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 years ended December 31, 2024, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Business Segment Net Sales | | | | | | |
| | 2024 | | 2023 | | 2022 |
| Human Nutrition and Health | | $ | 600,258 | | | $ | 550,751 | | | $ | 527,131 | |
| Animal Nutrition and Health | | 214,710 | | | 238,326 | | | 262,297 | |
| Specialty Products | | 132,749 | | | 125,965 | | | 131,438 | |
Other and Unallocated (1) | | 5,967 | | | 7,397 | | | 21,492 | |
| Total | | $ | 953,684 | | | $ | 922,439 | | | $ | 942,358 | |
| | | | | | |
| Business Segment Earnings From Operations | | | | | | |
| | 2024 | | 2023 | | 2022 |
| Human Nutrition and Health | | $ | 135,957 | | | $ | 102,419 | | | $ | 82,125 | |
| Animal Nutrition and Health | | 14,013 | | | 27,576 | | | 36,056 | |
| Specialty Products | | 39,906 | | | 34,579 | | | 32,789 | |
Other and Unallocated (1) | | (6,967) | | | (5,381) | | | (5,784) | |
| Total | | $ | 182,909 | | | $ | 159,193 | | | $ | 145,186 | |
| | | | | | |
(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 $1,484, $1,617 and $3,581 for years ended December 31, 2024, 2023 and 2022, respectively, and (ii) Unallocated amortization expense of $0, $312, and $2,951 for years ended December 31, 2024, 2023, and 2022, respectively, related to an intangible asset in connection with a company-wide ERP system implementation. |
Acquisitions
On August 30, 2022, we completed the acquisition of Bergstrom, a leading science-based manufacturer of MSM, based in Vancouver, Washington, and on June 21, 2022, we completed the acquisition of Kappa, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway. Details related to both acquisitions are disclosed in Note 2, Significant Acquisitions, and the "Acquisitions" section in Item 1. Business.
Results of Operations - Fiscal Year 2024 compared to Fiscal Year 2023
Summary of Consolidated Statements of Earnings
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Net sales | | $ | 953,684 | | | $ | 922,439 | | | $ | 31,245 | | | 3.4 | % |
| Gross margin | | 336,206 | | | 302,056 | | | 34,150 | | | 11.3 | % |
| Operating expenses | | 153,297 | | | 142,863 | | | 10,434 | | | 7.3 | % |
| Earnings from operations | | 182,909 | | | 159,193 | | | 23,716 | | | 14.9 | % |
| Interest and other expenses | | 16,456 | | | 21,932 | | | (5,476) | | | (25.0) | % |
| Income tax expense | | 37,978 | | | 28,718 | | | 9,260 | | | 32.2 | % |
| Net earnings | | $ | 128,475 | | | $ | 108,543 | | | $ | 19,932 | | | 18.4 | % |
Management's discussion and analysis of the Consolidated Statements of Earnings is included below:
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase
(Decrease) | | |
| (in thousands) | | 2024 | | 2023 | | | % Change |
| Human Nutrition and Health | | $ | 600,258 | | | $ | 550,751 | | | $ | 49,507 | | | 9.0 | % |
| Animal Nutrition and Health | | 214,710 | | | 238,326 | | | (23,616) | | | (9.9) | % |
| Specialty Products | | 132,749 | | | 125,965 | | | 6,784 | | | 5.4 | % |
| Other | | 5,967 | | | 7,397 | | | (1,430) | | | (19.3) | % |
| Total | | $ | 953,684 | | | $ | 922,439 | | | $ | 31,245 | | | 3.4 | % |
•The increase in net sales within the Human Nutrition and Health segment for 2024 compared to 2023 was driven by higher sales within both the nutrients business and the food ingredients and solutions businesses. Total sales for this segment grew 9.0%, with volume and mix contributing 6.6% and average selling prices contributing 2.4%.
•The decrease in net sales within the Animal Nutrition and Health segment for 2024 compared to 2023 was driven by lower sales in both the monogastric and ruminant species markets. Total sales for this segment decreased by 9.9%, with average selling prices contributing -6.1% and volume and mix contributing -3.8%.
•The increase in net sales within the Specialty Products segment for 2024 compared to 2023 was due to higher sales in the performance gases market, partially offset by lower sales in the plant nutrition business. Total sales for this segment increased by 5.4%, with average selling prices contributing 3.9% and volume and mix contributing 1.4%.
•Sales relating to Other decreased from the prior year primarily due to lower average selling prices.
•Sales may fluctuate in future periods based on macroeconomic conditions, competitive dynamics, changes in customer preferences, and our ability to successfully introduce new products to the market.
Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Gross margin | | $ | 336,206 | | | $ | 302,056 | | | $ | 34,150 | | | 11.3 | % |
| % of net sales | | 35.3 | % | | 32.7 | % | | | | |
Gross margin dollars increased for 2024 compared to 2023 due to higher sales, a favorable mix and a decrease in cost of goods sold of $2,905. Cost of goods sold decreased by 0.5%, mainly driven by certain lower manufacturing input costs.
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Operating expenses | | $ | 153,297 | | | $ | 142,863 | | | $ | 10,434 | | | 7.3 | % |
| % of net sales | | 16.1 | % | | 15.5 | % | | | | |
The increase in operating expenses was primarily due to the impact of favorable adjustments to transaction costs in the prior year of $11,300, an increase in compensation-related expenses of $9,074, higher professional services of $1,950, and the impact of a gain on the sale of fixed assets of $1,338 in the prior year, partially offset by lower amortization expense of $8,867 and a decrease in restructuring-related impairment charges of $7,243.
Earnings From Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Human Nutrition and Health | | $ | 135,957 | | | $ | 102,419 | | | $ | 33,538 | | | 32.7 | % |
| Animal Nutrition and Health | | 14,013 | | | 27,576 | | | (13,563) | | | (49.2) | % |
| Specialty Products | | 39,906 | | | 34,579 | | | 5,327 | | | 15.4 | % |
| Other and unallocated | | (6,967) | | | (5,381) | | | (1,586) | | | (29.5) | % |
| Earnings from operations | | $ | 182,909 | | | $ | 159,193 | | | $ | 23,716 | | | 14.9 | % |
| | | | | | | | |
| % of net sales (operating margin) | | 19.2 | % | | 17.3 | % | | | | |
•Human Nutrition & Health segment earnings from operations increased $33,538 primarily due to a gross margin contribution of $37,635. The increase in gross margin was driven by the aforementioned higher sales, a favorable mix and certain lower manufacturing input costs.
•Animal Nutrition & Health segment earnings from operations decreased $13,563. Gross margin decreased $11,198 primarily due to the aforementioned lower sales, partially offset by certain lower manufacturing input costs.
•Specialty Products segment earnings from operations increased $5,327 due to an increase in gross margin of $9,518. The increase in gross margin was primarily due to the aforementioned higher sales and certain lower manufacturing input costs. This was partially offset by an increase in operating expenses of $4,191, mainly due to higher compensation-related costs.
•The decrease in Other and unallocated was primarily driven by the aforementioned lower sales, partially offset by lower unallocated corporate expenses.
Other Expenses (Income)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Interest expense, net | | $ | 16,528 | | | $ | 22,613 | | | $ | (6,085) | | | (26.9) | % |
| Other (income) expense, net | | (72) | | | (681) | | | 609 | | | 89.4 | % |
| | $ | 16,456 | | | $ | 21,932 | | | $ | (5,476) | | | (25.0) | % |
Interest expense for 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The decrease in net interest expense is mainly due to lower outstanding borrowings.
Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Income tax expense | | $ | 37,978 | | | $ | 28,718 | | | $ | 9,260 | | | 32.2 | % |
| Effective tax rate | | 22.8 | % | | 20.9 | % | | | | |
The increase in the effective tax rate was primarily due to an increase in certain foreign taxes.
Liquidity and Capital Resources
(All amounts in thousands, except share and per share data)
Contractual Obligations
Our short-term purchase obligations primarily include contractual arrangements in the form of purchase orders with suppliers. As of December 31, 2024, such purchase obligations were $103,255. For debt obligations, see Note 8, Revolving Loan, and for operating and finance lease obligations, see Note 19, Leases.
We are not aware of any current or pending demands on, or commitments for, our liquid assets that will materially affect our liquidity.
There were no material changes during the year ended December 31, 2024 outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments. We are actively pursuing additional acquisition candidates. We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so.
Cash
Cash and cash equivalents decreased to $49,515 at December 31, 2024 from $64,447 at December 31, 2023. At December 31, 2024, we had $44,189 of cash and cash equivalents held by our foreign subsidiaries. We presently intend to permanently reinvest these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions; therefore, we do not currently expect to repatriate these funds in order to fund U.S. operations or obligations. However, if these funds are needed for U.S. operations, we could be required to pay additional withholding taxes to repatriate these funds. In 2023, due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, we remitted approximately $18,000 from our Belgium subsidiary to pay down U.S. debt, resulting in income tax expense of $20. Working capital was $156,085 at December 31, 2024 as compared to $165,751 at December 31, 2023, a decrease of $9,666. Significant cash payments during the year included net payments on the revolving loan of $119,569, income taxes paid of $42,643, capital expenditures and intangible assets acquired of $35,661, the payment of the 2023 declared dividend in 2024 of $25,576, and cash paid for an acquisition of $24,164.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2024 | | 2023 | | Increase
(Decrease) | | % Change |
| Cash flows provided by operating activities | | $ | 181,999 | | | $ | 183,761 | | | $ | (1,762) | | | (1.0) | % |
| Cash flows used in investing activities | | (59,736) | | | (34,813) | | | (24,923) | | | (71.6) | % |
| Cash flows used in financing activities | | (133,815) | | | (153,321) | | | 19,506 | | | 12.7 | % |
Operating Activities
The decrease in cash flows from operating activities was primarily driven by the impact from changes in working capital.
Investing Activities
We continue to invest in corporate projects, improvements across all production facilities, and intangible assets. Total investments in property, plant and equipment and intangible assets were $35,661 and $37,892 for the years ended December 31, 2024 and 2023, respectively. Capital expenditures are projected to be approximately $40,000 to $45,000 for 2025. As mentioned above, we expect that our operations will continue to generate sufficient cash flow to fund the commitments for capital expenditures. These capital expenditures are part of our continuous efforts to support our growing businesses. Cash paid to acquire an existing toll manufacturer to add capacity amounted to $24,164 for the year ended December 31, 2024, net of cash acquired. Cash paid for acquisitions, net of cash acquired, amounted to $1,252 for year ended December 31, 2023.
Financing Activities
In 2024, we borrowed $26,000 to fund the payment of the 2023 dividend and made total loan repayments of $145,569, resulting in $360,000 available under the 2022 Credit Agreement (see Note 8, Revolving Loan) as of December 31, 2024.
We have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 3,142,028 shares have been repurchased. We intend to acquire shares from time to time at prevailing market prices if and to the extent we deem it is advisable to do so based on our assessment of corporate cash flow, market conditions and other factors. Open market repurchases of common stock could be made pursuant to a trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. We also purchase (withhold) shares from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan. Share repurchases are funded with existing cash on hand.
Proceeds from stock options exercised were $17,228 and $5,242 for the years ended December 31, 2024 and 2023, respectively. Dividend payments were $25,576 and $22,872 during 2024 and 2023, respectively.
Other Matters Impacting Liquidity
We have a liability of $6,720 for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.
We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 15, Employee Benefit Plans. The liability recorded in other long-term liabilities on the consolidated balance sheets as of December 31, 2024 and December 31, 2023 was $1,522 and $1,395, respectively, and the plans are not funded. Historical cash payments made under these plans have typically been less than $200 per year. We do not anticipate any changes to the payments made in the current year for the plans.
Balchem NV ("Chemogas") has an unfunded defined benefit plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amount recorded for these obligations on our balance sheet as of December 31, 2024 and December 31, 2023 was $613 and $420, respectively, and was included in other long-term obligations.
We provide an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees. Assets of the plan are held in a rabbi trust, which are included in "Other non-current assets" on the consolidated balance sheet. They are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability was $11,470 as of December 31, 2024, of which $11,449 was included in "Other long-term obligations" and $21 was included in "Accrued compensation and other benefits" on our condensed consolidated
balance sheets. The deferred compensation liability was $10,188 as of December 31, 2023 and was included in "Other long-term obligations" on our condensed consolidated balance sheets. The related rabbi trust assets were $11,465 and $10,188 as of December 31, 2024 and 2023, respectively, and were included in "Other non-current assets" on the Company's consolidated balance sheets.
Related Party Transactions
We were engaged in related party transactions with St. Gabriel CC Company, LLC for the years ended December 31, 2024 and December 31, 2023. Refer to Note 18, Related Party Transactions.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our management is required to make these critical accounting estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.
Our critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. Management considers the following to be critical accounting estimates.
Goodwill and Intangible Assets
The valuation methods and assumptions used in valuing goodwill and identified intangibles and assessing the impairment of goodwill and identified intangibles involves a significant level of estimation uncertainty. In addition, the assumptions used in determining the useful life of an intangible asset involves a significant level of estimation uncertainty. Refer to the Goodwill and Acquired Intangible Assets section in Note 1, Business Description and Summary of Significant Accounting Policies, for details related to the valuation and impairment process of both goodwill and intangible assets. Changes in market conditions, laws and regulations, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could result in the recognition of an impairment charge, and in turn could have a material impact on our financial condition or results of operations in subsequent periods.
Significant Accounting Policies and Recent Accounting Pronouncements
See Note 1, Business Description and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements regarding significant accounting policies and recent accounting pronouncements.
