Balchem Corp (BCPC) 2025 Q3 法說會逐字稿

Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Balchem third-quarter 2025 earnings call.

(Operator Instructions) I would now like to turn the call over to Martin Bengtsson, CFO. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 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 extremely pleased with the financial results for the first quarter of 2025 and the strong performance of our company, fueled by the ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities.

We delivered record quarterly consolidated sales, adjusted EBITDA, adjusted net earnings and adjusted EPS, with year-over-year sales and earnings growth in all three of our reporting segments. The third quarter of 2025 was the 25th consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem.

We are very proud of this accomplishment, particularly in light of the market environment within which we have been operating over the last 25 quarters. I would like to take this opportunity to thank the entire Balchem team for their exceptional performance and contributions toward this significant achievement. Thank you all very much.

Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving global trade situation as well as some of the new science that has recently been published supporting our nutrients and the further expansion of our marketing efforts to help drive awareness and market penetration.

We continue to see healthy demand across the vast majority of our end markets. Our Human Nutrition & Health segment continues to perform extremely well, driven by strong demand for both our unique portfolio of minerals, nutrients and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient dense, high protein, high fiber and lower sugar or better-for-you foods, where our nutrient portfolio and our formulations expertise bring considerable value to our customers.

In the Animal Nutrition & Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumen-protected precision release encapsulates nutrient portfolio and mostly -- or modestly, sorry, improving market conditions in the European monogastric market and we remain encouraged by the overall performance of our Animal Nutrition & Health product portfolio.

And within our Specialty Products segment, both our Performance Gases business and our Plant Nutrition business are performing well, driven primarily by higher demand as a result of healthier market conditions within Performance Gases and successful geographic expansion growth within Plant Nutrition. Year-to-date, on a consolidated basis, we have delivered strong growth, both on the top and bottom lines, while continuing to generate strong free cash flow, and our outlook for the remainder of the year remains positive.

As discussed on the last few earnings calls, we believe we are relatively well positioned to effectively manage through the current global trade environment. To date, we have managed to fully offset the impact of tariffs associated with the US administration's evolving trade policy, either through alternate supply chain options or subsequent pricing actions. And based on what we know today, we expect to similarly be able to offset any impact of future tariffs as the trade situation further evolves.

Additionally, I would like to share some progress we have made in our scientific and clinical research pipeline, which continues to bolster our Human Nutrition & Health segment. We continue to actively invest in the science behind our brands such as VitaCholine, K2VITAL, OptiMSM and Albion Minerals. These studies are integral to our strategy for entering new markets, expanding our ingredient categories and building consumer awareness.

I would like to highlight one of the studies published recently that is of particular importance. Late in 2017, we informed you that Balchem funded a pilot study. Dr. Steven Zeisel, the former Director for the University of North Carolina's Nutrition Research Institute, received a $2.6 million grant from a unit of The National Institutes of Health or NIH, to develop a blood-based test or a biomarker to help measure choline status in humans.

The NIH-funded choline biomarker study was known to be a lengthy study, only further delayed by the COVID-19 pandemic that has now been completed, and the results have been published as a preprint. This was an important study from our perspective since it promised to help more easily identify choline deficiency in humans by identifying a choline biomarker in order to ultimately help address deficiencies through supplementation, while also facilitating research on the benefits of choline supplementation in humans.

The study was a double-blind, randomized crossover-controlled feeding study, in which all 101 subjects received 100%, 50% and 25% of the choline recommended daily intake in two-week segments separated by two-week washouts. The results of the study show that plasma choline and betaine when measured together are highly predictive of actual dietary choline intake.

These findings offer a new opportunity to assess choline dietary adequacy and will likely be included in future clinical and population studies and ultimately be used as a common measurement in health screenings of choline intake versus daily recommended intake levels.

On the marketing front, within our Animal Nutrition & Health segment, we continue to expand our reach and impact through marketing. We have strengthened our marketing capabilities, and Balchem's Real Science Exchange platform now celebrating five years since its launch has grown into a leading industry information and technology resource with webinars, podcasts and symposiums that is attracting a strong following across the industry with high-quality content across leading streaming platforms, such as YouTube, Spotify and Apple Podcast.

This channel to the industry gives Balchem a unique opportunity to reach and interact with an expanded target audience. We will continue to invest in our marketing capabilities, and we recently partnered with Progressive Dairy magazine to introduce the real producer exchange for practical insights for dairy farmers.

And later this month, we are excited to expand into the companion animal sector with new webinars and podcasts, reinforcing our commitment to advancing animal science and industry collaboration. So some exciting progress being made on our strategic growth initiatives, while at the same time, delivering strong financial results.

Now regarding the third quarter of 2025's financial performance. This morning, we reported record quarterly consolidated revenue of $268 million, which was 11.5% higher than the prior year quarter. We delivered record quarterly GAAP earnings from operations of $55 million, an increase of 13.7% versus the prior year. Consolidated net income closed the quarter at $40 million, an increase of 19.1%. This quarterly net income translated to diluted net earnings per share of $1.24 on a GAAP basis, up $0.21 or 20.4% compared to the prior year.

On an adjusted basis, we delivered record quarterly adjusted EBITDA of $71 million, an increase of 11% compared to the prior year. Our record quarterly adjusted net earnings were $44 million, an increase of 19.1% from the prior year which translated to $1.35 per diluted share, up $0.22 or 19.5% compared to the prior year. Overall, another excellent quarter for Balchem as we continue to deliver strong financial results, while making good progress on our strategic growth initiatives.

And with that, I'm now going to turn the call back over to Martin to go through the third-quarter consolidated financial results for the company in more detail and the results for each of our business segments.

Thank you, Ted. As Ted highlighted, the third quarter was a great quarter for Balchem with record sales, earnings from operations, adjusted EBITDA, adjusted net earnings and adjusted earnings per share. Our third-quarter net sales of $268 million were 11.5% higher than prior year, driven by strong performance in all three segments: Human Nutrition & Health, Animal Nutrition & Health and Specialty Products.

Our third-quarter gross margin dollars were $95 million, up 11.8% compared to the prior year, and our gross margin percent was 35.7% of sales, up 10 basis points compared to the prior year. Consolidated operating expenses for the third quarter were $41 million as compared to $37 million in the prior year. The increase was primarily due to an increase in professional services and higher compensation-related costs. GAAP earnings from operations for the third quarter were a record $55 million, an increase of 13.7% compared to the prior year.

On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $60 million were up 12.1% compared to the prior year. Adjusted EBITDA was a record $71 million, an increase of 11% compared to the prior year with an adjusted EBITDA margin rate of 26.7%. Net interest expense for the third quarter was $3 million, a decrease of $1 million compared to the prior year, driven primarily by lower outstanding borrowings.

Our net debt decreased to $89 million with an overall leverage ratio on a net debt basis of $0.3 million. The effective tax rates for the third quarters of 2025 and 2024, were 22.6% and 22.9%, respectively. The decrease in the effective tax rate from the prior year was primarily due to certain lower state taxes. Consolidated net income closed the quarter at $40 million, up 19.1% from the prior year. This quarterly net income translated into diluted net earnings per share of $1.24, an increase of $0.21 compared to the prior year.

On an adjusted basis, our third-quarter adjusted net earnings were a record $44 million, an increase of 19.1% from the prior year, which translated to $1.35 per diluted share. Cash flows from operations were $66 million, with free cash flow of $51 million and we closed out the quarter with $65 million of cash on the balance sheet.

As we look at the third quarter from a segment perspective, our Human Nutrition & Health segment generated record sales of $174 million, an increase of 14.3% from the prior year, driven by higher sales within both the Nutrient's business and the Food Ingredients and Solutions businesses. Our Human Nutrition & Health segment also delivered record quarterly earnings from operations of $41 million, an increase of 14.8% compared to the prior year.

This was primarily driven by the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. Third-quarter adjusted earnings from operations for this segment were a record $44 million, an increase of 13.2%. We are extremely pleased with the overall performance of our Human Nutrition & Health segment.

And as Ted mentioned earlier, we continue to experience strong demand for our unique portfolio of ingredients and solutions. We believe our Human Nutrition & Health businesses are well positioned to build on the momentum we are seeing across our end markets. And as consumers increasingly favor better-for-you ingredients and solutions, we see significant opportunities ahead to leverage our formulation expertise, nutrient portfolio and strong market positions to continue to deliver healthy growth in Human Nutrition & Health.

Our Animal Nutrition & Health segment generated quarterly sales of $56 million, an increase of 6.6% compared to the prior year. The increase was driven by higher sales in both the ruminant and monogastric businesses. Animal Nutrition & Health delivered earnings from operations of $4 million, an increase of 5.2% from the prior year. The increase was primarily due to the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses.

Third-quarter adjusted earnings from operations for this segment were $4 million, an increase of 1.2% compared to the prior year. The end markets for Animal Nutrition & Health remain relatively stable at the moment, and we were pleased to see another quarter of top- and bottom-line growth.

We continue to see market penetration of our ruminant protected encapsulated nutrients for the dairy market, including our reassuring encapsulated choline and our more recently launched AminoShure-XL encapsulated lysine.

On the monogastric side, we see a relatively stable US end market at the moment and a modestly improved European market environment following the provisional antidumping duties on Chinese choline that were announced last quarter. As we look forward, we expect Animal Nutrition & Health to continue to deliver growth over the long term.

Our Specialty Products segment delivered quarterly sales of $36 million, an increase of 7.5% compared to the prior year, driven by higher sales in both the Performance Gases and Plant Nutrition businesses. Specialty Products delivered a record quarterly earnings from operations of $12 million, an increase of 9.7% versus the prior year, primarily driven by the aforementioned higher sales.

Third-quarter adjusted earnings from operations for this segment were a record $13 million, an increase of 8.8%. We continue to be really pleased with the performance of Specialty Products, delivering another strong quarter of growth, both on the top and bottom line.

Within Performance Gases, our international reach is creating value for our customers and helping to drive growth rates above historical levels. And similarly, within our Plant Nutrition business, we're having good success with our geographic expansion efforts, particularly in Latin America and Asia Pacific. Specialty Products is performing well, and going forward, we expect to be able to continue to drive solid growth for the Specialty Products segment.

So, overall, the third quarter was another excellent quarter for Balchem, and we believe we are well positioned for continued growth as we head into the remainder of the year.

I'm now going to turn the call back over to Ted for some closing remarks.

Thanks, Martin. Once again, we are extremely pleased with the third-quarter financial results reported earlier this morning. As a company, we continue to show an ability to deliver results in a variety of market conditions given our strong market positions and our value-added portfolio of products. The company is performing very well. We have once again effectively managed through the latest macroeconomic and tariff-related trade environment with minimal impact on the company.

And at the same time, our growth has strengthened as a result of the accelerating better-for-you trends within the Health & Nutrition markets, given our unique portfolio of nutrients, coupled with our food ingredients and solutions capabilities.

We are extremely proud of delivering 25 consecutive quarters of quarterly year-over-year growth in adjusted EBITDA with the third-quarter results reported earlier this morning. And we remain confident in the long-term growth outlook for Balchem as a company.

I will now hand the call back over to Martin, who will open up the call for questions.

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

(Operator Instructions) Bob Labick, CJS Securities.

Good morning congratulations on another record quarter. I wanted to start with the Food Ingredients & Solutions. For the last several quarters, it's kind of really picked up after previously lagging the minerals and nutrients growth rate. You just mentioned the better-for-you trend, but could you drill down a little more and talk about the changes in Food Solutions and the drivers and the outlook for each of the subsegments in 2026?

Absolutely, Bob. And first of all, just stepping back a little bit. We're extremely pleased with the performance of the entire segment, Human Nutrition & Health. Just to kind of peel that onion back a little bit. Sales for HNH were up 14%, and then if you talk about the Nutrient Portfolio, was up about 30%, but as you highlight, the Food Ingredient business was up nicely as well. So it was really good to see the food business up almost 7%.

And we don't see that growth rate differential necessarily changing over time. We always see the nutrient portfolio is growing faster than the food portfolio. But as you point out, the food growth was kind of low single digits there for a while and now significantly increased. And the primary driver of that is, what we touched on in the prepared remarks.

And that really is the benefits we're seeing from the better-for-you trends in the market, whether it's in meat sticks, which is a high protein snack to replace other snacks or whether it's a high fiber nutritional beverage that is trying to address even some of the negative implications of GLP-1 drugs, for example. We see quite a few of our customers introducing new products targeted to that audience, and we all know that's a pretty sizable consumer base, or whether it's high protein bars, for example, with our Z-Crisps and our ability to add high protein crisp to certain kind of bars in the marketplace.

So all of those trends are really helping support and strengthen our overall growth in food ingredients. And it's really a combination of our nutrient expertise from the nutrient business, our unique products, encapsulated products, our kind of emulsified fat powder systems, our flavor systems.

And our ability to combine all of those and solutions for our customers as they're introducing new products to kind of serve those trends. And we think those trends are likely to continue for the foreseeable future. I think the better-for-you trends have been going on for decades. And of late, we've seen some accelerants to those trends, whether it is the GLP-1 drugs that I touched on that have side effects and have sort of unique nutrient needs, if you will, for the consumers of those products. That's an opportunity for us.

Certainly, the RFK Jr. focus on healthier-for-you products, less processed food products is creating an accelerant, if you will, to this long-term trends. So we're really pleased that our portfolio of products caters to those trends and is allowing for us to get new wins in the marketplace and grow our food business at a higher rate than we have historically. So we're quite excited about that.

That's great. And then just on the nutrient and minerals and nutrient side, the growth was phenomenal as well. Your major markets of choline, K2, MSM, magnesium, et cetera. Can you talk about -- it's been a penetration story for a while. Where are you in terms of product penetration? And what is the opportunity? And how much longer of a runway is there for penetration and awareness of your products?

The short answer is we're a long way from that endpoint. Again, as I've talked about in the past, to some extent, our challenge is the majority of our portfolio, whether it's choline or vitamin K2 or even MSM are not very well known. And I would even add the idea of chelated minerals, higher bioavailable minerals are not so well known and kind of recent studies show that they're, yes, a little bit better known today than they were five years ago, but still not well known.

So we think that we have a significant way to go. We think that the market opportunities are still 3, 4x multiples the size of the market today. And in the minerals, you mentioned magnesium in the mineral space, the overall mineral market is huge and the position that chelated minerals have within that market remains tiny.

So the opportunity there is to both eat away at that bigger minerals market with these higher bioavailable more effective products, but also kind of drive market penetration to users that aren't supplementing with those minerals as well. So it's really sort of two vectors of growth. But we certainly see very strong double-digit growth in each of those portfolios, and we expect that to continue for some time.

Ram Selvaraju, H.C. Wainwright.

Thanks very much for taking my questions and congratulations on a very strong quarter. I was just wondering if you could comment on international antidumping practices being enacted at the state, regional governmental level that could conceivably boost sales, particularly in the HNH segment ex US?

And especially if you could give us maybe just an overview of the status of the European anti-dumping campaigns as these pertain to choline specifically, where that is currently? And what impact you expect it to have over the course of the coming months and indeed into next year? Thank you.

Yeah, thanks, Ram, for your comments and your question. There are really sort of two aspects to antidumping and maybe I'll start with the current initiative where the European Union has preliminarily put antidumping duties on China origin choline chloride and, maybe to your specific question, that's both for human choline chloride as well as animal choline chloride, and it's just a clear recognition by the European Union of unfair trade practices by China and trying to create a level playing field.

Those duties are still preliminary. There's quite a process that is underway. We initially announced that the duties were, I think, it was 95% to 120%. And after further calculations that we reduced those by about 5 percentage points, so not significantly, which we were pleased to hear. And later this year, certainly by the end of the year, they should have a final vote for the enactment of those duties and then they will become approved in their final form and would be in place for five years, which also would be a very good thing.

And there is an opportunity for us to work with the European Union to try to address some of the typical reaction from China of moving the product through other countries, and we're working to try to do that, and that would only strengthen the impact of the duties.

But certainly, broadly speaking, across the nutrient sector, whether it's in animal or in human, these types of pricing practices are quite prevalent from China as well as others. And I do think that there is an improved environment within which to bring these kinds of cases to the government entities and to get an appropriate response. So we are kind of actively reviewing where that makes sense, where we believe these practices are happening, and kind of using that tool.

Unfortunately, it is expensive and it is lengthy. And so you have to go through that. But clearly, in the US, and we think in the US there's an improved environment for us, companies like ours to bring those kind of cases to the governments and we'll do that as appropriate going forward.

Okay. Great. And then also just wanted to ask about the Orange County microencapsulation manufacturing facility. Can you just summarize again for us when you expect construction to be completed on that facility now that you have the state approvals in place? And also, if you can give us a sense of what the magnitude of impact is likely to be on revenues and earnings quality once that facility comes fully online? Thank you.

Yeah, sure. We're really excited about that. We announced that in our second-quarter earnings release, and we felt like we should update our shareholders on the progress that has been made. And essentially, what we tried to say and the highlight on the press release is that we're moving forward, and we have gotten the most recent approvals to do just that move forward with the plant. And essentially, what we're doing is building a new plant that has twice the capacity of the old plant and will effectively shut down the old plant, which was one of the first sites that we ever had as a company.

In fact, the first site, we bought it back in the '60s. And at that point in time, it was an old creamery that we use to make food ingredients and has kind of sort of far outlived its effectiveness. And so it was time for us to upgrade and modernize, and we've done that just down the road so that we can continue to use the employee base from the old site. And so forth.

And so we're really kind of putting in place in this new plant some new technology around our micro encapsulation and more efficient technology. The encapsulates business, for example, just in Q3, grew about 26%. So it's a fast-growing part of our portfolio and has been growing significantly really over the last few years, and we need the capacity.

Our current capacity is getting us by, but we're soon going to start to run out of capacity in the coming couple of years. And so the plant will be, from a construction perspective, completed early in 2027, and we expect to be producing new product by the middle of 2027.

So the way we're looking at it is it's going to allow this important product line to continue to grow at double-digit rates. And our encapsulate business is certainly on the higher end of our gross margin profile of the businesses within our company. So we're excited to invest in that product line, and we're excited to be able to allow it to continue to grow kind of beyond our current capacity levels.

Okay. And then just two quick questions for Martin, if I may. Firstly, I wanted to ask if you expect the pace of debt repayment to be the same in the next couple of quarters as what you just -- most recently reported, particularly in light of the significantly lower debt burden and the very low net leverage ratio that Balchem currently has.

Just wanted to see if you're planning to take your foot off the gas on debt repayment schedule or if you're intending to keep going at the most recently reported pace on a quarterly basis? And also, if you could just give us a sense of whether you expect the most recently reported quarterly effective tax rate to be an appropriate assumption to carry forward for the remainder of 2025 thank you.

Yeah, I'll start with the second one as it's a quick answer for the tax rate. I think sort of -- our best estimate for the year is around 22.5% plus or minus a little bit. So that's kind of where we're at year-to-date and where we think we'll finish the year at around 22.5%, plus or minus a little bit. On the debt repayment pace, I mean, obviously, we've generated strong free cash flows. And as you know from the past, we deploy that capital and paying down our debt is part of that.

I think it will depend a little bit the pace on timing of M&A. As you know, we talk a lot about pursuing various opportunities all the time. Unfortunately, we haven't gone anything over the finish line more recently. That is not to say we're not actively participating, actively discussing, actively pursuing strategic M&A. So I think that will impact it a little bit on how we see sort of those opportunities develop here as we go forward.

Also, you know from the past that we do deploy some of our cash into keeping our sort of share count relatively flat. So we do some share repurchases [for] antidilutive purposes just to keep sort of our shareholders' ownership relatively stable. So that will impact it as well in terms of at what pace we [repurchase] share just to keep our share count flat.

But meanwhile, we will continue to reduce debt as there is excess cash. And then I think the big trigger that will change that is sort of when the next M&A transaction occurs because I think that is more a matter of timing than anything else. Thank you.

Daniel Harriman, Sidoti.

Hey, guys. Good morning and congrats on another great quarter. Just a couple of quick ones from me today. Within Specialty Products, with that 7.5% year-over-year growth, can you give us a breakdown of how much came from Performance Gases versus Plant Nutrition? And then with the Plant Nutrition growth, could you just update us and provide a little bit more information about the success you're seeing with your geographic expansion within that business?

Yeah, sure. Just to give you some kind of growth numbers within Specialty Products. So as you said, overall, we grew about 7.5%. The Performance Gases business grew about 7% and the Plant Nutrition business grew about 13%. So that combined resulted in the 7.5% growth.

So we're seeing nice growth out of both Performance Gases. Traditionally, we view it as kind of a lower growth business. But after a number of years of different impacts on growth, whether it was air emission systems upgrades or nursing shortages or COVID impacting elective surgical procedures and so forth, that market seems to have stabilized and is doing well. But we're also seeing nice growth in that business geographically, particularly in Europe. So we're seeing some differential growth there as well. So Plant Nutrition, obviously, is a smaller business for us, but historically has been more focused on the United States.

And I would say, particularly California, we tend to sell into higher-end crops like grapes and so forth. And so an important strategic initiative for us has been to expand internationally for multiple reasons, for obvious growth reasons, but also to balance out some of the seasonality that we experienced in that business.

As you know, the first half of the year is much stronger than the second half of the year because of the growing season in the US. So we've had a very deliberate effort to try to offset some of that down part of the season with growth in either the Southern Hemisphere or other geographies. And we're having some success in that and that was worth noting, particularly in Latin America, we're seeing stronger growth as well as in Asia Pacific.

Some countries that kind of stand out, Brazil, India, for example, are areas where we're having some good success. And it's been quite a deliberate effort on our part, and we're pleased with that growth. While the US business has been relatively flat, I would say, the international business has been driving the predominance of the growth in plant nutrition.

Great. I really appreciate it, guys. And again, congratulations.

There are no further questions at this time. I will now turn the call back over to Ted Harris for closing remarks.

Once again, thank you all very much for joining the call today. We really appreciate your support and your time, and we look forward to reporting our Q4 2025 results in February of next year. That sounds like a long way away, but that's when it will be.

In the meantime, we'll be participating in Baird's 2025 Global Industrial Conference in Chicago on November 12, and we certainly hope to see some of you there. So thanks again for joining.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.