Balchem Corporation (NASDAQ: BCPC) reported today record second
quarter net earnings of $21.1 million for 2020, compared to net
earnings of $19.8 million for the second quarter 2019. Record
second quarter adjusted net earnings(a) were $27.6 million,
compared to $25.2 million in the prior year quarter, and adjusted
EBITDA(a) was an all-time record of $43.9 million, compared to
$40.0 million in the prior year quarter.
Second Quarter 2020 Financial
Highlights:
- Net sales of $173.4 million, an
increase of $11.8 million, or 7.3%, compared to the prior year
quarter, with year over year sales growth in Human Nutrition and
Health, Animal Nutrition and Health, and Specialty Products.
- GAAP net earnings were $21.1
million, an increase of $1.3 million, or 6.5% from the prior year.
These net earnings resulted in GAAP earnings per share of
$0.65.
- Adjusted net earnings of $27.6
million increased $2.3 million or 9.2% from the prior year,
resulting in adjusted earnings per share(a) of $0.85.
- Adjusted EBITDA was $43.9 million,
an increase of $3.9 million, or 9.8%, from the prior year.
- Quarterly cash flows from
operations were $44.6 million for the second quarter 2020, an
increase of 69.5% from the prior year, with quarterly free cash
flow(a) of $37.0 million, an increase of 83.9% from the prior
year.
Recent Highlights:
- Strong cash flows in the second
quarter enabled the company to make $35.0 million of repayments of
its revolving debt, lowering net debt to $142.2 million, with an
overall leverage ratio on a net debt basis of 0.9.
- The COVID-19 response effort has
been a primary focus for the company since early in the first
quarter. Our focus has been 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. To date,
all of our manufacturing sites are operating at near normal
conditions enabling us to supply our customers with the important
products and services they need, our research and development teams
are advancing our innovation efforts, and all of our other
employees are effectively carrying on their responsibilities and
functions remotely.
- We released our second annual
Sustainability Report in April in support of our Environmental,
Social, and Corporate Governance ideals. We are committed to
providing solutions for the health and nutrition needs of the
world, acting as strong stewards of all our stakeholders, and
making the world a healthier place.
Ted Harris, Chairman, CEO, and President of
Balchem said, “We are extremely pleased with these strong second
quarter results which reflect record second quarter sales, net
earnings, and earnings per share as well as sales growth in all
three of our reporting segments."
Mr. Harris added, "Our strong second quarter and
year to date results reported today are a direct result of the
extraordinary talents and efforts of the Balchem team as well as
the strength of our market positions and the resilience of our
business model."
Results for Period Ended June 30, 2020
(unaudited)(Dollars in thousands, except per share
data)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net sales |
|
$ |
173,355 |
|
|
$ |
161,554 |
|
|
$ |
347,791 |
|
|
$ |
318,583 |
|
|
Gross margin |
|
55,380 |
|
|
53,918 |
|
|
110,711 |
|
|
103,013 |
|
|
Operating expenses |
|
28,463 |
|
|
27,516 |
|
|
57,516 |
|
|
50,131 |
|
|
Earnings from operations |
|
26,917 |
|
|
26,402 |
|
|
53,195 |
|
|
52,882 |
|
|
Other expense |
|
944 |
|
|
1,521 |
|
|
2,732 |
|
|
3,208 |
|
|
Earnings before income tax
expense |
|
25,973 |
|
|
24,881 |
|
|
50,463 |
|
|
49,674 |
|
|
Income tax expense |
|
4,848 |
|
|
5,052 |
|
|
9,570 |
|
|
11,062 |
|
|
Net earnings |
|
$ |
21,125 |
|
|
$ |
19,829 |
|
|
$ |
40,893 |
|
|
$ |
38,612 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per
common share |
|
$ |
0.65 |
|
|
$ |
0.61 |
|
|
$ |
1.26 |
|
|
$ |
1.19 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(a) |
|
$ |
43,885 |
|
|
$ |
39,979 |
|
|
$ |
86,256 |
|
|
$ |
79,659 |
|
|
Adjusted net earnings(a) |
|
$ |
27,562 |
|
|
$ |
25,246 |
|
|
$ |
54,003 |
|
|
$ |
48,976 |
|
|
Adjusted net earnings per
common share(a) |
|
$ |
0.85 |
|
|
$ |
0.77 |
|
|
$ |
1.66 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
calculations of diluted and adjusted net earnings per common
share |
|
32,470 |
|
|
32,583 |
|
|
32,492 |
|
|
32,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
See “Non-GAAP
Financial Information” for a reconciliation of GAAP and non-GAAP
financial measures. |
Financial Results for the Second Quarter of
2020:
The Human Nutrition &
Health segment generated quarterly sales of $97.4 million,
an increase of $11.6 million or 13.5% compared to the prior year
quarter. The increase was primarily driven by strong sales growth
of chelated minerals and choline nutrients as well as increased
sales into the food and beverage markets from both the legacy
business and 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
quarterly earnings from operations of $15.5 million, an increase of
$3.2 million or 25.6% compared to $12.3 million in the prior year
quarter, primarily due to the aforementioned higher sales and lower
selling expenses principally due to lower travel and a decrease in
bad debt expense. Excluding the effect of non-cash expense
associated with amortization of acquired intangible assets of $4.8
million and $4.9 million for the second quarter of 2020 and 2019,
respectively, adjusted earnings from operations(a) for this segment
were $20.3 million, compared to $17.2 million in the prior year
quarter.
The Animal Nutrition &
Health segment generated sales of $46.3 million, an
increase of $2.9 million or 6.6% compared to the prior year
quarter. The increase was primarily the result of higher volumes in
both the ruminant species and monogastric species markets. Second
quarter earnings from operations for this segment of $6.4 million
increased $1.4 million or 27.4% compared to $5.0 million in the
prior year quarter, primarily due to the aforementioned higher
sales, certain lower raw material costs, and lower selling expenses
principally due to lower travel. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
of $0.2 million in the second quarters of 2020 and 2019, adjusted
earnings from operations for this segment were $6.6 million,
compared to $5.2 million in the prior year quarter.
The Specialty Products segment
generated sales of $28.2 million, an increase of $3.3 million or
13.2% compared to the prior year quarter, primarily due to higher
sales of ethylene oxide for the medical device sterilization market
due to the incremental contribution of Chemogas, offset partially
by lower legacy sales which were negatively impacted by reduced
elective surgical procedures during the pandemic. Second
quarter earnings from operations for this segment were $8.0
million, versus $8.9 million in the prior year comparable quarter,
a decrease of $0.9 million or 9.8%, primarily due to lower legacy
ethylene oxide sales, product mix within plant nutrition, and
higher operating expenses due to the acquisition of Chemogas.
Excluding the effect of non-cash expense associated with
amortization of acquired intangible assets for the second quarter
of 2020 and 2019 of $1.6 million and $1.1 million, respectively,
adjusted earnings from operations for this segment were $9.6
million, compared to $10.0 million in the prior year quarter.
Consolidated gross margin for the quarter ended
June 30, 2020 of $55.4 million increased by $1.5 million or
2.7%, compared to $53.9 million for the prior year comparable
period. Gross margin as a percentage of sales was 31.9% as compared
to 33.4% in the prior year period, a decrease of 143 basis points.
The decrease was primarily due to mix and certain COVID-19
expenses, partially offset by certain lower raw material
costs. Operating expenses of $28.5 million for the quarter
increased $0.9 million from the prior year comparable quarter,
primarily due to incremental operating expenses related to the
Chemogas and Zumbro acquisitions and a goodwill impairment charge
related to business formerly included in the Industrial Products
segment, partially offset by lower selling expenses driven by
reduced travel and a decrease in bad debt expense. Excluding
non-cash operating expenses associated with amortization of
intangible assets of $6.2 million, operating expenses were $22.2
million, or 12.8% of sales.
Interest expense was $1.0 million in the second
quarter of 2020. Our effective tax rates for the three months ended
June 30, 2020 and 2019 were 18.7% and 20.3%, respectively. The
decrease in the effective tax rate from the prior year is primarily
due to lower enacted tax rates from several states, certain higher
tax credits, and excess tax benefits from stock-based
compensation.
For the quarter ended June 30, 2020, cash
flows provided by operating activities were $44.6 million, and free
cash flow was $37.0 million. The $195.9 million of net
working capital on June 30, 2020 included a cash balance of
$76.4 million, which reflects repayments of the revolving debt of
$35.0 million, and capital expenditures and intangible assets
acquired of $7.9 million.
Ted Harris said, “We are very proud of the
strong performance reported in the second quarter of 2020.
The Balchem team has continued to respond extraordinarily well to
the challenges and uncertainties created by the pandemic, with the
safety of our employees as our top priority. The progress we
have made driving our business forward and advancing our key growth
initiatives more than offset the headwinds we faced from the
challenging macro-economic environment."
Mr. Harris went on to add, “In addition, our
strong cash conversion and the further improvement in our balance
sheet over the course of the quarter provides financial strength as
we continue to progress our organic growth initiatives and seek
value-creating acquisitions.”
Quarterly Conference Call
A quarterly conference call will be held on
Friday, July 31, 2020, at 11:00 AM Eastern Time (ET) to review
second 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 Friday, August 14,
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 #13707371.
Segment Information
Previously, 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 Statements
This 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.
Contact: Mary Ann Brush, Balchem Corporation (Telephone:
845-326-5600)
Selected Financial Data (unaudited) ($
in 000’s)
Business Segment Net
Sales: |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Human Nutrition & Health |
|
$ |
97,428 |
|
|
$ |
85,872 |
|
|
$ |
192,936 |
|
|
$ |
171,021 |
|
Animal Nutrition &
Health |
|
46,344 |
|
|
43,480 |
|
|
94,985 |
|
|
86,841 |
|
Specialty Products |
|
28,194 |
|
|
24,907 |
|
|
56,190 |
|
|
43,331 |
|
Other and Unallocated (1) |
|
1,389 |
|
|
7,295 |
|
|
3,680 |
|
|
17,390 |
|
Total |
|
$ |
173,355 |
|
|
$ |
161,554 |
|
|
$ |
347,791 |
|
|
$ |
318,583 |
|
Business Segment Earnings
Before Income Taxes: |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Human Nutrition & Health |
|
$ |
15,497 |
|
|
$ |
12,338 |
|
|
$ |
27,632 |
|
|
$ |
26,041 |
|
Animal Nutrition &
Health |
|
6,430 |
|
|
5,045 |
|
|
14,474 |
|
|
10,301 |
|
Specialty Products |
|
8,008 |
|
|
8,879 |
|
|
15,994 |
|
|
15,576 |
|
Other and Unallocated (1) |
|
(3,018 |
) |
|
140 |
|
|
(4,905 |
) |
|
964 |
|
Interest and other
expense |
|
(944 |
) |
|
(1,521 |
) |
|
(2,732 |
) |
|
(3,208 |
) |
Total |
|
$ |
25,973 |
|
|
$ |
24,881 |
|
|
$ |
50,463 |
|
|
$ |
49,674 |
|
|
|
|
|
|
|
|
|
|
(1) Other and Unallocated consists of a few minor businesses which
individually do not meet the quantitative thresholds for separate
presentation and corporate expenses that have not been allocated to
a segment. Unallocated corporate expenses consist of: (i)
Transaction and integration costs, ERP implementation costs, and
unallocated legal fees totaling $746 and $2,018 for the three and
six months ended June 30, 2020, respectively, and $761 and $1,565
for the three and six months ended June 30, 2019 respectively
(refer to note 4 for descriptions of these charges), and (ii)
Unallocated amortization expense of $405 and $806 for the three and
six months ended June 30, 2020, respectively, and $10 and $19 for
the three and six months ended June 30, 2019, respectively, related
to an intangible asset in connection with a company-wide ERP system
implementation. |
Selected Balance Sheet
Items |
|
|
|
|
(Dollars in thousands) |
|
June 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
76,407 |
|
|
$ |
65,672 |
|
Accounts Receivable, net |
|
97,107 |
|
|
93,444 |
|
Inventories |
|
81,546 |
|
|
83,893 |
|
Other Current Assets |
|
8,802 |
|
|
11,937 |
|
Total Current Assets |
|
263,862 |
|
|
254,946 |
|
|
|
|
|
|
Property, Plant &
Equipment, net |
|
217,003 |
|
|
216,859 |
|
Goodwill |
|
522,929 |
|
|
523,998 |
|
Intangible Assets with Finite
Lives, net |
|
130,866 |
|
|
143,924 |
|
Right of Use Assets |
|
6,159 |
|
|
7,338 |
|
Other Assets |
|
10,437 |
|
|
8,617 |
|
Total Assets |
|
$ |
1,151,256 |
|
|
$ |
1,155,682 |
|
|
|
|
|
|
Current Liabilities |
|
$ |
67,960 |
|
|
$ |
92,258 |
|
Revolving Loan |
|
218,569 |
|
|
248,569 |
|
Deferred Income Taxes |
|
57,237 |
|
|
56,431 |
|
Derivative Liabilities |
|
2,168 |
|
|
2,103 |
|
Long-Term Obligations |
|
12,799 |
|
|
12,654 |
|
Total Liabilities |
|
358,733 |
|
|
412,015 |
|
|
|
|
|
|
Stockholders' Equity |
|
792,523 |
|
|
743,667 |
|
|
|
|
|
|
Total Liabilities and
Stockholders' Equity |
|
$ |
1,151,256 |
|
|
$ |
1,155,682 |
|
Balchem
CorporationCondensed Consolidated Statements of
Cash Flows(Dollars in thousands)(unaudited)
|
|
Six Months Ended June 30, |
|
|
2020 |
|
2019 |
Cash flows from
operating activities: |
|
|
|
|
Net earnings |
|
$ |
40,893 |
|
|
|
$ |
38,612 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
|
25,294 |
|
|
|
21,732 |
|
|
Stock compensation expense |
|
4,501 |
|
|
|
3,622 |
|
|
Other adjustments |
|
2,697 |
|
|
|
(2,187 |
) |
|
Changes in assets and liabilities |
|
(6,205 |
) |
|
|
(12,967 |
) |
|
Net cash
provided by operating activities |
|
67,180 |
|
|
|
48,812 |
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
— |
|
|
|
(94,690 |
) |
|
Capital expenditures and intangible assets acquired |
|
(13,265 |
) |
|
|
(14,714 |
) |
|
Proceeds from insurance and sale of assets |
|
22 |
|
|
|
2,729 |
|
|
Purchase of convertible note |
|
(350 |
) |
|
|
(1,000 |
) |
|
Net cash used
in investing activities |
|
(13,593 |
) |
|
|
(107,675 |
) |
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Proceeds from revolving loan |
|
10,000 |
|
|
|
108,569 |
|
|
Principal payments on revolving loan |
|
(40,000 |
) |
|
|
(36,000 |
) |
|
Principal payments on acquired debt |
|
— |
|
|
|
(12,222 |
) |
|
Proceeds from stock options exercised |
|
6,802 |
|
|
|
1,809 |
|
|
Dividends paid |
|
(16,704 |
) |
|
|
(15,135 |
) |
|
Purchase of treasury stock |
|
(3,025 |
) |
|
|
(727 |
) |
|
Net cash (used
in) provided by financing activities |
|
(42,927 |
) |
|
|
46,294 |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
75 |
|
|
|
(25 |
) |
|
|
|
|
|
|
Increase (decrease) in
cash and cash equivalents |
|
10,735 |
|
|
|
(12,594 |
) |
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period |
|
65,672 |
|
|
|
54,268 |
|
|
Cash and cash
equivalents, end of period |
|
$ |
76,407 |
|
|
|
$ |
41,674 |
|
|
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 1
Reconciliation of Non-GAAP Measures to
GAAP(Dollars in thousands, except per share
data)(unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Reconciliation of
adjusted gross margin |
|
|
|
|
|
|
|
|
GAAP gross margin |
|
$ |
55,380 |
|
|
$ |
53,918 |
|
|
$ |
110,711 |
|
|
$ |
103,013 |
|
Inventory valuation adjustment
(2) |
|
— |
|
|
— |
|
|
208 |
|
|
— |
|
Amortization of intangible
assets (3) |
|
742 |
|
|
661 |
|
|
1,466 |
|
|
1,395 |
|
Adjusted gross margin |
|
$ |
56,122 |
|
|
$ |
54,579 |
|
|
$ |
112,385 |
|
|
$ |
104,408 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of
adjusted earnings from operations |
|
|
|
|
|
|
|
|
GAAP earnings from
operations |
|
$ |
26,917 |
|
|
$ |
26,402 |
|
|
$ |
53,195 |
|
|
$ |
52,882 |
|
Inventory valuation adjustment
(2) |
|
— |
|
|
— |
|
|
208 |
|
|
— |
|
Amortization of intangible
assets (3) |
|
6,985 |
|
|
6,128 |
|
|
13,964 |
|
|
11,970 |
|
Transaction and integration
costs, ERP implementation costs, and unallocated legal fees
(4) |
|
746 |
|
|
761 |
|
|
2,018 |
|
|
1,565 |
|
Goodwill impairment (5) |
|
1,228 |
|
|
— |
|
|
1,228 |
|
|
— |
|
Adjusted earnings from
operations |
|
$ |
35,876 |
|
|
$ |
33,291 |
|
|
$ |
70,613 |
|
|
$ |
66,417 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of
adjusted net earnings |
|
|
|
|
|
|
|
|
GAAP net earnings |
|
$ |
21,125 |
|
|
$ |
19,829 |
|
|
$ |
40,893 |
|
|
$ |
38,612 |
|
Inventory valuation adjustment
(2) |
|
— |
|
|
— |
|
|
208 |
|
|
— |
|
Amortization of intangible
assets (3) |
|
7,056 |
|
|
6,199 |
|
|
14,105 |
|
|
12,112 |
|
Transaction and integration
costs, ERP implementation costs, and unallocated legal fees
(4) |
|
746 |
|
|
761 |
|
|
2,018 |
|
|
1,565 |
|
Goodwill impairment (5) |
|
1,228 |
|
|
— |
|
|
1,228 |
|
|
— |
|
Income tax adjustment (6) |
|
(2,593 |
) |
|
(1,543 |
) |
|
(4,449 |
) |
|
(3,313 |
) |
Adjusted net earnings |
|
$ |
27,562 |
|
|
$ |
25,246 |
|
|
$ |
54,003 |
|
|
$ |
48,976 |
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings per
common share - diluted |
|
$ |
0.85 |
|
|
$ |
0.77 |
|
|
$ |
1.66 |
|
|
$ |
1.51 |
|
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 six
months ended June 30, 2020 and 2019.
Table 2 (unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net income - as reported |
|
$ |
21,125 |
|
|
$ |
19,829 |
|
|
$ |
40,893 |
|
|
$ |
38,612 |
|
Add back: |
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
4,848 |
|
|
5,052 |
|
|
9,570 |
|
|
11,062 |
|
Other expense |
|
944 |
|
|
1,521 |
|
|
2,732 |
|
|
3,208 |
|
Depreciation and
amortization |
|
12,674 |
|
|
10,825 |
|
|
25,153 |
|
|
21,590 |
|
EBITDA |
|
39,591 |
|
|
37,227 |
|
|
78,348 |
|
|
74,472 |
|
Add back certain items: |
|
|
|
|
|
|
|
|
Non-cash compensation expense
related to equity awards |
|
2,320 |
|
|
1,991 |
|
|
4,454 |
|
|
3,622 |
|
Inventory valuation adjustment
(2) |
|
— |
|
|
— |
|
|
208 |
|
|
— |
|
Transaction and integration
costs, ERP implementation costs, and unallocated legal fees
(4) |
|
746 |
|
|
761 |
|
|
2,018 |
|
|
1,565 |
|
Goodwill impairment (5) |
|
1,228 |
|
|
— |
|
|
1,228 |
|
|
— |
|
Adjusted EBITDA |
|
$ |
43,885 |
|
|
$ |
39,979 |
|
|
$ |
86,256 |
|
|
$ |
79,659 |
|
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 six months ended June 30,
2020 and 2019.
Table 3(unaudited)
|
|
Three Months Ended June 30, |
|
2020 |
|
Effective TaxRate |
|
2019 |
|
Effective TaxRate |
GAAP Income Tax Expense |
|
$ |
4,848 |
|
|
18.7 |
% |
|
$ |
5,052 |
|
|
20.3 |
% |
Impact of ASU 2016-09 (7) |
|
673 |
|
|
|
|
98 |
|
|
|
Adjusted Income Tax
Expense |
|
$ |
5,521 |
|
|
21.3 |
% |
|
$ |
5,150 |
|
|
20.7 |
% |
|
|
Six Months Ended June 30, |
|
2020 |
|
Effective TaxRate |
|
2019 |
|
Effective TaxRate |
GAAP Income Tax Expense |
|
$ |
9,570 |
|
|
19.0 |
% |
|
$ |
11,062 |
|
|
22.3 |
% |
Impact of ASU 2016-09 (7) |
|
830 |
|
|
|
|
209 |
|
|
|
Adjusted Income Tax
Expense |
|
$ |
10,400 |
|
|
20.6 |
% |
|
$ |
11,271 |
|
|
22.7 |
% |
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of net cash
provided by operating activities to free cash flow for the three
and six months ended June 30, 2020 and 2019.
Table 4(unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net cash provided by operating activities |
|
$ |
44,615 |
|
|
$ |
26,329 |
|
|
$ |
67,180 |
|
|
$ |
48,812 |
|
Capital expenditures and
capitalized ERP implementation costs |
|
(7,595 |
) |
|
(6,200 |
) |
|
(12,747 |
) |
|
(14,688 |
) |
Free cash flow |
|
$ |
37,020 |
|
|
$ |
20,129 |
|
|
$ |
54,433 |
|
|
$ |
34,124 |
|
(2)
Inventory valuation adjustment: Business combination accounting
principles require us to measure acquired inventory at fair value.
The fair value of inventory reflects the acquired company’s cost of
manufacturing plus a portion of the expected profit margin. The
non-GAAP adjustment to our cost of sales excludes the expected
profit margin component that is recorded under business combination
accounting principles. We believe the adjustment is useful to
investors as an additional means to reflect cost of sales and gross
margin trends of our business. |
|
(3)
Amortization of intangible assets: Amortization of intangible
assets consists of amortization of customer relationships,
trademarks and trade names, developed technology, regulatory
registration costs, patents and trade secrets, capitalized loan
issuance costs, and other intangibles acquired primarily in
connection with business combinations. We record expense relating
to the amortization of these intangibles in our GAAP financial
statements. Amortization expenses for our intangible assets are
inconsistent in amount and are significantly impacted by the timing
and valuation of an acquisition. Consequently, our non-GAAP
adjustments exclude these expenses to facilitate an evaluation of
our current operating performance and comparisons to our past
operating performance. |
|
(4)
Transaction and integration costs, ERP implementation costs and
unallocated legal fees: Transaction and integration costs related
to acquisitions and divestitures are expensed in our GAAP financial
statements. ERP implementation costs related to a company-wide ERP
system implementation are expensed in our GAAP financial
statements. Unallocated legal fees for transaction-related
non-compete agreement disputes are expensed in our GAAP financial
statements. Management excludes these items for the purposes of
calculating Adjusted EBITDA and other non-GAAP financial measures.
We believe that excluding these items from our non-GAAP financial
measures is useful to investors because these are items associated
with each transaction and are inconsistent in amount and frequency
causing comparison of current and historical financial results to
be difficult. |
|
(5) Goodwill impairment: A goodwill impairment charge related to
business formerly included in the Industrial Products segment is
expensed in our GAAP financial statements. Management
excludes this item for the purposes of calculating Adjusted EBITDA
and other non-GAAP financial measures. We believe that
excluding this item from our non-GAAP financial measures is useful
to investors because this item is inconsistent in amount and
frequency causing comparison of current and historical financial
results to be difficult. |
|
(6) Income tax adjustment: For purposes of calculating adjusted net
earnings and adjusted diluted earnings per share, we adjust the
provision for (benefit from) income taxes to tax effect the taxable
and deductible non-GAAP adjustments described above as they have a
significant impact on our income tax (benefit) provision.
Additionally, the income tax adjustment is adjusted for the impact
of adopting ASU 2016-09, “Improvements to Employee Share-Based
Payment Accounting” and uses our non-GAAP effective rate applied to
both our GAAP earnings before income tax expense and non-GAAP
adjustments described above. See Table 3 for the calculation of our
non-GAAP effective tax rate. |
|
(7) Impact of ASU 2016-09: The primary impact of ASU No. 2016-09,
"Improvements to Employee Share-Based Payment Accounting" ("ASU
2016-09"), was the recognition during the three and six months
ended June 30, 2020 and 2019, of excess tax benefits as a
reduction to the provision for income taxes and the classification
of these excess tax benefits in operating activities in the
consolidated statement of cash flows instead of financing
activities. |
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