BALCHEM CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a strong year for Balchem with record full year sales of $954 million, growing 3.4% year-over-year. Record earnings from operations of $183 million, an increase of 14.9%, and record adjusted EBITDA of $250 million, an increase of 8.4% from the prior year. Generated strong free cash flow of $147 million, paying down debt and reducing net debt leverage ratio to 0.6 times.
• Human Nutrition & Health segment launched three innovative new products: K2VITAL DELTA fermented, VitaCholine Pro-Flo, and Optifolin+. Animal Nutrition & Health segment launched AminoShure-XL.
• Brand partnerships: VitaCholine became a partner of the New York Jets; K2VITAL partnered with the Bayern Munich women's soccer team.
• Made progress on 2030 sustainability goals, tracking ahead on greenhouse gas emissions reductions and reducing water usage by approximately 15% compared to 2020 baseline. Completed important capital projects to reach water usage goal ahead of schedule.
• Increased annual dividend from $0.79 to $0.87 per share, 10% increase, marking 16th consecutive year of double-digit dividend growth.

Segment Performance

• Human Nutrition & Health: Fourth quarter sales were $147 million, an increase of 6.8% from the prior year. Quarterly earnings from operations were $34 million, an increase of 33.9%, and adjusted earnings from operations were $36 million, an increase of 21.8%.
• Animal Nutrition & Health: Quarterly sales were $58 million, an increase of 0.3% compared to the prior year. Earnings from operations were $6 million, an increase of 7.2%, and adjusted earnings from operations were $6 million, an increase of 6.5%.
• Specialty Products: Sales were $33 million, an increase of 6% compared to the prior year. Earnings from operations were $10 million, an increase of 15.9%, and adjusted earnings from operations were $11 million, an increase of 11.2%.

Guidance

• Expect continued strong performance in Human Nutrition & Health and Specialty Products segments. Animal Nutrition & Health segment expected to deliver solid growth in 2025, particularly with momentum in ruminant business.
• Anticipate portfolio mix to support strong margins, with ruminant business in Animal Nutrition & Health being higher margin than monogastric business, and Nutrients business in Human Nutrition & Health having higher margin than Food Ingredients and Solutions business.

Risks

• Geopolitical and macroeconomic environment changes, particularly significant tariffs impacting complex global supply chains. Potential impact on input costs, with raw material deflation period plateauing and turning to slightly inflationary period.
• Uncertainty regarding trade tariffs and their impact on global supply and demand, which could affect margins.

Question and Answer

• Q: Dive deeper into the contribution from nutrients versus food ingredients in Human Nutrition & Health and their outlooks?

A: Nutrients business grew over 5% in Q4, Food Solutions business over 7%. Nutrients business had standout K2 business in Q4, and Food business saw strong growth in encapsulated products.

• Q: Recovery of Animal Nutrition & Health segment and future outlook?

A: Q4 achieved modest year-over-year growth. Ruminant business healthy, monogastric business affected by European situation. Expect ruminant business to continue growing in 2025.

• Q: Marketing strategies for VitaCholine Pro-Flo and tariff exposure in regions?

A: Will promote VitaCholine's health benefits via social media. Sourcing from China and Mexico is small, sales to these regions are also small; Canada market has some concern.

• Q: Foreign tax impact and Animal Health business exposure to bird flu?

A: Fourth quarter foreign tax impact was one-off, effective tax rate won't be materially affected going forward. Bird flu has some impact but not causing significant demand change.

• Q: Margins outlook in 2025 and M&A market situation?

A: Raw material input costs likely to move from deflation to slight inflation. Portfolio mix supports strong margins. M&A deal flow increasing but not yet a hot market, with pent-up demand and improving activity.