Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Balchem Corporation Reports Third Quarter Sales of $244.3 Million, Net Earnings of $25.2 Million, GAAP EPS of $0.78, and Adjusted EPS of $1.00 By: Balchem Corporation via GlobeNewswire November 04, 2022 at 07:00 AM EDT MONTVALE, N.J., Nov. 04, 2022 (GLOBE NEWSWIRE) -- Balchem Corporation (NASDAQ: BCPC) reported today third quarter net earnings of $25.2 million for 2022, compared to net earnings of $25.0 million for the third quarter 2021, adjusted net earnings(a) of $32.4 million, compared to $30.0 million in the prior year quarter, and adjusted EBITDA(a) of $53.8 million, compared to $48.3 million in the prior year quarter. Third Quarter 2022 Financial Highlights: Net sales were $244.3 million, an increase of $46.4 million, or 23.4%, compared to the prior year quarter, with sales growth in all three segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Adjusted EBITDA was $53.8 million, an increase of $5.4 million, or 11.2%, from the prior year. GAAP net earnings were $25.2 million, an increase of $0.2 million, or 0.9% from the prior year. These net earnings resulted in GAAP earnings per share of $0.78. Adjusted net earnings were $32.4 million, an increase of $2.4 million or 8.0% from the prior year. These adjusted net earnings resulted in adjusted earnings per share(a) of $1.00. The effective tax rate of 18.8% was 327 basis points lower than the prior year tax rate of 22.0%. Cash flows from operations were $41.6 million for the third quarter 2022, with quarterly free cash flow(a) of $26.8 million. Recent Highlights: On August 30, 2022, we completed the acquisition of Cardinal Associates Inc. and its Bergstrom Nutrition business (collectively, "Bergstrom"), a leading science-based manufacturer of methylsulfonylmethane (MSM), based in Vancouver, Washington. MSM is a widely used ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health. Bergstrom's MSM brand "OptiMSM®" delivers the highest quality and purity MSM on the market and is the only brand of MSM with a U.S. GRAS "generally regarded as safe" designation. Balchem's VitaCholine® brand recently won NutraIngredients USA's prestigious Nutra Award for Ingredient of the Year - Cognitive Function. VitaCholine® is the premier source of choline, an essential nutrient that supports cognition and brain development in children. A clinical study recently published by Cornell University researchers showed significant brain benefits for babies born to mothers who received higher levels of supplemental choline during pregnancy. We made repayments on our revolving debt in the third quarter of $41.0 million. Net debt was $406.1 million, with an overall leverage ratio on a net debt basis of 1.9. Ted Harris, Chairman, President and CEO of Balchem said, “The third quarter of 2022 was another solid growth quarter for Balchem as we delivered both sales and earnings growth year over year in an increasingly challenging macro-economic environment. Additionally, we were very pleased to have further accelerated our strategic initiatives, highlighted by the acquisition of Bergstrom. This acquisition adds to our science based health and nutrition product offering for our Human Nutrition and Health segment and our Animal Nutrition and Health segment, and is synergistic with our existing organic growth platforms.” Mr. Harris added, “I would like to take this opportunity to thank all of our employees for their contributions to our strong performance and for their continued dedication and focus on driving results in a unique and challenging market environment, while also welcoming once again the Bergstrom team to Balchem." Results for Period Ended September 30, 2022 (unaudited) (Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Net sales $244,267 $197,869 $709,827 $585,890Gross margin 68,430 60,934 211,812 179,108Operating expenses 34,805 28,421 99,931 85,427Earnings from operations 33,625 32,513 111,881 93,681Other expense 2,540 428 3,908 1,594Earnings before income tax expense 31,085 32,085 107,973 92,087Income tax expense 5,836 7,072 24,012 20,932Net earnings $25,249 $25,013 $83,961 $71,155 Diluted net earnings per common share $0.78 $0.77 $2.59 $2.18 Adjusted EBITDA(a) $53,774 $48,344 $163,815 $144,213Adjusted net earnings(a) $32,387 $29,975 $100,191 $88,819Adjusted net earnings per common share(a) $1.00 $0.92 $3.09 $2.72 Shares used in the calculations of diluted and adjusted net earnings per common share 32,367 32,644 32,392 32,651 (a)See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures. Financial Results for the Third Quarter of 2022: The Human Nutrition & Health segment generated quarterly sales of $142.7 million, an increase of $31.5 million or 28.3% compared to the prior year quarter. The increase was primarily driven by sales growth within food and beverage markets, the contribution from recent acquisitions, as well as sales growth within the minerals and nutrients business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $20.6 million increased $0.8 million or 4.0% compared to $19.8 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by higher manufacturing input costs, higher amortization and operating expenses related to the recent acquisitions, and the timing of an insurance reimbursement received in the prior year. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $4.0 million and $4.3 million for the third quarter of 2022 and 2021, respectively, additional amortization of intangible assets of $2.1 million and inventory valuation adjustments of $1.5 million related to acquisitions for the third quarter of 2022, and the expense related to the flash flood event of $0.2 million for the third quarter of 2021, adjusted earnings from operations(a) for this segment were $28.2 million, compared to $24.3 million in the prior year quarter, a 16.1% increase year over year. The Animal Nutrition & Health segment generated quarterly sales of $65.6 million, an increase of $9.4 million or 16.7% compared to the prior year quarter. The increase was the result of higher sales in both monogastric and ruminant species markets, the contribution from the recent acquisition of Bergstrom which included a small Animal Nutrition business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $8.0 million increased $0.6 million or 8.0% compared to $7.4 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by increases in manufacturing input costs and distribution costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $0.1 million and $0.2 million for the third quarter of 2022 and 2021, respectively, and the expense related to the flash flood event of $0.3 million for the third quarter of 2021, third quarter adjusted earnings from operations for this segment were $8.2 million compared to $7.8 million in the prior year quarter, an increase of 4.7% year over year. The Specialty Products segment generated quarterly sales of $29.6 million, an increase of $2.0 million or 7.3% compared to the prior year quarter, due to higher sales of products in the performance gases business, partially offset by lower plant nutrition sales, and an unfavorable impact related to changes in foreign currency exchange rates. Earnings from operations for this segment were $7.1 million, compared to $6.5 million in the prior year comparable quarter, an increase of $0.7 million or 10.1%, primarily due to the aforementioned higher sales, partially offset by increases in manufacturing input costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets for the third quarter of 2022 and 2021 of $1.0 million and $1.2 million, respectively, adjusted earnings from operations for this segment were $8.1 million, compared to $7.7 million in the prior year quarter, an increase of 5.8% year over year. Consolidated gross margin for the quarter ended September 30, 2022 of $68.4 million increased by $7.5 million or 12.3%, compared to $60.9 million for the prior year comparable period. Gross margin as a percentage of sales was 28.0% as compared to 30.8% in the prior year period, a decrease of 278 basis points, primarily due to increases in certain manufacturing input costs and distribution costs and the timing of insurance proceeds in the prior year. Operating expenses of $34.8 million for the quarter increased $6.4 million from the prior year comparable quarter, primarily due to incremental expenses and amortization from the Kappa and Bergstrom acquisitions, and an increase in outside services, partially offset by a reduction in compensation-related costs. Excluding non-cash operating expenses associated with amortization of intangible assets of $7.3 million, operating expenses were $27.5 million, or 11.3% of sales. Interest expenses were $3.6 million and $0.6 million in the third quarter of 2022 and 2021, respectively. Our effective tax rates for the three months ended September 30, 2022 and 2021 were 18.8% and 22.0%, respectively. The decrease in the effective tax rate from the prior year was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions. For the quarter ended September 30, 2022, cash flows provided by operating activities were $41.6 million, and free cash flow was $26.8 million. The $226.0 million of net working capital on September 30, 2022 included a cash balance of $56.5 million, which reflects repayments of the revolving loan of $41.0 million, and capital expenditures and intangible assets acquired of $15.0 million. Ted Harris said, “I am very pleased with how the Balchem team continues to manage through the current market conditions, and how we have shown resilience and the ability to deliver strong results, even in challenging times. We remain excited about our future and our ability to provide solutions for the health and nutritional needs of the world while acting as strong stewards of all of our stakeholders.” Quarterly Conference Call A quarterly conference call will be held on Friday, November 4, 2022, at 11:00 AM Eastern Time (ET) to review third quarter 2022 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, November 18, 2022. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13733850. 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, which reflect Balchem’s expectation or belief concerning future events that involve risks and uncertainties. Balchem can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from Balchem’s expectations, including risks and factors identified in Balchem’s annual report on Form 10-K for the year ended December 31, 2021 and Form 10-Q for the quarterly period ended June 30, 2022. Forward-looking statements are qualified in their entirety by the above cautionary statement. Balchem assumes no duty to update its outlook or other forward-looking statements as of any future date. Contact: Jacqueline Yarmolowicz, Balchem Corporation (Telephone: 845-326-5600) Selected Financial Data (unaudited) ($ in 000’s) Business Segment Net Sales: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $142,655 $111,200 $396,728 $327,187 Animal Nutrition & Health 65,604 56,192 197,546 161,821 Specialty Products 29,641 27,615 99,622 89,645 Other and Unallocated (b) 6,367 2,862 15,931 7,237 Total $244,267 $197,869 $709,827 $585,890 Business Segment Earnings Before Income Taxes: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $20,584 $19,801 $64,592 $58,512 Animal Nutrition & Health 8,036 7,442 26,943 16,059 Specialty Products 7,105 6,455 24,785 23,373 Other and Unallocated (b) (2,100) (1,185) (4,439) (4,263)Interest and other expense (2,540) (428) (3,908) (1,594)Total $31,085 $32,085 $107,973 $92,087 (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 $1,640 and $2,816 for the three and nine months ended September 30, 2022, respectively, and $305 and $1,005 for the three and nine months ended September 30, 2021, respectively (refer to note 4 for descriptions of these charges), and (ii) Unallocated amortization expense of $734 and $2,213 for the three and nine months ended September 30, 2022, respectively, and $604 and $1,812 for the three and nine months ended September 30, 2021, respectively, related to an intangible asset in connection with a company-wide ERP system implementation. Selected Balance Sheet Items (Dollars in thousands) September 30, 2022 December 31, 2021 (unaudited) Cash and Cash Equivalents $56,489 $103,239 Accounts Receivable, net 140,812 117,408 Inventories 139,464 91,058 Derivative Assets 14,540 — Other Current Assets 16,806 10,527 Total Current Assets 368,111 322,232 Property, Plant & Equipment, net 260,008 237,517 Goodwill 749,035 523,949 Intangible Assets with Finite Lives, net 227,323 94,665 Right of Use Assets 13,819 9,288 Other Assets 14,712 11,674 Total Assets $1,633,008 $1,199,325 Current Liabilities $142,085 $143,802 Revolving Loan 462,569 108,569 Deferred Income Taxes 76,771 46,455 Derivative Liabilities — 2,658 Contingent Consideration Liabilities 30,547 — Other Long-Term Obligations 25,114 20,826 Total Liabilities 737,086 322,310 Stockholders' Equity 895,922 877,015 Total Liabilities and Stockholders' Equity $1,633,008 $1,199,325 Balchem Corporation Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net earnings $83,961 $71,155 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 37,958 36,622 Stock compensation expense 9,838 8,809 Other adjustments 912 (2,231)Changes in assets and liabilities (35,788) 1,668 Net cash provided by operating activities 96,881 116,023 Cash flows from investing activities: Cash paid for acquisition, net of cash acquired (365,780) — Capital expenditures and intangible assets acquired (35,793) (22,391)Proceeds from insurance and sale of assets 198 1,272 Purchase of convertible note (150) — Net cash used in investing activities (401,525) (21,119) Cash flows from financing activities: Proceeds from revolving loan 435,000 5,000 Principal payments on revolving loan (81,000) (60,000)Principal payments on acquired debt (30,782) — Cash paid for financing costs (1,232) — Principal payments on finance lease (125) (118)Proceeds from stock options exercised 2,172 6,351 Dividends paid (20,708) (18,704)Purchase of treasury stock (35,245) (18,762) Net cash provided by (used in) financing activities 268,080 (86,233) Effect of exchange rate changes on cash (10,186) (3,229) (Decrease) increase in cash and cash equivalents (46,750) 5,442 Cash and cash equivalents, beginning of period 103,239 84,571 Cash and cash equivalents, end of period $56,489 $90,013 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Reconciliation of adjusted gross margin GAAP gross margin $68,430 $60,934 $211,812 $179,108 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 677 336 1,313 1,164 Adjusted gross margin $70,691 $61,813 $214,709 $184,580 Reconciliation of adjusted earnings from operations GAAP earnings from operations $33,625 $32,513 $111,881 $93,681 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 7,975 6,207 19,840 19,025 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted earnings from operations $44,824 $39,568 $136,121 $118,019 Reconciliation of adjusted net earnings GAAP net earnings $25,249 $25,013 $83,961 $71,155 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 8,097 6,278 20,103 19,237 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts (5) (2,015) — (2,527) — Income tax adjustment (6) (2,168) (2,164) (5,746) (6,886)Adjusted net earnings $32,387 $29,975 $100,191 $88,819 Adjusted net earnings per common share - diluted $1.00 $0.92 $3.09 $2.72 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 nine months ended September 30, 2022 and 2021. Table 2 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income - as reported $25,249 $25,013 $83,961 $71,155 Add back: Provision for income taxes 5,836 7,072 24,012 20,932 Other expense 2,540 428 3,908 1,594 Depreciation and amortization 13,976 12,088 37,696 36,410 EBITDA 47,601 44,601 149,577 130,091 Add back certain items: Non-cash compensation expense related to equity awards 2,949 2,895 9,838 8,809 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted EBITDA $53,774 $48,344 $163,815 $144,213 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 nine months ended September 30, 2022 and 2021. Table 3 (unaudited) Three Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $5,836 18.8% $7,072 22.0%Impact of ASU 2016-09 (7) 214 491 Adjusted Income Tax Expense $6,050 19.5% $7,563 23.6% Nine Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $24,012 22.2% $20,932 22.7%Impact of ASU 2016-09 (7) 714 1,031 Adjusted Income Tax Expense $24,726 22.9% $21,963 23.9% The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months ended September 30, 2022 and 2021. Table 4 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net cash provided by operating activities $41,620 $39,634 $96,881 $116,023 Capital expenditures and capitalized ERP implementation costs (14,841) (8,559) (35,021) (22,106)Free cash flow $26,779 $31,075 $61,860 $93,917 (1) Expense related to a flash flood event: Expenses related to a flash flood event at our Verona, Missouri manufacturing site are expensed in our GAAP financial statements. We believe that excluding these costs from our non-GAAP financial measures is useful to investors because such expense is inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (2) 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. (3) 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. (4) Transaction and integration costs, ERP implementation costs and unallocated legal fees: Transaction and integration costs related to acquisitions and divestitures are expensed in our GAAP financial statements. ERP implementation costs related to a company-wide ERP system implementation 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 each transaction and are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (5) Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts: The unrealized foreign currency gain relates to the contingent consideration liability recorded in connection with Kappa acquisition and was recorded as other income in our GAAP financial statements. The net realized gain on foreign currency exchange forward contracts relates 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 nine months ended September 30, 2022 and 2021, 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. Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Balchem Corporation Reports Third Quarter Sales of $244.3 Million, Net Earnings of $25.2 Million, GAAP EPS of $0.78, and Adjusted EPS of $1.00 By: Balchem Corporation via GlobeNewswire November 04, 2022 at 07:00 AM EDT MONTVALE, N.J., Nov. 04, 2022 (GLOBE NEWSWIRE) -- Balchem Corporation (NASDAQ: BCPC) reported today third quarter net earnings of $25.2 million for 2022, compared to net earnings of $25.0 million for the third quarter 2021, adjusted net earnings(a) of $32.4 million, compared to $30.0 million in the prior year quarter, and adjusted EBITDA(a) of $53.8 million, compared to $48.3 million in the prior year quarter. Third Quarter 2022 Financial Highlights: Net sales were $244.3 million, an increase of $46.4 million, or 23.4%, compared to the prior year quarter, with sales growth in all three segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Adjusted EBITDA was $53.8 million, an increase of $5.4 million, or 11.2%, from the prior year. GAAP net earnings were $25.2 million, an increase of $0.2 million, or 0.9% from the prior year. These net earnings resulted in GAAP earnings per share of $0.78. Adjusted net earnings were $32.4 million, an increase of $2.4 million or 8.0% from the prior year. These adjusted net earnings resulted in adjusted earnings per share(a) of $1.00. The effective tax rate of 18.8% was 327 basis points lower than the prior year tax rate of 22.0%. Cash flows from operations were $41.6 million for the third quarter 2022, with quarterly free cash flow(a) of $26.8 million. Recent Highlights: On August 30, 2022, we completed the acquisition of Cardinal Associates Inc. and its Bergstrom Nutrition business (collectively, "Bergstrom"), a leading science-based manufacturer of methylsulfonylmethane (MSM), based in Vancouver, Washington. MSM is a widely used ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health. Bergstrom's MSM brand "OptiMSM®" delivers the highest quality and purity MSM on the market and is the only brand of MSM with a U.S. GRAS "generally regarded as safe" designation. Balchem's VitaCholine® brand recently won NutraIngredients USA's prestigious Nutra Award for Ingredient of the Year - Cognitive Function. VitaCholine® is the premier source of choline, an essential nutrient that supports cognition and brain development in children. A clinical study recently published by Cornell University researchers showed significant brain benefits for babies born to mothers who received higher levels of supplemental choline during pregnancy. We made repayments on our revolving debt in the third quarter of $41.0 million. Net debt was $406.1 million, with an overall leverage ratio on a net debt basis of 1.9. Ted Harris, Chairman, President and CEO of Balchem said, “The third quarter of 2022 was another solid growth quarter for Balchem as we delivered both sales and earnings growth year over year in an increasingly challenging macro-economic environment. Additionally, we were very pleased to have further accelerated our strategic initiatives, highlighted by the acquisition of Bergstrom. This acquisition adds to our science based health and nutrition product offering for our Human Nutrition and Health segment and our Animal Nutrition and Health segment, and is synergistic with our existing organic growth platforms.” Mr. Harris added, “I would like to take this opportunity to thank all of our employees for their contributions to our strong performance and for their continued dedication and focus on driving results in a unique and challenging market environment, while also welcoming once again the Bergstrom team to Balchem." Results for Period Ended September 30, 2022 (unaudited) (Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Net sales $244,267 $197,869 $709,827 $585,890Gross margin 68,430 60,934 211,812 179,108Operating expenses 34,805 28,421 99,931 85,427Earnings from operations 33,625 32,513 111,881 93,681Other expense 2,540 428 3,908 1,594Earnings before income tax expense 31,085 32,085 107,973 92,087Income tax expense 5,836 7,072 24,012 20,932Net earnings $25,249 $25,013 $83,961 $71,155 Diluted net earnings per common share $0.78 $0.77 $2.59 $2.18 Adjusted EBITDA(a) $53,774 $48,344 $163,815 $144,213Adjusted net earnings(a) $32,387 $29,975 $100,191 $88,819Adjusted net earnings per common share(a) $1.00 $0.92 $3.09 $2.72 Shares used in the calculations of diluted and adjusted net earnings per common share 32,367 32,644 32,392 32,651 (a)See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures. Financial Results for the Third Quarter of 2022: The Human Nutrition & Health segment generated quarterly sales of $142.7 million, an increase of $31.5 million or 28.3% compared to the prior year quarter. The increase was primarily driven by sales growth within food and beverage markets, the contribution from recent acquisitions, as well as sales growth within the minerals and nutrients business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $20.6 million increased $0.8 million or 4.0% compared to $19.8 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by higher manufacturing input costs, higher amortization and operating expenses related to the recent acquisitions, and the timing of an insurance reimbursement received in the prior year. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $4.0 million and $4.3 million for the third quarter of 2022 and 2021, respectively, additional amortization of intangible assets of $2.1 million and inventory valuation adjustments of $1.5 million related to acquisitions for the third quarter of 2022, and the expense related to the flash flood event of $0.2 million for the third quarter of 2021, adjusted earnings from operations(a) for this segment were $28.2 million, compared to $24.3 million in the prior year quarter, a 16.1% increase year over year. The Animal Nutrition & Health segment generated quarterly sales of $65.6 million, an increase of $9.4 million or 16.7% compared to the prior year quarter. The increase was the result of higher sales in both monogastric and ruminant species markets, the contribution from the recent acquisition of Bergstrom which included a small Animal Nutrition business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $8.0 million increased $0.6 million or 8.0% compared to $7.4 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by increases in manufacturing input costs and distribution costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $0.1 million and $0.2 million for the third quarter of 2022 and 2021, respectively, and the expense related to the flash flood event of $0.3 million for the third quarter of 2021, third quarter adjusted earnings from operations for this segment were $8.2 million compared to $7.8 million in the prior year quarter, an increase of 4.7% year over year. The Specialty Products segment generated quarterly sales of $29.6 million, an increase of $2.0 million or 7.3% compared to the prior year quarter, due to higher sales of products in the performance gases business, partially offset by lower plant nutrition sales, and an unfavorable impact related to changes in foreign currency exchange rates. Earnings from operations for this segment were $7.1 million, compared to $6.5 million in the prior year comparable quarter, an increase of $0.7 million or 10.1%, primarily due to the aforementioned higher sales, partially offset by increases in manufacturing input costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets for the third quarter of 2022 and 2021 of $1.0 million and $1.2 million, respectively, adjusted earnings from operations for this segment were $8.1 million, compared to $7.7 million in the prior year quarter, an increase of 5.8% year over year. Consolidated gross margin for the quarter ended September 30, 2022 of $68.4 million increased by $7.5 million or 12.3%, compared to $60.9 million for the prior year comparable period. Gross margin as a percentage of sales was 28.0% as compared to 30.8% in the prior year period, a decrease of 278 basis points, primarily due to increases in certain manufacturing input costs and distribution costs and the timing of insurance proceeds in the prior year. Operating expenses of $34.8 million for the quarter increased $6.4 million from the prior year comparable quarter, primarily due to incremental expenses and amortization from the Kappa and Bergstrom acquisitions, and an increase in outside services, partially offset by a reduction in compensation-related costs. Excluding non-cash operating expenses associated with amortization of intangible assets of $7.3 million, operating expenses were $27.5 million, or 11.3% of sales. Interest expenses were $3.6 million and $0.6 million in the third quarter of 2022 and 2021, respectively. Our effective tax rates for the three months ended September 30, 2022 and 2021 were 18.8% and 22.0%, respectively. The decrease in the effective tax rate from the prior year was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions. For the quarter ended September 30, 2022, cash flows provided by operating activities were $41.6 million, and free cash flow was $26.8 million. The $226.0 million of net working capital on September 30, 2022 included a cash balance of $56.5 million, which reflects repayments of the revolving loan of $41.0 million, and capital expenditures and intangible assets acquired of $15.0 million. Ted Harris said, “I am very pleased with how the Balchem team continues to manage through the current market conditions, and how we have shown resilience and the ability to deliver strong results, even in challenging times. We remain excited about our future and our ability to provide solutions for the health and nutritional needs of the world while acting as strong stewards of all of our stakeholders.” Quarterly Conference Call A quarterly conference call will be held on Friday, November 4, 2022, at 11:00 AM Eastern Time (ET) to review third quarter 2022 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, November 18, 2022. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13733850. 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, which reflect Balchem’s expectation or belief concerning future events that involve risks and uncertainties. Balchem can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from Balchem’s expectations, including risks and factors identified in Balchem’s annual report on Form 10-K for the year ended December 31, 2021 and Form 10-Q for the quarterly period ended June 30, 2022. Forward-looking statements are qualified in their entirety by the above cautionary statement. Balchem assumes no duty to update its outlook or other forward-looking statements as of any future date. Contact: Jacqueline Yarmolowicz, Balchem Corporation (Telephone: 845-326-5600) Selected Financial Data (unaudited) ($ in 000’s) Business Segment Net Sales: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $142,655 $111,200 $396,728 $327,187 Animal Nutrition & Health 65,604 56,192 197,546 161,821 Specialty Products 29,641 27,615 99,622 89,645 Other and Unallocated (b) 6,367 2,862 15,931 7,237 Total $244,267 $197,869 $709,827 $585,890 Business Segment Earnings Before Income Taxes: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $20,584 $19,801 $64,592 $58,512 Animal Nutrition & Health 8,036 7,442 26,943 16,059 Specialty Products 7,105 6,455 24,785 23,373 Other and Unallocated (b) (2,100) (1,185) (4,439) (4,263)Interest and other expense (2,540) (428) (3,908) (1,594)Total $31,085 $32,085 $107,973 $92,087 (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 $1,640 and $2,816 for the three and nine months ended September 30, 2022, respectively, and $305 and $1,005 for the three and nine months ended September 30, 2021, respectively (refer to note 4 for descriptions of these charges), and (ii) Unallocated amortization expense of $734 and $2,213 for the three and nine months ended September 30, 2022, respectively, and $604 and $1,812 for the three and nine months ended September 30, 2021, respectively, related to an intangible asset in connection with a company-wide ERP system implementation. Selected Balance Sheet Items (Dollars in thousands) September 30, 2022 December 31, 2021 (unaudited) Cash and Cash Equivalents $56,489 $103,239 Accounts Receivable, net 140,812 117,408 Inventories 139,464 91,058 Derivative Assets 14,540 — Other Current Assets 16,806 10,527 Total Current Assets 368,111 322,232 Property, Plant & Equipment, net 260,008 237,517 Goodwill 749,035 523,949 Intangible Assets with Finite Lives, net 227,323 94,665 Right of Use Assets 13,819 9,288 Other Assets 14,712 11,674 Total Assets $1,633,008 $1,199,325 Current Liabilities $142,085 $143,802 Revolving Loan 462,569 108,569 Deferred Income Taxes 76,771 46,455 Derivative Liabilities — 2,658 Contingent Consideration Liabilities 30,547 — Other Long-Term Obligations 25,114 20,826 Total Liabilities 737,086 322,310 Stockholders' Equity 895,922 877,015 Total Liabilities and Stockholders' Equity $1,633,008 $1,199,325 Balchem Corporation Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net earnings $83,961 $71,155 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 37,958 36,622 Stock compensation expense 9,838 8,809 Other adjustments 912 (2,231)Changes in assets and liabilities (35,788) 1,668 Net cash provided by operating activities 96,881 116,023 Cash flows from investing activities: Cash paid for acquisition, net of cash acquired (365,780) — Capital expenditures and intangible assets acquired (35,793) (22,391)Proceeds from insurance and sale of assets 198 1,272 Purchase of convertible note (150) — Net cash used in investing activities (401,525) (21,119) Cash flows from financing activities: Proceeds from revolving loan 435,000 5,000 Principal payments on revolving loan (81,000) (60,000)Principal payments on acquired debt (30,782) — Cash paid for financing costs (1,232) — Principal payments on finance lease (125) (118)Proceeds from stock options exercised 2,172 6,351 Dividends paid (20,708) (18,704)Purchase of treasury stock (35,245) (18,762) Net cash provided by (used in) financing activities 268,080 (86,233) Effect of exchange rate changes on cash (10,186) (3,229) (Decrease) increase in cash and cash equivalents (46,750) 5,442 Cash and cash equivalents, beginning of period 103,239 84,571 Cash and cash equivalents, end of period $56,489 $90,013 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Reconciliation of adjusted gross margin GAAP gross margin $68,430 $60,934 $211,812 $179,108 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 677 336 1,313 1,164 Adjusted gross margin $70,691 $61,813 $214,709 $184,580 Reconciliation of adjusted earnings from operations GAAP earnings from operations $33,625 $32,513 $111,881 $93,681 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 7,975 6,207 19,840 19,025 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted earnings from operations $44,824 $39,568 $136,121 $118,019 Reconciliation of adjusted net earnings GAAP net earnings $25,249 $25,013 $83,961 $71,155 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 8,097 6,278 20,103 19,237 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts (5) (2,015) — (2,527) — Income tax adjustment (6) (2,168) (2,164) (5,746) (6,886)Adjusted net earnings $32,387 $29,975 $100,191 $88,819 Adjusted net earnings per common share - diluted $1.00 $0.92 $3.09 $2.72 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 nine months ended September 30, 2022 and 2021. Table 2 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income - as reported $25,249 $25,013 $83,961 $71,155 Add back: Provision for income taxes 5,836 7,072 24,012 20,932 Other expense 2,540 428 3,908 1,594 Depreciation and amortization 13,976 12,088 37,696 36,410 EBITDA 47,601 44,601 149,577 130,091 Add back certain items: Non-cash compensation expense related to equity awards 2,949 2,895 9,838 8,809 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted EBITDA $53,774 $48,344 $163,815 $144,213 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 nine months ended September 30, 2022 and 2021. Table 3 (unaudited) Three Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $5,836 18.8% $7,072 22.0%Impact of ASU 2016-09 (7) 214 491 Adjusted Income Tax Expense $6,050 19.5% $7,563 23.6% Nine Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $24,012 22.2% $20,932 22.7%Impact of ASU 2016-09 (7) 714 1,031 Adjusted Income Tax Expense $24,726 22.9% $21,963 23.9% The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months ended September 30, 2022 and 2021. Table 4 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net cash provided by operating activities $41,620 $39,634 $96,881 $116,023 Capital expenditures and capitalized ERP implementation costs (14,841) (8,559) (35,021) (22,106)Free cash flow $26,779 $31,075 $61,860 $93,917 (1) Expense related to a flash flood event: Expenses related to a flash flood event at our Verona, Missouri manufacturing site are expensed in our GAAP financial statements. We believe that excluding these costs from our non-GAAP financial measures is useful to investors because such expense is inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (2) 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. (3) 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. (4) Transaction and integration costs, ERP implementation costs and unallocated legal fees: Transaction and integration costs related to acquisitions and divestitures are expensed in our GAAP financial statements. ERP implementation costs related to a company-wide ERP system implementation 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 each transaction and are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (5) Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts: The unrealized foreign currency gain relates to the contingent consideration liability recorded in connection with Kappa acquisition and was recorded as other income in our GAAP financial statements. The net realized gain on foreign currency exchange forward contracts relates 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 nine months ended September 30, 2022 and 2021, 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.
MONTVALE, N.J., Nov. 04, 2022 (GLOBE NEWSWIRE) -- Balchem Corporation (NASDAQ: BCPC) reported today third quarter net earnings of $25.2 million for 2022, compared to net earnings of $25.0 million for the third quarter 2021, adjusted net earnings(a) of $32.4 million, compared to $30.0 million in the prior year quarter, and adjusted EBITDA(a) of $53.8 million, compared to $48.3 million in the prior year quarter. Third Quarter 2022 Financial Highlights: Net sales were $244.3 million, an increase of $46.4 million, or 23.4%, compared to the prior year quarter, with sales growth in all three segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Adjusted EBITDA was $53.8 million, an increase of $5.4 million, or 11.2%, from the prior year. GAAP net earnings were $25.2 million, an increase of $0.2 million, or 0.9% from the prior year. These net earnings resulted in GAAP earnings per share of $0.78. Adjusted net earnings were $32.4 million, an increase of $2.4 million or 8.0% from the prior year. These adjusted net earnings resulted in adjusted earnings per share(a) of $1.00. The effective tax rate of 18.8% was 327 basis points lower than the prior year tax rate of 22.0%. Cash flows from operations were $41.6 million for the third quarter 2022, with quarterly free cash flow(a) of $26.8 million. Recent Highlights: On August 30, 2022, we completed the acquisition of Cardinal Associates Inc. and its Bergstrom Nutrition business (collectively, "Bergstrom"), a leading science-based manufacturer of methylsulfonylmethane (MSM), based in Vancouver, Washington. MSM is a widely used ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health. Bergstrom's MSM brand "OptiMSM®" delivers the highest quality and purity MSM on the market and is the only brand of MSM with a U.S. GRAS "generally regarded as safe" designation. Balchem's VitaCholine® brand recently won NutraIngredients USA's prestigious Nutra Award for Ingredient of the Year - Cognitive Function. VitaCholine® is the premier source of choline, an essential nutrient that supports cognition and brain development in children. A clinical study recently published by Cornell University researchers showed significant brain benefits for babies born to mothers who received higher levels of supplemental choline during pregnancy. We made repayments on our revolving debt in the third quarter of $41.0 million. Net debt was $406.1 million, with an overall leverage ratio on a net debt basis of 1.9. Ted Harris, Chairman, President and CEO of Balchem said, “The third quarter of 2022 was another solid growth quarter for Balchem as we delivered both sales and earnings growth year over year in an increasingly challenging macro-economic environment. Additionally, we were very pleased to have further accelerated our strategic initiatives, highlighted by the acquisition of Bergstrom. This acquisition adds to our science based health and nutrition product offering for our Human Nutrition and Health segment and our Animal Nutrition and Health segment, and is synergistic with our existing organic growth platforms.” Mr. Harris added, “I would like to take this opportunity to thank all of our employees for their contributions to our strong performance and for their continued dedication and focus on driving results in a unique and challenging market environment, while also welcoming once again the Bergstrom team to Balchem." Results for Period Ended September 30, 2022 (unaudited) (Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Net sales $244,267 $197,869 $709,827 $585,890Gross margin 68,430 60,934 211,812 179,108Operating expenses 34,805 28,421 99,931 85,427Earnings from operations 33,625 32,513 111,881 93,681Other expense 2,540 428 3,908 1,594Earnings before income tax expense 31,085 32,085 107,973 92,087Income tax expense 5,836 7,072 24,012 20,932Net earnings $25,249 $25,013 $83,961 $71,155 Diluted net earnings per common share $0.78 $0.77 $2.59 $2.18 Adjusted EBITDA(a) $53,774 $48,344 $163,815 $144,213Adjusted net earnings(a) $32,387 $29,975 $100,191 $88,819Adjusted net earnings per common share(a) $1.00 $0.92 $3.09 $2.72 Shares used in the calculations of diluted and adjusted net earnings per common share 32,367 32,644 32,392 32,651 (a)See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures. Financial Results for the Third Quarter of 2022: The Human Nutrition & Health segment generated quarterly sales of $142.7 million, an increase of $31.5 million or 28.3% compared to the prior year quarter. The increase was primarily driven by sales growth within food and beverage markets, the contribution from recent acquisitions, as well as sales growth within the minerals and nutrients business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $20.6 million increased $0.8 million or 4.0% compared to $19.8 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by higher manufacturing input costs, higher amortization and operating expenses related to the recent acquisitions, and the timing of an insurance reimbursement received in the prior year. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $4.0 million and $4.3 million for the third quarter of 2022 and 2021, respectively, additional amortization of intangible assets of $2.1 million and inventory valuation adjustments of $1.5 million related to acquisitions for the third quarter of 2022, and the expense related to the flash flood event of $0.2 million for the third quarter of 2021, adjusted earnings from operations(a) for this segment were $28.2 million, compared to $24.3 million in the prior year quarter, a 16.1% increase year over year. The Animal Nutrition & Health segment generated quarterly sales of $65.6 million, an increase of $9.4 million or 16.7% compared to the prior year quarter. The increase was the result of higher sales in both monogastric and ruminant species markets, the contribution from the recent acquisition of Bergstrom which included a small Animal Nutrition business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates. Third quarter earnings from operations for this segment of $8.0 million increased $0.6 million or 8.0% compared to $7.4 million in the prior year quarter, primarily due to the aforementioned higher sales and higher average selling prices, partially offset by increases in manufacturing input costs and distribution costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $0.1 million and $0.2 million for the third quarter of 2022 and 2021, respectively, and the expense related to the flash flood event of $0.3 million for the third quarter of 2021, third quarter adjusted earnings from operations for this segment were $8.2 million compared to $7.8 million in the prior year quarter, an increase of 4.7% year over year. The Specialty Products segment generated quarterly sales of $29.6 million, an increase of $2.0 million or 7.3% compared to the prior year quarter, due to higher sales of products in the performance gases business, partially offset by lower plant nutrition sales, and an unfavorable impact related to changes in foreign currency exchange rates. Earnings from operations for this segment were $7.1 million, compared to $6.5 million in the prior year comparable quarter, an increase of $0.7 million or 10.1%, primarily due to the aforementioned higher sales, partially offset by increases in manufacturing input costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets for the third quarter of 2022 and 2021 of $1.0 million and $1.2 million, respectively, adjusted earnings from operations for this segment were $8.1 million, compared to $7.7 million in the prior year quarter, an increase of 5.8% year over year. Consolidated gross margin for the quarter ended September 30, 2022 of $68.4 million increased by $7.5 million or 12.3%, compared to $60.9 million for the prior year comparable period. Gross margin as a percentage of sales was 28.0% as compared to 30.8% in the prior year period, a decrease of 278 basis points, primarily due to increases in certain manufacturing input costs and distribution costs and the timing of insurance proceeds in the prior year. Operating expenses of $34.8 million for the quarter increased $6.4 million from the prior year comparable quarter, primarily due to incremental expenses and amortization from the Kappa and Bergstrom acquisitions, and an increase in outside services, partially offset by a reduction in compensation-related costs. Excluding non-cash operating expenses associated with amortization of intangible assets of $7.3 million, operating expenses were $27.5 million, or 11.3% of sales. Interest expenses were $3.6 million and $0.6 million in the third quarter of 2022 and 2021, respectively. Our effective tax rates for the three months ended September 30, 2022 and 2021 were 18.8% and 22.0%, respectively. The decrease in the effective tax rate from the prior year was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions. For the quarter ended September 30, 2022, cash flows provided by operating activities were $41.6 million, and free cash flow was $26.8 million. The $226.0 million of net working capital on September 30, 2022 included a cash balance of $56.5 million, which reflects repayments of the revolving loan of $41.0 million, and capital expenditures and intangible assets acquired of $15.0 million. Ted Harris said, “I am very pleased with how the Balchem team continues to manage through the current market conditions, and how we have shown resilience and the ability to deliver strong results, even in challenging times. We remain excited about our future and our ability to provide solutions for the health and nutritional needs of the world while acting as strong stewards of all of our stakeholders.” Quarterly Conference Call A quarterly conference call will be held on Friday, November 4, 2022, at 11:00 AM Eastern Time (ET) to review third quarter 2022 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, November 18, 2022. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13733850. 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, which reflect Balchem’s expectation or belief concerning future events that involve risks and uncertainties. Balchem can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from Balchem’s expectations, including risks and factors identified in Balchem’s annual report on Form 10-K for the year ended December 31, 2021 and Form 10-Q for the quarterly period ended June 30, 2022. Forward-looking statements are qualified in their entirety by the above cautionary statement. Balchem assumes no duty to update its outlook or other forward-looking statements as of any future date. Contact: Jacqueline Yarmolowicz, Balchem Corporation (Telephone: 845-326-5600) Selected Financial Data (unaudited) ($ in 000’s) Business Segment Net Sales: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $142,655 $111,200 $396,728 $327,187 Animal Nutrition & Health 65,604 56,192 197,546 161,821 Specialty Products 29,641 27,615 99,622 89,645 Other and Unallocated (b) 6,367 2,862 15,931 7,237 Total $244,267 $197,869 $709,827 $585,890 Business Segment Earnings Before Income Taxes: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Human Nutrition & Health $20,584 $19,801 $64,592 $58,512 Animal Nutrition & Health 8,036 7,442 26,943 16,059 Specialty Products 7,105 6,455 24,785 23,373 Other and Unallocated (b) (2,100) (1,185) (4,439) (4,263)Interest and other expense (2,540) (428) (3,908) (1,594)Total $31,085 $32,085 $107,973 $92,087 (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 $1,640 and $2,816 for the three and nine months ended September 30, 2022, respectively, and $305 and $1,005 for the three and nine months ended September 30, 2021, respectively (refer to note 4 for descriptions of these charges), and (ii) Unallocated amortization expense of $734 and $2,213 for the three and nine months ended September 30, 2022, respectively, and $604 and $1,812 for the three and nine months ended September 30, 2021, respectively, related to an intangible asset in connection with a company-wide ERP system implementation. Selected Balance Sheet Items (Dollars in thousands) September 30, 2022 December 31, 2021 (unaudited) Cash and Cash Equivalents $56,489 $103,239 Accounts Receivable, net 140,812 117,408 Inventories 139,464 91,058 Derivative Assets 14,540 — Other Current Assets 16,806 10,527 Total Current Assets 368,111 322,232 Property, Plant & Equipment, net 260,008 237,517 Goodwill 749,035 523,949 Intangible Assets with Finite Lives, net 227,323 94,665 Right of Use Assets 13,819 9,288 Other Assets 14,712 11,674 Total Assets $1,633,008 $1,199,325 Current Liabilities $142,085 $143,802 Revolving Loan 462,569 108,569 Deferred Income Taxes 76,771 46,455 Derivative Liabilities — 2,658 Contingent Consideration Liabilities 30,547 — Other Long-Term Obligations 25,114 20,826 Total Liabilities 737,086 322,310 Stockholders' Equity 895,922 877,015 Total Liabilities and Stockholders' Equity $1,633,008 $1,199,325 Balchem Corporation Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net earnings $83,961 $71,155 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 37,958 36,622 Stock compensation expense 9,838 8,809 Other adjustments 912 (2,231)Changes in assets and liabilities (35,788) 1,668 Net cash provided by operating activities 96,881 116,023 Cash flows from investing activities: Cash paid for acquisition, net of cash acquired (365,780) — Capital expenditures and intangible assets acquired (35,793) (22,391)Proceeds from insurance and sale of assets 198 1,272 Purchase of convertible note (150) — Net cash used in investing activities (401,525) (21,119) Cash flows from financing activities: Proceeds from revolving loan 435,000 5,000 Principal payments on revolving loan (81,000) (60,000)Principal payments on acquired debt (30,782) — Cash paid for financing costs (1,232) — Principal payments on finance lease (125) (118)Proceeds from stock options exercised 2,172 6,351 Dividends paid (20,708) (18,704)Purchase of treasury stock (35,245) (18,762) Net cash provided by (used in) financing activities 268,080 (86,233) Effect of exchange rate changes on cash (10,186) (3,229) (Decrease) increase in cash and cash equivalents (46,750) 5,442 Cash and cash equivalents, beginning of period 103,239 84,571 Cash and cash equivalents, end of period $56,489 $90,013 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Reconciliation of adjusted gross margin GAAP gross margin $68,430 $60,934 $211,812 $179,108 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 677 336 1,313 1,164 Adjusted gross margin $70,691 $61,813 $214,709 $184,580 Reconciliation of adjusted earnings from operations GAAP earnings from operations $33,625 $32,513 $111,881 $93,681 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 7,975 6,207 19,840 19,025 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted earnings from operations $44,824 $39,568 $136,121 $118,019 Reconciliation of adjusted net earnings GAAP net earnings $25,249 $25,013 $83,961 $71,155 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Amortization of intangible assets and finance lease (3) 8,097 6,278 20,103 19,237 Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts (5) (2,015) — (2,527) — Income tax adjustment (6) (2,168) (2,164) (5,746) (6,886)Adjusted net earnings $32,387 $29,975 $100,191 $88,819 Adjusted net earnings per common share - diluted $1.00 $0.92 $3.09 $2.72 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 nine months ended September 30, 2022 and 2021. Table 2 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income - as reported $25,249 $25,013 $83,961 $71,155 Add back: Provision for income taxes 5,836 7,072 24,012 20,932 Other expense 2,540 428 3,908 1,594 Depreciation and amortization 13,976 12,088 37,696 36,410 EBITDA 47,601 44,601 149,577 130,091 Add back certain items: Non-cash compensation expense related to equity awards 2,949 2,895 9,838 8,809 Expense related to a flash flood event (1) — 543 — 4,308 Inventory valuation adjustment (2) 1,584 — 1,584 — Transaction and integration costs, ERP implementation costs, and unallocated legal fees (4) 1,640 305 2,816 1,005 Adjusted EBITDA $53,774 $48,344 $163,815 $144,213 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 nine months ended September 30, 2022 and 2021. Table 3 (unaudited) Three Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $5,836 18.8% $7,072 22.0%Impact of ASU 2016-09 (7) 214 491 Adjusted Income Tax Expense $6,050 19.5% $7,563 23.6% Nine Months Ended September 30, 2022 Effective Tax Rate 2021 Effective Tax RateGAAP Income Tax Expense $24,012 22.2% $20,932 22.7%Impact of ASU 2016-09 (7) 714 1,031 Adjusted Income Tax Expense $24,726 22.9% $21,963 23.9% The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months ended September 30, 2022 and 2021. Table 4 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net cash provided by operating activities $41,620 $39,634 $96,881 $116,023 Capital expenditures and capitalized ERP implementation costs (14,841) (8,559) (35,021) (22,106)Free cash flow $26,779 $31,075 $61,860 $93,917 (1) Expense related to a flash flood event: Expenses related to a flash flood event at our Verona, Missouri manufacturing site are expensed in our GAAP financial statements. We believe that excluding these costs from our non-GAAP financial measures is useful to investors because such expense is inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (2) 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. (3) 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. (4) Transaction and integration costs, ERP implementation costs and unallocated legal fees: Transaction and integration costs related to acquisitions and divestitures are expensed in our GAAP financial statements. ERP implementation costs related to a company-wide ERP system implementation 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 each transaction and are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult. (5) Unrealized foreign currency gain on contingent consideration liability and net realized gain on foreign currency forward contracts: The unrealized foreign currency gain relates to the contingent consideration liability recorded in connection with Kappa acquisition and was recorded as other income in our GAAP financial statements. The net realized gain on foreign currency exchange forward contracts relates 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 nine months ended September 30, 2022 and 2021, 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.
