Greetings. Welcome to the Balchem 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. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Martin Bengtsson, Chief Financial Officer. Thank you. You may begin. .

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending June 30, 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 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.

I will now turn the call over to Ted Harris, our Chairman, CEO and President..

Thanks Martin. Good morning and welcome to our conference call. This morning, we reported record second quarter consolidated net sales of $173.4 million, which resulted in record second quarter net income of $21.1 million or $0.65 per share on a GAAP basis.

On an adjusted basis, our record second quarter adjusted non-GAAP net earnings were $27.6 million or $0.85 per share. Cash flows from operations were $44.6 million for the second quarter of 2020 with quarterly free cash flow of $37 million. Our second quarter net sales of $173.4 million were 7.3% higher than the prior year comparable quarter.

We achieved sales growth in all three of our segments as compared to Q2 2019 with all-time record sales in Human Nutrition & Health and Specialty Products and record second quarter sales in Animal Nutrition & Health.

The impact of foreign exchange to our sales was a negative $0.5 million, primarily due to a weaker euro, driving a negative 31 basis point impact to our year-over-year sales growth. Our Q2 consolidated gross margin dollars of $55.4 million were up $1.5 million or 2.7%, compared with $53.9 million for the same period in the prior year.

Our consolidated gross margin percent was 31.9% of sales in the quarter, down 143 basis points compared to 33.4% in Q2 of 2019. The 143 basis point decrease was primarily due to mix and certain COVID-19 related expenses partially offset by certain lower raw material costs.

Consolidated operating expenses for the second quarter of 2020 were $28.5 million as compared to $27.5 million in the prior year.

The increase was principally due to incremental operating expenses related to the Chemogas and Zumbro acquisitions and a goodwill impairment charge related to business formerly included in the Industrial Products segment, partially offset by lower selling expenses primarily due to reduced travel and lower bad debt expense.

Excluding noncash, operating expense associated with amortization of intangible assets of $6.2 million, operating expenses were $22.2 million or 12.8% of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG&A infrastructure.

GAAP earnings from operations for the second quarter were $26.9 million, an increase of $0.5 million or 2% compared to the prior year quarter. On an adjusted basis as detailed in our earnings release this morning, earnings from operations of $35.9 million were up $2.6 million or 7.8%, compared to $33.3 million in the prior year.

Record adjusted EBITDA of $43.9 million was $3.9 million or 9.8% above the $40 million posted in the second quarter of 2019. Interest expense for the second quarter 2020 was $1 million and our net debt was $142.2 million with an overall leverage ratio on a net debt basis of 0.9.

Strong cash flows in the second quarter enabled the company to make $35 million of repayments of its revolving debt. The company's effective tax rates for the second quarter 2020 and 2019 were 18.7% and 20.3%, respectively.

The decrease in the effective tax rate is primarily attributable to lower enacted tax rates from several states certain higher tax credits and excess tax benefits from stock-based compensation. Consolidated net income closed the quarter at $21.1 million, up 6.5% from the prior year quarter.

This quarterly net income translated into diluted net earnings per share of $0.65 for the current year, an increase of $0.04 from last year's comparable quarterly result of $0.61.

On an adjusted basis, our second quarter adjusted net earnings were $27.6 million or $0.85 per diluted share, up $2.3 million or 9.2% compared with $25.2 million or $0.77 per diluted share in the prior year quarter.

These adjusted non-GAAP net earnings exclude tax adjusted noncash amortization and other items, as detailed in our earnings release this morning of $6.4 million to facilitate comparative evaluation of operating performance versus the prior year period.

We generated quarterly free cash flow of $37 million, and we closed out the quarter with $76.4 million of cash on the balance sheet.

Second quarter cash flows from operations benefited by approximately $8.2 million, due to deferred tax payments related to the CARES Act, and we expect third quarter cash flows from operations to be negatively impacted by the same $8.2 million to be paid in the third quarter.

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 earlier in the first quarter.

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.

Last quarter we indicated an expectation that sales over the next few quarters and for the duration of the pandemic would be challenged by weaker demand from various of our market segments. As we expected in aggregate, our revenues in the second quarter were indeed negatively impacted by the global response efforts to the pandemic.

Of particular note, we have seen lower demand from food services, medical device sterilization, due to fewer elective surgeries, and lower fracking activities.

These negative impacts to demand were only partially offset by higher food ingredient sales to retail and other outlets and higher sales of our immunity-strengthening minerals and choline nutrient solutions.

We are extremely pleased with the fact that despite the aggregate negative impact on our sales from the pandemic, we were able to drive significant year-over-year sales growth as a result of the resilience of our business model and the sales contribution from various organic and inorganic strategic growth initiatives.

While uncertainty continues to exist as the second quarter progressed, we were able to see some evolution of these various market drivers.

For example, within the quarter while we did see some recovery in certain sub-segments of our food service-related business, we have seen little recovery in other negatively impacted markets indicating at least for now a relatively protracted and slow recovery.

Additionally, while the significantly higher demand for minerals and choline nutrients tapered off somewhat as the quarter progressed, there appears to be some sustained higher demand for these immunity boosting products going forward.

Also the boost on food ingredient sales to retail and other outlets gradually returned to more normal levels throughout the quarter. We will continue to watch each of these markets very closely, and remain nimble, flexible, and ready to respond accordingly.

Moving on to an update on important strategic activities and growth initiatives, within Human Nutrition & Health we made a minority stake investment in SNP Therapeutics, a research-based genomics company founded by Dr.

Steven Zeisel, the Director of the University of North Carolina's Nutrition Research Institute, and a world-renowned scientist and choline expert with a focus on identifying genetic misspellings for mutations called SNPs or single nucleotide polymorphisms, which impair nutrition, metabolism and contributes to diseases and other health-related issues.

SNP Therapeutics evaluates each patient's genome and translates it into meaningful actionable information by utilizing the company's proprietary custom genetic tests and algorithms. Once SNP Therapeutics has evaluated a patient's genome data, the company can provide information to patients and physicians so treatment options can be explored.

Physicians can then prescribe a scientifically based medical food or recommend supplement solutions for many of these medical and nutritional conditions, including personalized vitamin, mineral and other nutrient solutions.

Balchem's investment in SNP Therapeutics will enable us to participate in this exciting venture that provides relevant learnings, the prospect for building choline awareness and future commercial opportunity for our Human Nutrition & Health segment.

Relative to Animal Nutrition & Health, the launch of our previously discussed AminoShure XM our next-generation rumen-protected methionine continues to progress very well. This next-generation product offers enhanced bioavailability and superior feed stability that allows it to deliver industry-leading value for dairy farmers.

Nutritionists and dairy farmers around the world agreed as market penetration grows for this new product which is being further boosted by healthier dairy protein prices.

Additionally, we have been extremely pleased with our Animal Nutrition & Health e-learning platform and webinar series that have attracted over 4,000 attendees to our 11 live real science webinars and over 5,000 people viewing them online via Balchem's YouTube channel.

With the global pandemics, we have had to pivot to increase virtual marketing and the Animal Nutrition & Health team has leveraged existing tools and technical content to reach current and prospective customers with important technical information.

Within Specialty Products, in May, we celebrated the one-year anniversary of the Chemogas NV acquisition, which significantly expanded Balchem's geographic presence in the packaged ethylene oxide market, enabling us to offer worldwide service and support through our medical device sterilization customers.

We are extremely pleased with the acquisition and how it has enabled the creation of Balchem Performance Gases, our now global business unit, focused on providing ethylene oxide and other chemicals to most notably the medical device sterilization market worldwide.

Chemogas has been fully integrated into the Specialty Products segment and is meeting our expectations from a strategic and economic perspective. We also released our second annual sustainability report in April, in support of our environmental social and corporate governance ideas.

In 2019, we issued our first sustainability report, consolidating all of the great work that Balchem has been doing for many years into a consolidated report. We are committed to providing solutions for the health and nutrition needs of the world and acting as strong stewards of all of our stakeholders.

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.

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. In the second quarter, we elected to pause activities related to our global ERP implementation project due to our global pandemic response efforts.

In particular, travel restrictions made it impossible to provide on the ground support for additional site go-lives. So we chose to refocus our ERP project team's efforts on optimization of the new ERP system for sites that have already gone live, while preparing for future go-lives when restrictions are lifted.

While still believe that we will be able to implement a full project within our $12 million budget, the project will now take approximately nine to 12 months longer than originally planned, with our current expectation for full implementation by the middle of next year.

I'm now going to turn the call back over to Martin to go through the detailed results for each of our segments..

Thank you, Ted. For the quarter, our Human Nutrition & Health segment achieved all-time record quarterly sales of $97.4 million, an increase of $11.6 million, or 13.5% from the prior year.

The sales increase was primarily driven by strong sales growth of chelated minerals and choline nutrients, as well as increased sales into the food and beverage markets, from both the legacy business and the Zumbro acquisition we closed in December 2019.

Partially offset by lower sales to food service-related markets and the elimination of sales associated with the Redding Pennsylvania manufacturing site that we divested in 2019.

Our Human Nutrition & Health segment also delivered all-time record quarterly earnings from operations of $15.5 million, an increase of $3.2 million or 25.6% compared to prior year, primarily due to the aforementioned higher sales and lower selling expenses, primarily due to reduced travel and lower bad debt expense.

Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $4.8 million, adjusted earnings from operations for this segment were an all-time record of $20.3 million, an increase of $3.1 million or 18.3% compared to $17.2 million in the prior year quarter.

The increase, as mentioned earlier, resulted from the higher sales and lower selling expenses, primarily due to reduced travel and lower bad debt. Our Animal Nutrition & Health segment delivered record second quarter sales of $46.3 million, an increase of 6.6% or $2.9 million compared to the prior year.

The increase in sales was primarily the result of higher volumes in both the ruminant and monogastric markets. Ruminant volumes were up over 6%, with strong demand for ReaShure, our flagship rumen-protected choline. In terms of dairy economics, we were pleased to see the significant dip in milk prices during the pandemic was very short lived.

And as we finished the quarter, milk and milk protein futures were at relatively healthy levels. While clearly uncertainty continues, this V-shaped recovery in the dairy markets has been encouraging. Monogastric volumes were up approximately 4%, primarily driven by growth in chelated minerals and companion animal offerings.

We also had solid demand for aqueous and dry choline domestically, but did experience softness in Europe due to a pullback of demand, at least partially related to the prebuying we experienced in the first quarter related to the earlier responses of the pandemic, as we discussed last quarter.

Animal Nutrition & Health quarterly earnings from operations of $6.4 million were up $1.4 million, or 27.5% from the prior year quarter, primarily due to the aforementioned higher sales, certain lower raw material costs and lower selling expenses, primarily due to reduced travel.

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 $6.6 million. An increase of $1.4 million or 26.6%, compared to $5.2 million in the prior year quarter.

Our Specialty Products segment delivered quarterly sales of $28.2 million, as compared with $24.9 million for the prior year quarter. This increase of 13.2% was driven by higher sales of ethylene oxide for the medical device sterilization market, due to the incremental contribution of Chemogas.

Partially offset by lower legacy sales, which were negatively impacted by reduced elective surgical procedures during the pandemic. The plant nutrition business was essentially flat in the second quarter following a very strong first quarter.

And we're pleased with achieving double-digit growth for this business in the first half of the year, a seasonally stronger portion of the year.

The second half of the year for Specialty Products will remain somewhat challenged due to both the seasonally lower plant nutrition sales and our expectation that ethylene oxide sales will continue to be negatively impacted by the jurisdictional restrictions of elective surgeries and patients remaining reluctant to visit hospitals for elective procedures.

The Specialty Products segment had second quarter earnings from operations of $8.0 million versus $8.9 million in the prior year quarter, a decrease of $0.9 million or 9.8%. The decrease was primarily due to mix and higher operating expenses due to the acquisition of Chemogas.

Excluding the effect of non-cash expense associated with amortization of intangible assets of $1.6 million, second quarter adjusted earnings from operations for this segment were $9.6 million compared to $10 million in the prior year, a decrease of $0.4 million or 3.9%. I'm now going to turn the call back over to Ted for some closing remarks. .

Thanks, Martin. We are extremely pleased with Balchem's financial results reported earlier this morning.

In the second quarter, we delivered record consolidated sales and year-over-year revenue growth across all three of our segments with record consolidated GAAP net earnings and record non-GAAP adjusted net earnings and strong cash flows from operations, while facing and overcoming significant challenges and uncertainties related to the global pandemic.

I would like to take this opportunity to thank each and every one of the approximately 1,400 Balchem employees across the world, who have responded so courageously to the events of the last few months.

These very strong results reported today are a direct result of the extraordinary talent and efforts of the Balchem team as well as the strength of our market positions and the resilience of our business model.

We further strengthened our already strong balance sheet this quarter by reducing our net debt by $37.4 million, finishing the quarter with a net debt leverage ratio of 0.9.

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 would now like to hand the call back over to Martin who will open up the call for questions.

Martin?.

Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions. .

Thank you. [Operator Instructions] Our first question comes from the line of Ram Selvaraju with H.C. Wainwright. Please proceed with your question..

Thanks very much for taking my question. A couple of detail points first.

Could you elaborate on the nature of the goodwill impairment charge related to the Industrial Products business that you mentioned in this quarterly results?.

Sure. Good morning. There was approximately a $1.2 million impairment, which reflects essentially all of the goodwill associated with the former Industrial Products segment.

So given the performance of that business and where it's now at in the sort of, prolonged downturn that we see in the oil and gas space that felt appropriate to write that goodwill off at this point in time. .

So suffice it to say that you took a pretty aggressive approach there and you don't expect this to be a recurring item right?.

No. There is no more goodwill related to that segment. That was 100% of it. .

Okay. I also wanted to ask about elective surgical procedures and whether you have seen any indication of sustainable recovery yet? And if you have whether this rebound was substantively affected or whether you're seeing it be substantively affected by the resurgence in COVID-19 infections that we began seeing in June and also this month. .

Ram, the short answer to your question is, no. We really have not seen the rebound yet. Obviously, late in Q1 very early in Q2 the impact -- the negative impact of lower elective surgeries was masked somewhat by higher sterilization of COVID response items.

But as we really got into Q2, we started to really see the negative impact associated with fewer elective surgeries. We do hear from our customers and we have very good relationships with the large medical device companies around the world.

And they are seeing some improvement as second quarter progressed and we've gotten into third quarter really month-on-month as far as their order books go. And so we know that it's coming but we actually today really have not seen any measurable return to normal levels within our sterilization business at this point. .

Okay. And then just a couple of other quick things. I was wondering how sustainable you expect the higher volumes in the Animal Health & Nutrition business to be going forward. And where you expect the effective tax rate to trend in the coming quarters? And what factors might influence that particularly with respect to stock-based comp? Thanks..

Okay. I'll take the first one Martin maybe you can take the second one. Relative to the volumes in Animal Nutrition & Health, we really have had I think going back to the second half of last year really good encouraging performance from our Animal Nutrition & Health business. And we really believe that that will continue.

Obviously, there were some significant market dynamics that occurred in Q2 but they really proved to be relatively short-lived or we were able to overcome them through significant growth in other areas.

Specifically, in the monogastric business in Q3 we did see some impact in Europe relative to the pre-buying that happened in Q1 and so pull back in demand. We did see some impact in the U.S.

from some of the supply chain disruptions at some of our big customers had not for example in that market strength in the companion animal market really helped to offset some of those impacts and we see that really continuing for the rest of the year.

And in the dairy market similarly as we had this call a quarter ago we were seeing milk and milk protein prices really spike down. And as Martin talked about in his prepared remarks that truly was a V-shaped recovery I would say. And now milk and milk protein futures are looking very healthy.

And we've seen the response to those healthy milk and milk protein prices with increased orders as the quarter progressed and so we also in the ruminant area believes that the stronger volumes will continue for the foreseeable future. So, that's kind of the detail behind the short answer.

Yes, we do think that those higher volumes will continue for the foreseeable future.

And Martin on the tax?.

Yes, just quick on the tax, Ram. As you know we're sort of around that 19% year-to-date with 18.7% in the second quarter. The part that's always a little trickier forecast is how people will exercise options et cetera. So that's outside of our control and it does have an impact on the rate.

But if you're asking for what's what would we expect as we forecast here we're putting that 21% to 22% for the effective rate as a reasonable estimate on a full year basis. .

Great. Thank you very much..

Thanks Ram..

Our next question comes from the line of Mark Connelly with Stephens. Please proceed with your question..

Thank you. Ted we're hearing a lot about new encapsulation technologies from a lot of sort of newer more innovative companies.

And I'm curious if you're getting deeply involved in newer technologies or whether it affects your view of the encapsulation business?.

Mark thanks for the question and we certainly appreciate the new coverage by Stephens. So, welcome to Balchem. There are a lot of technologies when it comes to microencapsulation and for various applications whether it's industrial food pharmaceutical and so forth. And our technology really is focused on lipid-based microencapsulation.

And we continue to innovate in that area and bring to the market new technologies. And we've seen some of that relative to our next-generation AminoShure XM product that we launched last year clearly bringing something new and innovative to the market.

So, we continue to innovate and develop next-generation products and technologies to bring to the market and others are doing the same. But certainly we're not seeing any technology that I would describe as disruptive out there that is replacing any of the existing technologies that I'm aware of in any case.

And we feel really good about the technology that we have and the -- our ability to continue to innovate to make our microencapsulates more robust differentiated from a release profile perspective and so forth..

That's helpful. A question on supplements in general. Obviously, we've seen a pickup in supplement sales. But more broadly there's also a lot of innovation in terms of more fortified healthier food.

I'm curious if you're seeing a shift in the development work away from trying to get people to swallow more pills and trying to get them beat and drink things that have your products in them.

I'm just curious if that's showing up in your development pipeline?.

I would say yes, but very slowly. Supplements still tend to be the primary outlet for our products. But we do see nutritional beverage, fortified foods increasingly including our vitamins and minerals. So, we do see a fairly modest shift there but I wouldn't say that it's a really material shift.

We're excited about some products that have recently come to market for example one, one our customers Danone has launched a new fortified milk targeted for children. It's under the brand Horizon and it's called the Growing Years. And it is fortified with DHA and choline.

And we're really pretty excited about that one because number one, it has our choline in it. And number two; they are clearly marketing the fact that it includes choline on the front very prominently. And so that's just an example of a bit of a shift in that direction. And I could name several others.

It hasn't taken open the market, but that is really what makes us very -- more than hopeful very excited about the opportunities for choline and minerals going forward. And I do think that COVID-19 and people's increased interest in immunity boosting vitamins and minerals will survive the pandemic.

And I think products like Denon's Horizon milk really will be products that can meet that trend and will drive significant growth for us into the future..

Yes. I would agree. I think it's going to be a big trend.

Coming back to the international animal market for just a second, are you -- where you expected to be more or less with market penetration? Or has COVID changed your expectations? And I was also hoping you could tell us whether there's any lingering impact from the Chinese competition?.

Yes. So I think generally speaking, we're about where we thought we would be from a penetration perspective. So I don't think any surprise there. The Chinese really are a competitor that we see specifically in Europe and again specifically in our poultry and swine business I would say our kind of non-companion animal monogastric business in Europe.

And they are as ever-present as they were before the pandemic. And so nothing really has changed there. It hasn't really gotten any worse or better.

And I think we've kind of figured out how to manage that market environment with the competitive dynamics that have existed for a while and haven't really seen much change relative to the Chinese competition kind of prior to during or now a little bit coming out of the pandemic..

Okay. And I don't want to be suffice, but one more quick question and that is on the companion animal market. We're hearing some -- obviously it's a pretty good growth market, but we're also hearing about some disruption in terms of some of the channels there.

How is that working out for you?.

It really has been I would say Q1 and Q2. So largely before and during the pandemic, we really have seen only strength through that period of time. I guess I try to think logically about the impact the market that we see and many of us are working from home.

And I think we are feeding our pets more than we ordinarily would and probably feeding them better than we ordinarily would. And that's what we're hearing from our customers and that's what we're seeing in our orders.

So we've seen real strength through this period of time and certainly have not been impacted by any kind of market disruption so to speak..

Super. Thank you very much..

Thanks again, Mark, and welcome again..

Our next question comes from the line of Mitra Ramgopal with Sidoti & Company. Please proceed with your question..

Yes. Good morning. Thanks for taking the questions. First, I just wanted to get a sense as it relates to COVID. You clearly incurred some incremental costs and expenses. And just trying to get a sense of as we look to the second half.

How is that going to continue or perhaps even level off or decline?.

Martin, do you want to take that one?.

Sure. I mean there's cost involved managing this situation as you'd imagine both from just increased and I think that safety supplies for example. And that will obviously continue for the foreseeable future until something happens and the overall environment around us.

So I think that what we saw in the second quarter will continue there in terms of expenses related to that. There's also been various things we've done internally to incentivize and motivate people in terms of special bonuses and things like that, which has incurred costs to us and how we proceed with that versus to be determined so to speak.

I think we will take the actions needed to ensure we remain operational and effective and have a motivated workforce et cetera. But I do think in one way that Q2 is a relatively representative quarter the types of costs we'll also see going forward for the foreseeable future until something changes in the broader environment..

Okay. No that's great. And Ted, a lot of companies are obviously reevaluating their businesses and some restructuring what have you. Just curious as it relates to your Industrial Products business, obviously it's something you've looked at in the past and have decided to keep.

But I was just wondering if anything has changed in light of COVID and in light of the numbers you're seeing coming out of that business now?.

Mitra really the short answer is there's no -- the business there has declined so significantly. It really has become material to the company.

But as a fundamental issue or opportunity we've always had with that us is the product that we sell there is fundamentally choline chloride and it's made in the same plants where we make the other choline chloride products we sell to animal nutrition or even human nutrition for that matter.

And so the incremental cost to manufacture that product, sell that product are very minor. And to sell that business there really isn't much to sell. So we'll continue to sell those products. They are contributing incrementally positive EBITDA. It's just very immaterial at this point in time. So we'll continue to do that.

Obviously, we reserve the right to continue to assess that and make a different decision going forward. But for right now we plan to continue to market the products that we are currently marketing albeit not a whole lot to the industrial market..

Okay. No that's great. And then on the acquisition front obviously this environment makes it very difficult to do a lot of things but I know you've obviously great success with Chemogas and Zumbro and you have the balance sheet pursuing some additional opportunities.

And I'm just trying to maybe get a sense in terms of the environment out there if it's becoming a little more favorable for you now?.

Yes. Again I think the short answer to that is yes. I think that very, very early on in the COVID pandemic, there was a little bit of reluctancy and how could you do an acquisition remotely. We need 10 management presentations. We need to visit all these plants. And like everybody else our thinking has evolved there and our learnings have evolved.

And we have actually indeed attended some management presentations virtually and are working on opportunities. I would say nothing is imminent but we've gotten over that initial – how could we possibly do that phase which was very short. And I would say we're kind of back to yes, we can accomplish these types of acquisitions in environment.

And so as I've always said, our pipeline is quite rich relative to opportunities and we see assets companies coming onto the market and ready and willing to have discussions.

So we think the opportunities are there and we're hopeful to be able to continue in the second half of 2020 and into 2021 with some acquisitions like the successful ones that we've accomplished in the past. .

Okay. That's fair.

And then finally again I'm assuming there's really not much update regarding CureMark partnership? Is that fair?.

I think that's fair Mitra. We really have not had any significant milestones hit or new news to report. And we certainly will when there is something to report but they're continuing to do what they need to do and we're continuing to do what we need to do from a manufacturing operations perspective.

There are activities going but nothing new really to report. .

Okay. Thanks again for taking the questions..

Thanks, Mitra..

Our next question comes from the line of Lawrence Goldstein with Santa Monica Partners. Please proceed with your question..

In the report you mentioned saving money by people not having to travel. And that you also mentioned that people are working from away and working from away I presume also saves money.

Is that correct?.

Well, hey, Larry, how are you doing? Thanks for the question. Yes and no..

So here's what I really want to know. I have a hypothesis to expand my reason for asking that New York City may look like a parking lot in time. You may have read that Google for example which has the most gorgeous offices maybe in the world doesn't plan on bringing anybody back there until at the earliest 2003 [ph].

And in my conversations with companies, I find many companies with hundreds and a few with thousands of employees don't plan on ever bringing them back. I had a conversation with the company a few days ago that said not only are we not going to renew our leases and not bring our people back.

We're now finding that we can hire people who are not near our facilities and we can hire from around the world. And as a matter of fact we are and we're getting people better educated at lower cost, which a lot of companies learned to do years ago obviously.

And you can't hire factory people that way but you can hire people who sit in front of computer screens that way and some other kids of jobs and maybe even marketing. So it's going to be a changed world. And all the people on this telephone call probably in their firms don't miss going to the office or maybe they missed but they don't have to.

So what I'm getting at is are the savings that you're getting and you're going to save maybe some of it is minus not plus. And your office rents your lease is up I don't recall when but relatively soon.

Is it a material item that you're saving and your lease if you don't need a facility like your office building now? What's that all about?.

Yes. So I certainly agree with a lot of what you said. We spend about let's say $300,000, $350,000 a month on travel in an ordinary period of time. So by and large we've been saving that. Of course some of that's been offset with higher expenses for safety precautions and some of the things Martin talked about.

But think about it as $300,000 $350,000 a month on travel. Our office expenses are largely still expenses that we're experiencing because we have the leased properties. Some of them we do have for example in our headquarters in New Hampton. New York is also the site of our laboratories. And our scientists have been indeed coming to work.

So there hasn't even been any savings from electricity and so forth. So by and large, we still have those expenses. We haven't really been saving anything there. But I think your point is absolutely valid.

And we are spending sometime thinking through what should our future footprint look like? And is there some real estate savings that we could have long-term based on either consolidation or some more permanent increased work from home. So we are looking at that. Our leases by and large continue for another year or so. So it's not imminent.

But we're thinking through it. But I have to say personally, I do think that we lose something by everybody working from home. And I think that there is some balance.

So I'm not sure, I foresee a future of Balchem to not have a headquarters, because I do think there is a value and developing teamwork, and a corporate culture, and creativity by working together. But there's no question going forward it will be different.

And I can see more, working from home than what we've done in the past, in a different environment. But I'm not sure, I'm ready quite yet to side for the 100% virtual Balchem, in the future..

By the way, the new term is not working from home, but working from away. You don't have to be at home. You could be anywhere on the planet..

Is that right? Okay. Well, let's see where it all ends up. I appreciate your thoughts..

Just wondering, whether there's any material number that you think you can save, as a result of what you learned from your experience now..

Yeah. I think, that -- I mean if you added up all of our leases, you're probably not even talking about $1 million..

Nice. Okay..

So $1 million is a lot of money. And I certainly don't want to minimize that at all. And I would -- if there was a way to save some fraction of that that could be very interesting but it's not going to change the nature of our....

And the way you market you travel you said it's $350,000 a month..

Yeah..

So maybe it won't be necessary to do the travelling..

So if you kind of added both those together, maybe there's $2 million to play with in a different way..

Okay. Thank you..

Hey, thanks Larry..

Our next question comes from the line of Tony Polak with Aegis Capital. Please proceed with your question. Your line is live Mr. Polak, can you have yourself unmute? Okay. Tony maybe you could just apparently we can't hear you for whatever reason. And Doug maybe we can just wrap things up..

There are no other questions in the queue. I'd like to hand it back to Mr. Harris for closing remarks..

Yeah. Thanks Doug. Once again I'd just like to thank you very much for joining our call today. And your continued interest in our company. We are really very pleased with the strong Q2 and year-to-date results.

The resilience of our business model in the face of these difficult market conditions and the -- as I've mentioned the extraordinary response of the Balchem team. So thank you again. We appreciate your time today. We look forward to reporting out Q3 2020 results, in late October. Thanks again..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day..