Balchem Corporation (NASDAQ: BCPC) today reported for the first
quarter 2019 net earnings of $18.8 million, compared to net
earnings of $19.3 million for the first quarter 2018. First quarter
adjusted net earnings(a) were $23.7 million, compared to $24.4
million in the prior year quarter. First quarter adjusted EBITDA(a)
was $39.7 million, compared to $40.7 million in the prior year
quarter.
First Quarter 2019 Financial
Highlights:
- First quarter net sales of $157.0 million, a decrease of $4.4
million, or 2.7%, compared to the prior year quarter.
- Year over year quarterly sales growth in two of our four
segments; Human Nutrition and Health and Specialty Products with
record first quarter sales in Human Nutrition and Health.
- First quarter adjusted EBITDA was $39.7 million, a decrease of
$1.1 million, or 2.6%, from the prior year.
- First quarter GAAP net earnings were $18.8 million, a decrease
of $0.6 million, or 2.9%, from the prior year, primarily due to
lower earnings before income tax expense within our Animal
Nutrition and Health segment and a higher effective tax rate due to
lower excess tax benefits from stock-based compensation and
increased state taxes. These net earnings resulted in GAAP earnings
per share of $0.58. Quarterly adjusted net earnings of $23.7
million decreased $0.7 million or 2.8% from the prior year,
resulting in adjusted earnings per share(a) of $0.73.
- Quarterly cash flows from operations were $22.5 million for the
first quarter 2019 with quarterly free cash flow(a) of $14.0
million.
Recent Highlights:
- On May 2, 2019, the Company signed a definitive agreement to
acquire 100% of the outstanding common shares of Chemogas NV, a
privately held specialty gases company, headquartered in
Grimbergen, Belgium. Chemogas is a leader in the packaging and
distribution of a wide variety of specialty gases, most notably
ethylene oxide for medical device sterilization, primarily in the
European and Asian markets. Closing of the transaction is still
subject to the completion of customary closing conditions.
- Our Animal Nutrition and Health team launched our newest
innovation in amino acid nutrition for Ruminants with the arrival
of AminoShure XM, rumen protected methionine. This next generation
product offers enhanced bioavailability and superior feed stability
that allows it to deliver industry-leading value for dairy farmers
around the world.
Ted Harris, Chairman, CEO, and President of
Balchem said, “Overall, we are pleased with the progress made in
the first quarter. Continued growth in Human Nutrition and Health
and Specialty Products was, however, more than offset by the
expected headwinds we experienced in Animal Nutrition and Health,
driven by the prior year benefits from Chinese supply disruptions
not repeating, and the lower oil and gas fracking activity that
impacted our Industrial Products segment.”
Mr. Harris went on to add, “We are very excited
about the acquisition of Chemogas NV. The combination of our two
companies clearly creates the global leader in the critical supply
of ethylene oxide to the medical device sterilization industry
which will significantly enhance our ability to service and support
our customers on a more global basis.”
Results for Period Ended March 31, 2019
(unaudited)(Dollars in thousands, except per share
data)
|
Three Months Ended |
|
March 31, |
|
|
2019 |
|
|
2018 |
Net sales |
$ |
157,029 |
|
$ |
161,410 |
Gross margin |
|
49,095 |
|
|
51,459 |
Operating expenses |
|
22,615 |
|
|
24,219 |
Earnings from
operations |
|
26,480 |
|
|
27,240 |
Other expense |
|
1,687 |
|
|
2,063 |
Earnings before income tax
expense |
|
24,793 |
|
|
25,177 |
Income tax expense |
|
6,010 |
|
|
5,831 |
Net earnings |
$ |
18,783 |
|
$ |
19,346 |
|
|
|
|
|
|
Diluted net earnings per
common share |
$ |
0.58 |
|
$ |
0.60 |
|
|
|
|
|
|
Adjusted EBITDA(a) |
$ |
39,680 |
|
$ |
40,740 |
Adjusted net
earnings(a) |
$ |
23,730 |
|
$ |
24,418 |
Adjusted net earnings per
common share(a) |
$ |
0.73 |
|
$ |
0.76 |
|
|
|
|
|
|
Shares used in the
calculations of diluted and adjusted net earnings per common
share |
|
32,509 |
|
|
32,327 |
|
|
|
(a) See
“Non-GAAP Financial Information” for a reconciliation of GAAP and
non-GAAP financial measures. |
Segment Financial Results for the First Quarter of
2019:
The Human Nutrition &
Health segment generated record first quarter sales of
$85.1 million, an increase of $2.1 million or 2.5% compared to the
prior year quarter. The increase was driven by higher sales within
our ingredient solutions business into food and beverage markets,
along with increased sales in our cereal systems business. Record
quarterly earnings from operations for this segment of $13.7
million increased $0.8 million or 6.0% compared to $12.9 million in
the prior year quarter, primarily due to the aforementioned higher
sales and lower amortization expense, partially offset by mix.
Excluding the effect of non-cash expense associated with
amortization of acquired intangible assets for first quarter of
2019 and 2018 of $5.0 million and $5.5 million, respectively,
adjusted earnings from operations(a) for this segment were $18.7
million, compared to $18.4 million in the prior year quarter.
The Animal Nutrition &
Health segment generated quarterly sales of $43.4 million,
a decrease of $2.8 million or 6.0% compared to the prior year
quarter. The decreased sales were primarily due to lower European
monogastric species volumes, partially offset by higher global
ruminant species volumes. First quarter earnings from operations
for this segment of $5.3 million were down from the prior year
comparable quarter of $7.5 million, primarily due to lower volumes
and margins in the European monogastric business as a result of
increased competitive activity. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
for the first quarter of 2019 and 2018 of $0.2 million and $0.1
million, respectively, adjusted earnings from operations for this
segment were $5.4 million, compared to $7.5 million in the prior
year quarter.
The Specialty Products segment
generated first quarter sales of $18.4 million, an increase of $0.7
million or 3.9% compared to the prior year quarter, primarily due
to higher sales of ethylene oxide for the medical device
sterilization market. Record first quarter earnings from operations
for this segment were $6.7 million, versus $5.0 million in the
prior year comparable quarter, an increase of $1.7 million or
33.0%, primarily due to the aforementioned higher sales and
improved mix. Excluding the effect of non-cash expense associated
with amortization of acquired intangible assets for the first
quarter of 2019 and 2018 of $0.7 million and $0.7 million,
respectively, adjusted earnings from operations for this segment
were $7.4 million, compared to $5.8 million in the prior year
quarter.
The Industrial Products segment
sales of $10.1 million decreased $4.4 million or 30.2% from the
prior year comparable quarter, primarily due to reduced sales
volumes of choline and choline derivatives used in shale fracking
applications. Earnings from operations for the Industrial Products
segment were $1.6 million, a decrease of $0.8 million or 34.0%
compared with the prior year comparable quarter, primarily due to
the aforementioned lower sales volumes.
Consolidated gross margin for the quarter ended March 31, 2019
of $49.1 million decreased by $2.4 million or 4.6%, compared to
$51.5 million for the prior year comparable period. Gross margin as
a percentage of sales was 31.3% as compared to 31.9% in the prior
year period. The decrease was primarily due to mix and the
increased competitive activity in the European monogastric market.
Operating expenses of $22.6 million for the quarter were down $1.6
million from the prior year comparable quarter, primarily due to a
decrease in certain compensation-related expenses. Excluding
non-cash operating expense associated with amortization of
intangible assets of $5.1 million, operating expenses were $17.5
million, or 11.1% of sales.
Interest expense was $1.6 million in the first
quarter of 2019. Our effective tax rates for the three months ended
March 31, 2019 and 2018 were 24.2% and 23.2%, respectively. The
increase in the effective tax rate from the prior year is primarily
due to lower excess tax benefits from stock-based compensation and
higher state taxes.
For the quarter ended March 31, 2019, cash flows
provided by operating activities were $22.5 million, and quarterly
free cash flow was $14.0 million. The $157.9 million of net working
capital on March 31, 2019 included a cash balance of $39.0 million,
which reflects revolving loan payments of $16.0 million, dividend
payments of $15.1 million, and capital expenditures of $8.5 million
in the first quarter of 2019. The Company continues to invest in
projects across all facilities to improve capabilities and
operating efficiencies.
Ted Harris, Chairman, CEO, and President of
Balchem said, “Our first quarter earnings once again highlight the
strength of our business model, particularly in light of the
specific headwinds we faced in the quarter. We delivered sales
growth in two of our four reporting segments, and when adjusting
for the prior year benefit from the Chinese supply disruptions, the
underlying Animal Nutrition and Health segment grew nicely. We
remain cautious regarding the Industrial Products segment, although
we do expect fracking activity to pick up in the later part of the
year.”
Mr. Harris went on to add, “Moving forward, we
will continue to drive our strategic growth initiatives, through
both organic investments in new manufacturing capabilities and new
product development, as well as value creating acquisitions.”
Quarterly Conference CallA
quarterly conference call will be held on Friday, May 3, 2019, at
11:00 AM Eastern Time (ET) to review first quarter 2019 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, May 17, 2019. To access the replay of the conference
call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use
conference ID #13690170.
Segment InformationBalchem
Corporation reports four business segments: Human Nutrition &
Health; Animal Nutrition & Health; Specialty Products; and
Industrial 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. The Industrial Products segment
manufactures and supplies certain derivative products into
industrial applications.
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, 2018. 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) |
|
|
Three Months Ended |
Business Segment Net Sales |
March 31, |
|
|
|
2019 |
|
2018 |
Human Nutrition &
Health |
$ |
85,149 |
|
$ |
83,063 |
Animal Nutrition &
Health |
|
43,361 |
|
|
46,141 |
Specialty Products |
|
18,424 |
|
|
17,740 |
Industrial Products |
|
10,095 |
|
|
14,466 |
Total |
$ |
157,029 |
|
$ |
161,410 |
|
Three Months Ended |
Business Segment Earnings Before Income Taxes |
March 31, |
|
2019 |
|
2018 |
|
Human Nutrition &
Health |
$ |
13,703 |
|
$ |
12,932 |
|
Animal Nutrition &
Health |
|
5,256 |
|
|
7,484 |
|
Specialty Products |
|
6,697 |
|
|
5,034 |
|
Industrial Products |
|
1,637 |
|
|
2,479 |
|
Transaction costs,
integration costs and unallocated legal fees |
|
(804 |
) |
|
(689 |
) |
Unallocated amortization
expense |
|
(9 |
) |
|
— |
|
Interest and other
expense |
|
(1,687 |
) |
|
(2,063 |
) |
Total |
$ |
24,793 |
|
$ |
25,177 |
|
|
|
|
|
Selected Balance
Sheet Items |
March 31, |
|
December 31, |
|
2019 |
|
2018 |
Cash and Cash
Equivalents |
$ |
39,004 |
|
$ |
54,268 |
|
Accounts Receivable,
net |
|
99,834 |
|
|
99,545 |
|
Inventories |
|
66,764 |
|
|
67,187 |
|
Other Current Assets |
|
16,064 |
|
|
5,314 |
|
Total Current Assets |
|
221,666 |
|
|
226,314 |
|
|
|
|
Property, Plant &
Equipment, net |
|
188,036 |
|
|
194,339 |
|
Goodwill |
|
446,453 |
|
|
447,995 |
|
Intangible Assets with
Finite Lives, net |
|
100,088 |
|
|
105,985 |
|
Right of Use Assets |
|
8,036 |
|
|
— |
|
Other Assets |
|
7,609 |
|
|
6,722 |
|
Total Assets |
$ |
971,888 |
|
$ |
981,355 |
|
|
|
|
Current Liabilities |
$ |
63,810 |
|
$ |
82,056 |
|
Revolving Loan |
|
140,000 |
|
|
156,000 |
|
Deferred Income Taxes |
|
44,311 |
|
|
44,309 |
|
Long-Term Obligations |
|
13,258 |
|
|
7,372 |
|
Total Liabilities |
|
261,379 |
|
|
289,737 |
|
|
|
|
Stockholders' Equity |
|
710,509 |
|
|
691,618 |
|
|
|
|
Total Liabilities and
Stockholders' Equity |
$ |
971,888 |
|
$ |
981,355 |
|
|
|
|
|
|
|
|
Balchem
CorporationCondensed Consolidated Statements of
Cash Flows(Dollars in thousands)(unaudited)
|
Three Months Ended |
|
March 31, |
|
2019 |
|
|
2018 |
Cash flows from
operating activities: |
|
|
|
|
|
|
|
Net
earnings |
$ |
18,783 |
|
|
$ |
19,346 |
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
10,836 |
|
|
|
11,127 |
|
Stock
compensation expense |
|
1,631 |
|
|
|
1,793 |
|
Other
adjustments |
|
(2,432 |
) |
|
|
(1,078 |
) |
Changes in
assets and liabilities |
|
(6,335 |
) |
|
|
(5,709 |
) |
Net
cash provided by operating activities |
|
22,483 |
|
|
|
25,479 |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
Capital
expenditures and intangible assets acquired |
|
(8,507 |
) |
|
|
(3,854 |
) |
Insurance
Proceeds |
|
2,727 |
|
|
|
1,590 |
|
Net
cash used in investing activities |
|
(5,780 |
) |
|
|
(2,264 |
) |
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
Principal
payments on long-term and revolving debt |
|
(16,000 |
) |
|
|
(8,750 |
) |
Proceeds
from stock options exercised |
|
288 |
|
|
|
1,261 |
|
Dividends
paid |
|
(15,135 |
) |
|
|
(13,421 |
) |
Other |
|
(727 |
) |
|
|
(786 |
) |
Net
cash used in financing activities |
|
(31,574 |
) |
|
|
(21,696 |
) |
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
(393 |
) |
|
|
744 |
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents |
|
(15,264 |
) |
|
|
2,263 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period |
|
54,268 |
|
|
|
40,416 |
|
Cash and cash
equivalents, end of period |
$ |
39,004 |
|
|
$ |
42,679 |
|
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, acquisition-related expenses, indemnification
settlements, legal settlements, unallocated legal fees and the fair
valuation of acquired inventory. 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.
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 |
|
March 31, |
|
2019 |
|
2018 |
Reconciliation of
adjusted gross margin |
|
|
|
|
|
|
GAAP gross margin |
$ |
49,095 |
|
|
$ |
51,459 |
|
Amortization of intangible
assets (1) |
|
734 |
|
|
|
842 |
|
Adjusted gross margin |
$ |
49,829 |
|
|
$ |
52,301 |
|
|
|
|
|
|
|
|
Reconciliation of
adjusted earnings from operations |
|
|
|
|
|
|
GAAP earnings from
operations |
$ |
26,480 |
|
|
$ |
27,240 |
|
Amortization of intangible
assets (1) |
|
5,842 |
|
|
|
6,282 |
|
Transaction costs,
integration costs and unallocated legal fees (2) |
|
804 |
|
|
|
689 |
|
Adjusted earnings from
operations |
$ |
33,126 |
|
|
$ |
34,211 |
|
|
|
|
|
|
|
|
Reconciliation of
adjusted net earnings |
|
|
|
|
|
|
GAAP net earnings |
$ |
18,783 |
|
|
$ |
19,346 |
|
Amortization of intangible
assets (1) |
|
5,913 |
|
|
|
6,391 |
|
Transaction costs,
integration costs and unallocated legal fees (2) |
|
804 |
|
|
|
689 |
|
Income tax adjustment
(3) |
|
(1,770 |
) |
|
|
(2,008 |
) |
Adjusted net earnings |
$ |
23,730 |
|
|
$ |
24,418 |
|
|
|
|
|
|
Adjusted net earnings per
common share - diluted |
$ |
0.73 |
|
|
$ |
0.76 |
|
(1) 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, 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.
(2) Transaction costs, integration costs and
unallocated legal fees: Transaction and integration costs related
to acquisitions 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.
(3) 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.
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 months ended March 31,
2019 and 2018.
Table 2(unaudited)
|
Three
Months Ended |
|
March 31, |
|
2019 |
|
2018 |
Net income - as reported |
$ |
18,783 |
|
$ |
19,346 |
Add back: |
|
|
|
|
|
Provision for income taxes |
|
6,010 |
|
|
5,831 |
Other expense |
|
1,687 |
|
|
2,063 |
Depreciation and amortization |
|
10,765 |
|
|
11,018 |
EBITDA |
|
37,245 |
|
|
38,258 |
Add back certain items: |
|
|
|
|
|
Non-cash compensation expense related to equity
awards |
|
1,631 |
|
|
1,793 |
Transaction costs, integration costs and
unallocated legal fees |
|
804 |
|
|
689 |
Adjusted EBITDA |
$ |
39,680 |
|
$ |
40,740 |
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 months ended March 31, 2019 and 2018.
Table 3(unaudited)
|
Three Months Ended |
|
March 31, |
|
|
|
Effective Tax |
|
|
Effective Tax |
|
|
2019 |
Rate |
|
2018 |
Rate |
GAAP Income Tax
Expense |
$ |
6,010 |
24.2% |
|
$ |
5,831 |
23.2% |
Impact of ASU 2016-09
adoption(4) |
|
111 |
|
|
|
287 |
|
Adjusted Income Tax
Expense |
$ |
6,121 |
24.7% |
|
$ |
6,118 |
24.3% |
(4) Impact of ASU 2016-09 adoption: In March 2016, the FASB
issued ASU No. 2016-09, “Improvements to Employee Share- Based
Payment Accounting” (“ASU 2016-09”), which addresses the accounting
for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. The
Company adopted ASU 2016-09 on January 1, 2017 prospectively (prior
periods have not been restated). The primary impact of adoption was
the recognition during the three months ended March 31, 2019 and
2018, 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. The presentation requirements for
cash flows related to employee taxes paid for withheld shares had
no impact to any of the periods presented in the consolidated
statement of cash flows, since such cash flows have historically
been presented in financing activities. The Company also elected to
continue estimating forfeitures when determining the amount of
stock-based compensation costs to be recognized in each period. No
other provisions of ASU 2016-09 had a material impact on the
Company’s financial statements or disclosures.
The following table sets forth a reconciliation of net cash
provided by operating activities to free cash flow for the three
months ended March 31, 2019 and 2018.
Table 4(unaudited)
|
Three Months Ended |
|
March 31, |
|
2019 |
|
|
|
2018 |
Net cash provided by
operating activities |
$ |
22,483 |
|
|
$ |
25,479 |
|
Capital expenditures |
|
(8,488 |
) |
|
|
(3,735 |
) |
Free cash flow |
$ |
13,995 |
|
|
$ |
21,744 |
|
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