This report contains forward-looking statements, within the meaning of Section
21E of the Exchange Act, which reflect our expectation or belief concerning
future events that involve risks and uncertainties. Actions and performance
could differ materially from what is contemplated by the forward-looking
statements contained in this report. Factors that might cause differences from
the forward-looking statements include those referred to or identified in Item
1A of the Annual Report on Form 10-K for the year ended December 31, 2019 and
other factors that may be identified elsewhere in this report. Reference should
be made to such factors and all forward-looking statements are qualified in
their entirety by the above cautionary statements.

Overview


We develop, manufacture, distribute and market specialty performance ingredients
and products for the nutritional, food, pharmaceutical, animal health, medical
device sterilization, plant nutrition and industrial markets. Previously, our
four reportable segments were: Human Nutrition and Health, Animal Nutrition and
Health, Specialty Products, and Industrial Products. However, effective in the
first quarter of 2020, in order to align with our strategic focus on health and
nutrition, allocation of resources, and evaluation of operating performance, and
given the previously noted 2019 reduction in portfolio scale of Industrial
Products, we have revised our reporting segment structure to three reportable
segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty
Products. These reportable segments are strategic businesses that offer products
and services to different markets. This realignment has been retrospectively
applied. Sales and production of products outside of our reportable segments and
other minor business activities are included in "Other and Unallocated" and
applied retroactively to 2019. There was no change to the Consolidated Financial
Statements as a result of the change to the reportable segments. We expect that
the new reportable segment structure will provide investors greater
understanding of and alignment with our strategic focus. In order to ensure
appropriate transparency and visibility into the financial performance of the
Company, sufficient detail will continue to be provided relative to Other and
Unallocated, including material contributions from oil and gas and other
industrial market activities.
COVID-19 Response:
The COVID-19 response effort has been the primary focus for the company since
early in the first quarter. Two of our three manufacturing facilities in Europe
are in Italy, one of the first countries to be impacted by the pandemic. The
need for an early response to the situation in Italy, prepared us well for
actions that needed to be taken in the rest of the world to respond to the
pandemic. Balchem's Crisis Management Plan has been effectively deployed to
respond to the COVID-19 pandemic, activating our Crisis Management Team (CMT),
to manage the day-to-day activities and to make timely decisions. Some examples
of the early decisions made by the CMT are:

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•Holding a special Board of Directors meeting to ensure Board engagement and
involvement in the response plan
•Creation of an individual response plan for the eventuality of positive cases
within our employee base, based on the Centers for Disease Control and
Prevention (CDC) guidelines
•International and domestic travel restrictions
•Execution of a communications strategy to keep employees and customers informed
of requirements, decisions, and outcomes
•Site visitation restrictions to both internal and external personnel
•Strict protocols to deal with necessary visitors to sites (e.g. delivery
drivers)
•Elimination of large group gatherings
•Mandatory work from home for all non-manufacturing and non-research and
development employees
•Separation of employees into smaller work groups to reduce density within work
teams
•New protocols relative to Personal Protection Equipment (PPE) including face
masks and sanitation procedures
•Key raw material and finished goods inventory builds
•Employee responsibility guidelines to manage individual protection measures;
and
•Approval of special bonuses to non-executive employees to recognize the hourly
and salaried workforce attendance and hard work during the pandemic
These are just some examples of the decisions made by Balchem's CMT in response
to the pandemic. To date, all of our manufacturing sites are operating at near
normal conditions enabling us to supply our customers with the important
products and services they need, our research and development teams are
advancing our innovation efforts, and all of our other employees are carrying on
their responsibilities and functions remotely.
We have had two employees, that we are aware of, out of our approximately 1,400
employees, test positive for COVID-19. Both cases were in the early stages of
the pandemic and both employees are recovering well. We managed the cases
effectively using our individual response plan, which is based on the CDC
guidelines, and believe our early adoption of exposure mitigation actions played
an important role in mitigating the impact of these cases on other employees and
the company.
While impact on demand in the first quarter was minimal, we are watching the
markets that we serve closely. We have stress tested our balance sheet under
various significant downturn scenarios and, given our relatively low net debt
position (1.1 times TTM adjusted EBITDA), cash on hand, access to our undrawn
revolving credit facility, and expected free cash flows, we are pleased with the
strength of our balance sheet going into this uncertain market environment.
Despite this relative strength, we are taking actions to reduce capital
expenditures and non-critical cash expenses wherever possible to preserve cash.
Sales over the next few quarters will be challenged by weaker demand in food
services, the animal protein markets including dairy protein, medical device
sterilization due to fewer elective surgeries, and lower fracking activities. We
anticipate that there will be somewhat offsetting potential strengthening demand
in grocery store food products, functional technologies aiding food preservation
needs, immunity strengthening minerals and nutrients, and certain benefits from
lower raw material costs. While we understand the market dynamics impacting
these downsides and upsides, it is very difficult at this time to tell the
specific dimensional impact of these forces, but our overall expectation is that
we will experience sequentially lower overall revenues in the second quarter and
for the duration of the pandemic, given the significant disruption on economic
activity across global markets. We will watch each of these markets very closely
and remain nimble, flexible, and ready to respond accordingly.
Balchem has dedicated significant resources to the COVID-19 response over the
first quarter and we are pleased with the results to date particularly as it
relates to keeping our employees safe and our customers supplied. In the near
term, we will have to continue to dedicate a significant amount of our resources
to further response activities. We will maintain our focus on employee safety
first, keeping our manufacturing sites operational, satisfying customer needs,
preserving cash and ensuring strong liquidity, and responding to changes in this
dynamic market environment as appropriate.

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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 months ended March 31, 2020 and
2019:
Business Segment Net Sales              Three Months Ended March 31,
                                        2020                       2019
Human Nutrition & Health         $       95,508                $  85,149
Animal Nutrition & Health                48,641                   43,361
Specialty Products                       27,996                   18,424
Other and Unallocated (1)                 2,291                   10,095
Total                            $      174,436                $ 157,029



Business Segment Earnings From Operations              Three Months Ended March 31,
                                                      2020                        2019
Human Nutrition & Health                        $      12,135                  $ 13,703
Animal Nutrition & Health                               8,044                     5,256
Specialty Products                                      7,986                     6,697
Other and Unallocated (1)                              (1,887)                      824
Total                                           $      26,278                  $ 26,480



(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 $1,272 and $804 for the first quarter of 2020, and 2019, respectively, and (ii)
Unallocated amortization expense of $401 and $9 for the first quarter of 2020 and 2019,
respectively, related to an intangible asset in connection with a company-wide ERP system
implementation.


Acquisitions
On December 13, 2019, the Company acquired Zumbro. The Company made payments of
$52,403 on the acquisition date, amounting to $47,058 to the former shareholders
and $5,345 to Zumbro's lenders to pay Zumbro debt. Considering the cash acquired
of $686, net payments made to the former shareholders were $46,372. Zumbro is
integrated within the HNH Segment.
On May 27, 2019, we acquired Chemogas. We made payments of approximately €99,503
(translated to $111,324) on the acquisition date, amounting to approximately
€88,579 (translated to $99,102) to the former shareholders and approximately
€10,924 (translated to $12,222) to Chemogas' lender to pay off all Chemogas bank
debt. Considering the cash acquired of €3,943 (translated to $4,412), net
payments made to the former shareholders were €84,636 (translated to $94,690).
Chemogas is integrated within the Specialty Products Segment.

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                             RESULTS OF OPERATIONS
          (All amounts in thousands, except share and per share data)
Three months ended March 31, 2020 compared to three months ended March 31, 2019.
Net Earnings
                                                     Three Months Ended March 31,                                      Increase
(in thousands)                                         2020                  2019                                     (Decrease)        % Change
Net sales                                       $      174,436           $  157,029          $   17,407                        11.1  %
Gross margin                                            55,331               49,095               6,236                        12.7  %
Operating expenses                                      29,053               22,615               6,438                        28.5  %
Earnings from operations                                26,278               26,480                (202)                       (0.8) %
Other expenses                                           1,788                1,687                 101                         6.0  %
Income tax expense/(benefit)                             4,722                6,010              (1,288)                      (21.4) %
Net earnings                                    $       19,768           $   18,783          $      985                         5.2  %



Net Sales
                                               Three Months Ended March 31,                                      Increase
(in thousands)                                   2020                  2019                                     (Decrease)        % Change
HNH                                       $       95,508           $   85,149          $   10,359                        12.2  %
ANH                                               48,641               43,361               5,280                        12.2  %
Specialty Products                                27,996               18,424               9,572                        52.0  %
Other                                              2,291               10,095              (7,804)                      (77.3) %
Total                                     $      174,436           $  157,029          $   17,407                        11.1  %



•The increase in net sales within the HNH segment for the three months ended
March 31, 2020 as compared to 2019 was primarily driven by higher sales within
food and beverage markets, strong sales growth of chelated minerals and choline
nutrients, and increased sales to the cereal market, partially offset by the
elimination of sales associated with the Reading, PA manufacturing site that we
divested in 2019.
•The increase in net sales within the ANH segment for the three months ended
March 31, 2020 compared to 2019 was primarily the result of higher volumes in
both the ruminant species and monogastric species markets. Approximately 200
basis points of the growth realized in the quarter related to certain European
customers increasing their stock due to COVID-19 uncertainties.
•The increase in Specialty Products segment sales for the three months ended
March 31, 2020 compared to 2019 was primarily driven by higher sales of ethylene
oxide for the medical device sterilization market due to both the contribution
of Chemogas and higher legacy product sales, as well as increased volumes in the
plant nutrition business.
•Sales relating to business formerly included in the Industrial Products segment
decreased from the prior year due to a decline in shale fracking activity.

Gross Margin


                            Three Months Ended March 31,                    

Increase


(in thousands)             2020                        2019                       (Decrease)   % Change
Gross margin         $      55,331                  $ 49,095       $ 6,236            12.7  %
% of net sales                31.7   %                  31.3  %



•Gross margin as a percentage of sales increased for the three months ended
March 31, 2020 compared to 2019 primarily due to mix and certain lower raw
material costs.
•Gross margin percentage for the HNH segment decreased by 0.6% for the three
months ended March 31, 2020 compared to 29.3% in 2019 due to an unfavorable mix
and certain higher production costs.
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•Gross margin percentage for the ANH segment increased by 2.0% due to higher
volumes for both the ruminant species and monogastric species markets, a
favorable mix, and certain lower raw material costs.
•Gross margin percentage for the Specialty Products segment decreased by 8.3%,
primarily due to mix and certain higher production costs.

Operating Expenses


                               Three Months Ended March 31,                 

Increase


(in thousands)                2020                        2019                       (Decrease)   % Change
Operating expenses      $      29,053                  $ 22,615       $ 6,438            28.5  %
% of net sales                   16.7   %                  14.4  %

The increase in operating expenses was primarily due to the prior year benefiting from the timing of an insurance recovery and incremental operating expenses related to the Chemogas and Zumbro acquisitions.



Earnings from Operations
                                          Three Months Ended March 31,                                      Increase
(in thousands)                              2020                  2019                                     (Decrease)        % Change
HNH                                   $      12,135           $   13,703          $   (1,568)                      (11.4) %
ANH                                           8,044                5,256               2,788                        53.0  %
Specialty Products                            7,986                6,697               1,289                        19.2  %
Other and unallocated                        (1,887)                 824              (2,711)                     (329.0) %
Earnings from operations              $      26,278           $   26,480          $     (202)                       (0.8) %

% of net sales (operating
margin)                                        15.1   %             16.9  %



•Earnings from operations for the HNH segment decreased primarily due to higher
operating expenses resulting from the prior year benefiting from the timing of
an insurance recovery, partially offset by the aforementioned higher sales.
•ANH segment earnings from operations increased primarily due to the
aforementioned higher sales and certain lower raw material costs.
•The increase in earnings from operations for the Specialty Products segment was
primarily due to the aforementioned higher sales, partially offset by mix.
•The year-over-year decrease in other and unallocated was driven primarily by
lower earnings from the business formerly reported in the industrial products
segment (a decrease of $1,854), as well as increased transaction and integration
costs and unallocated amortization related to a company-wide ERP implementation.

Other Expenses (Income)
                             Three Months Ended March 31,                          Increase
(in thousands)              2020                          2019                    (Decrease)   % Change
Interest expense      $       1,696                    $ 1,589       $ 107             6.7  %
Other, net                       92                         98          (6)           (6.1) %
                      $       1,788                    $ 1,687       $ 101             6.0  %

Interest expense for the three months ended March 31, 2020 and 2019 was primarily related to outstanding borrowings under our credit facility.


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Income Tax Expense
                                          Three Months Ended March 31,                                      Increase
(in thousands)                              2020                  2019                                     (Decrease)        % Change
Income tax expense (benefit)          $       4,722           $    6,010          $   (1,288)                      (21.4) %
Effective tax rate                             19.3   %             24.2  %


The decrease of effective tax rate was mainly attributable to lower enacted tax rates from several states.


                              FINANCIAL CONDITION
                        LIQUIDITY AND CAPITAL RESOURCES
          (All amounts in thousands, except share and per share data)
During the three months ended March 31, 2020, there were no material changes
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,
2019.  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 increased to $73,959 at March 31, 2020 from $65,672 at
December 31, 2019. At March 31, 2020, the Company had $37,841 of cash and cash
equivalents held by foreign subsidiaries.  It is our intention 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.  Working capital was $198,961 at March 31, 2020 as
compared to $162,688 at December 31, 2019, an increase of $36,273. Working
capital reflects the payment of the 2019 declared dividend in 2020 of $16,704,
net proceeds from the revolving debt of $5,000, and capital expenditures and
intangible assets acquired of $5,394.
                                          Three Months Ended March 31,                                       Increase
(in thousands)                              2020                  2019                                      (Decrease)        % Change
Cash flows provided by
operating activities                  $      22,565           $   22,483          $        82                         0.4  %
Cash flows used in investing
activities                                   (5,394)              (5,780)                 386                         6.7  %
Cash flows used in financing
activities                                   (8,160)             (31,574)              23,414                        74.2  %


Operating Activities
Cash flows from operating activities provided $22,565 for the three months ended
March 31, 2020 as compared to $22,483 for the three months ended March 31,
2019.  The increase in cash flows from operating activities was primarily due to
increased earnings and depreciation and amortization, partially offset by
working capital changes.
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 $5,394 and $8,507 for the three months
ended March 31, 2020 and 2019, respectively.
Financing Activities
Net proceeds from the revolving loan amounted to $5,000 during the three months
ended March 31, 2020 and we have $246,431 available under the credit agreement
as of March 31, 2020.
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 2,439,991 shares have been purchased, and we had 130,573 shares
remaining in treasury at March 31, 2020.  We intend to acquire shares from time
to time at prevailing market prices if and to the extent we
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deem it is advisable to do so based on our assessment of corporate cash flow,
market conditions and other factors. The Company also repurchases shares from
employees in connection with settlement of transactions under the Company's
equity incentive plans.
Proceeds from stock options exercised were $4,435 and $288 for the three months
ended March 31, 2020 and 2019, respectively.  Dividend payments were $16,704 and
$15,135 for the three months ended March 31, 2020 and 2019, respectively.

Other Matters Impacting Liquidity
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
March 31, 2020 and December 31, 2019 was $1,100 and $1,076, respectively, and
the plans are not funded.  Historical cash payments made under these plans have
typically been less than $100 per year. We do not anticipate any changes to the
payments made in the current year for the plans.
On June 1, 2018, we established 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
subject to additional risk of loss in the event of bankruptcy or insolvency of
the Company.  The deferred compensation liability as of March 31, 2020 and
December 31, 2019 was $2,830 and $1,982, respectively, and was included in other
long-term obligations on our balance sheet. The related rabbi trust assets were
$2,832 and $1,982 as of March 31, 2020 and December 31, 2019, respectively, and
were included in other non-current assets on the our balance sheets.
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
March 31, 2020 and December 31, 2019 was $584 and $596, respectively, and was
included in other long-term obligations.

Critical Accounting Policies
There were no changes to the Company's Critical Accounting Policies, as
described in its December 31, 2019 Annual Report on Form 10-K, during the three
months ended March 31, 2020.

Related Party Transactions
We were engaged in related party transactions with St. Gabriel CC Company, LLC
during the three months ended March 31, 2020. Refer to Note 18, "Related Party
Transactions".

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