# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_BCPC_2018/NASDAQ_BCPC_2018.mmd` · pages 2-8_

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Dear Fellow Shareholders,

2018 was an outstanding year for Balchem. Financially, we grew the business 8.2% compared to 2017 and generated record sales of \(643.7 million dollars, with each of our four segments delivering year over year sales growth. Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products all delivered record sales performances in 2018. These record sales translated into record earnings with adjusted EBITDA growth of 8.2% to \)159.9 million dollars, and adjusted net earnings growth of 19.7% to $97.7 million dollars. Our free cash flow remained strong at $99.5 million dollars, an increase of 19.8% compared to 2017.

Strategically, we also had a very good year advancing our initiatives. As a company, we are striving to make the world a healthier place by providing innovative solutions for the health and nutritional needs of the world while at the same time operating with excellence as strong stewards of our people, communities, and stakeholders. We are making progress on choline, mineral, and amino acid nutritional understanding and awareness and our investments in new product development, external studies, and new science development are making a difference for the future advancement of our human, animal, and plant nutrition franchises. In 2018, we increased our investment in R&D by 25% compared to 2017 to advance our pipeline of new products and to further support our future growth. We also continued to support various external research and studies aimed at enhancing awareness around our products. Of particular note in 2018 are: the Cornell University seven-year follow-on study, which explores the enduring cognitive benefits in older children whose mothers received choline supplementation during pregnancy and early nursing; the $2.6 million dollar National Institutes of Health grant to Dr. Steven Zeisel of the University of North Carolina's Nutrition Research Institute to study and develop a test to determine choline status in humans; and the studies that demonstrate that feeding ReaShure \( ^{®} \) , Balchem's rumen-protected choline, during a dairy cow's transition period results in full lactation benefits as well as healthier, faster growing calves. We believe the results from these studies will support the positive benefits of some of our core products and help drive increased awareness and demand in the market. We also continue to find high demand and customer partnering opportunities within the health and nutrition segments of our food ingredient business where we are bringing consumer value through clean label formulas, plant protein solutions, and the delivery of healthy oils and fats. We are strongly engaged with leading companies across the nutritional beverage and healthy snacking markets, creating interesting growth opportunities for the company.

While the Curemark team's data analysis and preparatory work for its New Drug Application filing has progressed slower than we anticipated, we are cautiously optimistic that 2019 could be a pivotal year for this important and unique treatment for autism. Behind the scenes, the Balchem team has continued to progress our manufacturing and supply chain preparedness for the possible ultimate launch of the Curemark product, while continuing to manufacture additional trial quantities of the encapsulated enzyme for rollover participants from previous trials.

We also completed the integration of Innovative Food Processors, a privately held manufacturer of agglomerated and microencapsulated food and nutrition ingredients we acquired in 2017 and added Bioscreen Technologies S.R.L into the Balchem portfolio in August of 2018, broadening our capabilities and product portfolio of highly engineered encapsulated nutritional ingredients such as ReaShure \( ^{®} \) , NitroShure \( ^{™} \) , NiaShure \( ^{®} \) , and AminoShure \( ^{®} \)  M and L, for the European dairy market. Both of these acquisitions contribute nicely to our strategic capabilities. Additionally, we fully recovered from the fire we had in Clearfield, Utah through the start-up and qualification of our new manufacturing annex at our Ogden, Utah facility; we entered into a new credit agreement with our lenders in the form of a senior secured $500 million revolving credit facility, enhancing our strong financial profile and providing increased flexibility; and we embarked on a significant undertaking to consolidate our five legacy Enterprise Resource Planning systems into one; Microsoft Dynamics 365.

All in all, it was a strong year for Balchem, both financially and strategically.

Looking forward to 2019 and beyond, we will continue to evolve and grow our Health and Nutrition leadership position. We are fully focused on the successful execution of our strategic priorities across all our segments. Within the Human Nutrition and Health segment, we will continue to prioritize the realization of growth synergies through the combination of our nutritional and formulated systems capabilities, build increased choline awareness and drive deeper market penetration of this essential nutrient, continue to strengthen our leadership position in chelated minerals, and in conjunction with our partner Curemark, work toward the possible launch of the pharmaceutical product CM-AT to address both core and non-core symptoms in children with autism. Our Animal Nutrition and Health segment will continue to use science and supporting clinical data to further penetrate the market with our existing nutritional solutions, while expanding internationally and introducing new and enhanced products to the

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markets we serve. In Specialty Products, we remain focused on providing outstanding sterilization and fumigation technology and service to our customers, providing best in class mineral nutrients for our plant nutrition customers, and growing internationally. Within Industrial Products, we will continue to reinforce our greener, healthier solution, while seeking ways to further strengthen our cost and supply chain position. In addition to these organic growth efforts, we will seek value-creating acquisitions to augment and accelerate our overall growth, expand our geographic presence, enhance our portfolio of solutions, and strengthen our position in the marketplace.

In 2019, we are also launching our first Sustainability Report, which captures the Company's commitment to managing our Environmental, Social, and Governance (ESG) performance and our efforts toward "Making the World a Healthier Place." While this is our first formal sustainability report, we have spent the past 50 years passionately engaged in developing and delivering innovative solutions for the health and nutritional needs of the world while operating our facilities and businesses to the expectations of our employees, shareholders, and the communities within which we operate. This report will share the foundation we have built and communicate our goals and commitment to these objectives and demonstrate the Company's continuing commitment to provide information on Balchem's sustainability initiatives.

Our success would not be possible without the dedicated Balchem team of employees and their incredible expertise, talent, and relentless focus on serving our customers' requirements and delivering solutions to address the markets' needs. I would like to thank all of our employees, as well as our board of directors, customers, partners and shareholders, for their continued commitment and support, and I look forward to sharing more with you in the upcoming year.

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Ted Harris

Chairman, President, and Chief Executive Officer