Balchem Corporation (BCPC) Earnings

Management highlights

- **Overall Quarterly Performance** * Balkem delivered all-time record consolidated results for Q2 2026, marking its 28th consecutive quarter of year-over-year adjusted EBITDA growth. * Consolidated revenue hit $284 million, up 11.2% YoY; GAAP net income was $45 million, up 16.6% YoY; diluted GAAP EPS was $1.39, up 18.8% YoY; adjusted EBITDA was $78 million, up 12.6% YoY. * Broad-based growth was seen across all three segments, driven by strong market demand for the company's specialty product portfolio aligned with global 'better-for-you' food and nutrition trends. - **Capital Allocation & Balance Sheet Updates** * The company completed refinancing of its revolving credit facility, increasing total borrowing capacity from $550 million to $650 million and extending maturity to 2031. The refinancing also improved pricing, with spreads over SOFR cut by 10 basis points for current leverage levels, and up to 22.5 basis points for higher leverage tiers. * The company repurchased $29 million of common stock during Q2 2026, and $114 million over the trailing 12 months, consistent with its disciplined capital allocation and shareholder return strategy. * Ending Q2 with $63 million in cash, net debt of $89 million, and a net leverage ratio of 0.3, indicating a very strong balance sheet. * The expanded facility provides additional flexibility for future investments in innovation, capacity expansion, and strategic acquisitions. - **Operational Momentum by Segment** * Human Nutrition and Health continues to benefit from growing consumer interest in dietary supplementation, and healthier products higher in protein, fiber, and lower in sugar. The company's differentiated formulation expertise and science-backed ingredients support ongoing market expansion. * Animal Nutrition and Health is seeing growing adoption of its precision release rumen protected nutrient technologies for the dairy industry, with the European monogastric business recovering steadily after the implementation of EU anti-dumping duties that restored a level competitive playing field. * Specialty Products continues to deliver profitable growth across performance gases and plant nutrition, supported by strong market positions and disciplined operational execution.

Guidance

- No material changes to full-year 2026 financial guidance were announced in this call, beyond the following specific forward-looking estimates: * CFO Martin Bengtsson estimates the full-year 2026 effective tax rate will fall in the range of 22.5% to 23%, aligned with the year-to-date 23% effective rate. * A high-profile clinical study on choline's impact on cognitive function for carriers of the APOE4 Alzheimer's risk gene, conducted in partnership with MD Anderson and MIT, is completed and results are expected to be published within the next couple of months. * Management reaffirmed confidence in continued long-term growth and margin expansion across all business segments, supported by strong demand trends and operating leverage from growth.

Segment performance

Balkem has three operating product segments, with the following Q2 2026 performance: 1. **Human Nutrition and Health**: Record net sales of $177 million, a 10% year-over-year increase. This segment contributed 62.3% of total consolidated Q2 revenue. GAAP earnings from operations were $42 million, up 10.5% YoY; adjusted earnings from operations were a record $46 million, up 10.9% YoY. Growth was driven by expansion across both the nutrients and food ingredients & solutions sub-segments. 2. **Animal Nutrition and Health**: Net sales of $64 million, a 15% YoY increase. This segment contributed 22.5% of total consolidated Q2 revenue. GAAP earnings from operations were $5 million, up 48.7% YoY. Roughly half of the 15% sales growth came from volume gains, and half from pricing actions. The ruminant sub-segment grew 20% YoY, almost entirely from volume growth, while the European monogastric sub-segment continued to recover following the implementation of EU anti-dumping duties. 3. **Specialty Products**: Record quarterly net sales of $41 million, an 8.9% YoY increase. This segment contributed 14.4% of total consolidated Q2 revenue. GAAP earnings from operations were a record $13 million, up 14.4% YoY; adjusted earnings from operations were a record $14 million, up 12.1% YoY. Growth was driven by solid volume and pricing gains across both the performance gases and plant nutrition sub-segments.

Risks & headwinds

- Higher manufacturing input costs driven by the ongoing conflict in the Middle East were reported as a current headwind affecting all segments, partially offset by mitigating actions, manufacturing efficiencies, and growth-driven operating leverage that allowed overall gross margin to expand 10 basis points in the quarter. * Forward-looking statements are explicitly noted to carry uncertainty, with actual results likely to differ materially from expectations due to a range of unstated factors, which are detailed in the company's recent SEC filings (Form 10-K, 10-Q, and 8-K). * The company has variable-rate debt under its revolving credit facility, so earnings will be exposed to changes in market interest rates, though the low current leverage level mitigates this risk. * New product development and clinical trial investments carry inherent uncertainty around trial outcomes and market adoption of new offerings.

Analyst Q&A

• Q: What key criteria does management use to evaluate new nutrient products to add to the human nutrition portfolio? /

  A: Management prioritizes three core criteria for new nutrient product investments. First, products must already have strong, sound existing supporting science to back their health benefits. Second, the product must have clear market differentiation and sustainable competitive advantages, such as patented protected formulations that set Balkem's offering apart from competitors. Third, the nutrient must have low current market penetration, leaving room to grow awareness and expand market share to deliver above-market growth rates. New products can be added via internal development with external support or through acquisition, depending on the technology required.

• Q: Can you provide an update on ongoing clinical trials for existing products? /

  A: Balkem typically has 20 to 25 ongoing clinical studies active at any time to support product science and customer marketing claims. Four new studies (one on Optifolin Plus, two on K2 Vital, and one on Vitacoline) were completed in Q2 2026, adding to the company's library of supporting data. A high-profile pilot study on choline's impact on cognitive function for APOE4 gene carriers, conducted with MD Anderson and MIT, is completed and results are expected to be published in the next two months. Positive results would lead to a larger follow-up study, and could significantly expand demand for choline products.

• Q: How will sales and marketing strategies shift for the remainder of 2026, particularly in Human Nutrition and Health? /

  A: The company will continue building out its 'always-on' scalable omni-channel consumer engagement model for branded ingredients, which has already generated over 1 billion consumer impressions in the last 18 months. Adjustments to targeting include shifting more influencer marketing budget toward audiences of GLP-1 users, to capitalize on growing demand for nutrient-rich snacks and meal replacements among this consumer group. The company is also doubling down on sports marketing partnerships focused on European soccer, aligned with current consumer audience trends. This structured marketing approach has become a core competitive advantage for the business in recent years.

• Q: How much of A&H's Q2 growth was volume versus pricing, and what is the update on European monogastric trends? /

  A: Of A&H's 15% year-over-year Q2 sales growth, roughly half is volume-driven and half is pricing-driven, in line with expectations. EU anti-dumping duties on unfairly priced imports went into effect in January 2026, and the business recovery has continued to improve quarter over quarter. Balkem has regained lost market share, restored pricing levels, and the business is performing as well as management hoped it would when the duties were approved. The higher-margin ruminant sub-segment grew 20% year-over-year in Q2, almost entirely on volume gains, driven by growing adoption of the company's unique precision release nutrient technologies.