PAHC - NASDAQ

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Phibro Animal Health Corporation Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Glenn David, Chief Financial Officer. Go ahead.

Thank you, Regina. Good morning, and welcome to the Phibro Animal Health Corporation earnings call for our second quarter ended December 31, 2024. My name is Glenn David, and I am the Chief Financial Officer of Phibro Animal Health Corporation. I am joined on today's call by Jack Bendheim, Phibro's Chairman, President, and Chief Executive Officer, and Daniel Bendheim, Director and Executive Vice President of Corporate Strategy. Today, we will cover our financial performance for our second quarter and provide updated financial guidance for our fiscal year ending June 30, 2025. At the conclusion of our remarks, we will open the lines for your questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website pahc.com. Also, on the investor section of our website, you will find copies of the earnings press release and quarterly Form 10-Q, as well as the transcript and slides discussed and presented on this call. Our remarks today will include forward-looking statements, and actual results could differ materially from these projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements section in our earnings press release. Our remarks include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles (US GAAP). I will refer you to the non-GAAP financial information section in our earnings press release for a discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable US GAAP measures are included in the financial tables that accompany the earnings press release. We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual non-operational or nonrecurring items, including stock-based compensation, other income/expense as separately reported in the consolidated statements of operations, including foreign currency losses/gains net, and income taxes related to pretax income adjustments and unusual or nonrecurring income tax items. Now let me introduce our Chairman, President, and Chief Executive Officer, Jack Bendheim, to share his opening remarks.

Thank you, Glenn, and good morning, everyone. By any measure, this is one of the strongest quarters since going public. We successfully integrated the

We broader protein industry, both in the US and globally, remains strong. We expect continued growth despite challenges such as emerging diseases like avian influenza and geopolitical factors, including the newly announced tariffs. We are confident that Phibro is well-positioned to navigate these headwinds and capitalize on the opportunities ahead. As Glenn will discuss, we are updating our fiscal year 2025 guidance to reflect this momentum and our strengthening outlook.

Thank you, Jack. Starting with our Q2 performance on slide four, consolidated net sales for the quarter ended December 31, 2024, were $309.3 million, reflecting an increase of $59.3 million or a 24% increase over the same quarter one year ago. The animal health segment grew 33%, while mineral nutrition grew at 3%, and the performance product segment grew by 7%. GAAP net income and diluted EPS increased significantly, driven by the integration of the new MFA business, increases in demand in both domestic and international regions, improved gross margins due to favorable mix, and lower input costs, offset by increased SG&A due to higher employee-related costs. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses, and certain one-off items, the second quarter adjusted EBITDA increased $18.7 million or 64% versus the prior year. Adjusted net income and adjusted diluted EPS both significantly increased as well. Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to segment-level financial performance, the animal health segment posted $229.4 million of net sales for the quarter, an increase of $56.3 million or 33% versus the same quarter prior year. Within the animal health segment, we reported legacy MFA and other net sales growth of $11.7 million or 11% due to demand in both domestic and international regions. The new MFA business contributed two months of sales or $36.7 million in the quarter, driving the total MFA and other growth to 47%. Please note that November sales for the

Our net leverage ratio was 2.9 times at the end of the second quarter based on $693 million of net debt and $242 million for trailing twelve-month adjusted EBITDA. Turning to dividends, consistent with our history, we paid a quarterly dividend of twelve cents per share or $4.9 million in aggregate. As a reminder, $300 million of our debt is at a fixed rate of 0.51% plus the applicable margin through June 2025. In addition, in September of 2024, we entered into a new swap arrangement for $150 million at a fixed rate of 3.18% plus the applicable margin. Let's turn to slide eight, which lays out our guidance for fiscal year 2025.

Please note, our guidance now includes the acquisition of the

We will now open for questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question will come from the line of Ekaterina Knyazkova with JPMorgan. Please go ahead.

Hey. Thank you so much, and congrats on the quarter. So first question is just on the guidance update. I think you have touched upon this a little bit, but perhaps you can give a bit more color. So how much of the fifty-cent increase for the EPS range, how much of that is coming from the acquisition versus the underlying business? And I guess what is some of that change relative to the outlook you provided last quarter and that twenty-five cents number you were talking about? And then the second question is just on the animal health performance. Seems like another very strong quarter of growth backing out the acquisition. Just elaborate a bit on trends you are seeing across the portfolio and which products and regions have been driving some of that performance. Thanks.

Thanks for the question, Ekaterina. I will start with the EPS guidance, and I will let Jack comment a little bit on the business performance. When you look at the overall increase in EPS at both the bottom and top of the range, it is about fifty-three cents. The majority of that is coming from the addition of

Yeah. And then on the general performance of the business, this has been a great time for our customers. Our customers across the US and the world, and this is true for every category of protein, whether it is in cattle, in chickens, in pigs, they are doing okay. When they are doing okay, you know, their concern is let us keep these animals healthy so they perform better and they get better to the market. And that is what we are seeing around the world, and that is basically what is driving the business.

Thank you. Our next question comes from the line of Michael Ryskin with Bank of America. Please go ahead.

Hello. This is Gemma on for Mike. Two questions related to the MFA acquisition, please. The first, on your updated revenue guidance, which now includes the MFA acquisition, this aligns with our prior expectations or estimates. EPS guidance came in quite a bit higher than expected. Can you walk us through the drivers behind that upside? And then similarly, now that you have owned the MFA asset for about three to four months, is there anything you would like to call out that you have heard about the business that surprised you? I know in the release, you called out the contribution of thirty-seven million for the last two months. That seems a bit light if it is going to be two hundred million in eight months. Can you talk about, if you have it started versus expectations? And anything unusual you are seeing in terms of stocking, destocking, transition, like that. Thank you.

Sure. So just to address the first part of your question in terms of the revenue guidance being aligned with the incremental two hundred million dollars which we had initially called out, this is the

Thank you. Our next question comes from the line of Balaji Prasad. Please go ahead.

Hi. This is Mikaela on for Balaji. Thanks for taking our questions. Just a quick one. So with the MFA deal now complete, is this still a key focus area? And if so, can you provide any additional details on your pipeline here? Thanks so much.

Hey. Good morning. It is Daniel. I will take that. Companion animal continues to be a key priority for us. However, you know, we are making nice progress. We purposely in this quarter did not call it out in our prepared remarks because we are excited as well about our livestock business. And we want to focus on our continued strength in livestock, our continued investment in livestock. There is actually a lot of pipeline products within livestock as well. So while we continue to make progress on our pipeline in pets, you know, I think the livestock business is, you know, a shining star for us, and we do want people to recognize the growth that we are having and continue to have and continue to expect to have there.

Our next question comes from the line of Navann Ty with BNP Paribas. Please go ahead.

Hi. Good morning. Can you discuss the integration of the

Yeah. So in terms of the integration today, the integration is moving very smoothly. Obviously, our key priority on day one was to make sure that we were able to effectively support our customers and our colleagues across the globe. They have done a tremendous job on that. I think, you know, we have gotten very positive feedback from our customers in terms of our ability to support them and the care that we are able to provide and their pleasure with us having a broader portfolio now and able to support their needs. So that was priority number one, and that has progressed very well. Also, obviously, onboarding colleagues from

Our next question will come from the line of Linda with Morgan Stanley. Go ahead.

Thanks. Good morning. This is Linda on for Erin Wright, and thanks for taking our question. For the company, what are the implications of tariffs on Phibro and any potential color on the exposure that you could share with us? Also, any thoughts on EBITDA margin compression throughout the year? Additionally, what is your latest view on underlying demand trends across key species groups in animal health and how do you expect those to play out for the balance of the year? Thanks.

I will take the easy one, the tariffs. So I would say sort of based on where we are on as we call, last night's announcement of the White House. We are just dealing with Chinese tariffs right now. And overall, looking at the portfolio and looking at the fact that most of our we have no production in China. Correctly? And our factories are in Brazil and in Israel and the United States. We do import from China some stuff. But overall, we think the impacts will be very, very small.

And then in terms of EBITDA margin and progression, yeah. We continue to see improvements in EBITDA margin in our core business with the Phibro Forward business. With the Phibro Forward initiative as well as with the acquisition of the

And that will conclude our question and answer session. I will turn the call back over to Glenn David for any closing remarks.

Thank you, Regina. And thank you, everyone, for listening in on today's call. We really appreciate your time, interest, and support of Phibro Animal Health. Hope you have a great day.