BALCHEM CORP

Previous wording

We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, pharmaceutical, animal health, medical device sterilization, plant nutrition and industrial markets. Our three reportable segments are strategic businesses that offer products and services to different markets: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated".

Current wording

We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, pharmaceutical, animal health, performance gases, plant nutrition and industrial markets. Our three reportable segments are strategic businesses that offer products and services to different markets: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated".

Previous wording

As of March 31, 2024, we employed approximately 1,301 full time employees worldwide. We are seeing some modest improvement in most relevant labor markets and we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions. In addition, we continue to enhance technology to further optimize productivity and performance.

Current wording

As of June 30, 2024, we employed approximately 1,290 full time employees worldwide. We are seeing some modest improvement in most relevant labor markets and we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions. In addition, we continue to enhance technology to further optimize productivity and performance.

Previous wording

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three months ended March 31, 2024 and 2023:

Current wording

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three and six months ended June 30, 2024 and 2023:

Previous wording

(1) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist of: (i) Transaction and integration costs of $440 and $565 for the three months ended March 31, 2024 and 2023, respectively, and (ii) Unallocated amortization expense of $0 and $312 for the three months ended March 31, 2024 and 2023, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Current wording

(1) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist of: (i) Transaction and integration costs of $132 and $572 for the three and six months ended June 30, 2024, respectively, and $651 and $1,216 for the three and six months ended June 30, 2023, respectively, and (ii) Unallocated amortization expense of $0 and $0 for the three and six months ended June 30, 2024, respectively, and $0 and $312 for the three and six months ended June 30, 2023, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Previous wording

•The increase in net sales within the Human Nutrition & Health segment for the first quarter of 2024 as compared to the first quarter of 2023 was primarily driven by higher sales within the minerals and nutrients business. Total sales for this segment grew 15.1%, with volume and mix contributing 13.7%, average selling prices contributing 1.4%, and the change in foreign currency exchange rates contributing 0.1%.

Current wording

•The increase in net sales within the Human Nutrition & Health segment for the second quarter of 2024 as compared to the second quarter of 2023 was primarily driven by higher sales within the minerals and nutrients business. Total sales for this segment grew 9.0%, with volume and mix contributing 7.6%, average selling prices contributing 1.5%, and the change in foreign currency exchange rates contributing -0.1%.

Previous wording

•The decrease in net sales within the Animal Nutrition & Health segment for the first quarter of 2024 compared to the first quarter of 2023 was driven by lower sales in both the monogastric and ruminant species markets. Total sales for this segment decreased by 16.9%, with average selling prices contributing -9.2%, volume and mix contributing -7.8%, and the change in foreign currency exchange rates contributing 0.1%.

Current wording

•The decrease in net sales within the Animal Nutrition & Health segment for the second quarter of 2024 compared to the second quarter of 2023 was driven by lower sales in both the monogastric and ruminant species markets. Total sales for this segment decreased by 19.2%, with volume and mix contributing -11.7%, average selling prices contributing -7.2%, and the change in foreign currency exchange rates contributing -0.3%.

Previous wording

Gross margin dollars increased in the first quarter of 2024 compared to the first quarter of 2023 due to higher sales and a decrease in cost of goods sold of $1,225. The 0.8% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Current wording

Gross margin dollars increased in the second quarter of 2024 compared to the second quarter of 2023 due to higher sales and a decrease in cost of goods sold of $2,816. The 1.8% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Previous wording

•Human Nutrition & Health segment earnings from operations increased $14,822 primarily due to the gross margin contribution of $15,362. The increased gross margin was primarily due to the aforementioned higher sales and lower manufacturing input costs.

Current wording

•Specialty Products segment earnings from operations increased $1,930 primarily due to the gross margin contribution of $2,507. The increase in gross margin was primarily due to the aforementioned higher sales and certain lower manufacturing input costs.

Previous wording

The lower effective tax rate was primarily due to higher tax benefits from stock-based compensation and certain lower foreign taxes.

Current wording

The higher effective tax rate was primarily due to lower tax benefits from stock-based compensation and certain higher state taxes, partially offset by certain lower foreign taxes.

Previous wording

•The decrease in net sales within the Specialty Products segment for the first quarter of 2024 compared to the first quarter of 2023 was due to lower sales in the plant nutrition business, partially offset by higher sales in the performance gases business. Total sales for this segment decreased by 1.9%, with volume and mix contributing -5.9%, the change in foreign currency exchange rates contributing 0.1%, and average selling prices contributing 3.8%.

Current wording

•The increase in net sales within the Specialty Products segment for the six months ended June 30, 2024 as compared to 2023 was due to higher sales in the performance gases market, partially offset by lower sales in the plant nutrition business. Total sales for this segment increased by 2.7%, with average selling prices contributing 3.6%, the change in foreign currency exchange rates contributing -0.1%, and volume and mix contributing -0.8%.

Previous wording

•Specialty Products segment earnings from operations increased $253. Gross margin increased $1,186 primarily due to lower manufacturing input costs, and was partially offset by an increase in operating expenses.

Current wording

•Specialty Products segment earnings from operations increased $2,183. Gross margin increased $3,692 primarily due to certain lower manufacturing input costs, and was partially offset by an increase in operating expenses.

Previous wording

During the three months ended March 31, 2024, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023. We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments. We are actively pursuing additional acquisition candidates. We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so.

Current wording

During the six months ended June 30, 2024, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023. We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments. We are actively pursuing additional acquisition candidates. We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so.

Previous wording

Cash and cash equivalents decreased to $60,349 at March 31, 2024 from $64,447 at December 31, 2023. At March 31, 2024, the Company had $52,908 of cash and cash equivalents held by foreign subsidiaries. We presently intend to permanently reinvest these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions; therefore, we do not currently expect to repatriate these funds in order to fund U.S. operations or obligations. However, if these funds are needed for U.S. operations, we could be required to pay additional withholding taxes to repatriate these funds. Working capital was $200,434 at March 31, 2024 as compared to $165,751 at December 31, 2023, an increase of $34,683. Significant cash payments during the first quarter of 2024 included payment of the 2023 declared dividend in 2024 of $25,555, net repayments on the revolving loan of $8,000, and capital expenditures and intangible assets acquired of $6,910.

Current wording

Cash and cash equivalents decreased to $63,738 at June 30, 2024 from $64,447 at December 31, 2023. At June 30, 2024, the Company had $58,382 of cash and cash equivalents held by foreign subsidiaries. We presently intend to permanently reinvest these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions; therefore, we do not currently expect to repatriate these funds in order to fund U.S. operations or obligations. However, if these funds are needed for U.S. operations, we could be required to pay additional withholding taxes to repatriate these funds. Working capital was $206,834 at June 30, 2024 as compared to $165,751 at December 31, 2023, an increase of $41,083. Significant cash payments during the first half of 2024 included net repayments on the revolving loan of $43,000, the payment of the 2023 declared dividend in 2024 of $25,568, income taxes paid of $19,140, and capital expenditures and intangible assets acquired of $13,788.

Previous wording

The decrease in cash flows from operating activities was primarily driven by the impact from changes in working capital.

Current wording

The increase in cash flows from operating activities was primarily driven by the increase in net earnings.

Previous wording

We continue to invest in corporate projects, improvements across all production facilities, and intangible assets. Total investments in property, plant and equipment and intangible assets were $6,910 and $9,664 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We continue to invest in corporate projects, improvements across all production facilities, and intangible assets. Total investments in property, plant and equipment and intangible assets were $13,788 and $17,880 for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

During the first quarter of 2024, we borrowed $26,000 to fund the payment of the 2023 dividend and made total loan payments of $34,000, resulting in $248,431 available under the 2022 Credit Agreement (see Note 7, Revolving Loan) as of March 31, 2024.

Current wording

During 2024, we borrowed $26,000 under the 2022 Credit Agreement and made total loan payments of $69,000, resulting in $283,431 available under the 2022 Credit Agreement (see Note 7, Revolving Loan) as of June 30, 2024.

Previous wording

We have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 3,139,228 shares have been purchased. We intend to acquire shares from time to time at prevailing market prices if and to the extent we deem it is advisable to do so based on our assessment of corporate cash flow, market conditions and other factors. Open market repurchases of common stock could be made pursuant to a trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. We also purchase (withhold) shares from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan. Share repurchases are funded with existing cash on hand.

Current wording

We have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 3,139,300 shares have been purchased. We intend to acquire shares from time to time at prevailing market prices if and to the extent we deem it is advisable to do so based on our assessment of corporate cash flow, market conditions and other factors. Open market repurchases of common stock could be made pursuant to a trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. We also purchase (withhold) shares from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan. Share repurchases are funded with existing cash on hand.

Previous wording

Proceeds from stock options exercised were $8,791 and $2,453 for the three months ended March 31, 2024 and 2023, respectively. Dividend payments were $25,555 and $22,867 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Proceeds from stock options exercised were $9,682 and $3,826 for the six months ended June 30, 2024 and 2023, respectively. Dividend payments were $25,568 and $22,869 for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

As of March 31, 2024 and December 31, 2023, we have a liability of $4,708 and $4,650, respectively, for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.

Current wording

As of June 30, 2024 and December 31, 2023, we have a liability of $4,766 and $4,650, respectively, for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.

Previous wording

We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 14, Employee Benefit Plans. The liability recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 was $1,298 and $1,395, respectively, and the plans are not funded. Historical cash payments made under these plans have typically been less than $200 per year. We do not anticipate any changes to the payments made in the current year for the plans.

Current wording

We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 14, Employee Benefit Plans. The liability recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 were $1,336 and $1,395, respectively, and the plans are not funded. Historical cash payments made under these plans have typically been less than $200 per year. We do not anticipate any changes to the payments made in the current year for the plans.

Previous wording

Chemogas has an unfunded defined benefit plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amount recorded for these obligations on our balance sheets as of March 31, 2024 and December 31, 2023 were $400 and $420, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets.

Current wording

Chemogas has an unfunded defined benefit plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amounts recorded for these obligations on our balance sheets as of June 30, 2024 and December 31, 2023 were $393 and $420, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets.

Previous wording

We provide an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees. Assets of the plan are held in a rabbi trust, which are included in "Non-current assets" on the Company's condensed consolidated balance sheet. They are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability as of March 31, 2024 and December 31, 2023 was $10,782 and $10,188, respectively, and is included in "Other long-term obligations" on the condensed consolidated balance sheets. The related rabbi trust assets were $10,789 and $10,188 as of March 31, 2024 and December 31, 2023, respectively, and were included in "Other non-current assets" on the condensed consolidated balance sheets.

Current wording

We provide an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees. Assets of the plan are held in a rabbi trust, which were included in "Non-current assets" on the Company's condensed consolidated balance sheet. They are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability as of June 30, 2024 and December 31, 2023 were $10,965 and $10,188, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets. The related rabbi trust assets were $10,962 and $10,188 as of June 30, 2024 and December 31, 2023, respectively, and were included in "Other non-current assets" on the condensed consolidated balance sheets.

Previous wording

There were no changes to our Significant Accounting Policies, as described in our December 31, 2023 Annual Report on Form 10-K, during the three months ended March 31, 2024.

Current wording

There were no changes to our Significant Accounting Policies, as described in our December 31, 2023 Annual Report on Form 10-K, during the six months ended June 30, 2024.

Previous wording

We were engaged in related party transactions with St. Gabriel CC Company, LLC during the three months ended March 31, 2024. Refer to Note 17, Related Party Transactions.

Current wording

We were engaged in related party transactions with St. Gabriel CC Company, LLC during the three and six months ended June 30, 2024. Refer to Note 17, Related Party Transactions.