Balchem Corporation 2026 Q3 Earnings Call

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President, and CEO. Following the advice of our counsel, auditors, and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q, and 8-K reports. The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures.

Please refer to the reconciliations in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman, President, and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. We were very pleased with our third quarter results reported earlier this morning, which were once again driven by healthy, broad-based growth across all three of our reporting segments and continued solid execution on our strategic growth initiatives. Our healthy growth continues to be fueled by the ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well-aligned with our product offerings and capabilities. As a result, we delivered record quarterly consolidated sales, net earnings, and adjusted EBITDA, as well as solid cash flows.

Before discussing our third quarter financial results in more detail, I would like to provide a few comments on the current market environment within which we are operating and also provide you with some updates regarding some new science that has been recently published supporting our branded ingredients, VitaCholine, K2VITAL, and K2VITAL Delta. We continue to see healthy demand trends across the majority of our businesses. Within Human Nutrition & Health, we continue to see solid demand growth for our unique portfolio of ingredients and solutions. Consumer interest in supplementation and better-for-you food systems continue to support a healthy market environment for us. In Animal Nutrition & Health, momentum continues to build. Both ruminant and monogastric customers continue to adopt our nutrient technologies as they look for cost-effective ways to improve animal health and productivity.

Within Specialty Products, we continue to see healthy market demand for our specialized performance gases and services. Overall, we see a positive demand outlook for Balchem, and we remain confident in our ability to deliver healthy growth over the long term. Turning to the growing body of science supporting our branded ingredients, I'd like to highlight two recently published studies that we believe are particularly noteworthy. The first is the MD Anderson-led pilot study that we have discussed in the past, and that was recently published in "Alzheimer's & Dementia: Translational Research & Clinical Interventions," a peer-reviewed journal of the Alzheimer's Association. The study evaluated the potential benefits of choline supplementation in cognitively healthy ApoE4 carriers, a population at significantly increased genetic risk for developing Alzheimer's disease. Researchers examined the impact of supplementation on biomarkers associated with neurodegeneration, brain metabolism, and pathways implicated in Alzheimer's progression.

The findings provide encouraging new evidence that may support the role of VitaCholine in lifelong brain health and further strengthen the scientific foundation of choline in healthy aging and cognition. We believe this represents another important step in positioning VitaCholine not only as an essential nutrient, but also as a leading science-backed ingredient in adult cognitive health. The second study I'd like to highlight is the DANCODE trial, published in "Circulation," a leading cardiovascular journal of the American Heart Association. The study examined the impact of vitamin K2 supplementation using Balchem's K2VITAL Delta on coronary artery calcification and cardiovascular health. The findings add important clinical evidence supporting the role of vitamin K2 in cardiovascular health and healthy aging while further strengthening the scientific leadership and commercial differentiation of our K2VITAL platform. Now, let me turn to our consolidated results for the third quarter.

This morning, we reported record consolidated revenue of $291 million, an increase of 8.6% versus the prior year. We delivered record quarterly GAAP earnings from operations of $62 million, an increase of 14.4%. Consolidated net income closed the quarter at a record $47 million, an increase of 16%. This quarterly net income translated to diluted net earnings per share of $1.46 on a GAAP basis, up 17.7%. On an adjusted basis, we delivered record quarterly adjusted EBITDA of $80 million, an increase of 12.4%. Our quarterly adjusted net earnings were a record $50 million, an increase of 14.5%, which translated to $1.57 per diluted share, up 16.3%. Overall, it was an excellent quarter for Balchem. Record results, healthy growth across all three segments, and continued progress on our long-term strategic priorities.

With that, I will turn the call back over to Martin to review our third quarter financial results and segment performance in more detail.

Thank you, Ted. As Ted mentioned, net sales grew 8.6% this quarter compared to the prior year, with each of our three segments contributing to that growth. Our gross margin was $106 million, up 10.7%, and our gross margin as a percentage of net sales expanded 70 basis points to 36.4%. The improvement was driven primarily by higher sales, favorable product mix, and manufacturing efficiencies, partially offset by certain higher manufacturing input costs. Consolidated operating expenses for the third quarter were $43 million, compared to $41 million in the prior year. The increase was primarily due to higher compensation-related costs, partially offset by the net favorable impact of certain discrete items in the quarter. GAAP earnings from operations for the third quarter were a record $62 million, up 14.4%. On an adjusted basis, earnings from operations were $67 million, up 12.7%.

Adjusted EBITDA was a record $80 million, an increase of 12.4%, with an adjusted EBITDA margin rate of 27.6%. Net interest expense for the third quarter was $2 million, down $1 million from the prior year, reflecting lower outstanding borrowings and lower interest rates. The effective tax rates for the third quarters of 2026 and 2025 were 22.2% and 22.6%, respectively. The decrease was primarily due to favorable adjustments related to filing our prior year federal tax return and a higher foreign-derived intangible income deduction benefit, partially offset by an increase in certain state taxes. Consolidated net income closed the quarter at a record $47 million, up 16%, and diluted net earnings per share were $1.46, up 17.7%. Adjusted net earnings were a record $50 million, up 14.5%, and adjusted diluted earnings per share were $1.57, up 16.3%.

Cash flows from operations were $70 million for the quarter, and free cash flow was $58 million. We ended the quarter with $66 million of cash on the balance sheet. We continue to generate healthy cash flows, which enables us to both invest in growth and return value to shareholders. We repurchased approximately $28 million of Balchem common stock during the third quarter, and we also reduced net borrowings by $28 million in the quarter, resulting in a net leverage ratio of 0.2 times. Together with the expanded $650 million credit facility we put in place in July, we are well-positioned to fund innovation, capacity expansion, and strategic acquisitions. Turning now to our segment results. Human Nutrition & Health delivered record sales of $188 million, up 8.1%, driven by growth in both our nutrients business and our food ingredients and solutions businesses.

Earnings from operations rose 11.8% to a record $46 million, driven by higher sales and favorable mix, partially offset by higher operating expenses. On an adjusted basis, earnings from operations for this segment were a record $49 million, up 10.9%. We remain very positive about the outlook for Human Nutrition & Health. Our differentiated ingredients, formulation expertise, and branded portfolio position us well to support our customers and capture additional market opportunities, particularly as consumers prioritize health and better-for-you solutions. Animal Nutrition & Health sales were $63 million, up 11.7% from the prior year, driven by higher sales in both the monogastric and ruminant markets. Earnings from operations were $6.8 million, up 82.8%, reflecting the higher sales and favorable mix, partially offset by certain higher manufacturing input costs. On an adjusted basis, earnings from operations for this segment were $7 million, up 73.6%.

Animal Nutrition & Health delivered another quarter of year-over-year improvement. Growth was supported by continued adoption of our encapsulated rumen-protected nutrient technologies in dairy, pricing actions in our U.S. monogastric business, and gradual improvement in our European monogastric business following the implementation of EU anti-dumping duties. We remain optimistic about the direction of this business and confident in our ability to drive further penetration of our technologies to deliver long-term growth. Specialty Products sales were $37 million, up 4.5%, driven by growth in our performance gases business. Earnings from operations were $12 million, up 6.6%, reflecting higher sales and favorable mix, partially offset by higher operating expenses. On an adjusted basis, earnings from operations for this segment were $13 million, up 3%. Specialty Products continued to deliver steady, profitable growth this quarter.