Balchem Corp

NASDAQ:BCPC

Earnings Call Transcript 2021-Q1

[Operator]

Greetings, ladies and gentlemen, and welcome to the Balchem Corporation's First Quarter 2021 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Mr. Martin Bengtsson. Thank you. Sir you may begin.

[Martin Bengtsson, Chief Financial Officer]

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, 2021. My name is Martin Bengtsson, Chief Financial Officer. And hosting this call with me is Ted Harris, our Chairman, CEO and President. Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement.

This release does contain or likely will contain forward-looking statements, which reflect Balchem's expectation or belief concerning future events that will involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement.

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

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks, Martin. Good morning and welcome to our conference call. This morning we reported strong first quarter results with solid revenue growth, earnings growth and free cash flow growth. Our revenues of $185.7 million were up 6.4% and our adjusted earnings from operations were $37.3 million, up 7.5% versus the prior year quarter. Our first quarter net income of $23.4 million, an increase of 18.4%, resulted in earnings per share of $0.72 on a GAAP basis.

On an adjusted basis, our first quarter non-GAAP net earnings were $28.4 million, or $0.87 per share, an increase of 7.1%. And we continue to deliver strong cash flows. Cash from operations was $40.6 million for the first quarter of 2021 with quarterly free cash flow of $34.4 million, an increase of 97.7% compared to the prior year quarter. Overall, a great start to 2021. And while there are many challenges to manage in the overall macro economic environment at the moment, these results highlight the strength and resilience of our business model. Before passing the call back to Martin to cover the detailed financial results, I would like to update you on the impact of COVID-19 on our company, as well as a few of our important strategic activities and growth initiatives.

It is incredible to think that it has been more than 1 year that we have all been living with the COVID-19 pandemic and all of the related challenges it has created. This time last year, we were talking with you about our early response actions of activating our crisis management team, helping domestic and international travel, implementing new strict safety protocols at our manufacturing sites, working from home for our office and employees, and stress testing our balance sheet to ensure we could withstand extreme scenarios as we headed into the market uncertainties ahead of us, just to name a few. While the pandemic is certainly not behind us yet, and our priorities remain the same, employee safety first, keeping our manufacturing sites operational, satisfying customer needs, preserving cash and ensuring strong liquidity and responding to changes in this dynamic market environment as appropriate.

We are extremely pleased with our response to the pandemic. And ultimately, the performance of the company in light of the challenges we have faced. We have indeed responded well to the changes in this dynamic market environment. And we are today, having to respond to new challenges that are at least partly related to the pandemic as well as the economic recovery, regarding significantly higher raw material and freight costs. While we don't believe these cost increases are differentially impacting Balchem. We are having to dedicate significant resources to various mitigating activities to effectively manage through this aspect of the pandemic, and macroeconomic environment, just as we have through all previous challenges stemming from the pandemic.

Moving on to a few highlights relative to our important strategic activities and growth initiatives. Within our animal nutrition and health segment, the launch of AminoShure-XM, our next generation rumen protected refining for the dairy market continues to go well. As the product is gaining acceptance with progressive dairy producers we are looking to maximize profitability, by growing the milk protein portion of their output. Additionally, our companion animal team has been working hard to grow our PetShure line of products, including several sensory related products. And we are excited to have one of these PetShure sensory products included in our recently launched fruit flavored dog treat product by a leading brand.

We continue to be bullish about the companion animal market and our ability to bring differentiated solutions to solve the new and developing needs of the market. And to that end, we have a large number of Balchem's sponsored research trials relating to our PetShure line of products that have been submitted for presentation at scientific meetings in 2021. We're also celebrating today our 1 year anniversary of the real science lecture series, which has now expanded to include all three species segments, ruminants, swine, and poultry, and companion animals.

These educational and science based webinars have been hugely successful attracting over 8,000 live attendees, and over 17,000 people have watched the recorded sessions. This pivot of our marketing approach during the pandemic has enabled us to effectively reach and interact with an expanded target audience, despite the pandemic. And speaking of marketing approaches, as we have talked about in the past, our human nutrition and health segments has strengthened its marketing capabilities to accelerate awareness around existing science and to better showcase to our customers through marketing campaigns, how they can incorporate and benefit from our products.

This year, we launched three new marketing campaigns. The first was focused on the benefits of our Albion branded Chelated Magnesium, as a solution for sleep and relaxation. The second showcased the importance of Choline in a prenatal vitamin regimen. And the third was a new food campaign that was based on proprietary market research focused on consumer interests, around products featuring our novel inclusions for baked goods applications. In the coming months, we'll be highlighting campaigns around immunity, cognition and our enhanced capabilities and protein crisps and beverage. We're excited by how these campaigns are already creating opportunities by developing new leads and building loyalty among existing customers.

In the quarter, we also continue to progress our efforts to consolidate all of our ERP systems into one, Microsoft Dynamics 365. This initiative is critical for the continued growth and operational efficiency of the company. We successfully added one more site to the new system in the quarter, leaving just two international sites left on legacy systems. We now have approximately 96% of our revenues on the new system and remain on track to complete implementation of the project this year. Additionally, in our continuing effort to advance our environmental, social and governance or ESG efforts, recently, Balchem proudly signed the CEO action for diversity and inclusion pledge as a further commitment to advance diversity and inclusion within our workplace.

The CEO pledge outlines a specific set of actions, the signatory CEOs will take to cultivate a trusting environment where all ideas are welcomed, and employees feel comfortable and empowered to have discussions about diversity and inclusion. And just earlier this week, we released our third sustainability report, which captures the company's commitment to managing our ESG performance. This report demonstrates the company's continuing promise to provide our employees, customers, shareholders and the communities within which we operate with information on Balchem sustainability initiatives. Of particular note, in this year's report, we have for the first time published our 2030 goals to reduce both greenhouse gas emissions and water usage by 25% by that day. We are very proud of the report and the progress we have been making. And I would encourage you to go to balchem.com to read the report. And while on the balchem.com website, you will also notice that our website was recently updated, consolidating all of our many legacy Balchem websites into one with a more modern look, feel and navigation capability that should serve us well as we continue to grow and become more global.

I'm now going to turn the call back over to Martin to go through the detailed financial results and the results for each of our individual segments. Martin?

[Martin Bengtsson, Chief Financial Officer]

Thank you, Ted. As Ted mentioned, we delivered overall strong financial results in a challenging environment. Our first quarter net sales of $185.7 million were 6.4% higher than the prior year comparable quarter. We delivered record sales in our Human Nutrition and Health and Animal Nutrition and Health segments, while showing sequential improvement and slight year-over-year growth in the specialty product segment. The impact of foreign exchange to our sales was a positive $2.4 million, primarily due to the stronger euro, contributing a positive 1.35% impact for year-over-year sales growth.

Our first quarter consolidated gross margin dollars of 57 – $58.7 million were up $3.4 million dollars or 6.1% compared with $55.3 million for the same period in the prior year. Our consolidated gross margin percent was 31.6% of sales in the quarter, down 9 basis points compared to 31.7% in the first quarter of 2020. The 9 basis points decrease was primarily due to a significant increase in certain raw material and distribution costs, partially offset by favorable mix and manufacturing efficiencies. Consolidated operating expenses for the first quarter of 2021 were $28.2 million as compared to $29.1 million in the prior year. The decrease was principally due to a decrease in transaction and integration costs, travel, bad debt, and amortization, partially offset by certain higher compensation-related costs.

Looking forward, we will continue to focus on controlling our operating expenses and leveraging our existing SG&A infrastructure where possible. GAAP earnings from operations for the first quarter were $30.6 million, an increase of $4.3 million or 16.4% compared to the prior year quarter. On an adjusted basis, as detailed in our earnings released this morning, non-GAAP earnings from operations of $37.3 million were up $2.6 million or 7.5% compared to $34.7 million in the prior year. Record adjusted EBITDA of $45.7 million was $3.4 million or 7.9% above the first quarter of 2020 and interest expense for the first quarter of 2021 was $0.7 million and our net debt was $65 million with an overall leverage ratio on a net debt basis of 0.4.

The company's effective tax rates for the first quarter of 2021 and 2020 were 21.9% and 19.3% respectively. The increase in the effective tax rate was primarily due to reduction in certain tax credits, and higher enacted tax rates in several states within the United States. Consolidated net income closed the quarter at $23.4 million, up 18.4% from the prior year quarter. This quarterly net income translated into diluted net earnings per share of $0.72 for the current year, an increase of $0.11 or 17.9% from last year's comparable quarter.

On an adjusted basis, our first quarter adjusted net earnings were $28.4 million or $0.87 per diluted share, up $2 million or 7.6% compared with the prior year quarter. We generated quarterly free cash flow of $34.4 million, up 98% compared to prior year quarter and we closed out the quarter with $88.5 million of cash on the balance sheet.

As we look at from a segment perspective, for the quarter, our Human Nutrition & Health segment generated record quarterly sales of $104.5 million, an increase of $9 million or 9.4% from the prior year. The sales increase was driven both by strong sales growth of chelated minerals and choline nutrients as well as higher sales within food and beverage markets. Our minerals and choline nutrients business saw increased demand when the COVID-19 pandemic started last year and there have been no signs of any slowdown to-date. In fact, the last two quarters have shown sequential growth in this part of the portfolio and we're pleased to see the increased awareness around the health benefits of these products. We were also pleased to see the growth on the food ingredient side of our business, where we are seeing a modest, but steady improvement in food service along with a gradual reopening of our economy.

Our Human Nutrition & Health segment also delivered record quarterly earnings from operations of $19.7 million, an increase of $7.6 million, or 62.3% compared to prior year, primarily due to the aforementioned higher sales, product mix, and manufacturing efficiencies, partially offset by higher raw material costs.

Our Animal Nutrition & Health segment generated record quarterly sales of $51.1 million, an increase of 5.2% or $2.5 million compared to the prior year. The increase in sales was primarily the result of higher sales in both Monogastric and Ruminant animal markets, and a favorable impact related to changes in foreign exchange rates, which contributed $1.4 million or 2.8% of growth to the segment. Our Ruminant business grew volumes 6.5%, and we continue to successfully drive penetration of our rumen protected encapsulated products in the market.

In terms of dairy economics, milk and milk protein prices continue to be volatile and have come down a bit during the first quarter, but are still at relatively healthy levels. On the Monogastric side, overall volumes were relatively flat, with good growth and companion animals, as well as U.S. feed grade calling but offset by lower European demand for calling.

Animal Nutrition & Health quarterly earnings from operations of $5.1 million were down $3.0 million, or 37.1% from the prior year quarter, primarily due to increases in raw material costs and distribution costs, along with an unfavorable mix. We have arrangements in place to recover a significant portion of the raw material increases through price increases to our customers. However, there is a timing delay between the raw material inflation, and the selling price adjustments, and there is on average quarter delay.

Our specialty products segment delivered quarterly sales of $28 million, up very slightly from the same quarter in 2020, primarily due to higher sales of products for the medical device sterilization market, and a favorable impact related to changes in foreign currency exchange rates, offset by lower sales in the plant nutrition business. While volumes related to sales into the device, sterilization markets were down on a year-over-year basis, it improved sequentially versus the fourth quarter of 2020. And it is encouraging to see gradual improvement, as elective surgeries are slowly recovering.

Specialty product segment had first quarter earnings from operations of $7.2 million versus $8.0 million in the prior quarter, a decrease of $0.8 million, or 10%. The decrease was primarily due to increases in raw material costs and distribution costs.

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

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks, Martin. We are extremely pleased with outcomes financial results reported earlier this morning, and we certainly carried the positive momentum from 2020 into 2021. In the first quarter of 2021, we delivered all time record revenues with revenue growth in all three of our business segments, not only versus the prior year's quarter, but also sequentially versus the fourth quarter 2020, reflecting a modest, the gradual reopening of economies around the world.

We achieved record first quarter consolidated GAAP net earnings, record quarterly non-GAAP adjusted net earnings, record adjusted EBITDA, and strong cash flows from operations, while facing certain higher raw material and distribution costs and complexities associated with logistical disruptions. These very strong results reported today continue to show that we are well positioned in attractive markets, where we have the leadership and capabilities to be successful not only today, but also into the future.

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

[Martin Bengtsson, Chief Financial Officer]

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]

Thank you. [Operator Instruction] Our first question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.

[Bob Labick, CJS Securities]

Good morning, and congratulations on an excellent start to the year.

[Martin Bengtsson, Chief Financial Officer]

Thanks, Bob.

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks, Bob.

[Bob Labick, CJS Securities]

I wanted to start with one of the things you mentioned in your prepared remarks. You talked about strengthening the marketing through accelerate awareness. Could you maybe expand upon that a little bit? Are you using new channels? Are you spending more dollars? This is like a shift in dollars? Just what was the impetus behind this? And how should we think about, where you were, where you are, and where you're going in this marketing campaigns?

[Ted Harris, Chairman, Chief Executive Officer and President]

Yes, we're really excited about the changes that we have made. And I would say overall, it's really more of a shift in dollars as opposed to a dramatic increase. We traditionally relied more on kind of basic advertising as well as the efforts of our sales organization. And while the sales organization remains a critical part of building awareness, we've also now added to the team some real marketing expertise and capability and are paying for that a little bit with reduced advertising expense and are now able to do campaigns in house. For example, some of the campaigns I talked about, we've recently really done on our own. We've added not only marketing expertise and leadership we've added market research capabilities that we never had before. And so we're conducting focus groups and really kind of digging into the needs of the market and trying to target those needs with these campaigns.

So we're not spending a lot more than we used to, it's just really a shift in span building around internal capabilities and really pleased with the initial progress from all of that.

[Bob Labick, CJS Securities]

Got it. That's great, Thank you. And then I know you highlighted this a little bit, I wanted to get a little more specific in terms of margins. The H&H margins were I think a couple of years, if not all time high on the adjusted basis and adjusted EBIT basis and then obviously, H&H in specialty were more impacted by raw materials. So the question is one, what was the kind of driver of the H&H and has anything materially change for the long-term or is this timing mix, etcetera? And just how should we start thinking about the recovery from the raw material pressures in H&H and specialty? Thanks.

[Martin Bengtsson, Chief Financial Officer]

Hi. This is Martin. So if you take A&H first, I mean, you did see very strong margins here in the first quarter. And it's primarily driven by favorable product mix in the sense that you have a very strong minerals and nutrients, which relatively speaking, its higher margin compared to the food ingredients. So as those minerals and nutrients are growing at, very rapid rates, 20%, 30% that drives that favorable mix that's helping the margin for them.

In addition to that, they also had a strong manufacturing quarter. We have in the previous quarter, as you remember Q3 and Q4 mentioned some of the inefficiencies we saw in the manufacturing operations, negatively impacting them. And here in the first quarter, as we have worked through many of those issues, we saw an uptick and an improved performance which also helped the margins for H&H. When we look at it to the second part of your question around A&H and SP, who were both significantly impacted by both, raw materials, and freight and distribution, they are a little bit experiencing what you are seeing around the world at the moment and that you hear many companies talk about.

So, for a number of our key raw materials, it started to creep up a little bit in the fourth quarter, but it really took-off quite significantly in the first quarter in terms of material inflation. And on our ability to price that through to our customers, we are usually in a, I would say, a relatively good position to recapture that through pricing. And over time, we tend to see that the margins come back to where they should be. But it takes us, a quarter and sometimes into two quarters to recapture that. Some of our pricing arrangements have language around index based adjustments. Some of these indexes tieback to commodity and mixers, but we can’t do so much around the actual raw material inflation itself. But we can adjust the pricing. But there is a quarter lag. So, from the moment, the price is plateau, so to speak, and stop increasing, it is at least a quarter to recapture it. And sometimes we exempt to two quarters behind. But for an upward trend that creates margin pressure. And in a downward trend, it helps margins in the same way. And over time, as we look at this historically, it tends to even out and the margins sort of come back to those averages that we see.

[Bob Labick, CJS Securities]

Got it. Super, thank you so much.

[Operator]

Thank you.

[Martin Bengtsson, Chief Financial Officer]

Thank you, Bob.

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks Bob.

[Operator]

Our next question comes from the line of Mark Connelly with Stephens Incorporated. Please proceed with your question.

[Mark Connelly, Stephens Incorporated]

Thanks. If we start with the humans side, I was hoping you could help us understand, where the volume growth is coming from in terms of, is it higher volumes on existing customer products or is it new launches? It feels like, product launches are accelerating? So, I am just curious what your perspective has been?

[Ted Harris, Chairman, Chief Executive Officer and President]

So, Mark, I will take that one. Yes, it really is somewhat across the board, I would have to say, if you peel the onion back and look at all of our product lines, all of our sub-businesses within what we call Human Nutrition & Health, essentially they all grew in the first quarter. Obviously some more than others, but they all grew. So, there was significant growth of existing products, with just increased demand for existing products in the marketplace. Certainly, the minerals and nutrients that’s being driven by increased awareness around nutrition and the immunity boosting, nature of many of our products. So, those are essentially existing products with increased demand. In the food side we are seeing the pickup in foodservice and those are really existing products that are selling to a greater extent, but we also are seeing our customers launch new products.

And for example in the quarter we have talked about some of Denon’s products historically. They launched some product line extensions that also include our VitaCholine and so they are launching new products, they are having success with some of those initial products, the horizon brand and milk for example, that’s fortified with choline. They have come out with a yoghurt pouch for example and a yoghurt drink. Gerber has sold baby puffs for some time. They are now selling some baby puffs with VitaCholine, I would call that a product line extension. So, they are – we are seeing some benefits from new products being launched to consumers that are including our products. And so I would say overall, it’s a mix both of just increased sales of existing products, as well as launches of new consumer products and not so much launches of new fundamental products by Balchem. We do have a few that are making it to the market, but not materially impacting things at this point. It’s mostly sales of existing products and then our customers launching new products that we are benefiting from.

[Mark Connelly, Stephens Incorporated]

Right. Well, we have heard a lot of folks expressed concern that the immunity boosting stuff would fall off, so it’s nice to hear, but it hasn’t. Can you talk a bit about the EO products for agriculture? I know it’s a small piece of the pie. But I am just curious how much of a resource investment is for you and where you are going with it?

[Ted Harris, Chairman, Chief Executive Officer and President]

Yes. I think that that when we talk about our Specialty Products segment and I am just going to maybe, guess a little bit where you are headed here on the specialty products side, when we talk about plant nutrition. Those really are Chelated Minerals for plant nutrition. We are not really selling any – I think you mentioned EO products for the market. That’s not something we do. But within specialty products, we have a really nice, profitable plant nutrition business that we view as a growth business that one that we can continue to grow at double-digit rates. One thing that that has been a struggle with that business at times is weather. But for the last couple of years, weather has cooperated and we have been able to drive double-digit growth.

And we are quite bullish about that business. We have some very differentiated micronutrient solutions for the marketplace. And we have launched some Balchem new products there. And those are making a difference. And we just have, enormous opportunity to grow, just through market penetration, adding additional crops, as well as geographic expansion, that is one business we have a good representation around the globe. And there is a lot of room for us to grow geographically there. So, we are bullish on that in the first quarter of the year, actual sales were down slightly, partly because Q1 of last year was particularly strong, but also because of Q1 this year, some orders leaked into Q2, and we feel really good about full year growth for our plant nutrition business and continue to feel as though we can grow that business nicely despite the fact that Q1 was not the strongest for that business.

[Mark Connelly, Stephens Incorporated]

That’s helpful. I guess, I am so excited that I was jumping ahead to my next question. My next question was about EO. I am curious how you think the normalization of hospital activity is going to affect. Are we going to see a bump here, a bump up or a bump down?

[Ted Harris, Chairman, Chief Executive Officer and President]

We believe overall we are going to see a bump up, as opposed to a bump down. But you are sort of digging into a very important topic relative to this and very kind of pertinent to what’s happening today. We did see really nice growth sequentially in our, what we call Performance Gases business, volume was up about 11% sequentially, which is a nice bump. And we have seen some sequential improvement. Q4 was up a little bit over Q3. So, we are seeing nice sequential improvement, which is very good to see. We do think there probably is a little bit of a supply chain inventory building aspect to that increase in Q1, because of the anticipation of return to elective surgeries. So, I think in advance of that return, we see the supply chain placing orders, building a little bit of inventory, which is all very encouraging and what we are seeing from statistics in the market as well. Although, we will have to see this strong Q1 that we are really pleased with that sequential improvement was some of that driven by inventory building in the supply chain or not. But if you step back from that, we believe that that we will see Q2 of this year being up over Q2 of last year, Q3 of this year being up over Q3 of last year, and that trend going on throughout the year as elective surgeries come back. So, I think it’s a bump up except for little asterisks that I kind of pointed that detail around the building and the supply chain. But overall, we feel good about the return of that business.

[Mark Connelly, Stephens Incorporated]

Super helpful. Thank you.

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks Mark. Appreciate it.

[Operator]

Thank you. Our next question comes from the line of Mitra Ramgopal with Sidoti. Please proceed with your question.

[Mitra Ramgopal, Sidoti]

Yes. Hi. Good morning, guys. Thanks for taking the questions. First, just coming back on the margin side, obviously, I think on the raw materials side, it seems like the price increases should mitigate most of the impact there, but I was curious on – increase in distribution costs that you are seeing. What can you do to kind of stem back? And when should we sort of expect that to maybe normalize for you?

[Martin Bengtsson, Chief Financial Officer]

Hi, Mitra. We certainly have a challenge at the moment with the inflation going on, and just to maybe dimensionalize it a little bit, if you just look at sort of price paid year-over-year in Q1 this year versus Q1 last year, for the exact same product, that impact is $4 million, $4.5 million, almost $4.5 million of just increased price paid for the same thing, so it’s very relevant. And same thing on the distribution costs, I mean, we have seen almost 0.5 percentage point or 50 basis points impact to our gross margin just from increased distribution costs coming from a lot on the international shipment side, shortage of containers, also as we have negotiated rates and those things, but they are not available, so you have to go to your second, third, fourth option, and then pay a higher price, your first option just kind of declines your order. And for your question on what can we do about that distribution side, I think it’s a little bit challenging for us to do much to reduce that cost. It’s a little bit supply and demand situation right now. The industry has been disrupted. Demand is high, supply is low. But we have negotiated rates and partners and so on. There is a limit to what we can do there. So, we are really more focused on how do we take these increased costs and turnaround and effectively pass them through to our customers. At the end of the day that’s where we are looking for the recovery, because we are somewhat limited in how we can manage the input costs in this case.

[Mitra Ramgopal, Sidoti]

Okay. No, that’s great. And then, on the obviously, pandemic, with the vaccine rollout underway and restrictions being increasingly lifted, etcetera, we probably should expect specialty products business to bounce back, if not interchange, stop growing year-over-year. But on Human Nutrition side, I was just curious on, especially on the foodservice market, a lot of restaurants, etcetera, also likely started to see improved business there, is any of that showing up for you yet or is it still way too early?

[Ted Harris, Chairman, Chief Executive Officer and President]

Yes, it is Mitra. We are – we have talked about, we have approximately $50 million to $60 million of sales or we did at least in 2019 that went into foodservice that really was significantly impacted, and we are absolutely seeing an increase in that business. It’s still volatile, it’s still not consistent. But we are seeing that business come back in an encouraging way. We have all along had as part of our Human Nutrition & Health business and really across Balchem as a whole, parts of the company that were negatively impacted by COVID and parts that were positively impacted by COVID. We have talked about Keurig Dr Pepper, and the business that we have with them and likely they are being a work from home, a boost to that business, that helps us to offset some of that decline that we saw in foodservice and by and large those parts that have been somewhat benefited by the pandemic, we are seeing continue at very strong levels, and there are reasons to think that that will continue.

I personally feel as though on the supplements side of things that the strength and awareness that has been built over the last year will largely continue and so we are expecting continued strength in that business and I think Keurig Dr Pepper just issued their results and I think they are very bullish about the year as well. And I think there is some staying power for that business. But there is as we see foodservice comeback more over the course of the year, there is some positive offset to any decline that we might happen to see from those other areas. So, we do feel good about the H&H business for the rest of the year.

[Mitra Ramgopal, Sidoti]

That’s great. And then finally, you have obviously done a great job on the balance sheet, steadily paying down debts, yet still building cash and just curious in terms of the acquisition pipeline and if you are maybe seeing some opportunities now that might not have existed pre-COVID?

[Ted Harris, Chairman, Chief Executive Officer and President]

So, we definitely, and I think I said these exact same words, there was definitely a short slowdown last year in the early stages of pandemic and we even as a company struggle a little bit with how could we do a transaction. And I think that, the market as everybody will tell you is very hot, there are lots of assets for sale. And so we are back active, we have been involved in some processes that have not turned out whether it ultimately didn’t make sense for us strategically, or we didn’t think the value was appropriate. But we are active in the pipeline, I think it’s healthy. I think we are interested to see if some of the tax – proposed tax legislation has an impact on private companies, which is somewhat of a target for us and their desire to monetize today versus in the future under a different tax structure. So, we are somewhat hopeful that that may bring some assets to the table, but we are busy, we are active and encouraged about the opportunities out there.

[Mitra Ramgopal, Sidoti]

That’s great. Thanks for taking the questions.

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks, Mitra. Appreciate it.

[Martin Bengtsson, Chief Financial Officer]

Thanks, Mitra.

[Operator]

Thank you. Ladies and gentlemen, at this time, I would like to turn the floor back to Ted Harris for closing comments.

[Ted Harris, Chairman, Chief Executive Officer and President]

Thanks, Jen. Once again, just like to thank everybody for joining our call today and more importantly, your continued interest in our company. We are really pleased with our first quarter 2021 results that we released today and the ongoing progress we are making on our key growth initiatives. As a reminder, please get our website to look at our new sustainability report. We are really proud of it and I think you will be as well. We appreciate your time today and look forward to reporting out on Q2 results in July. In the meantime, we will be presenting at several conferences, we are going to be at the Wells Fargo Industrials Conference on May 6, the Stephens Food & Ag Disrupted Conference on May 25 and the Jefferies Industrials Conference in August. So, we hope to see some of you at one of those events or in some other forums. So, thanks again for joining today. Appreciate it.

[Operator]

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.