Greetings, and welcome to Balchem's Fourth Quarter and Full Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Martin Bengtsson, Chief Financial Officer. Thank you, sir. You may begin.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending December 31, 2024. 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 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 are very pleased with the financial results for the fourth quarter of 2024, which capped off another strong year for Balchem. We delivered record fourth quarter consolidated sales, adjusted EBITDA, and adjusted net earnings, with year-over-year sales and earnings growth in all three of our reporting segments. I am particularly pleased with the ongoing strength in our Human Nutrition & Health and Specialty Products segments, both of which achieved record fourth quarter sales and earnings from operations, as well as the significant sequential improvement and modest year-over-year growth delivered in our Animal Nutrition & Health segment. Before we get into more detail on the quarter, I would like to reflect for a few minutes on some of the significant accomplishments the Balchem team achieved over the past year. Overall, 2024 was another strong year for Balchem. We achieved record full year sales of $954 million, growing 3.4% compared to the prior year, with strong sales and earnings growth in both the Human Nutrition & Health and Specialty Products segments. We also delivered 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. In addition, we generated strong free cash flow of $147 million, allowing us to further pay down our debt and reduce our leverage ratio on a net debt basis to 0.6 times. We also made very good progress on our strategic initiatives. We have continued to innovate and launch new or enhanced products to support our growth. Our Human Nutrition & Health segment brought three innovative new products to market. The first is K2VITAL DELTA fermented, which is a specialty vitamin K2 from fermentation in a patented microencapsulated form. The second is VitaCholine Pro-Flo, which is an enhanced formulation of our existing VitaCholine specifically designed for inclusion in multivitamins. And the third is Optifolin+, which is a patented choline-enriched bioactive reduced folate ingredient that supports cellular health at all stages of life. These product launches will add to our existing offering of minerals, nutrients, and vitamins and enable us to bring even more value to our customers while simultaneously supporting our vision of making the world a healthier place. Our Animal Nutrition & Health segment also launched a newly developed product, AminoShure-XL, which is a next-generation rumen-protected Precision Release Lysine designed to consistently, reliably, and economically meet the lysine amino acid requirements of lactating dairy cattle. AminoShure-XL offers leading performance when considering feed stability, lysine content, and bioavailability, and is a great addition to the Animal Nutrition & Health segment's portfolio of high-performing encapsulated products, focused on optimizing dairy cow productivity and sustainability. We have also made progress on building consumer awareness for some of our market-leading brands. VitaCholine, Balchem's market-leading brand of the essential nutrient choline, became a proud partner of the New York Jets, a major professional NFL sports team. And K2VITAL, Balchem's leading brand of the specialty vitamin K2, just recently partnered with the Bayern Munich women's soccer team to further drive awareness and increase focus on women's health. These partnerships, in addition to our increased social media presence, are indeed helping to build awareness and drive market penetration for our brands. We also made significant progress in 2024 on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25%. We were extremely pleased to report out in our sixth annual sustainability report that we are already tracking ahead of our 2030 goal on greenhouse gas emissions reductions. In 2024, Balchem successfully reduced our water goal by approximately 15% compared to our 2020 baseline, showing substantial progress toward our water usage reduction objective. We also completed in August of last year several important capital projects that collectively were designed to allow us to reach our water usage goal within the next year or so, well in advance of the 2030 goal. Balchem's approach remains unchanged as we continue to focus on our two main objectives: providing innovative solutions for the health and nutritional needs of the world, and at the same time, operating with excellence as strong stewards of our stakeholders. And lastly, in December, we announced another increase to our annual dividend, taking the dividend from $0.79 to $0.87 per share, a 10% increase year-over-year. This most recent increase marked the 16th consecutive year of double-digit growth of our dividend, which once again reinforced our commitment to our long-standing dividend strategy. All in all, it was another strong year, both financially and strategically for Balchem. Now regarding the fourth quarter of 2024. This morning, we reported record fourth quarter consolidated revenues of $240 million, which was 4.9% higher than the prior year quarter. GAAP earnings from operations for the fourth quarter were higher by 23.8% versus the prior year. We delivered record quarterly adjusted EBITDA of $63 million, an increase of 13.4%, with an adjusted EBITDA margin of 26.2%, up 200 basis points from the prior year. Consolidated net income closed the quarter at $34 million, an increase of 26%. This quarterly net income translated to diluted net earnings per share of $1.03 on a GAAP basis, up $0.21, or 25.6% compared to the prior year. On an adjusted basis, our record fourth quarter adjusted net earnings were $37 million, an increase of 19.3% from the prior year, which translated to $1.13 per diluted share. Overall, it was another very strong quarter for Balchem, which, as I said earlier, capped off another strong year for us. I'm now going to turn the call back over to Martin to go through the fourth quarter consolidated financial results for the company and the results for each of our business segments in a little more detail.

Thank you, Ted. As Ted mentioned, overall, the fourth quarter was another strong quarter for Balchem, with solid sales growth and strong earnings from operations and adjusted EBITDA growth. Our fourth quarter net sales of $240 million were up 4.9%, driven by growth in all three segments: Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products. Our fourth quarter gross margin dollars of $86 million were up 15.1%, and our gross margin percentage was 36% of sales, up 320 basis points compared to the prior year, primarily due to a favorable portfolio mix. Consolidated operating expenses for the fourth quarter were $39 million, up 6.1% compared to the prior year. The increase was primarily due to higher transaction costs, higher compensation-related expenses, and an increase in outside services, partially offset by lower amortization. GAAP earnings from operations for the fourth quarter were $47 million, an increase of 23.8%. On an adjusted basis, as detailed in our earnings release this morning, non-GAAP earnings from operations of $52 million were up 16.6% compared to the prior year. Adjusted EBITDA was $63 million, an increase of 13.4% compared to the prior year, with an adjusted EBITDA margin rate of 26.2%. Net interest expense was $3 million, a reduction of $2 million compared to the prior year, driven primarily by lower outstanding borrowings. We continue to use our strong cash flows to pay down debt, and we reduced our debt by $37 million in the fourth quarter and ended the quarter with net debt of $140 million, with an overall leverage ratio on a net debt basis of 0.6 times. Our effective tax rates for the fourth quarter of 2024 and 2023 were 24.5% and 19.9%, respectively. The increase in the effective tax rate from the prior year was primarily due to an increase in certain foreign taxes. Consolidated net income closed the quarter at $34 million, an increase of 26%. This quarterly net income translated into diluted net earnings per share of $1.03, an increase of $0.21, or 25.6%, compared to the prior year. On an adjusted basis, our fourth quarter adjusted net earnings were $37 million, translating to $1.13 per diluted share, an increase of 18.9% from the prior year. We continue to translate our earnings into cash, and fourth quarter cash flow from operations was $52 million, and we closed out the quarter with $50 million of cash on the balance sheet. As we look at the fourth quarter from a segment perspective, our Human Nutrition & Health segment generated sales of $147 million, an increase of 6.8% from the prior year. The increase was driven by higher sales within both the food ingredients and solutions businesses and the nutrients business. Our Human Nutrition & Health segment delivered quarterly earnings from operations of $34 million, an increase of 33.9%, primarily due to the aforementioned higher sales and a favorable mix. Adjusted earnings from operations for this segment were $36 million, an increase of 21.8%. We were very pleased with the overall performance of our Human Nutrition & Health segment, delivering another strong quarter of growth. We continue to see healthy demand in our nutrients business, as well as an improved demand picture in our food ingredients and solutions businesses. Our portfolio of nutrients, ingredients, and formulation capabilities and technologies are well positioned, and we believe we will continue to see our Human Nutrition & Health segment perform well as we head into 2025. Our Animal Nutrition & Health segment generated quarterly sales of $58 million, an increase of 0.3% compared to the prior year. The increase in sales was driven by higher sales in the ruminant species markets, partially offset by lower sales in the monogastric species markets. Animal Nutrition & Health delivered earnings from operations of $6 million, an increase of 7.2%, primarily due to a favorable mix with higher ruminant sales, partially offset by higher operating expenses. Fourth quarter adjusted earnings from operations for this segment were $6 million, an increase of 6.5%. We were pleased to see our Animal Nutrition & Health segment return to growth in the fourth quarter following a period of challenging market conditions. We believe the first half of 2024 was the low point for our Animal Nutrition business, and we've seen encouraging sequential improvement in the second half of 2024. This improvement is primarily due to healthier dairy market conditions and the continuing strength of our flagship rumen-protected choline brand, ReaShure, further supported by the commercial launch of our AminoShure-XL product, which has been well received by our customers. We believe the Animal Nutrition & Health business has good momentum exiting 2024 and is well-positioned to deliver solid growth in 2025. Our Specialty Products segment delivered sales of $33 million, an increase of 6% compared to the prior year, due to higher sales in the Performance Gases business. Earnings from operations were $10 million, an increase of 15.9% versus the prior year. The increase was primarily driven by the aforementioned higher sales and favorable mix, partially offset by higher operating expenses. Fourth quarter adjusted earnings from operations for this segment were $11 million, an increase of 11.2%. We are very pleased with the performance of Specialty Products in the fourth quarter, both from a sales growth and margin perspective. We believe our specialty products are in a great position to deliver year-over-year growth again in 2025. Overall, the fourth quarter was another very strong quarter for Balchem. I'm now going to turn the call back over to Ted for some closing remarks.

Thanks, Martin. We are very pleased with Balchem's financial results reported earlier this morning for the fourth quarter and the full year of 2024. Q4 2024 was the 22nd consecutive quarter in which Balchem delivered year-over-year adjusted EBITDA growth, as we continue to show an ability to deliver results in a variety of market conditions, given our strong market positions and our value-added portfolio of products. We continue to watch the ever-changing geopolitical and macroeconomic environment closely, particularly relative to the impact that significant tariffs could have on complex global supply chains. While it is too early to tell what specific impacts will be felt as significant uncertainty still exists, we believe we are relatively well positioned to effectively manage through this new global trade environment and remain confident in the long-term growth outlook for Balchem as a whole. I'm excited about 2025, and I believe the company is well positioned to deliver both top and bottom line growth on a full year basis while further advancing our important growth initiatives. I will now hand the call back over to Martin, who will open up the call for questions.

Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions.

Thank you. Our first question comes from Bob Labick with CJS Securities. Please state your question.

Good morning. Congratulations on continued strong results.

Thank you, Bob.

Thanks, Bob.

I want to start off with Human Nutrition & Health, which has shown very consistent and strong growth. I was hoping you could elaborate on the contributions from nutrients versus food ingredients, the main drivers for each, and the outlook for those sub-segments.

Sure. Yeah, Bob. We really were extremely pleased with Human Nutrition & Health performance really in 2024 that continued in Q4. And most of 2024 really relied on very strong growth in our nutrients business. And as we talked about, modest growth in the Food Solutions business. And what we really saw as the year progressed and particularly in Q4 was somewhat slowing growth in the nutrients business, still very healthy growth that we feel really good about, but a return to healthy growth in the food ingredient solutions business. So we delivered a little over 5% revenue growth in the nutrients business in Q4, and in the food business, it actually was a little over 7% growth. So that came together to deliver a little under 7% for the whole business. But we really feel good about both those businesses. And they started to perform towards the end of the year, as we had indicated. We saw the normalizing of demand in the food business earlier in the year, and then a return to healthy growth. It's just some standouts within each of those: within the nutrients business, I would say our K2 business, particularly performed very well in Q4, as it really has all year, but really a standout quarter, which I think is exciting. And then within the food business, our encapsulated products continue to perform extremely well. We really saw growth across all of our product lines within the food business in Q4, but the encapsulates business performed particularly well in Q4. So all in all, we feel really good about the Human Nutrition Health performance in Q4 and the full year.

Okay. Great. There's been a nice recovery in ANH, especially after the difficult start. Are we currently at a normalized Q4 run rate until the European monogastric issue gets resolved? Is there still potential for more growth in ruminant? Additionally, any updates on the European monogastric situation would be appreciated.

I'll start and then Martin can add his thoughts. We were pleased with the recovery in Animal Nutrition & Health, which is the right term to use. We faced challenges in the initial quarters of the year, but we've achieved three consecutive quarters of improvement, achieving year-over-year growth. Even the modest growth in Q4 was a significant milestone. Previously, we had stated that this growth wouldn't occur until Q1 of 2025, so experiencing it a quarter earlier is encouraging. The 10% sequential improvement was great to see, along with the modest year-over-year growth. However, I don't believe this marks a new base level. We expect continued growth in the ruminant business, while the monogastric sector may remain flat until the European issues are resolved. The outlook for ruminants is positive, driven by a robust dairy market. Dairy farmers' margins have significantly improved compared to last year, allowing them to regain healthy returns. Although macroeconomic factors, such as tariffs and the impact of GLP-1 drugs reducing cheese intake, could influence this, we believe the dairy market will stay relatively strong, benefiting our business. Our success also relies on our ability to introduce our technologies to the market. We're optimistic about our momentum there, and as a healthier market environment helps, we also need to ensure we're doing the right things—offering the right products and scientific backing to successfully engage nutritionists. Additionally, we launched a new product in the second half of last year, which has been well received by our customers, and we see potential for growth from this product given that it has only been on the market for a little over a quarter. Combining those factors, we anticipate solid growth in the ruminant business next year, alongside stable performance in the monogastric sector. Therefore, we believe we can achieve ongoing sequential growth in ruminants and year-over-year growth in the Animal Nutrition & Health segment next year.

Super, that’s great. I’ll step down the mic now and get back in queue. Thank you very much.

Thanks, Bob.

Thank you, Bob.

And our next question comes from Ram Selvaraju with H.C. Wainwright. Please state your question.

Hi, thanks so much for taking my questions, and congrats on a strong finish to 2024. Just a couple of quick ones for you, Ted. Firstly, I was wondering if you could comment on specific marketing and promotional strategies you expect to employ over the course of the coming year to really push the VitaCholine Pro-Flo product. And secondly, you had alluded to this in kind of your closing remarks that you continue to be watchful with respect to the potential impact of tariffs. I was just wondering if you could provide us with any kind of regional granularity and in particular, kind of the nature and degree of potential exposure that Balchem may have to tariffs applied specifically in either Mexico or China? And then very quickly for Martin, I just wanted to ask about the comment that you made regarding foreign tax impact and if you expect any foreign tax impact going forward that might meaningfully change your effective tax rate outlook. And lastly, I don't know whether this is indeed the case. I don't think it is, but I just wanted you to confirm. In the Animal Health business, do you have any exposure to the impact of the bird flu crisis? Ted.

Thank you for your comments, Ram. I’ll start with tariffs. We are closely watching the new administration's developments to understand their implications. As mentioned earlier, we believe we are relatively well positioned regarding potential tariffs. There are both positive and negative aspects to consider, but overall, we think it may turn out to be at least neutral, if not slightly favorable for us. We face significant competition in our markets from China, so additional tariffs could be beneficial. To give you some specifics, we purchase just under $15 million worth of products from China, out of approximately $400 million in total raw material spending, which is quite small. From Mexico, the amount is even less. Therefore, we see these sourcing regions as manageable regarding potential tariffs, and we can address them through pricing strategies or by finding alternative suppliers. On the sales side, we need to consider any retaliatory tariffs on our products sold in these countries. Our sales to China are minimal, under $5 million, and similarly to Mexico. Canada represents a larger market for us, contributing roughly 3% of our total sales, so we are keeping a close eye on that situation and planning our responses. Overall, what we sell in the U.S. is primarily made in the U.S. with U.S. materials, and what we sell in Europe is generally made with European products. All this leads us to conclude that we are in a relatively strong position regarding tariffs, while still acknowledging the need for vigilant monitoring. Regarding VitaCholine Pro-Flo, we are enthusiastic about this product, which is intended for multivitamins. The history of VitaCholine stems from its use in infant formula and prenatal vitamins, and it's crucial to promote its role in adult health. This is why we chose to sponsor an NFL team—to broaden the discussion about its importance. We believe that encouraging conversations about VitaCholine as an essential nutrient for adults will drive its inclusion in multivitamins, which is our target market. We're committed to continuing our marketing efforts, although we won’t sponsor another NFL team. Our current program is set for three years, and we will keep promoting VitaCholine's health benefits across social media and other platforms. We expect this will enhance its presence in multivitamins where it is not currently well represented. I hope that answers your questions.

Bird flu. Yeah. That's right. So the foreign tax question was a one-off in the fourth quarter. So you should not expect that higher tax rate to continue as we move forward or be a new normal. So that was really a one-off impact that had more like a 4% full points impact to the fourth quarter tax rate. As it relates to the bird flu, that's certainly a big topic in the industry that's being disruptive to the value chain. We're seeing that as it ripples through in various places, and it creates a couple of different dynamics. On the poultry side, they are able to replenish birds relatively quickly. So from that perspective, as they replenish the birds, we still sell into that. But it's still, we do see sort of starts and stops and demands with certain customers as they get impacted by this. We sort of see also an impact to market pricing, right? As the value chain gets a little disrupted, as supply gets a little disrupted, the price into retail remains elevated. You also see disruptions to egg supply and so on, as you may have seen in the grocery stores you walk in, and there's not a whole lot of eggs on the shelves for you to buy but that always has an impact on prices. So the flip side of the coin is that for the producers, they're making pretty good margin right now on the production they have, meaning that they're selling at elevated prices. The feed input cost for them is not that high. So our customers are making good money apart from or despite sort of the impact of the bird flu. And obviously, when our customers are healthy, that also sort of helps in terms of selling product into them. So it's sort of netting out a little bit. So it's having an impact, but it's not having that major or significant impact where you really see a step change in either direction in terms of our demand. So that's how I would think about it. Unless something really intensifies or spreads much more widely than it is today, I would expect our demand to not be too significantly impacted as we sit here today.

Very helpful. Thank you so much.

Thanks, Ram.

Our next question comes from Daniel Harriman with Sidoti & Company. Please state your question.

Hi, everyone. Good morning. Thank you so much for taking my call and questions. Just a couple of quick ones for me today. Obviously, margins were fantastic in the fourth quarter and really have been so all year. So I'm just curious to know what your expectations are for margins as we go through 2025 and wondering more specifically, is it fair to assume that you may have a little bit of margin pressure in the year as ANH continues to grow and maybe within HNH, you're getting stronger growth in food ingredients versus minerals and nutrients? And then finally, just Martin, I was just wondering if you could update us on what you all are seeing in the M&A market in terms of deal flow that may be coming across your desk?

So Daniel, I'll let Martin take both of those, but I would like to just welcome you to the team. I look forward to working with you going forward.

Thank you, Daniel. Maybe starting with the margins question. As you said, they’ve been very strong and healthy here in 2024 and have improved as we've gone through the year, which we were really happy to see us for those that have been with us for a few years. As we went through the inflationary period, we saw a bit of a margin squeeze due to the inflation. We were sort of foreshadowing that we expected to be able to bring that back to more normalized margins as we exited the period and came into a more deflationary period. So we're really excited and happy that we were actually able to do what we said and restore the margins and bring them actually to even higher levels than they were sort of pre-vac that period. Going forward, as we think about the dynamics that impact our margins, we have the portfolio mix. We have our input costs, primarily our raw materials, our pricing, etc. And it depends a little bit how you see the world evolving there. From an input cost perspective on raw materials, the sort of deflationary period that we've seen over the last, call it, 12-18 months, I would say, has plateaued and is turning into almost a slightly inflationary period again. So that sort of tailwind from continued deflation, I think, is past us. And now I think we're more in flat to slightly inflationary period, and then we'll see how potential trade tariffs and so on impact that going forward. From a portfolio mix perspective, we obviously saw benefits to our margin rates of a strong HNH, and particularly a strong nutrients business, which is higher margin than the Food Ingredients and Solutions business. And while the food ingredients and solutions business is coming back and growing nicely again, I still expect the Nutrients business to grow faster than the Food Ingredients business viewed over some period of time here. So I think from an HNH perspective, that portfolio mix should not be necessarily dilutive for them going forward, but rather remain similar to where they're at. From an ANH perspective, the ruminant business is higher margin than our monogastric business. As we mentioned here earlier, we do expect the ruminant business to grow faster than the monogastric business. So there should be some tailwind there from an ANH mix, and our Specialty Products segment will sort of remain very solid from a margin perspective. So I think our portfolio mix will support a continued strong margin just based on what we see today. I think the wild card a little bit is really the potential tariffs and supply chain impacts and what that will do to sort of global supply and demand, and whether or not we'll get into what we saw a couple of years ago with rapidly increasing input costs that we're going to have to turn around and effectively price through. Last time we were very successful in pricing that through to our customers. But as we did that, it was dilutive to margins even though we protected our margin dollars. But from a rate perspective, it's dilutive. So that's primarily maybe where I say the biggest risk to margins going forward. But otherwise, I think I would expect sort of our margin profile to be relatively healthy going forward. Yeah. And on the M&A side, we’re definitely spending a lot of time on the M&A, I would say from a deal flow perspective, there is an increased flow coming across our desks, and we are sort of have been and continue to actively engage where it makes sense for us to evaluate opportunities, and we continue to do that. I would not call it a hot market yet where it’s sort of a lot of quality assets that makes sense for us to pursue. So I would still call it a little bit the early phase of what people are sort of expecting to be a more conducive M&A market going forward, but we're certainly not there yet. But if you think about it logically, there's sort of a pent-up demand. There are a lot of assets that have not come to market for quite some time. And obviously, if you're someone thinking about selling, you want to have some stability in your performance and business before you bring it to market. And I think we're starting to reach that point where there's been sort of some time now where they've been able to show more stable results. I do expect it to pick up, but we're not quite there yet where it's a hot market with a lot of activity going on, but it's improving.

That's really helpful. And Ted, I appreciate the warm welcome and congrats on a wonderful quarter and great year.

Thanks, Daniel.

Thank you. There are no further questions at this time. I'll hand the floor over to Ted Harris. Thank you.

Great. Thanks so much. Once again, thank you all very much for joining our call today. We really appreciate your support and your time today, and we look forward to reporting our Q1 2025 results in the tail end of April. In the meantime, we will be participating in the BNP Paribas Exane Consumer Ingredients and Chemicals Conference in London on March 11. So we hope to see some of you there. And I know some of you have already signed up, and so looking forward to that. And thank you again for your time today. Take care.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.