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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-11-04 · 100 added, 162 removed, 93 unchanged (74% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations (All amounts in thousands, except share and per share data)

This report contains forward-looking statements, within the meaning of Section 21E of the Exchange Act, which reflect our expectation or belief concerning future events that involve risks and uncertainties.

Management's Discussion and Analysis of Financial Condition and Results of Operations

(All amounts in thousands, except share and per share data)

Forward-Looking Statements

This report contains forward-looking statements, within the meaning of the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our expectation or belief concerning future events that involve risks and uncertainties.

These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "forecast," "outlook," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," or the negative thereof or variations thereon or similar expressions generally intended to identify forward-looking statements.

Actions and performance could differ materially from what is contemplated by the forward-looking statements contained in this report.

Factors that might cause differences from the forward-looking statements include those referred to or identified in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A of the Company's Form 10-Q for the quarterly period ended June 30, 2022 and other factors that may be identified elsewhere in this report.

Factors that might cause differences from the forward-looking statements include those referred to or identified in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022 and other factors that may be identified elsewhere in this report.

Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that may affect our forward-looking statements include, among other things:

(1) adverse impacts to our business operations due to the global COVID-19 pandemic and our ability to predict the full extent of such impacts;

(2) our ability to manage risks associated with our sales to customers and manufacturing operations outside the United States;

(3) supply chain disruptions due to political unrest, terrorist acts, and national and international conflicts;

(4) reliability and sufficiency of our manufacturing facilities;

(5) our ability to recruit and retain a highly qualified and diverse workforce;

(6) our ability to effectively manage labor relations;

(7) the effects of global climate change or other unexpected events, including global health crises, that may disrupt our operations;

(8) our ability to manage risks related to our information technology and operational technology systems and cybersecurity;

(9) our reliance on third-party vendors for many of the critical elements of our global information and operational technology infrastructure and their failure to provide effective support for such infrastructure;

(10) disruption and breaches of our information systems;

(11) increased competition and our ability to anticipate evolving trends in the market;

(12) global economic conditions, including inflation, recession, changes in tariffs and trade relations;

(13) raw material shortages or price increases;

(14) currency translation and currency transaction risks;

(15) interest rate risks;

(16) our ability to successfully consummate and manage acquisitions, joint ventures and divestitures;

(17) our ability to effectively manage and implement restructuring initiatives or other organizational changes;

(18) changes in our relationships with our vendors, changes in tax or trade policy, interruptions in our operations or supply chain;

(19) adverse publicity or consumer concern regarding the safety or quality of food products containing our products;

(20) the outcome of any litigation, governmental investigations or proceedings;

(21) product liability claims and recalls;

(22) our ability to protect our brand reputation and trademarks;

(23) claims of infringement of intellectual property rights by third parties;

(24) risks related to corporate social responsibility and reputational matters;

(25) improper conduct by any of our employees, agents or business partners;

(26) changes to, or changes in interpretations of, current laws and regulations, and loss of governmental permits and approvals;

and (27) ability of our customers to use the ethylene oxide process to sterilize medical devices.

We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, pharmaceutical, animal health, medical device sterilization, plant nutrition and industrial markets.

Our three reportable segments are strategic businesses that offer products and services to different markets:

Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products, as more fully described in Note 11 of the condensed consolidated financial statements.

Human Nutrition & Health, Animal Nutrition & Health, and Specialty Products, as more fully described in Note 11, Segment Information , of the condensed consolidated financial statements.

Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated".

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Sustainability is at the heart of our company's vision to make the world a healthier place, and we proudly support the Ten Principles of the United Nations Global Compact on human rights, labor, environment and anti-corruption.

In January 2022, Balchem was named one of America’s Most Responsible Companies by Newsweek magazine for the second consecutive year.

This list, compiled by Newsweek in partnership with Statista Inc., recognizes the most responsible companies in the U.S.

In January 2023, Balchem was named one of America’s Most Responsible Companies by Newsweek magazine for the third consecutive year.

This prestigious list, compiled by Newsweek in partnership with Statista Inc., recognizes the most responsible companies in the U.S.

across a variety of industries, and is based on publicly available environmental, social and governance (ESG) data.

Our Sustainability Framework focuses on the most critical ESG topics relevant to our business and stakeholders.

We are very proud of our ESG accomplishments to date and are pleased with the recognition by

We are very proud of our ESG accomplishments to date and are pleased with the

recognition by Newsweek.

Balchem will continue to foster these fundamental principles broadly along our entire value chain, develop new ideas and technologies that help us work smarter, and help build a world that is a better place to live.

As of September 30, 2022, we employed approximately 1,382 f ull time employees worldwide.

Although we are facing challenging labor markets, we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions.

As of March 31, 2023, we employed approximately 1,331 fu ll time employees worldwide.

Although we are facing challenging labor markets, we believe that we have been successful in attracting skilled, experienced, and diverse personnel in a competitive environment and that our human capital resources are adequate to perform all business functions.

In addition, we continue to enhance technology in order to optimize productivity and performance.

Acquisition of Bergstrom

On August 30, 2022, we completed the acquisition of Bergstom (as defined in Note 2 "Significant Acquisitions"), a leading science-based manufacturer of MSM, based in Vancouver, Washington.

Details related to the Bergstrom acquisition are disclosed in Note 2, "Significant Acquisitions".

The acquisition provides a synergistic scientific advantage in the Company's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with the Company's specialty, science-backed mineral products, which should ultimately lead to growth for the Company's portfolios within the Human Nutrition & Health and Animal nutrition & Health segments.

Acquisition of Kappa

On June 21, 2022, we completed the acquisition of Kappa (as defined in Note 2 "Significant Acquisitions"), a leading science-based manufacturer of specialty Vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway.

Details related to the Kappa acquisition are disclosed in Note 2, "Significant Acquisitions".

The acquisition strengthens our scientific and technical expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated growth for the Company's portfolios within the Human Nutrition & Health segment.

On August 30, 2022, we completed the acquisition of Bergstrom, a leading science-based manufacturer of methylsulfonylmethane ("MSM"), based in Vancouver, Washington, and on June 21, 2022, we completed the acquisition of Kappa, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway.

Details related to both acquisitions are disclosed in Note 2, Significant Acquisitions.

Segment Results

We sell products for all three segments through our own sales force, independent distributors, and sales agents.

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three and nine months ended September 30, 2022 and 2021:

Business Segment Net Sales Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three months ended March 31, 2023 and 2022:

Business Segment Net Sales Three Months Ended March 31,

Human Nutrition & Health $ 132,653 $ 122,445

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Other and Unallocated (1)

6,367 2,862 15,931 7,237

Total $ 232,540 $ 228,867

Business Segment Earnings From Operations Three Months Ended September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Business Segment Earnings From Operations Three Months Ended March 31,

Human Nutrition & Health $ 18,435 $ 20,303

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Unalloca ted corporate expenses consist of:

(i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $1,640 and $2,816 for the three and nine months ended September 30, 2022, respectively, and $305 and $1,005 for the three and nine months ended September 30, 2021, respectively, and (ii) Unallocated amortization expens e of $734 and $2,213 for the three and nine months ended September 30, 2022, respectively, and $604 and $1,812 for the three and nine months ended September 30, 2021, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

RESULTS OF OPERATIONS

(All amounts in thousands, except share and per share data)

Three months ended September 30, 2022 compared to three months ended September 30, 2021.

Three Months Ended September 30, Increase

(i) Transaction and integration costs, ERP implementation costs, and unallocated legal fee s totaling $565 and $304 for the three months ended March 31, 2023 and 2022, respectively, and (ii) Unallocated amortization expense of $312 a nd $738 for the three months ended March 31, 2023 and 2022, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Results of Operations - Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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Earnings from operations 34,408 38,336 (3,928) (10.2) %

Other (income) expense, net 2,540 428 2,112 493.5 %

Other expenses 5,289 706 4,583 649.2 %

Income tax expense 6,409 8,700 (2,291) (26.3) %

Net earnings $ 22,710 $ 28,930 $ (6,220) (21.5) %

Three Months Ended September 30, Increase

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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Total $ 232,540 $ 228,867 $ 3,673 1.6 %

• The increase in net sales within the Human Nutrition & Health segment for the third quarter of 2022 as compared to the third quarter of 2021 was driven by sales growth within food and beverage markets, the contribution from recent acquisitions, as well as sales growth within the minerals and nutrients business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.

Total sales for this segment grew 28.3%, with average selling prices contributing 22.0%, volume and mix contributing 6.7%, and the change in foreign currency exchange rates contributing -0.4%.

• The increase in net sales within the Animal Nutrition & Health segment for the third quarter of 2022 compared to the third quarter of 2021 was the result of higher sales in both monogastric and ruminant species markets, the contribution from the recent acquisition of Bergstrom which included a small Animal Nutrition business, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.

Total sales for this segment grew 16.7%, with average selling prices contributing 24.1%, volume and mix contributing -3.0%, and the change in foreign currency exchange rates contributing -4.3%.

• The increase in Specialty Products segment sales for the third quarter of 2022 compared to 2021 was due to higher sales of products in the performance gases business, partially offset by lower plant nutrition sales, and an unfavorable impact related to changes in foreign currency exchange rates.

Total sales for this segment grew 7.3% with average selling prices

contributing 18.0%, the change in foreign currency exchange rates contributing -3.8%, and volume and mix contributing -6.9%.

• Sales relating to Other increased from the prior year due to higher demand.

• The increase in net sales within the Human Nutrition & Health segment for the first quarter of 2023 as compared to the first quarter of 2022 was primarily driven by the contribution from recent acquisitions, partially offset by lower sales within the minerals and nutrients business and food and beverage markets.

Total sales for this segment grew 8.3%, with average selling prices contributing 11.8%, the change in foreign currency exchange rates contributing (0.1)%, and volume and mix contributing (3.4)%.

• The decrease in net sales within the Animal Nutrition & Health segment for the first quarter of 2023 compared to the first quarter of 2022 was driven by lower sales in both monogastric and ruminant species markets in Europe and an unfavorable impact related to changes in foreign currency exchange rates, partially offset by higher sales in both monogastric and ruminant species markets in North America.

Total sales for this segment decreased by 6.4%, with volume and mix contributing (9.8)%, the change in foreign currency exchange rates contributing (1.3)%, and average selling prices contributing 4.7%.

• The decrease in net sales within the Specialty Products segment for the first quarter of 2023 compared to the first quarter of 2022 was primarily due to lower plant nutrition sales and an unfavorable impact related to changes in foreign currency exchange rates, partially offset by higher sales of products in the performance gases business.

Total sales for this segment decreased by 3.3%, with volume and mix contributing (11.6)%, the change in foreign currency exchange rates contributing (1.4)%, and average selling prices contributing 9.7%.

• Sales relating to Other decreased from the prior year due to lower demand.

• Sales may fluctuate in future periods based on macroeconomic conditions, competitive dynamics, changes in customer preferences, and our ability to successfully introduce new products to the market.

Three Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Gross margin $ 68,430 $ 60,934 $ 7,496 12.3 %

% of net sales 28.0 % 30.8 %

Gross margin dollars increased in the third quarter of 2022 compared to the third quarter of 2021 due to the aforementioned higher sales of $46,398, partially offset by an increase in cost of goods sold of $38,902.

The 28.4% increase in cost of goods sold was driven mainly by the higher sales as well as the significant inflation of manufacturing input costs, primarily related to raw materials, and the timing of insurance proceeds received in the prior year.

Operating Expenses

Three Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Operating expenses $ 34,805 $ 28,421 $ 6,384 22.5 %

% of net sales 14.2 % 14.4 %

The increase in operating expenses was primarily due to incremental operating expenses related to acquisitions of $4,193, an increase in outside services of $1,588, and additional amortization of $1,426, partially offset by lower compensation-related costs of 2,148.

Earnings from Operations

Three Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Human Nutrition & Health $ 20,584 $ 19,801 $ 783 4.0 %

Animal Nutrition & Health 8,036 7,442 594 8.0 %

Specialty Products 7,105 6,455 650 10.1 %

Other and unallocated (2,100) (1,185) (915) (77.2) %

Earnings from operations $ 33,625 $ 32,513 $ 1,112 3.4 %

% of net sales (operating margin) 13.8 % 16.4 %

• Earnings from operations for the Human Nutrition & Health segment increased primarily due to the aforementioned higher sales and higher average selling prices, partially offset by higher manufacturing input costs, higher amortization and operating expenses related to the recent acquisitions, and the timing of an insurance reimbursement received in the prior year.

Gross margin as a percentage of sales decreased by 207 basis points, due to a significant increase in certain manufacturing input costs, largely related to raw materials, and the timing of an insurance reimbursement received in the prior year.

Additionally, total operating expenses for this segment increased by $5,857, primarily due to incremental operating expenses related to acquisitions of $3,677 and additional amortization of $1,449.

• Animal Nutrition & Health segment earnings from operations increased primarily due to the aforementioned higher sales and higher average selling prices, partially offset by increases in manufacturing input costs and distribution costs.

as a percentage of sales decreased by 408 basis points, due to a significant increase in certain manufacturing input costs, largely related to raw materials.

Additionally, operating expenses for this segment decreased by $973, which was largely related to a decrease in compensation-related costs.

• The increase in earnings from operations for the Specialty Products segment was primarily due to the aforementioned higher sales, partially offset by a 109 basis point decrease in gross margin as a percentage of sales, due to a significant increase in certain manufacturing input costs, largely related to raw materials.

Total operating expenses for this segment remained flat.

• The increase in Other and unallocated was primarily driven by the aforementioned higher sales, partially offset by an increase in transaction costs, primarily related to the acquisitions.

Other Expenses (Income)

Three Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Interest expense $ 3,642 $ 556 $ 3,086 555.0 %

Other, net (1,102) (128) (974) 760.9 %

$ 2,540 $ 428 $ 2,112 493.5 %

Interest expense for the three months ended September 30, 2022 and 2021 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

The increase in interest expense is due to the additional borrowings in connection with the acquisitions and rising interest rates.

Income Tax Expense

Three Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Income tax expense $ 5,836 $ 7,072 $ (1,236) (17.5) %

Effective tax rate 18.8 % 22.0 %

The decrease in the effective tax rate was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021.

Nine Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Net sales $ 709,827 $ 585,890 $ 123,937 21.2 %

Gross margin 211,812 179,108 32,704 18.3 %

Operating expenses 99,931 85,427 14,504 17.0 %

Earnings from operations 111,881 93,681 18,200 19.4 %

Other expense, net 3,908 1,594 2,314 145.2 %

Income tax expense 24,012 20,932 3,080 14.7 %

Net earnings $ 83,961 $ 71,155 $ 12,806 18.0 %

Nine Months Ended September 30, Increase

(in thousands) 2022 2021 % Change

Human Nutrition & Health $ 396,728 $ 327,187 $ 69,541 21.3 %

Animal Nutrition & Health 197,546 161,821 35,725 22.1 %

Specialty Products 99,622 89,645 9,977 11.1 %

Other 15,931 7,237 8,694 120.1 %

Total $ 709,827 $ 585,890 $ 123,937 21.2 %

• The increase in net sales within the Human Nutrition & Health segment for the nine months ended September 30, 2022 as compared to 2021 was primarily attributed to sales growth within food and beverage markets, the contribution from recent acquisitions, as well as higher sales within the minerals and nutrients business, partially offset by an unfavorable impact related to change in foreign currency exchange rates.

Total sales for this segment grew 21.3%, with average selling prices contributing 18.2%, volume and mix contributing 3.4%, and the change in foreign currency exchange rates contributing -0.3%.

• The increase in net sales within the Animal Nutrition & Health segment for the nine months ended September 30, 2022 compared to 2021 was primarily the result of higher sales in monogastric and ruminant species markets, partially offset by an unfavorable impact related to changes in foreign currency exchange rates.

Total sales for this segment grew 22.1%, with average selling prices contributing 28.0%, volume and mix contributing -2.6%, and the change in foreign currency exchange rates contributing -3.3%.

• The increase in Specialty Products segment sales for the nine months ended September 30, 2022 compared to 2021 was primarily due to higher sales of products in the medical device sterilization market, partially offset by lower plant nutrition sales, and an unfavorable impact related to changes in foreign currency exchange rates.

Total sales for this segment grew 11.1%, with average selling prices contributing 17.1%, volume and mix contributing -3.2%, and the change in foreign currency exchange rates contributing -2.7%.

• Sales relating to Other increased from the prior year due to higher demand.

Nine Months Ended September 30, Increase

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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% of net sales 31.5 % 31.2 %

Gross margin dollars increased for the nine months ended September 30, 2022 compared to 2021 due to the aforementioned higher sales of $123,937, partially offset by an increase in cost of goods sold of $91,233.

The 22.4% increase in cost of goods sold was mainly driven by the higher sales, significant inflation of manufacturing input costs, primarily related to raw materials, and the timing of an insurance reimbursement, partially offset by the timing of costs associated with a flash flood event in the prior year.

Gross margin dollars increased in the first quarter of 2023 compared to the first quarter of 2022 due to the aforementioned higher sales of $3,673, partially offset by an increase in cost of goods sold of $2,009.

The 1.3% increase in cost of goods sold was mainly driven by certain higher manufacturing input costs.

Operating Expenses

Nine Months Ended September 30, Increase

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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% of net sales 16.7 % 14.5 %

The increase in operating expenses was primarily due to an increase in outside services of $4,445, incremental operating expenses related to the acquisitions of $3,717, higher compensation-related costs of $2,008, and transaction costs of $1,934.

The increase in operating expenses in the first quarter of 2023 compared to the first quarter of 2022 was primarily due to incremental operating expenses related to the acquisitions of $4,958 and higher amortization of $1,039 from the Kappa and Bergstrom acquisitions.

Earnings from Operations

Nine Months Ended September 30, Increase

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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% of net sales (operating margin) 14.8 % 16.8 %

• Earnings from operations for the Human Nutrition & Health segment increased primarily due to the aforementioned higher sales, partially offset by a 139 basis point decrease in gross margin as a percentage of sales, primarily due to a significant increase in certain manufacturing input costs, largely related to raw materials.

Additionally, operating expenses for this segment increased by $9,964, primarily due to incremental operating expenses related to the acquisitions of $3,674, outside services of $2,572, and higher compensation-related costs of $1,062.

• Animal Nutrition & Health segment earnings from operations increased primarily due to the aforementioned higher sales and a 207 basis point increase in gross margin as a percentage of sales primarily related to the timing of costs associated with the recovery of a flash flood event in the prior year, partially offset by a significant increase in certain manufacturing input costs, largely related to raw materials.

Additionally, operating expenses for this segment increased by $786, primarily related to higher outside services of $849.

• The increase in earnings from operations for the Specialty Products segment was primarily due to the aforementioned higher sales, partially offset by a 208 basis point decrease in gross margin as a percentage of sales, primarily due to a significant increase in certain manufacturing input costs, largely related to raw materials.

Additionally, operating expenses for this segment increased by $1,315, primarily related to higher compensation-related costs.

• Earnings from operations relating to Other increased from the prior year primarily due to the aforementioned higher sales, partially offset by an increase in transaction costs, mainly related to the acquisitions.

Other Expenses (Income)

Nine Months Ended September 30, Increase

• Human Nutrition & Health segment earnings from operations decreased $1,868.

Gross margin contribution from incremental sales were $2,807, but this was more than offset by an increase in operating expenses of $4,675, primarily due to incremental operating expenses related to the Kappa and Bergstrom acquisitions of $4,549 and higher amortization of $1,564, partially offset by gains on disposal of assets of $972.

• Animal Nutrition & Health segment earnings from operations decreased $1,823, primarily due to the lower sales.

Additionally, operating expenses for this segment increased by $518, which was largely related to incremental operating expenses from the Bergstrom acquisition of $380.

• Specialty Products segment earnings from operations increased $185, primarily due to a 359 basis point improvement in gross margin as a percentage of sales, resulting from higher average selling prices, only partially offset by higher manufacturing input costs and lower sales volumes.

Additionally, operating expenses for this segment increased by $471, which was largely due to compensation-related costs.

• The decrease in Other and unallocated was primarily driven by the aforementioned lower sales.

Other Expenses

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

Interest expense $ 5,565 $ 545 $ 5,020 921.1 %

Other, net (1,239) (295) (944) 320.0 %

Other (income) expense, net (276) 161 (437) (271.4) %

$ 5,289 $ 706 $ 4,583 649.2 %

Interest expense for the nine months ended September 30, 2022 and 2021 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

Interest expense for the three months ended March 31, 2023 and 2022 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

The increase in interest expense is due to the additional borrowings in connection with the acquisitions and rising interest rates.

Income Tax Expense

Nine Months Ended September 30, Increase

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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Effective tax rate 22.0 % 23.1 %

The decrease in the effective tax rate was primarily due to a favorable provision to return adjustment related to an increase in certain tax credits and deductions, which was offset by a change in mix of earnings in higher taxing jurisdictions.

FINANCIAL CONDITION

The decrease in the effective tax rate was primarily due to higher tax benefits from stock based compensation, an increase in certain tax credits and certain lower state taxes.

Liquidity and Capital Resources

(All amounts in thousands, except share and per share data)

In June 2022, we drew down $345,000 from our revolving credit facility to fund the acquisition of Kappa.

In connection with this transaction, the seller has an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics are met, and therefore we recorded a contingent consideration liability of kr245,000 (translated to $22,712 as of September 30, 2022) as part of the consideration given in the second quarter of 2022 (see Note 2, "Significant Acquisitions").

In August 2022, we drew down an additional $70,000 from our revolving credit facility to fund the acquisition of Bergstrom.

In connection with this transaction, the seller has an opportunity to receive an additional payment if certain financial performance targets and other metrics are met, and therefore we recorded a contingent consideration liability of $7,835 as part of the consideration given in the third quarter of 2022 (see Note 2, "Significant Acquisitions").

Excluding the events previously mentioned, there were no other material changes during the nine months ended September 30, 2022 outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.

During the three months ended March 31, 2023, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments.

We are actively pursuing additional acquisition candidates.

On July 27, 2022, we entered into an Amended and Restated Credit Agreement with a bank syndicate providing for a revolving loan of $550,000, due July 27, 2027.

The revolving loan proceeds were used to pay down the existing debt under the 2018 Credit Agreement and may be used for working capital, letters of credit, and other corporate purposes.

We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so.

Cash and cash equivalents decreased to $56,489 at September 30, 2022 from $103,239 at December 31, 2021.

At September 30, 2022, the Company had $39,191 of cash and cash equivalents held by foreign subsidiaries.

Cash and cash equivalents decreased to $60,199 at March 31, 2023 from $66,560 at December 31, 2022.

At March 31, 2023, the Company had $54,820 of cash and cash equivalents held by foreign subsidiaries.

We presently intend to permanently reinvest these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions;

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operations, we could be required to pay additional withholding taxes to repatriate these funds.

Working capital was $226,026 at September 30, 2022 as compared to $178,430 at December 31, 2021, an increase of $47,596.

Working capital reflects the payment of the 2021 declared dividend in 2022 of $20,708, payments on the revolving loan and acquired debt of $111,782, and capital expenditures and intangible assets acquired of $35,793.

Nine Months Ended September 30, Increase

Working capital was $219,080 at March 31, 2023 as compared to $195,761 at December 31, 2022, an increase of $23,319.

Cash at March 31, 2023 reflects the payment of the 2022 declared dividend in 2023 of $22,867, net repayments on the revolving loan of $9,000, and capital expenditures and intangible assets acquired of $9,720.

Three Months Ended March 31, Increase

(in thousands) 2023 2022 % Change

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Cash flows used in investing activities (10,061) (10,072) 11 0.1 %

Cash flows provided by (used in) financing activities 268,080 (86,233) 354,313 410.9 %

Cash flows used in financing activities (33,318) (34,845) 1,527 4.4 %

Operating Activities

The decrease in cash flows from operating activities was primarily driven by changes in working capital and the timing of increased sales, restocking of inventory, and payments to suppliers.

The increase in cash flows from operating activities was primarily driven by the impact from changes in working capital.

Investing Activities

As previously noted, on June 21, 2022, we completed the acquisition of Kappa, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway.

On August 30, 2022, we completed another acquisition of Bergstrom, a leading science-based manufacturer of MSM, based in Vancouver, Washington.

Cash paid for these acquisitions, net of cash acquired, amounted to $365,780 .

We continue to invest in corporate projects, improvements across all production facilities, and intangible assets.

Total investments in property, plant and equipment and inta ngible assets were $35,793 and $22,391 f or the nine months ended September 30, 2022 and 2021, respectively.

Total investments in property, plant and equipment and inta ngible assets were $9,720 and $10,256 f or the three months ended March 31, 2023 and 2022, respectively.

Financing Activities

As previously noted, the acquisition of Kappa was primarily funded through the 2018 Credit Agreement and the acquisition of Bergstrom was funded through the 2022 Credit Agreement.

We borrowed $435,000 against the revolving loan and made total loan payments of $81,000 during the nine months ended September 30, 2022, resulting in $87,431 available under the 2022 Credit Agreement as of September 30, 2022.

In addition, we made payments of $30,782 on the acquired debt related to the acquisitions.

During the first quarter of 2023, we borrowed $13,000 under the 2022 Credit Agreement and made total loan payments of $22,000, resulting in $118,431 available under the 2022 Credit Agreement as of March 31, 2023.

We have an approved stock repurchase program.

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We also intend to acquire shares from time to time at prevailing market prices if and to the extent we deem it is advisable to do so based on our assessment of corporate cash flow, market conditions and other factors.

Proceeds from stock options exercis ed were $2,172 and $6,351 for the nine months ended September 30, 2022 and 2021, respectively.

Dividend payments were $20,708 and $18,704 for the nine mont hs ended September 30, 2022 and 2021, respectively.

Proceeds from stock options exercis ed were $2,453 and $498 for the three months ended March 31, 2023 and 2022, respectively.

Dividend payments were $22,867 and $20,703 for the three mont hs ended March 31, 2023 and 2022, respectively.

Other Matters Impacting Liquidity

We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 15, Employee Benefit Plans .

The liabil ity recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 was $1,247 and $1,293, respectively, an d the plans are not funded.

The liabil ity recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 was $1,384 and $1,465, respectively, an d the plans are not funded.

Historical cash payments made under these plans have typically been less than $200 per year.

We do not anticipate any changes to the payments made in the current year for the plans.

On June 1, 2018, we established an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compen sated employees.

Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

The deferred compensation liability as of September 30, 2022 and December 31, 2021 was $8,011 and $6,251, respectively, and was included in "other long-term obligations" on our balance sheet.

The related rabbi trust assets were $8,032 a nd $6,267 as of September 30, 2022 and December 31, 2021, respectively, and were included in "other non-current assets" on the condensed consolidated balance sheets.

Chemogas has an unfunded defined benefit plan.

The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees.

The amount recorded for these obligations on our balance sheets as of September 30, 2022 and December 31, 2021 were $607 and $684, respective ly, and were included in "other long-term obligations."

Critical Accounting Policies

There were no changes to the Company's Critical Accounting Policies, as described in its December 31, 2021 Annual Report on Form 10-K, during the nine months ended September 30, 2022.

The amount recorded for these obligations on our balance sheets as of March 31, 2023 and December 31, 2022 were $395 and $393, respective ly, and were included in "Other long-term obligations."

We provide an unfunded, nonquali fied deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.

Assets of the plan are held in a rabbi trust, which are included in "Non-current assets" on the Company's condensed consolidated balance sheet.

They are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

The deferred compensation liability as of March 31, 2023 and December 31, 2022 was $9,320 and $8,527, respectively, and is included in "Other long-term obligations" on the condensed consolidated balance sheets.

The related rabbi trust assets were $9,339 and $8,547 as of March 31, 2023 and December 31, 2022, respectively, and were included in "Other non-current assets" on the condensed consolidated balance sheets.

Significant Accounting Policies

There were no changes to our Significant Accounting Policies, as described in its December 31, 2022 Annual Report on Form 10-K, during the three months ended March 31, 2023.

Related Party Transactions

We were engaged in related party transactions with St.

Gabriel CC Company, LLC during the three and nine months ended September 30, 2022.

Gabriel CC Company, LLC during the three months ended March 31, 2023.

Refer to Note 18, Related Party Transactions .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis