Balchem Corporation

Greetings and welcome to the Valchem Corporation fourth quarter 2022 financial results 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Martin Bengtsson, Chief Financial Officer for Valchem. Thank you. You may begin.

Thank you Melissa and good morning everyone and just for clarity this is the first quarter conference call and not the fourth quarter. So thank you everyone for joining our conference call this morning to discuss the results of Balcon Corporation for the quarter ending March 31st, 2022. 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 council, auditors, and the FCC 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 Baucham'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 Baucham'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. This morning we reported very strong first quarter results with strong revenue and earnings growth. Our revenues of $228.9 million were up 23.3% and our adjusted earnings from operations were Our first quarter net income of $28.9 million, an increase of 23.6%, resulted in earnings per share of 89 cents on a GAAP basis. On an adjusted basis, our first quarter non-GAAP net earnings were $33.4 million, or One dollar and three cents per share, an increase of 17.3%. Cash from operations was $7 million for the first quarter of 2022. Overall, a great start to 2022 with performance that highlights the strength and resilience of our business model, particularly given the inflationary and supply chain challenges the markets have been facing. The demand for our products remains strong. and servicing this demand through these macroeconomic and geopolitical challenges is a top priority. Before passing the call back to Martin to cover the detailed financial results by segment, I would like to spend some additional time talking about the extraordinary inflationary and supply chain challenges our company is currently facing and some of the actions we have been taking to address the challenges. The macroeconomic and geopolitical environment that we are working within today is truly unprecedented. We are experiencing significant supply chain disruptions in the form of raw material shortages, logistics delays, long lead times on parts and equipment, and of course, significant inflationary pressures on most, if not all, of our input costs. In the first quarter of 2022, we experienced year-over-year inflation of approximately $28 million, and subsequently from the fourth quarter of last year, another $9 million of inflationary headwinds. While it is obviously very difficult to predict what will transpire moving forward, given all of the current market volatility, We expect inflationary headwinds to continue at least through the next few quarters. We are pleased with the pricing actions we have taken thus far and believe ultimately that we will be able to recapture the majority of these higher costs over time. In many areas we have moved from annual or quarterly pricing actions to taking monthly and even weekly in some cases pricing actions to add increased flexibility for us to respond to changes in our input costs. This is a dynamic environment and we have needed increased pricing flexibility to respond accordingly. And we were pleased to have realized margin improvement in Q1 of 2022 sequentially versus Q4 of 2021 based on our pricing actions. We have yet to see material demand destruction as a result of the cost increases that we have passed on to date. Our customers are in turn raising prices. We are working closely with our customers to together combat these inflationary challenges and we will continue to do so while watching demand indicators closely. While price is a critical response lever to offset the inflationary pressures we are facing, We're also working hard throughout our supply chain to address the broader supply chain challenges. As you know, our company is primarily a North American focused company with approximately 78% of our revenues coming from products sold in North America with the overwhelming majority near 90% of those North American sales coming from products manufactured in North America with raw materials sourced in North America. While we aspire to become more international over time, this aspect to our business has been and will continue to be helpful as we manage these global supply chain challenges. When and where possible, we are actively working to build inventories of both finished goods and raw materials to build buffer, qualifying alternate suppliers to expand sources of key raw materials partnering with third-party logistics providers to ensure dedicated service for certain routes and adding new production capacity like we have done for our plant nutrition and food encapsulation businesses to add both needed capacity but also supply chain redundancy. We are pleased with our response to these challenges to date and certainly the performance of the company in this environment. but it is a challenging operating environment and we remain prudently cautious about our outlook for the coming quarters from a supply chain disruption and inflationary pressure perspective. Once again, the demand for our products remains strong and servicing this demand through these macroeconomic and geopolitical challenges is a top priority. And before I hand the call back over to Martin, I would like to let you know that last week on Earth Day, We released our 2021 sustainability report, which captures the company's commitment to managing our environmental, social, and governance performance. Valchem's sustainability initiatives are fully integrated into our business strategies and are critical to our vision of making the world a healthier place. We have taken meaningful steps toward advancing diversity, inclusion, and belonging at Valchem and remain committed to fostering a diverse and inclusive culture in which everyone feels welcomed, valued and appreciated while inspiring our external stakeholders to share our vision. Our sustainability report demonstrates the company's continuing promise to provide our employees, customers, shareholders and the communities within which we operate with information on Valchem's sustainability initiatives and include their progress on our 2030 goals and strategies for both emissions and water usage reduction by 25%. I would encourage you to go to valchem.com to read the report to get a broader perspective on all of the great work we are doing. And with that, I will now turn the call back over to Martin to go through the detailed results for each of our segments.