Kyle May

Kyle May asked for an update on the M&A market and alternative uses of cash, guidance on operating margins for Q4, and additional perspective on the stabilization of the European feed market within the ANH segment.

Answer

CFO Carl Bengtsson noted that M&A deal flow is improving but not yet booming, and that Balchem's capital allocation strategy remains focused on organic growth, M&A, dividends, and then share buybacks. He anticipates operating margins will moderate slightly from current highs as ANH returns to growth and raw material deflationary benefits cease. Bengtsson also stated that the European ANH market has stabilized at a lower level due to low-cost imports and is expected to remain at this level in the near future, barring structural changes.

Kyle May asked for preliminary thoughts on the capital spending outlook for 2025, especially with the ELSA project nearing completion. He also sought an update on the ELSA project's potential to generate $6 million annually and the expected timeline to reach that run rate given recent delays.

Answer

COO Randall Tauscher projected that 2025 growth capital would be significantly lower and maintenance CapEx would likely be under 2024's $34.8 million, citing fewer planned turnarounds. Regarding the ELSA JV, Tauscher explained that 60-70% of the project's value is tied to a reservation fee starting in October, with the remainder dependent on sales volume and price. He noted they are awaiting 2025 sales forecasts from their partner, Samsung.

Asked about the timeline for the pending buyout offer, the market fundamentals driving the strong land transportation performance and its Q3 outlook, and the expected year-end leverage ratio given the increased CapEx budget.

Answer

The company cannot provide a timeline for the buyout offer negotiations. The strong land transportation performance in Q2 was driven by broad strength in April/May, followed by a seasonal slowdown in June; an uptick is expected in August. The year-end leverage ratio is expected to be around the current 3.88x level.

Kyle May from Sidoti & Company asked for a potential timeline regarding the buyout offer from Martin Resource Management Corporation, sought details on the fundamental drivers of the strong performance in the land transportation segment, and requested an updated outlook on the year-end leverage ratio given the increased CapEx budget.

Answer

Executive Sharon Taylor stated she could not provide a timeline or speculate on the outcome of the ongoing buyout negotiations. COO Randall Tauscher explained that land transportation's strength in April and May was followed by a seasonal slowdown in chemicals and lubricants in June, a trend similar to the prior year, with an uptick expected in August. Regarding leverage, Sharon Taylor projected that the company would exit the year at approximately the current 3.88x ratio, factoring in the higher capital spending for the remainder of the year.

Kyle May inquired about the rate environment for Martin Midstream's marine and land transportation segments, the drivers behind the Q4 fertilizer guidance increase, and the potential upside from Samsung's second chip factory for the DSM Semichem joint venture.

Answer

COO Randall Tauscher detailed a 50% increase in marine rates over two years, leading the company to lock in term contracts, while land transport rates remain stable. He attributed the higher Q4 fertilizer outlook to a warehouse expansion investment. Tauscher also clarified that Samsung's second factory represents potential future upside but is not yet committed to the joint venture. CEO Robert Bondurant added that a lack of new vessel construction by competitors should support marine rates for a longer period.

Kyle May from Sidoti & Company inquired about the conditions for reinstating the suspended quarterly distribution and sought more detail on the commercial discussions and outlook for the DRUbit network.

Answer

CEO Dan Borgen explained that reinstating the distribution is contingent on securing new or renewed contracts for Dilbit or DRUbit, which would improve cash flow. He noted the decision was prudent given the current recontracting cycle and an upcoming revolver renewal. Regarding DRUbit, Borgen and CCO Brad Sanders expressed high confidence in securing new agreements, citing positive customer feedback on performance, reliability, and the program's financial and environmental benefits. CFO Adam Altsuler confirmed the distribution is reviewed quarterly by the board.

Kyle May of Sidoti & Company asked about the potential timeline for reinstating the partnership's suspended distribution and inquired about the progress of commercial discussions for the DRUbit network, including management's confidence in securing new agreements.

Answer

CEO Dan Borgen stated that reinstating the distribution is contingent on securing new or extended contracts for either Dilbit or DRUbit, which would increase distributable cash flow. He noted the decision was prudent given the current recontracting cycle and an upcoming credit facility renewal. Regarding DRUbit, Mr. Borgen and Chief Commercial Officer Brad Sanders expressed strong confidence in winning new business, citing ongoing weekly discussions, positive operational performance, and customer satisfaction with the DRUbit solution's financial and environmental benefits. CFO Adam Altsuler added that the board evaluates the distribution quarterly.