Balchem Corporation

Greetings and welcome to Baucham Corporation fourth quarter 2021 financial results. 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, 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 Balcombe Corporation for the quarter ending December 31st, 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 Balcombe'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 Balcombe'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, our Chairman, CEO, and President.

Thanks, Martin. Good morning and welcome to our conference call. Before I get into the quarter, I would like to reflect for a few minutes on some of the significant accomplishments the Valchem team achieved over the past year. Overall, 2021 was another very strong year for Valchem. Financially, we grew 13.6% and achieved record sales of $799 million. with year-over-year growth and record sales in all three of our business segments. We also delivered record adjusted net earnings of $116.6 million, an increase of 8.2%, and record adjusted EBITDA of $189.8 million, an increase of 8.9% from the prior year. In addition, we once again generated strong free cash flow delivering $124.4 million of free cash flow in 2021, an all-time record, while at the same time investing $36.1 million in capital projects to support our continued growth. And we delivered these strong record results while maneuvering our way through all of the challenges of the pandemic and the subsequent supply chain and inflationary pressures that we faced throughout much of the year. It was a team effort and a job incredibly well done by our employees, our partners, and all of our stakeholders who supported us and contributed to our success throughout a difficult and challenging year. Thank you to all of them. Strategically, we had a very good year as well. We made significant progress throughout the year across all of our business segments in advancing the science behind our products. and we capped off the year with another publication from the groundbreaking research at Cornell University on the cognitive benefits of maternal choline intake. We are very pleased to report that the research published in a peer-reviewed journal last December confirms that pregnant women who took more than twice the recommended dose of choline during pregnancy had children that demonstrated statistically significant cognitive benefits which were sustained through early childhood. This study was a follow up to the original Cornell findings published in 2018, demonstrating that higher doses of choline during pregnancy led to improved cognitive performance in infant offspring. This new paper now highlights that cognitive improvements were both significant and enduring in those same children at age seven. More specifically, The seven-year-old children of the high maternal choline intake group had superior overall sustained attention scores and superior ability to maintain correct signal detection throughout the testing regimen compared to the other kids whose performance suffered as the testing progressed. Both of these findings were statistically significant. We are excited by the outcome of this very important paper and ongoing analysis of the research data also points to additional enduring cognitive benefits in children that will be the subject of future publications. We are mobilizing omnichannel marketing promotions to highlight the benefits of viticholine in the prenatal segment and working to activate a consumer education campaign aimed at driving awareness and benefits of viticholine for pregnant moms. We are proud to support groundbreaking science like this with world-class researchers who are exploring the breadth and depth of choline benefits throughout the human and animal life cycles. We also continue to bring new products to the market as well and are pleased that our new product development metric that measures the percent of sales coming from products commercialized over the last five years and which really measures the vitality of our product portfolio once again was close to 28 percent showing that we are indeed bringing new innovation to the market with one of the best examples of this being AminoSure XM, our highly engineered rumen protected methionine product that continues to make significant inroads in the market with over 50 percent year-over-year growth once again in 2021. Additionally, We made important and significant new investments in plant and equipment in 2021, resulting in significant capacity additions for our human choline chloride and choline bitartrate product lines, our animal encapsulates, our human encapsulates, and our plant nutrition chelated minerals product line, with the latter two's additional capacity being added in EMEA for the first time, which will alleviate supply chain constraints and facilitate geographic expansion and growth in the coming years. From a corporate perspective, we have now fully completed our project to consolidate seven ERP systems into one, Microsoft Dynamics 365. With the final site go live occurring in the fourth quarter, we now have 100% of our revenues on the new system. We are extremely pleased with the completion of this project that was delivered on budget and on time. This initiative was critical for the continued growth and operational efficiency of the company and we are very pleased to move from focusing on implementation to realization of the many benefits of being on one integrated system across the entire company. We also made significant progress in 2021 relating to the company's efforts to advance our environmental, social and governance or ESG initiatives. Valchem released its third sustainability report in 2021 in which we announced our 2030 goals to reduce both greenhouse gas emissions and water usage by 25%. The report details many of the ways We are advancing our environmental, social, and governance initiatives across the organization in alignment with widely accepted ESG reporting frameworks. Earlier in the year, we proudly signed the CEO Action for Diversity and Inclusion Pledge as a further commitment to advance diversity and inclusion within our workplace. We also celebrated the one-year anniversary of our commitment to the UN Global Compact confirming our alignment with the 10 principles on human rights, labor, the environment, and anti-corruption. Recently, as a result of our efforts, Valchem was named one of America's most responsible companies by Newsweek Magazine for the second consecutive year. These efforts are fully integrated into our business strategy, and we will continue to support our commitment to operating responsibly, and creating a sustainable future for our customers, suppliers, employees, communities and shareholders. We continue to take many other important steps and have made significant progress in our continuous improvement journey relative to our corporate social responsibilities and the achievement of our higher purpose of making the world a healthier place. Additionally, I was very pleased that our Board of Directors added Ms. Cathy Fish to our company's board in June of 2021. Ms. Fish formerly was the Chief Research Development and Innovation Officer at the Procter & Gamble Company, so she brings to the Balcombe Board importance, new product development, and direct-to-consumer experience, along with her international business acumen and ability to build a growth culture. We are very pleased to have Kathy on our board and she will undoubtedly make significant contributions to our growth over the years to come. And lastly, in December, we announced another increase to our annual dividend, taking the dividend from 58 to 64 cents per share, a 10.3% increase year over year. This most recent increase marked the 12th consecutive year of double digit growth of our dividend which once again reinforced our commitment to our long-standing dividend strategy. All in all, another strong year for BALCAM both financially and strategically, and we look forward to continuing our momentum into 2022 and beyond. Now, regarding the fourth quarter of 2021, this morning we reported strong fourth quarter results. Our revenues of $213.1 million were up 17.9% on 8% organic volume growth, and our adjusted earnings from operations were $37.7 million, up 4.4% versus the prior year quarter. Our net income of $24.9 million, an increase of 12.6%, resulted in earnings per share of 76 cents on a GAAP basis. On an adjusted basis, our third quarter non-GAAP net earnings were $27.8 million, an increase of 3.5% resulting in earnings per share of 85 cents on a non-GAAP basis. And we continued to deliver strong cash flows Cash flows from operations were $44.5 million for the fourth quarter, with quarterly free cash flow of $30.5 million. 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.