NEW HAMPTON, N.Y., Nov. 3, 2015 (GLOBE NEWSWIRE) — Balchem Corporation (NASDAQ:BCPC) reported as follows (unaudited) for the period ended September 30, 2015.

($000 Omitted Except for Net Earnings per Share)
 
For the Three Months Ended September 30,
     
  2015 2014
   Unaudited
Net sales   $ 140,128  $ 160,490
Gross margin  43,174  44,487
Operating expenses  20,252  19,203
Earnings from operations   22,922  25,284
Other expense   1,733  2,075
Earnings before income tax expense  21,189  23,209
Income tax expense   7,213  8,031
Net earnings   $ 13,976  $ 15,178
     
Diluted net earnings per common share   $ 0.44  $ 0.49
     
Shares used in the calculation of diluted net earnings per common share  31,718  31,246
     
For the Nine Months Ended September 30,
 
  2015 2014
  Unaudited
Net sales   $ 419,763  $ 378,715
Gross margin  128,171  100,037
Operating expenses  56,437  44,889
Earnings from operations   71,734  55,148
Other expense   5,294  3,276
Earnings before income tax expense  66,440  51,872
Income tax expense   22,377  18,068
Net earnings   $ 44,063  $ 33,804
     
Diluted net earnings per common share   $ 1.40  $ 1.09
     
Shares used in the calculation of diluted net earnings per common share  31,580  31,136

Third Quarter Results:

  • For the quarter ended September 30, 2015, the Company posted revenue results of $140.1 million, a decrease of 12.7% compared to the third quarter of 2014, primarily due to an unfavorable impact of 9.6% related to the significant downturn in the oil & gas market. Positively impacting net sales were approximately 2% and 1% sales increases for the SensoryEffects and Specialty Products segments, respectively. The Animal Nutrition & Health segment realized flat volumes, but a 13% sales decline, substantially all related to international markets.
  • U.S. GAAP net earnings for the quarter of $14.0 million, or $0.44 per diluted share, compared to $15.2 million, or $0.49 per diluted share, for the third quarter of 2014, a decrease of 7.9%.
  • Non-GAAP1 net earnings for the quarter of $19.4 million, or $0.61 per diluted share, compared to $20.3 million, or $0.65 per diluted share, for the third quarter of 2014, a decrease of 4.2%.
  • Adjusted EBITDA1 of $35.7 million or 25.5% of sales for the third quarter of 2015, versus $37.0 million or 23.1% of sales in the comparable period of 2014.
  • Strong cash flows generated, including cash from operations of $29.0 million for the third quarter of 2015 and $78.9 million year-to-date through September 30, 2015.

Segment Financial Results for the Third Quarter of 2015:

The SensoryEffects segment, inclusive of the former Food, Pharma & Nutrition (“FPN”) segment, which includes food encapsulates, human choline, cereal and customized food, flavor and beverage solutions, generated record quarterly sales of $73.0 million, an increase of $1.2 million over the prior year quarter, and up $5.7 million sequentially from the second quarter 2015. Record quarterly earnings from operations for this segment were $11.6 million, versus $8.7 million in the prior year comparable quarter, an increase of $2.9 million or 32.7%, and were up sequentially $2.5 million or 27.7%. Earnings from operations for the quarter were favorably impacted by the noted increased sales, particularly in powder and cereal systems, an improved product mix, and lower raw material costs.

The Animal Nutrition & Health2 (“ANH”) segment volumes were flat year over year and up 1% sequentially, while sales of $39.9 million decreased 12.8% or $5.9 million compared to the prior year comparable quarter, or a 7.9% decrease when adjusting for foreign currency, and decreased $1.7 million sequentially from the second quarter 2015.  While global monogastric species volumes were relatively strong, our ruminant species volumes fell far short of expectations primarily due to significantly lower export sales as a result of very challenging global dairy market dynamics combined with the ongoing strength of the dollar and increased global competition.  Lower average selling prices of monogastric products, driven by lower raw material costs, also negatively impacted sales. Earnings from operations for the ANH segment decreased 19.1% to $5.6 million as compared to $7.0 million in the prior year comparable quarter, an impact of the aforementioned lower sales and an unfavorable product mix, partially offset by cost decreases of key petrochemical raw materials.

The Specialty Products segment generated record third quarter sales of $13.8 million, which was a 1.2% improvement over the comparable prior year quarter, and was primarily due to increased sales volumes of ethylene oxide products for medical device sterilization. Third quarter earnings from operations for this segment remained strong at $6.0 million.

The Industrial Products2 segment sales declined $15.8 million or 54.2% from the prior year comparable quarter primarily due to significantly reduced volumes sold of choline and choline derivatives for industrial applications, notably for natural gas fracking in North America. Additionally, average selling prices were lower as a result of pressures related to the well-publicized recent industry activity downturn and operators desire to curb hydrocarbon production costs. Earnings from operations for the Industrial Products segment were $1.1 million, a reduction of $3.7 million or 76.5% compared with the prior year comparable quarter, and was primarily a reflection of the reduced volume and the aforementioned lower average selling prices.

Consolidated gross margin for the quarter ended September 30, 2015 decreased 3.0% to $43.2 million, as compared to $44.5 million for the prior year comparable period. For the three months ended September 30, 2015, gross margin as a percentage of sales was 30.8% compared to 27.7% in the prior year comparative period. The improvement was primarily due to favorable product mix and lower raw material costs, which were partially offset by the impact of previously noted lower volumes. Operating (Selling, Research & Development, General & Administrative) expenses were $20.3 million for the third quarter, higher than the prior year comparable quarter of $19.2 million, but included $1.5 million of one-time equity compensation expense associated with the retirement from the Company of the former CEO and current Chairman of the Board of Directors, Dino A. Rossi. Excluding non-cash operating expenses associated with amortization of intangible assets of $6.4 million and the aforementioned one-time equity compensation expense, operating expenses were $12.4 million, or 8.8% of sales.

Interest expense was $1.6 million in the third quarter of 2015, all of which related to the debt financing of the SensoryEffects acquisition. Our effective tax rate for the three months ended September 30, 2015 and 2014 was 34.0% and 34.6%, respectively. This decrease in the effective tax rate was primarily attributable to a change in the apportionment relating to state income taxes, and a change in the income proportion towards jurisdictions with lower tax rates.

The Company continues to build a solid financial structure. YTD 2015 cash flow provided by operating activities was $78.9 million, and diligent working capital controls continue to contribute strongly to the business performance. The $127.1 million of net working capital on September 30, 2015 included a cash balance of $81.6 million, which reflects scheduled principal payments on long-term debt of $8.8 million and capital expenditures of $12.9 million in the third quarter of 2015. The Company continues to invest in projects across all facilities to improve capabilities and operating efficiencies.

Ted Harris, CEO and President of Balchem said, “Our solid third quarter earnings once again highlight the strength of our business model, particularly in light of the significant headwinds we are facing in several of our business segments. The modest sales growth, and significant bottom line growth, we delivered in SensoryEffects is encouraging and highlights the value created from the integration of the acquisition. The record sales and strong earnings delivered by Specialty Products shows the continued strength of this business segment. Our Animal Nutrition and Health segment is being challenged in the short term by the strong dollar and unfavorable global dairy economics, but we remain confident in the future prospects of this segment given the efficacy and innovation of our nutritional solutions coupled with the longer term macro trends within the industry. And while our Industrial Products sales were modestly up sequentially, we believe recent activity in the North American oil and gas industry will result in challenging market conditions that extend into 2016. Our cash generation for the quarter was once again very strong, continuing to strengthen our balance sheet and the financial position of our company.”

Ted Harris went on to add, “Moving forward, we will continue to drive strategic growth initiatives, particularly in SensoryEffects and Animal, Nutrition and Health, through both organic investments in new manufacturing capabilities and new product development, as well as acquisitions. At the same time, we will also aggressively manage supply chain costs and selling, general and administrative spend.”

1See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures.

2Beginning in fiscal year 2015, we realigned certain reporting segments and now report on four segments. The Company’s Specialty Products and SensoryEffects business segments remain unchanged, while the Animal Nutrition & Health segment has been broken out into two separate reporting segments: Animal Nutrition & Health and Industrial Products. The Company expects that the new reporting segment structure will provide investors greater visibility and clarity into the financial performance of its businesses, and alignment between business strategies and operating results.

Quarterly Conference Call

A quarterly conference call will be held on Tuesday, November 3, 2015, at 11:00 AM Eastern Time (ET) to review Third Quarter 2015 results. Ted Harris, President & Chief Executive Officer, and Bill Backus, Chief Financial Officer, 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 digital replay two hours after the conclusion of the call through end of day Tuesday, November 17, 2015. To access the replay of the conference call, dial 1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13623616.

Segment Information

Balchem Corporation reports four business segments: Specialty Products; SensoryEffects (formerly Food, Pharma & Nutrition); Animal Nutrition & Health; and Industrial Products. Through Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries. The SensoryEffects segment provides customized food and beverage ingredient systems and proprietary microencapsulation solutions to a variety of applications in the human food, pharmaceutical and nutrition marketplaces. The Animal Nutrition & Health segment manufactures and supplies products to numerous animal health markets. The Industrial Products segment manufactures and supplies certain derivative products into industrial applications.

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, 2014. 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.

Selected Financial Data
($ in 000’s)
 
Business Segment Net Sales:
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
SensoryEffects  $ 72,978  $ 71,821  $ 207,965  $ 133,170
Animal Nutrition & Health  39,947  45,805  124,295  129,879
Specialty Products  13,818  13,652  41,202  40,086
Industrial Products  13,385  29,212  46,301  75,580
Total  $ 140,128  $ 160,490  $ 419,763  $ 378,715
         
Business Segment Earnings Before Income Taxes:
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
SensoryEffects  $ 11,604  $ 8,743  $ 28,397  $ 14,218
Animal Nutrition & Health  5,625  6,953  21,603  16,622
Specialty Products  6,031  5,306  17,825  15,576
Industrial Products  1,124  4,776  5,371  12,074
Transaction and integration costs  —   (494)  —   (3,342)
Unallocated equity compensation  (1,462)  —   (1,462)  — 
Interest and other expense   (1,733)  (2,075)  (5,294)  (3,276)
Total  $ 21,189  $ 23,209  $ 66,440  $ 51,872
         
Selected Balance Sheet Items September 30, December 31,
  2015 2014
Cash and Cash Equivalents  $ 81,556  $ 50,287
Accounts Receivable, net   64,220  71,982
Inventories   50,697  49,623
Other Current Assets   7,657  9,410
Total Current Assets   204,130  181,302
     
Property, Plant & Equipment, net   149,169  131,588
Goodwill  383,906  383,906
Intangible Assets With Finite Lives, net  141,216  160,394
Other Assets   4,173  4,341
Total Assets   $ 882,594  $ 861,531
     
Current Liabilities  $ 42,051  $ 60,522
Current Portion of Long Term-Debt  35,000  35,000
Long-Term Debt  271,250  297,500
Deferred Income Taxes  70,631  70,661
Long-Term Obligations  6,345  5,950
Total Liabilities  425,277  469,633
     
Stockholders’ Equity  457,317  391,898
     
Total Liabilities and Stockholders’ Equity  $ 882,594  $ 861,531
     
Balchem Corporation 
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
  Nine Months Ended 
  September 30,
  2015 2014
     
Cash flows from operating activities:    
Net Earnings   $ 44,063  $ 33,804
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization  29,816  20,190
Stock compensation expense   5,656  3,449
Other adjustments   277  (3,325)
Changes in assets and liabilities  (962)  (4,877)
Net cash provided by operating activities  78,850  49,241
     
Cash flow from investing activities:    
Cash paid in acquisition, net of cash acquired   —   (491,057)
Capital expenditures and intangible assets acquired  (28,810)  (6,025)
Net cash used in investing activities  (28,810)  (497,082)
     
Cash flows from financing activities    
Proceeds from long-term and revolving debt  —   400,000
Principal payments on long-term and revolving debt  (26,250)  (134,300)
Cash paid for financing costs  —   (2,593)
Proceeds from stock options exercised  11,901  6,608
Excess tax benefits from stock compensation   6,688  3,626
Dividends paid  (9,251)  (7,856)
Other  (1,131)  (356)
Net cash (used in) provided by financing activities  (18,043)  265,129
     
Effect of exchange rate changes on cash  (728)  (631)
     
Increase (decrease) in cash and cash equivalents  31,269  (183,343)
     
Cash and cash equivalents, beginning of period  50,287  208,747
Cash and cash equivalents, end of period  $ 81,556  $ 25,404

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. 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 non-GAAP consolidated operating income, non-GAAP consolidated net income and the related per diluted share amounts, non-GAAP adjusted EBITDA and Free cash flow. Non-GAAP financial measure adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, and acquisition-related expenses.

Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Reconciliation of Non-GAAP Measures to GAAP
(Dollars in thousands, except per share data)
(unaudited)
 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2015 2014 2015 2014
         
Reconciliation of non-GAAP gross margin        
         
GAAP gross margin $ 43,174 $ 44,487 $ 128,171 $ 100,037
Inventory Valuation adjustment (1)  —   —   —   4,735
Amortization of intangible assets (2)  185  187  557  332
Non-GAAP gross margin  $ 43,359  $ 44,674  $ 128,728  $ 105,104
         
Reconciliation of non-GAAP earnings from operations        
         
GAAP earnings from operations  22,922  25,284  71,734  55,148
Inventory valuation adjustment (1)  —   —   —   4,735
Amortization of intangible assets (2)  6,615  6,966  19,848  12,507
Transaction and integration costs (3)  —   494  —   3,342
Unallocated equity compensation (4)  1,462  —   1,462  — 
Non-GAAP earnings from operations  30,999  32,744  93,044  75,732
         
Reconciliation of non-GAAP net earnings        
         
GAAP net earnings  13,976  15,178  44,063  33,804
Inventory valuation adjustment (1)  —   —   —   4,735
Amortization of intangible assets (2)  6,759  7,159  20,306  12,803
Transaction and integration costs (3)  —   494  —   3,342
Unallocated equity compensation (4)  1,462  —   1,462  — 
Income tax adjustment (5)  (2,791)  (2,581)  (7,331)  (7,170)
Non-GAAP net earnings   $ 19,406  $ 20,250  $ 58,500  $ 47,514
         
         
Non-GAAP net earnings per common share – diluted  $ 0.61  $ 0.65  $ 1.85  $ 1.53

1 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.

2 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.

3 Transaction and integration costs: Transaction and integration costs related to acquisitions 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.

4 Unallocated equity compensation: Unallocated equity compensation is one-time equity compensation expense related to the retirement from the Company of the former CEO and current Chairman of the Board of Directors, Dino A. Rossi.  As this is a one-time expense, our non-GAAP adjustments exclude this expense to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.

5 Income tax adjustment: For purposes of calculating non-GAAP net earnings and non-GAAP diluted earnings per share, we adjust the provision for (benefit from) income taxes to tax effect the non-GAAP adjustments described above as they have a significant impact on our income tax (benefit) provision.

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 nine months ended September 30, 2015 and 2014.

  Three Months Nine Months 
  Ended Ended 
  September 30, September 30,
  2015 2014 2015 2014
Net income – as reported  $ 13,976  $ 15,178  $ 44,063  $ 33,804
Add back:        
Provision for income taxes   7,213  8,031  22,377  18,068
Other expense   1,733  2,075  5,294  3,276
Depreciation and amortization   9,777  10,135  29,358  19,896
EBITDA   32,699  35,419  101,092  75,044
Add back certain items:        
Non-cash compensation expense related to equity awards  2,970  1,102  5,656  3,131
Transaction and integration costs  —   494  —   3,342
Inventory fair value   —   —   —   4,735
Adjusted EBITDA  $ 35,669  $ 37,015  $ 106,748  $ 86,252

EBITDA is a non-GAAP financial measure. Management believes the presentation of this measure provides useful information to investors to more effectively evaluate the year-over-year results of operations of the Company.

CONTACT: Suzanne Hart, Balchem Corporation
         Telephone: 845-326-5600