Balchem Corporation

Greetings and welcome to the Ball Chem third quarter earnings call. At this time, all participants are in 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 you to your host, Martin Benson, CFO. Thank you, Martin. You may begin.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Valchem Corporation for the quarter ending September 30th, 2023. My name is 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. Statements made in today's calls 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 Balkan'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, President, and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. This morning, we reported solid third quarter financial results with strong margins and higher profitability year over year, despite softer sales volumes. Our revenues of $230 million were down 5.9% versus the prior year's very strong quarterly results. It is worth noting that the prior year's quarter was Valchem's strongest revenue quarter in its history, and as such, a challenging comparable from a revenue perspective. Gross margin grew 11.9 percent, and we expanded our gross margin percentage by 530 basis points to 33.3 percent. Earnings from operations of $44 million were up 29.7 percent versus the prior year quarter. And we delivered a record quarterly adjusted EBITDA of $60 million, an increase of 11.4 percent with an adjusted EBITDA margin of 26 percent of sales, up 400 basis points from the prior year. Our third quarter net income of $29 million, an increase of 15.2 percent, resulted in earnings per share of 90 cents on a GAAP basis. On an adjusted basis, our third quarter non-GAAP net earnings of $34 million, an increase of 4.3 percent resulted in earnings per share of $1.04 on a non-GAAP basis. Cash flows from operations were $47 million for the third quarter of 2023, with record quarterly free cash flow of $38 million. Overall, another solid quarter for Balchem, with performance that highlights the strength and resilience of our business model in a market environment that continues to be challenging. Before passing the call back to Martin to cover the financial results in more detail, I would like to take a few minutes to talk about the broader market conditions within which we are operating today, as well as update you on some of our key strategic initiatives. The global macroeconomic situation and the dynamics within our markets remain quite challenging. And while the destocking we experienced late last year and in the early part of this year is largely behind us, our customers are adjusting to changing consumer buying behaviors as a result of inflationary pressures on consumer spending, as well as the high level of uncertainty around the overall macroeconomic and geopolitical environment. While it is hard for us to predict the timing of when the broader markets will truly normalize and reset for continued growth, We do believe the underlying fundamentals of the market we serve will continue to allow for growth over time and that we are well positioned with our portfolio of products and solutions to deliver above market growth over the long term. We are pleased to report that our strategic initiatives in the human nutrition and health or H&H segment are progressing well. One area of focus is on increasing consumer awareness and driving market penetration through enhanced marketing and communication efforts. To begin, we have laid a strong marketing foundation to help build awareness and to make our ingredients more appealing to end consumers. This includes strengthening our brand positioning and modernizing and unifying our H&H portfolio's identity for brands such as Albion Minerals, Vitacoline, K2 Vital, and Opti MSM. Our goal is to expand brand recognition, enhance our premium positioning, and create consumer awareness campaigns that resonate with our target audience. Additionally, we have formed a new partnership with the American Nutrition Association, or ANA, to drive growth through increased consumer awareness. In 2024, ANA and Balchem will launch campaigns to educate consumers about the health benefits of choline, an underappreciated nutrient. This partnership will involve creating evidence-based content to effectively communicate our shared goals. We believe that this collaboration with ANA, a nonprofit organization that promotes personalized nutrition, will complement our existing marketing initiatives and help expand the market size of choline. Ensuring quality and transparency in the supplement market is another key priority for us. We have implemented initiatives such as True Quality for K2 Vital and TRAX for Albion Minerals to demonstrate our commitment to excellence. These programs involve partnering with selected customers, retailers, and analytical labs to ensure that the supplements available in the market meet the highest quality standards either by identifying and removing counterfeited products from the market or via improving the quality of the current formulations to further enhance stability and consumer benefits. These efforts build trust in our product brands. Furthermore, we are focused on accelerating the cross-selling of our H&H portfolio. At the recent Supply Side West trade show in Las Vegas, we showcased innovative nutritional concepts that leverage our portfolio of minerals, nutrients, and food ingredients. By combining these elements, we aim to create synergies across categories in supplements, food, and beverages. For example, the combination of Albion chelated minerals and K2 Vital Delta offers manufacturers a competitive advantage by providing a patented and stable vitamin K2 formulation in the presence of minerals like magnesium, which is in high demand in the market. In addition to our marketing efforts, we continue to prioritize scientific research for our specialty nutrients. A recent study on Upti MSM, our premium organic sulfur compound known for its unmatched purity, safety, and consistency, demonstrated significant improvements in hair density and diameter. This study adds further support to the value proposition of Balchem's Opti-MSM brand, which is widely used in products promoting healthy aging, joint support, and hair, skin, and nail care. Within our animal nutrition and health segment, we are proud to announce the publication of three new papers from a study conducted by Dr. Heather White's laboratory at the University of Wisconsin. These papers add to the experience the existing body of research that highlights the benefits of feeding reassure to transition dairy cows, cows that are transitioning from their dry period through calving to the period where they are producing milk, by providing data showing that feeding reassure helps to not only enhance milk production, but also improve offspring health and growth. This research further strengthens the value proposition of Valchem's market-leading rumen-protected choline, making it a recommended choice for all transition dairy cows, regardless of their health status or production level. Overall, we are making significant progress on our strategic initiatives, and we remain committed to driving consumer awareness, expanding market penetration, and delivering high-quality products in both the human nutrition and health and animal nutrition and health segments. In the quarter, we also continue to advance our sustainability efforts and make progress on our higher purpose of making the world a healthier place. As reported on previous calls, over the last several years, we have achieved noteworthy year-over-year reductions in both our Scope 1 and Scope 2 greenhouse gas emissions. In the third quarter of this year, we were very proud to have successfully completed our first-ever public disclosure to CDP climate. This milestone in our sustainability journey underscores our commitment to transparency. We are preparing to report our scope three emissions in 2024 alongside our scope one and two emissions that we have been reporting for a number of years. Additionally, in the quarter, Valchem's board of directors was very pleased to elect two new board members to the board of directors to replace two long tenured board members who retired from the BALCAM Board after reaching our mandatory retirement age. Olivier Rigaud, Chief Executive Officer of Corbion NB, a global food and biochemicals company based in the Netherlands, and Monica Vicente, Senior Vice President and Chief Financial Officer of Fresh Del Monte Produce Inc., a global agricultural and fresh food produce company based in the United States, were elected to the Board on September 6th. Mr. Rigaud and Ms. Vicente each bring relevant market experience and expertise and strong global business acumen to the board. We are excited to have them both on the BALCAM board and look forward to their contributions over the years to come. And with that, I will now turn the call back over to Martin to go through the financial results in more detail.