Balchem Corporation Reports Record Third Quarter Sales of $175.1 Million, Net Earnings of $21.6 Million, GAAP EPS of $0.66, and Adjusted EPS of $0.83

NEW HAMPTON, N.Y., Oct. 28, 2020 (GLOBE NEWSWIRE) — Balchem Corporation (NASDAQ: BCPC) reported today record third quarter net earnings of $21.6 million for 2020, compared to net earnings of $20.7 million for the third quarter 2019.  Record third quarter adjusted net earnings^(a) were $26.9 million, compared to $26.3 million in the prior year quarter, and all time record adjusted EBITDA^(a) was $44.4 million, compared to $40.4 million in the prior year quarter.
Third Quarter 2020 Financial Highlights:Net sales of $175.1 million, an increase of $16.5 million, or 10.4%, compared to the prior year quarter, with year over year sales growth in Human Nutrition & Health and Animal Nutrition & Health.GAAP net earnings were $21.6 million, an increase of $0.9 million, or 4.3% from the prior year. These net earnings resulted in GAAP earnings per share of $0.66.Adjusted net earnings of $26.9 million increased $0.6 million or 2.3% from the prior year, resulting in adjusted earnings per share^(a) of $0.83.Adjusted EBITDA was $44.4 million, an increase of $4.1 million, or 10.1%, from the prior year.Quarterly cash flows from operations were $35.4 million for the third quarter 2020, with quarterly free cash flow^(a) of $28.3 million.Recent Highlights:Strong cash flows in the third quarter enabled the company to make $25.0 million of repayments of its revolving debt, lowering net debt to $114.6 million, with an overall leverage ratio on a net debt basis of 0.7.After a short pause in implementation of our new ERP system across the company due to the pandemic, we successfully resumed our implementation efforts this quarter, adding three additional sites onto the new system.  We now have approximately 75% of our revenue on the new system and expect full conversion by the middle of next year.In our continuing effort to advance our Environmental, Social, and Governance efforts, in the third quarter Balchem proudly joined the United Nations Global Compact.  This commitment to the Global Compact’s principles is another step in our continuous improvement journey relative to our corporate social responsibilities and in our higher purpose of making the world a healthier place.The COVID-19 response effort has been an ongoing area of focus for the company. We have continued to operate effectively through the pandemic with our focus on employee safety first, keeping our manufacturing sites operational, satisfying customer needs, preserving cash and ensuring strong liquidity, and responding to changes in this dynamic market environment as appropriate.Ted Harris, Chairman, CEO, and President of Balchem said, “The third quarter of 2020 was another very strong quarter for our company.  Our ability to deliver record sales and earnings results in these difficult and uncertain times is a testament to the resiliency of our team and our business model.”Mr. Harris added, “I would like to once again recognize each and every one of the approximately 1,400 employees of Balchem for their commitment and perseverance through the pandemic and thank them for their contributions to this strong performance.” 
Results for Period Ended September 30, 2020 (unaudited)
(Dollars in thousands, except per share data)
Financial Results for the Third Quarter of 2020:The Human Nutrition & Health segment generated all time record quarterly sales of $103.6 million, an increase of $17.4 million or 20.3% compared to the prior year quarter. The increase was primarily driven by higher sales within food and beverage markets, strong sales growth of chelated minerals, and beneficial impact from the Zumbro acquisition we closed in December 2019, partially offset by lower sales to food service-related markets and the elimination of sales associated with the Reading, Pennsylvania manufacturing site that we divested in 2019. This segment generated all time record quarterly earnings from operations of $17.5 million, an increase of $4.3 million or 32.6% compared to $13.2 million in the prior year quarter, primarily due to the aforementioned higher sales and lower selling expenses, as a result of reduced travel and a decrease in bad debt expense.  Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $5.0 million and $4.8 million for the third quarter of 2020 and 2019, respectively, all time record adjusted earnings from operations^(a) for this segment were $22.5 million, compared to $18.0 million in the prior year quarter.The Animal Nutrition & Health segment generated record third quarter sales of $46.4 million, an increase of $4.1 million or 9.6% compared to the prior year quarter. The increase was primarily the result of higher sales and volumes in the ruminant species markets. Third quarter earnings from operations for this segment of $7.0 million increased $0.9 million or 14.5% compared to $6.1 million in the prior year quarter, primarily due to the aforementioned higher sales, certain lower raw material costs, and reduced travel, partially offset by an increase in certain compensation related costs. Excluding the effect of non-cash expense associated with amortization of acquired intangible assets of $0.2 million in the third quarters of 2020 and 2019, adjusted earnings from operations^(a) for this segment were $7.2 million, compared to $6.3 million in the prior year quarter.The Specialty Products segment generated sales of $23.0 million, a decrease of $1.9 million or 7.6% compared to the prior year quarter, primarily due to lower sales of ethylene oxide for the medical device sterilization market which has been negatively impacted by reduced elective surgical procedures during the pandemic.  Third quarter earnings from operations for this segment were $5.3 million, versus $6.7 million in the prior year comparable quarter, a decrease of $1.4 million or 20.2%, primarily due to the aforementioned lower sales.  Excluding the effect of non-cash expense associated with amortization of acquired intangible assets for the third quarter of 2020 and 2019 of $1.5 million and $1.7 million, respectively, adjusted earnings from operations^(a) for this segment were $6.9 million, compared to $8.4 million in the prior year quarter.All time record consolidated gross margin for the quarter ended September 30, 2020 of $56.4 million increased by $2.4 million or 4.4%, compared to $54.0 million for the prior year comparable period. Gross margin as a percentage of sales was 32.2% as compared to 34.1% in the prior year period, a decrease of 187 basis points, primarily due to mix.  Operating expenses of $27.3 million for the quarter decreased $0.6 million from the prior year comparable quarter, principally due to lower selling expenses driven by reduced travel and a decrease in bad debt expense, partially offset by certain higher compensation related costs. Excluding non-cash operating expenses associated with amortization of intangible assets of $6.2 million, operating expenses were $21.1 million, or 12.0% of sales.Interest expense was $1.0 million in the third quarter of 2020. Our effective tax rates for the three months ended September 30, 2020 and 2019 were 22.7% and 15.4%, respectively. The increase in the effective tax rate from the prior year was mainly attributable to a reduction in certain tax credits and lower tax benefits from stock-based compensation, partially offset by lower enacted state tax rates.For the quarter ended September 30, 2020, cash flows provided by operating activities were $35.4 million, and free cash flow was $28.3 million.  The $201.7 million of net working capital on September 30, 2020 included a cash balance of $79.0 million, which reflects repayments of the revolving debt of $25.0 million, and capital expenditures and intangible assets acquired of $7.3 million.Ted Harris said, “We are once again very proud of the strong financial performance reported this quarter as well as the progress we continue to make on our strategic growth initiatives, despite the challenging pandemic-related environment.”Mr. Harris went on to add, “Our cash conversion remains strong, and the further improvement in our balance sheet over the course of the third quarter provides ongoing financial strength as we continue to progress our organic growth initiatives and seek value-creating acquisitions.”Quarterly Conference CallA quarterly conference call will be held on Wednesday, October 28, 2020, at 11:00 AM Eastern Time (ET) to review third quarter 2020 results. Ted Harris, Chairman of the Board, CEO and President and Martin Bengtsson, CFO will host the call.  We invite you to listen to the conference by calling toll-free 1-877-407-8289 (local dial-in 1-201-689-8341), five minutes prior to the scheduled start time of the conference call.  The conference call will be available for replay two hours after the conclusion of the call through end of day Wednesday, November 11, 2020.  To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13712054.Segment InformationPreviously, Balchem’s four reportable segments were: Human Nutrition & Health, Animal Nutrition & Health, Specialty Products, and Industrial Products.  However, effective the first quarter of 2020, in order to align with the Company’s strategic focus on health and nutrition, allocation of resources, and evaluation of operating performance, Balchem revised its presentation to three reportable segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products.  The Human Nutrition & Health segment delivers customized food and beverage ingredient systems, as well as key nutrients into a variety of applications across the food, supplement and pharmaceutical industries.  The Animal Nutrition & Health segment manufactures and supplies products to numerous animal health markets.  Through Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries, and also provides chelated minerals to the micronutrient agricultural market.  Sales and production of products outside of our reportable segments and other minor business activities are included in Other and Unallocated.  There was no change to the Consolidated Financial Statements. Forward-Looking StatementsThis release contains forward-looking statements, which reflect Balchem’s expectation or belief concerning future events that involve risks and uncertainties. Balchem can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from Balchem’s expectations, including risks and factors identified in Balchem’s annual report on Form 10-K for the year ended December 31, 2019. Forward-looking statements are qualified in their entirety by the above cautionary statement. Balchem assumes no duty to update its outlook or other forward-looking statements as of any future date. Mary Ann Brush, Balchem Corporation (Telephone: 845-326-5600)
Selected Financial Data (unaudited)
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Balchem Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)Non-GAAP Financial Information
In addition to disclosing financial results in accordance with United States (U.S.) generally accepted accounting principles (GAAP), this earnings release contains non-GAAP financial measures that we believe are helpful in understanding and comparing our past financial performance and our future results. The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain other items related to acquisitions, certain unallocated equity compensation, and certain one-time or unusual transactions. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Management believes that these non-GAAP measures provide useful information about the Company’s core operating results and thus are appropriate to enhance the overall understanding of the Company’s past financial performance and its prospects for the future. The non-GAAP financial measures in this press release include adjusted gross margin, adjusted earnings from operations, adjusted net earnings and the related adjusted per diluted share amounts, EBITDA, adjusted EBITDA, adjusted income tax expense, and free cash flow. EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation, amortization, stock-based compensation, transaction and integration costs, indemnification settlements, legal settlements, ERP implementation costs, unallocated legal fees, the fair valuation of acquired inventory, goodwill impairment, and restructuring costs.  Adjusted income tax expense is defined as income tax expense adjusted for the impact of ASU 2016-09.  Free cash flow is defined as net cash provided by operating activities less capital expenditures and capitalized ERP implementation costs.Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
Table 1Reconciliation of Non-GAAP Measures to GAAP
(Dollars in thousands, except per share data)
(unaudited)The following table sets forth a reconciliation of Net Income calculated using amounts determined in accordance with GAAP to EBITDA and to Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019.
Table 2
(unaudited)The following table sets forth a reconciliation of our GAAP effective income tax rate to our non-GAAP effective income tax rate for the three and nine months ended September 30, 2020 and 2019.
Table 3
(unaudited)
The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months ended September 30, 2020 and 2019.
Table 4
(unaudited)


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