BALCHEM CORP(BCPC)Q2 2026 法說會逐字稿

Hello, everyone. Thank you for joining us, and welcome to the Balchem Second Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1. To withdraw your question, press star 1 again. I would now like to hand the conference over to Martin Bengtsson, Balchem's CFO. Please go ahead.

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending June 30, 2026. 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 our second quarter performance reported this morning, which was once again driven by healthy broad-based growth across all three of our reporting segments and continued solid execution on our strategic growth initiatives. Our healthy growth continues to be 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 product offerings and capabilities. As a result, we delivered record quarterly consolidated sales, adjusted EBITDA, and adjusted net earnings, as well as solid cash flows. Before discussing our second quarter financial results in more detail, I would like to take a moment to comment on the broader operating environment within each of our business segments and highlight a few areas of progress in the quarter, particularly within our capital allocation strategy. Demand trends across our businesses remain healthy. Our unique portfolio, strong market positions, and focus on innovation continue to drive above-market growth. Within human nutrition and health, we delivered another very strong quarter, supported by solid demand across both our nutrients portfolio and our food ingredients and solutions businesses. Heightened interest in supplementation and healthier nutrient-dense, high-protein, high-fiber and lower-sugar products continues to create opportunities for our customers and subsequently our science-based ingredients, formulation expertise, and application capabilities. In animal nutrition and health, we continue to generate healthy growth as a result of both expanding adoption of our precision-release rumen-protected nutrient technologies within the dairy industry, as well as realizing higher year-over-year volumes and margins in our European monogastric business. We remain encouraged by the momentum across our animal nutrition and health portfolio, and the value our products provide to producers seeking greater efficiency, productivity, and sustainability. Specialty Products also continues to drive healthy top and bottom line growth on solid volume and pricing growth, particularly within our performance gases business. So demand trends across our businesses remain healthy, and each of our reporting segments is performing well. On a consolidated basis, we delivered strong growth and healthy margins despite higher input costs related to the conflict in the Middle East, as a result of both mitigating actions and growth-driven operating leverage. And we remain confident in our ability to drive continued growth and margin performance going forward. On the capital allocation front, consistent with our balanced approach to capital allocation, we took several actions during the quarter to enhance financial flexibility and return capital to shareholders. First, we recently completed the refinancing of our revolving credit facility. The new amended agreement increases our borrowing capacity from $550 million to $650 million and extends the maturity of the facility into 2031. This transaction further strengthens our financial position and provides additional flexibility to support our growth strategy, including continued innovation, capacity expansion, and strategic acquisition opportunities. Second, we repurchased approximately $29 million of Balchem common stock during the second quarter and $114 million over the trailing 12 months, reflecting our continued commitment to disciplined capital allocation and shareholder value creation. Now regarding the second quarter financial performance. This morning, we reported record quarterly consolidated revenue of $284 million, an increase of 11.2% versus the prior year. We delivered record quarterly GAAP earnings from operations of $59 million, an increase of 15.1% versus the prior year. Consolidated net income closed the quarter at a record $45 million, an increase of 16.6%. This quarterly net income translated to diluted net earnings per share of $1.39 on a GAAP basis, up 18.8%. On an adjusted basis, we delivered record quarterly adjusted EBITDA of $78 million, an increase of 12.6%. Our quarterly adjusted net earnings were a record $48 million, an increase of 15.7%, which translated to $1.49 per diluted share, up 17.3%. Overall, we delivered an outstanding second quarter highlighted by record financial results, broad-based growth across our businesses, the strengthening of our balance sheet via our newly amended credit facility, and continued execution on our long-term strategic objectives. With that, I am now going to turn the call back over to Martin to go through the second quarter financial results in more detail and the results for each of our business segments.

Thank you, Ted. The second quarter was another strong quarter. Our record second quarter net sales of $284 million were up 11.2% compared to prior year, driven by strong performances across all three segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. Our gross margin dollars were $104 million, up 11.4%. Our gross margin percent expanded to 36.5% of sales, up 10 basis points. The gross margin performance was driven primarily by sales growth and manufacturing efficiencies, partially offset by certain higher manufacturing input costs. Consolidated operating expenses for the second quarter were $44 million as compared to $42 million in the prior year. The increase was primarily due to higher compensation-related costs. GAAP earnings from operations for the second quarter were a record $59 million, an increase of 15.1%. On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $64 million were up 13.9%. Adjusted EBITDA was a record $78 million, an increase of 12.6%, with an adjusted EBITDA margin rate of 27.4%. Net interest expense for the second quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $89 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for the second quarters of 2026 and 2025 were 22.8% and 21.9%, respectively. The increase in the effective tax rate from the prior year was primarily due to lower tax benefits from stock-based compensation. Consolidated net income closed the quarter at a record $45 million, up 16.6%. This quarterly net income translated into diluted net earnings per share of $1.39, an 18.8% increase. On an adjusted basis, our second quarter adjusted net earnings were a record $48 million, an increase of 15.7%, which translated to $1.49 per diluted share. Cash flows from operations were $47 million with free cash flow of $36 million, and we closed out the quarter with $63 million of cash on the balance sheet. As we look at the second quarter from a segment perspective, our Human Nutrition and Health segment saw record sales of $177 million, up 10%, driven by growth in both our nutrients business and our food ingredients and solutions businesses. Record earnings from operations of $42 million were up 10.5%, driven by the higher sales and favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. Second quarter adjusted earnings from operations for this segment were a record $46 million, up 10.9%. We are excited about the growth outlook for Human Nutrition and Health, where consumer demand for healthier nutritional solutions continues to support growth. Our differentiated ingredients, formulation expertise, and branded portfolio position us well to continue serving our customers and expanding our market opportunities. Our Animal Nutrition and Health segment delivered sales of $64 million, up 15%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition and Health delivered earnings from operations of $5 million, up 48.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. Second quarter adjusted earnings from operations for this segment were $6 million, up 47.7%. We delivered another quarter of improved year-over-year performance in our Animal Nutrition and Health segment. Growth was driven by continued adoption of our encapsulated rumen-protected nutrient technologies in the dairy market, stable demand in our U.S. monogastric business, and ongoing improvement in our European monogastric business, following the implementation of EU antidumping duties. We were also pleased with the year-over-year margin improvement delivered in the quarter within Animal Nutrition and Health, despite higher input costs related to the conflict in the Middle East, as a result of both mitigating actions taken and growth-driven operating leverage. We are encouraged by the momentum across the Animal Nutrition and Health segment and remain confident in our ability to continue expanding adoption of our technologies and delivering long-term growth. Our Specialty Products segment delivered record quarterly sales of $41 million, up 8.9%, driven by healthy growth in both Performance Gases and Plant Nutrition businesses. Specialty Products delivered record quarterly earnings from operations of $13 million, up 14.4%, driven primarily by higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. Second quarter adjusted earnings from operations for this segment were a record $14 million, up 12.1%. We were encouraged by the continued strong performance in Specialty Products, which once again delivered healthy, profitable growth. Supported by favorable market positions and disciplined execution, we believe this segment remains well positioned for continued success. Overall, our second quarter reflects all-time record financial performance, continued momentum across our businesses and strong execution across the organization. With that, I will turn the call back over to Ted for some closing remarks.

Thanks, Martin. We are very pleased with the results we reported earlier today. Our teams executed exceptionally well during the quarter, delivering record financial performance while continuing to advance our strategic priorities. The second quarter of 2026 was our 28th consecutive quarter of year-over-year growth in adjusted EBITDA. We believe this achievement reflects the strength of our unique portfolio, the resilience of our business model, and the consistent execution of our teams across a wide range of conditions. As a team, we are extremely proud of these results and excited about the future of our 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.

And we are now opening the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow optimum sound quality. If you are muted locally, please remember to unmute your device. Now please stand by while we compile the Q&A roster. Your first question comes from the line of Bob Labick with CJS Securities. Your line is open. Please go ahead.

Good morning. Congratulations on continued strength and record results. You have been really successful in growing minerals and nutrients, in particular, choline, K2, magnesium, and more. Question is, how do you evaluate new products? Is it based on where you can improve bioavailability or markets or what? How do you evaluate new products for that area? And then how do you decide if it is a build versus buy opportunity to enter markets for new products?

Thanks for the question, Bob. We are really pleased with the performance of the nutrients business as well as the food ingredients and solutions part of Human Nutrition and Health, both contributing to very strong results. Over the years we have developed our own products, sometimes with outside partners. In the case of Optifolin+ that we launched a year or so ago, that is an example of internal development with external support. Then we have acquired technologies, like we did with VitaCholine buying CureMark. How we select the path depends on how close that technology is to our core. For example, in Optifolin+ the backbone of that technology is choline, so we were able to use our expertise to expand into that technology with an outside partner, which made it ripe for internal development. VitaCholine is very different technology, so it made sense to do that through acquisition. When we step back and look at the marketplace, how we decide which nutrients to invest in and believe would be valuable as part of our portfolio starts with the science. We want to make sure there is sound existing science behind the products that we are bringing in. That clearly has been true with all of the additions to our portfolio over the years. The science is really important. The next consideration is what our point of differentiation will be that makes our product different and more special. For example, when we bought Kappa Solutions and VitaCholine, it was important that one of the primary forms of K2 that Kappa Solutions had was an encapsulated K2 that was protected with patent, very different and unique in the marketplace. Differentiation is another key point. We also look at how well penetrated the nutrient is. Our nutrients, even after many years of efforts, are still relatively less known and niche, and we have an opportunity with the science and differentiation to drive awareness, market penetration, and above-market growth rates. You can see evidence of that across our product portfolio. Those are the key elements we look at, and we see opportunities to add additional products to our nutrient portfolio and are working hard on that.

Okay, great. You mentioned the science as part of differentiation and everything. Maybe this is not an every-quarter question because I know it is not this fast, but I know you have a number of trials out there. Was wondering if you could give us any updates on some of the trials that may come to fruition this year and then, more broadly, how you use that information once you get it to help grow the business.

Certainly. Clinical studies and the science behind our products are an important part of what we do. It is how we help our customers have claims for their own products and an important part of marketing, so we make a significant investment. At any one time, we have 20 to 25 ongoing studies. Some take many years, some are shorter. There were four studies of note in the last quarter: one on OptiMSM, two on K2VITAL, and one on VitaCholine. These studies are all valuable and further enhance our library of studies on the products. One study I am particularly excited about is the MD Anderson, University of Texas pilot clinical study that enrolled people who have the APOE4 gene, which is associated with Alzheimer's. It is an adult cognition study I am eager to get results from. If this study shows clear evidence that higher doses of choline impact the development of dementia and Alzheimer's, that would be an important finding and strengthen the science behind cognitive benefits of choline. I do think that study, once published, will lead to a larger study to further reinforce those findings. We know that study is completed and we expect it should be published in the next couple of months. I am hopeful that with the next quarterly update I will be able to discuss the results of that study, along with the four studies I mentioned that were published in the last quarter and the other ongoing studies.

Super. Alright. Thanks so much. I will jump back in and let others ask questions.

Thanks, Bob.

Your next question comes from the line of Raghuram Selvaraju with H.C. Wainwright. Your line is open. Please go ahead.

Thanks so much, and congratulations on once again an excellent quarter. I was wondering if you could provide us with some additional granularity regarding how you expect sales and promotional strategies to shift over the course of the remainder of 2026 based on trends that you are seeing in the market and product initiatives likely to be most resonant with the consumer base, particularly within the Human Nutrition and Health segment. Secondly, on the financial front, Martin, could you refresh my memory as to what you expect the effective interest rate to be on the new credit facility funds as and when you draw them that have the maturity date of 2031, as well as how you expect the effective tax rate to trend over the remainder of 2026? Thank you.

Thanks, Raghuram. We have been investing significantly in marketing, particularly in the Human Nutrition and Health business over the last few years. Our goal has been to establish a scalable, always-on consumer engagement model for all of our branded ingredients. That model combines omnichannel marketing, influencer engagement, consumer PR, and sports partnerships to drive consumer awareness and market penetration of our products. That investment alone in the last year and a half has generated well over a billion consumer impressions across our branded ingredients, accelerating brand awareness and demand generation. Influencer marketing has shifted with consumer behavior. We have invested in influencer relationships and adjusted those over time, focusing more on targeting GLP-1 users for snacks and meal replacements and aligning influencer followings with those target audiences. Sports partnerships have been an area of focus as well; we have been active in soccer and events like the World Cup, and we have doubled down on sports partnerships. It is a dynamic investment and we shift focus as consumer behavior changes. Overall, our foundational goal is to establish a scalable consumer engagement model across all these channels. Five or six years ago we were not talking much about marketing, and today we have one of the leading nutrient marketing teams in the world, which is helping drive the growth rates we have achieved.

On your questions about interest rate and tax rate, the amendment and extension of the credit facility kept the structure the same as the past, so there are no significant changes beyond increasing the size from $550 million to $650 million in terms of capacity. Currently, we have drawn $150 million as of the end of Q2. The rate is variable and resets with SOFR, and we pay a spread based on that. At the moment we are paying around 4.5%. If the Fed were to raise rates by 25 basis points, our rate would increase by 25 basis points. We did improve the spread we pay above SOFR with this refinancing, improving pricing across the board by 10 basis points and improving the higher leverage tier spreads by 22.5 basis points. It is a better pricing grid for us than the earlier one, but pricing will vary with market interest rates. On the tax rate, we are about 23% year-to-date effective rate, and we expect to be in the 22.5% to 23% range as we wrap up the year.

Thank you very much.

Thanks, Raghuram.

Your next question comes from the line of Daniel Harriman with Sidoti and Company. Your line is open. Please go ahead.

Hey. Good morning, guys. Thanks so much for taking my questions. I have a couple today. Regarding Animal Nutrition and Health, can you help delineate how much of the acceleration was volume versus the pricing actions you took in April? Also, could you provide an update on the European monogastric trends? You talked about that last quarter and it seems like things are improving there. Any color you could provide would be great. Thank you.

We are really happy with how Animal Nutrition and Health has been performing for the last couple of quarters, returning to year-over-year quarterly growth. For the strong growth we reported—15% in the second quarter—about half of that was volume driven and about half was price driven, directionally. In Europe, where we filed for antidumping and successfully obtained duties that started around January 1, 2026, we have seen the return of that business, with more volumes coming our way as we regain share that was lost due to dumping. We have also seen a price recovery that has improved every quarter. It started a bit at the end of last year in anticipation of the duties and has continued. We expected that restoring a more level playing field would allow us to perform well in the region, and it is playing out that way. It is working very well for us at the moment and we are excited about what is ahead.

Daniel, I would add that we are pleased with continued growth in the ruminant part of the portfolio, which is higher margin and involves more science and technology. That business has been growing over the last few years; in the quarter it grew about 20%, and that growth is almost all volume growth. It is exciting to see those products penetrating the market further. We are pleased overall with the performance of Animal Nutrition and Health and the momentum in that business.

That is really helpful, guys. Thanks, Martin and Ted, and congrats on the great quarter.

Great. Thank you. Thanks, Daniel.

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

Thanks, Tracy. Once again, thank you all very much for joining our call today. We are really pleased with the second quarter results we reported earlier today and the outlook for our company. We very much appreciate your support as well as your time today, and we look forward to reporting our Q3 2026 results in October. In the meantime, we will be participating in the Wells Fargo Consumer Conference on September 23 in Laguna Beach, California. Hopefully we will see some of you there. Thanks again for joining today.

This concludes today's call. Thank you for attending. You may now disconnect.