Balchem Corporation

Greetings, and welcome to the Valchem Corporation fourth quarter and year-end 2023 earnings conference 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 your host, Martin Bankson, Chief Financial Officer of Balkem Corporation. Thank you, sir. You may begin.

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balkem Corporation for the quarter ending December 31st, 2023. My name is Martin Bankson, 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 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 Balchem'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. We were pleased with the financial results for the fourth quarter of 2023, which capped off another solid year for Balchem. We delivered record fourth quarter adjusted EBITDA and record free cash flow on modestly lower sales in what continues to be a challenging demand environment. I am particularly pleased with our human nutrition and health segment, posting record fourth quarter sales and earnings. Before we get into more detail on the quarter, I would like to reflect for a few minutes on some of the significant accomplishments the Balchem team achieved over the past year. Overall, 2023 was another solid year for Balchem. While full year 2023 net sales were down 2.1%, we delivered record earnings from operations of $159.2 million, an increase of 9.6% and record adjusted EBITDA of $231 million, an increase of 7.1% from the prior year. And we have fully restored our margin profile to more normalized levels following the inflationary pressures we experienced over the last few years. And we also generated record free cash flow, allowing us to further pay down our debt and reduce our leverage ratio on a net debt basis to 1.1 times. We also made good progress on our strategic initiatives. In 2023, we fully integrated the Kappa Bioscience and Bergstrom Nutrition acquisitions that we made in the second half of 2022. The addition of vitamin K2 and methyl sulfonylmethane, or MSM, to our product portfolio is starting to play out as we expected. with our now broader portfolio indeed enhancing our ability to provide a broader array of innovative solutions for the health and nutritional needs of our customers and the world at large. We have shared with you over the course of the year a number of exciting new studies that support the supplementation of our portfolio of minerals, nutrients, and vitamins for both human and animal nutrition. These studies augment existing science and bring new science to light, and they ultimately will support and strengthen our efforts to drive increased awareness and market penetration. I am particularly pleased with the progress we made in 2023 to more effectively market, communicate, and promote the positive results from these studies to both our customers as well as the end consumers. We have clearly enhanced our marketing capabilities to leverage the strong science behind our products so that we can build awareness and ultimately drive penetration. While there's clearly more work to be done here, we are making good progress. Overall, we are very excited about the opportunities that exist with our portfolio of products, and we believe that as the library of science keeps growing and our marketing capabilities continue to be enhanced, the market opportunity for our unique portfolio of products and technologies will grow as well. We're also encouraged by the recent progress by Curemark, the biopharmaceutical company that uses our microencapsulation technology as a delivery system for their unique treatment for autism that is currently in development. In December, their long-term clinical data demonstrating disease disorder modification in maladaptive behaviors in children as young as three years of age with autism spectrum disorder was published. The paper, entitled Pancreatic Replacement Therapy for Maladaptive Behaviors in Preschool Children with Autism Spectrum Disorders, was published in the Journal of the American Medical Association, or JAMA. Despite the protracted timeline of this initiatives, We are encouraged by the progress made over the past year toward reaching the important milestone of filing their biologics license application with FDA, which we believe now will happen in 2024, and we remain excited about the potential for this collaboration. Additionally, we made important investments in plant and equipment in 2023. Of particular note was the completion of our expanded manufacturing facility for vitacoline Valchem's market leading brand of human choline. The expansion and upgrade will increase output by 50% and will allow the company to better meet the rising demand for this essential nutrient, well known in the supplement industry in relation to cognitive, liver, and overall health. We also made significant progress in 2023 relating to the company's corporate social responsibilities. Valchem released its fifth sustainability report in 2023, in which we provided an update on our progress toward our 2030 goals to reduce both greenhouse gas emissions and water usage by 25%. We are extremely pleased to report that we are already tracking ahead of our 2030 goal on greenhouse gas emissions reductions. Valchem's approach remains unchanged as we continue to focus on our two main objectives, providing innovative solutions for the health and nutritional needs of the world, and operating with excellence as strong stewards of our stakeholders. As a result of our efforts, Valchem was once again recently named one of America's most responsible companies by Newsweek magazine for the fourth consecutive year. And lastly, in December, we announced another increase to our annual dividend, taking the dividend from 71 to 79 cents per share, an 11% increase year over year. This most recent increase marked the 15th 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 solid year both financially and strategically for Balchem. Now, Regarding the fourth quarter of 2023, while our revenue of $229 million was down 1.6%, we delivered strong profitability with growth in gross margin, earnings from operations, and net income on expanded margin percentage rates in the quarter. We delivered earnings growth in two of our three reporting segments with the human nutrition and health segment posting record fourth quarter sales and earnings. Our net income of $27 million, an increase of 24.5%, resulted in earnings per share of 82 cents on a gap basis, up 16 cents compared to the prior year. On an adjusted basis, our fourth quarter non-gap net earnings were $31 million, an increase of 1.8%, resulting in earnings per share of 95 cents on a non-GAAP basis. And we continue to deliver strong cash flows, which is a strong reflection of the quality of our earnings. Cash flows from operations were a record $67 million, with record quarterly free cash flow of $56 million for the fourth quarter. I'm now going to turn the call back over to Martin to go through the fourth quarter consolidated financial results for the company and the results for each of our business segments.