Earnings call transcript Q2 2023

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Operator

Greetings and welcome to Balchem's Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Martin Bengtsson, Chief Financial Officer. you. Thank

begin. may You

Martin Bengtsson

Martin Thank our discuss joining Corporation the June me name quarter everyone. hosting Officer this call President this for conference and morning ending with is My XXXX. to results Ted XXth, Chief you morning, Financial our and Harris, for is call the Bengtsson, Chairman, Good of Balchem CEO.

call counsel, to that at this made would like read Following are forward-looking statements. SEC, in not considered the time, are the today's advice historical facts auditors and of Statements our our statements. forward-looking I

give recent We including to expectations, in various differ prove assurance factors can statements and most our from risks no reflected and that the correct, results materially forward-looking factors expectations The financial measures. earnings could identified refer in actual cause XX-Q no statements. release Balchem's will details. X-K assumes for forward-looking these reconciliation XX-K, obligation Please non-GAAP calls update and and include further our Today's reports. Company to the commentary to Form in

will CEO. call I and Chairman, over Harris, our now to President Ted the turn

Ted Harris

Good morning and call. Martin. our to conference welcome Thanks,

quarter This results we second sales higher financial despite solid reported and with improved volumes. profitability year-over-year morning, margins softer

margin $XXX expanded XXX strong X.X% year's down million quarterly to of XX.X%. And points our basis X.X%. versus prior results. the revenues Our gross were margin by Gross grew we very percentage

of a Earnings up the prior adjusted from and sales, delivered EBITDA points prior-year quarterly from record operations XX.X% an X.X% we of was $XX And adjusted increase million $XX were basis the up X.X% year. EBITDA quarter. versus XXX of of margin million,

share resulted were the share earnings $X.XX quarter $X.XX on non-GAAP basis, in of of On our net per income $XX second of a per in prior on net $XX an an of basis. million, of quarter million earnings resulting with second X.X%, adjusted increase basis. year, flat Our a non-GAAP GAAP earnings

a Balchem second free million. with cash another solid for XXXX flow were for from to quarter million of quarter Overall, continues the be and our environment highlights the flows strength Cash $XX model that of operations challenging. resilience of market in performance $XX that with quarterly business

call environment more I the The market back we quite market make would about overall and passing be Before environment Martin financial continues to seeing. of a what degree with detailed few like the current challenging are a to results, to comments to uncertainty. cover high

believe post-pandemic easing supply chain We that behind the are destocking constraints now broad-based that the followed activities us. largely of

supply given markets in we However, customers' macroeconomic certain efforts from a of cases, as market demand end chains uncertainty, and their result some impact are experiencing customers, to environment. their prolonged in a across inventories our overall reduce the

for do we such in to are While very will positioned certain our comes. as timing year within benefit predict of when it able minerals through to believe reset markets times truly business. been is to broader The markets and starting are we and well well. as time team see has human nutrients Balchem volatile as And these maneuver we progresses when that now gradually for hard normalize the they the the continued will us to improve growth,

with that this XXXX, While sequentially percent experienced. we the and given relatively recapture reported operations am able we results morning. second quarter first overall pressures were was, last I some grow to our as of gross to compared revenues the our started gross from years, inflationary margin pleased extreme year-over-year the and of we quarter few the earnings to margins financial over flat very our were

in years our this add we focus challenging market through support to manufacturing businesses. to has the strategic Balchem our of growth the environment, team also effectively strategic capacity advance over continue of few initiatives. One While manages area last growth been

as on discussed for well capacity business manufacturing we nutrition microencapsulation our business. added have recently plant previous calls, we as As our

earlier release brand food QX, choline to press nutritional dietary our for the human we of mechanically were toddler, leading for unit a essential in this highlighted and supplement in applications. experiencing infant, we as to as VitaCholine, adult have new formulas, and nutrition Balchem's beverage well we pleased morning manufacturing growth the worldwide are nutrient completed fortification in As support and

and as to be capacity growth the our year. continue growth by essential potential for fully excited the is manufacturing The the long-term for end We should about unit facilitate penetration new this nutrient. come. increases operational And being significant to grows and market currently years VitaCholine expanded awareness for of commissioned be will

it particularly years on founders on the had live old. the beginning. a commercializing of He lastly, vision longstanding legacy Herb there the Balchem company on Balchem. passed XX Dr. evening. those His And on next Dr. was note, Weiss a the He that And XX personal shareholders microencapsulation food very build one using the was years focused away to will is his ingredients like Weiss Balchem forever everyone, on call today. what then at microencapsulated very inform technologies. spent he of helping build original life to to into in would patented I Wednesday three of

call I through to Martin detailed with go over And that, the will now back turn financial results. the to

Martin Bengtsson

Thank you, Ted.

the earnings margin As mentioned, of margin, XXXX Also, adjusted from EBITDA the well comparable. and rate context operations, inflationary was the positioned encouraging are quarter see pressures we that quarter from strong second performance very the gross benefit solid Balchem, ease. strong for first as and shows particularly another to in as to overall, was of the half

demand our as be segments. volatile sales broad-based a first net than across recovery the end were yet to more quarter second lower market Our prior X.X% essentially we're to and see to and $XXX million continued quarter the year sequentially has of quarter flat

our quarter. had our primarily our acquisitions contributed impact recent of a the foreign impact euro, currency $XX approximately to million. on million from sales second from favorable by Sales And driven $X.X the stronger exchange

prior gross million the up quarter were second of compared year. Our dollars X.X% or million to margin $XX $X

the improvement in driven sales XX.X% a quarter, primarily points to was of was percent prior margin XX.X% basis The in XXX by input higher up gross and costs year. the favorable margins prices, lower Our in mix. compared

saw sequentially operating quarter significant expenses in $XX $XX the margin to in million improvement gross the were second we Consolidated compared XX.X% XX.X% rate to year. prior million the for as XXXX. a is QX, The

incremental and increase due to Kappa amortization was related primarily and expenses to the The Bergstrom acquisitions.

compared well of for year as increase transaction earnings were by the As $XX quarter. million operations to restructuring-related second charges million, or offset favorable partially from quarter prior adjustments impairment costs. an GAAP X.X% to $X the

year. of adjusted $X above million were to Adjusted compared the quarter up detailed of On million or release $XX this as increase XXXX. million Interest operations our the $XX higher earnings quarter compared is rate second in of was was $X environment. expense expense million, the by increase acquisitions an interest X.X% non-GAAP interest This X.X% for both driven year and the quarter. basis, EBITDA the an million from XXXX in debt earnings morning, significantly the second prior level prior increased our to $X following of

pay We $XXX leverage XX.X% XX.X% second our benefits certain from lower rates debt. net million due higher tax for cash by our flows were of the The debt debt the tax reduced quarter overall on we ended taxes compensation. tax net decrease with to in continue XXXX use rate was And a debt The second down to with the state and million XXXX respectively. the to quarter an of stock-based solid $XX ratio and X.X basis Company's effective times. and quarters and of effective primarily in

closed income $XX net from Consolidated the the quarter up million, X.X% at prior year.

of an translated net per increase income $X.XX compared $X.XX, share of earnings net quarterly year. diluted into to prior This

per $X.XX Our million second share. net earnings quarter were adjusted or at diluted flat $XX

Cash of flows $XX flows we were $XX $XX an flow continue from earnings million. balance operations were year-to-date from the million, or cash. And with million $XX our to increase the on XX.X% of of an cash And into we quarter million closed or was cash a translate $XX million XX.X%. basis, $XX million, free On sheet. cash as increase operations out

prior the at we Health business. and year. segment sales sales quarter the for and Human & driven a $XXX X.X% quarter nutrients the from recent the increase Nutrition The contribution minerals beverage increase As million, markets our acquisitions, lower generated by an offset segment the within of by from second and partially of was look perspective, from food

Health segment million, quarterly prior an delivered of from the earnings of compared & $XX XX% operations Nutrition to increase Human year. Our

This higher operating by was partially driven by expenses. the aforementioned costs, higher sales offset and manufacturing lower input

quarter adjusted or were million Second for from this XX.X%. $XX segment operations of increase earnings million, $X an

softness are We our volatility Nutrition Health continuing overall to Human segment. market and & experience demand in

ingredients as earlier, several and patterns quarter were while more the to minerals and quarters volatile mentioned the pleased business return As of stabilization quite the business shows see after volatility normal throughout quarter. order food signs to we nutrients remained progressed, significant a of Ted the

to XXXX to for will we progresses, to will year the a Sequentially growth. as that stabilization, lead segment to believe X.X%. sales Human return broader-based ultimately Health which to first the continue We quarter & were of up start Nutrition see compared Balchem's a

Animal year, million, the segment higher the year, increase $XX by by lower driven markets, sales Health & lower of of partially to in compared sales Health sales the manufacturing volumes. of delivered input decrease million, and prices by $X to prior higher & earnings costs, operations from sales primarily Nutrition a Our X% a ruminant offset decrease prior selling generated partially quarterly of Animal Nutrition in X% average offset an from in species monogastric markets. due

million, from a we adjusted is Animal of quarter & operations demand Second this segment decrease Health our X.X%. discussed increased Europe. $X Nutrition Similar earnings particularly volatility segment and in softness, what were in QX earnings call, our to for experiencing

animal challenging in stabilizing direct we costs European XXXX, last which a with we relatively experienced at but we lower the will strong The Hopefully, as feed market see and to some and softness, it demand is European contrast markets remains feed disinflation, in this continues energy food very animal year. believe food to market through time progress the some show demand moment. normalization the

volatility. has challenge larger has lately, been While same stable market US Europe and been our not demand type has more anywhere experienced of near the more

quarterly million, to earnings X.X% and costs. by of from partially lower the prior sales manufacturing prices versus Plant Performance Gases Our Nutrition prior Specialty of of the higher compared a lower delivered and input selling both to sales Products of decrease $XX sales driven XX.X% a Specialty volumes operations average businesses. Products in segment the offset decrease year million, due primarily $X delivered by lower year,

volumes material segment benefited control actions X.X%. our higher emissions quarter their this in not taken to operations systems longer and earnings pricing of Performance that fully for as raw to business. than updated regulations. pre-pandemic have the customers anticipation to many of in levels yet upgrade costs yet taken have our But to outages continue have recovered Second Within usual adjusted were reductions a of due Gases we in $XX have Specialty business million, Products, we from margins see decrease sequential

to Plant regards sales the saw With lower United which wet the States impacted the Western by planting negatively driven unusually into Nutrition, we spring, season.

second in normalize. below are volumes great volumes we expectations very While start were Products and the quarter, strong, were position margins in to as in Specialty a

I'll turn the call some closing back for to remarks. Ted over

Ted Harris

Martin. Thanks,

improved earlier and the we continued strength are reported results with particularly, leading the for this of the quarter, facing EBITDA light financial of morning, the record economic marketplace. pleased prior uncertainties the We are the adjusted in solid with performance comparable to in margin year's

challenging We during this economic manage and through environments. of show dynamic elevated resilience market and ability continue to market time to uncertainty

would to the be I market now questions. call markets remain will the long-term a call for in up to current over for Martin, for confident hand as Balchem we continues to our the Martin? environment like the and open who outlook company. growth While back volatile,

Martin Bengtsson

This up point, open will conference conference. the this call the questions. you, formal of At the concludes Thank now we Ted. portion for

Operator

Labick question. question the Bob first of with from proceed your comes Our Securities. Instructions] with line Please [Operator CJS

Bob Labick

Good to morning. margins Congratulations I on quarter. in the very start. strong wanted

earlier. a to little You deeper. wanted highlighted this I dig

that a impact expansion. through talk Or And in mentioned runs it's looking impacting the adds? bit capacity initially should the about think will it more we little underutilized? depreciation there I takes fill Maybe like manufacturing business ahead? how the guess to a once the VitaCholine You unit how about it Can P&L P&L capacity? as long be you

Ted Harris

Yes.

in start forth. all, the it end that of fact are first product for just the we by year. I'll with midst fully and this now be and approvals should the up of mechanically new manufacturing the really so customer of running unit So we're excited And the getting has that been complete,

It VitaCholine. essentially capacity doubles for our

of increased the more with with our of limits, We over our up out been pleased getting few have a bumping we've - been been the kind against done years plant, overall. existing has the efficiencies last really out job the assets restricting good demand of but been of have and growth capacity getting it

do fully that really capacity, some satisfy it out And up fill in to be demand. got the But to four the fully. so doubling fact we've time time. or But not really given plant to next capacity, for it we're great to is frees have years, it certainly, take our five that plans worried But to about capacity. the going really will us every doubling by

$XX investment million. was about The overall

so chime really kind But like burden should material from will of But through and we impact perspective. And additional the be Martin there. growth as the my pretty you kind let can to think not depreciation well. that the be of P&L financial easily able absorb on the in feel I'll

Martin Bengtsson

out kind also expect, also, coming And are other from depreciation I obviously standpoint, And you of that out off. into based on a to impact I future not as we going have with is what's change would depreciation coming coming in look model out. agree timing the while of a parts there's material depreciation the as you as as have and or what's that.

Bob Labick

then just are you when adding the CapEx capacity, great. you forward and maybe ROI. how targeted Okay, plans decide discuss going your And

encapsulation done You nutrition now. that mentioned the has

do of next what in targeted you on how agenda? Q your kind CapEx? the the what's the like or in So, returns decide And are on

Martin Bengtsson

Yes.

in strategic organization. we CapEx year refresh the part of and the that with budget as work chain both process through as supply plan both we well As businesses the requirements the And our getting assets, and to there starting to an don't that. getting of you the ideal want into up of up you start utilization get exceed to XX%, high up case, really numbers capacity right, as every

tranche You capacity. plan for need to the of next

in timelines that's eased where bit. circumstances, the to off some on assets under That of being capacity? of expand and planning out said, sold some the how fit work fits out we about Et capacity and strategic really we assets, a high Do sort which that really that approach where with of on the during these pandemic acceleration should a little talked in you what cetera. a and that product are, normal partner? our we saw little past with right the you the we now bit importance lay kind we as squeezed the significant fast of demand the it and Depending and it. network, in, what of of went has But

you the primarily on and As to that is is not there really of recoup bit we return we that it, size from obviously, that need little look look And return perspective, cash specific at flow say. generate a a a at and There right? cash number a investment a to the upfront.

no. it's it's it exceeds If if below, then And X then yes. Okay. it's

the confident do Depends how we fill asset, et little we bit technology, risk to a of how the the the well know of cetera. well on investment, are feeling being sort able in

when the you capital general, in do so you returns high pretty that kind And on are there return organic making what the balance and investments obviously make. the expect is there investments risk we between of a But decision.

a usually pretty it's So decisions. straightforward

Ted Harris

of certainly, sight this we is because the day. I own are of over are certainly But market, that we risk, have line over the into in no-brainer the Bob, highest return that lowest good time time our growth. expansion think the asset investments maybe and we made the in we typically find comment

margins healthy. Our are

able to products. and and in the us And invest in so affords market really products platforms like and we to be after growth go infrastructure the existing the these

Bob Labick

inventory about Appreciate impacted that progressing business, of how HNH? that which I'm in strong you lot in A but that then quarter. the to got helpful HNH I And wondering margins over margin switching And if that. Kappa of of cycle? just in to could back margins was, correction. the normalization? higher believe, Or a general, Has there. Okay. kind on by is normalization then Great. sales talk which impacting terms is very just color how

Ted Harris

Yes.

environment. really to best were So given higher-margin the right. where Obviously, were would an performed favorable quarter normally margins very we results. as growth do organic with price be in But from businesses discipline think perspective, like mix. our We not overall overall be, with the it market strong. really The HNH you're the had it's tended to to pleased And the very, very is. was it a I that good businesses, we

Raw material deflation in controls volume. on is somewhat benefiting spend manufacturing but also our plants lower

yes, company average the profitability than our the in sales Kappa it's Kappa quarter. KX the overall So from average and And is the we a multifaceted. HNH. see to profile are profile The very improvement were profile accretive. higher as pleased margin And of of margin

margin business contributed. and accretive the is So of profile that

wouldn't has normalized. to course business. think and I -- comment true nutrients normalized, and stabilized to acquisition. the would not XXXX we're minerals it while over that We the normalized, that has say the has word say see say since and business the of -- did you of the And quarter really it say about quarter. would overall it Kappa best And would used I I QX for nor was KX the that that was the the KX Kappa I had pleased

Of down. as acquired course, was just turning it market the we

contributing this And nicely to to back not nicely But the we've to we seen up Kappa normalization like and the it that well. as would so overall the the pick to business quite quarter starts see. margins stabilize, results are contributed

Operator

question. next Please with H.C. the Ram comes your proceed Wainwright. from with Selvaraju Our question line of

Ram Selvaraju

long-term the long-term much on taking Kappa regard of little is HNH business the given see But business, this you clarity hit with you VitaCholine Hi. a wanted a as on more on you can how lineup as business, be respect that don't just the line of I the for end curve, product the you terms color looking are particularly of in kinetics been potential ultimately you the With any and the in kind flagship at VitaCholine questions growth its the offer of growth congrats a expect very should fact what really about not upside to normalized us the type to as get it bit my to Thanks at -- sort and after-burners year that we there, performance. expect in for strong if where being on thinking the this normalization you well growth in status to as the product look of of product you is situation the stride earlier, or to XXXX? if inventory whether should totally yet. and we Kappa before mentioned you're turned bottom-line having

Ted Harris

Yes.

take this of to I'll excited potential. continue in we lack Martin, because So a then It VitaCholine is that potential But over about VitaCholine, you One just at has Kappa to color. a believe we And be nutrient. really some the stab essential awareness. of and very questions chime that. underperformed around two special add the years market nutrient of growth. the one there. can On around really

lack of really because awareness. studies, of lack really of Not but

other and so in communication And past, platform if our you and comprehensively about we effectively are, marketing, VitaCholine as on and I've will, portfolio focusing of talked communicating minerals a vitamins. really the for building

three only have more been market to And through some market want believe for to that should that by five it it And journey. a starting But a but the not we penetrating growth. make the awareness strides and already I there of the time. today. And to impact significant is will overall take we're size that bit VitaCholine awareness. achieving starting growth, to of which say, what times we And do is, we double-digit really allow it's believe

And do space. year. order we XX% to need the by we're building liver need awareness this forth. achieve not focused times in building to by at in I'm we we're by of think that's awareness that XX%, satisfied to five until growing in the And be on. to growth. market it three need And and going growing to market do those sorts be it We health so what I a space rates cognitive to

gives you investing there that in hence bit of a feel what for little possible hopefully a think is So why we're and more we capacity.

Relative the that to that like continue we to be into normal going more accelerate to I Kappa, uncertain a will and guess, to in think start some to rest of conditions. I XXXX, see year growth and in going the do products see return I we're would stabilization say KX. really our to although portfolio like our

launch and going the to new progresses. creating team of the working no lot opportunities excited I Kappa more that the a synergistic there's to together question and is the is team have -- that of on. team the certainly realize about coming as we're Balchem start we're that We opportunities. year And think And more

substantially should up be the But should back studies, specialty as larger market into awareness do choline. drive XX% continue more a bit we than XX%, year-over-year as we it few go is the, into today, growth there, similar and we be KX. that Little a type XXXX, to call need be excited we KX need And of about we it, to to think vitamin. but maybe to we

Ram Selvaraju

for that color. thanks Great,

of Just financial these a more Maybe for quick couple Martin. are housekeeping questions.

asked, to the past, about guide meaningfully you've I reported us that going First think rate the speaking, number in most how number this always than was perennially all, as that's of recent corporate should tended forward? higher towards quarter. the effective we Generally for be I thinking a tax

of we range? just XXXX, was XX% in tax expect I wondering or anything more plus has whether an So remainder for rate changed should, the if effective there the

in months repayment you the also repayments expect or the you if debt change quarters sense of pace or give down? pace, where ahead for reported be kind And up you and meaningfully second debt expect quarter Thanks. is what the to then with you can whether respect of of us repayments around to a to

Martin Bengtsson

Ram. you, Thank Yes.

tax items recently, On together beat sort able little the and with team exercise. an is pleased guidance on. developed mentioned. XX% to beat we that that land rate if rate, you through math around call the XX% a you the guess I'm the projects I businesses as you we've do effective so tax tax And and at bit. We been that you of guide and the the do has discrete where paper it normally

we're where you right generating, what we're around based fall et of income So out and cetera, there. kind

then discrete lower that. to items But have in it come been than we effective finding call at

I perspective, think And with know a them. to we'll still I guidance be forward. don't XX%, come that will will those to to I from continue the can't up guide discrete I guarantee continue items what because going

We will certainly do do our best with to be if XX% continue to new we'll But do where that end that. is up sort And just I you able math of sort of you ideas. cautiously optimistic come it. beat before up the you to

in little we On the minus in normal a paid exception million it bit very reasonable the or QX. say way, would kind the that put the quarter. dividend $XX of is for repayment, that to paid level debt I second assume that with we back If QX's. a plus quarter I of

it, excess we call have down to less, cash pay So debt.

not first in be every what capacity we those year. But I say, in here And going we QX, continue have less we So forward. is little lines something a would quarters, the to other should able did unique. along quarter for

Operator

the There Ted Harris further call the like to hand remarks. I'd closing no queue. in are back questions to for

Ted Harris

forward few joining to the In reporting for the September will New support Jefferies well in Conference the you as time. all appreciate really a at in again, our call Great. City your We just September Conference very progress results certainly on XXth. on And out thank Once in today. Thanks, New look as conferences, as QX, we much be we Doug. the your presenting Xth, York meantime, in XXXX well as Wainwright York H.C. October.

those see it. some we'll hopefully, you today. of your again Thank conferences at Appreciate though. time for one So you of

Operator

Ladies and gentlemen, Thank teleconference. this your does you participation. conclude today's for

disconnect lines this day. wonderful at You and may have time a your

Balchem (BCPC) 28 Jul 232023 Q2 Earnings call transcript