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July 30, 2021, 2:58 p.m. EDT

10-Q: BALCHEM CORP

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (All amounts in thousands, except share and per share data) This report contains forward-looking statements, within the meaning of Section 21E of the Exchange Act, which reflect our expectation or belief concerning future events that involve risks and uncertainties. Actions and performance could differ materially from what is contemplated by the forward-looking statements contained in this report. Factors that might cause differences from the forward-looking statements include those referred to or identified in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2020 and other factors that may be identified elsewhere in this report. Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements.

Overview







        Segment Results
        We sell products for all three segments through our own sales force, independent
        distributors, and sales agents.
        The following tables summarize consolidated net sales by segment and business
        segment earnings from operations for the three and six months ended June 30,
        2021 and 2020:
        Business Segment Net Sales           Three Months Ended             Six Months Ended
                                                  June 30,                      June 30,
                                            2021           2020           2021           2020
        Human Nutrition & Health         $ 111,471      $  97,428      $ 215,987      $ 192,936
        Animal Nutrition & Health           54,481         46,344        105,629         94,985
        Specialty Products                  34,022         28,194         62,030         56,190
        Other and Unallocated (1)            2,391          1,389          4,375          3,680
        Total                            $ 202,365      $ 173,355      $ 388,021      $ 347,791
        Business Segment Earnings From Operations           Three Months Ended            Six Months Ended
                                                                 June 30,                     June 30,
                                                            2021           2020          2021          2020
        Human Nutrition & Health                        $   19,021      $ 15,497      $ 38,711      $ 27,632
        Animal Nutrition & Health                            3,561         6,430         8,617        14,474
        Specialty Products                                   9,729         8,008        16,918        15,994
        Other and Unallocated (1)                           (1,718)       (3,018)       (3,078)       (4,905)
        Total                                           $   30,593      $ 26,917      $ 61,168      $ 53,195
        


(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 $466 and $700 for the three and six months ended June 30, 2021, respectively, and $746 and $2,018 for the three and six months ended June 30, 2020, respectively, and (ii) Unallocated amortization expense of $604 and $1,208 for the three and six months ended June 30, 2021, respectively, and $405 and $806 for the three and six months ended June 30, 2020, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Table of Contents







                                     RESULTS OF OPERATIONS
                  (All amounts in thousands, except share and per share data)
        Three months ended June 30, 2021 compared to three months ended June 30, 2020.
        Net Earnings
                                               Three Months Ended June 30,             Increase
        (in thousands)                             2021                  2020         (Decrease)       % Change
        Net sales                        $      202,365               $ 173,355      $    29,010         16.7  %
        Gross margin                             59,447                  55,380            4,067          7.3  %
        Operating expenses                       28,854                  28,463              391          1.4  %
        Earnings from operations                 30,593                  26,917            3,676         13.7  %
        Other (income) expense, net                 574                     944             (370)       (39.2) %
        Income tax expense                        7,288                   4,848            2,440         50.3  %
        Net earnings                     $       22,731               $  21,125      $     1,606          7.6  %
        Net Sales
                                             Three Months Ended June 30,             Increase
        (in thousands)                           2021                  2020         (Decrease)       % Change
        Human Nutrition & Health       $      111,471               $  97,428      $    14,043         14.4  %
        Animal Nutrition & Health              54,481                  46,344            8,137         17.6  %
        Specialty Products                     34,022                  28,194            5,828         20.7  %
        Other                                   2,391                   1,389            1,002         72.1  %
        Total                          $      202,365               $ 173,355      $    29,010         16.7  %
        


The increase in net sales within the HNH segment for the three months ended June 30, 2021 as compared to 2020 was driven both by strong sales growth within food and beverage markets as well as higher sales within the Minerals and Nutrients business.







        Gross Margin
                                    Three Months Ended June 30,             Increase
        (in thousands)             2021                       2020         (Decrease)       % Change
        Gross margin         $      59,447                 $ 55,380       $     4,067          7.3  %
        % of net sales                29.4   %                 31.9  %
        


Gross margin as a percentage of sales decreased for the three months ended June 30, 2021 compared to 2020 primarily due to a significant increase in certain raw material and distribution costs and the costs associated with the recovery from the flash flood event, partially offset by favorable mix and overall manufacturing efficiencies.

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        Operating Expenses
                                       Three Months Ended June 30,             Increase
        (in thousands)                2021                       2020         (Decrease)      % Change
        Operating expenses      $      28,854                 $ 28,463       $      391          1.4  %
        % of net sales                   14.3   %                 16.4  %
        


The increase in operating expenses was primarily due to an increase in certain higher compensation-related costs, partially offset by the prior year being negatively impacted by a goodwill impairment charge related to business formerly included in the Industrial Products segment, and a decrease in transaction and integration costs.







        Earnings from Operations
                                                    Three Months Ended June 30,                Increase
        (in thousands)                               2021                   2020              (Decrease)                % Change
        Human Nutrition & Health               $      19,021           $    15,497          $      3,524                       22.7  %
        Animal Nutrition & Health                      3,561                 6,430                (2,869)                     (44.6) %
        Specialty Products                             9,729                 8,008                 1,721                       21.5  %
        Other and unallocated                         (1,718)               (3,018)                1,300                      (43.1) %
        Earnings from operations               $      30,593           $    26,917          $      3,676                       13.7  %
        % of net sales (operating
        margin)                                         15.1   %              15.5  %
        


Earnings from operations for the HNH segment increased primarily due to the aforementioned higher sales and overall manufacturing efficiencies, partially offset by higher raw material and distribution costs and the costs associated with the recovery from the flash flood event that we experienced at our Verona, Missouri manufacturing site.







        Other Expenses (Income)
                                      Three Months Ended June 30,               Increase
        (in thousands)                      2021                    2020       (Decrease)       % Change
        Interest expense      $          608                       $ 960      $      (352)       (36.7) %
        Other, net                       (34)                        (16)             (18)       112.5  %
                              $          574                       $ 944      $      (370)       (39.2) %
        


Interest expense for the three months ended June 30, 2021 and 2020 was primarily related to outstanding borrowings under the Credit Agreement.







        Table of Contents
        








        Income Tax Expense
                                       Three Months Ended June 30,              Increase
        (in thousands)                2021                         2020        (Decrease)       % Change
        


The increase of effective tax rate was primarily due to a reduction in certain tax credits and lower tax benefits from stock-based compensation.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.







        Net Earnings
                                               Six Months Ended June 30,             Increase
        (in thousands)                            2021                 2020         (Decrease)       % Change
        Net sales                        $      388,021             $ 347,791      $    40,230         11.6  %
        Gross margin                            118,174               110,711            7,463          6.7  %
        Operating expenses                       57,006                57,516             (510)        (0.9) %
        Earnings from operations                 61,168                53,195            7,973         15.0  %
        Other (income) expense, net               1,166                 2,732           (1,566)       (57.3) %
        Income tax expense                       13,860                 9,570            4,290         44.8  %
        Net earnings                     $       46,142             $  40,893      $     5,249         12.8  %
        Net Sales
                                             Six Months Ended June 30,             Increase
        (in thousands)                          2021                 2020         (Decrease)       % Change
        Human Nutrition & Health       $      215,987             $ 192,936      $    23,051         11.9  %
        Animal Nutrition & Health             105,629                94,985           10,644         11.2  %
        Specialty Products                     62,030                56,190            5,840         10.4  %
        Other                                   4,375                 3,680              695         18.9  %
        Total                          $      388,021             $ 347,791      $    40,230         11.6  %
        


The increase in net sales within the HNH segment for the six months ended June 30, 2021 as compared to 2020 was primarily driven by both strong sales growth in the food and beverage markets, as well as higher sales of chelated minerals and choline nutrients.

Table of Contents







        Gross Margin
                                   Six Months Ended June 30,            Increase
        (in thousands)             2021                   2020         (Decrease)       % Change
        Gross margin         $    118,174             $ 110,711       $     7,463          6.7  %
        % of net sales               30.5   %              31.8  %
        


Gross margin as a percentage of sales decreased for the six months ended June 30, 2021 compared to 2020 primarily due to a significant increase in certain raw material and distribution costs and the costs associated with the recovery from the flash flood event that we experienced at our Verona, Missouri manufacturing site, partially offset by favorable mix and overall plant efficiencies.







        Operating Expenses
                                      Six Months Ended June 30,             Increase
        (in thousands)                2021                    2020         (Decrease)       % Change
        Operating expenses      $     57,006               $ 57,516       $      (510)        (0.9) %
        % of net sales                  14.7   %               16.5  %
        


The decrease in operating expenses was primarily due to lower transaction and integration costs and the prior year being unfavorably impacted by a goodwill impairment charge related to business formerly included in the Industrial Products segment, partially offset by certain higher compensation-related costs.







        Earnings from Operations
                                                     Six Months Ended June 30,                Increase
        (in thousands)                               2021                  2020              (Decrease)                % Change
        Human Nutrition & Health               $     38,711           $    27,632          $     11,079                       40.1  %
        Animal Nutrition & Health                     8,617                14,474                (5,857)                     (40.5) %
        Specialty Products                           16,918                15,994                   924                        5.8  %
        Other and unallocated                        (3,078)               (4,905)                1,827                      (37.2) %
        Earnings from operations               $     61,168           $    53,195          $      7,973                       15.0  %
        % of net sales (operating
        margin)                                        15.8   %              15.3  %
        


Earnings from operations for the HNH segment increased primarily due to the aforementioned higher sales and overall manufacturing efficiencies, partially offset by higher raw material and distribution costs, and the costs associated with the recovery from the flash flood event that we experienced at our Verona, Missouri manufacturing site.







        Other Expenses (Income)
                                     Six Months Ended June 30,             Increase
        (in thousands)                   2021                 2020        (Decrease)       % Change
        Interest expense      $       1,333                 $ 2,656      $    (1,323)       (49.8) %
        Other, net                     (167)                     76             (243)      (319.7) %
                              $       1,166                 $ 2,732      $    (1,566)       (57.3) %
        


Interest expense for the six months ended June 30, 2021 and 2020 was primarily related to outstanding borrowings under the Credit Agreement.







        Income Tax Expense
                                       Six Months Ended June 30,             Increase
        (in thousands)                2021                      2020        (Decrease)       % Change
        


The increase of effective tax rate was primarily due to a reduction in certain tax credits, lower tax benefits from stock-based compensation, and higher enacted state tax rates.

FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES (All amounts in thousands, except share and per share data)







                                                     Six Months Ended June 30,                Increase
        (in thousands)                               2021                  2020              (Decrease)                % Change
        Cash flows provided by operating
        activities                             $      76,389          $    67,180          $      9,209                       13.7  %
        Cash flows used in investing
        activities                                   (13,520)             (13,593)                   73                        0.5  %
        Cash flows used in financing
        


Operating Activities

Table of Contents

Other Matters Impacting Liquidity

Critical Accounting Policies

Jul 30, 2021

COMTEX_390678379/2041/2021-07-30T14:57:53

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