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Balchem Corporation Reports Second Quarter 2024 Financial Results

MONTVALE, N.J., July 26, 2024 (GLOBE NEWSWIRE) -- Balchem Corporation (NASDAQ: BCPC) reported today financial results for its 2024 fiscal second quarter ended June 30, 2024. The Company reported quarterly net sales of $234.1 million, quarterly net earnings of $32.1 million, adjusted EBITDA(a) of $62.3 million, and free cash flow(a) of $38.4 million.

Ted Harris, Chairman, President and CEO of Balchem said, "We delivered solid second quarter financials with record earnings from operations and adjusted EBITDA. I am particularly pleased with the excellent performance in our Human Nutrition and Health and Specialty Products segments, both delivering strong sales and earnings growth.”

Second Quarter 2024 Financial Highlights:

  • Net sales were $234.1 million, an increase of 1.2% compared to the prior year quarter.
  • Adjusted EBITDA was a record $62.3 million, an increase of 5.0% from the prior year quarter.
  • GAAP net earnings were $32.1 million, an increase of 6.5% from the prior year quarter.
  • GAAP earnings per share of $0.98 compared to $0.93 in the prior year quarter and record adjusted earnings per share(a) of $1.09 compared to $1.06 in the prior year quarter.
  • Cash flows from operations were $45.0 million for the second quarter of 2024, with quarterly free cash flow(a) of $38.4 million.
  • Strong sales growth and record earnings from operations in both our Human Nutrition and Health and Specialty Product segments.

Recent Highlights:

  • On May 20th, Balchem launched a new product, Optifolin+®, which is a patented, choline-enriched, bioactive, reduced folate ingredient that supports cellular health at all stages of life. Optifolin+® is biologically active, which means that it is readily available for transport and use in the human body and tissues, making Optifolin+® an excellent choice to meet Vitamin B9 recommended requirements.
  • Strong cash flows in the second quarter enabled us to make repayments on our revolving debt of $35.0 million, bringing our net debt to $202.8 million, with an overall leverage ratio on a net debt basis of 0.9 times.

Mr. Harris said, "I am excited about the recent launch of Optifolin+® and our continued focus on bringing innovative solutions for the health and nutritional needs of the world. Optifolin+® adds to our already strong Minerals and Nutrients portfolio that includes leading brands such as VitaCholine®, K2Vital®, Albion® Minerals, and OptiMSM®.”

Mr. Harris continued, "We continue to make good progress on our strategic initiatives while delivering solid financial results. I am very pleased with our performance in the first half of 2024 and look forward to the remainder of the year."

Results for Period Ended June 30, 2024 (unaudited)
(Dollars in thousands, except per share data)
 
  Three Months Ended
June 30,
 Six Months Ended
June 30,
   2024   2023   2024   2023 
Net sales $234,081  $231,252  $473,740  $463,792 
Gross margin  82,994   77,349   164,508   150,519 
Operating expenses  37,197   34,513   77,035   73,275 
Earnings from operations  45,797   42,836   87,473   77,244 
Interest and other expenses  4,571   4,436   9,397   9,725 
Earnings before income tax expense  41,226   38,400   78,076   67,519 
Income tax expense  9,157   8,290   17,021   14,699 
Net earnings $32,069  $30,110  $61,055  $52,820 
         
Diluted net earnings per common share $0.98  $0.93  $1.87  $1.63 
         
Adjusted EBITDA(a) $62,270  $59,317  $123,136  $115,674 
Adjusted net earnings(a) $35,577  $34,441  $69,161  $65,022 
Adjusted net earnings per common share(a) $1.09  $1.06  $2.12  $2.01 
         
Shares used in the calculations of diluted and adjusted net earnings per common share  32,649   32,434   32,638   32,424 


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

Financial Results for the Second Quarter of 2024:

The Human Nutrition & Health segment generated sales of $147.9 million, an increase of $12.3 million, or 9.0%, compared to the prior year quarter. The increase was primarily driven by higher sales within the minerals and nutrients business. Record earnings from operations for this segment of $33.4 million increased $5.9 million, or 21.3%, compared to $27.5 million in the prior year quarter, primarily due to the aforementioned higher sales, a favorable mix, and certain lower manufacturing input costs, partially offset by higher operating expenses. 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 $37.4 million, compared to $31.8 million in the prior year quarter, an increase of 17.6%.

The Animal Nutrition & Health segment generated quarterly sales of $49.6 million, a decrease of $11.8 million, or 19.2%, compared to the prior year quarter. The decrease was driven by lower sales in both the monogastric and ruminant species markets. Second quarter earnings from operations for this segment of $2.7 million decreased $5.0 million, or 64.9%, compared to $7.7 million in the prior year quarter, primarily due to the aforementioned lower sales, partially offset by certain 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 $3.0 million compared to $7.6 million in the prior year quarter, a decrease of 61.1%.

The Specialty Products segment generated quarterly sales of $35.1 million, an increase of $2.4 million, or 7.2%, compared to the prior year quarter, primarily due to higher sales in the performance gases business. Earnings from operations for this segment were a record $11.2 million, compared to $9.3 million in the prior year comparable quarter, an increase of $1.9 million, or 20.8%, primarily driven by the aforementioned higher sales and certain lower manufacturing input costs, partially offset by higher operating expenses. 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 $12.3 million, compared to $10.5 million in the prior year quarter, an increase of 17.1%.

Record quarterly consolidated gross margin of $83.0 million increased by $5.6 million, or 7.3%, compared to $77.3 million for the prior year comparable period. Gross margin as a percentage of sales was 35.5% as compared to 33.4% in the prior year period, an increase of 210 basis points, primarily due to a favorable mix and decreases in certain manufacturing input costs. Operating expenses of $37.2 million for the quarter increased $2.7 million from the prior year comparable quarter, primarily due to the impact of favorable adjustments to transaction costs in the prior year and higher charges related to outside services, partially offset by the impact of restructuring-related impairment charges in the prior year. Excluding non-cash operating expenses associated with amortization of intangible assets of $4.6 million, operating expenses were $32.6 million, or 13.9% of sales.

Interest expense was $4.2 million and $5.2 million in the second quarters of 2024 and 2023, respectively. The decrease in interest expense was primarily due to lower outstanding borrowings, partially offset by higher interest rates. Our effective tax rates for the three months ended June 30, 2024 and 2023 were 22.2% and 21.6%, respectively. The higher effective tax rate was primarily due to lower tax benefits from stock-based compensation and certain higher state taxes, partially offset by certain lower foreign taxes.

Second quarter cash flows provided by operating activities were $45.0 million and free cash flow was $38.4 million. The $206.8 million of net working capital on June 30, 2024 included a cash balance of $63.7 million. Significant cash payments during the quarter included repayments on the revolving loan of $35.0 million, income taxes paid of $18.2 million, and capital expenditures and intangible assets acquired of $6.9 million.

Ted Harris said, “The Balchem team delivered solid second quarter financial results, once again highlighting the resilience of our business model. Two of our three reporting segments are performing very well, with both our Human Nutrition and Health segment and Specialty Products segment delivering record earnings from operations, which are more than offsetting the challenges we are experiencing in our Animal Nutrition and Health segment. We are well positioned in the markets we serve and remain confident in the long-term growth outlook for our company as we continue to focus on progressing our strategic growth initiatives in 2024 and beyond.”

Quarterly Conference Call

A quarterly conference call will be held on Friday, July 26, 2024, at 11:00 AM Eastern Time (ET) to review second quarter 2024 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 three hours after the conclusion of the call through end of day Friday, August 9, 2024. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13747779.

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 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," “likely,” "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, 2023 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,
   2024   2023   2024   2023 
Human Nutrition & Health $147,928  $135,669  $300,672  $268,322 
Animal Nutrition & Health  49,557   61,329   103,478   126,218 
Specialty Products  35,094   32,726   66,707   64,957 
Other and Unallocated (b)   1,502   1,528   2,883   4,295 
Total $234,081  $231,252  $473,740  $463,792 


Business Segment Earnings Before Income Taxes: Three Months Ended
June 30,
 Six Months Ended
June 30,
   2024   2023   2024   2023 
Human Nutrition & Health $33,367  $27,499  $66,624  $45,934 
Animal Nutrition & Health  2,693   7,662   4,753   17,160 
Specialty Products  11,228   9,298   19,427   17,244 
Other and Unallocated (b)  (1,491)  (1,623)  (3,331)  (3,094)
Interest and other expenses  (4,571)  (4,436)  (9,397)  (9,725)
Total $41,226  $38,400  $78,076  $67,519 
         
(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 of $132 and $572 for the three and six months ended June 30, 2024, respectively, and $651 and $1,216 for the three and six months ended June 30, 2023, respectively, and (ii) Unallocated amortization expense of $0 and $0 for the three and six months ended June 30, 2024, respectively, and $0 and $312 for the three and six months ended June 30, 2023, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.


Selected Balance Sheet Items     
(Dollars in thousands) June 30, 2024 December 31, 2023
  (unaudited)  
     
Cash and Cash Equivalents $63,738  $64,447 
Accounts Receivable, net  123,400   125,284 
Inventories  117,099   109,521 
Other Current Assets  15,919   14,990 
Total Current Assets  320,156   314,242 
     
Property, Plant & Equipment, net  272,539   276,039 
Goodwill  770,026   778,907 
Intangible Assets with Finite Lives, net  176,102   191,212 
Right of Use Assets  18,445   19,864 
Other Assets  17,698   16,947 
Total Non-current Assets  1,254,810   1,282,969 
     
Total Assets $1,574,966  $1,597,211 
     
Current Liabilities $113,322  $148,491 
Revolving Loan  266,569   309,569 
Deferred Income Taxes  49,956   52,046 
Other Long-Term Obligations  32,755   33,121 
Total Liabilities  462,602   543,227 
     
Stockholders' Equity  1,112,364   1,053,984 
     
Total Liabilities and Stockholders' Equity $1,574,966  $1,597,211 


Balchem Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
 
(unaudited)
  Six Months Ended June 30,
   2024   2023 
Cash flows from operating activities:    
Net earnings $61,055  $52,820 
Adjustments to reconcile net earnings to net cash provided by operating
activities:
    
Depreciation and amortization  26,174   27,074 
Stock compensation expense  8,636   8,518 
Other adjustments  (1,106)  (2,647)
Changes in assets and liabilities  (16,379)  (15,936)
Net cash provided by operating activities  78,380   69,829 
     
Cash flows from investing activities:    
Capital expenditures and intangible assets acquired  (13,788)  (17,880)
Cash paid for acquisitions, net of cash acquired     (341)
Proceeds from the sale of assets  272   1,881 
Proceeds from settlement of net investment hedge     2,740 
Investment in affiliates  (80)  (72)
Net cash used in investing activities  (13,596)  (13,672)
     
Cash flows from financing activities:    
Proceeds from revolving loan  26,000   13,000 
Principal payments on revolving loan  (69,000)  (48,000)
Principal payments on finance lease  (111)  (110)
Proceeds from stock options exercised  9,682   3,826 
Dividends paid  (25,568)  (22,869)
Purchase of common stock  (5,213)  (3,924)
Net cash used in financing activities  (64,210)  (58,077)
     
Effect of exchange rate changes on cash  (1,283)  2,216 
     
(Decrease) increase in cash and cash equivalents  (709)  296 
     
Cash and cash equivalents, beginning of period  64,447   66,560 
Cash and cash equivalents, end of period $63,738  $66,856 
 

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, nonqualified deferred compensation plan expense (income), 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,
   2024   2023   2024   2023 
Reconciliation of adjusted gross margin        
GAAP gross margin $82,994  $77,349  $164,508  $150,519 
Inventory valuation adjustment (1)     217      1,419 
Amortization of intangible assets and finance lease (2)  707   662   1,411   1,343 
Restructuring costs (3)     120      120 
Adjusted gross margin $83,701  $78,348  $165,919  $153,401 
         
Reconciliation of adjusted earnings from operations        
GAAP earnings from operations $45,797  $42,836  $87,473  $77,244 
Inventory valuation adjustment (1)     217      1,419 
Amortization of intangible assets and finance lease (2)  5,303   6,952   11,705   14,302 
Transaction and integration costs (4)  41   (7,349)  481   (5,184)
Restructuring costs (3)     6,266      6,266 
Nonqualified deferred compensation plan expense (5)  113   244   516   481 
Adjusted earnings from operations $51,254  $49,166  $100,175  $94,528��
         
Reconciliation of adjusted net earnings        
GAAP net earnings $32,069  $30,110  $61,055  $52,820 
Inventory valuation adjustment (1)     217      1,419 
Amortization of intangible assets and finance lease (2)  5,375   7,024   11,849   14,446 
Transaction and integration costs (4)  41   (7,349)  481   (5,184)
Restructuring costs (3)     6,266      6,266 
Income tax adjustment (6)  (1,908)  (1,827)  (4,224)  (4,745)
Adjusted net earnings $35,577  $34,441  $69,161  $65,022 
         
Adjusted net earnings per common share - diluted $1.09  $1.06  $2.12  $2.01 
 

Table 2
(unaudited)

Reconciliation of GAAP Net Earnings to EBITDA and to Adjusted EBITDA
(Dollars in thousands)
 
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2024   2023   2024   2023 
Net earnings - as reported $32,069  $30,110  $61,055  $52,820 
Add back:        
Provision for income taxes  9,157   8,290   17,021   14,699 
Interest and other expenses  4,571   4,436   9,397   9,725 
Depreciation and amortization  12,433   13,355   26,030   26,930 
EBITDA  58,230   56,191   113,503   104,174 
Add back certain items:        
Non-cash compensation expense related to equity awards  3,886   3,748   8,636   8,518 
Inventory valuation adjustment (1)     217      1,419 
Transaction and integration costs (4)  41   (7,349)  481   (5,184)
Restructuring costs (3)     6,266      6,266 
Nonqualified deferred compensation plan expense (5)  113   244   516   481 
Adjusted EBITDA $62,270  $59,317  $123,136  $115,674 
 

Table 3
(unaudited)

Reconciliation of GAAP Effective Income Tax Rate to Non-GAAP Effective Income Tax Rate
(Dollars in thousands)
 
  Three Months Ended June 30,
  2024  Effective Tax Rate  2023  Effective Tax Rate
GAAP Income Tax Expense $9,157  22.2% $8,290  21.6%
Impact of ASU 2016-09 (7)   620     448   
Adjusted Income Tax Expense $9,777  23.7% $8,738  22.8%


  Six Months Ended June 30,
  2024  Effective Tax Rate  2023  Effective Tax Rate
GAAP Income Tax Expense $17,021  21.8% $14,699  21.8%
Impact of ASU 2016-09 (7)   1,327     844   
Adjusted Income Tax Expense $18,348  23.5% $15,543  23.0%
 

Table 4

(unaudited)

 

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(Dollars in thousands)
 
  Three Months Ended
June 30,
 Six Months Ended
June 30,
   2024   2023   2024   2023 
Net cash provided by operating activities $44,992  $34,991  $78,380  $69,829 
Capital expenditures, proceeds from the sale of assets, and settlement of net investment hedge  (6,602)  (3,280)  (13,175)  (12,892)
Free cash flow $38,390  $31,711  $65,205  $56,937 


(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) Restructuring costs: Expenses related to a reorganization of the business.
 
(4) Transaction and integration costs: Transaction and integration costs related to acquisitions and divestitures 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.
 
(5) Nonqualified deferred compensation plan (income) expense: Gains and losses on rabbi trust assets related to our nonqualified deferred compensation plan are recorded in other (income) expense while the offsetting increases or decreases to the deferred compensation liability are recorded within earnings from operations. The increases and decreases in the deferred compensation liability are driven by market volatility and are not a true reflection of company performance. We believe excluding these amounts from our non-GAAP financial measures is useful to investors because these items are inconsistent in amount based on market conditions causing comparison of current and historical financial results to be difficult. Adjustments have been made to the prior period presentation to conform with the current period presentation.
 
(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, 2024 and 2023, 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.

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