BALCHEM CORP

Previous 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.

Current wording

As of September 30, 2024, we employed approximately 1,300 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 and six months ended June 30, 2024 and 2023:

Current wording

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three and nine months ended September 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 $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.

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 $223 and $795 for the three and nine months ended September 30, 2024, respectively, and $384 and $1,600 for the three and nine months ended September 30, 2023, respectively, and (ii) Unallocated amortization expense of $0 and $0 for the three and nine months ended September 30, 2024, respectively, and $0 and $312 for the three and nine months ended September 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 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%.

Current wording

•The increase in net sales within the Human Nutrition & Health segment for the third quarter of 2024 as compared to the third quarter of 2023 was primarily driven by higher sales within both the minerals and nutrients business and the food and beverage markets. Total sales for this segment grew 5.4%, with volume and mix contributing 4.7%, average selling prices contributing 0.6%, 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 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%.

Current wording

•The decrease in net sales within the Animal Nutrition & Health segment for the third quarter of 2024 compared to the third quarter of 2023 was driven by lower sales in the monogastric species markets, partially offset by higher sales in the ruminant species markets. Total sales for this segment decreased by 1.9%, with average selling prices contributing -5.3%, the change in foreign currency exchange rates contributing 0.2%, and volume and mix contributing 3.2%.

Previous wording

•The increase in net sales within the Specialty Products segment for the second quarter of 2024 compared to the second quarter of 2023 was primarily due to higher sales in the performance gases business. Total sales for this segment increased by 7.2%, with volume and mix contributing 4.2%, average selling prices contributing 3.4%, and the change in foreign currency exchange rates contributing -0.4%.

Current wording

•The increase in net sales within the Specialty Products segment for the third quarter of 2024 compared to the third quarter of 2023 was due to higher sales in both the performance gases business and the plant nutrition business. Total sales for this segment increased by 10.6%, with volume and mix contributing 6.5%, average selling prices contributing 3.7%, and the change in foreign currency exchange rates contributing 0.4%.

Previous wording

•Sales relating to Other decreased slightly from the prior year primarily due to lower average selling prices, partially offset by higher volumes.

Current wording

•Sales relating to Other increased slightly from the prior year primarily due to higher volumes and mix, partially offset by lower average selling prices.

Previous 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.

Current wording

Gross margin dollars increased in the third quarter of 2024 compared to the third quarter of 2023 due to higher sales and a favorable mix.

Previous wording

The increase in operating expenses in the six months ended June 30, 2024 as compared to 2023 was primarily due the impact of favorable adjustments to transaction costs in the prior year of $6,400 and an increase in compensation-related costs of $3,426, partially offset by the impact of restructuring-related impairment charges in the prior year of $6,146.

Current wording

The increase in operating expenses in the third quarter of 2024 compared to the third quarter of 2023 was primarily due to an increase in compensation-related costs of $3,836 and an increase in transaction costs of $3,339, partially offset by a decrease in amortization expense of $3,168.

Previous wording

•Human Nutrition & Health segment earnings from operations increased $5,868 primarily due to the gross margin contribution of $8,163. The increase in gross margin was primarily due to the aforementioned higher sales, a favorable mix, and certain lower manufacturing input costs. This was partially offset by an increase in operating expenses of $2,295 due to the impact of favorable adjustments to transaction costs in the prior year of $6,328, partially offset by the impact of restructuring-related impairment charges in the prior year of $4,549.

Current wording

•Human Nutrition & Health segment earnings from operations increased $4,303 primarily due to the gross margin contribution of $5,786. The increase in gross margin was primarily due to the aforementioned higher sales and a favorable mix. This was partially offset by an increase in operating expenses of $1,484 due to the impact of favorable adjustments to transaction costs in the prior year of $2,800 and higher compensation-related costs of $1,882, partially offset by a decrease in amortization expense of $3,121.

Previous wording

•The increase in Other and unallocated was primarily driven by a decrease in unallocated corporate expenses, partially offset by a decrease in gross margin.

Current wording

•The decrease in Other and unallocated was primarily driven by a decrease in gross margin.

Previous wording

Interest expense for the three months ended June 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The decrease in interest expense is due to lower outstanding borrowings, partially offset by higher interest rates.

Current wording

Interest expense for the three months ended September 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The decrease in net interest expense is due to lower outstanding borrowings.

Previous wording

•The increase in net sales within the Human Nutrition & Health segment for the six months ended June 30, 2024 as compared to 2023 was primarily driven by higher sales within the minerals and nutrients business. Total sales for this segment grew 12.1%, with volume and mix contributing 10.6% and average selling prices contributing 1.5%.

Current wording

•The increase in net sales within the Human Nutrition & Health segment for the nine months ended September 30, 2024 as compared to 2023 was primarily driven by higher sales within the minerals and nutrients business. Total sales for this segment grew 9.7%, with volume and mix contributing 8.6% and average selling prices contributing 1.2%.

Previous wording

•The decrease in net sales within the Animal Nutrition & Health segment for the six months ended June 30, 2024 as compared to 2023 was driven by lower sales in both the monogastric and ruminant species markets. Total sales for this segment decreased by 18.0%, with volume and mix contributing -9.7%, average selling prices contributing -8.2%, 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 nine months ended September 30, 2024 as compared to 2023 was driven by lower sales in both the monogastric and ruminant species markets. Total sales for this segment decreased by 13.2%, with average selling prices contributing -7.4% and volume and mix contributing -5.9%.

Previous 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%.

Current wording

•The increase in net sales within the Specialty Products segment for the nine months ended September 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 5.2%, with average selling prices contributing 3.7% and volume and mix contributing 1.5%.

Previous wording

•Sales relating to Other decreased from the prior year due to lower demand.

Current wording

•Sales relating to Other decreased from the prior year due to lower average selling prices.

Previous wording

Gross margin dollars increased in the six months ended June 30, 2024 as compared to 2023 due to higher sales and a decrease in cost of goods sold of $4,041. The 1.3% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Current wording

Gross margin dollars increased in the nine months ended September 30, 2024 as compared to 2023 due to higher sales, a favorable mix and a decrease in cost of goods sold of $2,866. The 0.6% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Previous wording

•Animal Nutrition & Health segment earnings from operations decreased $4,969 primarily due to a decrease in gross margin of $4,453. The decrease in gross margin was primarily due to the aforementioned lower sales, partially offset by certain lower manufacturing input costs.

Current wording

•Animal Nutrition & Health segment earnings from operations decreased $13,948 primarily due to a decrease in gross margin of $12,313. The decrease in gross margin was primarily due to the aforementioned lower sales and unfavorable mix, partially offset by certain lower manufacturing input costs.

Previous 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.

Current wording

•Specialty Products segment earnings from operations increased $3,959 primarily due to an increase in gross margin of $7,152. The increase in gross margin was primarily due to the aforementioned higher sales and certain lower manufacturing input costs. This was partially offset by an increase in operating expenses of $3,193 mainly due to higher compensation-related costs.

Previous wording

Interest expense for the six months ended June 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The decrease in interest expense is due to lower outstanding borrowings, partially offset by higher interest rates.

Current wording

Interest expense for the nine months ended September 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The decrease in net interest expense is due to lower outstanding borrowings.

Previous 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.

Current wording

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

Previous 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.

Current wording

During the nine months ended September 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 $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.

Current wording

Cash and cash equivalents increased to $73,694 at September 30, 2024 from $64,447 at December 31, 2023. At September 30, 2024, the Company had $71,878 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 $216,549 at September 30, 2024 as compared to $165,751 at December 31, 2023, an increase of $50,798. Significant cash payments during the nine months ended September 30, 2024 included net repayments on the revolving loan of $82,569, income taxes paid of $31,575, the payment of the 2023 declared dividend in 2024 of $25,572, and capital expenditures and intangible assets acquired of $22,936.

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 $13,788 and $17,880 for the six months ended June 30, 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 $22,936 and $26,177 for the nine months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

During 2024, we borrowed $26,000 under the 2022 Credit Agreement and made total loan payments of $108,569, resulting in $323,000 available under the 2022 Credit Agreement (see Note 7, Revolving Loan) as of September 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 3,139,300 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.

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 3,140,215 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 $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.

Current wording

Proceeds from stock options exercised were $15,084 and $3,888 for the nine months ended September 30, 2024 and 2023, respectively. Dividend payments were $25,572 and $22,872 for the nine months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

As of September 30, 2024 and December 31, 2023, we have a liability of $4,825 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 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.

Current wording

We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 14, Employee Benefit Plans. The liabilities recorded in "Other long-term obligations" on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 were $1,381 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 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.

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 this obligation on our balance sheets as of September 30, 2024 and December 31, 2023 was $405 and $420, respectively, and was 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 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.

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 and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability as of September 30, 2024 and December 31, 2023 was $11,432 and $10,188, respectively, and was included in "Other long-term obligations" on the condensed consolidated balance sheets. The related rabbi trust assets were $11,429 and $10,188 as of September 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 six months ended June 30, 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 nine months ended September 30, 2024.

Previous 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.

Current wording

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