocation priorities, that short answer does not change. We're still going to prioritize our organic growth opportunities first, and then M&A as those opportunities come around. But as you know, they're lumpy when that happens. And in the meantime, we'll be paying down debt. We'll protect our dividend and we'll continue to pay down debt. So it's really, I think, the timing of M&A that will shift a little bit when we pay down debt and when we don't. We will always continue on the strategy that we're on. So no change really. From an ETR perspective, this quarter was a little bit higher than the prior two.

47:31 And I think as you model for a full year for an effective tax rate, I would probably use something maybe like a 22% or so as our best estimate at the moment for a full year rate.

47:46 Thank you very much.

47:51 Thanks, Ram. And we have reached the end of the question and answer session. And I will now turn the call over to Ted Harris for closing remarks.

48:01 Thank you. Once again, I'd just like to thank everybody for joining our call today. And more importantly, your continued interest in our company. We're really pleased with the strong Q3 and year-to-date results. The resilience of our business model in the face of these difficult market conditions and really the extraordinary response of the Balchem team. We appreciate your time. We look forward to reporting out Q4 and full year results in late February. In the meantime, we will be presenting at several investor conferences. Hopefully we can see some of you at one of these, but we're presenting at the Baird Global Industrial Conference 2020 on November 12th, the Stevens Investment Conference 2020 on November 17th, and Sidoti's January Small Cap Investor Conference on January 13th.

48:54 So again, hopefully we can at least virtually meet with some of you at one of those conferences. Other than that, thanks again for joining today. We really appreciate it. And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.