Balchem Corporation (NASDAQ: BCPC) reported today third quarter net
sales of $229.9 million for 2023, compared to net sales of $244.3
million in the prior year quarter. Third quarter net earnings were
$29.1 million for 2023, compared to net earnings of $25.2 million
for the third quarter 2022. Adjusted net earnings(a) were $33.8
million for the third quarter of 2023, compared to
$32.4 million for the third quarter of 2022. Quarterly
adjusted EBITDA(a) was $59.9 million, compared to $53.8 million in
the prior year quarter.
Third Quarter
2023 Financial Highlights:
- Third quarter net sales were $229.9 million, a decrease of
$14.3 million, or 5.9%, compared to the prior year.
- Record quarterly adjusted EBITDA was $59.9 million, an increase
of $6.1 million, or 11.4%, from the prior year.
- GAAP net earnings were $29.1 million, an increase of $3.8
million, or 15.2%, from the prior year. These net earnings resulted
in GAAP earnings per share of $0.90 compared to $0.78 in the prior
year quarter.
- Adjusted net earnings were $33.8 million, an increase of
$1.4 million, or 4.3%, from the prior year. These adjusted net
earnings resulted in adjusted earnings per share(a) of $1.04
compared to $1.00 in the prior year quarter.
- The effective tax rate of 20.3% was 151 basis points higher
than the prior year tax rate of 18.8%.
- Cash flows from operations were $46.5 million for the third
quarter of 2023, with quarterly free cash flow(a) of $38.2
million.
Recent Highlights:
- Balchem’s Board of Directors elected two new board members to
the Board of Directors. Olivier Rigaud, Chief Executive Officer of
Corbion N.V. and Monica Vicente, Senior Vice President and Chief
Financial Officer of Fresh Del Monte Produce Inc. were elected to
the Board on September 6, 2023, and they both bring relevant market
expertise and strong global business acumen to the Board.
- Three new papers were published in Q3 adding to the extensive
library of research showing the benefits and importance of feeding
ReaShure® to transition dairy cows to enhance both milk production
as well as offspring health and growth.
- Cash flows in the third quarter enabled us to make net
repayments on our revolving debt of $25.0 million, bringing
our net debt to $303.6 million, with an overall leverage ratio
on a net debt basis of 1.3 times.
Ted Harris, Chairman, President, and CEO of
Balchem said, “I am very pleased with our third quarter
performance. We delivered record Adjusted EBITDA as a result of
improved mix, manufacturing efficiencies, and easing inflationary
pressures.”
Mr. Harris added, “The broader economic outlook
and market demand still remain volatile, and volume demand patterns
have not yet fully normalized, but Balchem continues to show its
ability to perform in this uncertain market environment and we
believe we are well positioned to benefit as the market recovers
more broadly.
Results for
Period Ended September 30, 2023
(unaudited) (Dollars in thousands, except per
share data) |
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net sales |
$ |
229,948 |
|
$ |
244,267 |
|
$ |
693,740 |
|
$ |
709,827 |
Gross
margin |
|
76,544 |
|
|
68,430 |
|
|
227,063 |
|
|
211,812 |
Operating
expenses |
|
32,930 |
|
|
34,805 |
|
|
106,205 |
|
|
99,931 |
Earnings
from operations |
|
43,614 |
|
|
33,625 |
|
|
120,858 |
|
|
111,881 |
Other
expense |
|
7,139 |
|
|
2,540 |
|
|
16,864 |
|
|
3,908 |
Earnings
before income tax expense |
|
36,475 |
|
|
31,085 |
|
|
103,994 |
|
|
107,973 |
Income tax
expense |
|
7,400 |
|
|
5,836 |
|
|
22,099 |
|
|
24,012 |
Net
earnings |
$ |
29,075 |
|
$ |
25,249 |
|
$ |
81,895 |
|
$ |
83,961 |
|
|
|
|
|
|
|
|
Diluted net
earnings per common share |
$ |
0.90 |
|
$ |
0.78 |
|
$ |
2.52 |
|
$ |
2.59 |
|
|
|
|
|
|
|
|
Adjusted
EBITDA(a) |
$ |
59,893 |
|
$ |
53,774 |
|
$ |
175,086 |
|
$ |
163,815 |
Adjusted net
earnings(a) |
$ |
33,795 |
|
$ |
32,387 |
|
$ |
98,817 |
|
$ |
100,191 |
Adjusted net
earnings per common share(a) |
$ |
1.04 |
|
$ |
1.00 |
|
$ |
3.05 |
|
$ |
3.09 |
|
|
|
|
|
|
|
|
Shares used
in the calculations of diluted and adjusted net earnings per
common share |
|
32,476 |
|
|
32,367 |
|
|
32,440 |
|
|
32,392 |
(a) |
See
“Non-GAAP Financial Information” for a reconciliation of GAAP and
non-GAAP financial measures. |
Financial Results for the Third Quarter of
2023:
The Human Nutrition &
Health segment generated record quarterly sales of $144.5
million, an increase of $1.8 million, or 1.3%, compared to the
prior year quarter. The increase was primarily driven by higher
sales within the minerals and nutrients business, the incremental
contribution of the Bergstrom acquisition, and a favorable impact
related to changes in foreign currency exchange rates, partially
offset by lower sales within food and beverage markets. Record
quarterly earnings from operations for this segment of $31.3
million increased $10.7 million, or 51.9%, compared to $20.6
million in the prior year quarter, primarily due to the
aforementioned higher sales, lower manufacturing input costs, and
favorable adjustments to transaction costs, partially offset by
restructuring-related impairment charges. Excluding the effect of
non-cash expense associated with amortization of acquired
intangible assets and other adjustments, adjusted earnings from
operations(a) for this segment were a record $35.6 million,
compared to $28.2 million in the prior year quarter, an increase of
26.1%.
The Animal Nutrition &
Health segment generated quarterly sales of $53.9 million,
a decrease of $11.7 million, or 17.8%, compared to the prior
year quarter. The decrease was driven by lower sales in both the
ruminant and monogastric species markets, partially offset by a
favorable impact related to changes in foreign currency exchange
rates. Third quarter earnings from operations for this segment of
$5.1 million decreased $3.0 million, or 36.9%, compared to $8.0
million in the prior year quarter, primarily due to the
aforementioned lower sales, partially offset by lower manufacturing
input costs. Excluding the effect of non-cash expense associated
with amortization of acquired intangible assets and other
adjustments, adjusted earnings from operations for this segment
were $5.1 million compared to $8.2 million in the prior year
quarter, a decrease of 38.2%.
The Specialty Products segment
generated quarterly sales of $30.0 million, an increase of $0.4
million, or 1.2%, compared to the prior year quarter, due to higher
sales in the plant nutrition business and a favorable impact
related to changes in foreign currency exchange rates, partially
offset by lower sales in the performance gases business. Earnings
from operations for this segment were $8.7 million, compared to
$7.1 million in the prior year comparable quarter, an increase of
$1.6 million, or 23.0%, primarily driven by higher average selling
prices and lower manufacturing input costs. Excluding the effect of
non-cash expense associated with amortization of acquired
intangible assets and other adjustments, adjusted earnings from
operations for this segment were $9.9 million, compared to $8.1
million in the prior year quarter, an increase of 21.1%.
Third quarter consolidated gross margin of $76.5
million increased by $8.1 million, or 11.9%, compared to $68.4
million for the prior year comparable period. Gross margin as a
percentage of sales was 33.3% as compared to 28.0% in the prior
year period, an increase of 530 basis points, primarily due to a
favorable mix, higher average selling prices, and decreases in
certain manufacturing input costs. Operating expenses of $32.9
million for the quarter decreased $1.9 million from the prior
year comparable quarter, primarily due to a favorable adjustment to
transaction costs and lower integration-related expenses, partially
offset by a restructuring-related impairment charge and higher
compensation-related expenses. Excluding non-cash operating
expenses associated with amortization of intangible assets of $6.3
million, operating expenses were $26.6 million, or 11.6% of
sales.
Interest expense was $6.6 million and $3.6
million in the third quarters of 2023 and 2022, respectively. Our
effective tax rates for the three months ended September 30,
2023 and 2022 were 20.3% and 18.8%, respectively. The higher
effective tax rate was primarily due to certain higher state taxes
and lower tax benefits from stock-based compensation.
Third quarter cash flows provided by operating
activities were $46.5 million, and free cash flow was $38.2
million. The $233.2 million of net working capital on
September 30, 2023 included a cash balance of $77.0 million,
which reflects quarterly net repayments of the revolving loan of
$25.0 million and quarterly capital expenditures and intangible
assets acquired of $8.4 million.
Ted Harris said, “The Balchem team delivered
another solid quarter, once again, highlighting the strength and
resilience of our business model. At the same time, we continue to
advance our strategic growth initiatives and I remain confident in
our ability to deliver long-term growth.”
Quarterly Conference Call
A quarterly conference call will be held on
Friday, October 27, 2023, at 11:00 AM Eastern Time (ET) to
review third quarter 2023 results. Ted Harris, Chairman, President
and CEO 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, November 10, 2023. To access the replay
of the conference call, dial 1-877-660-6853 (local dial-in
1-201-612-7415), and use conference ID #13741887.
Segment Information
Balchem Corporation reports three business
segments: Human Nutrition & Health, Animal Nutrition &
Health, and Specialty 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. Sales and production of products
outside of our reportable segments and other minor business
activities are included in "Other and Unallocated".
Forward-Looking Statements
This release contains forward-looking
statements, within the meaning of the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, as amended, which reflect our expectation or belief
concerning future events that involve risks and uncertainties.
These forward-looking statements generally are identified by the
words "believe," "project," "expect," "anticipate," "estimate,"
"forecast," "outlook," "intend," "strategy," "future,"
"opportunity," "plan," "may," "should," "will," "would," "will be,"
"will continue," "will likely result," or the negative thereof or
variations thereon or similar expressions generally intended to
identify forward-looking statements. Actions and performance could
differ materially from what is contemplated by the forward-looking
statements contained in this release. Factors that might cause
differences from the forward-looking statements include those
referred to or identified in Balchem’s Annual Report on Form 10-K
for the year ended December 31, 2022 and other factors that
may be identified elsewhere in this release or in our other SEC
filings. Reference should be made to such factors and all
forward-looking statements are qualified in their entirety by the
above cautionary statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Contact: Jacqueline Yarmolowicz, Balchem
Corporation (Telephone: 845-326-5600)
Selected Financial Data
(unaudited) ($ in 000’s)
Business Segment Net Sales: |
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Human Nutrition & Health |
$ |
144,455 |
|
$ |
142,655 |
|
$ |
412,777 |
|
$ |
396,728 |
Animal
Nutrition & Health |
|
53,944 |
|
|
65,604 |
|
|
180,162 |
|
|
197,546 |
Specialty
Products |
|
30,004 |
|
|
29,641 |
|
|
94,961 |
|
|
99,622 |
Other and
Unallocated (b) |
|
1,545 |
|
|
6,367 |
|
|
5,840 |
|
|
15,931 |
Total |
$ |
229,948 |
|
$ |
244,267 |
|
$ |
693,740 |
|
$ |
709,827 |
Business Segment Earnings Before Income
Taxes: |
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Human Nutrition & Health |
$ |
31,275 |
|
|
$ |
20,584 |
|
|
$ |
77,209 |
|
|
$ |
64,592 |
|
Animal
Nutrition & Health |
|
5,070 |
|
|
|
8,036 |
|
|
|
22,230 |
|
|
|
26,943 |
|
Specialty
Products |
|
8,740 |
|
|
|
7,105 |
|
|
|
25,984 |
|
|
|
24,785 |
|
Other and
Unallocated (b) |
|
(1,471 |
) |
|
|
(2,100 |
) |
|
|
(4,565 |
) |
|
|
(4,439 |
) |
Interest and
other expense |
|
(7,139 |
) |
|
|
(2,540 |
) |
|
|
(16,864 |
) |
|
|
(3,908 |
) |
Total |
$ |
36,475 |
|
|
$ |
31,085 |
|
|
$ |
103,994 |
|
|
$ |
107,973 |
|
|
|
|
|
|
|
|
|
(b) 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 and unallocated legal fees totaling $384 and
$1,600 for the three and nine months ended September 30, 2023,
respectively, and $1,640 and $2,816 for the three and nine months
ended September 30, 2022, respectively, and (ii) Unallocated
amortization expense of $0 and $312 for the three and nine months
ended September 30, 2023, and $734 and $2,213 for the three
and nine months ended September 30, 2022, respectively,
related to an intangible asset in connection with a company-wide
ERP system implementation. |
Selected Balance Sheet Items |
|
|
|
(Dollars in
thousands) |
September
30, 2023 |
|
December 31,
2022 |
|
(unaudited) |
|
|
|
|
|
|
Cash and Cash Equivalents |
$ |
76,952 |
|
$ |
66,560 |
Accounts
Receivable, net |
|
129,009 |
|
|
131,578 |
Inventories |
|
116,346 |
|
|
119,668 |
Other
Current Assets |
|
18,915 |
|
|
17,997 |
Total
Current Assets |
|
341,222 |
|
|
335,803 |
|
|
|
|
Property,
Plant & Equipment, net |
|
268,834 |
|
|
271,355 |
Goodwill |
|
766,545 |
|
|
769,509 |
Intangible
Assets with Finite Lives, net |
|
192,168 |
|
|
213,295 |
Right of Use
Assets |
|
18,221 |
|
|
19,432 |
Other
Assets |
|
16,494 |
|
|
15,118 |
Total
Non-current Assets |
|
1,262,262 |
|
|
1,288,709 |
|
|
|
|
Total
Assets |
$ |
1,603,484 |
|
$ |
1,624,512 |
|
|
|
|
Current
Liabilities |
$ |
108,038 |
|
$ |
140,042 |
Revolving
Loan |
|
380,569 |
|
|
440,569 |
Deferred
Income Taxes |
|
59,014 |
|
|
62,784 |
Other
Long-Term Obligations |
|
30,596 |
|
|
42,833 |
Total
Liabilities |
|
578,217 |
|
|
686,228 |
|
|
|
|
Stockholders' Equity |
|
1,025,267 |
|
|
938,284 |
|
|
|
|
Total
Liabilities and Stockholders' Equity |
$ |
1,603,484 |
|
$ |
1,624,512 |
Balchem
Corporation Condensed Consolidated Statements of Cash
Flows (Dollars in thousands)(unaudited) |
|
Nine Months Ended September 30, |
|
2023 |
|
2022 |
Cash
flows from operating activities: |
|
|
|
Net earnings |
$ |
81,895 |
|
|
$ |
83,961 |
|
Adjustments
to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation
and amortization |
|
40,878 |
|
|
|
37,958 |
|
Stock
compensation expense |
|
12,267 |
|
|
|
9,838 |
|
Other
adjustments |
|
(6,241 |
) |
|
|
912 |
|
Changes in
assets and liabilities |
|
(12,444 |
) |
|
|
(35,788 |
) |
Net
cash provided by operating activities |
|
116,355 |
|
|
|
96,881 |
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
Cash paid
for acquisitions, net of cash acquired |
|
(1,252 |
) |
|
|
(365,780 |
) |
Capital
expenditures and intangible assets acquired |
|
(26,317 |
) |
|
|
(35,793 |
) |
Proceeds
from insurance and sale of assets |
|
1,881 |
|
|
|
198 |
|
Proceeds
from settlement of net investment hedge |
|
2,740 |
|
|
|
— |
|
Investment
in affiliates |
|
— |
|
|
|
(150 |
) |
Net
cash used in investing activities |
|
(22,948 |
) |
|
|
(401,525 |
) |
|
|
|
|
Cash
flows from financing activities: |
|
|
|
Proceeds
from revolving loan |
|
18,000 |
|
|
|
435,000 |
|
Principal
payments on revolving loan |
|
(78,000 |
) |
|
|
(81,000 |
) |
Principal
payments on acquired debt |
|
— |
|
|
|
(30,782 |
) |
Cash paid
for financing costs |
|
— |
|
|
|
(1,232 |
) |
Principal
payments on finance lease |
|
(166 |
) |
|
|
(125 |
) |
Proceeds
from stock options exercised |
|
3,888 |
|
|
|
2,172 |
|
Dividends
paid |
|
(22,872 |
) |
|
|
(20,708 |
) |
Purchase of
common stock |
|
(4,025 |
) |
|
|
(35,245 |
) |
Net
cash (used in) provided by financing activities |
|
(83,175 |
) |
|
|
268,080 |
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
160 |
|
|
|
(10,186 |
) |
|
|
|
|
Increase (decrease) in cash and cash
equivalents |
|
10,392 |
|
|
|
(46,750 |
) |
|
|
|
|
Cash
and cash equivalents, beginning of period |
|
66,560 |
|
|
|
103,239 |
|
Cash
and cash equivalents, end of period |
$ |
76,952 |
|
|
$ |
56,489 |
|
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 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. The non-GAAP financial measures disclosed by the company
exclude certain business combination accounting adjustments and
certain other items related to acquisitions, certain equity
compensation, and certain one-time or unusual transactions.
Detailed non-GAAP adjustments are described in the reconciliation
tables below and also explained in the related footnotes. 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. Investors should not consider non-GAAP measures as
alternatives to the related GAAP measures.
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 September 30, |
|
Nine Months Ended September
30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Reconciliation of adjusted gross margin |
|
|
|
|
|
|
|
GAAP gross margin |
$ |
76,544 |
|
|
$ |
68,430 |
|
|
$ |
227,063 |
|
|
$ |
211,812 |
|
Inventory
valuation adjustment (1) |
|
— |
|
|
|
1,584 |
|
|
|
1,419 |
|
|
|
1,584 |
|
Amortization
of intangible assets and finance lease (2) |
|
675 |
|
|
|
677 |
|
|
|
2,018 |
|
|
|
1,313 |
|
Restructuring costs (3) |
|
295 |
|
|
|
— |
|
|
|
415 |
|
|
|
— |
|
Adjusted
gross margin |
$ |
77,514 |
|
|
$ |
70,691 |
|
|
$ |
230,915 |
|
|
$ |
214,709 |
|
|
|
|
|
|
|
|
|
Reconciliation of adjusted earnings from
operations |
|
|
|
|
|
|
|
GAAP
earnings from operations |
$ |
43,614 |
|
|
$ |
33,625 |
|
|
$ |
120,858 |
|
|
$ |
111,881 |
|
Inventory
valuation adjustment (1) |
|
— |
|
|
|
1,584 |
|
|
|
1,419 |
|
|
|
1,584 |
|
Amortization
of intangible assets and finance lease (2) |
|
7,008 |
|
|
|
7,975 |
|
|
|
21,310 |
|
|
|
19,840 |
|
Transaction
and integration costs and unallocated legal fees (4) |
|
(3,116 |
) |
|
|
1,640 |
|
|
|
(8,300 |
) |
|
|
2,816 |
|
Restructuring costs (3) |
|
1,913 |
|
|
|
— |
|
|
|
8,179 |
|
|
|
— |
|
Adjusted
earnings from operations |
$ |
49,419 |
|
|
$ |
44,824 |
|
|
$ |
143,466 |
|
|
$ |
136,121 |
|
|
|
|
|
|
|
|
|
Reconciliation of adjusted net earnings |
|
|
|
|
|
|
|
GAAP net
earnings |
$ |
29,075 |
|
|
$ |
25,249 |
|
|
$ |
81,895 |
|
|
$ |
83,961 |
|
Inventory
valuation adjustment (1) |
|
— |
|
|
|
1,584 |
|
|
|
1,419 |
|
|
|
1,584 |
|
Amortization
of intangible assets and finance lease (2) |
|
7,080 |
|
|
|
8,097 |
|
|
|
21,526 |
|
|
|
20,103 |
|
Transaction
and integration costs and unallocated legal fees (4) |
|
(3,116 |
) |
|
|
1,640 |
|
|
|
(8,300 |
) |
|
|
2,816 |
|
Restructuring costs (3) |
|
1,913 |
|
|
|
— |
|
|
|
8,179 |
|
|
|
— |
|
Unrealized
foreign currency gain on contingent consideration liability and net
realized gain on foreign currency forward contracts (5) |
|
— |
|
|
|
(2,015 |
) |
|
|
— |
|
|
|
(2,527 |
) |
Income tax
adjustment (6) |
|
(1,157 |
) |
|
|
(2,168 |
) |
|
|
(5,902 |
) |
|
|
(5,746 |
) |
Adjusted net
earnings |
$ |
33,795 |
|
|
$ |
32,387 |
|
|
$ |
98,817 |
|
|
$ |
100,191 |
|
|
|
|
|
|
|
|
|
Adjusted net
earnings per common share - diluted |
$ |
1.04 |
|
|
$ |
1.00 |
|
|
$ |
3.05 |
|
|
$ |
3.09 |
|
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, 2023 and 2022.
Table 2 (unaudited)
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
2023 |
|
2022 |
|
2023 |
|
2022 |
Net income - as reported |
$ |
29,075 |
|
|
$ |
25,249 |
|
$ |
81,895 |
|
|
$ |
83,961 |
Add
back: |
|
|
|
|
|
|
|
Provision
for income taxes |
|
7,400 |
|
|
|
5,836 |
|
|
22,099 |
|
|
|
24,012 |
Other
expense |
|
7,139 |
|
|
|
2,540 |
|
|
16,864 |
|
|
|
3,908 |
Depreciation
and amortization |
|
13,733 |
|
|
|
13,976 |
|
|
40,663 |
|
|
|
37,696 |
EBITDA |
|
57,347 |
|
|
|
47,601 |
|
|
161,521 |
|
|
|
149,577 |
Add back
certain items: |
|
|
|
|
|
|
|
Non-cash
compensation expense related to equity awards |
|
3,749 |
|
|
|
2,949 |
|
|
12,267 |
|
|
|
9,838 |
Inventory
valuation adjustment (1) |
|
— |
|
|
|
1,584 |
|
|
1,419 |
|
|
|
1,584 |
Transaction
and integration costs and unallocated legal fees (4) |
|
(3,116 |
) |
|
|
1,640 |
|
|
(8,300 |
) |
|
|
2,816 |
Restructuring costs (3) |
|
1,913 |
|
|
|
— |
|
|
8,179 |
|
|
|
— |
Adjusted
EBITDA |
$ |
59,893 |
|
|
$ |
53,774 |
|
$ |
175,086 |
|
|
$ |
163,815 |
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 and nine months ended
September 30, 2023 and 2022.
Table 3 (unaudited)
|
Three Months
Ended September 30, |
2023 |
|
Effective Tax Rate |
|
2022 |
|
Effective Tax Rate |
GAAP Income Tax Expense |
$ |
7,400 |
|
20.3 |
% |
|
$ |
5,836 |
|
18.8 |
% |
Impact of
ASU 2016-09 (7) |
|
19 |
|
|
|
|
214 |
|
|
Adjusted
Income Tax Expense |
$ |
7,419 |
|
20.3 |
% |
|
$ |
6,050 |
|
19.5 |
% |
|
Nine Months
Ended September 30, |
2023 |
|
Effective Tax Rate |
|
2022 |
|
Effective Tax Rate |
GAAP Income Tax Expense |
$ |
22,099 |
|
21.3 |
% |
|
$ |
24,012 |
|
22.2 |
% |
Impact of
ASU 2016-09 (7) |
|
863 |
|
|
|
|
714 |
|
|
Adjusted
Income Tax Expense |
$ |
22,962 |
|
22.1 |
% |
|
$ |
24,726 |
|
22.9 |
% |
The following table sets forth a reconciliation
of net cash provided by operating activities to free cash flow for
the three and nine months ended September 30, 2023 and
2022.
Table 4 (unaudited)
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net cash provided by operating activities |
$ |
46,526 |
|
|
$ |
41,620 |
|
|
$ |
116,355 |
|
|
$ |
96,881 |
|
Capital
expenditures, proceeds from the sale of assets, settlement of
net investment hedge, and capitalized ERP implementation
costs |
|
(8,320 |
) |
|
|
(14,841 |
) |
|
|
(21,212 |
) |
|
|
(35,021 |
) |
Free cash
flow |
$ |
38,206 |
|
|
$ |
26,779 |
|
|
$ |
95,143 |
|
|
$ |
61,860 |
|
(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 and finance lease: Amortization
of intangible assets and finance lease consists of amortization of
customer relationships, trademarks and trade names, developed
technology, regulatory registration costs, patents and trade
secrets, capitalized loan issuance costs, other intangibles
acquired primarily in connection with business combinations, an
intangible asset in connection with a company-wide ERP system
implementation, and one finance lease. We record expense relating
to the amortization of these intangibles and finance lease in our
GAAP financial statements. Amortization expenses for our intangible
assets and finance lease 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)
Restructuring costs: Expenses related to a reorganization of the
business. |
|
(4)
Transaction and integration costs and unallocated legal fees:
Transaction and integration costs related to acquisitions and
divestitures 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
transactions that are inconsistent in amount and frequency causing
comparison of current and historical financial results to be
difficult. |
|
(5)
Unrealized foreign currency gain on contingent consideration
liability and net realized gain on foreign currency exchange
forward contracts: The unrealized foreign currency gain relates to
the contingent consideration liability recorded in connection with
Kappa acquisition and was recorded as other income in our GAAP
financial statements. The net realized gain on foreign currency
exchange forward contracts related to four short-term foreign
currency exchange forward contracts with JP Morgan Chase, N.A. in
connection with the Kappa acquisition. These contracts did not
qualify for hedge accounting and the net gain was recorded as other
income in our GAAP financial statements. We believe that excluding
these gains and losses from our Non-GAAP financial measures is
useful to investors because such income or expense are inconsistent
in amount and frequency causing comparison of current and
historical financial results to be difficult. |
|
(6)
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. |
|
(7)
Impact of ASU 2016-09: The primary impact of ASU No. 2016-09,
"Improvements to Employee Share-Based Payment Accounting" ("ASU
2016-09"), was the recognition during the three and nine months
ended September 30, 2023 and 2022, 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. |
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