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Balchem Corporation (NASDAQ:BCPC)

Q3 2012 Earnings Call

November 2, 2012 10:30 AM ET

Executives

Frank Fitzpatrick – CFO, Treasurer and Assistant Secretary

Dino Rossi – Chairman, President and CEO

Analysts

Tim Ramey – DA Davidson

Lenny Dunn – Freedom Investors

Lawrence Goldstein – Santa Monica Partners

Brian Rafn – Sparta Capital

Operator

Greetings, and welcome to the Balchem Corporation’s Third Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. A brief 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, Frank Fitzpatrick, CFO for Balchem Corporation. Thank you, Mr. Fitzpatrick. You may begin.

Frank Fitzpatrick

Thank you. Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending September 30, 2012. My name is Frank Fitzpatrick, Chief Financial Officer; and hosting this call with me is Dino Rossi, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statements. This release does contain or likely will contain forward-looking statements, which reflects Balchem’s expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in the forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem’s Form 10-K.

Forward-looking statements are qualified, in their entirety, by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9:30 A.M. Eastern Time.

I will now turn the call over to Dino Rossi, our Chairman, President and CEO.

Dino Rossi

Thanks, Frank. Good morning, ladies and gentlemen, and welcome to our conference call. We are pleased to report record third quarter net earnings of $10.9 million on record third quarter consolidated sales of $75.1 million for the quarter ended September 30, 2012. These third quarter sales of $75.1 million were approximately 1% greater than the $74.4 million result of the prior-year comparable quarter.

In the quarter, ARC Specialty Products segment generated record quarterly sales of $12.3 million, a 1% improvement over the prior-year quarter, a result of increased sales volumes and modestly higher selling prices of packaged ethylene oxide, which was partially offset by lower volumes of propylene oxide in the quarter.

Animal Nutrition & Health at $51.9 million was up 1.3% over the prior year comparable quarter, as we realized another very strong quarter in our ANH ruminant sales, which were up 25%. Sales of our basic choline and other products for industrial applications also had a strong quarter, as these sales were up approximately 14% in the quarter. Offsetting these improvements were lower sales of basic choline for the poultry and swine industries, whose sales were off approximately 13%.

Food, Pharma & Nutrition sales at $10.9 million were effectively equal to the $11 million sold in the prior year comparable quarter, where strength in the human grade choline was partially offset by lower quarterly sales of encapsulated products sold into the international food markets.

As previously noted, consolidated net income closed the quarter at a record $10.9 million, up from $10.8 million in the prior-year quarter or an increase of approximately 1%. This quarterly net income translated into diluted net earnings per share of $0.36, equal to the $0.36 we posted in the comparable quarter of 2011.

Looking between the top and bottom line, you will see that our consolidated gross profits of $23.4 million improved approximately 1 percentage point to 31.1% of sales in the quarter. This modest improvement as a percent of sales reflects favorable product mix in the ANH and ARC Specialty Products segments along with some raw material price decline in the quarter. We continue to achieve operational and logistic efficiencies in addition to the constant effort required to successfully manage through raw material price volatility.

At the consolidated operating expense level, you will note expenses totaling $7.2 million for the quarter, which equaled 9.5% of sales versus the prior year, which was approximately 10% of sales. This spending level reflects lower consultancy fees as higher amounts had been incurred in the prior year to study certain acquisition opportunities. This level of spending does otherwise represent a more normalized level as we continue to leverage off of our existing SG&A infrastructure and exercise tight control over all controllable operating expenses.

Overall, we are generally pleased with our earnings from operations for the quarter, especially considering the continuing tough economic environment occurring in the North American and European poultry markets. Consolidated earnings of operations percentages remained strong and finished at 21.6% of sales or $16.2 million for the quarter, up approximately $1.1 million or 7% over the prior year quarter.

Our effective income tax rate for the third quarters of 2012 and 2011 were 33% and 29.2% respectively. This increase in the effective tax rate is primarily attributable to a change in a portion that’s relating to state income taxes and the availability of certain tax credits in the prior year. For example, our effective tax rate in 2012 is reflective of the expiration of the federal tax credit for research and development activity that was available in the prior year. Our annualized effective income tax rate for all of 2012 is currently estimated to be approximately 32.7%.

Net income of $10.1 million equated to $0.36 per diluted common share, which is equal to the comparative prior year quarter. These results generated approximately $18.6 million of EBITDA in the quarter, which translates to $0.61 per diluted share, and when including our non-cash stock-based compensation charge, we generated $19.6 million of EBITDA in the quarter, equaling approximately $0.64 or 26% of sales.

Our balance sheet remained strong and our cash flow robust as we closed out the quarter with $147 million of cash, having prepaid all outstanding long-term debt. We have spent $7.5 million of capital for the nine months ended September 30, 2012. As mentioned in an earlier press release, a new manufacturing facility in Virginia is being constructed. This expansion will more than double output capacity for our rumen stable products and is scheduled to be commissioned in the fourth quarter.

Capital expenditures for all of 2012 are now expected to be $17 million. We continue to aggressively manage all areas of working capital, driving strong cash flow, improving cash earnings and generating quality organic results from our core businesses. In an effort to detail our consolidated results better for our shareholders, I’m now going to have Frank Fitzpatrick discuss the ARC Specialty Products and Food, Pharma & Nutrition segments.

Frank Fitzpatrick

Thanks, Dino. The ARC Specialty Products segment posted record third quarter sales of approximately $12.3 million or 1% increase over the prior year comparable quarter. This increase in sales was derived principally from ethylene oxide products for medical device sterilization, resulting from volume improvements and modest price increases to offset rising raw material costs. This increase was partially offset by decreased sales volumes of propylene oxide for use in certain industrial applications.

Our quarterly business earnings increased 12.1% to a third quarter record of $5.2 million versus the prior year comparable quarter. This increase is largely a direct correlation to the improved sales volume of ethylene oxide products. Slightly increased selling prices were derived from a favorable product mix, and late in the quarter, we did realize some improvement in the cost of certain petrochemical commodities. We continue to monitor raw material price volatility closely and seek to implement price adjustments within contractual guidelines.

For the quarter, the Food, Pharma & Nutrition segment realized sales of $10.9 million, essentially flat with the prior year comparable quarter. Business segment earnings of $2.9 million were down approximately 8% over the prior year quarter, largely due to the product mix within the various sectors of this segment.

As stated in this morning’s press release, we again realized growth in sales of our human choline products for nutritional enhancement. We continue to focus on building consumer awareness of the benefits of choline, positioning choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages and are now effectively utilizing the three structure-function claims awarded to Balchem by EFSA in Europe.

We have also seen some new, albeit small, introductions of choline into multi-vitamins with controlled regional marketing launches. We’re also excited to be working with a large sports nutrition company on the introduction of sustained release amino acid products, which will become a part of our VitaCholine.

Food sector sales did have a slower quarter as compared to a strong 2011 third quarter, particularly in the international marketplace. As in the past, results for this segment continue to reflect the rollercoaster effect of pipeline fills, inventory level management and delayed marketing initiatives. Our growth drivers do, however, remain intact for this sector, and food did show a 7% improvement on a sequential quarterly basis. Overall, we expect continued revenue and earnings growth for the balance of 2012.

Our pharmaceutical delivery development efforts continue. As previously reported, the licensee of our technology being used for treating autism conclude a Phase III clinical trial, and we await the unwinding of this trial as we are working with them in support of their NDA filing. In the near term, this sector remains the net expense to the business segment. However, we have initiated a few new projects with other pharma companies as well.

I’ll now turn the call over to Dino for him to discuss the Animal Nutrition & Health segment.

Dino Rossi

Thanks, Frank. In the Animal Nutrition & Health segment, we realized quarterly sales of $51.9 million, an increase $700,000 or 1.3% as compared to the prior year comparable quarter. Within this segment, there were significant sales swings by end market applications.

ANH ruminant product sales realized 25% growth in the prior year comparable quarter, as excellent product performance and dairy economics continued to support greater demand for our products. These increases were principally the result of improved volumes of Aminoshure and Reashure, our rumen-protected amino acids and rumen-protected choline products. We also realized excellent results from the Nitroshure and chelated mineral product lines in this quarter.

With respect to the second quarter suspension of sales of our Aminoshure-L, 52% Lysine product, we are diligently working to make the required product improvements and we will look to reintroduce this product into the dairy industry once improvements are completed and confirmed with industry experts. At this time, our work is progressing favorably. However, we are unable to give a precise estimate as to when this work will be completed.

As mentioned in this morning’s press release, dairy economics continue to support strong demand for these products despite the increasing challenges of production animal feed/ration prices. Milk prices are currently forecasted strong, and the pace of dairy herd contraction is occurring at a slower rate than projected earlier in the year. In addition, forecasted feed prices were recently reduced for the balance of 2012 and into 2013. These indicators should support greater utilization of our products, as herd managers will look to continue to maximize results of production animals.

As mentioned previously and in order to support this expected growth, a new manufacturing facility in Virginia is being constructed, which will more than double output capacity for rumen-stable products and is scheduled to be commissioned in the fourth quarter.

Our global feed grade choline product sales were down 12.7% from the prior-year comparable quarter, with volumes sold in both North America and Europe down. Volumes sold in these markets are strongly influenced by the various dynamics of our customer base, predominantly the poultry production industry, but also swine and aquaculture.

Choline volumes sold, which track closely with broiler chick placements and egg sets, were lower in North America in the third quarter due to continued high grain prices, weakness in US consumer demand and US exportation of finished birds. The current USDA forecast for broiler meat production has, however, improved slightly for the balance of 2012 due to a slightly lower forecast for feed prices. In addition, sales of our European produced products were unfavorably impacted by foreign currency fluctuations, totaling approximately $900,000 or 3.4% of the total decline.

We constantly evaluate export choline sales opportunities for the poultry market, but again, found Q3 to be a very challenging export market when factoring in raw material cost increases and foreign competitor activities. In the coming quarters, we may elect to be more aggressive in seeking to win additional business, depending upon the then current cost and market conditions.

Sales of industrial grade products were very strong, as sales were up 13.6% over the prior year quarter and also improved 5% on a sequential basis, particularly due to volume. Sales of methylamines, derivatives and choline for industrial applications in Europe were slightly soft in the quarter, but we continue to see solid sales of choline and choline derivative products for various industrial applications in North America, especially for the gas fracing opportunities.

We remain confident that these products will continue to show strength in 2012 and beyond, driving steady to increasing levels of sales and profitability even at current rig deployment levels. We continue to evaluate industrial opportunities with core technology to determine how we can drive innovative solutions into this and other markets to derive the most positive value and are diligently working with new technology for areas where our core technology is not sufficient.

Earnings from operations for this entire segment were $8.1 million as compared to $7.3 million in the prior year comparable quarter. Earnings were mostly – or modestly favorable, impacted by decreases in raw materials during the quarter. These raw materials continue to be a concern, and as mentioned earlier, we are closely monitoring raw material price volatility and we’ll seek to implement price adjustments within our contractual guidelines.

The profitability of the ANH segment continues to be achieved with a constant re-evaluation of global raw material costs, product reformulation, currency review and an ultimate ability to economically meet market needs from our various global facilities and transload sites. The opportunity to capitalize in this fashion has been a direct result of our effective integration of acquisitions, operational benchmarking, marketing strategies and the ability to drive cost out of our business model.

With the bulk of the feed grade choline predominantly going to the poultry and swine markets, we remain very sensitive to continued economic pressures on the large production animal integrators. Feed ration costs remained high in Q3 due to the US drought situation. And while retail poultry prices have stabilized, pressure on profitability for this global end market continued.

As noted in previous calls, we have time to see a revenue rollercoaster effect quarter-to-quarter and within the various products or market sectors. This quarter was no different. We remain committed to growth as we look to continually expand our product offerings and move into new geographies. We will continue to strengthen our global growth platform and are confident that more business can be generated based on the unique portfolio of products that we offer to markets we serve.

Our business continues to create good balance, yielding profitable growth opportunities through the various market challenges of any single segment or product line. We remain focused on helping our customers generate reinvestment level returns, making money in this tough economy while maintaining our own operating discipline.

Overall, we continue to build the financial strength of the company, managing the working capital base aggressively and yielding improved financial results. Near-term, we remain focused on implementing operational and logistics improvements, new product development and new product introductions. We also continue to explore alliances, acquisitions and/or joint ventures to continue building and leveraging on our strategic marketing direction, technology and strong human asset base.

This now concludes the formal portion of the conference. At this point, I will open the conference call for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question is from the line of Tim Ramey of DA Davidson. Please proceed with your question.

Tim Ramey – DA Davidson

Good morning. Thanks.

Dino Rossi

Good morning.

Tim Ramey – DA Davidson

I was impressed by the margins in the Animal segment. And it’s – it sounds like there were certainly significant mix improvement there. Am I right to think that the decline in feed choline would have been lower margin business and the ruminant business would have been higher margin business? Is that basically the explanation for the better performance there?

Dino Rossi

Yes, absolutely. And I think with the continued strength of the specialties, which is where we see the largest upside growth opportunity going forward, we expect that to continue. Yes.

Tim Ramey – DA Davidson

Got it. And, are you seeing – I mean, sometimes when you see decline in markets such as the choline chloride market, everybody (inaudible) on to margin – I’m sorry, on the volume at the expense of margin. What’s the – I mean, I know you are the dominant player by far, but is there more price competition in that segment at this point, or is it just really a volumetric issue?

Dino Rossi

Well, I think it’s consistent with what it’s been in terms of pricing scenarios and competitive environment. Probably the – one of the easiest examples for us kind of in relationship to what you’re saying is, is our decision not to participate in like the South American market where it’s very, very competitive pricewise even though we could certainly go there and get the volume and I’m sure not lose money, but not make a lot of money. So we’ve taken the decision not to pursue. So I think, as it relates to the bulk of the geographies that we’re servicing today, it’s kind of the same situation, especially in the poultry market, continues to be a lot of pressure on that market. But we expect to be a long time player in that space and have good relationships there and quite honestly see other opportunities to perhaps expand the product offering into that particular market even certainly beyond the choline.

Tim Ramey – DA Davidson

Perfect. Thanks for your help.

Dino Rossi

Thank you.

Operator

(Operator Instructions) The next question is from the line of Lenny Dunn of Freedom Investors. Please proceed with your question.

Lenny Dunn – Freedom Investors

Yes, good morning. First I wanted to commend you on managing the business in a difficult environment without trying to get involved in price cutting and/or with your previous remark about going into South America. So you’re doing the right things because you’re managing it for the whole long-term rather than putting up short-term numbers.

My question is, can you consider this time around – and I have asked this question for a number of years now, going to a quarterly dividend policy, we’re a mature company, we’re growing, but certainly our balance sheet would sustain in a modest quarterly dividend as opposed to an annual, and if you could certainly determine (inaudible) share whether you wanted to raise it?

Dino Rossi

Yes. Lenny, I think – to be totally honest with you, I mean, we have this discussion with our frequency internally as well with the board. And while we don’t talk a lot about acquisitions other than we continue to pursue, I’d say, internally that dealing is that we still think we can do a number of acquisitions with the cash and have continued to try and build, if you will, a little bit of a war chest to go after that strategy.

So I think right now we still believe that that’s a good growth opportunity that we’ll translate into certainly a higher stock price hopefully and continue to have that on the front runner. Not to say that we don’t give consideration to the higher dividend. I mean, as we – we’ve gradually over the last few years certainly increased the annual dividend and we’ll continue to look at that and address it on a go-forward basis. But I would be very reluctant to try and commit to that in any larger way than that right now.

Lenny Dunn – Freedom Investors

I’m not asking you necessarily to commit. I’m asking you to give consideration to it, because even if your dividend isn’t too much more than the current annual, certainly if it’s paid quarterly, it actually – because of the minimal amount of interest that you’re earning on your cash, it would probably work out the same from a balance sheet standpoint. And I don’t want you to do anything to impair your balance sheet, I don’t want you to do anything to preclude you from making the strategic acquisitions when they become available, but the cash is certainly running your net de minimus amount and paying out a smaller amount quarterly. I can’t see how that would inhibit you.

Dino Rossi

Well, again, I think, Lenny, we’ll – the consideration will definitely be there, and truly too, we recognize our cash balance is growing and we know that shareholders want that to be deployed and getting a better return. So I appreciate it. And I don’t want you to think that I’m not paying attention. I am with you – your question. So, again, it will be given consideration for sure.

Lenny Dunn – Freedom Investors

Thank you.

Dino Rossi

Thank you.

Operator

(Operator Instructions) The next question is coming from the line of Lawrence Goldstein with Santa Monica Partners. Please proceed with your question.

Lawrence Goldstein – Santa Monica Partners

Good morning.

Dino Rossi

Good morning.

Lawrence Goldstein – Santa Monica Partners

On the subject of acquisition, would you tell us about the metrics you might be seeking, not necessarily the business but about the metrics that you would hope to be able to achieve with an acquisition or acquisitions? And I’d like to say further that I believe in this management and I believe in its abilities to employ the cash at the appropriate time, and expect and hope that it would be employed when you get a fat pitch, which I think is the thinking of you all.

And I wouldn’t want to see it use to pay dividend because nobody is interested in a return of a couple percent, which is the best you could ever reasonably expect to do. And furthermore, from my point and my perspective and I wonder if it yours, I would like to see you use leverage going to debt, because as long as Uncle Sam is willing to lend a company’s 40% of what can be earned, that is to say interest is tax deductible, and we can even afford to buy a losing operation because of the tax situation of 40%. So would you talk about that?

Dino Rossi

Yes, I think – certainly I think from an acquisition or joint venture standpoint or any alliance, I mean, we are not looking to drift much away from, I think, these businesses that we’re in today, number one. And number two, I would say internally we want to know that we’ve identified an entity, a technology, a market preference, if you will, that will certainly need to accelerate growth of the existing platforms that we have.

Ideally, I would say that we want to see projects that are going to return 15% to 19% on those investments, and I would say within the three to five years kind of window would be acceptable. So those are not always easy hurdles to reach especially today, and part of that really comes back to what you pay for them. So always the discussions about what multiple – and typically we look at multiples of EBITDA unless it’s a branded technology that’s being brought to bear and then if it just becomes a bit more difficult to value that acquisition.

But certainly I think our internal desire is to generate 15% to 19% return for shareholders out of those kind of programs. And I would say this too. I think – do we think that we have a balance sheet that’s underleveraged? Absolutely. What do we do? We’ll let them to go into debt to some degree to help facilitate an acquisition? We would not be. So I think all of those are fair gains in terms of, if you will, the war chest to do a transaction and we would look favorably on the right one at the right price that could generate those kinds of returns and truly leverage on our balance sheet.

Lawrence Goldstein – Santa Monica Partners

Just to follow up. It just struck me odd that you said 15% to 19%. Would 19% fall in? And so, can we – should we conclude that you are seeking only horizontal acquisitions as opposed to vertical? Horizontal meaning you find something to add on that you don’t need another set of top management.

Dino Rossi

Well, I think that that’s ideally a – differentiate between vertical and horizontal, if you will. I think if there was something in the vertical chain that was attractive to us, either pre or post where we are, it could be very attractive as well. Whether or not that would require another management team? It’s difficult to just kind of ponder on that at the moment. But I think ideally we would look to still yet leverage off of the existing management team that we have, which means we’re certainly not going to drift too far from what we know. But on the flip side, if it were vertical and it required another unique set of management skills, then we would probably look to employ that with the transaction.

Lawrence Goldstein – Santa Monica Partners

And the 19% that’s struck me, about 15% to 19% – 15% to 20%, incidentally historically, I believe, you’ve earned return on equity in the neighborhood of 20% plus.

Dino Rossi

Yes. And I would say internally we had a hurdle of 19% and we kind of backed off of that a little bit. So – but ideally, it’s going to be right in that tone.

Lawrence Goldstein – Santa Monica Partners

Thank you.

Dino Rossi

Thank you.

Operator

Our next question is from the line of Brian Rafn with Sparta Capital. Please proceed with your question.

Brian Rafn – Sparta Capital

Good morning, guys.

Dino Rossi

Good morning.

Brian Rafn – Sparta Capital

Dino, talk a little bit about – you mentioned certainly the drought we’ve had – we’re here in Wisconsin, so it’s the dairy state. You talked about the pressures from corn, oats, soybean, some of the feeds for the poultry and swine. How has the pressure been for farmers relative to the dairy herds and your Reashure and Aminoshure trying to get those products competitively into something where the farmers are suffering from higher feedstocks to feed the dairy herds.

Dino Rossi

Well, I don’t think there’s any question that higher feedstocks are there. You hit the nail on the head. I think the good news is that milk prices have held up pretty neatly in the face, and maybe perhaps because of those feed ration cost. And the outlook right now is strong and expected to remain strong in that industry. So the unique thing about our product I think is it does enhance the performance of those animals.

So, I could easily argue that feeding our products will get better performance out of those animals, healthier cows, for sure, better performance, which is always attractive, especially, as you know, with higher feed cost. I mean, if we can help convert that feed, if you will, to higher milk yields, it’s a win-win for everybody. And that’s really what we’re – how we’re positioning those products out there today. And I believe that’s in fact why they are doing so well. Yes, the ration cost is not news to those guys for sure. Yes.

Brian Rafn – Sparta Capital

Tell me, from your perspective, is it – are you hearing more pain from the dairy herd farmers relative to that, or is it tougher to sell into the chicken poultry guys, or is it a push?

Dino Rossi

Well, I think everybody is concerned, that’s for sure, with the feed prices. I think the poultry guys are getting squeezed more certainly than the dairy guys are today. I mean, we’re hearing about possible guys going bankrupt that’s leading to some more consolidation in the poultry side of things. Lot of guys are under significant pressure there.

And whether or not they bought right or didn’t buy right in terms of their feed ration costs, but we’re hearing, I’m going to say, more of the concern out of the poultry side today than we are on the dairy, but I’m not sure how much further behind the dairy guys might truly be. But definitely I would say there is more negative vibes coming out of the poultry side.

Brian Rafn – Sparta Capital

Okay. Fair enough. You also talked a little bit about – you mentioned a sports company relative to human choline and amino acids. You can’t – here in Wisconsin, we got as many weight-lifting gyms as we have gas stations, and everybody is in the fitness in that. How viable is that whole area for you guys relative to the human choline in something that would be vitamin supplement, amino acid, protein drinks, that type of thing?

Dino Rossi

Yes. Well, this is actually a project that we’ve been working on. As Frank mentioned here earlier in his conversation, we’ve probably been working on this project with a large entity, a name you would know. We’re not going to dispose names right now – for a launch of a new – some new products into that space, particularly targeted on those ingredients that they firmly believe are going to enhance the performance of those products for the individuals.

So we’re pretty excited about it actually and do think that it’s going to be a differentiator for that company. They are genuinely excited about it. We’ve actually made the first round of commercial products for them, expect to see it launched here. I don’t know if it’ll be late this year or early next year, but they are getting the product ready to go into the pipeline. So we’re pretty excited about it.

Brian Rafn – Sparta Capital

Yes. You also talked too about vitamin. You said a controlled regional launch. How would you see that, that amino acids? Is that a – with this one company? Is this a company large enough, there would be a national launch? Is it a regional launch? Is it localized beta test? How are they launching it if they roll out next year?

Dino Rossi

Yes. Well, again – what we’ve been told is that they’re going to do it regional, but very quickly look to escalate it to national and likely global launch if successful nationally. So that large, and quite honestly, they have a history of ramping up overnight practically. So it’s been a – I would say, it’s been a challenge for us kind of working with them along the way, but it’s been a good challenge. And we’ve learned a lot about how they do business, and I think we’ve delivered to them some very good products that they’re totally excited about.

And they have great experience in this space and have really given us pretty good insight into how this could go and are genuinely excited about it. So I think while it will start regional as most of these retailers do, the expectation certainly is to go really global with it.

Brian Rafn – Sparta Capital

Okay. And if it does that and you’re surprised on the upside, would that impact at all your capacity or would that be something you have to, in 2013, look at that or do you think you’ve got enough capacity on the human choline side?

Dino Rossi

Well, this is – a lot of these products are really not necessarily choline. We did talk about choline, and I would say to you that both on the choline and the other end caps of these amino acids and whatnot, would like require an expansion if, I’d say, successful to the degree that they believe. So we’re currently looking at that right now. And I – what I would say is, I don’t know that it would be hugely capital-intensive, but the critical thing would be for us to be ready. And so we’re studying that right now. I mean, we have the facility. The key question is, how quickly we get the equipment in and move forward.

Brian Rafn – Sparta Capital

Okay. And one more. What’s the CapEx budget for this year?

Dino Rossi

We’re looking right now at about $17 million.

Brian Rafn – Sparta Capital

And what would maintenance be, Dino, of that?

Dino Rossi

Yes. Probably $6 million to $7 million would be normal maintenance spend, this kind of number. Yes.

Brian Rafn – Sparta Capital

Okay. Thanks. Great job. Thank you.

Dino Rossi

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Dino Rossi

Okay. Well, thanks, everybody, for participating on the call, and thanks for the questions. I think clearly some good questions. So I appreciate that. And we are – I think in the face of the economy and things that are going on, we’re pretty pleased with how the quarter turned out. And I would say we are very excited about the future opportunities. So, look forward to continue to grow the company, and we’ll talk to you next quarter. Thanks. Bye.

Operator

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation.

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