Balchem Corporation

Greetings and welcome to Valchem's first quarter 2025 earnings conference call. At this time, all participants are in a listening mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, 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, Warren Bankston, CFO. Thank you. You may begin.

Thank you, Matt. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balcombe Corporation for the quarter ending March 31st, 2025. My name is Martin Bengtsson, 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 also include non-GAAP financial measures Please refer to the reconciliations 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 very pleased with the financial results for the first quarter of 2025, which continued the positive momentum from the strong 2024 performance and kicked off the new year on a very healthy footing. We delivered record first quarter consolidated sales, adjusted EBITDA, and adjusted net earnings with year-over-year sales and earnings growth in all three of our reporting segments. We are pleased that each of our segments performed well with encouraging ongoing recovery in our animal nutrition and health segment. Before we get into more detail on the quarter, I would like to reflect for a few minutes on the global trade environment that is evolving around us. As I mentioned on the last call, we believe we are relatively well positioned to effectively manage through the changing global trade environment. We have several advantages of note, including an intra-region manufacturing and sales model where approximately 85% of the company's sales are manufactured in the same region where they are sold, a global supply chain with little reliance on China, a robust U.S. manufacturing footprint, and at the same time, we have strong free cash flows and a solid balance sheet. We are, however, monitoring the situation very closely given the broad reach and impact U.S. trade policies have on various trade flows and macroeconomic conditions. While this situation is multifaceted, there are three primary areas of impact that we are watching closely. The first is the impact on our raw materials consumed in the U.S. that we procure from outside the U.S. To dimensionalize this area of impact, we import approximately $100 million of raw materials annually into the U.S., with less than 15 million coming from China and approximately 5 million coming from each of Canada and Mexico, and the rest coming from a myriad of countries around the world with little concentration in any one country. Current tariff rates would suggest approximately $20 million of impact to us after exemptions such as the U.S.' 's recognition of the United States-Mexico-Canada Agreement, or USMCA. We believe that we will offset approximately half of this impact by shifting to alternate raw material sources and or production facilities, and the other half will be offset through pricing actions. We will rely on our strong market positions to raise prices where necessary to offset the unmitigated impact of tariffs, just as we effectively did during the post COVID inflationary period that is still in the not too distant rear view mirror. Additionally, over the last few months, we have built extra inventory of many of these imported products in anticipation of this situation. and to provide ample time for us to respond appropriately. The second area of impact focuses on other countries' responses to the U.S. tariffs and the impact those responses could have on our approximately $90 million of exports annually from the U.S. to countries around the world. Today, given current tariffs placed on U.S. goods by those countries, including exemptions like USMCA, The impact is immaterial for Balchem. Our robust multi-country internal manufacturing supply chain benefits us in this situation as we are able to make a number of products both in Europe and the U.S. which we can leverage to the benefit of our customers. The third area of impact is the potential impact on overall demand in our various markets as a result of potential recessionary conditions that may result from prolonged or increased trade disputes. This is obviously a much more difficult picture to clarify, given all of the uncertainties. But Balchem has historically managed relatively well through these kinds of environments, and our expectation is that we will do so once again. At the moment, demand remains relatively healthy across our end markets, as attested by our strong Q1 results. But this situation could change if the current global trade environment worsens significantly. We believe the strength and resilience of our business model will undoubtedly serve us well as we maneuver through the changing global trade environment and uncertainties that are impacting markets today. In summary, based on where things are today, the direct impact on our raw material imports, while impactful, is manageable with our supply chain and pricing actions. Our exports continue at this point essentially unencumbered by the tariff-related responses from other nations, and we remain nimble and flexible to adjust accordingly as market conditions evolve over the coming weeks and months. Now, regarding the first quarter of 2025's financial performance. This morning, we reported record first quarter consolidated revenue of $251 million, which was 4.5% higher than the prior year quarter. Gap earnings from operations for the first quarter were higher by 22.4% versus the prior year. And we delivered record quarterly adjusted EBITDA of $66 million, an increase of 8.9%. with an adjusted EBITDA margin of 26.5%, up 106 basis points from the prior year. Consolidated net income closed the quarter at $37 million, an increase of 27.8%. This quarterly net income translated to diluted net earnings per share of $1.13 on a GAAP basis, up 24 cents or 27% compared to the prior year. On an adjusted basis, our record first quarter adjusted net earnings were $40 million, an increase of 19.2% from the prior year, which translated to $1.22 per diluted share, up 19 cents or 18.4% compared to the prior year. another very strong quarter for Balchem, which, as I said earlier, kicked off the new year on a very healthy footing. I'm now going to turn the call back over to Martin to go through the first quarter consolidated financial results for the company and the results for each of our business segments in more detail.