Balchem Corporation

Greetings and welcome to Balchem's first quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. A brief 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 Bankston, Chief Financial Officer. Thank you, Martin. You may begin.

Thank you, and good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balkan Corporation for the quarter ending March 31st, 2023. My name's Martin Benson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President, and CEO. Following the advice of our counsel, auditors, and the SEC at this time, I would like to read our forward-looking statement. Statement made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Valken's most recent Form 10-K, 10-Q, and 8-K reports. The company assumes no obligation to update these forward-looking statements. Today's call and commentary include non-GAAP financial measures, Please refer to the reconciliation in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman and President and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. This morning, we reported our first quarter financial results with record first quarter revenues of $233 million, which were up 1.6% versus the prior year's very strong quarterly results. These higher sales drove higher adjusted earnings from operations of $45 million, which were up 1.2% versus the prior year quarter. Our record first quarter adjusted EBITDA of $56 million was $3 million higher, an increase of 4.8% versus the $54 million achieved in the prior year. An adjusted EBITDA margin was 24.1% of sales, up 73 basis points from the prior year results. Our first quarter net income of $23 million, a decrease of 21.5%, resulted in earnings per share of 70 cents on a GAAP basis. On an adjusted basis, our first quarter non-GAAP net earnings were $31 million, a decrease of 8.3%, resulting in earnings per share of 94 cents on a non-GAAP basis. Cash flows from operations were $35 million for the first quarter of 2023, an increase of 396% versus the first quarter of 2022, with quarterly free cash flow of $25 million. Overall, another solid quarter for Balcam with performance that highlights the strength and resilience of our business model in a challenging market environment. Before passing the call back to Martin to cover more detailed financial results, I would like to make a few comments about the overall market environment and what we are seeing, provide a brief update on our progress around sustainability as reviewed in our recently published 2022 sustainability report, and also highlight some exciting progress around their commercial and science activities. The current market environment continues to be quite challenging with a high degree of uncertainty. As discussed on earlier calls, we experienced beef stocking in the latter part of 2022 and the early part of 2023, with customers adjusting their inventory levels down as supply chains became more reliable and the demand outlook became more uncertain. There is still a high degree of uncertainty around which direction the broader economy will go, and we are seeing higher-than-normal volatility in order patterns as customers are not really sure what level of future demand they are planning for, and perspectives change frequently. From a Valchem perspective, I am pleased with how we have managed through this dynamic environment. Our market positions and value propositions in the various markets we serve have enabled us to maneuver through these volatile times quite well. While our first quarter revenues were relatively flat compared to the fourth quarter of 2022, we grew our gross margins and earnings from operations sequentially. While it is hard for us to predict the timing of when the markets will truly normalize and reset for continued growth, We do believe they will improve in the second half of the year, and we believe we are well positioned to benefit when that time comes. Just a few days ago, we published our 2022 sustainability report, which captures the company's commitment to managing our environmental, social, and governance performance. BALCAM's sustainability initiatives are fully integrated into our business strategy and are critical to our vision of making the world a healthier place. We took meaningful steps toward advancing diversity, equity, inclusion, and belonging at Dalkin 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. A sustainability report demonstrates the company's continuing promise to provide our employees, customers, shareholders, and the communities within which we operate with information on Balchem's sustainability initiatives and includes our progress on our 2030 goals and strategies for both greenhouse gas emissions and water withdrawal reduction. In 2022, we exceeded our 2030 greenhouse gas emissions reduction goal and achieved a combined scope one and scope two greenhouse gas reduction of 27% versus the year before. This puts us in a good position to execute on our strategic growth plans and achieve our 2030 25% absolute reduction target. Additionally, Falcon consumes slightly less than 4 million cubic meters of water in 2022, a level 1% below our 2020 baseline and 5% below our 2021 result. As we work to implement intensive water reuse, and recycling projects, we are also implementing other efficiency improvements. We are pleased to see a trend of improvement in our absolute water withdrawal results from these initiatives. The combination of these planned efficiencies and significant changes in our use of processed water will ensure that we will meet or exceed our 2030 goal. I would encourage you to go to balchem.com to read the recently published report to get a broader perspective on all of the great work we are doing. Turning our attention to our commercial and science activities for a few minutes. Within our human nutrition and health segment, we were excited to recently launch our K2 Vital MCT as USDA organic certified. We are proud to say that it is the first certified organic vitamin K2 MK7 solution on the U.S. market, meeting the ever-rising need for organic products and further differentiating Balchem in the marketplace. Additionally, in support of our Albion-branded chelated iron mineral product, in February, the pooled data from nine randomized controlled trials in over 1,100 pregnant women was published in a systematic review and meta-analysis and showed that supplementation The ferrous bisglycinate, including Balchem's Ferrocal, which was cited in some of the trials, resulted in significantly higher hemoglobin results than all other iron salts, while reducing GI side effects by nearly 69%. This is an exciting study that will provide further support for our efforts to drive increased market penetration with our market-leading chelated minerals. Valchem currently has 16 clinical studies that are active, as well as half a dozen studies in various stages of protocol development. Most of the studies are being conducted by independent, world-class investigators in the United States, Europe, and Africa. This is a significant increase in not only the number of studies being supported by our human nutrition science team, but also the scope. During the first quarter of 2023, the animal nutrition and health segment also continued to advance our strategic priorities with significant progress being made across several areas of the business. Valchem presented the results of three seminal research studies supporting the use of Reassure, our market leading rumen protected choline, during several key first quarter dairy industry events. The research was completed at the Universities of Florida, Wisconsin, and Michigan State, demonstrating the consistent milk production and immunological benefit of feeding Reassure, as well as the benefit to the young calf for mothers supplemented with Coley. This research continues to support our value proposition for Reassure as a required nutrient for all cows, no matter their production level or health status. Additionally, we recently learned that four scientific abstracts supporting research recently completed on our ruminant encapsulated products would be accepted for a presentation at the upcoming American Dairy Science Association annual meeting in Ottawa, Canada. These presentations will help to demonstrate the superiority of our timed release functionality in products such as Nitrosure, our precision-released urea, offering a unique advantage for dairy cows to optimize rumen function and efficiency. And lastly, in our pet or companion business, we are recently pleased to learn that a recent study highlighting our PetShare encapsulated acids had been accepted and published in the esteemed Journal of Food Production. This research further validated the position that PetShare encapsulated acids help to reduce the microbial exposure in raw meat-based diets, especially salmonella, when mixed into the formulation along with other additives. This research is some of the first of its kind to demonstrate such strong antimicrobial effects across time due to the unique nature of our encapsulation timed release products. So good progress being made in both our human nutrition and health and animal nutrition and health business segments. building the science behind our products, and helping to ultimately drive further market penetration. And with that, I will now turn the call back over to Martin to go through the detailed financial results.