Balchem(BCPC) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Results Overview Balchem Corporation achieved robust financial performance in Q2 2024 with growth in net sales, GAAP net earnings, and adjusted EBITDA, alongside a new product launch and significant debt repayment Key Financial Highlights Balchem Corporation reported strong Q2 2024 financial results with increased net sales, GAAP net earnings, and adjusted EBITDA, supported by a new product launch and debt reduction 2024 Second Quarter Key Financial Data | Metric | Q2 2024 | Q2 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | Net Sales | $234.1 million | $231.2 million | +1.2% | | Adjusted EBITDA | $62.3 million | $59.3 million | +5.0% | | GAAP Net Earnings | $32.1 million | $30.1 million | +6.5% | | GAAP EPS | $0.98 | $0.93 | +5.4% | | Adjusted EPS | $1.09 | $1.06 | +2.8% | | Cash flows from operations | $45.0 million | N/A | N/A | | Free cash flow | $38.4 million | N/A | N/A | - The company launched Optifolin+ on May 20, a patented, choline-rich, bioactive reduced folate ingredient designed to support cellular health across all life stages[4][5] - Strong cash flow in Q2 enabled the company to repay $35 million in revolving debt, reducing net debt to $202.8 million with a net debt leverage ratio of 0.9x[4] CEO Commentary and Strategic Focus CEO Ted Harris expressed satisfaction with Q2 performance, highlighting strong growth in Human Nutrition & Health and Specialty Products, and reaffirming commitment to strategic growth and innovation - The CEO is pleased with the outstanding performance of the Human Nutrition & Health and Specialty Products segments, both achieving strong sales and earnings growth[3][4][12] - The company will continue to focus on bringing innovative solutions to global health and nutrition needs, such as the newly launched Optifolin+, and advancing strategic growth initiatives[5][12] - The Balchem team delivered solid financial results in Q2, once again highlighting the resilience of the company's business model[12] Consolidated Financial Performance Balchem's consolidated financial performance in Q2 2024 showed growth in key GAAP metrics, improved gross margin, and strong cash flow generation used for debt reduction Income Statement Summary (GAAP) Balchem's Q2 2024 GAAP income statement shows year-over-year growth in net sales, gross profit, operating earnings, and net earnings, driven by favorable product mix and lower manufacturing costs 2024 Second Quarter GAAP Income Statement Highlights | Metric | Q2 2024 (thousand USD) | Q2 2023 (thousand USD) | Change (%) | | :--- | :--------------------- | :--------------------- | :----------- | | Net Sales | 234,081 | 231,252 | +1.2% | | Gross Profit | 82,994 | 77,349 | +7.3% | | Operating Earnings | 45,797 | 42,836 | +6.9% | | Net Earnings | 32,069 | 30,110 | +6.5% | | GAAP EPS | 0.98 | 0.93 | +5.4% | - Consolidated gross profit reached a record $83 million, increasing 7.3% year-over-year[10] - Gross margin as a percentage of sales was 35.5%, an increase of 210 basis points from 33.4% in the prior year, primarily due to a favorable product mix and lower manufacturing costs[10] Balance Sheet Summary As of June 30, 2024, Balchem's total assets slightly decreased due to reduced current and long-term liabilities, leading to an increase in stockholders' equity Selected Balance Sheet Items (thousand USD) | Item | June 30, 2024 | December 31, 2023 | | :--- | :------------ | :---------------- | | Cash and Cash Equivalents | 63,738 | 64,447 | | Total Assets | 1,574,966 | 1,597,211 | | Current Liabilities | 113,322 | 148,491 | | Long-Term Debt | 266,569 | 309,569 | | Total Liabilities | 462,602 | 543,227 | | Stockholders' Equity | 1,112,364 | 1,053,984 | Cash Flow Summary Balchem generated strong operating cash flow of $45.0 million and free cash flow of $38.4 million in Q2 2024, enabling significant repayment of revolving debt 2024 Second Quarter Cash Flow Highlights (thousand USD) | Metric | Q2 2024 | H1 2024 | | :--- | :------------- | :----------- | | Cash flows from operations | 44,992 | 78,380 | | Free cash flow | 38,390 | 65,205 | | Revolving loan repayment | 35,000 | 69,000 | | Capital expenditures | 6,900 | 13,788 | - Net working capital was $206.8 million as of June 30, 2024, with a cash balance of $63.7 million[11] Segment-Specific Performance Balchem's Q2 2024 segment performance saw strong growth in Human Nutrition & Health and Specialty Products, while Animal Nutrition & Health experienced a decline Human Nutrition & Health Segment The Human Nutrition & Health segment achieved robust Q2 2024 performance with increased sales and operating earnings, primarily from minerals and nutrients, favorable product mix, and lower manufacturing costs Human Nutrition & Health Segment Performance (thousand USD) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :------------- | :------------- | :----------- | | Net Sales | 147,928 | 135,669 | +9.0% | | Operating Earnings | 33,367 | 27,499 | +21.3% | | Adjusted Operating Earnings | 37,400 | 31,800 | +17.6% | - Sales growth was primarily driven by higher sales in the minerals and nutrients business[8] Animal Nutrition & Health Segment The Animal Nutrition & Health segment faced challenges in Q2 2024, experiencing significant declines in sales and operating earnings due to reduced demand in monogastric and ruminant markets Animal Nutrition & Health Segment Performance (thousand USD) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :------------- | :------------- | :----------- | | Net Sales | 49,557 | 61,329 | -19.2% | | Operating Earnings | 2,693 | 7,662 | -64.9% | | Adjusted Operating Earnings | 3,000 | 7,600 | -61.1% | - Sales decline was primarily driven by lower sales in the monogastric and ruminant species markets[8] Specialty Products Segment The Specialty Products segment delivered strong Q2 2024 results with increased sales and operating earnings, driven by higher performance gases sales and reduced manufacturing costs Specialty Products Segment Performance (thousand USD) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :------------- | :------------- | :----------- | | Net Sales | 35,094 | 32,726 | +7.2% | | Operating Earnings | 11,228 | 9,298 | +20.8% | | Adjusted Operating Earnings | 12,300 | 10,500 | +17.1% | - Sales growth was primarily driven by higher sales in the performance gases business[9] Other and Unallocated The "Other and Unallocated" segment saw a slight decrease in net sales and a narrowed pre-tax loss in Q2 2024, primarily reflecting changes in transaction and integration costs Other and Unallocated Segment Performance (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | Net Sales | 1,502 | 1,528 | | Pre-tax Earnings | (1,491) | (1,623) | - Unallocated corporate expenses, including transaction and integration costs, were $132 thousand in Q2 2024, down from $651 thousand in the prior year period[18] Non-GAAP Financial Information Balchem utilizes non-GAAP financial measures to provide a clearer view of operational performance by excluding specific accounting adjustments and non-recurring transactions Non-GAAP Measures Explanation Balchem uses non-GAAP financial metrics to provide a clearer understanding of operational performance by excluding specific business combination adjustments and non-recurring transactions - Non-GAAP financial measures aim to exclude certain business combination accounting adjustments, equity compensation, non-qualified deferred compensation plan expenses, and certain one-time or non-recurring transactions to provide a clearer view of operating performance[23] Reconciliation of Adjusted Gross Margin Adjusted gross margin for Q2 2024 was $83.7 million, exceeding GAAP gross margin of $82.994 million, primarily due to adjustments for amortization of intangible assets and financing leases Reconciliation of Adjusted Gross Margin (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | GAAP Gross Margin | 82,994 | 77,349 | | Amortization of Intangible Assets and Financing Leases | 707 | 662 | | Adjusted Gross Margin | 83,701 | 78,348 | Reconciliation of Adjusted Earnings from Operations Adjusted earnings from operations for Q2 2024 were $51.254 million, higher than GAAP operating earnings of $45.797 million, reflecting adjustments for amortization and transaction costs Reconciliation of Adjusted Earnings from Operations (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | GAAP Earnings from Operations | 45,797 | 42,836 | | Amortization of Intangible Assets and Financing Leases | 5,303 | 6,952 | | Transaction and Integration Costs | 41 | (7,349) | | Adjusted Earnings from Operations | 51,254 | 49,166 | Reconciliation of Adjusted Net Earnings and EPS Adjusted net earnings for Q2 2024 were $35.577 million and adjusted diluted EPS was $1.09, surpassing GAAP figures due to various non-GAAP adjustments Reconciliation of Adjusted Net Earnings and EPS (thousand USD, except per share data) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | GAAP Net Earnings | 32,069 | 30,110 | | Amortization of Intangible Assets and Financing Leases | 5,375 | 7,024 | | Transaction and Integration Costs | 41 | (7,349) | | Income Tax Adjustment | (1,908) | (1,827) | | Adjusted Net Earnings | 35,577 | 34,441 | | Adjusted Diluted EPS | 1.09 | 1.06 | Reconciliation of EBITDA and Adjusted EBITDA Adjusted EBITDA reached a record $62.27 million in Q2 2024, growing 5.0% year-over-year, calculated by adding back non-cash expenses and specific costs to GAAP net earnings Reconciliation of EBITDA and Adjusted EBITDA (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | Net Earnings | 32,069 | 30,110 | | Provision for Income Taxes | 9,157 | 8,290 | | Interest and Other Expenses | 4,571 | 4,436 | | Depreciation and Amortization | 12,433 | 13,355 | | EBITDA | 58,230 | 56,191 | | Non-Cash Equity Compensation Expense | 3,886 | 3,748 | | Adjusted EBITDA | 62,270 | 59,317 | Reconciliation of Adjusted Income Tax Rate The adjusted effective income tax rate for Q2 2024 was 23.7%, higher than the GAAP effective rate of 22.2%, primarily due to adjustments related to ASU 2016-09 Reconciliation of Adjusted Income Tax Rate (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | GAAP Income Tax Expense | 9,157 | 8,290 | | GAAP Effective Tax Rate | 22.2% | 21.6% | | Impact of ASU 2016-09 | 620 | 448 | | Adjusted Income Tax Expense | 9,777 | 8,738 | | Adjusted Effective Tax Rate | 23.7% | 22.8% | Reconciliation of Free Cash Flow Free cash flow for Q2 2024 was $38.39 million, derived from net cash provided by operating activities less capital expenditures and other investment-related adjustments Reconciliation of Free Cash Flow (thousand USD) | Metric | Q2 2024 | Q2 2023 | | :--- | :------------- | :------------- | | Net Cash Provided by Operating Activities | 44,992 | 34,991 | | Capital Expenditures, Proceeds from Asset Sales, etc | (6,602) | (3,280) | | Free Cash Flow | 38,390 | 31,711 | Corporate Information This section provides details on Balchem's quarterly conference call, descriptions of its business segments, and a disclaimer regarding forward-looking statements Quarterly Conference Call Balchem Corporation will host a quarterly conference call on July 26, 2024, at 11:00 AM ET to discuss Q2 2024 results, with a replay service available - The quarterly conference call will be held on July 26, 2024, at 11:00 AM ET, hosted by Chairman, President, and CEO Ted Harris and CFO Martin Bengtsson[13] - A replay service for the conference call will be available three hours after the call concludes until Friday, August 9, 2024[13] Business Segment Descriptions Balchem Corporation operates through three segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products, each focusing on distinct markets and product offerings - The Human Nutrition & Health segment provides customized food and beverage ingredient systems and essential nutrients for the food, supplement, and pharmaceutical industries[14] - The Animal Nutrition & Health segment manufactures and supplies products for numerous animal health markets[14] - The Specialty Products segment offers specialty packaging chemicals for healthcare and other industries, along with chelated minerals for the micronutrient agricultural market[14] Forward-Looking Statements Disclaimer This press release contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially, and the company disclaims any obligation to update them - Forward-looking statements involve risks and uncertainties that could cause actual actions and results to differ materially from expectations[15] - The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise[15]