Bill Backus - CFO & Treasurer Ted Harris - President & CEO.

Tim Ramney - Pivotal Research Group David Dillon - Brown Investment Mike Ritzenthaler - Piper Jaffray Lenny Dunn - Freedom Investors Corp. Tony Polak - Aegis Capital Garo Norian - Palisade Capital Management.

Welcome to the Balchem Third Quarter 2015 Earnings Conference Call. [Operator Instructions]. 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 10K. 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 930 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 the third quarter GAAP financial statements.

The amortization expense is a direct result of acquisition valuation and business combination accounting roles, 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, our non-GAAP earnings of $0.61 per share reported in our press release earlier this morning, excludes these expenses to facilitate comparative evaluation of this current period operating performance versus the prior-year period.

Third quarter sales of $140.1 million or 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 impact 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 market.

Animal Nutrition and 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 currencies and decrease $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 expectation, 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, 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 product sales decreased 54.2% from the prior-year comparable quarter as volume 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 desired 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 cost which were partially offset by the impact of previously noted lower volumes and lower average selling price.

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 efficiency.

Gross margin percentage decreased for the Animal Nutrition and 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 material.

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 for certain raw material.

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 a comparable quarter of 2014 or a 10% decrease.

On a non-GAAP basis and 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 continues to strengthen and our cash flow remains strong as we generated $29 million in cash from operations and closed out the quarter with approximately $82 million of cash and 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 are 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 were 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're pleased with the third quarter SensoryEffects results, especially when considering previously mentioned top-line challenges, in part driven by our efforts to call 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're introducing to the marketplace.

This segment has continued to see margin expansion as we realized improved efficiencies, managed supply chain costs and improved 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're 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 three clinical for their drug to be utilized in the treatment of autism. The new drug application is being filed with the U.S. Food and Drug Administrator and we're collaborating as required.

In the near term, this sector remains a net expense to the business segment.

As noted, Animal Nutrition and Health segment volumes were flat year over year and up 1% sequentially, while sales of $39.9 million decreased 12.8% or $5.9 million, compared to the prior-year comparable quarter or 7.9% decrease when adjusting for foreign currency and decreased $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 U.S.DA has reported broiler production being up 4% in 2015.

Sales and 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 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. ANH quarterly earnings from operations were $5.6 million, a decrease of $1.3 million or 19.1%.

This decrease was a result of lower noted 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.

Our 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 in 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 the 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 operator's desire to curve hydrocarbon production costs. And 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 segment 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 basic 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're also making progress in research and development and are encouraged by the activity in the marketplace in the supplement and food fortification market relative to the pending RDI for choline. At the same time, we're actively pursuing several acquisition opportunities to strengthen and expand our existing market position.

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 initiate and add value to the markets we serve, capitalize on supply chain strength 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..

[Operator Instructions]. Our first question comes from the line of Jeremy Hellman from Singular Research. Please proceed with your question. .

This is Deborah [ph] 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?.

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 in kind of our pre-selling to the market, we've gotten a significant amount of interest from existing customers as well as new customers. And really allows us to expand our service offering beyond our traditional spray drying capabilities. So 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 have participated pretty significantly in that market, but not on the agglomeration aspect to it.

So 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. So this will give us the ability to provide a broader solution to those single-serve customers..

Our next question comes from the line of Tim Ramney from Pivotal Research Group. Please proceed with your question..

Bill, can you update us on the total size of the CapEx? And is most of it related to the agglomeration unit? And any initial thoughts about 2016 CapEx? I would assume your cash flow improves quite a bit in 2016..

Yes. So, Tim, as far as this year, our expectations are probably we'll do maybe another $15 million in Q4. So 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.

So it's a mix of different projects in there for sure. Next year, in 2016, our expectations at this point are we'll be somewhere from $25 million to $30 million of CapEx..

And 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?.

Yes. We viewed the agglomeration project as kind of presenting us with about a $25 million sales opportunity over the course of the next three years..

Our next question comes from the line of David Dillon from Brown Investment. 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. And I wonder what you base that on. Second question, you've never mentioned, you have not mentioned Joan Fallon of Curemark. And recently she had a conference at Columbia University, spoke and mentioned CM-AT.

And mentioned the billion-dollar sales potential which I would assume would imply a $40 million, plus or minus, royalty for this company.

And I wonder why you all don't pin her down to the floor and get some detail in detail on understanding of why she's taking so damn long after having finished FDA phase three studies without any difficulty two years ago and why she's involved in a second set of studies.

And exactly what in the world's going on that she hasn't come to market? She also mentioned that she has presented her documentation, so on, to the British equivalent of the FDA. And she mentioned this back in early September.

So what in the world's going on there? And thirdly, are you making any product for her, samples for her CM4612 and for her Parkinson product and schizophrenia product and 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.

And why you don't get in there and find out a lot about it..

I'll take a stab at that. We're very excited as a company about the Curemark opportunity. And Bill did talk a little bit about that in his prepared remarks. Obviously, it's taken a long time to come to fruition. But we remain confident that toward the end of next year that she will indeed get NDA approval for the drug for autism.

And we're making that product today for the trial. We do spend, in fact, I'm having lunch with her on Thursday. So we do spend a fair amount of time with her and 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 and 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 and a necessary part of the process.

And she has made announcements recently about a billion-dollar drug and she's received some equity income and hired some staff. And she's certainly building up her capabilities to either fulfill it alone to market or potentially to sell the business. So we're excited about it. We're watching it very, very carefully.

We believe that it's on track relative to what we've been saying over the last few quarters. And 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 and Health business where we continue to feel the SensoryEffects business is a great business for us and starting to see some of the growth that we've been talking about as it's delivered in Q3 of this year. I think the ARC business is very strong.

Both of those will continue into next year very nicely. Obviously, Animal Nutrition and Health is facing some headwinds. But when you kind of step back and look at the macro economic trends behind the dairy market which is where we're seeing particular headwinds today, they're very, very positive. And our products are solidly positioned.

We do see and 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. So we're optimistic about that business turning around and moving into 2016..

And what about the other four products of Curemark, are you making any of those?.

We likely will participate in that. But technically we're not making any samples at this time for those products..

Is somebody else making samples for her?.

No, I think that right now it's more sort of lab scale type thing. But --.

But you stand in line to make the samples if she needs them?.

Yes..

Our next question comes from the line of Mike Ritzenthaler with Piper Jaffray. Please proceed with your question..

Just a couple of follow-ups, I guess. One within SensoryEffects. It's certainly nice to see the organic growth and margin strengthen that business this quarter. And I'm wondering if you can provide a bit more granularity around the pockets of strengths that are there beyond sort of the domestic food sales.

I think Bill provided a little bit more context in his comments, in his prepared comments. But I guess the nature of the question is around the sustainability of that growth as we look into Q4 and 2016. I know you don't provide any specific guidance. But I think it'd just be helpful to actually [indiscernible] if that's where that business is headed..

We're really pleased with the results of SensoryEffects for Q3 as well. And we really saw growth across much of the business. Choline nutrients were up nicely. Our Powder Systems business was up year over year. Our Flavors Systems, when you exclude kind of the hot beverage, the specialty beverage part, was up very nicely.

We're still seeing year over year negativity from the specialty beverage segment as well as from some of the choline. But Flavors Systems, excluding that for dairy and beverage, was up strongly. Cereal Systems actually was up nicely as well in the quarter. So 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. And 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. And so that will be reflected in Q4. And the sales are not quite as strong typically in Q4 as Q3. But other than that, I do think the results are sustainable. The choline is starting to largely be behind us. The Specialty Beverages is starting to largely be behind us and stabilized.

And so I'm encouraged relative to that segment going forward..

I guess within ANH, maybe if we can just dive into a little bit more of the details there. Is there something structural that's causing these protein prices to be so low? I mean, just looking at North American, like class III milk prices have pretty stable in the $15, $16 range, I think all year.

And the currency headwinds certainly aren't new this quarter. So I'm wondering if there's something more underneath those exports being soft. And I guess maybe kind of a similar forward-looking question I guess into Q4, that a lot of those, 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..

Yes. 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. But given the further reduction, we really have seen milk prices come down, inch down as the year went on.

And then, obviously, milk protein prices dramatically came down in the quarter as well as some competitive products. Soybean meal prices are almost at historic lows. And they came down dramatically in Q3.

And those provide competition through some of our products, for example, our NitroShure product that if the soybean meal prices get to extremely low prices, that impacts our ability to sell NitroShure. And so those trends have been going on for the last few quarters, but I would say accelerated and worsened in the last quarter.

And that, coupled with the exchange rate, really impacted, particularly our export sales. And we see prices kind of forward-looking prices, [indiscernible] prices starting to climb, particularly in Q1 and Q2 of next year. So again, to your point, I think we'll be seeing the similar effects in Q4, but should start to see it turn around in Q1 and Q2..

I guess would it be fair to say that your North American ruminant performance was, maybe excluding NitroShure, I guess, because of the soybean dynamics.

But would it be fair to say that mostly North American performance in ruminant was within expectations?.

Generally speaking. Some of it, the reduction, particularly in the milk protein market, you're right, milk prices have been relatively stable in North America. It 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. But generally you're correct.

We highlighted the fact that ReaShure which really is not impacted by milk protein prices, remained 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 very unusually high September last year.

But we see that product line growing about 20% for the year and kind of 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. So 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..

Yes..

I mean, the milk price, the milk protein prices are at the lowest level since 2001, 2002..

Ted, maybe just last question from me, on M&A and maybe, I guess, as a subtle question for Bill, too. But on the M&A pipeline, I think Ted, just kind of some of your high-level thoughts on what you're seeing up there in terms of properties and valuation.

And then, Bill, I think it'd be interesting to get a perspective on how much, I guess 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, kind of seeing a range of valuations. But we do see opportunities. We see some privately owned companies saying that this is a good opportunity to sell.

And kind of when coupled with synergies that bringing them together with Balchem can bring, we believe the valuations are reasonable. So 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.

And, yes, we see opportunities out there that are reasonably valued. So again, we're spending a lot of time on that..

Yes. And I would say, Mike, just to add on to what Ted said. So there's large acquisitions we were looking at, smaller acquisitions, the bolt-on, plug-in-type acquisition.

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. But I think certainly we have the capacity to get the funding that we need for any type of deal, we believe at this point.

And we're constantly meeting, obviously, with investment bankers, as well as our bank syndicate to discuss these things. So 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.

But I don't think we're concerned sitting here right now saying how are we going to execute a transaction if it comes along..

Our next question comes from the line of Lenny Dunn from Freedom Investors Corp. Please proceed with your question..

Decent quarter. And certainly the future, particularly for 2016, looks pretty bright from the things that I've heard discussed. And we may want to continue to add to our position. But just one thing. In the past, you had had these three-for-two or five-for-four various splits.

And to add a little liquidity, because the transaction costs when we buy tend 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?.

Lenny, this is Bill. We do every year take a look at this. It's part of what we do at the Board of Directors. I mean, there is certainly thoughts behind it. If you go back historically when it was done, there were liquidity issues and those are some of the reasons that those stock splits occurred. We always do the analysis and take a look at it.

And 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 original shares out there. So we will consider it, we always do and then make the right decision based off of that..

Okay. Just it costs us more money to buy because on the spread. And you can sit there on the bid and be patient, but it scares the offer up. I mean, it's just it's a difficult stock to accumulate without paying more than we like in transaction costs. But we do have a substantial position and I'm just giving you our input..

Our next question comes from the line of Tony Polak from Aegis Capital. Please proceed with your question..

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. So we do anticipate the final rule late this year, early 2016, with choline on the labels by January 2018.

We're 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.

And we think that particularly 2017, in anticipation of the 2018 label change, we'll start to see some real incremental sales volume from it..

Have any projections in terms of whether that is $5 million? $20 million? Or any number you can give us?.

Sorry. 2015 choline nutrient business is about $20 million business. And we can say, obviously, we need to execute and deliver. But we can see that business doubling over three, four years, assuming that, again, we get some real benefit in the supplement market, one-a-day market, as well as increased food fortification..

New products? Occasionally you create new products there.

Are there anything on the horizon from that?.

No. Again, in that area we've had to develop some new products relative to the RDIs to make choline more functional, if you will or easier to work with in some of those applications. So 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 her egg replacement products. And again, those are -- 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.

And of course, in Animal Nutrition and Health, we're constantly working on new and improved ruminant stable nutritional products. And 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 just in the normal operating expenses?.

We just report it publicly an operating expenses..

Yes. And then if you go to when we publish the 10Q 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 report, the earnings release..

Okay.

Could you give us an idea on the CapEx in the third quarter, what the majority of that was for?.

Yes. There is 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 -- we're probably talking about also in our Covington facility, we've done some additional work there also, some capacity enhancements.

So it sort of goes across the business lines. Animal Attrition and Health, as well as the SensoryEffects segment primarily are the segments that we'd be talking about..

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. I mean, typically we're using, when we look at investments, we're looking and using [indiscernible] about 12%%, so..

Could you give us an idea of how much your spending on Curemark per quarter?.

It's not very significant. It's really not. This is, I think Ted's described it in the past as sort of high reward, low risk at this point for us..

Our next question comes from the line of Garo Norian from Palisade Capital Management. Please proceed with your question..

Just first wanted to make sure, the amortization of intangibles that you guys back out of the non-GAAP number, is that all within SensoryEffects segment?.

It includes what we've done -- most of it, by far, is related to SensoryEffects..

Yes..

But it is all in..

Okay.

Is that going to be broken out on the Q?.

I can give you an approximation here, if you bear with me, of how much for the quarter was Sensory. It's about 5.6 of it is Sensory..

Okay. And then secondly, just thinking sequentially into the fourth quarter, you guys highlighted the seasonality, certainly with Sensory.

Is there anything, any segment that you'd highlight likely sequential improvement in moving into the fourth quarter?.

Yes. I think that, again, seasonally, SensoryEffects, Q2 and Q3 tend to be the strongest. We've 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. And that's one that we certainly could not, at this point in time, forecast any improvement over Q3..

As 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..