Balchem Corporation Reports Second Quarter Sales of $231.3 Million, with Net Earnings of $30.1 Million, GAAP EPS of $0.93, and Adjusted EPS of $1.06

MONTVALE, N.J., July 28, 2023 (GLOBE NEWSWIRE) -- Balchem Corporation (NASDAQ: BCPC) reported today second quarter net sales of $231.3 million for 2023, compared to net sales of $236.7 million in the prior year quarter. Second quarter net earnings were $30.1 million for 2023, compared to net earnings of $29.8 million for the second quarter 2022. Adjusted net earnings^(a) were $34.4 million for both the second quarter of 2023 and 2022. Quarterly adjusted EBITDA^(a) was $59.1 million, compared to $56.5 million in the prior year quarter.

Second Quarter 2023 Financial Highlights:

• Second quarter net sales were $231.3 million, a decrease of $5.4 million, or 2.3%, compared to the prior year.
• Record quarterly adjusted EBITDA was $59.1 million, an increase of $2.6 million, or 4.6%, from the prior year.
• GAAP net earnings were $30.1 million, an increase of $0.3 million, or 1.1% from the prior year. These net earnings resulted in GAAP earnings per share of $0.93.
• Adjusted net earnings were $34.4 million, flat with the prior year. These adjusted net earnings resulted in adjusted earnings per share^(a) of $1.06.
• The effective tax rate of 21.6% was 255 basis points lower than the prior year tax rate of 24.1%.
• Cash flows from operations were $35.0 million for the second quarter 2023, with quarterly free cash flow^(a) of $31.7 million.

Recent Highlights:

• We mechanically completed a new manufacturing unit for Vitacholine^®, Balchem’s leading brand of the essential nutrient choline for human nutrition, to support the worldwide growth in infant, toddler, and adult nutritional formulas as well as dietary supplement and food and beverage fortification applications.
• Cash flows in the second quarter enabled us to make repayments on our revolving debt of $26.0 million, bringing our net debt to $338.7 million, with an overall leverage ratio on a net debt basis of 1.5 times.

Ted Harris, Chairman, CEO, and President of Balchem said, “We delivered solid second quarter financials, and I am particularly pleased with our strong profitability and margin performance as we move forward from the highly inflationary period we experienced over the last two years.”

Mr. Harris added, “The broader economic outlook and market demand still shows a high degree of uncertainty and demand patterns have not yet fully normalized, but I believe Balchem’s strong market positions will enable us to continue to deliver solid financial results as the markets recover more broadly.”

Results for Period Ended June 30, 2023 (unaudited) (Dollars in thousands, except per share data)
		Three Months Ended June 30,						Six Months Ended June 30,
			2023			2022			2023			2022
Net sales		$	231,252		$	236,693		$	463,792		$	465,560
Gross margin			77,349			71,876			150,519			143,382
Operating expenses			34,513			31,956			73,275			65,126
Earnings from operations			42,836			39,920			77,244			78,256
Other expense			4,436			662			9,725			1,368
Earnings before income tax expense			38,400			39,258			67,519			76,888
Income tax expense			8,290			9,476			14,699			18,176
Net earnings		$	30,110		$	29,782		$	52,820		$	58,712
Diluted net earnings per common share		$	0.93		$	0.92		$	1.63		$	1.81
Adjusted EBITDA(a)		$	59,073		$	56,467		$	115,193		$	110,041
Adjusted net earnings(a)		$	34,441		$	34,447		$	65,022		$	67,804
Adjusted net earnings per common share(a)		$	1.06		$	1.07		$	2.01		$	2.09
Shares used in the calculations of diluted and adjusted net earnings per common share			32,434			32,314			32,424			32,395

(a)	See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures.

Financial Results for the Second Quarter of 2023:

The Human Nutrition & Health segment generated quarterly sales of $135.7 million, an increase of $4.0 million, or 3.1%, compared to the prior year quarter. The increase was primarily driven by the contribution from recent acquisitions, partially offset by lower sales within food and beverage markets and the minerals and nutrients business. Record second quarter earnings from operations for this segment of $27.5 million increased $3.8 million, or 16.0%, compared to $23.7 million in the prior year quarter, primarily due to the aforementioned higher sales, lower manufacturing input costs, and favorable adjustments to transaction costs, partially offset by restructuring-related impairment and asset disposal charges, and incremental operating expenses and amortization related to the Kappa and Bergstrom acquisitions. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets and other adjustments, adjusted earnings from operations^(a) for this segment were a record $31.7 million, compared to $27.7 million in the prior year quarter, an increase of 14.7%.

The Animal Nutrition & Health segment generated quarterly sales of $61.3 million, a decrease of $1.3 million, or 2.0%, compared to the prior year quarter. The decrease was driven by lower sales in monogastric markets, partially offset by higher sales in the ruminant species markets. Second quarter earnings from operations for this segment of $7.7 million increased $0.1 million, or 1.0%, compared to $7.6 million in the prior year quarter, primarily due to a favorable mix and a decrease in manufacturing input costs, partially offset by lower sales volumes. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets and other adjustments, adjusted earnings from operations for this segment were $7.5 million compared to $7.7 million in the prior year quarter, a decrease of 2.2%.

The Specialty Products segment generated quarterly sales of $32.7 million, a decrease of $3.9 million, or 10.7%, compared to the prior year quarter, due to lower sales in both the plant nutrition and performance gases businesses. Earnings from operations for this segment were $9.3 million, compared to $9.9 million in the prior year comparable quarter, a decrease of $0.6 million, or 6.3%, primarily driven by lower sales volumes, partially offset by higher average selling prices and lower manufacturing input costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets and other adjustments, adjusted earnings from operations for this segment were $10.4 million, compared to $11.0 million in the prior year quarter, a decrease of 5.7%.

Record second quarter consolidated gross margin of $77.3 million increased by $5.5 million or 7.6%, compared to $71.9 million for the prior year comparable period. Gross margin as a percentage of sales was 33.4% as compared to 30.4% in the prior year period, an increase of 308 basis points, primarily due to higher average selling prices and decreases in certain manufacturing input costs. Operating expenses of $34.5 million for the quarter increased $2.6 million from the prior year comparable quarter, primarily due to restructuring-related impairment and asset disposal charges, and incremental expenses and amortization related to the Kappa and Bergstrom acquisitions, partially offset by favorable adjustments to transaction costs. Excluding non-cash operating expenses associated with amortization of intangible assets of $6.3 million, operating expenses were $28.2 million, or 12.2% of sales.

Interest expense was $5.2 million and $1.0 million in the second quarters of 2023 and 2022, respectively. Our effective tax rates for the three months ended June 30, 2023 and 2022 were 21.6% and 24.1%, respectively. The lower effective tax rate was primarily due to certain lower state taxes and higher tax benefits from stock-based compensation.

Second quarter, cash flows provided by operating activities were $35.0 million, and free cash flow was $31.7 million. The $222.1 million of net working capital on June 30, 2023 included a cash balance of $66.9 million, which reflects quarterly repayments of the revolving loan of $26.0 million and quarterly capital expenditures and intangible assets acquired of $8.2 million.

Ted Harris said, “The Balchem team continues to execute well. We delivered another solid quarter which, once again, highlights the strength of our business model. As we continue to progress our strategic growth initiatives in 2023 and beyond, we remain confident in our ability to deliver long-term growth.”

Quarterly Conference Call

A quarterly conference call will be held on Friday, July 28, 2023, at 11:00 AM Eastern Time (ET) to review second quarter 2023 results. Ted Harris, Chairman, President and CEO and Martin Bengtsson, CFO will host the call. We invite you to listen to the conference by calling toll-free 1-877-407-8289 (local dial-in 1-201-689-8341), five minutes prior to the scheduled start time of the conference call. The conference call will be available for replay two hours after the conclusion of the call through end of day Friday, August 11, 2023. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13740082.

Segment Information

Balchem Corporation reports three business segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. The Human Nutrition & Health segment delivers customized food and beverage ingredient systems, as well as key nutrients into a variety of applications across the food, supplement and pharmaceutical industries. The Animal Nutrition & Health segment manufactures and supplies products to numerous animal health markets. Through Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries, and also provides chelated minerals to the micronutrient agricultural market. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated."

Forward-Looking Statements

This release contains forward-looking statements, within the meaning of the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our expectation or belief concerning future events that involve risks and uncertainties. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "forecast," "outlook," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," or the negative thereof or variations thereon or similar expressions generally intended to identify forward-looking statements. Actions and performance could differ materially from what is contemplated by the forward-looking statements contained in this release. Factors that might cause differences from the forward-looking statements include those referred to or identified in Balchem’s Annual Report on Form 10-K for the year ended December 31, 2022 and other factors that may be identified elsewhere in this release or in our other SEC filings. Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact: Jacqueline Yarmolowicz, Balchem Corporation (Telephone: 845-326-5600)

Selected Financial Data (unaudited)
($ in 000’s)

Business Segment Net Sales:		Three Months Ended June 30,						Six Months Ended June 30,
			2023			2022			2023			2022
Human Nutrition & Health		$	135,669		$	131,628		$	268,322		$	254,073
Animal Nutrition & Health			61,329			62,600			126,218			131,942
Specialty Products			32,726			36,647			64,957			69,981
Other and Unallocated (b)			1,528			5,818			4,295			9,564
Total		$	231,252		$	236,693		$	463,792		$	465,560

Business Segment Earnings Before Income Taxes:		Three Months Ended June 30,								Six Months Ended June 30,
			2023				2022				2023				2022
Human Nutrition & Health		$	27,499			$	23,705			$	45,934			$	44,008
Animal Nutrition & Health			7,662				7,586				17,160				18,907
Specialty Products			9,298				9,919				17,244				17,680
Other and Unallocated (b)			(1,623	)			(1,290	)			(3,094	)			(2,339	)
Interest and other expense			(4,436	)			(662	)			(9,725	)			(1,368	)
Total		$	38,400			$	39,258			$	67,519			$	76,888
(b) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist of: (i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $651 and $1,216 for the three and six months ended June 30, 2023, respectively, and $872 and $1,176 for the three and six months ended June 30, 2022, respectively, and (ii) Unallocated amortization expense of $0 and $312 for the three and six months ended June 30, 2023, and $741 and $1,479 for the three and six months ended June 30, 2022, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Selected Balance Sheet Items
(Dollars in thousands)		June 30, 2023			December 31, 2022
		(unaudited)
Cash and Cash Equivalents		$	66,856		$	66,560
Accounts Receivable, net			125,109			131,578
Inventories			124,949			119,668
Other Current Assets			19,620			17,997
Total Current Assets			336,534			335,803
Property, Plant & Equipment, net			271,471			271,355
Goodwill			773,913			769,509
Intangible Assets with Finite Lives, net			202,984			213,295
Right of Use Assets			18,340			19,432
Other Assets			15,989			15,118
Total Assets		$	1,619,231		$	1,624,512
Current Liabilities		$	114,386		$	140,042
Revolving Loan			405,569			440,569
Deferred Income Taxes			61,849			62,784
Other Long-Term Obligations			30,524			42,833
Total Liabilities			612,328			686,228
Stockholders' Equity			1,006,903			938,284
Total Liabilities and Stockholders' Equity		$	1,619,231		$	1,624,512

Balchem Corporation Condensed Consolidated Statements of Cash Flows (Dollars in thousands)
(unaudited)
	Six Months Ended June 30,
		2023				2022
Cash flows from operating activities:
Net earnings	$	52,820			$	58,712
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		27,074				23,861
Stock compensation expense		8,518				6,889
Other adjustments		(2,647	)			2,572
Changes in assets and liabilities		(15,936	)			(36,773	)
Net cash provided by operating activities		69,829				55,261
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired		(341	)			(295,660	)
Capital expenditures and intangible assets acquired		(17,952	)			(20,799	)
Proceeds from insurance and sale of assets		1,881				197
Proceeds from settlement of net investment hedge		2,740				—
Investment in affiliates		—				(150	)
Net cash used in investing activities		(13,672	)			(316,412	)
Cash flows from financing activities:
Proceeds from revolving loan		13,000				365,000
Principal payments on revolving loan		(48,000	)			(40,000	)
Principal payments on acquired debt		—				(30,648	)
Principal payments on finance lease		(110	)			(83	)
Proceeds from stock options exercised		3,826				1,328
Dividends paid		(22,869	)			(20,704	)
Purchase of treasury stock		(3,924	)			(35,199	)
Net cash (used in) provided by financing activities		(58,077	)			239,694
Effect of exchange rate changes on cash		2,216				(5,599	)
Increase (decrease) in cash and cash equivalents		296				(27,056	)
Cash and cash equivalents, beginning of period		66,560				103,239
Cash and cash equivalents, end of period	$	66,856			$	76,183

Non-GAAP Financial Information

In addition to disclosing financial results in accordance with United States (U.S.) generally accepted accounting principles (GAAP), this earnings release contains non-GAAP financial measures that we believe are helpful in understanding and comparing our past financial performance and our future results. The non-GAAP financial measures in this press release include adjusted gross margin, adjusted earnings from operations, adjusted net earnings and the related adjusted per diluted share amounts, EBITDA, adjusted EBITDA, adjusted income tax expense, and free cash flow. The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain other items related to acquisitions, certain equity compensation, and certain one-time or unusual transactions. Detailed non-GAAP adjustments are described in the reconciliation tables below and also explained in the related footnotes. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Investors should not consider non-GAAP measures as alternatives to the related GAAP measures.

Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Table 1

Reconciliation of Non-GAAP Measures to GAAP (Dollars in thousands, except per share data)
(unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
			2023				2022				2023				2022
Reconciliation of adjusted gross margin
GAAP gross margin		$	77,349			$	71,876			$	150,519			$	143,382
Inventory valuation adjustment (1)			217				—				1,419				—
Amortization of intangible assets and finance lease (2)			662				307				1,343				636
Restructuring costs (4)			120				—				120				—
Adjusted gross margin		$	78,348			$	72,183			$	153,401			$	144,018
Reconciliation of adjusted earnings from operations
GAAP earnings from operations		$	42,836			$	39,920			$	77,244			$	78,256
Inventory valuation adjustment (1)			217				—				1,419				—
Amortization of intangible assets and finance lease (2)			6,952				5,904				14,302				11,865
Transaction and integration costs and unallocated legal fees (3)			(7,349	)			872				(5,184	)			1,176
Restructuring costs (4)			6,266				—				6,266				—
Adjusted earnings from operations		$	48,922			$	46,696			$	94,047			$	91,297
Reconciliation of adjusted net earnings
GAAP net earnings		$	30,110			$	29,782			$	52,820			$	58,712
Inventory valuation adjustment (1)			217				—				1,419				—
Amortization of intangible assets and finance lease (2)			7,024				5,974				14,446				12,006
Transaction and integration costs and unallocated legal fees (3)			(7,349	)			872				(5,184	)			1,176
Restructuring costs (4)			6,266				—				6,266				—
Net realized gain on foreign currency forward contracts (5)			—				(512	)			—				(512	)
Income tax adjustment (6)			(1,827	)			(1,669	)			(4,745	)			(3,578	)
Adjusted net earnings		$	34,441			$	34,447			$	65,022			$	67,804
Adjusted net earnings per common share - diluted		$	1.06			$	1.07			$	2.01			$	2.09

The following table sets forth a reconciliation of Net Income calculated using amounts determined in accordance with GAAP to EBITDA and to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022.

Table 2
(unaudited)

		Three Months Ended June 30,							Six Months Ended June 30,
			2023				2022			2023				2022
Net income - as reported		$	30,110			$	29,782		$	52,820			$	58,712
Add back:
Provision for income taxes			8,290				9,476			14,699				18,176
Other expense			4,436				662			9,725				1,368
Depreciation and amortization			13,355				11,863			26,930				23,720
EBITDA			56,191				51,783			104,174				101,976
Add back certain items:
Non-cash compensation expense related to equity awards			3,748				3,812			8,518				6,889
Inventory valuation adjustment (1)			217				—			1,419				—
Transaction and integration costs and unallocated legal fees (3)			(7,349	)			872			(5,184	)			1,176
Restructuring costs (4)			6,266				—			6,266				—
Adjusted EBITDA		$	59,073			$	56,467		$	115,193			$	110,041

The following table sets forth a reconciliation of our GAAP effective income tax rate to our non-GAAP effective income tax rate for the three and six months ended June 30, 2023 and 2022.

Table 3
(unaudited)

		Three Months Ended June 30,
			2023		Effective Tax Rate				2022		Effective Tax Rate
GAAP Income Tax Expense		$	8,290		21.6	%		$	9,476		24.1	%
Impact of ASU 2016-09 (7)			448						120
Adjusted Income Tax Expense		$	8,738		22.8	%		$	9,596		24.4	%

		Six Months Ended June 30,
			2023		Effective Tax Rate				2022		Effective Tax Rate
GAAP Income Tax Expense		$	14,699		21.8	%		$	18,176		23.6	%
Impact of ASU 2016-09 (7)			844						500
Adjusted Income Tax Expense		$	15,543		23.0	%		$	18,676		24.3	%

The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and six months ended June 30, 2023 and 2022.

Table 4
(unaudited)

	Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Net cash provided by operating activities	$	34,991			$	48,240			$	69,829			$	55,261
Capital expenditures, proceeds from the sale of assets, settlement of net investment hedge, and capitalized ERP implementation costs		(3,280	)			(10,406	)			(12,892	)			(20,180	)
Free cash flow	$	31,711			$	37,834			$	56,937			$	35,081

(1) Inventory valuation adjustment: Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company's cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to our cost of sales excludes the expected profit margin component that is recorded under business combination accounting principles. We believe the adjustment is useful to investors as an additional means to reflect cost of sales and gross margin trends of our business.

(2) Amortization of intangible assets and finance lease: Amortization of intangible assets and finance lease consists of amortization of customer relationships, trademarks and trade names, developed technology, regulatory registration costs, patents and trade secrets, capitalized loan issuance costs, other intangibles acquired primarily in connection with business combinations, an intangible asset in connection with a company-wide ERP system implementation, and one finance lease. We record expense relating to the amortization of these intangibles and finance lease in our GAAP financial statements. Amortization expenses for our intangible assets and finance lease are inconsistent in amount and are significantly impacted by the timing and valuation of an acquisition. Consequently, our non-GAAP adjustments exclude these expenses to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

(3) Transaction and integration costs and unallocated legal fees: Transaction and integration costs related to acquisitions and divestitures are expensed in our GAAP financial statements. Unallocated legal fees for transaction-related non-compete agreement disputes are expensed in our GAAP financial statements. Management excludes these items for the purposes of calculating Adjusted EBITDA and other non-GAAP financial measures. We believe that excluding these items from our non-GAAP financial measures is useful to investors because these are items associated with transactions that are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult.

(4) Restructuring costs: Expenses related to a reorganization of the business.

(5) Net realized gain on foreign currency exchange forward contracts: Net realized gain on foreign currency exchange forward contracts related to four short-term foreign currency exchange forward contracts with JP Morgan Chase, N.A. in connection with the Kappa acquisition. These contracts did not qualify for hedge accounting and the net gain was recorded as other income in our GAAP financial statements. We believe that excluding these gains and losses from our Non-GAAP financial measures is useful to investors because such income or expense are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult.

(6) Income tax adjustment: For purposes of calculating adjusted net earnings and adjusted diluted earnings per share, we adjust the provision for (benefit from) income taxes to tax effect the taxable and deductible non-GAAP adjustments described above as they have a significant impact on our income tax (benefit) provision. Additionally, the income tax adjustment is adjusted for the impact of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” and uses our non-GAAP effective rate applied to both our GAAP earnings before income tax expense and non-GAAP adjustments described above. See Table 3 for the calculation of our non-GAAP effective tax rate.

(7) Impact of ASU 2016-09: The primary impact of ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), was the recognition during the three and six months ended June 30, 2023 and 2022, of excess tax benefits as a reduction to the provision for income taxes and the classification of these excess tax benefits in operating activities in the consolidated statement of cash flows instead of financing activities.