J.P. Morgan Industrials Conference 2020
Investor Presentation
March 10, 2020
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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 ($/share)
98
80 80 82
69
104
3.01
2.51 2.52 2.53
2.21
3.19
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Consistent Performance Due To Resilient Business Model
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Segment Financials
SALES ($M) | ADJ. EBITDA ($M) | |
IP
SP
ANH
HNH
644 | 644 | ||||
595 | 51 | 26 | |||
541 | 552 | 553 | 48 | 92 | |
76 | |||||
25 | |||||
54 | |||||
73 | |||||
105 | 70 | ||||
54 | IP | ||||
176 | 178 | ||||
54 | |||||
158 | SP | ||||
166 | 161 | ||||
176 | ANH | ||||
297 | 316 | 341 | 347 | ||
278 | |||||
HNH | |||||
206 |
159 | 160 | ||||
149 | 148 | 10 | 5 | ||
140 | 3 | 7 | |||
7 | 32 | 39 | |||
122 | 32 | ||||
32 | |||||
28 | |||||
19 | |||||
37 | 33 | 33 | |||
25 | 29 | ||||
35 | |||||
30 | |||||
78 | 80 | 84 | 83 | ||
71 | |||||
48 |
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Industrial Products Now Smaller Part Of Portfolio
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Q4 2019 Financial Summary
Sales | Adj. EBITDA | Adj. Net Earnings | Adj. EPS |
Up 1.8% | Up 1.0% | Up 13% | Up 14% |
163.5 | 166.5 | 39.6 | 40.0 |
4Q18 | 4Q19 | 4Q18 | 4Q19 | |||
• Growth in HNH, ANH, SP | • | Gross Margin% | ||||
• | Improved Dairy | Improvement +130bps | ||||
Economics | • | Favorable raw materials | ||||
• | Significant headwind in | • | Bad Debt headwind | |||
Oil & Gas | ||||||
28.4
25.1
4Q184Q19
- Lower tax rate driven by discrete items
0.88
0.77
4Q184Q19
- Flat share count YoY
Growth Despite Significant Headwind In Oil & Gas
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Capital Allocation Strategy and M&A
Capital Allocation Strategy | Annual Cash Flow ($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
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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
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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
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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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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
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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
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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
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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
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Confidential
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Appendix
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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.
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Non-GAAP Financial Information - Continued
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Non-GAAP Financial Information - Continued
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Non-GAAP Financial Information - Continued
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Non-GAAP Financial Information - Continued
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