Balchem Corporation Stock

Hello, everyone. Thank you for joining us, and welcome to the Balchem Third Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Martin Bengtsson, Balchem's Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports.

The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details.

I will now turn the call over to Ted Harris, our Chairman, President and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. We were very pleased with our third quarter results reported earlier this morning, which were once again driven by healthy broad-based growth across all 3 of our reporting segments and continued solid execution on our strategic growth initiatives. Our healthy growth continues to be fueled by the ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well aligned with our product offerings and capabilities. As a result, we delivered record quarterly consolidated sales, net earnings and adjusted EBITDA as well as solid cash flows.

Before discussing our third quarter financial results in more detail, I would like to provide a few comments on the current market environment within which we are operating and also provide you with some updates regarding some new science that has been recently published supporting our branded ingredients, VitaCholine, K2VITAL and K2VITAL DELTA. We continue to see healthy demand trends across the majority of our businesses.

Within Human Nutrition & Health, we continue to see solid demand growth for our unique portfolio of ingredients and solutions. Consumer interest in supplementation and better-for-you food systems continue to support a healthy market environment for us. In Animal Nutrition & Health, momentum continues to build. Both ruminant and monogastric customers continue to adopt our nutrient technologies as they look for cost-effective ways to improve animal health and productivity.

And within Specialty Products, we continue to see healthy market demand for our specialized performance gases and services. Overall, we see a positive demand outlook for Balchem, and we remain confident in our ability to deliver healthy growth over the long term.

Turning to the growing body of science supporting our branded ingredients. I'd like to highlight 2 recently published studies that we believe are particularly noteworthy. The first is the MD Anderson-led pilot study that we have discussed in the past and that was recently published in Alzheimer's & Dementia: Translational Research & Clinical Interventions, a peer-reviewed journal of the Alzheimer's Association.

The study evaluated the potential benefits of choline supplementation in cognitively healthy APOE4 carriers, a population at significantly increased genetic risk for developing Alzheimer's disease. Researchers examined the impact of supplementation on biomarkers associated with neurodegeneration, brain metabolism and pathways implicated in Alzheimer's progression. The findings provide encouraging new evidence that may support the role of VitaCholine in lifelong brain health and further strengthen the scientific foundation of choline in healthy aging and cognition.

We believe this represents another important step in positioning VitaCholine not only as an essential nutrient, but also as a leading science-backed ingredient in adult cognitive health.

The second study I'd like to highlight is the DANCODE trial published in Circulation, a leading cardiovascular journal of the American Heart Association. The study examined the impact of vitamin K2 supplementation using Balchem's K2VITAL DELTA on coronary artery calcification and cardiovascular health. The findings add important clinical evidence supporting the role of vitamin K2 in cardiovascular health and healthy aging while further strengthening the scientific leadership and commercial differentiation of our K2VITAL platform.

Now let me turn to our consolidated results for the third quarter. This morning, we reported record consolidated revenue of $291 million, an increase of 8.6% versus the prior year. We delivered record quarterly GAAP earnings from operations of $62 million, an increase of 14.4%.

Consolidated net income closed the quarter at a record $47 million, an increase of 16%. This quarterly net income translated to diluted net earnings per share of $1.46 on a GAAP basis, up 17.7%.

On an adjusted basis, we delivered record quarterly adjusted EBITDA of $80 million, an increase of 12.4%. Our quarterly adjusted net earnings were a record $50 million, an increase of 14.5%, which translated to $1.57 per diluted share, up 16.3%.

Overall, it was an excellent quarter for Balchem, record results, healthy growth across all 3 segments and continued progress on our long-term strategic priorities. And with that, I'll turn the call back over to Martin to review our third quarter financial results and segment performance in more detail.

Thank you, Ted. As Ted mentioned, net sales grew 8.6% this quarter compared to the prior year, with each of our 3 segments contributing to that growth. Our gross margin was $106 million, up 10.7% and our gross margin as a percentage of net sales expanded 70 basis points to 36.4%. The improvement was driven primarily by higher sales, favorable product mix and manufacturing efficiencies, partially offset by certain higher manufacturing input costs.

Consolidated operating expenses for the third quarter were $43 million compared to $41 million in the prior year. The increase was primarily due to higher compensation-related costs, partially offset by the net favorable impact of certain discrete items in the quarter.

GAAP earnings from operations for the third quarter were a record $62 million, up 14.4%. On an adjusted basis, earnings from operations were $67 million, up 12.7%.

Adjusted EBITDA was a record $80 million, an increase of 12.4%, with an adjusted EBITDA margin rate of 27.6%.

Net interest expense for the third quarter was $2 million, down $1 million from the prior year, reflecting lower outstanding borrowings and lower interest rates. The effective tax rates for the third quarters of 2026 and 2025 were 22.2% and 22.6%, respectively. The decrease was primarily due to favorable adjustments related to filing our prior year federal tax return and a higher foreign-derived intangible income deduction benefit, partially offset by an increase in certain state taxes.

Consolidated net income closed the quarter at a record $47 million, up 16% and diluted net earnings per share were $1.46, up 17.7%. Adjusted net earnings were a record $50 million, up 14.5% and adjusted diluted earnings per share were $1.57, up 16.3%.

Cash flows from operations were $70 million for the quarter, and free cash flow was $58 million, and we ended the quarter with $66 million of cash on the balance sheet. We continue to generate healthy cash flows, which enables us to both invest in growth and return value to shareholders.

We repurchased approximately $28 million of Balchem common stock during the third quarter, and we also reduced net borrowings by $28 million in the quarter, resulting in a net leverage ratio of 0.2x. Together with the expanded $650 million credit facility we put in place in July, we're well positioned to fund innovation, capacity expansion and strategic acquisitions.

Turning now to our segment results. Human Nutrition & Health delivered record sales of $188 million, up 8.1%, driven by growth in both our nutrients business and our Food Ingredients and Solutions businesses. Earnings from operations rose 11.8% to a record $46 million, driven by higher sales and favorable mix, partially offset by higher operating expenses.

On an adjusted basis, earnings from operations for this segment were a record $49 million, up 10.9%. We remain very positive about the outlook for Human Nutrition & Health. Our differentiated ingredients, formulation expertise and branded portfolio position us well to support our customers and capture additional market opportunities, particularly as consumers prioritize health and better-for-you solutions.

Animal Nutrition & Health sales were $63 million, up 11.7% from the prior year, driven by higher sales in both the monogastric and ruminant markets. Earnings from operations were $6.8 million, up 82.8%, reflecting the higher sales and favorable mix, partially offset by certain higher manufacturing input costs.

On an adjusted basis, earnings from operations for this segment were $7 million, up 73.6%. Animal Nutrition & Health delivered another quarter of year-over-year improvement. Growth was supported by continued adoption of our encapsulated rumen-protected nutrient technologies in dairy, pricing actions in our U.S. monogastric business and gradual improvement in our European monogastric business following the implementation of EU antidumping duties. We remain optimistic about the direction of this business and confident in our ability to drive further penetration of our technologies to deliver long-term growth.

Specialty Products sales were $37 million, up 4.5%, driven by growth in our Performance Gases business. Earnings from operations were $12 million, up 6.6%, reflecting higher sales and favorable mix, partially offset by higher operating expenses. On an adjusted basis, earnings from operations for this segment were $13 million, up 3%.

Specialty Products continued to deliver steady profitable growth this quarter. With strong market positions and disciplined execution, we believe this segment remains well positioned to continue this steady growth over time.

In summary, it was another strong quarter with record results, healthy growth in each of our segments and solid cash generation. As we look ahead to the fourth quarter, we're optimistic about the outlook. The fourth quarter for us, as we have shown over the last number of years, is normally sequentially lower than the third quarter based on historic business seasonality, but remain confident in our ability to continue to deliver healthy year-over-year growth in the fourth quarter as we have done all year.

With that, I'll turn the call back over to Ted for some closing remarks.

Thanks, Martin. We are very pleased with the results we reported earlier today. Our teams executed extremely well during the quarter, delivering record financial performance while continuing to advance our strategic priorities. The third quarter marked our 29th consecutive quarter of year-over-year growth in adjusted EBITDA.

That level of consistency across a wide range of market conditions reflects the strength of our unique portfolio, the resilience of our business model and the dedication of our team. We are very proud of what we accomplished this past quarter and excited about the opportunities ahead for Balchem.

With that, I'll turn the call back over to Martin, who will open up the line for questions.

Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions.

[Operator Instructions] Your first question comes from the line of Bob Labick with CJS.

So in addition to the strong growth, you obviously had very nice margin performance and really kind of despite inflation in there and part of the discussion, you mentioned favorable mix, which helped on margins. Can you elaborate on the mix benefits you're getting by segment and talk about if they're sustainable and how we should think about that going forward?

Sure, Bob. Yes, I mean, we're obviously very pleased with the performance and the margins for those of you that have followed us over time, we've really improved on those margins here over the last couple of years. As we look at it now for the segments, there is some favorable tailwinds just from a portfolio perspective that if you look at HNH as our largest segment, the nutrition piece of that segment is higher margin relative to the food part and the nutrition part is growing faster than the food part. So you're getting a favorable mix within HNH over time due to that dynamic.

And you have a similar dynamic on the Animal Nutrition & Health side, right, where the ruminant business, the dairy business is higher margin than the monogastric and over time is growing faster. So there are tailwinds within both of those segments.

And obviously, with our Specialty Products segment having grown nicely being very high margin as well for us as a business, it just supports a nice tailwind for us. More specifically to your question around inflation and so on, I mean, we are in an inflationary period, as you called out. We have seen inflation in our raw materials all year. But we have been able to turn around and pass that through to our customers.

So net-net, if you look at it sort of year-to-date, we're pretty much breakeven. But there is a little bit of timing delay in some businesses and some were a little bit ahead and some were a little bit behind. But on a year-to-date basis, we're pretty much at breakeven from that perspective, which sort of -- if you take a step back, that is a little bit margin dilutive, right? If raw materials goes up, you pass that through dollar for dollar, that has a slight negative impact to your margin percentage, but we've been able to offset that to some extent with a beneficial portfolio mix.

Okay. Great. That's wonderful. And then I guess for my follow-up, just switching gears a little bit. It sounded like some very exciting news on 2 trials that you just mentioned. So I was wondering if you could, I guess, elaborate on that and tell us the next steps for the -- for both, I guess, the Alzheimer's and cardiovascular trials that were just released?

Yes, you're right. We are very excited about these 2 new trials, but sort of just putting it into context, it really is simply kind of part of a broader portfolio of science that is so important to the vitamins, nutrients, minerals that we go to market with, and it's really the foundation of what we do, building this portfolio of science.

And the reason that I highlighted these 2, one is because, first of all, they're very new. But secondly, because they really stand out as being a bit different than the previous studies that we've done relative to these nutrients, really the previous many studies that have been done. And I'll start with the MD Anderson University of Texas and MIT study.

And that really is, as you know, Bob, choline has predominantly been recognized as an important nutrient for child nutrition, infant nutrition. It's commonly included in infant formula. It's known based on many studies to have a significant impact on infant cognition. And that's really what the history has been and a lot of the science has been for choline.

And this study is clearly focusing on adult cognition. And it's now one of several that I would say are really, really good studies that bring choline into the discussion relative to adult cognition, Alzheimer's dementia. And this was a pilot study, as we talked about. So it's a fairly small group of participants in it, but will lead to a much bigger study and one that really could very much change the game relative to showing the importance of choline relative to adult cognition.

And obviously, what are we going to do? What comes next is we're going to make sure that our customers are fully aware of this study and the favorable results and the fact that a pilot study is coming forward. And so now as we do typically in the process, we start with the science and then we need to create awareness around studies like this through our marketing efforts, and that's what we'll be doing next.

And I think that this will be viewed very positively by our customers and ultimately, consumers. And the second one was similar in that it was for vitamin K2. And I think you also are aware the vast majority of previous science and the deep library of studies on K2 are primarily around bone health and helping calcium find its way from soft tissues into the bones and strengthening bones. Well, what's different about this is this really is an important, much more significant study, 400 subjects in the study over a longer period of time that really showed cardiovascular benefit of K2. And so this is sort of not focused on bone strength, but on the cardiovascular benefit.

And it's very logical to kind of think that if K2 has a mode of action of helping calcium find its way from soft tissue into the bone that it could have a cardiovascular benefit. And this study went a long way to providing some evidence that may indicate that K2 does indeed do that.

So again, what we'll do with this is we'll now kind of add the marketing on top of this science and the library that we have behind it and create awareness around it. And as a company, lead with science, but we obviously need to create awareness through marketing as well. So I think they are 2 important studies. They aren't necessarily the end of the story, but help really add to the body of science supporting these branded ingredients. So we are excited about them.

Your next question comes from the line of Ram Selvaraju with H.C. Wainwright.

Hi Ram, Are you there? I think, Tracy, maybe we should go on to the next question and maybe we can come back to Ram because we can't hear him.

Absolutely. Your next question is coming now from Daniel Harriman with Sidoti & Company.

Congratulations on yet another great quarter. Just a couple of quick questions from me today. Just focusing on ANH. Obviously, sales growing how they did and earnings from operations up significantly year-over-year. Martin, can you just provide a little bit more information about what's driving that and how sustainable you think it is over time? I know you did mention a few things in the prepared remarks.

And then the last question is just about inventory. It looks like it's crept up to about $177 million, which is up from where it was at the end of 2025. And I'm just curious if you could help us understand what's driving that, whether it's pricing, stocking ahead of cost or just inherent demand? Really appreciate you guys.

Yes. No, for sure. It sounded like 2 questions for me probably. So maybe we start with the ANH growth story. I mean, we're very happy with how ANH has performed over a number of quarters right now of gradually just improving. And a couple of drivers. One is obviously the ruminant side where we keep driving that penetration of our rumen-encapsulated nutrients there.

Market penetration is still one where even if the market weren't to grow, we can still drive growth through penetration and adoption of our technologies. And we're seeing that across our product portfolio, whether it be on our encapsulated methionine, our encapsulated lysine or encapsulated choline, et cetera. We're seeing growth across our product line. And that's further supported by -- we did launch a new encapsulated lysine last year that we spoke about that's really driven healthy growth in that product line.

We just rolled out the next-generation encapsulated methionine actually on October 1. So that's not in Q3, but it's sort of further just supporting the continued growth in that portfolio. And there's a nice sort of pipeline coming behind that of product launches that we're working on that we're looking forward to, to just continue to drive that penetration. And it's not just in the U.S. if we were historically very U.S. focused, we're also seeing an accelerated growth internationally. So we're seeing good ruminant growth in Europe, in the Middle East, in Asia, that's further supporting that ruminant penetration across the board as really the customers at the end of the day are looking to get healthier and more efficient cows. There are unlikely to be many more cows in the world. So to meet the demand for dairy-derived products, they really need their cows to become more efficient, and that's the business we're in there.

On the monogastric side, 2 things, right? We're -- in Europe, obviously, the antidumping that we've spoken about quite a bit over the last year is certainly helping. So we've regained volumes. Pricing has gradually improved with these changes. So we're seeing the benefits of that. At the same time, there's still a lot of work to do. We still see sort of circumvention happening and absorption where people are just dropping the price to import it and absorbing the duty.

So it will be an ongoing battle to push back around some of these things where they're sort of violating the trade practices, but it's certainly helping already at this point, and we're seeing that. And in the U.S., we've sort of seen higher input costs, and we've offset that through pricing to recover the costs, and that's driving some growth as well.

And we have filed for in the U.S. antidumping as well. So we will see here towards the end of the year what the preliminary ruling is in the U.S. to combat that same sort of dumping situation in the U.S. that we went after in Europe.

So then going to the other part of your question and around the inventory, which ended the quarter at $177 million, which is a high number from a historic perspective. I would say there's probably 4 reasons that I would point to why that is a higher number than what you're used to seeing. One part is obviously that there is an inflationary impact there as we're in an inflationary environment, a portion of this increase is just the fact that we're paying more for the inventory that we've purchased and hold.

But secondarily, growth is also driving a part of this increase. We've grown 9% as a company year-to-date. So obviously, that is requiring a bit more of inventory to support those sales.

And then third, I would say, we have, from a risk mitigation standpoint, chosen, deliberately chosen to hold more inventory in certain areas where we see higher risk of any sort of disruption or where it's really critical raw materials to serve our customers where we don't want to take any chances and as such, based on what's been going on in the Middle East and some other geopolitical situations, we've just made deliberate choices to hold a bit more safety stock essentially here throughout and build that up over the year.

And fourth, it's really that we've added a bit of inventory for coming product launches. So we have a few product launches that we're preparing for. And usually, that means that you have to get everything ready, you need to have the inventory on hand, et cetera, before you roll that out into the market, and that has further sort of increased a bit the inventory levels we're carrying at the moment.

So those 4 things have brought that balance up a bit. And I think as we go forward, we'll continue to monitor the situation and see what's sort of the right risk balance here of how much inventory we carry based on our growth and product launches and what's going on in the world, et cetera. So that would be sort of my summary of that.

Your next question comes from the line of Ram Selvaraju with H.C. Wainwright.

Can you hear me now?

Yes, we can, Ram.

Okay. Sorry about that. I don't know what the technical difficulty was. So just very quickly, I wanted to know if you could provide us with some additional sense of what other directions you might pursue with future clinical investigation of the applicability of certain elements of your product range. In particular, I was interested in your thoughts on exercise, physical recovery, athletic performance optimization and sleep?

Yes, Ram, thanks for the question. So I would say all of those that you mentioned are part of the benefits of some of our nutrients. So we already have certainly some studies around muscle recovery for sure, but kind of building off of that, I think, is important. So that's very relevant. Sleep is certainly for our magnesium product, the benefits of reduction in anxiety and ease of sleeping is an important part of the science behind those products, and we already have studies but would continue to be a focus.

I think other areas that you didn't mention that come to mind are kind of part of the sort of increasing trend around beauty from within and showing the benefits of some of our nutrients, for example, like OptiMSM on hair growth and hair strength and so forth as well as nail and skin benefits is something that we certainly have already invested in some science around, but we'll continue to invest in.

And I think the other one, we've talked about choline relative to infant cognition and now increasingly adult cognition, but there are certainly other benefits of choline around liver health and sort of energy and focus and so forth that I think are ripe for additional studies. And as we've said many times, I think the library of science behind these nutrients is absolutely critical and kind of foundational to what we do. So it's a -- it continues to receive a healthy amount of our focus, and we'll continue to invest there.

From a partnering perspective, do you think that Balchem might explore the possibility of any partnership or link up with companies in the aesthetic space, particularly given what you just said. Also, I wanted to ask if you anticipate any future high-profile marketing partnerships with professional sports teams and if so, you have some idea of the timing there?

And then just 2 very quick questions for Martin. Maybe you could comment on whether the elevated price of oil and potential increased fracking activity in the United States might have a salubrious impact on the company's other divisions outside of Animal Nutrition & Health and Human Nutrition & Health? And if so, what magnitude that might be? And then just very quickly, what your expectations are regarding effective tax rate, if you expect that to remain steady going forward?

Thanks, Ram. A bunch of questions in there. But partnerships are absolutely something that we're exploring and interested in. Obviously, we're not a cosmetics company. We're not a beauty company, but we have nutritional expertise and knowledge and certainly a nutrient portfolio that plays a role. And these are topics that the leading, I'll call them, beauty companies of the world are working on, talking about developing their own path forward. And I think partnerships in that area are a clear opportunity for us and something that we are exploring. So absolutely.

Relative to additional sports team partnerships, we've talked about the NFL, the New York Jets partnership that's now, I think, maybe in its fourth year as well as the Bayern Munich Women's team. We've been very pleased with both those investments. And we do think there is room for more. And we are contemplating another sports partnership that we should be able to announce. I would certainly think before our next earnings call that we think is something that really makes a lot of sense for us that has a bit more of an international global aspect to it that we're quite excited about and quite confident about given the results that we've seen from the first 2.

I don't think that this is a never-ending adding team upon team, but I think that building off of the 2 experiences we have makes sense with another partnership or maybe two and one of which we should be able to announce here in the next month or so, and we're excited about that. So I'll hand it over to Martin to answer the more technical questions.

All right. I'll start with the tax rate. That's pretty straightforward. We should be finishing the year in that range of 22.5% to 23%. I think we're at -- or I know we're at 22.7% year-to-date, and we're not seeing any larger structural change or anything that would significantly make us deviate from that rate. And from an oil price impact and so on, I mean, a couple of angles that this could be thought about. Obviously, we have a part of our business that's in our other segment, right? So it's not in our Human or Animal or our Specialty Products. Where we sell some choline chloride into the fracking industry, as you're well aware, which today, so last year was a $5 million business, so very small, but it was at one point, right, if you go back 12 years, $105 million business.

So once upon a time, that was very significant, but now it's not. And will we -- are we expecting that to come back in an environment like this where the oil prices are high and you're seeing some uptick in fracking, et cetera. And I think the short answer is not really. We would say not really. We are seeing a smaller uptick. So if we were a $5 million business last year, what's the current run rate, it's more like an $8 million type of run rate.

And some of the reasons for that is that they've sort of reformulated in how they -- what they put into the fracking fluids. They started to reuse fluids and so on, where there's just a lot less demand for that. And you also see some more, what I would call, international fluids coming in at low prices going down the hole, so to speak, which is also partially why we're filing for antidumping here in the U.S. But I don't think that will be a big driver of upside for us only on the margin.

So a higher oil price otherwise for us, obviously means more inflation, right, both from a transportation and logistics from a utilities perspective, but also from petrochemically derived raw materials that we purchase. So net-net, I would probably say that high oil prices is not necessarily a good thing for us. It would be a net negative for us. So I think we would actually be quite happy if those oil prices started easing off here in the not-too-distant future to just support the overall markets.

Your next question comes from the line of Artem Chubarov with Rothschild & Company.

Artem, are you there?

[Technical Difficulty] Maybe we're having the same technical difficulty with Artem. We certainly can't hear him.

As there are no further questions at this time, I will turn the call back over to Ted for some closing remarks.

Thank you, Tracy. Once again, thank you all very much for joining our call today. We really are very pleased with the third quarter results we reported earlier today and the outlook for our company. We certainly appreciate your support as well as your time today, and we look forward to reporting our Q4 and full year 2026 results in February of next year.

In the meantime, we will be participating in Baird's 54th Annual Global Industrial Conference on November 11 in Chicago and CJS Securities 27th Annual New Ideas for the New Year Conference on January 7, 2027, which is a virtual conference. So we hope to see some of you at one of those conferences, if not both. And thank you all for joining today.

This concludes today's call. Thank you for attending, and you may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Balchem Second Quarter 2026 earnings call. [Operator Instructions].

I would now like to hand the conference over to Martin Bengtsson, Balchem's CEO, (sic) [ CFO ]. Please go ahead.

Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending June 30, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports. The company assumes no obligation to update these forward-looking statements.

Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details.

I will now turn the call over to Ted Harris, our Chairman, President and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with our second quarter performance reported this morning, which was once again driven by healthy broad-based growth across all 3 of our reporting segments and continued solid execution on our strategic growth initiatives.

Our healthy growth continues to be fueled by the ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well aligned with our product offerings and capabilities. As a result, we delivered record quarterly consolidated sales, adjusted EBITDA and adjusted net earnings as well as solid cash flows.

Before discussing our second quarter financial results in more detail, I'd like to take a moment to comment on the broader operating environment within each of our business segments and highlight a few areas of progress in the quarter, particularly within our capital allocation strategy. Demand trends across our businesses remain healthy. Our unique portfolio, strong market positions and focus on innovation continue to drive above-market growth.

Within Human Nutrition & Health, we delivered another very strong quarter, supported by solid demand across both our nutrients portfolio and our Food Ingredients and Solutions businesses. Heightened interest in supplementation and healthier nutrient dense, high protein, high fiber and lower sugar products continues to create opportunities for our customers and subsequently, our science-based ingredients, formulation expertise and application capabilities.

In Animal Nutrition & Health, we continue to generate healthy growth as a result of both expanding adoption of our precision release rumen-protected nutrient technologies within the dairy industry as well as realizing higher year-over-year volumes and margins in our European monogastric business. We remain encouraged by the momentum across our Animal Nutrition & Health portfolio and the value our products provide to producers seeking greater efficiency, productivity and sustainability.

And Specialty Products also continues to drive healthy top and bottom line growth on solid volume and pricing growth, particularly within our Performance Gases business. So demand trends across our businesses remain healthy, and each of our reporting segments is performing well.

On a consolidated basis, we delivered strong growth and healthy margins despite higher input costs related to the conflict in the Middle East as a result of both mitigating actions and growth-driven operating leverage. And we remain confident in our ability to drive continued growth and margin performance going forward.

On the capital allocation front, consistent with our balanced approach to capital allocation, we took several actions during the quarter to enhance financial flexibility and return capital to shareholders. First, we recently completed the refinancing of our revolving credit facility. The new amended agreement increases our borrowing capacity from $550 million to $650 million and extends the maturity of the facility into 2031. This transaction further strengthens our financial position and provides additional flexibility to support our growth strategy, including continued investment in innovation, capacity expansion and strategic acquisition opportunities.

Second, we repurchased approximately $29 million of Balchem common stock during the second quarter and $114 million over the trailing 12 months, reflecting our continued commitment to disciplined capital allocation and shareholder value creation.

Now regarding the second quarter financial performance. This morning, we reported record quarterly consolidated revenue of $284 million, an increase of 11.2% versus the prior year. We delivered record quarterly GAAP earnings from operations of $59 million, an increase of 15.1% versus the prior year.

Consolidated net income closed the quarter at a record $45 million, an increase of 16.6%. This quarterly net income translated to diluted net earnings per share of $1.39 on a GAAP basis, up 18.8%.

On an adjusted basis, we delivered record quarterly adjusted EBITDA of $78 million, an increase of 12.6%. Our quarterly adjusted net earnings were a record $48 million, an increase of 15.7%, which translated to $1.49 per diluted share, up 17.3%.

Overall, we delivered an outstanding second quarter, highlighted by record financial results, broad-based growth across our businesses, the strengthening of our balance sheet via our newly amended credit facility and continued execution on our long-term strategic objectives.

And with that, I'm now going to turn the call back over to Martin to go through the second quarter financial results in more detail and the results for each of our business segments.

Thank you, Ted. The second quarter was another strong quarter. Our record second quarter net sales of $284 million were up 11.2% compared to prior year, driven by strong performances across all 3 segments: Human Nutrition & Health, Animal Nutrition & Health and Specialty Products.

Our gross margin dollars were $104 million, up 11.4% and our gross margin percent expanded to 36.5% of sales, up 10 basis points. The gross margin performance was driven primarily by sales growth and manufacturing efficiencies, partially offset by certain higher manufacturing input costs.

Consolidated operating expenses for the second quarter were $44 million as compared to $42 million in the prior year. The increase was primarily due to higher compensation-related costs. GAAP earnings from operations for the second quarter were a record $59 million, an increase of 15.1%.

On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $64 million were up 13.9%. Adjusted EBITDA was a record $78 million, an increase of 12.6% with an adjusted EBITDA margin rate of 27.4%.

Net interest expense for the second quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $89 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for the second quarters of 2026 and 2025 were 22.8% and 21.9%, respectively. The increase in the effective tax rate from the prior year was primarily due to lower tax benefits from stock-based compensation.

Consolidated net income closed the quarter at a record $45 million, up 16.6%. This quarterly net income translated into diluted net earnings per share of $1.39, an 18.8% increase. On an adjusted basis, our second quarter adjusted net earnings were a record $48 million, an increase of 15.7%, which translated to $1.49 per diluted share. Cash flows from operations were $47 million with free cash flow of $36 million, and we closed out the quarter with $63 million of cash on the balance sheet.

As we look at the second quarter from a segment perspective, our Human Nutrition & Health segment saw record sales of $177 million, up 10%, driven by growth in both our nutrients business and our Food Ingredients and Solutions businesses. Record earnings from operations of $42 million were up 10.5%, driven by the higher sales and favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses.

Second quarter adjusted earnings from operations for this segment were a record $46 million, up 10.9%. We are excited about the growth outlook for Human Nutrition & Health, where consumer demand for healthier nutritional solutions continues to support growth. Our differentiated ingredients, formulation expertise and branded portfolio position us well to continue serving our customers and expanding our market opportunities.

Our Animal Nutrition & Health segment delivered sales of $64 million, up 15%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition & Health delivered earnings from operations of $5 million, up 48.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses.

Second quarter adjusted earnings from operations for this segment were $6 million, up 47.7%. We delivered another quarter of improved year-over-year performance in our Animal Nutrition & Health segment. Growth was driven by continued adoption of our encapsulated rumen-protected nutrient technologies in the dairy market, stable demand in our U.S. monogastric business and ongoing improvement in our European monogastric business following the implementation of EU antidumping duties.

And we were also pleased with the year-over-year margin improvement delivered in the quarter within A&H despite higher input costs related to the conflict in the Middle East as a result of both mitigating actions taken and growth-driven operating leverage. We're encouraged by the momentum across the Animal Nutrition & Health segment and remain confident in our ability to continue expanding adoption of our technologies and delivering long-term growth.

Our Specialty Products segment delivered record quarterly sales of $41 million, up 8.9% driven by healthy growth in both Performance Gases and Plant Nutrition businesses. Specialty Products delivered a record quarterly earnings from operations of $13 million, up 14.4%, driven primarily by higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses.

Second quarter adjusted earnings from operations for this segment were a record $14 million, up 12.1%. We were encouraged by the continued strong performance in Specialty Products, which once again delivered healthy profitable growth, supported by favorable market positions and disciplined execution, we believe the segment remains well positioned for continued success.

Overall, our second quarter reflects all-time record financial performance, continued momentum across our businesses and strong execution across the organization.

With that, I'll turn the call back over to Ted for some closing remarks.

Thanks, Martin. We are very pleased with the results we reported earlier today. Our teams executed exceptionally well during the quarter, delivering record financial performance while continuing to advance our strategic priorities.

The second quarter of 2026 was our 28th consecutive quarter of year-over-year growth in adjusted EBITDA. We believe this achievement reflects the strength of our unique portfolio, the resilience of our business model and the consistent execution of our teams across a wide range of market conditions. And as a team, we are extremely proud of these results and excited about the future of our company.

I will now hand the call back over to Martin, who will open up the call for questions.

Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions.

[Operator Instructions]. Your first question comes from the line of Bob Labick with CJS Securities.

Congratulations on continued strength and record results. You've been really successful in growing minerals and nutrients, in particular, choline, K2, magnesium and more. My question is, how do you evaluate new products? Is it based on where you can improve bioavailability or markets or what? And so how do you evaluate new products for that area? And then how do you decide if it's a kind of build versus buy opportunity to enter markets for new products?

Yes. Thanks for the question, Bob. We're really, really pleased with the performance of the Nutrients business as well as the food ingredients and solutions part of H&H, both contributing to very, very strong results in our Human Nutrition & Health business. And specifically in nutrients, as you know, over the years, we have developed our own products, sometimes with outside partners in the case of Optifolin+ that we launched a year or so ago. That's a good example of kind of an internal development with external support.

And then we've acquired technologies like we did with Vitamin K2 in buying Kappa Solutions. And I think it has to do with how you select which path to go down, it has to do with how close is that technology to our core. And for example, in Optifolin+, part of the backbone of that technology is choline. And so we were able to use our expertise to expand into that technology with an outside partner. And so that was more sort of ripe for internal development, if you will, whereas the Vitamin K2 is very different technology. And so it made sense to do that through acquisition.

But when we step back and look at the marketplace, how do we decide which nutrients we want to invest in and we think would be valuable as part of our portfolio. certainly, one thing we start with is the science. We want to make sure there is already good existing sound science behind the products that we're bringing in. And I think that, that clearly has been true with all of the additions to our portfolio over the years. So the science is really important.

And then kind of as you touched on, I think it's the -- what is our point of differentiation that's going to make our product different and more special and so forth. I think that's also a very, very important aspect of the product. For example, when we bought Kappa Solutions and Vitamin K2, it was very important to us that one of the primary forms of K2 that Kappa Solutions had was an encapsulated K2 that was protected with patent, was very different, very unique and very special in the marketplace. So lots of points of differentiation there and moats, if you will, on that product. So differentiation, I think, is another key point.

The other thing we like to look at is how well penetrated is that nutrient. Our nutrients still, even after many years of efforts, still are relatively well known. They're increasing in awareness and increasing in market penetration. But it's a very different dynamic if you're -- if you have a nutrient that, from your perspective, is fully penetrated in the marketplace has very high awareness, like, for example, I'll say, vitamin B3.

Our nutrients tend to be lesser known, more niche, and we have a real opportunity with that science and that differentiation to drive awareness, drive market penetration and really drive above-market growth rates. And I think you can see evidence of that on all of our products that are part of our nutrient portfolio. So I think those are sort of the key elements that we look at. And we're excited by the fact that we do see opportunities in the marketplace to add additional products to our nutrient portfolio, and we're working hard on that.

Okay. Great. And you mentioned the science as part of the differentiation and everything. Maybe this isn't kind of every quarter question because I know it's not this fast, but I know you have a number of trials out there. I was wondering if you could give us any updates on some of the trials that may come to fruition in this year. And then I guess just more broadly, how you use that information once you get it to help grow the business?

Yes. Certainly, investing in clinical studies and as I've referred to it, the science behind our products is really an important part of what we do. It's how we help our customers have claims for their own products, which is an important part of marketing. So it's a fairly significant investment. At any one time, we have 20, 25 ongoing studies out there. And you're right, some of these take many years, some are a little bit shorter.

There were 4 studies of note in the last quarter, one on Optifolin+, 2 on K2Vital and one on VitaCholine that are all really good studies and further enhance our already kind of broad library of studies for the product. It just kind of gives you a feel this is ongoing, and these are all a little bit different, but kind of add to that portfolio and add to that science behind our products.

The one that I am excited about, and unfortunately, I don't have an update today, but I'm very excited about is one that I've talked about in the past, and that's the MD Anderson University of Texas MIT pilot clinical study that has people in the study that have the APOE4 gene, which is really the gene that leads to Alzheimer's. And so it is an adult cognition study that I'm excited to ultimately get the results about and hopefully be able to talk significantly about because if we can, from this study, see clear evidence that high doses of choline have an impact on the development of dementia and Alzheimer's, that would be really an important finding and an important part of the science behind the cognitive benefits of choline.

I do think that, that study, once it's published, will lead to another bigger study that will further reinforce those findings. But we have -- we do know that, that study is completed. And we do expect that, that study should be published in the next couple of months. So I'm really hopeful that with the next quarterly update, I will be able to talk about the results of that study. So that's an exciting study that's going on that I'm particularly interested in, along with the 4 that I talked about that were published in the last quarter and the others that are ongoing.

Your next question comes from the line of Ram Selvaraju with H.C. Wainwright.

Congratulations on once again an excellent quarter. I was wondering if you could provide us with some additional granularity regarding how you expect sales and promotional strategies to shift over the course of the remainder of 2026, just based on trends that you're seeing in the market and product lines, products, product initiatives that you expect are likely to be most resonant with the consumer base, particularly within the HNH segment?

And then secondly, on the financial front, Martin, maybe you could refresh my memory as to what you expect the effective interest rate to be on the new credit facility funds as and when you draw them that have the maturity date of 2031 as well as how you expect the effective tax rate to trend over the course of the remainder of 2026?

Thanks, Ram, for your questions and your opening comment. Really appreciate it. Obviously, we've been investing significantly in marketing, particularly in the Human Nutrition & Health business over the last few years. And our goal has been -- we have a little internal saying that is always on, and we've really tried to establish a scalable, always-on consumer engagement model for all of our branded ingredients over the last few years, really based on combining sort of omnichannel marketing, influencer engagement, consumer PR and sports partnerships to drive ultimately that consumer awareness and market penetration of our products. And that effort alone in just the last 1.5 years or so has generated well over 1 billion consumer impressions, which is a really big number for a company of our size across our branded ingredients and really, at the end of the day, accelerating our brand awareness and demand generation.

And the kind of the influencer marketing, you kind of asked how we shift in that. It was certainly invested in certain influencer relationships and changed those over time with shifts in consumer behavior, certainly, something that is trending more today than it was a couple of years ago is around targeting GLP-1 users for nutrient-rich snacks and meal replacements and so forth.

And so kind of shifting your influencer marketing dollars to target those audiences more and the followership of the influencers more in line with that targeted audience is just an example of the shift that we do make. Sports partnerships as well. I mean, we've been kind of all in on a soccer or kind of European football of late. World Cup was part of that role, but that's kind of a shift in focus and attention of the community. And so we've been sort of doubling down in our sports partnerships in that area. So it is a dynamic investment in marketing and a shift in focus.

But overall, really a kind of foundational goal of kind of establishing this scalable consumer engagement model via all of those mediums. So we're really excited about this addition. Ram, you know us well. 5, 6 years ago, we weren't really talking a lot about marketing. And I really feel like today, we have really one of the leading nutrient marketing teams in the world, and it's really helping us drive the type of growth rates that we've been able to achieve over the last couple of years.

I think on your questions on interest rate and tax rate, on the interest rate with the amendment and extension of the credit facility, the structure is the same as the past. So there are no significant changes. Obviously, we increased the size of it from $550 million to $650 million in terms of how much we could draw under it.

Currently, we have drawn $150 million as of end of Q2. That's sort of what's on the debt, on our balance sheet. The rate is variable or floating as it has been for the last 2 agreements. It's not a fixed rate. It is a floating rate. So it gets reset with SOFR and then we pay a spread based on that. So at the moment, we're paying sort of around 4.5%. But you can think about it as should the Fed do a rate hike of 25 basis points, then we will pay 25 basis points more.

So we kind of -- it's a variable rate that we pay. It is worth mentioning that we did improve on the spread that we pay above SOFR with this refinancing. So our pricing improved across the board by 10 basis points and for the higher leverage tiers where we're not in them right now since we have very low leverage, improved sort of by 22.5 basis points. It's a better pricing grid for us than the earlier ones, but it will vary with the market interest rates.

On the tax rate, we're sort of at 23% year-to-date effective tax rate. I think we'll be in that 22.5% to 23% as we wrap up the year is my best guess at the moment. So I would put it somewhere there in the 22.5% to 23% effective tax rate.

Your next question comes from the line of Daniel Harriman with Sidoti & Company.

I've just got a couple today. Thinking more about ANH and Martin, obviously, the performance is well above what we were expecting. Can you help delineate that a little bit between how much of that acceleration was volume versus the pricing actions that you took in April?

And then if you wouldn't mind just providing us with more of an update on what's going on in the European monogastric trends. Just you talked about that last quarter. It seems like things are really improving over there. So any color you could provide would be great.

Sure. I mean we're really happy with how ANH has been performing here for the last couple of quarters, right, and getting back to delivering year-over-year quarterly growth, which we've done for a number of quarters. When it comes to sort of the strong growth we reported 15% here in the second quarter, and about half of that is volume-driven and about half is price driven directionally.

And Europe, where we filed for antidumping and successfully got that through, and that started as of January 1 or end of December of 2025. So we've been in that environment for 6 months now. We have really seen the return of that business. We have seen more volumes coming our way. So we're regaining some of that share that was lost due to the dumping. And we've also seen a price recovery. And that has improved sort of every quarter.

It started a little bit already at the end of last year in anticipation of the dumping duties and has continued every quarter since. So I would say it's playing out the way we were hoping for it to play out because we knew that if we could restore a more level playing field and if sort of people were playing fair that we would have a really strong offering in the region. So it's nice to see that business return. So yes, it's working very well for us at the moment, and we're pretty excited about what's ahead.

And Daniel, I'd just kind of add to Martin's comment how pleased we are with the continued growth of the ruminant part of the portfolio, which, of course, is the higher margin. There's more science, more technology in those products.

And it's a little bit more similar to what we're doing in the nutrient business in Human Nutrition & Health, trying to create awareness, we'll build the science, create awareness, drive market penetration. And that business has been growing significantly over the last few years. And in the quarter alone grew about 20%. And that growth is almost all volume growth.

And I think that's really, really exciting to see in that business driving the -- I mean, the ruminant growth to that extent with those products penetrating the market additionally. So we really are pleased overall with the performance of ANH and the momentum we have in that business.

That's really helpful, guys. And congrats on the great quarter.

There are no further questions at this time. I will now turn the call back to Ted for closing remarks.

Thanks, Tracy. Once again, thank you all very much for joining our call today. We are really pleased with the second quarter results we reported earlier today and the outlook for our company. We very much appreciate your support as well as your time today, and we look forward to reporting our Q3 2026 results in October.

In the meantime, we will be participating in the Wells Fargo Consumer Conference on September 23 in Laguna Beach, California. nice place to be. So hopefully, we'll see some of you there. Thanks again for joining today.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by, and welcome to the Balchem's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Martin Bengtsson, Chief Financial Officer. You may begin.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2026. My name is Martin Bengtsson, Chief Financial Officer; and hosting this call with me is Ted Harris, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statements. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports. The company assumes no obligation to update these forward-looking statements.

Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details.

I will now turn the call over to Ted Harris, our Chairman, President and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with the financial results for the first quarter of 2026 and the overall performance of our company as we kicked off the new year with positive momentum from the strong performance throughout 2025. Our healthy growth continues to be fueled by ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities.

We delivered record first quarter consolidated sales, adjusted EBITDA, adjusted net earnings and adjusted EPS as well as strong cash flows. We also delivered year-over-year sales and earnings growth in all 3 of our reporting segments. The first quarter of 2026 was the 27th consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem. We are very proud of this accomplishment, particularly in light of the market environment within which we have operated over the last 27 quarters.

Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving geopolitical and macroeconomic situation as well as some of the progress we have made on several important strategic initiatives.

We continue to see healthy demand across the vast majority of our end markets. Our Human Nutrition & Health segment continues to perform very well, driven by healthy demand for both our unique portfolio of minerals, nutrients and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient-dense, high protein, high fiber and low sugar or better-for-you foods, where our nutrient portfolio and our formulations expertise bring considerable value to our customers.

In the Animal Nutrition & Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumen-protected precision release encapsulated nutrient portfolio and the ongoing improvement of market conditions in the European monogastric market, and we remain encouraged by the overall performance of our Animal Nutrition & Health product portfolio.

Within our Specialty Products segment, both our Performance Gases and our Plant Nutrition businesses are performing well, driven primarily by higher demand within Performance Gases as a result of healthier market conditions and successful margin management and geographic expansion growth within Plant Nutrition. As we have shown over the years, we have been able to deliver strong historical performance while facing significant market volatility, and we believe we remain well positioned to effectively manage through this current geopolitical and macroeconomic environment as well.

We are once again entering a period of significant inflation, largely petrochemical-based and primarily impacting our Animal Nutrition & Health segment as well as potential supply chain disruptions due to the ongoing conflict in the Middle East. We will once again leverage our robust global supply chain, our procurement expertise and our strong market positions to raise prices where necessary to help manage through this dynamic market environment.

While we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, particularly within our Animal Nutrition & Health segment, we do expect to deliver continued quarterly year-over-year growth on a consolidated basis over the coming quarters. We will continue to monitor the developments closely and adjust accordingly as we have done effectively in the past.

Additionally, I would like to share some significant progress we have made on several important strategic initiatives that will further support our future growth. A newly published peer-reviewed research study using functional magnetic resonance imaging, a noninvasive safe neuroimaging procedure that measures brain activity by detecting changes in blood flow and oxygenation was published in the peer-reviewed journal Nutrients.

This important study examined the effects of Balchem's VitaCholine nutrient on working memory-related brain activation and functional connectivity in post-menopausal women. The results showed that VitaCholine intake significantly enhanced functional connectivity within the working memory network, improving brain efficiency within 3 hours of consumption.

This study helps highlight the benefits of VitaCholine across different life stages with previous research showing that VitaCholine supports fetal brain development during pregnancy and lactation with lasting effects beyond birth. It also suggests that VitaCholine may help enhance cognitive health in older adults. We are excited about these results, and we will continue to invest in both research and marketing around VitaCholine to raise awareness and drive market penetration of this important essential nutrient.

Additionally, on April 22, Earth Day, we released our 2025 Sustainability Report, highlighting our sustainability initiatives and accomplishments. Guided by our core values and our vision of making the world a healthier place, our sustainability report demonstrates our commitment to bringing innovative solutions for global health and nutrition needs and to operate with excellence as strong stewards of our employees, customers, shareholders and communities.

We are very proud of the progress made on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25%. Compared to our 2020 baseline, in 2025, we successfully reduced Scope 1 and 2 greenhouse gas emissions by approximately 31%, surpassing our 2030 goal. And we reduced water withdrawal by approximately 16%, showing substantial progress toward our water usage reduction objective.

Now, regarding the first quarter financial results. This morning, we reported record quarterly consolidated revenue of $271 million, which was 8.1% higher than the prior year quarter. We delivered record quarterly GAAP earnings from operations of $56 million, an increase of 9% versus the prior year. Consolidated net income closed the quarter at $40 million, an increase of 8.7%. This quarterly net income translated to diluted net earnings per share of $1.25 on a GAAP basis, up 10.6%.

On an adjusted basis, we delivered record quarterly adjusted EBITDA of $74 million, an increase of 12.1%. Our quarterly adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share, up 9%. Overall, it was an excellent quarter for Balchem, marked by strong financial results and meaningful progress made on our strategic priorities.

And with that, I'm now going to turn the call back over to Martin to go through the first quarter financial results in more detail and the results for each of our business segments.

Thank you, Ted. The first quarter was a strong start to 2026. Our record first quarter net sales of $271 million were 8.1% higher than prior year, driven by strength across all 3 segments: Human Nutrition & Health, Animal Nutrition & Health and Specialty Products. The impact from foreign currency exchange, driven primarily by the stronger euro had a favorable impact to our sales growth of approximately 2% in the first quarter.

Our gross margin dollars were $101 million, up 14.6% and our gross margin percent expanded to 37.3% of sales, up 210 basis points. The gross margin performance was driven primarily by the sales growth and manufacturing efficiencies, partially offset by raw material inflation.

Consolidated operating expenses for the first quarter were $45 million as compared to $37 million in the prior year. The increase was primarily due to higher compensation-related costs and an increase in professional services.

GAAP earnings from operations for the first quarter were a record $56 million, an increase of 9%. On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $61 million were up 9.5%. Adjusted EBITDA was a record $74 million, an increase of 12.1% with an adjusted EBITDA margin rate of 27.4%

Net interest expense for the first quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $96 million with an overall leverage ratio on a net debt basis of 0.3.

The effective tax rates for the first quarters of 2026 and 2025 were 23.3% and 22.7%, respectively. The increase in the effective tax rate from the prior year was primarily due to an increase in certain state taxes.

Consolidated net income closed the quarter at $40 million, up 8.7%. This quarterly net income translated into diluted net earnings per share of $1.25, a 10.6% increase. On an adjusted basis, our first quarter adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share. Cash flows from operations were $40 million with free cash flow of $34 million, and we closed out the quarter with $73 million of cash on the balance sheet.

As we look at the first quarter from a segment perspective, our Human Nutrition & Health segment saw sales of $172 million, up 8.3%, driven by growth in both our Nutrients business and our Food Ingredients and Solutions businesses. Earnings from operations of $40 million were up 5.4%, driven by the higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $43 million, up 6%.

We were encouraged by the continued momentum in Human Nutrition & Health, where our differentiated ingredients and solutions aligned with the consumer shift toward better-for-you nutrition. We believe this positions us well to further leverage our formulation expertise and portfolio of differentiated branded ingredients to drive sustained growth.

Our Animal Nutrition & Health segment delivered sales of $62 million, up 8.6%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition & Health delivered earnings from operations of $6 million, up 8.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $6 million, up 8.2%.

We delivered another quarter of improved performance in our Animal Nutrition & Health segment. We continue to drive adoption of our encapsulated rumen-protected nutrients in the dairy market. Our U.S. monogastric business remained steady, and our European monogastric business continued to improve following the EU antidumping duties.

Looking ahead, we're paying careful attention to the conflict in the Middle East and the potential impacts it may have on the animal nutrition markets. We are seeing increases in raw material input costs, along with increased freight costs, which will either be offset or passed on to our customers.

We feel good about the momentum we have built within our Animal Nutrition & Health segment. And while we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, we remain confident in our ability to continue to drive growth in this segment over time.

Our Specialty Products segment delivered quarterly sales of $35 million, up 4.4%, driven by healthy growth in Performance Gases. Specialty Products delivered a record quarterly earnings from operations of $12 million, up 24.5%, driven primarily by higher sales and a favorable mix. First quarter adjusted earnings from operations for this segment were a record $13 million, up 21.2%.

We were very pleased with the performance of Specialty Products, delivering yet another quarter of solid growth, and we believe Specialty Products is well positioned to continue to deliver consistent profitable growth as we look forward.

So overall, the first quarter was another strong quarter for Balchem, and we are really pleased with the results. While the global geopolitical and macroeconomic environment remains dynamic and includes areas of uncertainty, we believe we are well positioned to continue executing our strategy and to deliver continued growth through the rest of 2026.

I'm now going to turn the call back over to Ted for some closing remarks.

Thanks, Martin. We were very pleased with the financial results reported earlier today. We executed well within a dynamic and evolving macroeconomic and geopolitical backdrop, delivering another strong quarter of solid growth while at the same time, advancing our strategic initiatives.

Looking ahead, we remain excited about 2026 and confident in our ability to deliver continued top and bottom line growth while further advancing our long-term growth platforms.

I will now hand the call back over to Martin, who will open up the call for questions.

Thank you, Ted. This now concludes the formal portion of the conference. So at this point, we will open up the conference call for questions.

Your first question comes from the line of Bob Labick from CJS Securities.

Congratulations on another record quarter.

Thank you, Bob.

Thanks, Bob.

Sure. Yes. So one of the keys to your growth and success has been the branded ingredients. And Ted, you spoke a little about VitaCholine already. I know you're kind of like early-ish on a branding strategy so far. But what percent of sales are branded that's -- out of what's applicable now? And what could that look like in 5 or 10 years?

Yes. Again, Bob, thanks for your comments. Our branded ingredients, and let's just talk about Human Nutrition & Health, make up about, I would say, 40% to 50% of our Human Nutrition & Health business today. And that doesn't mean to say on the other 50% to 60%, we don't have brands, but they're more B2B brands.

The power brands, as we refer to them, like VitaCholine that you talked about, K2VITAL and K2VITAL DELTA, OptiMSM, Albion Minerals, for example, are brands that obviously we're selling to supplement nutritional beverage manufacturers, but are recognized by the consumer. And so those are the ones that we're really investing in.

So let's say, 40% to 50% of H&H today. And that part of the business is obviously growing faster than the other parts of the business. So over time, we will clearly become a bigger and bigger part of our portfolio.

Okay. Great. And we've talked on previous calls about the Jets partnership and the new customers that have come, notably in VitaCholine and I think energy drinks in particular. Are there other areas of expansion still to come from this? Are there opportunities for just more general sports drinks versus energy drinks? Or how do you take the company down that path, if possible?

Yes. So obviously, historically, supplements have been our primary targeted market. But as you mentioned, we've had pretty significant success more recently relative to sports beverages, energy drinks and the like. And as you can imagine, it's a great application for our products, partly because you don't have the capacity or volume limitation that you can have in a supplement or a multivitamin. And so we've found it to be an excellent application for our products and trends are leading to significant growth in those areas.

So I do think that, that will continue to grow and kind of that word energy drink versus nutritional beverage, I do think many of these products started to be more kind of in the energy drink and all that comes with that term in that category. And now those drinks are expanding much more broadly to more of a nutritional beverage focus, meal replacement focus, a much healthier product than -- or better-for-you product to use those words, than the historical energy drinks. And we really believe that, that nutritional beverage market is a significant opportunity for us and will grow rapidly over time.

So I think that's really where the predominance of our opportunity lies in the near to midterm. And relative to investing marketing dollars in the brands, it does expand far beyond partnering with an NFL team. We're already partnering with a Women's professional soccer team in Europe and the Bayern Munich Women's team. We're investing in other sort of influencer areas, digital media areas and so forth. So we do continue to expand that effort in other areas.

So we really -- I think, we talked about on calls many, many quarters ago that the investment in the Jets was a pilot to some extent. We certainly look back on that as being a successful pilot and one that we want to now expand through other consumer marketing awareness campaigns, some of which I just mentioned.

Okay. Super. And one last one for me, I'll jump back in queue. But looking at the P&L, the gross margins, the 37.2% surprised on the upside. It was really strong, in fact. So maybe just give us a little more details of what kind of drove that. And I know with raw material cost pressures coming, how should we think about gross margins going forward?

Yes. Bob, strong performance on the gross margin, as you pointed out, and as you're familiar, we've talked about in the past that we do have a favorable tailwind in our portfolio from the fact that our higher-margin businesses are the ones growing the fastest. So minerals and nutrients in H&H being an example of that. And similarly, on the Animal Nutrition side of ruminant being higher margin and generally growing faster than monogastric. And just from a portfolio perspective, we have that tailwind that supports expansion of the margins.

On top of that, we have been fairly effective more recently to just manage the balance between price and inflation and drive some benefits that way as well, along with having effective manufacturing operations here supporting the P&L. So everything has just been working fairly well from a gross margin perspective, and you're seeing that come through. The reference we made to seeing inflation is true and real. We do see inflation coming. and we see that accelerating a bit with what's happening in the Middle East.

And as you know, from the past, when we went through this with COVID, we've been quite effective historically at managing that, both through our supply chain and through our procurement, but also in terms of pricing that through to our customers where needed. But it tends to have a little bit of a dilutive impact, right? If your costs go up $1 and you price through $1, mathematically, your margin rate goes down. So I think we'll see a little bit of that to a modest extent as we go forward in this inflationary environment. So while we continue to grow our margin dollars, we may see a little bit of a margin rate compression as a result of the environment.

Your next question comes from the line of Ram Selvaraju from H.C. Wainwright.

Firstly, I was wondering if you could comment on sort of ongoing evolution of your thinking regarding the positioning of VitaCholine and in particular, how you are thinking about optimizing the value of this franchise, especially given the most recent data that you cited published in the peer-reviewed journal Nutrients and how this might evolve going forward.

When you think about historically, the work that's already been done demonstrating that choline is an essential prenatal nutrient. Now you have data showing that it has applicability to enhance potentially cognitive health in older adults. Just give us a sense of how you're thinking about the evolution of that brand and how best to position it, particularly from the perspective of promotional and marketing strategies that you may not necessarily have employed in the past?

Secondly, I think it would be helpful if you could give us a sense, particularly in light of the most recent geopolitical developments, how this might affect the industrial side of Balchem's business, especially when we think about potentially increased U.S. stateside-based oil and petroleum production that may include enhanced fracking activity?

And then lastly, Martin, I was wondering if you could just comment on the effective tax rate. It was a little bit ahead of what we had originally projected. So I was wondering if we should use that as kind of the serviceable tax rate assumption going forward or if you anticipate the effective tax rate to modulate a little bit over the course of the remainder of this year?

Thanks, Ram, for your questions. And maybe I'll take the first 2, and Martin, you can answer the last one. And I'll start, Ram, with your second one around industrial. As everybody knows, we no longer report out industrial separately. But that business continues, has continued for a number of years at a very low level, I would say. But that business is clearly up. It's still not a measurable contributor to our overall results and business.

But regardless of that, the results are up, sales are up, demand is up, which is what you would expect given the current situation with increased activity in that part of the economy. So we are seeing new business from that. Again, it's not to a material nature. And we strongly believe it will never return to what it once was, but it's nice to see higher demand in that area based on the increased activity.

Relative to the ongoing VitaCholine positioning, we are really excited about the results of this most recent study, specifically for servicing post-menopausal women in that community and that targeted market. But it does suggest that older adults can benefit from VitaCholine intake more broadly. And that is a huge market compared to the prenatal market that you mentioned.

Historically, choline was a product that was sold into infant formula and really didn't even appear that much in prenatal vitamins. I think we can look back and say we were very, very successful in doing the science, having the studies to support the prenatal market. And today, it really is broadly part of a prenatal vitamin regimen.

It's incredibly rare for me to ask a pregnant woman what her vitamin regimen is and not to include choline. So I think we've been very successful there. But the reality is that's a relatively small market. So this could be an absolute breakthrough from a VitaCholine perspective and really open up that, as I used the word earlier, huge adult cognition market.

I think it's an early study. It's a study that has definitive results for post-menopausal women. We need more studies for sure to show effectiveness across a wider segment of the population in that age group. But this is a good first start, and we always expected this just to be the start. So we're investing in some more studies.

And then as we've also learned, we need to support that science and those studies with marketing and obviously, marketing to aging adults that either are experiencing cognitive issues or are concerned about cognitive issues is a very different marketing campaign to positioning VitaCholine as a nutrient that athletes should take, which is what we were doing for the New York Jets.

So we will have to reposition our marketing efforts or newly position our marketing efforts to support the emerging science in this area and to build awareness in the aging population and ultimately to drive market penetration of VitaCholine in that category. And that's exactly what we're going to do.

So with that, I'll hand it over to Martin to talk about tax.

Yes. Ram, as we spoke about in the past, we tend to use 23% effective tax rate as sort of the planning rate for you. And I think when we spoke last time, I thought we were probably error on the side of doing better than that. In Q1, we had 23.3%, so a bit above that just based on timing of various items and some changes in state tax laws that impacted that negatively and also various discrete items that hit the quarters differently.

I think, as we look forward here, I think the rate will be higher in Q2 as well versus that 23%. And then I think you will be lower in the back half of the year as we're working our way towards that 23%. So I think it's still a good planning rate to use, the 23%, as you model things for the full year.

Your next question comes from the line of Daniel Harriman from Sidoti.

Ted, Martin and again, congratulations on continued execution and great performance. I've got 2 questions this morning. I'll start with one for Ted. Last quarter, I had kind of touched on or asked you about international growth. And I was just wondering if you might be able to provide us on an update or if there's anything been going on that we should pay attention to there -- across the 3 businesses?

And then, Martin, on the European monogastric side of things, I was just curious if you could give a little bit more color about where we are in the recovery there and if there's more room for you guys in terms of both volume and pricing? Really appreciate it.

Yes. So on the geographic expansion and international growth, that continues to be a primary strategic focus area for our company and one that we feel really good about the progress that we're making. Part of that progress involves hiring people in the various international regions around the world, and we're doing that, and we're hiring really good people.

I would say when you look at our OpEx this quarter, Martin talked a little bit about it being higher than normal. And part of that at least is driven by some onetime items, but part of it is also driven by an investment in sales and marketing around the globe as we do invest in geographic expansion. So we're making good progress in hiring people, building out the infrastructure that we need to drive geographic expansion and the results are showing.

We are seeing higher growth rates in most international locations versus the U.S. We're still driving really good growth in the U.S., but the international growth rates have been better for us because of the low base that we're starting in. So we're focused on it. It's a primary strategic objective for us, and we're making really good progress relative to that strategic initiative.

Yes. On the Animal Nutrition, Europe and the recovery of the monogastric business there, we are clearly seeing an uptick following the antidumping. In Q1, we did see a double-digit volume improvement. So it's definitely there combined with improved pricing.

So there is clearly an upward trend in that business that I think has the potential to continue to strengthen further. And the sort of impacts that we're keeping an eye on around now is really stemming from the Middle East conflict, right, and whether or not that will have an impact to the European end markets or not, just given the higher input costs that they will be facing here going forward. But in terms of the EU antidumping, we are clearly seeing benefits from that at the moment.

Your next question comes from the line of Artem Chubarov from Rothschild Redburn.

Ted and Martin, congrats on a good quarter. Yes, I would like to ask probably 2 questions. The first on H&H. Any color on how Nutrients or Food Ingredients businesses performed in the quarter would be helpful just to understand the magnitude of growth and whether you expect these to persist?

And the second question is on Specialty Products. Obviously, you've reported quite exceptional improvement in profitability. So it would be just helpful to understand where it came from, perhaps whether it was a price or volume? And how did that develop by region, whether it was Europe or the U.S.

Sure. So maybe I'll take a stab at this, and Martin, you can chime in as needed. We were really pleased with the overall performance of H&H really as we have been for many quarters. And the story, I would say, in Q1 was very similar to the story that has played out over previous quarters. So not much changing.

The minerals and nutrients portfolio growing very strong, I would say, double-digits growth, fueled, I think, particularly by growth in our minerals business, which is performing really outstandingly, broadly speaking, but all of the nutrients are growing nicely. And that business is performing well and really fueled by, yes, to some extent, the better-for-you trends, but just the adoption of supplementation and the inclusion of nutrients in beverages as we talked earlier. So a little bit more of the same, which I view as positive.

The Food Ingredient and Solutions business grew, I would say, sort of lower to mid-single digits. So again, continue to grow at what I would say would be nice rates for that business. And that growth truly is really being fueled by the better-for-you trends, whether it's meat sticks that we've talked about before, where some of our ingredients are included or high-protein bars, high fiber beverages, organic, high-fiber cereals, those kinds of products are really all performing very well for us. And really driving the vast majority of growth within H&H.

And again, I would say that story has been true for quite a number of quarters. So we're overall very pleased with the performance of H&H, and we continue to believe that, that story will continue for some time to come. We think it's quite sustainable.

Relative to Specialty Products, it's a little bit of a different story. The favorable growth really is driven primarily from the Performance Gases part of Specialty Products. Again, very pleased with the overall performance of Specialty Products. But in this quarter, it was primarily driven by performance gases where we're seeing healthy demand, both in the U.S. and in Europe.

It seems odd a number of years later to still be talking about the pandemic, but those were markets that were pretty severely impacted by the pandemic, and it had a result -- kind of a long played out impact, I would say, on those markets. And we would say those markets today are back to where they were, very healthy, and our business is doing very well, both in the U.S. and Europe just on healthy demand.

The growth, as we talked about in Plant Nutrition has been primarily driven by geographic expansion over time. We didn't deliver growth in Q1, but we're bullish about the performance of Plant Nutrition over the course of the year. We had significant margin improvement in that business in Q1, delivered healthy geographic expansion growth. And generally speaking, it's a healthy planting environment right now. And so again, we feel good about our ability to deliver growth in that business this year.

So really pleased with the performance of Specialty Products as well and believe that this performance that we've been delivering in that segment over the last number of quarters and in Q1 is sustainable.

So hopefully, that answers your questions.

It does indeed.

And that concludes our question-and-answer session. I will now turn the call back over to Ted Harris for closing remarks.

Yes. Thank you very much. Once again, thank you all for joining our call today. We are very pleased with how we have started 2026, and we really appreciate your support and your time today. And we look forward to reporting out our Q2 2026 results in late July. And in the meantime, we will be participating in the Wells Fargo Industrials and Materials Conference in Chicago on June 10 and the CJS Summer Investor Conference in White Plains, New York on July 9. And we certainly hope to see some of you there. Thanks again.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Balchem's Fourth Quarter Full Year 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Martin Bengtsson, Chief Financial Officer. Martin, please go ahead.

Thank you, and good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending December 31, 2025. My name is Martin Bengtsson, Chief Financial Officer; and hosting this call with me is Ted Harris, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports. The company assumes no obligation to update these forward-looking statements.

Today's call and commentary include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details.

I will now turn the call over to Ted Harris, our Chairman, President and CEO.

Thank you, Martin. Good morning, and welcome to our conference call. We were very pleased with the financial results reported earlier this morning for the fourth quarter of 2025, which capped off another very strong year for Balchem. We delivered record fourth quarter consolidated sales, adjusted EBITDA and adjusted net earnings. And I was particularly pleased that we delivered solid year-over-year sales and earnings growth in each of our 3 reporting segments.

Before we get into more detail on the quarter, I would like to reflect for a few minutes on some of the significant accomplishments the Balchem team achieved over the past year. Overall, 2025 was another excellent year for Balchem. For the full year of 2025, we delivered record sales of $1.037 billion, growing 8.8% compared to the prior year and passing the $1 billion mark for the first time. And all 3 of our reporting segments contributed nicely to the strong growth of the company.

We also delivered record earnings from operations of $209 million, an increase of 14.4% and record adjusted EBITDA of $275 million, an increase of 9.8% from the prior year. In addition, we generated record free cash flow for the year of $174 million, while investing $43 million in capital projects to support our continued growth. allowing us to further pay down our debt and reduce our leverage ratio on a net debt basis to 0.3x.

Financially, a very strong year, capped off with an excellent fourth quarter and a continuation of Balchem's consistency and performance. Q4 was our 26th consecutive quarter of year-over-year adjusted EBITDA growth. Throughout 2025, each of our business segments delivered solid growth on both the top and bottom lines each and every quarter. This consistency is a testament to our strategic focus the excellent execution by our teams and the resilience of our business model.

2025 turned out to be another eventful year from a macroeconomic and geopolitical perspective. We navigated a dynamic global trade and tariff environment in a disciplined and proactive way. In our intra-regional manufacturing and sales model, with approximately 85% of products sold in the same region they are made. Our global supply chain with minimal reliance on China, our robust U.S. manufacturing footprint, combined with our strong market positions, have enabled us to maneuver through the current situation successfully.

We offset tariff impact through a combination of alternate supply chain options and pricing actions, and we have remained nimble as conditions evolve. At the same time, we have continued to invest in and advance our strategic growth priorities that will support our future success. We made meaningful progress expanding our sales and marketing reach, both domestically and internationally.

In 2025, more than half of our sales growth came from markets outside the United States. Our marketing partnership with the New York Jets around our VitaCholine brand and our partnership with Bayern Munich women's soccer team around our K2VITAL brand have both been successful initiatives in our Human Nutrition & Health segment. While our real science exchange platform in the Animal Nutrition & Health segment continued to grow as an industry information and technology resource supported by clinical studies in various stages of completion. Podcasts and symposiums across major streaming platforms and was just recently recognized as the #1 animal nutrition podcast by Million Podcasts.

We also significantly advanced our scientific and clinical research pipeline. We continue to invest in the science behind brands such as VitaCholine, K2VITAL, OpTiMSM and Albion Minerals and our current pipeline includes over 20 active clinical studies. Additionally, we continue to make progress on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25%. Compared to our 2020 baseline, we have successfully reduced greenhouse gas emissions by approximately 31%, surpassing our 2030 goal, and we have reduced water withdrawal by approximately 16% showing substantial progress toward our water usage reduction objective.

We also continue to invest in our future growth while returning capital to shareholders. We made important and significant new investments in plant and equipment in 2025, resulting in capacity additions for our Human Nutrition, Animal Nutrition and Plant Nutrition businesses. Of particular note, was the commencement of the construction process for our state-of-the-art food ingredient and nutraceutical microencapsulation manufacturing facility in New York State which will further support our continued growth with this technology.

We also repurchased shares under our stock repurchase program to both offset the dilution associated with our equity incentive plan and provide a return of capital to our shareholders. We repurchased approximately 685,000 shares at an average approximate cost of $158 per share. This stock repurchase program is one component of our overall capital deployment strategy that focuses primarily on investing in organic growth opportunities to provide an attractive return, augmenting our organic growth through strategic M&A, where appropriate, paying down debt and maintaining a strong balance sheet and retaining and growing our dividend to our shareholders.

And regarding the dividend, in December, we announced another increase to our annual dividend, taking the dividend from $0.87 to $0.96 per share, a 10% increase year-over-year. This most recent increase marked the 17th consecutive year of double-digit growth of our dividend, which once again reinforced our commitment to our long-standing dividend strategy.

So overall, as we look back on the year, we are proud of the combination of strong financial performance and tangible progress on strategic initiatives, and we maintain a positive outlook as we look forward. I would like to thank all of our employees and stakeholders who contributed to our success throughout another excellent year. Thank you all.

Now regarding the fourth quarter of 2025, this morning, we reported fourth quarter consolidated revenues of $264 million, which were 9.8% higher than the prior year quarter. GAAP earnings from operations for the fourth quarter were $52 million, higher by 10.2% versus the prior year and we delivered quarterly adjusted EBITDA of $68 million, an increase of 8.1%.

Consolidated net income closed the quarter at $39 million, an increase of 16.8%. This quarterly net income translated to diluted net earnings per share of $1.21 on a GAAP basis, up 17.5% compared to the prior year. On an adjusted basis, our fourth quarter adjusted net earnings were $42 million, an increase of 14.8% from the prior year. which translated to $1.31 per diluted share.

From a market and demand perspective, we continue to see healthy demand across the vast majority of our end markets. In Human Nutrition & Health, performance remains strong, driven by healthy demand for our portfolio of minerals, vitamins and nutrients as well as our food ingredients and solutions. We continue to benefit from the broader consumer and customer shift toward nutrient dense, high protein, high-fiber and low sugar better-for-you foods for our nutrition portfolio and formulation capabilities bring meaningful value.

In Animal Nutrition & Health, the dairy market remains relatively healthy, particularly for dairy protein, and we continue to penetrate the market with our ruminant protected precision release encapsulated nutrient portfolio. And we are seeing modest improvement in market conditions in Europe for our feed grade choline business after the finalization of the European Commission's antidumping duties on Chinese choline in late December.

In Specialty Products, both our Performance Gases and Plant Nutrition businesses are performing well, supported by stronger demand and healthier market conditions within Performance Gases, and continued progress in geographic expansion within Plant Nutrition. Overall, we continue to see healthy demand across all 3 of our business segments.

I'm now going to turn the call back over to Martin to go through the fourth quarter consolidated financial results for the company and the results for each of our business segments in more detail.

Thank you, Ted. As Ted mentioned, overall, the fourth quarter was another very strong quarter for Balchem with strong growth in sales, earnings and free cash flow. Our fourth quarter net sales of $264 million were up 9.8%, driven by growth in all 3 segments: Human Nutrition & Health, Animal Nutrition & Health and Specialty Products. Our fourth quarter gross margin dollars of $94 million were up 8.8%, and our gross margin percentage was 35.6% of sales, down 40 basis points compared to prior year primarily due to certain higher manufacturing input costs.

Consolidated operating expenses for the fourth quarter were $42 million, up 7% compared to the prior year. The increase was primarily due to higher compensation-related expenses. GAAP earnings from operations for the fourth quarter were $52 million, an increase of 10.2%. On an adjusted basis, as detailed in our earnings release this morning, non-GAAP earnings from operations of $57 million were up 9.3% compared to the prior year.

Adjusted EBITDA was $68 million, an increase of 8.1% compared to the prior year, with an adjusted EBITDA margin rate of 25.8%. Net interest expense was $2 million, a reduction of $1 million compared to the prior year, driven primarily by lower outstanding borrowings and lower interest rates. The effective tax rates for the fourth quarter of 2025 and 2024, were 21.6% and 24.5%, respectively. The decrease in the effective tax rate from the prior year was primarily due to a decrease in certain foreign taxes.

Consolidated net income closed the quarter at $39 million, an increase of 16.8%. This quarterly net income translated into diluted net earnings per share of $1.21 and an increase of $0.18 or 17.5% compared to the prior year. On an adjusted basis, our fourth quarter adjusted net earnings were $42 million, translating to $1.31 per diluted share, an increase of 15.9% from prior year.

We continue to translate our earnings into cash and fourth quarter cash flows from operations were $67 million, and we closed out the quarter with $75 million of cash on the balance sheet. Our net debt decreased to $89 million with an overall leverage ratio on a net debt basis of 0.3%.

As we look at the fourth quarter from a segment perspective, our Human Nutrition & Health segment generated sales of $166 million, an increase of 12.7% from the prior year. The increase was driven by higher sales within both the Nutrient's business and the Food Ingredients and Solutions businesses. Our Human Nutrition & Health segment delivered quarterly earnings from operations of $37 million, an increase of 8.9% primarily due to the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. Adjusted earnings from operations for this segment were $40 million, an increase of 9.6%.

We are very pleased with the strong performance of our Human Nutrition & Health segment where demand continues to be robust for our differentiated portfolio of ingredients and solutions. As consumer preferences increasingly shift toward better-for-you ingredients and solutions, we see a compelling opportunity to further leverage our formulation capabilities, nutrient portfolio and unique solutions to drive sustained growth in Human Nutrition & Health.

Our Animal Nutrition & Health segment generated quarterly sales of $61 million, an increase of 4.9% compared to the prior year. The increase in sales was driven by higher sales in both the ruminant and monogastric species markets. Animal Nutrition & Health delivered earnings from operations of $6 million an increase of 8.6%, primarily due to the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses.

Fourth quarter adjusted earnings from operations for this segment were $6 million, an increase of 9.2%. We were pleased to deliver another quarter of solid top and bottom line growth in our Animal Nutrition & Health segment. We continue to see increasing penetration of our ruminant protected encapsulated nutrient solutions in the dairy market. And on the monogastric side, the U.S. market remains steady while the European market has shown clear signs of improvement following the provisional antidumping duties on Chinese choline announced in the second quarter and the final duties announced by the European Commission in December.

Looking ahead, we're confident that Animal Nutrition & Health is well positioned to drive sustained long-term growth as adoption of our differentiated technologies continues to expand across key markets.

Our Specialty Products segment delivered sales of $35 million, an increase of 6% compared to the prior year due to higher sales in the Performance Gases business. Earnings from operations were $11 million, an increase of 5.5% versus the prior year. The increase was primarily driven by the aforementioned higher sales, partially offset by higher operating expenses. Fourth quarter adjusted earnings from operations for this segment were $12 million, an increase of 6%.

We're very pleased with the continued performance of our Specialty Products segment which delivered another quarter of solid growth across both sales and earnings. And as we look ahead, we believe this segment is well positioned to continue delivering consistent profitable growth. So overall, the fourth quarter was another very strong quarter for Balchem.

I'm now going to turn the call back over to Ted for some closing remarks.

Thank you, Martin. We are extremely pleased with Balchem's financial results reported earlier this morning for the fourth quarter and the full year of 2025. As an organization, we continue to demonstrate the ability to perform consistently across a wide range of market environments, supported by our strong competitive positions and differentiated value-added product portfolio.

Once again, we effectively navigated a dynamic macroeconomic backdrop with limited impact on our results. At the same time, our growth momentum has continued to build as we execute around our core strategic initiatives. I am excited about 2026, and I believe the company is well positioned to deliver continued top and bottom line growth on a full year basis while further advancing our important growth initiatives.

I will now hand the call back over to Martin, who will open up the call for questions.

Thank you, Ted. This now concludes the formal portion of the conference. And at this point, we will open up the conference call for questions.

[Operator Instructions] Your first question comes from the line of Bob Labick with CJS Securities.

Congratulations on another record quarter and year.

Thanks, Bob.

Yes. That's great. And so, Ted, you mentioned in your prepared remarks, the New York Jets. And so I just want -- we haven't talked about it in a couple of quarters. Can you discuss the partnership and really what's come from it? What have you learned? What are the benefits? And what do you see in the future? Are there more partnerships like this to come? Do you renew? Or how are you thinking about it? What have you learned?

We certainly have learned a lot, and I think I talked about on one of the calls when we made the investment in the partnership with the Jets. We really viewed it as a pilot investment that based on the fact that we essentially have done it again with the Bayern Munich women's team suggests we viewed it as a successful venture.

But the partnership with the Jets, in particular, relative to VitaCholine, what we hope to get out of it and what we learned from it was that choline and our brand of choline, VitaCholine, was really primarily known for its importance in infant and child cognition. It's been long included in infant formula. We've been very successful in getting it part of a typical prenatal vitamin regimen.

But the discussion was largely around infant and child cognition. And this investment really has allowed us to change the dialogue because choline is really important for adult cognition, adult health, liver health and so forth. And so it really has shined a light on the fact that this is also an important nutrient for adults.

And I think that, that -- if that was the only thing we got out of it, that was worth doing from our perspective. But several brands have adopted VitaCholine in energy drinks and active nutrition formats, while others have decided to launch new SKUs that include choline in supplements. And this all came from the partnership with the Jet and our team being able to leverage that partnership.

So financially, we can look back on it and say there was a very good ROI. But I think what was most important was it really gave us the ability to highlight the importance of VitaCholine and the nutrient, the essential nutrient choline for adult health. And similarly, the investment with Bayern Munich women's team is allowing us to do that with a very different product, a vitamin, vitamin K2 and our brand, K2VITAL relative to the benefits of K2 in women's health, in particular, given that investment.

So we really are pleased with that investment. And it comes on top of a rich science backing that supports the nutrients, and we need to continue to invest in that. But I think you'll see us continue to push the bounds of marketing investment as well because we really have recognized it's an important part of the process. But we really are very pleased with both those investments despite, as you and I have joked the Jets performance in 2025, but there's always the new year, and we're excited about how the Jets will do in the coming year.

Absolutely. And we're in the off-season, which is their best season.

That's right.

So I guess just moving on, you mentioned the science basis for all of your marketing and things like that. Can you talk about -- I think on the previous calls, you said you had something like 20 or so clinical trials running. Are any of those trials coming up for conclusion in 2026? And how -- and assuming positive results just for now, how would you leverage that information into new sales?

Yes. So we do. We're really excited about the -- you're right, the 20 studies that are currently underway. We actually had 18 publications in 2025 based on studies that have been done earlier. And I think that's just an indication what do we do with these clinical findings. All of them that I've been associated with have been positive in one way or another and getting those results out in front of the right audience, whether it's practitioners or influencers or important people within the industry, so they understand the science behind their products but also being able for us to offer claims to our customers who are ultimately selling the product.

For example, in 2025, there are a few publications that allowed us to make a claim around vitamin K2, our K2 delta product, and it helps maintain a normal age-related calcification. And that's an important claim to be able to introduce. K2 has been a product that has typically been talked about relative to bone health, but with long believe that it played an important role relative to cardiovascular health. And so these studies helped us bring that ability to make that claim to our customers. So that's what we do with these studies.

And yes, in 2026, there are definitely a few studies that will come to fruition, hopefully, be published in 2026. And I think maybe just to mention one that I'm particularly excited about, that we have talked about before on these calls, but it relates to and MD Anderson, University of Texas, MIT clinical study around the effect of high doses of choline in older people with the gene APOE4 relative to Alzheimer's and the ability for these high doses of choline to potentially impact the development of Alzheimer's and delay it.

So we're very interested in the study. We're excited about it. Obviously, we don't have results. Hopefully, the results will be positive. But if we could have a highly credible study from institutions such as those that could allow us to make a claim relative to choline and adult cognition, it could be very powerful. So that's one that's coming up in 2026 that we're quite excited about.

Your next question comes from the line of Ram Selvaraju with H.C. Wainwright.

Sort of 3 categories here. Firstly, I was wondering if you could comment on planned sales and promotional activities in 2026 that represent a meaningful or marked evolution versus 2025. In particular, and this relates to what was asked about earlier already, the relationships with professional sports teams. I'm particularly interested in soccer. But if there are other professional sports leagues that you plan to take a look at potentially aligning with, sponsoring, partnering with going forward in order to aid promotion and deployment of H&H products in particular that would be very helpful to know and understand better.

Secondly, I was wondering if you could comment on what it seems is the only thing most people can talk about these days, which is the Supreme Court decision overturning the current administration's tariff regime. And if there are any potential ways in this -- in which this could conceivably be disruptive what mitigation measures you already have in place? I think you alluded to those in your prepared remarks that would effectively field the company from organizational disruption.

And finally, if you see any potential opportunities, if tariffs are indeed rolled back on mass? And then lastly, standard question for Martin. What should we be thinking about in terms of effective tax rate assumptions as we refine our projections going forward.

Thanks, Rob. I'll try to take a stab at the tariff one, maybe we'll do that one first. Obviously, that's hot off the press, and we're all just trying to figure out exactly what it means. I would just start by saying that we were very pleased with how we manage through the disruption of Liberation Day and I would say the confusion and volatility and ups and downs we feel like we're relatively well positioned from a manufacturing perspective, as I've talked about a few times relative to tariffs with the fact that the majority of our products that we sell within a region are made in that region. I think that positions us well.

But also, our strong market positions allowed us where we had to raise prices to offset any tariffs that we ended up having to pay. Obviously, as we think about this ruling we think about a few things. One is, will there be immediate replacement of the current tariffs using some other section, whether it's 122 or 301 or 338, will they just be replaced with some other tariffs, will there potentially be refunds that we might receive from some of our suppliers and/or that some of our customers might need to receive from us.

And I think what I would say about that is that at the end of the day, that is a manageable number. We talked about several calls ago that kind of theoretical impact of tariffs. So on us was about $20 million. So in the grand scheme of the company, it's a manageable number. Ultimately, that number came down to closer to $10 million based on our efforts to find alternate supply chain solutions and so forth. So the magnitude of the impact was not significant.

And I firmly believe that whatever ultimately happens, we'll be able to manage through that as effectively as we manage through liberation day. But for sure, it's going to create some volatility and uncertainty and supply chain planning challenges and so forth but feel very good about our position. I don't necessarily see any significant opportunities coming from this, but again, I think it's hot off the press, and we'll just have to see.

Going back to your first question around planned sales and promotion, I would just highlight that both the Jets and the Bayern Munich investments were multiyear investments. So I think it's important to lead with those will continue and we're excited to have those continue, and they will be sort of our leading, I would say, public type partnerships. But what we plan to do more of in support of those is a little bit more social media, digital marketing, influencer marketing to further enhance those kind of headline investments. So that's something that we'll do.

And we also are kind of next on our list of nutrients to invest in from a marketing perspective is MSM, which really is a product that is known for joint health but also has important sort of skin, hair and nails benefit, and you'll be seeing more from us relative to a beauty from within campaign, which is also a significant and important trend right now. And we feel like we have a product that fits perfectly into that trend, and we'll be investing pretty significantly in that brand and a beauty from within campaign. So that will be something that you'll see more of in the not-too-distant future.

And I'll hand it over to Martin to answer your tax question.

Ram, I would use 23% for modeling purposes. We ended this year at 22.2% and last year at 22.8%. So we've been in that 22% to 23% range. We just sort of look at the math of where we do business and international and where we're making our money, the math would suggest somewhere in the 23% range for effective tax rate. And then becomes what sort of discrete items that come up during the year and actions we can take to try to make that a little bit lower, but I would use 23% for modeling.

Okay. And then just very quickly, with respect to FX potential headwinds or tailwinds, can you maybe talk about how potential additional decline relatively speaking, and the value of the dollar might impact things for Balchem going forward? Or if you feel that you're reasonably well shielded from FX headwinds. And also, if you could just give us a sense of how you are prioritizing capital deployment at this time with respect to, in particular, debt repayment versus share repurchases?

Sure, Rob. Maybe I'll start on the FX one at least. For us, it's really the U.S. dollar euro. That's the primary exposure we have that's of any sort of relevance. If we look at the impact on FX to us in 2025, it sort of had a 0.7% impact to growth. It benefited us by 0.7% on a full year basis based on the movement between the U.S. dollar and the euro that we had in the year. if you were to do that same math on the fourth quarter, the impact was just over 1%, sort of favorable to our growth from a stronger euro to giving us more dollars when we translate it back.

So it's there, and it's not insignificant, but nor is it sort of a really material driver for us. Obviously, as we continue to grow internationally, that will become bigger, and we've seen good growth internationally in 2025. So we keep an eye on it and manage it. And if need be, we will hedge that, but we don't do a lot of hedging at this point in time as the exposure has been very manageable to us from an FX perspective.

From a capital deployment, I would say that our priorities remain consistent from the perspective that our organic growth is still our primary area where we deploy our cash, and we'll continue to grow our dividend, as you've seen in the past, and we'll continue to focus on our M&A as a key area for deployment and we'll continue to pay down debt. At this point, though, our leverage is so low. So we have, as we've often said in the past, we will try to keep our share count flat and offset anti-dilution over time from equity issuance, et cetera, so we've done that. More recently, we've deployed more capital into share repurchases to catch up on some of those antidilutive purchases.

So that share count remains flat over time because our debt leverage is so low. So you could say that this is a better time for us and also sort of where we've been trading recently, it was a good time for us to deploy more capital in that space. But fundamentally, has anything changed in how we view capital deployment, No. It's still organic growth and M&A probably as the top 2 that we're focused on.

Your next question comes from the line of Artem Chubarov with Rothschild & Co Redburn.

I'd like to ask first about the performance within segments, specifically in 8 and A&H. When I look at our H&H crop in the quarter, 13% obviously, very good result. It looks quite similar to Q3 on the run rate. If I look within the division at nutrients or food ingredients, are we looking at the same dynamic? Or have you seen any change there? And probably a similar question on AMH, so ruminants versus monogastric, any color there would be very helpful.

Yes, Artem, thanks, and thanks for joining the call. Focusing on H&H for a minute. I think the simple answer is no, there really hasn't been a significant shift over the last few quarters. I would say over the last year or so, there has been a more meaningful shift from lower growth in our Food Ingredients and Solutions area to higher growth in that business as the better-for-you trends have had a bigger impact on our business.

So if we look back, 2024, for example, our business, our Food Ingredients and Solutions business really wasn't growing significantly. And that has changed over time. But I would say, certainly relative to the last quarter or so the dynamic has been quite similar where we're seeing very significant growth in our Minerals and Nutrients business, as we call it, clear double-digit growth last quarter, 30%. Previous quarter, something similar to that.

And the reason that the H&H business has been growing faster overall is because the food ingredient solutions business has now been for the last few quarters, growing at a higher rate. and this past quarter at around 4%, which we think is higher than what the market is growing, and it's importantly because of our focus on better for you.

Relative to A&H, I think the answer is also somewhat similar in that the primary growth driver in that business over time has always been our ruminant business. and lower growth has come from the monogastric business. And if we go back to 2024, we were seeing no growth in the monogastric business or even some negative growth in the monogastric business because of the situation in the European monogastric business that we have talked so much about over the last few years.

And what we have seen is that, that business has started to recover, started to deliver some growth while the ruminant business continues to grow. And so we're seeing higher growth in A&H because we have the historical ruminant growth now coupled with some improved growth in the monogastric business. So -- but that's really been, I think, the story within ANH for the last few quarters. So nothing's really changed over the last few quarters, the change really has been over the last year or so.

Your next question comes from the line of Daniel Harriman with Sidoti.

Congrats on another great quarter and another great year. I've got a question for each of you. you called out in the opening remarks, just the success that you're seeing with sales outside of the United States. And I know that's been a particular focus within Specialty Products. I was hoping to get an update there. And then within A&H in Europe, are you seeing any early impacts on the pricing dynamics or competitive conditions there after December's announcement? Really appreciate it, guys.

Sure. Thank you, Daniel. Maybe I'll take the first one, and I'll ask Martin to take the second one. But maybe why don't you start with that one, Martin.

Yes. Absolute. Thank you, Daniel. The short answer is, yes. We are now starting to see the improvement in Europe, where it is clearly a shift versus just sort of noise in the system. So with the final ruling in December and leading up to that ruling, which was highly anticipated, we have started to see improved volumes and as we go forward here into Q1 and into Q2, we've also seen some firming up of the prices.

So the short answer is, yes, it is definitely improving. We'll see how far it goes and how much share shift you see and what happens to the price structure, et cetera. I think we're still relatively early innings there. but it is clear that it is moving in a favorable direction. And I will take this opportunity maybe to call out a great win we had that we haven't spoken much about in this area, and that is that was a definition of sort of the country of origin of how to view the country of origin where it's really been defined as where the chemical reaction happens of choline which means that you can't just ship the coal into a different country, dry it there and ship it into Europe and say that, that intermediary country is the origin.

And that's really a huge win for us in trying to sort of combat or the circumvention that we see happening out there and being able to really make it much harder for various suppliers to circumvent these dumping duties. So we're pretty excited about that, and we're starting to see improvement. So yes, it's starting to move in a favorable direction.

And Daniel, going back to the international growth we did in the prepared remarks make a comment about half of the growth that we've seen recently has come from growth in international markets. And so we're very excited about that. And if you kind of step further back and we reflect on our strategic priorities as a company and priorities that we sort of build our strategic plans around driving growth through geographic expansion is an important one of those priorities. So we're very focused on doing that still as a company. We're primarily a U.S. company, still approximately 75% of our sales come from the U.S.

So we see a huge opportunity for us to grow internationally. And we think that our products and solutions fit well with international markets and international needs. So we're very focused on it, and we're working hard on it. And while you mentioned Specialty Products as an area that we're focused on geographic expansion, that's very true. I would say the majority of that differential growth that we've experienced recently internationally is really coming from our Human Nutrition & Health business, where -- we really are focused on adding people geographically in Asia and South America and Europe, really, I would say, doubling down on our team in Europe, and it's delivering results, and we are growing faster in international locations than we are domestically.

And the really good thing about Balchem is our home market still is growing. We have significant growth opportunity in our home market, whether through just market growth or further market penetration. So we can drive healthy growth as a company domestically, but our international expansion efforts are delivering even faster growth and Human Nutrition & Health is the biggest part of that.

But our Animal Nutrition & Health business, if you put European monogastric business aside, our ruminant business is growing very nicely, particularly in Europe, but also, I would say, in Asia and South America. And yes, our Specialty Products business, the plant nutrition business and even the performance gases business is growing internationally. So it's an important strategic focus area and we're really having some success really across all 3 reporting segments. So we're excited about that opportunity for us going forward.

That concludes our question-and-answer session. I will now turn the call back over to Ted Harris for closing remarks.

Thank you. And once again, thank you all very much for joining our call today. We really appreciate your support throughout the year as well as your time today, and we look forward to reporting out our Q1 2026 results in April. In the meantime, we will be participating in a couple of conferences, the JPMorgan Consumer Ingredients Conference in London on March 10 and the BNP Paribas Exane Consumer Ingredients and Chemicals Conference in London on March 11. So we hope to see some of you there. Thanks again for joining.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Balchem's Third Quarter 2025 Earnings Call.

I would now like to turn the call over to Martin Benson, CFO. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending September 30, 2025. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President and CEO.

Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports. The company assumes no obligation to update these forward-looking statements.

Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details.

I will now turn the call over to Ted Harris, our Chairman, President and CEO.

Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with the financial results for the first quarter of 2025 and the strong performance of our company, fueled by the ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems and the favorable better-for-you trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities.

We delivered record quarterly consolidated sales, adjusted EBITDA, adjusted net earnings and adjusted EPS, with year-over-year sales and earnings growth in all three of our reporting segments. The third quarter of 2025 was the 25th consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem.

We are very proud of this accomplishment, particularly in light of the market environment within which we have been operating over the last 25 quarters. I would like to take this opportunity to thank the entire Balchem team for their exceptional performance and contributions toward this significant achievement. Thank you all very much.

Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving global trade situation as well as some of the new science that has recently been published supporting our nutrients and the further expansion of our marketing efforts to help drive awareness and market penetration. We continue to see healthy demand across the vast majority of our end markets.

Our Human Nutrition & Health segment continues to perform extremely well, driven by strong demand for both our unique portfolio of minerals, nutrients and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient dense, high protein, high fiber and lower sugar or better-for-you foods, where our nutrient portfolio and our formulations expertise bring considerable value to our customers.

In the Animal Nutrition & Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumin-protected precision release encapsulates nutrient portfolio and mostly -- or modestly, sorry, improving market conditions in the European monogastric market and we remain encouraged by the overall performance of our Animal Nutrition & Health product portfolio.

And within our Specialty Products segment, both our Performance Gases business and our Plant Nutrition business are performing well, driven primarily by higher demand as a result of healthier market conditions within Performance Gases and successful geographic expansion growth within Plant Nutrition. Year-to-date, on a consolidated basis, we have delivered strong growth, both on the top and bottom lines while continuing to generate strong free cash flow, and our outlook for the remainder of the year remains positive.

As discussed on the last few earnings calls, we believe we are relatively well positioned to effectively manage through the current global trade environment. To date, we have managed to fully offset the impact of tariffs associated with the U.S. administration's evolving trade policy, either through alternate supply chain options or subsequent pricing actions. And based on what we know today, we expect to similarly be able to offset any impact of future tariffs as the trade situation further evolves.

Additionally, I would like to share some progress we have made in our scientific and clinical research pipeline, which continues to bolster our Human Nutrition & Health segment. We continue to actively invest in the science behind our brands such as VitaCholine, K2VITAL, OptiMSM and Albion Minerals. These studies are integral to our strategy for entering new markets, expanding our ingredient categories and building consumer awareness.

I would like to highlight one of the studies published recently that is of particular importance. Late in 2017, we informed you that Balchem funded a pilot study, Dr. Steven Zeisel, the former Director for the University of North Carolina's Nutrition Research Institute, received a $2.6 million grant from a unit of the National Institutes of Health or NIH, to develop a blood-based test or a biomarker to help measure choline status in humans. The NIH-funded choline biomarker study was known to be a lengthy study, only further delayed by the COVID-19 pandemic that has now been completed, and the results have been published as a preprint.

This was an important study from our perspective since it promised to help more easily identify choline deficiency in humans by identifying a choline biomarker in order to ultimately help address deficiencies through supplementation while also facilitating research on the benefits of choline supplementation in humans.

The study was a double-blind, randomized crossover controlled feeding study, in which all 101 subjects received 100%, 50% and 25% of the choline recommended daily intake in 2-week segments separated by 2-week washouts. The results of the study showed that plasma choline and betaine when measured together are highly predictive of actual dietary choline intake.

These findings offer a new opportunity to assess choline dietary adequacy and will likely be included in future clinical and population studies and ultimately be used as a common measurement in health screenings of choline intake versus daily recommended intake levels.

On the marketing front, within our Animal Nutrition & Health segment, we continue to expand our reach and impact through marketing. We have strengthened our marketing capabilities in Balchem's real science exchange platform now celebrating 5 years since its launch, has grown into a leading industry information and technology resource with webinars, podcasts and symposiums that is attracting a strong following across the industry with high-quality content across leading streaming platforms such as YouTube, Spotify and Apple podcast.

This channel to the industry gives Balchem a unique opportunity to reach and interact with an expanded target audience. We will continue to invest in our marketing capabilities, and we recently partnered with Progressive Dairy magazine to introduce the real producer exchange for practical insights for dairy farmers. And later this month, we are excited to expand into the companion animal sector with new webinars and podcasts. Reinforcing our commitment to advancing animal science and industry collaboration. So some exciting progress being made on our strategic growth initiatives, while at the same time, delivering strong financial results.

Now regarding the third quarter of 2025's financial performance. This morning, we reported record quarterly consolidated revenue of $268 million, which was 11.5% higher than the prior year quarter. We delivered record quarterly GAAP earnings from operations of $55 million, an increase of 13.7% versus the prior year.

Consolidated net income closed the quarter at $40 million, an increase of 19.1%. This quarterly net income translated to diluted net earnings per share of $1.24 on a GAAP basis, up $0.21 or 20.4% compared to the prior year.

On an adjusted basis, we delivered record quarterly adjusted EBITDA of $71 million, an increase of 11% compared to the prior year. Our record quarterly adjusted net earnings were $44 million, an increase of 19.1% from the prior year which translated to $1.35 per diluted share, up $0.22 or 19.5% compared to the prior year.

Overall, another excellent quarter for Balchem as we continue to deliver strong financial results while making good progress on our strategic growth initiatives.

And with that, I'm now going to turn the call back over to Martin to go through the third quarter consolidated financial results for the company in more detail and the results for each of our business segments.

Thank you, Ted. As Ted highlighted, the third quarter was a great quarter for Balchem with record sales, earnings from operations, adjusted EBITDA, adjusted net earnings and adjusted earnings per share. Our third quarter net sales of $268 million or 11.5% higher than prior year, driven by strong performance in all three segments: Human Nutrition & Health, Animal Nutrition & Health and Specialty Products.

Our third quarter gross margin dollars were $95 million, up 11.8% compared to the prior year. our gross margin percent was 35.7% of sales, up 10 basis points compared to the prior year. Consolidated operating expenses for the third quarter were $41 million as compared to $37 million in the prior year. The increase was primarily due to an increase in professional services and higher compensation-related costs. GAAP earnings from operations for the third quarter were a record $55 million, an increase of 13.7% compared to the prior year.

On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $60 million were up 12.1% compared to the prior year. Adjusted EBITDA was a record $71 million, an increase of 11% compared to the prior year with an adjusted EBITDA margin rate of 26.7%. Net interest expense for the third quarter was $3 million, a decrease of $1 million compared to the prior year, driven primarily by lower outstanding borrowings.

Our net debt decreased to $89 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for the third quarter of 2025 and 2024, were 22.6% and 22.9%, respectively. The decrease in the effective tax rate from the prior year was primarily due to certain lower state taxes.

Consolidated net income closed the quarter at $40 million, up 19.1% from the prior year. This quarterly net income translated into diluted net earnings per share of $1.24, an increase of $0.21 compared to the prior year.

On an adjusted basis, our third quarter adjusted net earnings were a record $44 million, an increase of 19.1% from the prior year, which translated to $1.35 per diluted share. Cash flows from operations were $66 million, with free cash flow of $51 million and we closed out the quarter with $65 million of cash on the balance sheet.

As we look at the third quarter from a segment perspective, our Human Nutrition & Health segment generated record sales of $174 million, an increase of 14.3% from the prior year, driven by higher sales within both the Nutrient's business and the food ingredients and solutions businesses. Our Human Nutrition & Health segment also delivered record quarterly earnings from operations of $41 million an increase of 14.8% compared to the prior year.

This was primarily driven by the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. Third quarter adjusted earnings from operations for this segment were a record $44 million, an increase of 13.2%. We are extremely pleased with the overall performance of our Human Nutrition & Health segment.

And as Ted mentioned earlier, we continue to experience strong demand for our unique portfolio of ingredients and solutions. We believe our Human Nutrition & Health businesses are well positioned to build on the momentum we are seeing across our end markets. And as consumers increasingly favor better-for-you ingredients and solutions, we see significant opportunities ahead to leverage our formulation expertise, nutrient portfolio and strong market positions to continue to deliver healthy growth in Human Nutrition & Health.

Our Animal Nutrition & Health segment generated quarterly sales of $56 million, an increase of 6.6% compared to the prior year. The increase was driven by higher sales in both the ruminant and monogastric businesses. Animal Nutrition & Health delivered earnings from operations of $4 million, an increase of 5.2% from the prior year. The increase was primarily due to the aforementioned higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses.

Third quarter adjusted earnings from operations for this segment were $4 million, an increase of 1.2% compared to the prior year. The end markets for Animal Nutrition & Health remain relatively stable at the moment, and we were pleased to see another quarter of top and bottom line growth. We continue to see market penetration of our room and protected encapsulated nutrients for the dairy market, including our reassure encapsulated choline and our more recently launched AminoShure-XL encapsulate lysine.

On the monogastric side, we see a relatively stable U.S. end market at the moment and a modestly improved European market environment following the provisional antidumping duties on Chinese choline that were announced last quarter. As we look forward, we expect Animal Nutrition & Health to continue to deliver growth over the long term.

Our Specialty Products segment delivered quarterly sales of $36 million, an increase of 7.5% compared to the prior year, driven by higher sales in both the performance gases and Plant Nutrition businesses. Specialty Products delivered record quarterly earnings from operations of $12 million, an increase of 9.7% versus the prior year, primarily driven by the aforementioned higher sales.

Third quarter adjusted earnings from operations for this segment were a record $13 million, an increase of 8.8%. We continue to be really pleased with the performance of Specialty Products, delivering another strong quarter of growth, both on the top and bottom line. Within Performance Gases, our international reach is creating value for our customers and helping to drive growth rates above historical levels.

And similarly, within our Plant Nutrition business, we're having good success with our geographic expansion efforts, particularly in Latin America and Asia Pacific. Specialty Products is performing well and going forward, we expect to be able to continue to drive solid growth for the Specialty Products segment.

So, overall, the third quarter was another excellent quarter for Balchem, and we believe we are well positioned for continued growth as we head into the remainder of the year. I'm now going to turn the call back over to Ted for some closing remarks.

Thanks, Martin. Once again, we are extremely pleased with the third quarter financial results reported earlier this morning. As a company, we continue to show an ability to deliver results in a variety of market conditions given our strong market positions and our value-added portfolio of products. The company is performing very well. We have once again effectively managed through the latest macroeconomic and tariff-related trade environment with minimal impact on the company.

And at the same time, our growth has strengthened as a result of the accelerating better-for-you trends within the Health & Nutrition markets, given our unique portfolio of nutrients coupled with our food ingredients and solutions capabilities. We are extremely proud of delivering 25 consecutive quarters of quarterly year-over-year growth in adjusted EBITDA with the third quarter results reported earlier this morning. And we remain confident in the long-term growth outlook for Balchem as a company.

I will now hand the call back over to Martin, who will open up the call for questions.

Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open up the conference call for questions.

[Operator Instructions] And your first question comes from the line of Bob Labick with CJS Securities.

Congratulations on another record quarter. I wanted to start with the Food Ingredients & Solutions. For the last several quarters, it's kind of really picked up after previously lagging the minerals and nutrients growth rate. You just mentioned the better-for-you trend, but could you drill down a little more and talk about the changes in Food Solutions and the drivers and the outlook for each of the subsegments in 2026?

Absolutely, Bob. And first of all, just stepping back a little bit. We really -- we're extremely pleased with the performance of the entire segment, Human Nutrition & Health. Just to kind of peel that onion back a little bit.

Sales for H&H were up 14% and then if you talk about the Nutrient Portfolio was up about 30%, but as you highlight, the food ingredient business was up nicely as well. So it was really good to see the food business up almost 7%. And we don't see that growth rate differential necessarily changing over time. We always see the nutrient portfolio is growing faster than the food portfolio.

But as you point out, the food growth was kind of low single digits there for a while and now significantly increased. And the primary driver of that is, what we touched on in the prepared remarks. And that really is the benefits we're seeing from the better-for-you trends in the market, whether it's in meat sticks, which is a high protein snack to replace other snacks or whether it's a high fiber nutritional beverage that is trying to address even some of the negative implications of GLP-1 drugs, for example, we see quite a few of our customers introducing new products targeted to that audience, and we all know that's pretty sizable consumer base or whether it's high protein bars, for example, with our Z-Crisps and our ability to add high protein crisp to certain kind of bars in the marketplace.

So all of those trends are really helping support and strengthen our overall growth in food ingredients. And it's really a combination of our nutrient expertise from the nutrient business, our unique products encapsulated products, our kind of emulsified fat powder systems, our flavor systems.

And our ability to combine all of those and solutions for our customers as they're introducing new products to kind of serve those trends. And we think those trends are likely to continue for the foreseeable future. I think the better-for-you trends have been going on for decades. And of late, we've seen some accelerates to those trends, whether it is the GLP-1 drugs that I touched on that have side effects and have sort of unique nutrient needs, if you will, for the consumers of those products. That's an opportunity for us.

Certainly, the RFK junior focus on healthier-for-you products, less processed food products is creating an accelerant, if you will, to this long-term trends. So we're really pleased that our portfolio of products caters to those trends is allowing for us to get new wins in the marketplace and grow our food business at a higher rate than we have historically. So we're quite excited about that.

That's great. And then just on the nutrient and minerals in nutrient side, the growth was phenomenal as well, your major markets of choline, K2, MSM, magnesium, et cetera. Can you talk about -- it's been a penetration story for a while. Where are you in terms of product penetration? And what is the opportunity? And how much longer of a runway is there for penetration and awareness of your products?

The short answer is we're a long way from that endpoint. Again, as I've talked about in the past, to some extent, our challenge is the majority of our portfolio, whether it's choline or vitamin K2 or even MSM are not very well known. And I would even add the idea of chelated minerals, higher bioavailable minerals are not so well known and kind of recent studies show that they're, yes, a little bit better known today than they were 5 years ago, but still not well known.

So we think that we have a significant way to go. We think that the market opportunities are still 3, 4x multiples the size of the market today. And in the minerals, you mentioned magnesium in the mineral space, the overall mineral market is huge and the position that chelated minerals have within that market remains tiny.

So the opportunity there is to both eat away at that bigger minerals market with these higher bioavailable more effective products, but also kind of drive market penetration to users that aren't supplementing with those minerals as well. So it's really sort of two vectors of growth. But we certainly see very strong double-digit growth in each of those portfolios, and we expect that to continue for some time.

Your next question comes from the line of Ram Selvaraju with H.C. Wainright.

Congratulations on a very strong quarter. I was just wondering if you could comment on international antidumping practices being enacted at the state, regional governmental level that could conceivably boost sales, particularly in the H&H segment ex U.S.?

And especially if you could give us maybe just an overview of the status of the European anti-dumping campaigns as these pertain to choline specifically, where that is currently? And what impact you expect it to have over the course of the coming months and indeed into next year?

Yes. Thanks, Ram, for your comments and your question. There are really sort of two aspects to antidumping and maybe I'll start with the current initiative where the European Union has preliminarily put antidumping duties on China origin choline chloride. And maybe to your specific question, that's both for human choline chloride as well as animal choline chloride and it's just a clear recognition by the European Union of unfair trade practices by China and trying to create a level playing field. Those duties are still preliminary.

There's quite a process that is underway. We initially announced that the duties were, I think, it was 95% to 120%. And after further calculations that we reduced those by about 5 percentage points, so not significantly, which we were pleased to hear and later this year, certainly by the end of the year, they should have a final vote for the enactment of those duties and then they will become approved in their final form and would be in place for 5 years, which also would be a very good thing.

And there is an opportunity for us to work with the European Union to try to address some of the typical reaction from China of moving the product through other countries, and we're working to try to do that, and that would only strengthen the impact of the duties.

But certainly, broadly speaking, across the nutrient sector, whether it's in animal or in human these types of pricing practices are quite prevalent from China as well as others. And I do think that there is an improved environment within which to bring these kinds of cases to the government entities and to get an appropriate response. So we are kind of actively reviewing where that makes sense, where we believe these practices are happening and kind of using that tool.

Unfortunately, it is expensive and it is lengthy. And so you have to go through that. But clearly, in the U.S., and we think in the U.S., there's an improved environment for us, companies like ours to bring those kind of cases to the governments and we'll do that as appropriate going forward.

Okay. Great. And then also just wanted to ask about the Orange County microencapsulation manufacturing facility. Can you just summarize again for us when you expect construction to be completed on that facility now that you have the state approvals in place? And also, if you can give us a sense of what the magnitude of impact is likely to be on revenues and earnings quality once that facility comes fully online?

Yes, sure. We're really excited about that. We announced that in our second quarter earnings release, and we felt like we should update our shareholders on the progress that has been made. And essentially, what we tried to say and the highlight on the press release is that we're moving forward, and we have gotten the most recent approvals to do just that move forward with the plant and we -- essentially, what we're doing is building a new plant that has twice the capacity of the old plant and will effectively shut down the old plant, which was one of the first sites that we ever had as a company.

In fact, the first site, we bought it back in the '60s. And at that point in time, it was an old creamery that we use to make food ingredients and has kind of sort of far outlived its effectiveness. And so it was time for us to upgrade and monetize, and we've done that just down the road so that we can continue to use the employee base from the old site. And so forth.

And so we're really kind of putting in place in this new plant, some new technology around our micro encapsulation and more efficient technology. The encapsulates business, for example, just in Q3, grew about 26%. So it's a fast-growing part of our portfolio and has been growing significantly really over the last few years, and we need the capacity.

Our current capacity is getting us by, but we're soon going to start to run out of capacity in the coming couple of years. And so the plant will be from a construction perspective completed early in 2027, and we expect be producing new product by the middle of 2027.

So the way we're looking at it is it's going to allow this important product line to continue to grow at double-digit rates. And our encapsulate business is certainly on the higher end of our gross margin profile of the businesses within our company. So we're excited to invest in that product line, and we're excited to be able to allow it to continue to grow kind of beyond our current capacity levels.

Okay. And then just two quick questions for Martin, if I may. Firstly, I wanted to ask if you expect the pace of debt repayment to be the same in the next couple of quarters as what you just -- most recently reported particularly in light of the significantly lower debt burden and the very low net leverage ratio that Balchem currently has.

Just wanted to see if you're planning to take your foot off the gas on debt repayment schedule or if you're intending to keep going at the most recently reported pace on a quarterly basis? And also, if you could just give us a sense of whether you expect the most recently reported quarterly effective tax rate to be an appropriate assumption to carry forward for the remainder of 2025.

I'll start with the second one as it's a quick answer for the tax rate. I think sort of -- our best estimate for the year is around 22.5% plus or minus a little bit. So that's kind of where we're at year-to-date and where we think we'll finish the year at around 22.5%, plus or minus a little bit. On the debt repayment pace, I mean, obviously, we've generated strong free cash flows. And as you know from the past, we deploy that capital and paying down our debt is part of that. I think it will depend a little bit the pace on timing of M&A.

As you know, we talk a lot about pursuing various opportunities all the time. Unfortunately, we haven't done anything over the finish line more recently, that is not to say we're not actively participating, actively discussing, actively pursuing strategic M&A. So I think that will impact it a little bit on how we see sort of those opportunities develop here as we go forward.

Also, you know from the past that we do deploy some of our cash into keeping our -- sort of share count relatively flat. So we do some share repurchases for antidilutive purposes just to keep sort of our shareholders' ownership relatively stable. So that will impact it as well in terms of at what pace we repurchased share just to keep our share count flat.

But meanwhile, we will continue to reduce debt as there is excess cash. And then I think the big trigger that will change that is sort of when the next M&A transaction occurs because I think that is more a matter of timing than anything else.

Your next question comes from the line of Daniel Harriman with Sidoti.

Congrats on another great quarter. Just a couple of quick ones from me today. Within Specialty Products, with that 7.5% year-over-year growth, can you give us a breakdown of how much came from performance gases versus plant nutrition? And then with the Plant Nutrition growth, could you just update us and provide a little bit more information about the success you're seeing with your geographic expansion within that business?

Yes, sure. Just to give you some kind of growth numbers within Specialty Products. So as you said, overall, we grew about 7.5%. The Performance Gases business grew about 7% and the plant nutrition business grew about 13%. So that combined resulted in the 7.5% growth. So we're seeing nice growth out of both Performance Gases, traditionally were viewed as kind of a lower growth business. But after a number of years of different impacts on growth, whether it was air emission systems upgrades or nursing shortages, COVID impacting elective surgical procedures and so forth.

That market seems to have stabilized and is doing well. But we're also seeing nice growth in that business geographically, particularly in Europe. So we're seeing some differential growth there as well. So Plant Nutrition, obviously, is a smaller business for us, but historically has been more focused on the United States.

And I would say, particularly California, we tend to sell into higher-end crops like grapes and so forth. And so an important strategic initiative for us has been to expand internationally for multiple reasons for obvious growth reasons, but also to balance out some of the seasonality that we experienced in that business.

As you know, the first half of the year is much stronger than the second half of the year because of the growing season in the U.S. So we've had a very deliberate effort to try to offset some of that down part of the season with growth in either the Southern Hemisphere or other geographies. And we're having some success in that and that was worth noting, particularly in Latin America, we're seeing stronger growth as well as in Asia Pacific.

Some countries that are sort of kind of stand out Brazil, India, for example, are areas where we're having some good success. And it's been quite a deliberate effort on our part, and we're pleased with that growth, while the U.S. business has been relatively flat, I would say, the international business has been driving the predominance of the growth in plant nutrition.

There are no further questions at this time. I will now turn the call back over to Ted Harris for closing remarks.

Once again, thank you all very much for joining the call today. We really appreciate your support and your time and we look forward to reporting our Q4 2025 results in February of next year. That sounds like a long way away, but that's when it will be.

In the meantime, we we'll be participating in Baird's 2025 Global Industrial Conference in Chicago on November 12, and we certainly hope to see some of you there. So thanks again for joining.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.