# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_BCPC_2019/NASDAQ_BCPC_2019.mmd` · pages 2-8_

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Dear Fellow Shareholders:

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As I sit here in March of 2020, with the COVID-19 pandemic unfolding before us, I want to first send my sincerest best wishes to all of you as we navigate this unprecedented time together. I certainly hope that you are all healthy and safe and by the time of our Annual Meeting, the world will be well on its way back to normalcy.

Now to the business at hand and the 2019 Annual Report; 2019 was another strong year for Balchem. Financially, we delivered record sales of \(643.7 million dollars, with year over year sales growth in three of our four segments. Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products all delivered record sales performances in 2019. These record sales drove record adjusted net earnings of \)103.7 million dollars compared to \(97.7 million dollars from the prior year, an increase of \)5.9 million dollars or 6.1 percent, and record Adjusted EBITDA of \(160.0 million dollars, an increase of \)0.7 million dollars or 0.5 percent from the prior year. And free cash flow remained strong, at $96.1 million dollars in 2019.

Strategically, we also had a very good year. 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, and at the same time operating with excellence as strong stewards of all our 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.

Most notably, as a result of our innovation efforts, we launched several new products to the market that are making a difference, including a line of silica-free chelated minerals and an improved compaction calcium citrate malate chelated mineral for Human Nutrition and Health. We expanded our PetShure \( ^{\circledR} \)  line of products for the companion animal market to include sensory inclusions for pet treats, and we introduced AminoShure \( ^{\circledR} \)  XM, our next generation rumen protected methionine that delivers enhanced bioavailability and superior feed stability. And we launched an organic chelated potassium micro nutrient foliar applied product to fill out our line of organic micro nutrients for plant nutrition.

At the same time, we are making significant advancements through our external research and studies, including work we are doing with our partners within Human Nutrition and Health on child cognition, the development of a choline bio-marker, the exploration of the synergies between Choline and DHA absorption, the development of next generation magnesium chelates, and the development of a unique treatment for autism. Additionally, important progress is being made through our investments in the exploration of the broad ranging benefits of choline, mineral, and amino acid nutrition for monogastric and ruminant species within Animal Nutrition and Health.

We also remained active on the acquisition front, completing the acquisitions of Chemogas NV in May, and Zumbro River Brand, Inc. in December. We have effectively completed the integration of Chemogas into our Specialty Products segment and we have been realizing identified synergies as we leverage this acquisition to create a global performance gases business that services our customers' needs for ethylene oxide and other products worldwide. We have also been progressing the integration of Zumbro and already realizing some synergies, as we further enhance our portfolio of solutions in the food and beverage industry, particularly through Zumbro's unique high protein products and extrusion manufacturing capabilities. Both of these acquisitions contributed nicely in 2019 to our financial performance and our strategic positioning and capabilities.

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From a corporate perspective, we significantly progressed our effort to consolidate our five Enterprise Resource Planning (ERP) systems into one; Microsoft Dynamics 365. This twelve million dollar initiative is critical for the continued growth and operational efficiency of the company. After all of the planning, implementation started in earnest in 2019, as we significantly progressed the staged ERP implementation across our businesses and network of manufacturing sites, ending the year with approximately 60% of our users and revenues now on the new system. This has been a tremendous amount of work, but we are very pleased with the progress to date and we look forward to full implementation over the coming year.

In 2019, we once again provided a dividend to our shareholders. The 10.6% increase over the prior year's cash dividend represents the tenth consecutive increase in our annual dividend, reflecting both the outstanding financial performance the Company has delivered on a consistent basis and the Board's continued confidence in our long-term strategies. Our dividend is one component of our overall capital deployment strategy that focuses primarily on investing in organic growth opportunities that provide an attractive return, augmenting our organic growth through strategic M&A where appropriate, paying down debt, and maintaining a strong balance sheet.

And lastly, Balchem released its first Sustainability Report in 2019, which captures the Company's commitment to managing our Environmental, Social and Governance, or ESG, performance. 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 and requirements of all of our stakeholders. Our ambition is to build a stronger and more vibrant company that meaningfully contributes to making the world a healthier place. Our sustainability journey is one of continuous improvement and this report shares the foundation we have built and communicates our commitments to these objectives. We look forward to making further progress on our ESG initiatives in 2020 and into the future.

All in all, another strong year for Balchem, both financially and strategically. And we look forward to continuing our momentum in 2020 and beyond!

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, suppliers, partners and shareholders, for their continued commitment and support, and I look forward to sharing more with you in the upcoming year.

Thank you for your continued support of Balchem and once again, I wish everyone good health in the year ahead.

Sincerely,

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Theodore L. Harris

Chairman, President and Chief Executive Officer