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Balchem Corp (BCPC) Q3 2019 Earnings Call Transcript

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BCPC earnings call for the period ending September 30, 2019.

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Balchem Corp ( BCPC 0.90% )
Q3 2019 Earnings Call
Nov 5, 2019, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Balchem Corporation Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Martin Bengtsson, CFO for Balchem Corporation. Thank you. Sir, you may begin.

Martin Bengtsson -- Chief Financial Officer

Thank you. Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 2019. 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 statements. This release does contain or likely will contain forward-looking statements, which reflect Balchem's expectation or beliefs concerning future events that will involve risks and uncertainties. We can give no insurance 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.

Ted Harris -- Chairman, CEO and President.

Thanks, Martin. Good morning, ladies and gentlemen, and welcome to our conference call. This morning we reported quarterly consolidated net sales of $158.6 million, which resulted in third quarter net income of $20.7 million or $0.64 per share on a GAAP basis. Our third quarter non-GAAP net earnings of $26.3 million or $0.81 per share exclude tax adjusted non-cash amortization and other items as detailed in our earnings release this morning of $5.6 million to facilitate comparative evaluation of operating performance versus the prior year period.

These non-GAAP net earnings of $26.3 million or $0.81 per share represent an increase of $2.7 million or $0.08 per share compared with the prior year quarter of $23.7 million or $0.73 per share. We also delivered quarterly cash flows from operations of $42.7 million for the third quarter 2019 with quarterly free cash flow of $35.8 million. Our quarterly net sales of $158.6 million were 2.3% higher than the prior year comparable quarter.

We achieved sales growth in three of our four segments with record third quarter sales in our Human Nutrition & Health and Specialty Products segments and healthy year-over-year growth in our Animal Nutrition & Health segment, which were partially offset by the decline in our Industrial Products segment where volumes related to oil and gas fracking remained low compared to prior year. The impact of foreign exchange to our sales was a negative $1 million due to the weaker euro, driving a negative 64 basis point impact to our year-over-year, sales growth.

Our Q3 consolidated gross margin dollars of $54 million were up $6 million or 12.5% compared with $48 million for the same period in the prior year. Our consolidated gross margin percent was 34.1% of sales in the quarter, up 310 basis points from 31% in Q3 of 2018. The 310 basis point increase was primarily due to mix, certain lower raw material costs and manufacturing efficiencies, partly offset by lower margins in the European monogastric business within the Animal Nutrition & Health segment.

Consolidated operating expenses for the third quarter 2019 were $28 million as compared to $22.5 million in the prior year. The increase was principally due to incremental operating expenses related to the Chemogas acquisition and the prior year benefiting from the timing of an insurance recovery. Excluding non-cash operating expense associated with amortization of intangible assets of $6.1 million, operating expenses were $21.8 million or 13.8% 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 third quarter were $26 million, an increase of $0.5 million or 2% compared to prior year. On an adjusted basis, as detailed in our earnings release this morning, earnings from operations of $33.5 million were up $1.5 million or 4.8% compared to $31.9 million in the prior year.

Adjusted EBITDA of $40.4 million was $1.9 million or 5% above the $38.4 million posted in the third quarter of 2018. Interest expense for the third quarter 2019 was $1.7 million and our net debt was $139.2 million with our overall leverage ratio on a net debt basis being reduced to 1.0. The company's effective tax rates for the third quarter 2019 and 2018 were 15.4% and 18.3% respectively. The decrease in the effective tax rate is primarily attributable to discrete items, in particular related to European research and development activities.

Consolidated net income closed the quarter at $20.7 million, up $1.5 million or 7.6% from the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.64 for the current year, an increase over last year's comparable quarterly result of $0.59. On an adjusted basis, and as detailed in our earnings release, our third quarter adjusted net earnings were $26.3 million or $0.81 per diluted share, up $2.7 million or 11.2% compared with $23.7 million or $0.73 per diluted share in the prior year quarter.

We generated record quarterly free cash flow of $35.8 million, an increase of 32.7% compared to the prior year quarter. And we closed out the quarter with $59.4 million of cash on the balance sheet, which reflects a reduction of revolving debt of $10 million, stock repurchases of $20.6 million and capital expenditures and intangible assets acquired of $6.9 million.

Before passing the call back to Martin to cover the detailed results by segment, I would like to update you on a few of our important strategic activities and growth initiatives. Last quarter we announced the closing of the acquisition of Chemogas NV, a privately held specialty gases company headquartered in Grimbergen, Belgium. The integration of Chemogas is progressing nicely with synergies starting to be realized and is on track to meet our expectations. As previously noted, we are focused on leveraging this acquisition to create a global specialty gases business that services our customers' needs for ethylene oxide and other products worldwide, which we will call Balchem Performance Gases. We are excited about the opportunities this acquisition creates for Balchem and are pleased with the integration to date.

On September 6, we divested our Reading, Pennsylvania manufacturing plant and the associated business dealings with that site, resulting in no gain or loss on the sale of this non-core asset. We continuously evaluate our portfolio to assess strategic positioning fit and value of each of our assets and businesses. The Reading facility primarily toll manufactured toddler formula for various companies. The tolling nature of this business coupled with the lack of strong differentiated position and modest financial contribution made an obvious candidate for divestiture. An emerging infant nutrition company ultimately acquired the site to become a fully integrated manufacturer and marketer of infant nutrition product. We believe that our Reading site is better off in their hands as they will undoubtedly continue to invest in the site to fully develop their strategic intentions. This divestiture has improved our balance sheet and financial strength and enhanced our ability to focus on progressing our strategic organic growth initiatives.

As indicated on our fourth quarter 2018 earnings call, we were considering a modest stock repurchase program to both offset the dilution associated with our equity incentive plan and provide a return of capital to our shareholders. We started executing this plan in a disciplined manner in August and completed it in early September, largely offsetting the dilution by repurchasing approximately 230,000 shares at an average cost of $88.58 per share. This stock repurchase program is one component of our overall capital deployment strategy.

As a reminder, our capital allocation strategy is to invest in organic growth opportunities that provide an attractive return, to augment our organic growth through strategic M&A where appropriate, to pay down debt and maintain a strong balance sheet, to retain and grow our dividend to our shareholders and lastly, we will consider stock buybacks for anti-dilution purposes as long as it does not compete with our other aforementioned capital allocation priorities.

Within Specialty Products, and specifically in Biochem Performance Gases, several users of ethylene oxide for the critical sterilization of medical devices have received ongoing state and local scrutiny for environmental concerns at their facilities, which has received some media attention. Ethylene oxide enables more than half of all medical devices used annually in the United States, over 20 billion pieces to be sterilized and made safe for use. Some devices can only be treated with ethylene oxide as other technologies are insufficient or damaging to the devices themselves.

The situation centers around a new mathematical assessment that was performed by an office of the EPA, which resulted in a more conservative view of the inherent risk of ethylene oxide. This new assessment has been quite controversial and is a subject of much debate as no new science has been used, just simply a change in the approach to the mathematics and statistics. The EPA has not yet used this new assessment to regulate change to existing permissible emissions limits, but is contemplating this. And in some cases in the absence of a definitive EPA regulation change, state and local regulators are drawing their own conclusions from the new assessment.

We are actively working with EPA, the American Chemistry Council, AdvaMed, which is the Advanced Medical Technology Association that represents the medical device industry and all of the appropriate stakeholders to ensure that EPA carefully considers this new mathematical assessment in conjunction with other assessments available from the Texas Commission on Environmental Quality and the ACC as the EPA contemplates changes to regulated permissible emissions levels.

There will likely be continued news reports and uncertainty among state and local authorities as to how to practically respond to the new mathematical assessment. In the meantime, we will continue to work with all of the appropriate stakeholders to ensure the EPA considers all available assessments to appropriately quantitate ethylene oxide's inherent risk. We continue to believe that EPA will ultimately regulate to lower emissions levels based on a combined consideration of the various assessments available as they have in the past. And that industry will then be able to adopt practices and procedures to ensure compliance with these new regulations.

Relative to Animal Nutrition & Health, in the first quarter of this year, we discussed the launch of several new products, most notably AminoShure-XM, our next generation rumen-protected methionine. This next generation product offers enhanced bioavailability and superior feed stability that allow it to deliver industry-leading value for dairy farmers around the world. We are encouraged by the early and strong interest from the nutritionists and dairy farmers for this new product, which is being further boosted by healthier dairy protein prices. Our sales of this important nutrient were up 70% in the quarter over the prior year quarter. So we are pleased with the progress to date and the positive response from our customers.

We continue to work hard to progress awareness around choline and wanted to update you on the progress of several important studies. Last quarter, we were pleased to report that the preliminary results were presented for the follow-on study to the Cornell University Choline Supplementation Study during pregnancy to evaluate if the cognitive benefits seen in the first year of life during the initial study persisted into later childhood. If you would like to access the abstract of this study, as well as other choline studies that have been conducted by Cornell University, please go to the website, use the search function to search for Choline Cognition Research Group and under Publications select Conference Abstracts. We continue to be excited about the results from the Cornell studies and look forward to more publications.

Additionally, in the fourth quarter of 2017, we informed you that after Balchem funded a pilot study, Dr. Steven Zeisel, Director for the University of North Carolina's Nutrition Research Institute, received a $2.6 million grant from a unit of the National Institutes of Health to develop a test or biomarker to help determine the proper levels of choline in humans. The NIH funded choline biomarker study has enrolled about half the target number of subjects. And based on the current enrollment rate, it is expected to be fully enrolled in approximately 18 months. While this is a lengthy study, good progress is being made. And we believe that if a biomarker were to be developed, it would significantly progress the ultimate supplementation of identified choline deficiency in humans.

Regarding CureMark and their work to develop a unique treatment for autism, we are pleased with the results of their recently completed stage III clinical trial, also known as the Blum trial. As we just discussed on the last call, these results were presented on May 3 at the International Society of Autism Research or INSAR meeting in Montreal. For those of you interested, the abstract can be easily accessed on the INSAR our website under the INSAR 2019 Annual Meeting Abstracts. The title of the abstract is Pancreatic Replacement Therapy with CM-AT is associated with reduction in maladapted behaviors in preschoolers with autism.

Despite the protracted time line of this initiative, we are encouraged by the progress made over the past few months toward critical milestones. And in the meantime, Balchem remains focused on our manufacturing and supply chain preparedness for the ultimate launch of the product and the manufacturer of additional trial quantities of the encapsulated enzyme for rollover participants from the various trials.

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. This $12 million initiative is critical for the continued growth and operational efficiency of the company. After a year or so of planning, implementation started in April of last year, first with financial consolidation and then with a staged ERP implementation across our businesses and network of manufacturing sites.

On the last call, we informed you that we had about one-third of our users and revenue on the new system. I am pleased to inform you that we now have approximately half of our users and revenue on the new system and believe we are on schedule to have 100% of our company on the new system by the middle of next year. We are pleased with the progress of this important infrastructure project.

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

Martin Bengtsson -- Chief Financial Officer

Thank you, Ted. For the quarter, our Human Nutrition & Health segment achieved record third quarter sales of $86.1 million, an increase of $0.3 million or 0.3% from the prior year. The sales increase was primarily driven by higher sales in our Human Nutrition & Pharma business on double-digit growth in chelated minerals, partially offset by lower Cereal Systems volumes.

Our Human Nutrition & Health segment also delivered record third quarter earnings from operations of $13.2 million, an increase of $0.1 million or 0.7% compared to prior year, primarily due to the aforementioned higher sales and mix, partially offset by higher operating expenses resulting from the prior year, benefiting from the timing of an insurance recovery. 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 $18 million, a decrease of $0.5 million or 2.7% compared to $18.5 million in the prior quarter.

Sales for our Animal Nutrition & Health segment were $42.3 million, an increase of 4.6% of $1.9 million compared to the prior year. The increase in sales was driven primarily by higher volumes in both the ruminant species and monogastric species markets. Ruminant volumes were up approximately 10% and we're encouraged by the rise in Class III milk prices to levels not seen since 2014, which is a welcome respite from a long period of poor dairy economics, creating a healthier environment for us to market our unique line of products for the health and nutrition of Dairy cows. Monogastric volumes were up approximately 5%, but we continue to experience competitive price pressure in Europe and we expect this to continue in the near-term.

The impact of foreign exchange is most notable in our ANH segment with a negative $0.5 million impact in the third quarter, driving a negative 1.2% impact to year-over-year growth. Animal Nutrition & Health quarterly earnings from operations of $6.1 million were up from the prior year quarter of $5.1 million, primarily due to the aforementioned higher volumes, mix and certain lower raw material costs, partially offset by lower margins in the European monogastric business as a result of increased competitive activity and increased operating expenses driven by investments in sales, marketing and research and development in our ruminant business.

The Specialty Products segment delivered record third quarter sales of $24.9 million as compared with $17.6 million for the prior year quarter. The increase of 41.2% was driven by higher sales of ethylene oxide for the medical device sterilization market due to both the contribution of Chemogas and higher legacy product sales, partially offset by lower volumes in the plant nutrition business.

The Specialty Products segment also achieved record third quarter earnings from operations of $6.7 million versus $5.8 million in the prior year quarter, an increase of $0.9 million. Excluding the effect of non-cash expense associated with amortization of intangible assets of $1.7 million, third quarter adjusted earnings from operations for this segment were $8.4 million compared to $6.5 million in the prior year. The increase was primarily driven by the aforementioned higher sales, partially offset by mix and higher operating expenses due to the Chemogas acquisition.

In the Industrial Products segment sales of $5.3 million decreased $5.8 million or 52.5% from the prior year quarter, primarily due to reduced sales of choline and choline derivatives used in shale fracking applications. We continue to experience significantly lower demand within the Industrial Products segment not only due to slower fracking activity, but also due to operator starting to recycle more fracking fluids as well as eliminating additives where possible in order to reduce costs and preserve cash.

As logistical solutions for oil and gas transportation are being added around the Permian Basin, we believe that fracking activity will improve as logistical costs are reduced. However, we've not seen any indication of that yet and we do believe that continued cost focus among the well operators will remain in place even fracking activities increase. As such, we remain cautious about this historically cyclical market and it's hard to accurately forecast the ups and downs. Our earnings from operations for the Industrial Products segment were $0.8 million, a decrease of $0.9 million compared with the prior year quarter due to the lower sales volumes.

I'm now going to turn the call back over to Ted for some closing remarks.

Ted Harris -- Chairman, CEO and President.

Thanks, Martin. In the third quarter, we delivered year-over-year revenue growth across three of our four segments with record third quarter consolidated GAAP net earnings and all-time record quarterly non-GAAP net earnings and record cash flows from operations, while facing the previously noted comparative headwinds within our monogastric business and challenging market conditions within oil and gas.

We have strong positions within the markets we serve and we believe we are well positioned to generate healthy growth over the years to come. We are pleased with the progress made on our key strategic growth initiatives in Q3 and we'll continue to work on strengthening our company by focusing on our core strategies, exercising disciplined cost management and seeking value-creating acquisition opportunities.

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

Martin Bengtsson -- Chief Financial Officer

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

Questions and Answers:


Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brett Hundley with Seaport Global. Please proceed with your question.

Brett Hundley -- Seaport Global -- Analyst

Hey, good morning, gentlemen.

Martin Bengtsson -- Chief Financial Officer

Good morning, Brett.

Brett Hundley -- Seaport Global -- Analyst

Guys I just have I have a couple of questions on your animal business and then I just want to circle back with a question on specialty. So within animal, your results during the quarter were solid relative to what we are looking for and it really feels like there is some good potential momentum in that business. So one of my first questions on animal relates to the ruminant side. So U.S. dairy protein prices have moved meaningfully higher in recent months, are you guys now starting to see better demand for AminoShure and some of your other encapsulated ruminant nutrients? And if so, are you starting to see a mix benefit within your animal segment as well?

Ted Harris -- Chairman, CEO and President.

Brett, yeah. This is Ted. We were really pleased with the Animal Nutrition results for the quarter with both ruminant volumes up and monogastric volumes up. It really was a strong quarter for us. And the margin improvement that we saw in that business was primarily driven by what you just noted the fact that ruminant growth was significantly higher than monogastric. Our ruminant margins are higher than the mono margins. So when we get that growth differential, we are going to see a margin improvement benefit based on mix. So absolutely that was part of the story this quarter relative to earnings, but the overall volume growth was part of it as well.

And yes, there is no question the dairy economic environment is much healthier today than it was a year ago or even I want to say six months ago. And protein prices, as you noted, I think the last I saw protein prices were over $3, maybe $3.20 and that's up $1.50 or so from the prior year. So up meaningfully. And then Class III milk prices are up in the $18, $19 range, which is up probably $3 or so from prior year. So we're starting to see that result in higher volumes. I talked about the AminoShure-XM launch and our business up 70%. The business would have been up something just because of protein prices, but certainly we think our new next generation methionine product is an important part of that story, but we're having healthier discussions with nutritionists and dairies, we're starting to see it in demand and feel like it really does bode well for for 2020 in particular as we expect this improved dairy economy to last for at least the next few quarters and into 2020.

Brett Hundley -- Seaport Global -- Analyst

And maybe I can give you a chance to talk about your mono business too because I know a lot of investors that I speak to are focused on ASF in China and across Asia broadly. Are you or do you think we're at a point now where you guys are starting to see noticeable demand improvement here in the States within the hog and broiler sectors. I mean when we think about the potential for China to open back up for U.S. broiler producers, when we think about some of the data that we're seeing from hog and pig inventories here in the U.S. where market hog inventories have started to accelerate into the September data. Are we at that place now where you are starting to see better incremental demand on the mono side? And a question that we get a lot is when do we reach that point in time where some of those benefits start to offset or dramatically offset some of the challenges that you're seeing in Europe right now that are directly related to what's been happening in China?

Ted Harris -- Chairman, CEO and President.

Yeah. So I think that the way we would answer that question is obviously, it's complicated. We really don't feel like our Q3 results were materially impacted specifically by African swine fever outbreaks in China. But there is -- again, we were very pleased with the 5% growth in our mono of business. Part of that honestly is driven a bit by our -- we talked a few quarters ago about the launch of our new PetShure line of products. Those products are up meaningfully year-over-year, but our volumes are up in both the U.S. and Europe and that's a positive sign.

We don't think the placement of more hogs in response to the crisis in China has driven significant business to date, but we do believe that that is coming and should be a benefit to us in coming quarters both on the hog side as well as the poultry side and And as poultry and swine tariffs are eliminated in China that will only fuel further opportunity for growth. So our perspective is we really haven't seen it yet, but we do see it at our customers and the placement of new birds and hogs and think that that will play a role going forward.

Brett Hundley -- Seaport Global -- Analyst

Okay. Thanks for that comment. And then just one last question for me is on specialty. Thank you for your comments on EO. In late October, the FDA released a statement regarding some of those medical device sterilization facilities and some of their closures, including a temporary closure in Georgia and then the potential for I guess a second closure at a BD facility in Georgia. If I can ask you two questions on this issue. Number one, are you guys able to manage your supply chain such that additional customer closures if they happen won't have material impacts on your margins. If that question makes sense? And then secondly, what are you seeing on the sales side right now. Are you seeing customers pull any EO orders forward because their customers are starting to pull orders forward, was that a benefit in the quarter. Can you just describe what you're seeing on the sales side right now? Thank you.

Ted Harris -- Chairman, CEO and President.

Sure. Yeah, it's very important for us to talk about the evolving ethylene oxide regulatory environment on the call. And relative to those specific questions that you asked, we really haven't seen any negative impact relative to our volumes. I don't really feel as though we've seen orders being moved up. What we have seen is that sterilization business at those few sites that have been affected by these activities has typically moved to other sites. So we've seen volume pick-ups at other sites as they have picked up this sterilization business.

And so, our business I think is staying relatively whole at this point. If for some reason we saw a significant amount of additional sites being impacted that would ultimately negatively impact our business some because there's just only so much excess capacity out there. And I think at this point in time, it's largely been tapped and the industry as a whole is running at really close to a 100% capacity. We don't expect that, but if that were to happen, it could start to impact the business.

We were very pleased to see the FDA letter come out that really specifically talked about their concern of the safety of patients and the potential lack of availability of certain medical devices that could result from the current shutdown of the couple of facilities or if there were more in the future. And I think that that was a very welcome letter from the FDA recognition of the seriousness of the situation. And so, we were pleased to see that come out and I think that it will help drive ultimately what needs to happen and that is the EPA making a decision relative to the various assessments out there as to how they're going to regulate EO going forward.

So no real impact on the business today. We are pleased with the FDA letter. And as far as margins go, again, I don't think there's really been any major impact on margins relative to this situation at this point.

Brett Hundley -- Seaport Global -- Analyst

Thank you, Ted.


Thank you. Our next question comes from the line of Ram Selvaraju with HC Wainwright. Please proceed with your question.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Hi. Thanks very much for taking my question. Can you hear me?

Ted Harris -- Chairman, CEO and President.

Yes, we can. Yeah.

Martin Bengtsson -- Chief Financial Officer

Hi Ram.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Okay. So just wanted to go over a couple of quick things, in particular I don't know to what extent you have thought on this bill that people are talking about with respect to ethylene oxide where it seems as though the politicians appeared to think that they can significantly restrict if not completely turn off ethylene oxide related emissions by 2022. Just wanted to know if you had any commentary specifically on that. I know you've talked about the current political landscape, but just wanted to know if you had any detailed thoughts on that specific bill right now?

Ted Harris -- Chairman, CEO and President.

All right. So what Ram is talking about is the bill and the kind of Illinois legislature that did pass the House and has not yet been voted on in the Senate. And obviously, Ram, we are disappointed to see that as we really feel like it's based on poor data and poor assessment of the IRIS assessment and it really speaks to what I said before and the absence of the Federal EPA deciding how they're going to regulate going forward EO. Local authorities are coming to their own conclusions and that has driven this activity in Illinois.

So yet to be seen. Ultimately whether it's passed and it would have an impact on the use EO really for all applications. And of course, medical device sterilization is a very, very, very small part of the overall ethylene oxide market. So it would have an impact on the use of ethylene oxide for many different applications in Illinois.

So we're watching that closely. We again believe ultimately that EPA will come out with their conclusion, which will ultimately reduce emission levels to a point that industry can manage to and work toward. And a lot of this reaction from localities and states will go away as the Federal EPA comes in and makes a decision.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Okay. Thank you for that. Also I wanted to ask about regional questions regarding ethylene oxide. Obviously we've talked before about the situation in Illinois, it looks as though the situation in Louisiana is very, very different, in particular, we're seeing new plants coming online in places like St. Charles Parish. And I was wondering whether you think that there is likely to be any shift in Louisiana in any way similar or comparable to what we've been seeing happen in Illinois? And also if you could maybe talk to how your business might potentially be well positioned to withstand some of these changes that may or may not occur of course because of the Chemogas acquisition?

Ted Harris -- Chairman, CEO and President.

So I guess I want to say I really hope this does not become a kind of a region-by-region, state-by-state, community-by-community regulated product. I really do think that the EPA, the Federal EPA ultimately needs to decide how they're going to regulate and that we all then abide by that and work toward that. It would be disappointing if all of the ethylene oxide activities were to move to states like you mentioned Louisiana or Texas or Mexico or one country over another. I think that ethylene oxide is something that has been regulated for many years and can be regulated at appropriate levels going forward. So that's our expectation and we hope that that is how it turns out. But you're correct in that the Chemogas acquisition really does make us a global player. And our ability to service customers around the world whether it's Central America, South America, The Middle East, Europe, Asia, we now have a network of sites and a supply chain that really can satisfy our customers.

I almost want to say, no matter where they move, if that were to be the case. There have always been different regulatory perspectives and environments by country around the world, but the current activities in Illinois, and I want to also say Georgia are a bit unique to this country at this point and in those areas. So I hope it doesn't come that way, but yes, I think that we are relatively well positioned to manage that with our supply chain if it were to occur and move from one part of the country or state or a region to another.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Okay, great. And then a couple of questions regarding the fracking situation because we're seeing kind of conflicting stories emerging. On the one hand, there appears to be a slowdown within the United States on the fracking front, but on the other hand, I think there is plenty of incentives for the practice to maybe step things up especially considering what OPEC is doing. So just wondered if you could provide us with sort of an updated picture on that and when we might be seeing sort of pressures abating on the fracking front with respect to the products that you sell?

Ted Harris -- Chairman, CEO and President.

Yeah. So it obviously is complicated and I think why Martin In the prepared remarks talked about, we remain cautious about this business given the difficulties that we have in forecasting it. I mean there is no arguing with the fact that rig counts are down 20% year-over-year. and the fact that our volume is down 50% year-over-year and that ducks the drilled uncompleted are up about 10% and also that the pipelines are being built and some have actually been completed and others who will continue to take time.

There's no question in my mind that if oil prices were to spike up, we would see more fracking activity and we would see more demand for choline because choline is still being used in the market just to a lesser extent. But our bigger concern, I would have to say is just around the learnings that the industry has had around cost reduction through this difficult period and the recycling of processed water and the fluids that are used in fracking, the reduction in additives that seems to be impacting us. And that's probably our bigger question is if oil prices did pick back up, if OPEC curtailed production and pick back up would our volume pick back up commensurately and what that shift toward maximizing cash and reducing costs with that go away and that's very unclear to us. And I think that we believe that at least to some extent that's going to continue and to negatively impact our business. But it's so hard for us to tell if OPEC does the opposite and produces more that should obviously have an impact overall on prices and could negatively impact the business as well. But again, we just are cautious about this market, our business has been very significantly impacted as you can see in the results, but we still have a healthy share in the market, it's still an important market to us and we're continuing to try to find ways to sell the value of choline in the market.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Okay. And in that vein, I just wanted to ask about the kinetics of adoption in the Human Nutrition & Health business driven by the findings of the Cornell study data. And in particular, whether you're already starting to see the impact of that in the business as well as whether you think there is the possibility of that data that information being included in some kind of formal guideline recommendation from a body within fluid in this segment that could potentially drive the sales trajectory even further?

And then two other very quick questions. One is, maybe if you could give us some more visibility into how you expect stock repurchases to evolve and occur in the future? And also just wanted to ask whether you have any clarity at all on when the INSAR meeting data is likely to appear in a peer-reviewed publication? Thank you.

Ted Harris -- Chairman, CEO and President.

So maybe I'll go from the last question. We do not know when the INSAR data will be in a peer publication. We are pleased that it was presented in at the INSAR meeting in Montreal. And at least we can see the the abstract on the INSAR website, but we are not aware of any intention to put it in a peer-reviewed journal.

Relative to stock buybacks, obviously we had talked about the consideration of a modest stock buyback program, primarily focused on anti-dilution, but also to provide a return of capital to our shareholders and we will continue to do that I think really on an annual basis, look at the dilution of our equity programs and seek opportunities to offset the dilution of those programs. But our primary focus really is on the deployment of capital toward our organic and M&A activities as well as maintaining and continuing to grow our dividend and paying down debt.

Relative to the choline studies at Cornell where some people had asked how can they get their hands on them, that's why we shared that information on the call. But again, we're really pleased with the outcome of these studies. And you'll actually find on there, if you go there, there are some other studies that we really haven't even talked about in the past. And we do think that it is starting to impact the business. And also, as I've talked about in the past, the world of prenatal vitamins I think really is involving to include choline. And several years ago, there were very few prenatal vitamin regimens that included choline. Today that's different. There are quite a few prenatal vitamins out there that include choline. And I think that going forward, there will even be more. And that's really where we're seeing the immediate benefit and that part of our business is up nicely as a result of the inclusion of choline in prenatal vitamins.

Now what we're not seeing is enough choline included in these prenatal vitamins and partly it's just because of real estate issue within the tablet, but firstly, let's get it included and if it's included at 55 milligrams what we think it should be in there at 450 milligrams or even more, we will focus on that secondarily. But the American Association of Pediatrics came out to your point around, will you get any support and they did come out recently and say that prenatal vitamin should include choline. We don't see any additional besides FDA already coming out with labeling changes and a recommended daily intake on choline and EFSA doing that in Europe. We're not necessarily expecting any other body to come out with those kinds of mandates or positions, but the fact that they came out with support of choline being included in prenatal vitamins was very positive. And we're starting to see that along with the Cornell studies and the reporting out of those studies changing the discussions that we're having with those prenatal vitamin companies and starting to impact our volumes.

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

Well, thank you very much for those comprehensive answers. Deeply appreciated.

Ted Harris -- Chairman, CEO and President.

Thanks, Ram.


Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Harris for any closing remarks.

Ted Harris -- Chairman, CEO and President.

Yeah. Thank you very much. And really just once again, I'd like to thank everybody for joining our call today and maybe more importantly for your continued interest in our company. We're really pleased with the Q3 results and the progress that we're making on our key growth initiatives and look forward to reporting out Q4 and full year results early next year. So thank you again.


[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Martin Bengtsson -- Chief Financial Officer

Ted Harris -- Chairman, CEO and President.

Brett Hundley -- Seaport Global -- Analyst

Raghuram Selvaraju -- H.C. Wainwright & Co. -- Analyst

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