Nine Energy Service : Fourth Quarter 2019 Earnings Call

J.P. Morgan Industrials Conference 2020

Investor Presentation

March 10, 2020

1

Safe Harbor Statement

• During the course of this presentation, management may makeforward-looking statements regarding financial performance and future events.
• We will attempt to identify these statements by use of words such as expect, believe, anticipate, intend, and other words that denote future events. You should understand that, even though ourforward-looking statements are based on assumptions we believe are reasonable when made, they are still subject to uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
• We caution you to consider the important risk and other factors as set forth in the forward- looking statements section and in Item 1A risk factors in our Annual Reports on Form10-K as filed with the U.S. Securities and Exchange Commission that could cause actual results to differ from those in the forward-looking statements as contained in this presentation.
• Forward-lookingstatements made herein are summaries of previous public disclosures, do not represent revised guidance, and we do not undertake to revise or update them from the date or dates of previous disclosure.
• In the case of any presentation delivered during the company's prescribedblack-out periods, there will be no discussion or questions addressed regarding the current quarter's expected performance.

2

Balchem Corporation

Balchem develops, manufactures, and markets specialty ingredients that help

make the world a healthier place

Highlights

• NASDAQ: BCPC
• Founded in 1967
• Headquarters: New Hampton, NY
• Approximately 1,400 Employees
• 21 Manufacturing Sites:
• • 17 in North America
  • 3 in Europe
  • 1 in Asia
• 5 Technology Centers
• 2019 Revenues of $644M
• 2019 Adj. EBITDA of $160M or 25% of sales
• 2019 Cash Flow From Operations of $124M

A Global Health And Nutrition Focused Company With A 50+ Year History

3

Leadership

Ted Harris, Chairman and CEO

• Joined Balchem in May 2015
• Prior to Balchem was a Senior VP of Ashland Inc. where he held a series of senior leadership roles over 10+ years
• Independent director and member of the Board of Directors of Pentair plc.
• MBA from Harvard University and bachelor's degree from Lehigh
  University in chemical engineering

Martin Bengtsson, CFO

• Joined Balchem in February 2019
• Prior to Balchem had a15-year career at Honeywell and most recently was CFO for the $11B Performance Materials & Technologies segment
• Bachelors degree from Northwestern University in economics and began career as Senior Auditor for Deloitte

Executive Leadership

4

Balchem at a Glance

INDUSTRIAL PRODUCTS

SPECIALTY PRODUCTS

4%

14%

82%HUMAN NUTRITION & HEALTH

Nutrition & Health

(% of sales)

54%

ANIMAL NUTRITION & HEALTH

28%

82% Of Revenues Focused On Nutrition And Health

5

Segment Overview

4%

14%

82%

Nutrition & Health

(% of sales)	54%

28%

HNH ANH SP IP

Segment	Markets Served	Solutions
Human Nutrition	• Nutritional Supplements	•Micro-encapsulation
& Health	• Food and Beverage	•Choline
	• Infant & Toddler Formula	•Chelated Minerals
	• Organic Cereal	• Powder, Flavor, & Cereal Systems
Animal Nutrition	• Dairy	•Micro-encapsulation
& Health	• Poultry and Swine	•Choline
	• Companion Animal	•Chelated Minerals
	• Aquaculture	• Amino Acids and Other Nutrients
Specialty	• Medical Device Sterilization	•Chelated Minerals
Products	• Nut and Spice Fumigation	• Ethylene Oxide and Propylene
	• Plant Nutrition	Oxide re-packaging
Industrial	• Oil and Gas Fracking	•Choline
Products	• Other Industrial Markets	• Choline Derivatives

Leveraging Solutions Across Segments

6

Vision and Mission

Our vision is clear;to make the world a healthier place

Our mission is tobuild a global nutrition and health company delivering trusted, innovative, and science based solutions to our customers

Committed To Building A Global Nutrition And Health Company

7

Strategic Focus

• Strengthening Positions in Attractive, Growing Markets
• • Building scale, adding adjacent capabilities, expanding market and geographic reach, broadening our portfolio of solutions, investing in new science, enabling market awareness
• Driving Organic Growth
• • Creating new demand through innovation, market penetration, new product launches, geographic expansion, and expanding addressable markets
• Augmenting Organic Growth through Strategic Acquisitions
• Maintaining a Healthy Margin Profile, Strong Cash Flow, and Solid Balance Sheet to Execute

Staying Focused

8

Balchem Growth Platforms

Human Nutrition & Health

HUMAN NUTRITION & HEALTH

• Leveraging Synergies Across Segment
• FDA RDI for Choline and Expanded Choline Awareness / Science
• Mineral Nutrition
• Systems for Nutritional Beverages
• Curemark®Delivery System
• Geographic Expansion & M&A

SPECIALTY PRODUCTS

Specialty Products

• Chemogas Acquisition Synergies
• Plant Micronutrients
• • New Applications
  • New Products
  • Geographic Expansion

Animal Nutrition & Health

ANIMAL NUTRITION & HEALTH

• ReaShure® Penetration
• NRC Recommendation on Choline
• Rumen Protected Nutrients for Dairy
• Next GenerationBy-pass and Release Technology
• Pet and Aquaculture Expansion
• Geographic Expansion & M&A

INDUSTRIAL PRODUCTS

Industrial Products

• Capturing Recovery Volumes

82% Of Revenues Focused On Nutrition And Health

9

Growth Vectors

Growth over 5 years

Key Platforms Driving Growth Above Market

• Choline and Mineral Nutrition for Mother & Child, Adult Cognition, Energy & Fitness, Liver Health, Diabetes Complications
• ReaShure®Penetration
• Rumen Protected Delivery Systems
• Companion Animal Expansion
• Nutritional Beverage Offerings
• Geographic Expansion

Strategic Acquisitions

Growth Platforms

Market Growth

Several Growth Platforms To Deliver Above Market Growth

10

2020 Market Outlook

Market	External Metrics	2019 Comments	2020
Food and	•	GDP	• Food and Bev. Demand relatively stable
Beverage	•	Food and Bev. Growth	• Nutritional beverage/bar markets growing faster
Supplements	•	Vitamin/mineral growth	• Personalized nutrition on the rise
			•	Magnesium and Choline are growing nutrients
Dairy	•	Dairy consumption	• Growth in yogurt and cheese offset declines in fluid milk
	•	Dairy prices	• Milk and milk protein prices dramatically higher
Protein	•	Protein consumption	• Protein consumption continues to grow
	•	Broiler sales	• Poultry and pork sales modestly higher on ASF shortage
Agriculture / Plant	•	Net Farm Income	• Farm inc. negatively impacted by US/China trade war
Nutrition	•	Crop prices	• Crop prices rising slowly, still below 2017 levels
Medical Device	•	GDP	• Medical procedures continue at slow growth rate
	•	Medical Device Sales	• Europe moves toward more medical device kits
Energy	•	GDP	•	US shale production slowing
	•	Rig count	•	Low Oil price

Modestly Improved Environment For 2020, But We Are Cautious

11

2020 Potential Challenges

• COVID-19Virus
• • Global uncertainty around how this will impact global supply chains along with supply/demand balances
  • Balchem taking precautionary actions and closely monitoring situation
• African Swine Fever
• • Potential spread from Asia into Western Europe and U.S. could have consequences on the

protein supply chain and demand

• • Impact may be negative or positive depending on market and consumer reactions and behaviors
• Medical Device Sterilization Regulatory Environment
• • U.S. regulatory environment around Ethylene Oxide used for medical device sterilization is evolving
  • Potential lower emissions standards could drive increased costs to adjust to a new standard
• Oil and Gas Market Volatility
• • Decline in oil price likely to reduce U.S. fracking activity
  • Ongoing efforts to cost reduce fracking operations could continue to pressure Choline use

Closely Monitoring Market Environment

12

Historical Financials

SALES ($M)

644 644

595

541552 553

2014

2015

2016

2017

2018

2019

ADJ. NET EARNINGS ($M)

ADJ. EBITDA ($M)

159 160

149	148
140

122

2014

2015

2016

2017

2018

2019

ADJ. EPS ($/share)

98

80 80 82

69

104

3.01

2.51 2.52 2.53

2.21

3.19

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

Consistent Performance Due To Resilient Business Model

13

Segment Financials

SALES ($M)		ADJ. EBITDA ($M)

IP

SP

ANH

HNH

				644	644
			595	51	26
541	552	553	48		92
		76
		25
	54
		73
105		70
54			IP
				176	178
54
		158		SP
	166	161
176					ANH
		297	316	341	347
	278
				HNH
206

				159	160
		149	148	10	5
	140	3	7
	7			32	39
122		32
		32
	28
19
		37		33	33
25		29
35
30
		78	80	84	83
	71
48

2014	2015	2016	2017	2018	2019	2014	2015	2016	2017	2018	2019

Industrial Products Now Smaller Part Of Portfolio

14

Q4 2019 Financial Summary

Sales	Adj. EBITDA	Adj. Net Earnings	Adj. EPS
Up 1.8%	Up 1.0%	Up 13%	Up 14%

163.5

166.5

39.6

40.0

	4Q18	4Q19		4Q18	4Q19
• Growth in HNH, ANH, SP		•	Gross Margin%
•	Improved Dairy				Improvement +130bps
	Economics			•	Favorable raw materials
•	Significant headwind in		•	Bad Debt headwind
	Oil & Gas

28.4

25.1

4Q184Q19

• Lower tax rate driven by discrete items

0.88

0.77

4Q184Q19

• Flat share count YoY

Growth Despite Significant Headwind In Oil & Gas

15

Capital Allocation Strategy and M&A

Capital Allocation Strategy	Annual Cash Flow ($M) and Debt Leverage Ratio

• Prioritize organic growth investments
• Augment organic growth with targeted M&A
• Pay Down Debt
• Continue to pay and grow dividend
• Stockbuy-backs for anti-dilution

M&A

• Six acquisitions since 2016
• Focus on core Nutrition & Health
• Adding geographic reach, adjacent products/technologies, and market consolidation

	2.3x			0.6x	1.1x
	1.5x	1.6x	1.2x	124
	119
			111
	104	108
0.0 Debt Leverage	85

		(-2.1x)(-2.7x)
(-1.2x)	(-1.7x)	54	56
39	45

2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
		Cash From Operations		Net Debt as a % of Adj. EBITDA

Maintain Disciplined Capital Allocation Strategy

16

Recent Acquisitions

	Rationale	Key Offering
Zumbro River Brands	Market consolidation and expanded	High protein extrusion and
December 2019	product offering	agglomeration
Chemogas	Adds leadership position in Europe to	Ethylene Oxide re-packaging and
May 2019	already existing U.S. leadership	distribution
Bioscreen	Micro-encapsulation manufacturing in	Micro-encapsulation and Fermentation
August 2018	Europe
IFP	Market consolidation and processing	Micro-encapsulation and
June 2017	technology and capability	Agglomeration
Chol-Mix	Geographic reach into Eastern Europe	Dry Choline Chloride
March 2017
Albion	Adjacent product offering	Chelated Magnesium, Iron, Calcium,
February 2016		Zinc, and others

Augmenting Organic Growth With Targeted Acquisitions Close To Core

17

Free Cash Flow Conversion

130%		Free Cash Flow as % of Non-GAAP Net Income
120%
110%	105%		105%	102%	102%
100%
90%						93%
		79%
80%
70%
60%
50%	2014	2015	2016	2017	2018	2019

Free Cash Flow Conversion

Solid Free Cash Flow Conversion, Turning Profits Into Cash

18

Dividends

• Yearlydouble-digit dividend growth for the last decade

•Consistency in execution	0.52
	0.47
	0.42
	0.38

0.34

($/share)0.30

0.26

0.22

0.18

0.15

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Consistent Dividend Policy

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providing innovative solutions for the health and nutritional needs of the world

and operating with excellence as strong stewards of our employees, customers, shareholders, and communities

Our Sustainability Framework

Every day, Balchem is delivering trusted solutions that enhance health and well-being through science.

The two objectives of our sustainability strategy directly support our mission of making the world a healthier place:

•

•

One of our proud accomplishments is Balchem's impact on 1.3 billion people each year

Making The World A Healthier Place

20

Our Sustainability Framework

People

1.3 billion- number of people reached per year

1.06- total recordable injury rate (TRIR)

23%- hourly employee turnover

10%- salary employee turnover

76%males, 24%females - employee diversity

75%- R&D focused on health and nutrition

100%- manufacturing sites with local community engagement efforts

Planet

10.2 billion- number of animals reached per year

0.61 GJ- energy intensity (GJ of energy per ton of

product produced)

73,726- scope 1 and scope 2 greenhouse gas emissions (CO2e metric tons)

11.5 CBM- water intensity (cubic meters of water withdrawal per metric ton of product produced)

1.8%- water withdrawal from regions with high or extremely high baseline water stress

99%- hazardous waste reused or recycled

70%- hazardous material suppliers audited in the last

3 years

100%- of palm oil sourced certified through RSPO 43%- raw materials from renewable resources

0- product recalls

Profit

27.6%- revenue from products developed in the past five years

$643.7M- total revenue

$159.9M- adjusted EBITDA

$78.6M- GAAP net earnings $2.42- GAAP earnings per share

127%- free cash flow conversion

21.1%- 5-year total shareholder return (TSR) vs Russell 2000 Index

Making The World A Healthier Place

21

What Makes Balchem Unique?

Proven Track Record Of Growth

• Proven ability to grow in in all economic conditions
• Steady and thoughtful capital allocation
• Continued innovation

Protected Positions

• Consolidated position in Choline
• EPA Registrations for EO and PO
• Patent portfolio and premium branded products

	Technologies			Future Upside
✓Delivery Systems		✓Organic growth and earnings power
•	Micro encapsulation		•	Market Penetration
•	Systems (Powders, Flavors)		•	Geographic expansion
✓Chelation		✓Strategic M&A
✓Choline		✓Curemark

Well Positioned For The

22

Summary / Wrap Up

• Leading Positions in Attractive Markets
• Creating New Demand Through Innovation
• Delivering Healthy Margins
• Generating Cash Flow from Operations Available for Reinvestment
• Proven Track Record

Reasons To Invest

23

Confidential

24

Appendix

25

Non-GAAP Financial Information

Non-GAAP Financial Information

In addition to disclosing financial results in accordance with United States (U.S.) generally accepted accounting principles (GAAP), this earnings release contains non-GAAP financial measures that we believe are helpful in understanding and comparing our past financial performance and our future results. The non-GAAP financial measures disclosed by the company exclude certain business combination accounting adjustments and certain other items related to acquisitions, certain unallocated equity compensation, and certain one-time or unusual transactions. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Management believes that these non- GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. The non-GAAP financial measures in this press release include adjusted gross margin, adjusted earnings from operations, adjusted net earnings and the related adjusted per diluted share amounts, EBITDA, adjusted EBITDA, adjusted income tax expense, and free cash flow. EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation, amortization, stock-based compensation, transaction and integration costs, indemnification settlements, legal settlements, ERP implementation costs, unallocated legal fees, the fair valuation of acquired inventory, and restructuring costs. Adjusted income tax expense is defined as income tax expense adjusted for the impact of ASU 2016-09. Free cash flow is defined as net cash provided by operating activities less capital expenditures and capitalized ERP implementation costs.

26

Non-GAAP Financial Information - Continued

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Non-GAAP Financial Information - Continued

28

Non-GAAP Financial Information - Continued

29

Non-GAAP Financial Information - Continued

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