Balchem Corporation

Welcome to Valchem Corporation's second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Martin Bengtsson, Chief Financial Officer. Thank you. You may begin.

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Valcom Corporation for the quarter ending June 30th, 2021. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, CEO, and President. Following the advice of our counsel, auditors, and the SEC at this time, I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements. which reflect Balkem's expectation or belief concerning future events that involve risks and uncertainties. We 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 our expectations, including risks and factors identified in Balkem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. I will now turn the call over to Ted Harris, Chairman, CEO, and President.

Thanks, Martin. Good morning and welcome to our conference call. This morning, we reported strong second quarter results with record sales in all three of our business segments, solid consolidated earnings growth and strong free cash flow. Our revenues of $202.4 million were up 16.7% and our adjusted earnings from operations were $41.1 million and up 14.6% versus the prior year quarter. Our second quarter net income of $22.7 million, an increase of 7.6%, resulted in earnings per share of 70 cents on a GAAP basis. On an adjusted basis, our second quarter non-GAAP net earnings were $30.4 million, an increase of 10.3%, resulting in earnings per share of 93 cents on a non-GAAP basis. And we continue to deliver strong cash flows. Cash flows from operations were $35.8 million for the second quarter of 2021 with quarterly free cash flow of $28.4 million. Before passing the call back to Martin to cover the detailed financial results, I would like to update you on a few items. In May, Our Verona, Missouri plant experienced a flash flood as a result of very localized storms in the southwest part of the state. The plant was shut down for several weeks as we repaired affected equipment, cleaned the site, and safely restarted activities. All three of our business segments provide products and services out of the Verona, Missouri site, so each of the segments was affected by the temporary site shutdown to a varying degree. The negative direct financial impact to the quarter was approximately $3.8 million, primarily due to the write-off of damaged inventory and the costs associated with external service providers used for the cleanup efforts. We also expect an additional spend of approximately $1.5 million to impact the third quarter. Customer requirements were largely satisfied through inventory on hand and by leveraging alternate and redundant manufacturing capabilities across our supply chain. The manufacturing site is now fully operational and all activities are functioning normally. As part of our enterprise risk management plan, we have extensive insurance coverage to help mitigate the impact of such an event. Our deductible in this particular case is $2 million and we believe at this point All of the remaining costs should be fully recovered in subsequent quarters from our insurance coverage. While the flash flood was a very unfortunate event, it highlighted the value of our enterprise risk management plan and the benefits of preparedness for such an event as well as the risk mitigation strategies implemented in advance of the event such as our insurance coverage but also the redundant manufacturing capabilities we have for many of our products and services I would like to once again thank the Balchem team for their incredible teamwork during and after the event that enabled us to get back up and running safely in a relatively short amount of time with minimal disruption to our customers. Moving on to a different topic, I am very excited to share that in June, Balchem's Board of Directors elected Ms. Kathy Fish to fill a vacancy on the board. Ms. Fish recently retired from the position of Chief Research Development and Innovation Officer at the Procter & Gamble Company. Over a long career at P&G, Kathy held various roles within the research and development function of increasing responsibility before leading the global function from 2014 to 2020. Kathy brings to the BALCAM Board important new product development and direct-to-consumer expertise, along with her international business acumen and experience in driving a growth culture. Kathy will serve on the Corporate Governance and Nominating Committee, and we are very pleased with her addition to our Board of Directors. As mentioned on our last earnings call, in April, we released our third sustainability report. We have, for the first time, published our 2030 goals to reduce both greenhouse gas emissions and water usage by 25%. These are significant and important goals that further our commitment to operate with excellence as strong stewards of our stakeholders while providing innovative solutions for the health and nutritional needs of the world. Lastly, despite numerous challenges to manage in the overall macroeconomic environment at the moment and discrete challenges in the quarter related to the flash flood event at a Verona, Missouri manufacturing facility, We achieved solid second quarter results, which highlights the strength and resilience of our business model. As was also mentioned on our last earnings call, while the significantly higher raw material and freight costs we are facing are not differentially impacting Valchem, we continue to dedicate significant resources to various mitigating activities to effectively manage through these very significant challenges. I am now going to turn the call back over to Martin to go through the detailed consolidated financial results for the company and the results for each of our business segments.