NOTE 2 - STOCKHOLDERS' EQUITY
Stock-Based Compensation
The Company’s results for the three months ended March 31, 2025 and 2024 reflected the following stock-based compensation cost, and such compensation cost had the following effects on net earnings:
| | | | | | | | | | | | | | |
| | Increase/(Decrease) for the |
| | Three Months Ended March 31, |
| | 2025 | | 2024 |
| Cost of sales | | $ | 438 | | | $ | 400 | |
| Operating expenses | | 3,372 | | | 4,350 | |
| Net earnings | | (2,928) | | | (3,652) | |
As allowed by Accounting Standards Codification ("ASC") 718, the Company has made an estimate of expected forfeitures based on its historical experience and is recognizing compensation cost only for those stock-based compensation awards expected to vest.
The Company's omnibus incentive plan ("the Plan") allows for the granting of stock awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plan. No option will be exercisable for longer than ten years after the date of grant. The Company has approved and reserved a number of shares to be issued upon exercise of the outstanding options that is adequate to cover all exercises. As of March 31, 2025, the Plan had 685,590 shares available for future awards. Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three to five years for stock options, three years for employee restricted stock awards, three years for employee performance share awards, and one to three years for non-employee director restricted stock awards. Certain awards provide for accelerated vesting if there is a change in control (as defined in the plans) or other qualifying events.
Option activity for the three months ended March 31, 2025 and 2024 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2025 | | Shares (000s) | | Weighted
Average
Exercise
Price | | Aggregate
Intrinsic
Value | | Weighted
Average
Remaining
Contractual
Term |
| Outstanding as of December 31, 2024 | | 962 | | | $ | 114.81 | | | $ | 46,346 | | | |
| Granted | | 51 | | | 159.18 | | | | | |
| Exercised | | (18) | | | 90.50 | | | | | |
| Forfeited | | — | | | — | | | | | |
| Canceled | | — | | | — | | | | | |
| Outstanding as of March 31, 2025 | | 995 | | | $ | 117.53 | | | $ | 48,212 | | | 5.6 |
| | | | | | | | |
| Exercisable as of March 31, 2025 | | 688 | | | $ | 105.78 | | | $ | 41,408 | | | 4.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2024 | | Shares (000s) | | Weighted
Average
Exercise
Price | | Aggregate
Intrinsic
Value | | Weighted
Average
Remaining
Contractual
Term |
| Outstanding as of December 31, 2023 | | 1,078 | | | $ | 104.38 | | | $ | 47,889 | | | |
| Granted | | 113 | | | 143.43 | | | | | |
| Exercised | | (125) | | | 70.40 | | | | | |
| Forfeited | | (1) | | | 134.45 | | | | | |
| Canceled | | — | | | — | | | | | |
| Outstanding as of March 31, 2024 | | 1,065 | | | $ | 112.48 | | | $ | 45,223 | | | 6.3 |
| | | | | | | | |
| Exercisable as of March 31, 2024 | | 699 | | | $ | 97.89 | | | $ | 39,881 | | | 4.9 |
ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The weighted average fair values of the stock options granted under the Plan were calculated using either the Black-Scholes model or the Binomial model, whichever was deemed to be most appropriate. The fair value of each option grant was estimated on the date of the grant using the following weighted average assumptions for the three months ended March 31, 2025 and 2024, respectively: dividend yields of 0.6% and 0.6%; expected volatilities of 26% and 28%; risk-free interest rates of 4.5% and 4.1% and expected lives of 5.2 years and 5.0 years.
The Company used a projected expected life for each award granted based on historical experience of employees’ exercise behavior. Expected volatilities are based on the Company’s historical volatility levels. Dividend yields are based on the Company’s historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life.
Other information pertaining to option activity during the three months ended March 31, 2025 and 2024 is as follows:
| | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | 2025 | | 2024 |
| Weighted-average fair value of options granted | | $ | 48.86 | | | $ | 44.52 | |
| Total intrinsic value of stock options exercised ($000s) | | $ | 1,388 | | | $ | 10,377 | |
Non-vested restricted stock activity for the three months ended March 31, 2025 and 2024 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2025 | | 2024 |
| | Shares (000s) | | Weighted
Average Grant
Date Fair
Value | | Shares (000s) | | Weighted
Average Grant
Date Fair
Value |
| Non-vested balance as of December 31 | | 122 | | | $ | 141.62 | | | 116 | | | $ | 133.06 | |
| Granted | | 54 | | | 159.11 | | | 35 | | | 143.43 | |
| Vested | | (28) | | | 138.21 | | | (32) | | | 119.11 | |
| Forfeited | | (1) | | | 140.76 | | | (1) | | | 129.93 | |
| Non-vested balance as of March 31 | | 147 | | | $ | 148.68 | | | 118 | | | $ | 139.95 | |
Non-vested performance share activity for the three months ended March 31, 2025 and 2024 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2025 | | 2024 |
| | Shares (000s) | | Weighted
Average Grant
Date Fair
Value | | Shares (000s) | | Weighted
Average Grant
Date Fair
Value |
| Non-vested balance as of December 31 | | 79 | | | $ | 150.73 | | | 76 | | | $ | 135.25 | |
| Granted | | 50 | | | 147.96 | | | 47 | | | 152.28 |
| Vested | | (44) | | | 109.95 | | | (44) | | | 106.57 |
| Forfeited | | (4) | | | 150.11 | | | — | | | — |
| Non-vested balance as of March 31 | | 81 | | | $ | 160.14 | | | 79 | | | $ | 150.73 | |
The Company's performance share (“PS”) awards provide the recipients the right to receive a certain number of shares of the Company’s common stock in the future, subject to an EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, or relative total shareholder return ("TSR") where vesting is dependent upon the Company’s TSR performance over the performance period relative to a comparator group consisting of the Russell 2000 index constituents. For grants made in 2025, the performance metrics are comprised of an EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period and modified based on the Company's TSR performance over the performance period relative to a comparator group consisting of the Russell 2000 index constituents. Expense is measured based on the fair value of the grant at the date of grant. A Monte-Carlo simulation has been used to estimate the fair value. The assumptions used in the fair value determination were risk free interest rates of 4.3% and 4.2%; dividend yields of 0.0% and 0.0%; volatilities of 26% and 25%; and initial TSR's of -8.8% and 10.3%, in each case for the three months ended March 31, 2025 and 2024, respectively. Expense is estimated based on the number of shares expected to vest, assuming the requisite service period is rendered and the probable
outcome of the performance condition is achieved. The estimate is revised if subsequent information indicates that the actual number of shares likely to vest differs from previous estimates. Expense is ultimately adjusted based on the actual achievement of service and performance targets. The PS will cliff vest 100% at the end of the third year following the grant in accordance with the performance metrics set forth. Grants may be subject to a mandatory holding period of one year from the vesting date. For PS awards granted in 2024 and 2025, grants are subject to such holding period.
As of March 31, 2025 and 2024, there were $31,427 and $30,380, respectively, of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the plans. As of March 31, 2025, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.8 years. The Company estimates that share-based compensation expense for the year ended December 31, 2025 will be approximately $16,860.
Repurchase of Common Stock
The Company's Board of Directors has approved a 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 3,174,897 shares have been repurchased. The Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it is advisable to do so based on its 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 the Company might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. The Company also repurchases (withholds) shares from employees in connection with the tax settlement of vested shares and/or exercised stock options, as applicable, under the Company's omnibus incentive plan. Such repurchases of shares from employees are funded with existing cash on hand. During the three months ended March 31, 2025 and 2024, the Company purchased 32,869 and 36,122 shares, respectively, from employees in connection with the tax settlement of vested shares and/or exercised stock options, as applicable, under the Company's omnibus incentive plan at an average cost of $161.99 and $144.02, respectively.
NOTE 3 – INVENTORIES
Inventories, net of reserves at March 31, 2025 and December 31, 2024 consisted of the following:
| | | | | | | | | | | | | | |
| | March 31, 2025 | | December 31, 2024 |
| Raw materials | | $ | 44,671 | | | $ | 45,319 | |
| Work in progress | | 10,538 | | | 4,510 | |
| Finished goods | | 89,717 | | | 80,973 | |
| Total inventories | | $ | 144,926 | | | $ | 130,802 | |
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 2025 and December 31, 2024 are summarized as follows:
| | | | | | | | | | | | | | |
| | | March 31, 2025 | | December 31, 2024 |
| Land | | $ | 11,927 | | | $ | 11,690 | |
| Building | | 110,903 | | | 106,954 | |
| Equipment | | 323,519 | | | 315,001 | |
| Construction in progress | | 74,137 | | | 77,508 | |
| | | 520,486 | | | 511,153 | |
| Less: accumulated depreciation | | 236,733 | | | 228,999 | |
| Property, plant and equipment, net | | $ | 283,753 | | | $ | 282,154 | |
In accordance with Topic 360, the Company reviews long-lived assets for impairment whenever events indicate that the carrying amount of the assets may not be fully recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. There were no impairment charges recorded for the three months ended March 31, 2025 and 2024.
NOTE 5 - INTANGIBLE ASSETS
The Company had goodwill in the amount of $793,087 and $780,030 as of March 31, 2025 and December 31, 2024, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is primarily due to foreign currency translation adjustments.
Identifiable intangible assets with finite lives at March 31, 2025 and December 31, 2024 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amortization
Period
(in years) | | Gross Carrying Amount at March 31, 2025 | | Accumulated Amortization at March 31, 2025 | | Gross Carrying Amount at December 31, 2024 | | Accumulated Amortization at December 31, 2024 |
| Customer relationships & lists | | 10-20 | | $ | 359,414 | | | $ | 225,696 | | | $ | 354,051 | | | $ | 221,567 | |
| Trademarks & trade names | | 2-17 | | 51,631 | | | 42,274 | | | 50,971 | | | 41,417 | |
| Developed technology | | 5-12 | | 40,815 | | | 21,131 | | | 40,074 | | | 20,362 | |
| Other | | 2-18 | | 24,934 | | | 21,728 | | | 25,154 | | | 21,854 | |
| | | | | $ | 476,794 | | | $ | 310,829 | | | $ | 470,250 | | | $ | 305,200 | |
Amortization of identifiable intangible assets was approximately $4,060 and $6,342 for the three months ended March 31, 2025 and 2024, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, estimated amortization expense is $12,192 for the remainder of 2025, $16,148 for 2026, $15,622 for 2027, $15,171 for 2028, $14,769 for 2029 and $14,390 for 2030. At March 31, 2025 and December 31, 2024, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350. Identifiable intangible assets are reflected in “Intangible assets with finite lives, net” on the Company’s condensed consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the three months ended March 31, 2025 and 2024.
NOTE 6 - EQUITY METHOD INVESTMENT
In 2013, the Company and Eastman Chemical Company formed a joint venture (66.66% / 33.34% ownership), St. Gabriel CC Company, LLC, to design, develop, and construct an expansion of the Company’s St. Gabriel aqueous choline chloride plant. The Company contributed the St. Gabriel plant, at cost, and all continued expansion and improvements are funded by the owners. The joint venture became operational as of July 1, 2016. St. Gabriel CC Company, LLC is a Variable Interest Entity (VIE) because the total equity at risk is not sufficient to permit the joint venture to finance its own activities without additional subordinated financial support. Additionally, voting rights (2 votes each) are not proportionate to the owners’ obligation to absorb expected losses or receive the expected residual returns of the joint venture. The Company receives the majority of the production offtake capacity, which may be adjusted from time to time to the extent the owners agree as such, and absorbs operating expenses approximately proportional to the actual percentage of offtake. The joint venture is accounted for under the equity method of accounting since the Company is not the primary beneficiary as the Company does not have the power to direct the activities of the joint venture that most significantly impact its economic performance. The Company recognized a loss of $122 and $121 for the three months ended March 31, 2025 and 2024, respectively, relating to its portion of the joint venture's expenses in other expense. The Company made capital contributions to the investment totaling $30 and $42 for the three months ended March 31, 2025 and 2024, respectively. The carrying value of the joint venture at March 31, 2025 and December 31, 2024 was $3,764 and $3,856, respectively, and is recorded in "Other non-current assets" on the condensed consolidated balance sheets.
NOTE 7 – REVOLVING LOAN
On July 27, 2022, the Company entered into an Amended and Restated Credit Agreement (the "2022 Credit Agreement") with certain lenders in the form of a senior secured revolving credit facility, due on July 27, 2027. The 2022 Credit Agreement allows for up to $550,000 of borrowing. The loans may be used for working capital, letters of credit, and other corporate purposes and may be drawn upon at the Company’s discretion. As of both March 31, 2025 and December 31, 2024, the total balance outstanding on the 2022 Credit Agreement amounted to $190,000. There are no installment payments required on the revolving loans; they may be voluntarily prepaid in whole or in part without premium or penalty, and all outstanding amounts are due on the maturity date.
Amounts outstanding under the 2022 Credit Agreement are subject to an interest rate equal to a fluctuating rate as defined by the 2022 Credit Agreement plus an applicable rate. The applicable rate is based upon the Company’s consolidated net leverage ratio, as defined in the 2022 Credit Agreement, and the interest rate was 5.43% at March 31, 2025. The Company is also required to pay a commitment fee on the unused portion of the revolving loan, which is based on the Company’s consolidated net leverage ratio as defined in the 2022 Credit Agreement and ranges from 0.150% to 0.225% (0.150% at March 31, 2025). The unused portion of the revolving loan amounted to $360,000 at March 31, 2025. The Company is also required to pay, as applicable, letter of credit fees, administrative agent fees, and other fees to the arrangers and lenders.
Costs associated with the issuance of the revolving loans are capitalized and amortized on a straight-line basis over the term of the 2022 Credit Agreement, which is not materially different than the effective interest method. Capitalized costs net of accumulated amortization were $671 and $743 at March 31, 2025 and December 31, 2024, respectively, and are included in "Other non-current assets" on the condensed consolidated balance sheets. Amortization expense pertaining to these costs totaled $71 for both the three months ended March 31, 2025 and 2024 and are included in "Interest expense, net" in the accompanying condensed consolidated statements of earnings.
The 2022 Credit Agreement contains quarterly covenants requiring the consolidated leverage ratio to be less than a certain maximum ratio and the consolidated interest coverage ratio to exceed a certain minimum ratio. At March 31, 2025, the Company was in compliance with these covenants. Indebtedness under the Company’s loan agreements is secured by assets of the Company.
NOTE 8– NET EARNINGS PER SHARE
The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per share:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| 2025 | | 2024 |
| Net Earnings - Basic and Diluted | | $ | 37,053 | | | $ | 28,986 | |
| | | | |
| Shares (000s) | | | | |
| Weighted Average Common Shares - Basic | | 32,440 | | | 32,251 | |
| Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares | | 367 | | | 376 | |
| Weighted Average Common Shares - Diluted | | 32,807 | | | 32,627 | |
| | | | |
| Net Earnings Per Share - Basic | | $ | 1.14 | | | $ | 0.90 | |
| Net Earnings Per Share - Diluted | | $ | 1.13 | | | $ | 0.89 | |
The number of anti-dilutive shares were 223,820 and 448,915 for the three months ended March 31, 2025 and 2024, respectively. Anti-dilutive shares could potentially dilute basic earnings per share in future periods and therefore, were not included in diluted earnings per share.
NOTE 9 – INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2025 and 2024, was 22.7% and 21.3%, respectively. The higher effective tax rate for the three months ended March 31, 2025 was primarily due to lower tax benefits from stock-based compensation.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.
The Company accounts for uncertainty in income taxes utilizing ASC 740-10, "Income Taxes". ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosures. The application of ASC 740-10 requires judgment related to the uncertainty in income taxes and could impact our effective tax rate.
The Company files income tax returns in the U.S. and in various states and foreign countries. As of March 31, 2025, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2020. The Company had approximately $6,786 and $6,720 of unrecognized tax benefits, which are included in "Other long-term obligations" on the Company’s condensed consolidated balance sheets, as of March 31, 2025 and December 31, 2024, respectively. The Company includes interest expense or income as well as potential penalties on uncertain tax positions as a component of "Income tax expense" in the condensed consolidated statements of earnings. Total accrued interest and penalties related to uncertain tax positions at March 31, 2025 and December 31, 2024 were approximately $2,418 and $2,352, respectively, and are included in "Other long-term obligations" on the Company’s condensed consolidated balance sheets.
The European Union ("EU") member states formally adopted the EU's Pillar Two Directive on December 15, 2022, which was established by the Organization for Economic Co-operation and Development. Pillar Two generally provides for a 15 percent minimum effective tax rate for the jurisdictions where multinational enterprises operate. While the Company does not anticipate that this will have a material impact on its tax provision or effective tax rate, the Company continues to monitor evolving tax legislation in the jurisdictions in which it operates.
NOTE 10 – SEGMENT INFORMATION
Balchem Corporation reports three reportable segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated".
The Company's Chief Operating Decision Maker ("CODM") is the Chief Executive Officer. The CODM receives a profit and loss reporting package which provides segment information including revenue, cost of goods sold, gross margin, total operating expenses, and earnings from operations. The CODM utilizes this monthly profit and loss reporting package to analyze segment performance and appropriately allocate resources.
Pursuant to ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", the significant segment information is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2025 |
| | | HNH | | ANH | | SP | | Other and Unallocated | | Total |
| Net sales | | $ | 158,457 | | | $ | 57,277 | | | $ | 33,275 | | | $ | 1,510 | | | $ | 250,519 | |
| Cost of sales | | 99,383 | | (1) | 44,917 | | (1) | 15,986 | | (1) | 2,065 | | (1) | 162,351 | |
| Gross margin | | 59,074 | | | 12,360 | | | 17,289 | | | (555) | | | 88,168 | |
| Operating expenses | | 21,100 | | (2) | 7,124 | | (3) | 7,704 | | (4) | 1,225 | | (5) | 37,153 | |
| Earnings from operations | | 37,974 | | | 5,236 | | | 9,585 | | | (1,780) | | | 51,015 | |
| Other expenses: | | | | | | | | | | |
| Interest expense, net | | | | | | | | | | 2,924 | |
| Other expense | | | | | | | | | | 151 | |
| | | | | | | | | | 3,075 | |
Earnings before income
tax expense | | | | | | | | | | 47,940 | |
| Income tax expense | | | | | | | | | | 10,887 | |
| Net earnings | | | | | | | | | | $ | 37,053 | |
| | | | | | | | | | |
| | |
(1) Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, depreciation expense, and other overhead expenses necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. |
|
(2) Operating expenses within HNH are primarily comprised of compensation-related costs, professional services, including advertising and marketing costs, and amortization expense in connection with certain acquired intangible assets. |
|
(3) Operating expenses within ANH are primarily comprised of compensation-related costs and professional services, including advertising and marketing costs. |
|
(4) Operating expenses within SP are primarily comprised of compensation-related costs, professional services, and amortization expense in connection with certain acquired intangible assets. |
|
(5) Operating expenses within Other and Unallocated are primarily comprised of transaction and integration costs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2024 |
| | | HNH | | ANH | | SP | | Other and Unallocated | | Total |
| Net sales | | $ | 152,744 | | | $ | 53,921 | | | $ | 31,613 | | | $ | 1,381 | | | $ | 239,659 | |
| Cost of sales | | 97,382 | | (6) | 44,235 | | (6) | 14,624 | | (6) | 1,904 | | (6) | 158,145 | |
| Gross margin | | 55,362 | | | 9,686 | | | 16,989 | | | (523) | | | 81,514 | |
| Operating expenses | | 22,105 | | (7) | 7,626 | | (8) | 8,790 | | (9) | 1,317 | | (10) | 39,838 | |
| Earnings from operations | | 33,257 | | | 2,060 | | | 8,199 | | | (1,840) | | | 41,676 | |
| Other expenses: | | | | | | | | | | |
| Interest expense, net | | | | | | | | | | 5,398 | |
| Other income | | | | | | | | | | (572) | |
| | | | | | | | | | 4,826 | |
Earnings before income
tax expense | | | | | | | | | | 36,850 | |
| Income tax expense | | | | | | | | | | 7,864 | |
| Net earnings | | | | | | | | | | $ | 28,986 | |
| | | | | | | | | | |
| | |
(6) Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, depreciation expense, and other overhead expenses necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. |
|
(7) Operating expenses within HNH are primarily comprised of compensation-related costs, professional services, including advertising and marketing costs, and amortization expense in connection with certain acquired intangible assets. |
|
(8) Operating expenses within ANH are primarily comprised of compensation-related costs and professional services, including advertising and marketing costs. |
|
(9) Operating expenses within SP are primarily comprised of compensation-related costs, professional services, and amortization expense in connection with certain acquired intangible assets. |
|
(10) Operating expenses within Other and Unallocated are primarily comprised of transaction and integration costs. |
| | | | | | | | | | | | | | |
| Business Segment Assets | | March 31,
2025 | | December 31,
2024 |
| Human Nutrition and Health | | $ | 1,213,407 | | | $ | 1,185,962 | |
| Animal Nutrition and Health | | 169,464 | | | 161,243 | |
| Specialty Products | | 166,745 | | | 161,283 | |
Other and Unallocated (11) | | 67,939 | | | 66,883 | |
| Total | | $ | 1,617,555 | | | $ | 1,575,371 | |
| | |
(11) Other and Unallocated assets consist of certain cash, capitalized loan issuance costs, other assets, investments, and income taxes, which the Company does not allocate to its individual business segments. It also includes assets associated with a few minor businesses which individually do not meet the quantitative thresholds for separate presentation. |
| | | | | | | | | | | | | | |
Depreciation/Amortization | | Three Months Ended March 31, |
| | | 2025 | | 2024 |
| Human Nutrition and Health | | $ | 7,303 | | | $ | 9,540 | |
| Animal Nutrition and Health | | 1,761 | | | 2,102 | |
| Specialty Products | | 1,726 | | | 1,779 | |
| Other and Unallocated | | 224 | | | 247 | |
| Total | | $ | 11,014 | | | $ | 13,668 | |
| | | | | | | | | | | | | | |
Capital Expenditures | | Three Months Ended March 31, |
| | | 2025 | | 2024 |
| Human Nutrition and Health | | $ | 2,327 | | | $ | 4,260 | |
| Animal Nutrition and Health | | 2,344 | | | 2,021 | |
| Specialty Products | | 722 | | | 435 | |
| Other and Unallocated | | 28 | | | 70 | |
| Total | | $ | 5,421 | | | $ | 6,786 | |
NOTE 11 – REVENUE
Revenue Recognition
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration the Company expects to realize in exchange for those goods.
The following table presents revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| 2025 | | 2024 |
| Product Sales Revenue | | $ | 250,061 | | | $ | 239,126 | |
| Royalty Revenue | | 458 | | | 533 | |
| Total Revenue | | $ | 250,519 | | | $ | 239,659 | |
The following table presents revenues disaggregated by geography, based on customers' delivery addresses:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| 2025 | | 2024 |
| United States | | $ | 185,722 | | | $ | 182,086 | |
| Foreign Countries | | 64,797 | | | 57,573 | |
| Total Revenue | | $ | 250,519 | | | $ | 239,659 | |
Product Sales Revenues
The Company’s primary operation is the manufacturing and sale of health and nutrition ingredient products, in which the Company receives an order from a customer and fulfills that order. The Company’s product sales are considered point-in-time revenue.
Royalty Revenues
Royalty revenue consists of agreements with customers to use the Company’s intellectual property in exchange for a sales-based royalty. Royalties are considered over time revenue and are recorded in the Human Nutrition and Health segment.
Contract Liabilities
The Company records contract liabilities when cash payments are received or due in advance of performance, including amounts which are refundable.
The Company’s payment terms vary by the type and location of customers and the products offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products are delivered to the customer.
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for products shipped.
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three months ended March 31, 2025 and 2024 for income taxes and interest is as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2025 | | 2024 |
| Income taxes | | $ | 1,443 | | | $ | 949 | |
| Interest | | $ | 3,010 | | | $ | 5,170 | |
NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) were as follows:
| | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | 2025 | | 2024 |
| Net foreign currency translation adjustment | | $ | 21,722 | | | $ | (12,717) | |
| | | | |
Net change in postretirement benefit plan (see Note 14 for
further information) | | | | |
| Amortization of gain | | (2) | | | (3) | |
| Prior service (gain) loss arising during the period | | (319) | | | 206 | |
| Total before tax | | (321) | | | 203 | |
| Tax | | 83 | | | (49) | |
| Net of tax | | (238) | | | 154 | |
| | | | |
| Total other comprehensive income (loss) | | $ | 21,484 | | | $ | (12,563) | |
Accumulated other comprehensive income (loss) at March 31, 2025 and December 31, 2024 consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | Foreign currency
translation
adjustment | | Postretirement
benefit plan | | Total |
| Balance December 31, 2024 | | $ | (24,182) | | | $ | 435 | | | $ | (23,747) | |
| Other comprehensive income (loss) | | 21,722 | | | (238) | | | 21,484 | |
| Balance March 31, 2025 | | $ | (2,460) | | | $ | 197 | | | $ | (2,263) | |
NOTE 14 – EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors one 401(k) savings plan for eligible employees, which allows participants to make pretax or after tax contributions and the Company matches certain percentages of those contributions. The plan also has a discretionary profit sharing portion and matches 401(k) contributions with shares of the Company’s Common Stock. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees.
Postretirement Medical Plans
The Company provides postretirement benefits in the form of two unfunded postretirement medical plans; one that is under a collective bargaining agreement and covers eligible retired employees of the Verona facility and one for officers of the Company pursuant to the Balchem Corporation Officer Retiree Program.
Net periodic benefit costs for such retirement medical plans were as follows:
| | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2025 | | 2024 |
| Service cost | | $ | 29 | | | $ | 28 | |
| Interest cost | | 18 | | | 14 | |
| Amortization of gain | | (3) | | | (3) | |
| Net periodic benefit cost | | $ | 44 | | | $ | 39 | |
The amounts recorded for these obligations on the Company’s condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024 are $1,446 and $1,522, respectively, and are included in "Other long-term obligations" on the Company's condensed consolidated balance sheets. These plans are unfunded and approved claims are paid from Company funds. Historical cash payments made under such plans have typically been less than $200 per year.
Defined Benefit Pension Plans
On May 27, 2019, the Company acquired Chemogas Holding NV, a privately held specialty gases company headquartered in Grimbergen, Belgium ("Chemogas"), which has an unfunded defined benefit pension plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amounts recorded for these obligations on the Company's condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024 were $690 and $613, respectively, and were included in "Other long-term obligations" on the Company's condensed consolidated balance sheets.
Net periodic benefit costs for such benefit pension plans were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | 2025 | | 2024 |
| Service cost with interest to end of year | | $ | 49 | | | $ | 18 | |
| Interest cost | | 19 | | | 14 | |
| Expected return on plan assets | | (14) | | | (10) | |
| Amortization of loss | | 1 | | | — | |
| Total net periodic benefit cost | | $ | 55 | | | $ | 22 | |
Deferred Compensation Plan
The Company provides 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, and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability was $11,653 as of March 31, 2025, of which $11,633 was included in "Other long-term obligations" and $20 was included in "Accrued compensation and other benefits" on the Company's condensed consolidated balance sheets. 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 the Company’s consolidated balance sheets. The related assets of the irrevocable trust funds (also known as "rabbi trust funds") were $11,642 as of March 31, 2025, of which $11,622 was included in "Other non-current assets" and $20 was included in "Other current assets" on the Company's condensed consolidated balance sheet. The rabbi trust funds were $11,465 as of December 31, 2024 and were included in "Other non-current assets" on the Company's consolidated balance sheets.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
The Company is obligated to make rental payments under non-cancelable operating and finance leases. Aggregate future minimum rental payments required under these leases at March 31, 2025 are disclosed in Note 18, Leases.
The Company’s Verona, Missouri facility, while held by a prior owner, Syntex Agribusiness, Inc. (“Syntex”), was designated by the U.S. Environmental Protection Agency (the "EPA") as a Superfund site and placed on the National Priorities List in 1983 because of dioxin contamination on portions of the site. Remediation was conducted by Syntex under the oversight of the EPA and the Missouri Department of Natural Resources. The Company is indemnified by the sellers under its May 2001 asset purchase agreement covering its acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site. One of the sellers, in turn, has the benefit of certain contractual indemnification by Syntex in relation to the implementation of the above-described Superfund remedy. In June 2023, in response to a Special Notice Letter received from the EPA in 2022, BCP Ingredients, Inc. ("BCP"), the Company's subsidiary that operates the site, Syntex, EPA, and the State of Missouri entered into an Administrative Settlement Agreement and Order on Consent (“ASAOC”) for a focused remedial investigation/feasibility study ("RI/FS") under which (a) BCP will conduct a source investigation of potential source(s) of releases of 1,4-dioxane and chlorobenzene at a portion of the site and (b) BCP and Syntex will complete a RI/FS to determine a potential remedy, if any is required. Activities under the ASAOC are underway and are expected to continue for some period of time.
Separately, in June 2022, the EPA conducted an inspection of BCP’s Verona, Missouri facility (“2022 EPA Inspection”) which was followed by BCP entering into an Administrative Order for Compliance on Consent (“AOC”) with the EPA in relation to its risk management program at the Verona facility. Further, in January 2023, BCP entered into an Amended AOC with the EPA whereby the parties agreed to the extension of certain timelines. BCP timely completed all requirements under the Amended AOC. In November 2023, BCP received a notice from the Environment and Natural Resources Division of the U.S Department of Justice (“DOJ”) primarily related to the 2022 EPA Inspection, which extended the opportunity to discuss alleged violations of Sections 112(r)(7) of the Clean Air Act and regulations in 40 C.F.R. Part 68, commonly known as the Risk Management Plan Rule (“RMP Rule”). BCP participated in such discussions during 2024, and in December 2024, BCP reached a settlement with the EPA and DOJ to resolve these alleged violations. Pursuant to the settlement, which was entered into on January 31, 2025, BCP agreed to: (a) pay a $300 civil penalty; (b) complete a new scrubber system project; and (c) spend $350 to implement projects benefiting the surrounding community, such as emergency equipment for the local fire department and two vehicles to be used as mobile health clinics. The amount associated with this settlement was consistent with the amount previously accrued as a loss contingency.
In addition to the above, from time to time, the Company is a party to various legal proceedings, litigation, claims and assessments. While it is not possible to predict the ultimate disposition of each of these matters, management believes that the ultimate outcome of such matters will not have a material effect on the Company's consolidated financial position, results of operations, liquidity or cash flows.
NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at March 31, 2025 and December 31, 2024 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage ratio. The Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable, and accrued liabilities, which are carried at cost and approximate fair value due to the short-term maturity of these instruments. Cash and cash equivalents included $1,033 and $1,040, in money market funds as of March 31, 2025 and December 31, 2024, respectively, and $11,904 and $0 in certificates of deposit with maturities of three months or less at March 31, 2025 and December 31, 2024, respectively. The certificates of deposit are categorized in level two of the fair value hierarchy as defined by ASC 820, "Fair Value Measurement". Due to the short-term nature of the instrument, the Company has determined the cost approximates fair value.
Non-current assets at March 31, 2025 and December 31, 2024 included $11,622 and $11,465, respectively, of rabbi trust funds related to the Company's deferred compensation plan. The money market and rabbi trust funds are valued using level one inputs, as defined by ASC 820, “Fair Value Measurement.”
NOTE 17 – RELATED PARTY TRANSACTIONS
The Company provides services under a contractual agreement to St. Gabriel CC Company, LLC. These services include accounting, information technology, quality control, and purchasing services, as well as operation of the St. Gabriel CC Company, LLC plant. The Company also sells raw materials to St. Gabriel CC Company, LLC. These raw materials are used in the production of finished goods that are, in turn, sold by Saint Gabriel CC Company, LLC to the Company for resale to unrelated parties. As such, the sale of these raw materials to St. Gabriel CC Company, LLC in this scenario lacks economic substance and therefore the Company does not include them in net sales within the condensed consolidated statements of earnings.
Payments for the services the Company provided amounted to $1,127 and $1,092 for the three months ended March 31, 2025 and 2024, respectively. The raw materials purchased and subsequently sold amounted to $9,925 and $6,332 for the three months ended March 31, 2025 and 2024, respectively. These services and raw materials are primarily recorded in cost of goods sold, net of the finished goods received from St. Gabriel CC Company, LLC of $7,918 and $4,971 during the three months ended March 31, 2025 and 2024, respectively. At March 31, 2025 and December 31, 2024, the Company had receivables of $3,824 and $3,893, respectively, recorded in accounts receivable from St. Gabriel CC Company, LLC for services rendered and raw materials sold. At March 31, 2025 and December 31, 2024, the Company had payables of $2,843 and $2,831, respectively, recorded in accounts payable for finished goods received from St. Gabriel CC Company, LLC. The Company had payables in the amount of $296 related to non-contractual monies owed to St. Gabriel CC Company, LLC, recorded in accounts payable as of both March 31, 2025 and December 31, 2024. In addition, the Company had receivables in the amount of $35 related to non-contractual monies owed from St. Gabriel CC Company, LLC, recorded in other current assets as of March 31, 2025.
NOTE 18 – LEASES
The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as both operating leases and finance leases. The Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the condensed consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms. Based on the Company's risk rating, the Company applied the following discount rates for new leases entered into during the first quarter of 2025: (1) 1-2 years, 5.62% (2) 3-4 years, 6.21% (3) 5-9 years, 6.55% and (4) 10+ years, 7.27%.
Right of use assets and lease liabilities at March 31, 2025 and December 31, 2024 are summarized as follows:
| | | | | | | | | | | | | | |
| Right of use assets | | March 31, 2025 | | December 31, 2024 |
| Operating leases | | $ | 15,598 | | | $ | 15,320 | |
| Finance leases | | 1,678 | | | 1,730 | |
| Total | | $ | 17,276 | | | $ | 17,050 | |
| | | | | | | | | | | | | | |
| Lease liabilities - current | | March 31, 2025 | | December 31, 2024 |
| Operating leases | | $ | 3,726 | | | $ | 3,134 | |
| Finance leases | | 197 | | | 194 | |
| Total | | $ | 3,923 | | | $ | 3,328 | |
| | | | | | | | | | | | | | |
| Lease liabilities - non-current | | March 31, 2025 | | December 31, 2024 |
| Operating leases | | $ | 12,445 | | | $ | 12,967 | |
| Finance leases | | 1,698 | | | 1,749 | |
| Total | | $ | 14,143 | | | $ | 14,716 | |
For the three months ended March 31, 2025 and 2024, the Company's total lease costs were as follows, which included amounts recognized in earnings, amounts capitalized on the balance sheets, and the cash flows arising from lease transactions:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2025 | | 2024 |
| Lease Cost | | | | |
| Operating lease cost | | $ | 1,325 | | | $ | 1,341 | |
| | | | |
| Finance lease cost | | | | |
| Amortization of ROU asset | | 52 | | | 60 | |
| Interest on lease liabilities | | 24 | | | 27 | |
| Total finance lease | | 76 | | | 87 | |
| | | | |
| Total lease cost | | $ | 1,401 | | | $ | 1,428 | |
| | | | |
| Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows from operating leases | | $ | 1,357 | | | $ | 1,333 | |
| Operating cash flows from finance leases | | 24 | | | 27 | |
| Financing cash flows from finance leases | | 49 | | | 57 | |
| | $ | 1,430 | | | $ | 1,417 | |
| | | | |
| Right-of-use assets obtained in exchange for new operating lease liabilities, net of right-of-use assets disposed | | $ | 1,202 | | | $ | 398 | |
| | | | |
| Weighted-average remaining lease term - operating leases | | 8.84 years | | 9.25 years |
| Weighted-average remaining lease term - finance leases | | 8.12 years | | 8.86 years |
| | | | |
| Weighted-average discount rate - operating leases | | 7.6 | % | | 7.5 | % |
| Weighted-average discount rate - finance leases | | 5.1 | % | | 5.0 | % |
Rent expense charged to operations under operating lease agreements for the three months ended March 31, 2025 and 2024 aggregated to approximately $1,325 and $1,341, respectively.
Aggregate future minimum rental payments required under all non-cancelable operating and finance leases at March 31, 2025 are as follows:
| | | | | |
| Year | |
| April 1, 2025 to December 31, 2025 | $ | 3,900 | |
| 2026 | 4,642 | |
| 2027 | 3,253 | |
| 2028 | 2,488 | |
| 2029 | 2,014 | |
| 2030 | 1,815 | |
| Thereafter | 4,259 | |
| Total minimum lease payments | $ | 22,371 | |
