Balchem Corporation
Q1 2017 Earnings Call Transcript

Published: 13 May 2017

[Operator:]

Greetings, and welcome to the Balchem Corporation First Quarter 2017 Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bill Backus, CFO for Balchem Corporation. Thank you, Mr. Backus. You may begin.

[Bill Backus:]

Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2017. My name is Bill Backus, Chief Financial Officer. And hosting this call with me is Ted Harris, our President and CEO. Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements, which reflect Balchem's expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. I will now turn the call over to Ted Harris, our President and CEO.

[Ted Harris:]

Thanks, Bill. Good morning, ladies and gentlemen, and welcome to our conference call. This morning, we reported first quarter consolidated net sales of $137.7 million, which resulted in record first quarter net income of $15.5 million or $0.48 per share on a GAAP basis. This result includes significant noncash amortization expenses of $7.2 million for acquisition-related intangible assets, which were recorded in these first quarter GAAP financial statements. The amortization expense is a direct result of acquisition, valuation and business combination accounting rules. In addition, this quarter includes a $1.5 million favorable tax benefit due to the adoption of updated share based payment accounting. Consequently, our first quarter non-GAAP net earnings of $18.9 million or $0.59 per share reported in our press release earlier this morning exclude these items to facilitate comparative evaluation of this current period operating performance versus the prior year period. These non-GAAP net earnings of $18.9 million or $0.59 per share were up compared to the comparable prior year quarter of $18.4 million or $0.58 per share. Adjusted EBITDA of $35.8 million for the quarter was $345,000 or 1% better than the $35.5 million posted in the prior year quarter. Our adjusted EBITDA margin was essentially flat at 26% compared to 26.2% from the first quarter 2016. We delivered first quarter free cash flow of $19.9 million, while also paying down $11.8 million of debt, including $3 million of accelerated payments. This further reduced the outstanding balance on our revolving line of credit to $16 million from the $65 million we borrowed to partially fund the Albion acquisition. Our first quarter sales of $137.7 million were 2% higher than the $135.1 million result of the prior year comparable quarter. Sales growth in three of our four reporting segments

[Bill Backus:]

Thanks, Ted. For the quarter, sales of our consolidated Human Nutrition & Health segment were $73.1 million, a record first quarter and an increase of $1.6 million or 2.2% from the comparable prior year quarter. The sales increase was a result of one additional month of the human nutrition portion of Albion and volume increases in choline nutrients and cereal systems. This was partially offset by continued softness in powder systems. First quarter earnings from operations for this segment were $10.2 million versus $8.4 million in the prior year comparable quarter, an increase of $1.8 million or 21.8%. Excluding the effect of noncash expense associated with amortization of acquired intangible assets of $6.1 million, adjusted earnings from operations for this segment were $15.8 million compared to $15.7 million in the prior year quarter. Earnings from operations for the quarter were driven by the inclusion of one additional month of Albion and volume growth in certain market sectors, partially offset by the previously noted softness in the powder systems business. The Animal Nutrition & Health segment sales of $38.1 million decreased 2.9% or $1.2 million on flat volumes compared to the prior year quarter. Global monogastric species sales, including feed grade choline products, decreased $629,000 or 2.3% from the prior year comparable quarter, primarily due to lower average selling prices, resulting principally from reduced formula pricing based on previous quarter lower raw material costs and increased competitive activity. Sales of product lines targeted for ruminant animal feed markets decreased by $525,000 or 4.2% compared to the prior year comparable quarter due to lower ruminant volumes resulting from customer preordering in the fourth quarter 2016 in advance of our January 1 price increases. Weakening dairy economics and a significant inventory correction at a large customer, which were partially offset by continued sales growth of 8% in our flagship product line ReaShure. Milk protein prices in particular have declined and the USDA has recently decreased its milk price forecast for 2017. We remain confident long term in Animal Nutrition & Health, as we continued to prove the value of our existing product portfolio, while focusing on introducing new and novel products to satisfy attractive end market demands through both organic development and strategic alliances. ANH quarterly earnings from operations were $5.4 million, a decrease of $1.2 million or 17.7% from the prior year comparative quarter. The decrease compared to the prior year quarter was a result of the noted lower sales and cost increases of certain key raw materials within the current quarter. The Specialty Products segment achieved record first quarter sales of $18.8 million for the 3 months ended March 31, 2017, as compared with $17.1 million for the 3 months ended March 31, 2016. The increase of 9.8% was driven by strong domestic and international plant nutrition sales, along with the extra month of sales from the acquisition of the Albion business. Specialty Products achieved quarterly earnings from operations of $6.5 million versus $5.3 million in the prior year comparable quarter, an increase of $1.2 million or 22.2%. Excluding the effect of noncash expense associated with amortization of acquired intangible assets of $757,000, adjusted earnings from operations for this segment were $7.2 million compared to $6.8 million in the prior year quarter, an increase of $426,000 or 6.3%. In the Industrial Products segment, sales increased $496,000 or 6.9% from the prior year comparable quarter, primarily due to significantly higher sales of choline and choline derivatives used in shale fracking applications, partially offset by the lack of sales to our St. Gabriel CC company LLC partner, which occurred in the first quarter 2016, in advance of the joint venture becoming operational. Compared sequentially to the fourth quarter 2016, sales increased $1.6 million or 25.5% on a 39.9% increase in volume. There remains significant uncertainty in the oil and gas industry, and while the rig counts in the United States continues to trend up, we still expect headwinds to continue, although we expect year over year comparatives to continue to improve in 2017. Our earnings from operations for the Industrial Products segment were $722,000, an increase of $488,000 compared with the prior year comparable quarter and primarily reflects a favorable customer mix and an improved cost structure. I'm now going to turn the call back over to Ted for some closing remarks.

[Ted Harris:]

Thanks, Bill. We are pleased that in the first quarter of 2017, we delivered solid results with adjusted net earnings of $18.9 million and first quarter free cash flow of $19.9 million even while facing a challenging business environment, particularly in the Animal Nutrition & Health segment, but also across other market sectors. Our continued strong cash generation enabled accelerated debt payments of $3 million above and beyond the regularly scheduled payments of $8.8 million, reducing our net debt to $233 million on March 31st or approximately 1.5 times 12-months trailing adjusted EBITDA, further strengthening our balance sheet. The accelerated debt payments of $3 million reduced our outstanding revolver balance to $16 million from the $65 million that were borrowed in February 2016 to partially fund the Albion acquisition. While top line challenges remain, we delivered year over year revenue and operating earnings growth in three of our four segments. The global macroeconomic environment continues to present challenges to our company, of particular note, our rising raw material costs, the ongoing uncertainty in the oil and gas markets and the strong U.S. dollar, impacting exports amongst others. We are, however, pleased with the progress made on our key strategic growth initiatives, and we will continue to strengthen our company by focusing on these initiatives, exercising disciplined cost management and seeking value creating acquisition opportunities. I would now like to hand the call back over to Bill, who will open up the call for questions. Bill?

[Bill Backus:]

Thanks, Ted. This concludes our call today. And now I'd like to open it up to questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Brett Hundley of The Vertical Group. Please proceed with your question.

[Brett Hundley:]

Ted, thank you for your comment on CureMarks. I didn't have to ask it. And we can move into the current parts of your operating business. So I really wanted to focus my questions on ANH, just given some of the challenges that you mentioned. So first, if I can just ask, did you say ReaShure was up 8% in the quarter?

[Ted Harris:]

Yes. Yes, that's correct.

[Brett Hundley:]

Okay. So I think that's a slowdown may be from where you've been trending more recently. You can correct me if I'm wrong. I wanted to ask you if ReaShure was a part of any preordering and just get a comment from you on where you believe you're headed with that product specifically?

[Ted Harris:]

Yes. Brett, 8% was the growth that we delivered in Q1. I think that came off of about 17% in Q4. And Q4 -- as Q1 kind of got further along, we realized that the price increases we announced for January 1st did create some preordering and ReaShure was one of those products that we announced January 1 price increase. So that impacted the 8% growth in Q1, for sure. But we're still very bullish on ReaShure and choline nutrition and the dairy industry. We continue to believe that product line should grow at double-digit rate in 2017 as it has for the past few years. And really that's all about moving from approximately 25% of the cows in the U.S. to something significantly higher than that and really beginning to more significantly penetrate the European market. So we see a lot of growth ahead for ReaShure and see the 8% as low for what we should be delivering for ReaShure going forward.

[Brett Hundley:]

That's really helpful. And you can maybe speak about Q1 in the context of your beliefs longer term and maybe incorporate what you believe is more transitory and what maybe something more structural or something here with us for longer than expected. But can you just address, I guess, volumes? And I know you pointed out competitive activity on the mono side, but can you just talk to maybe volumes across ANH specifically or broadly? And then competitive activity within mono and kind of are volumes in line with where you think they should be at this point? Do you think that competitive activity is more transitory? And what would be your expectation for volumes on the ANH side longer term?

[Ted Harris:]

Right. Maybe there's a lot in there. But obviously, we are somewhat disappointed with Q1 results in ANH, or Animal Nutrition & Health, after what were really two very, very strong quarters in Q3 and Q4 of last year. And really, we have four things fundamentally going on. One was, what we talked about the impact of the January 1 price increases that clearly played a role in the 24% ruminant growth that we delivered in Q4 and some of the reduction that we saw here in Q1. We are experiencing increased competition in monogastric business on choline, in particular, both from the Chinese as well as Eastman. This will likely persist for some time, where as we think the impact of preordering with price increases, that's behind us. So that one's behind us. Competition in monogastric, we believe, will continue for some time. We mentioned that one of our largest customers in the ruminant side of the business informed us earlier this year that they have too much inventory and that they need to destock, which resulted essentially in no orders with that customer in Q1. We believe that, that will continue in Q2 and orders will pick back up in Q3. So we have a little bit more to go on that one. But after Q2, we see that one going away. And then, dairy economics have not improved like we thought. I think in our last call, based on milk prices, milk protein prices in November, December and January, things were trending up, and they've come back down. And in some cases, actually, below where they were at the same period prior year. So that has started to impact, particularly our amino acid product line that tends to be more impacted with lower milk protein prices than, for example, ReaShure. That is not immune, but has not been impacted as much. So we remain very bullish on the business long term, but we're facing a few difficult quarters here, including these results. Overall, we should be getting back to your specific point about volume. I think the volume that we're delivering in monogastric is about what we think we should be delivering. That market is growing at about 3%, 2% to 3% and that's about what we grew in Q1 from a volume perspective. We had been growing a little faster than that most of last year and that was because of a shortage in the marketplace of betaine, a product called betaine that we have talked about a little bit in the past, that can be used as a substitute for choline at times. And that benefit our volumes and so we were delivering 4%, 5% and 6% type growth last year at times, but we're back to more normal growth. And we see that really continuing in monogastric. In ruminant, we continue to believe we should be growing at double-digit rates. We delivered that through, throughout 2016. We didn't do that here in Q1 for some of the reasons that we talked about. The destocking of that one customer is very significant and was a surprise to us and impacted us pretty heavily. But we continue to believe that we should be growing at double-digit rates, volume rates in the ruminant space, as we further penetrate the market with our products.

[Brett Hundley:]

That's really helpful. And I'll yield the floor. I just want to ask Bill, just given the commentary today from you guys, would it still be your opinion that Balchem can grow earnings in 2017? And would there be any comments that you will give us as far as pacing of quarters from a qualitative standpoint?

[Bill Backus:]

Yes, we definitely can still grow earnings in 2017, for sure. I mean we have some of these initiatives still in place that we talked about previously, even like conglomeration as an example, and what that should be able to do and add sales and earnings. I think right now, I think the hardest thing for us to predict is probably some of the raw materials that we're dealing with. If you look at the trend and where they are at, we had, we knew they were going to be upcoming into the year. They actually turned out to be a little bit better through some things we were able to accomplish. But in the end, I think, that's probably the biggest concern we'd have right now and where they wind up going. If they continue to go up, then we lag behind any ability that we might have to pass-through price increases, we'll lag behind. If they flatten out or decrease, then, obviously, we're going to benefit from that perspective. So it's kind of hard to tell you that which quarters are, from a trend standpoint, I think, we're dealing right now in Q2. It's still the raw materials we talked about here. And it sort of hard to predict other than the forecast that we look at and where we'll be in Q3 and Q4. But for sure, I do think we'll be able to finish the year at higher earnings.

[Operator:]

[Operator Instructions] Our next question comes from the line of Tim Ramey of Pivotal Research.

[Tim Ramey:]

First, Bill, a clarification, I think, on the comments you made on betaine versus choline. It's been a while since I thought about that. But I think you said that betaine production was tight for a couple of quarters and that helped choline, but that's normalizing now. Did I get that right?

[Ted Harris:]

Yes, that was me, Tim. This is Ted. It's obviously complicated, but betaine essentially was scarce all of last year. And betaine tends to be a product that goes kind of oversupply, undersupply and so forth. And last year, in 2016, it was quite scarce. And so many customers pulled away from using betaine and moved to choline. And that allowed us to grow our choline business more. We're seeing the same thing this year. Betaine is kind of naturally sourced from sugar beet and so it's kind of driven by the crop, but it's also driven by -- there's sort of a limited supply and what the alternate uses are. And right now, the use for it overseas, specifically in Asia, they're willing to pay significantly higher prices than the U.S. poultry market. And so the majority of betaine is headed overseas. And we don't see betaine as being a concern in 2017 either.

[Tim Ramey:]

Okay. That accelerates choline growth for you or just it's a steady state versus '16?

[Ted Harris:]

Yes, now, it's a steady state, because it accelerated growth as -- in 2015 and 2014, there was a small portion of the market that switched from choline to betaine. And essentially in 2016, they switched back. And in 2017, though we believe, at this point, based on what we see, they'll stay with choline in large part.

[Tim Ramey:]

Got it. Thanks for that. And just a comment you made on the ASU 2016-09 at the top of the call. Did you -- did I hear you right to say you excluded that from the adjusted EPS number? Or it is included? I would assume it's included since it's going to -- there every quarter on a go forward basis.

[Ted Harris:]

We actually excluded it. And so our adjusted earnings per share would have been about $0.65, if we had included that in our adjusted EPS. So we've spent a lot of time benchmarking and looking at what other companies have done and certainly talking to our external auditors, and felt as though the majority of companies we saw were excluding that adjustment. It's noncash. It's volatile.

[Bill Backus:]

Now we have two. So we're trying to just carve it out, so you can get a better picture of operating earnings as opposed to having that in there. So when you go forward, it's difficult to predict what it will be, for sure. The factors that go into it. And that's why we made a decision just to exclude it and have maybe a more fair comparison for everyone out there.

[Tim Ramey:]

And that will be your practice going forward? So I shouldn't add that back.

[Bill Backus:]

That's correct, yes.

[Tim Ramey:]

Okay. Again, in my experience so far, people are including it. But you are absolutely right. It does introduce volatility that's unpredictable.

[Ted Harris:]

Yes, we just thought it was maybe a more conservative approach and kind of in the spirit of adjusted EPS.

[Tim Ramey:]

Right. In terms of the -- I understand what you're saying about ruminant and the customer dislocation. But focusing for a second just on the end market, you feel that ReaShure can continue to grow even with somewhat sloppy outlook for milk and dairy economics generally?

[Ted Harris:]

We really do. And, Tim, what that's really based on is last year, certainly at the beginning of the year, dairy economics really were not very good either. And yet, we were able to grow at double-digit rates. And really the reason that is, Tim, is that what ReaShure does is it certainly addresses issues in cows, fatty liver in particular, that cause a cow to produce less milk. And so if you address the fatty liver by feeding it ReaShure, the cow ultimately will produce more milk. And we have found that even in low milk price times that dairies want to produce more milk, particularly in the U.S., particularly in countries that are not subject to quotas and so forth. So ReaShure has managed to fare quite well through the poor dairy economics. What have not are other nutrients that we supplement. For example, amino acids that tend to have a bigger impact, not on the amount of milk produced, but on the milk protein within the milk. And if milk protein prices are really quite low, then the dairy will be reluctant to put in the high cost ingredient to produce more milk protein, because any milk protein that's not sold just gets lost in the milk. And so that one is definitely more susceptible to the dairy economics. And that's the one that last year we saw some bigger impacts during the low periods and then picking up a little bit when prices picked up. Milk protein prices are right now about $1.80 and good protein prices are above $2. And much below $1.80, it doesn't make a whole lot of a sense for nutritionists to add some of the amino acids.

[Tim Ramey:]

And then just finally, was there a specific FX impact that you could call-out in the quarter? And does this new acquisition help you with sales in Europe that might otherwise have FX impacts?

[Bill Backus:]

Yes, Tim, it's Bill. To answer the first part of your question, the FX impact was really minimal on the quarter year-over-year. So there really wasn't much going on with the euro versus where it was last year. I think the facility that we have now in Hungary, for sure, can help us. I mean, if we can produce some local currency that can be a good thing. It obviously gives us some expansion opportunities, not only in the dry choline chloride, which we needed, but there are some other opportunities for us over there, also. So it certainly gives us some flexibility, which maybe helps us to manage some, any foreign currency impacts we might be dealing with at any point in time. But the first quarter was really not much of an impact year-over-year.

[Operator:]

[Operator Instructions] Our next question comes from the line of Tony Polak of Aegis Capital. Please go ahead.

[Tony Polak:]

Could you give us an idea of the volume that the plant in Hungary is doing?

[Ted Harris:]

You want to cover that, Bill? The volume for the plant in Hungary, it's about 3,000 tons, I believe. We feel that, again, it's quite a small acquisition, but provides us additional capacity in Europe. It provides us expansion opportunities in Eastern Europe. And they also have some pretty interesting technology. And we think, as we combine their existing sales with growth that we're going to bring to that asset, that will add about $5 million of revenue to us next year, and it's about 3,000 tons of capacity.

[Bill Backus:]

Yes, a little bit less what...

[Tony Polak:]

In terms of the fire, and you said they had some back orders and integration problems. Could you quantify that in terms of dollars that you're missing in terms of orders in this quarter or this year?

[Ted Harris:]

Sure. I would say, just to kind of picking on one of your comments here, integration really has gone remarkably well. And we're very, very pleased with integration overall. Relative to the fire, we believe that we were impacted in Q1 by about $1.2 million of essentially orders that we could have filled in the quarter, if we had full operations. So they were deferred to Q2. We have, as I've also said, we've just started the construction of the new site that will be completed by the end of the year. So we think we have a few more quarters of delayed orders, if you will, that are impacting the business, but it's about Q1, it was about order of magnitude of $1.2 million.

[Tony Polak:]

Okay. And is there a status on insurance on that?

[Bill Backus:]

We received some of the proceeds. We're still working on settling some of the items that are open. But we've absolutely received some cash payments in advance of the final settlement.

[Tony Polak:]

And how is that treated in terms of, is that extraordinary income or is that just flow to the income statement normally?

[Bill Backus:]

Yes, we had some write-downs, obviously, of what was destroyed. It's really just offsetting that. We had booked receivables at that time for where we were at. Certainly, if we wind up with anything in excess of what we expected, that would just wind up being blow the line of other income.

[Operator:]

We have one follow-up question from the line of Tim Ramey of Pivotal Research. Please go ahead.

[Tim Ramey:]

Yes, I just was looking for a little bit more information on PetShure. And what you think the market opportunity is there?

[Ted Harris:]

Sure. Yes, we're really quite bullish on the pet or companion animal market, I guess, as we say. And about a third of our existing monogastric business is companion animal. But it really is our basic choline, liquid choline and dry choline product. And what we've done here, obviously, the pet food market is growing faster than the overall markets, probably growing about double what the monogastric market is growing as a whole, and so we have launched a line of products. One of which is a non grain, non GMO choline chloride, which is very unique to the marketplace. And you probably see a lot of ads on TV about non grain pet foods, and so that's important development. And then very interestingly, we're using a lot of our food ingredient and ingredient solutions formulation expertise to develop products for pet food. So they are encapsulated products. They provide functionality and so forth. And it really as the pet food market moves to non grain, non GMO, fresh, that really kind of plays into what we're trying to do here. And we are targeting about $30 million of growth just in these new products that we've introduced over the next four to five years. So that's kind of the order magnitude, and these products would all be higher margin products than our base monogastric products. So we're quite excited about this and think it's a good growth opportunity for the monogastric business that has been kind of relatively steady growth over the years.

[Tim Ramey:]

And what specifically is PetShure? It is a -- it's a non-GMO choline chloride?

[Ted Harris:]

PetShure is actually our brand name that we're using broadly across all of these products. So we have launched about nine products and they all come under the brand name PetShure. So we do have a product that is called PetShure choline, that is a non-grain, non-GMO choline product under that PetShure brand -- that market.

[Operator:]

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

[Francesco Pellegrino:]

So, I think, you've addressed pretty well, just some of the struggles of the legacy business. And I just want to dig a little bit deeper into Albion, because it seems as if the extra month with Albion, if I look back into the first quarter of 2016, I think, it contributed something like $20 million in sales over the two months in that quarter. So I would just think that maybe the extra month contributed an incremental $10 million. In this first quarter, if you back that out, you have revenue down 7%. And as I said, I just want to dig deeper into Albion. What type of growth rates -- organic growth rates are we talking about right now with Albion, because they seem pretty attractive, I would think?

[Bill Backus:]

Yes. Let me just take a step back here with you Francesco. I think there's some seasonality in here for sure and their numbers with the plant nutrition. So I can tell you that the January, the extra month of January was only about $3.5 million of additional sales. So you got to take that into account when you're looking at the plant site. I mean, there's a lot more that comes into all of the Albion between specialty and human.

[Bill Backus:]

Right. And that's what I'm talking about with the one additional month. It's only about $3.5 million or so for January.

[Francesco Pellegrino:]

So January was only 3.5 million, but when I looked at what it contributed to February and March of last year, it was that much higher?

[Bill Backus:]

That's right. Between plant nutrition and the fire, I think, you have two things going on. Plant nutrition last year was not as good as where -- we've achieved this year, but it's just that seasonality of when that's occurring. And that as Ted indicated before also, some of these sales being deferred from the fire so...

[Francesco Pellegrino:]

Okay. Knowing that now, I guess, maybe then just looking at February and March, what are we looking at for organic growth throughout again?

[Bill Backus:]

I think it is attractive as you indicated, and we expect to grow this business in sort of the high single digit growth rate that's really what we expect. We've accomplished probably a little more than we've expected here in this past year. And I think that's really sustainable from our perspective.

[Francesco Pellegrino:]

Are you getting margin expansion from Albion enables the leverage of legacy business into that margin expansion? Or I'm just trying to figure out, why margins were so impressive in specialty as well as in the human nutrition and trying to maybe, trying to figure out how much of that was associated to Albion?

[Bill Backus:]

Yes, absolutely. In the Human Nutrition & Health segment, for sure, it creates margin expansion overall for the segment. It's a better margin than any other businesses we had in HN&H. Conversely, on the specialty side, it's actually lower than the legacy ARC business. And I think you've realized just how high those margins are in legacy ARC. So in the end, though those gross margins, as we had indicated in the past, are typically in the 540% range and we really believe they are sustainable and there is room for expansion too. I mean, as we have better throughput and continue to increased our volume going through the plans, there's no reason to expect, not to expect that we couldn't expand margins.

[Francesco Pellegrino:]

Okay. Within the Human Nutrition & Health segment, I'm sure that you guys headed to higher volume sales of choline nutrients. Is there any way to sort of quantify what the volume increase of the human grade choline market was on a percent basis?

[Ted Harris:]

Yes, we grew volume about 10%. And actually, I'm sorry, 12%. Revenue was 10%. So volume was 12% in Q1. And so we were quite pleased with that.

[Francesco Pellegrino:]

Okay. And I just want to revisit the dairy economics that you're hitting on a little bit earlier with Brett And I know this has been something that Trump has been trying to take on by instituting lumber tariffs ironically. But maybe could you just discuss briefly the different margin structure for your ReaShure and amino acids business, if you have this type of data available within Canada as compared to the U.S. Because I would think that Canadian market is much more lucrative.

[Ted Harris:]

That's one you're stumping us with Francesco. I don't know what the margin differential is in Canada for us in ReaShure nor in the other products. I would say the vast majority of our business is in the United States. And so our business in Canada remains quite small. But we can get back to you on that, but I think that it is a fairly small part of our overall U.S.-Canadian business. Canada is a small piece.

[Operator:]

There are no further questions over the audio portion of the conference. I would now like turn the conference back over to Mr. Ted Harris for closing remarks.

[Ted Harris:]

Thank you. I'd just like to, again, thank everybody for joining us this morning. I'd like to remind you that our annual meeting will be held on June 13 at the Michelangelo Hotel in Manhattan at 4

[Operator:]

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.