Good day, ladies and gentlemen, and welcome to the Phibro first quarter financial results conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Johnson, Chief Financial Officer. Sir, you may begin. .

Thank you, operator. Good morning, everyone. Welcome to the Phibro Animal Health Corp. earnings call for our September 2014 fiscal first quarter. With me today is Jack Bendheim, our Chief Executive Officer. And together, we will provide an overview of our quarterly results and also updated guidance for our fiscal year 2015.

Then we'll open the lines for your questions. .

So before we begin, let me remind you that the earnings press release and financial tables can be found on the Investor section of our website at pahc.com. We're also providing a simultaneous webcast for this morning's call, which can be accessed on the website as well.

Today's presentation slides and the replay and a transcript of the call will also be available on the website later today. .

Our remarks today will include forward-looking statements and actual results could differ materially from those 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 today will also include references to certain financial measures, which were not prepared in accordance with Generally Accepted Accounting Principles, or U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for a discussion of these measures.

Reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release. .

And with that, I'll turn it over to Jack Bendheim for some introductory comments.

Jack?.

Thank you, and good morning, and this morning, a very short introduction. Thank you for joining. It was a very good quarter. We saw growth across all segments around our Animal Health and Nutrition business. The business we are in provides important ingredients to enable our customers to produce safe, healthy and affordable animal protein.

It is one that we are dedicated to growing, as we see the overall market growth around the world. And I want to take this opportunity to thank all of our customers, suppliers and employees for their dedication and loyalty. And now we kick this thing back to Dick. .

Thanks, Jack. So briefly on Page 4. As Jack said, it was a strong quarter for us, led by our Animal Health segment. In addition, our Mineral Nutrition segment had a very nice quarter.

Unusually, and we've laid it out in fairly clear detail, also in the quarter, we had a total of $6 million of licensing revenue from milestone achievements from the licensing of our proprietary vaccine delivery technology.

And that $6 million included the accelerated receipt of $4 million that we had originally expected in fiscal 2016, but the milestone was achieved earlier than expected. .

So turning to Page 5 and looking at overall consolidated results. Consolidated sales were up 16%, driven by that sales growth in Animal Health and Mineral Nutrition. Performance product sales overall were stable. If we set aside the licensing revenues, we had 12% sales growth. .

Down at the bottom line, adjusted EBITDA, up 41%. As that licensing revenue drops all the way through, it shows up in gross profit and it shows up in EBITDA the same amounts. And without the licensing revenue, our EBITDA growth was 13% in the quarter. .

Overall, we had an adjusted diluted EPS of 51% in the quarter. Going back briefly and looking at the middle of the income statement, gross profit up almost $11 million, 22%. And as I said, that $6 million is included in the gross profit and in the increase. And SG&A overall, up about $2 million or 6%. .

One other comment on EPS. The prior year comparative number is a pro forma number that has been adjusted to show the pro forma effects of our IPO and refinancing, so that it's on a like-to-like basis. .

Looking at Page 6 and drilling down on the Animal Health segment. Within Animal Health, we talk about 3 product groups within net sales. Our MFA and other business grew about $3 million in the quarter or 4%. Nutritionals grew over $5 million or 38% and Vaccines grew almost $8 million, $6 million of that being the licensing revenue.

So vaccine growth, x the licensing, was still up a 20% growth rate. .

Across all of those product groups, the revenue increase was largely driven by volume growth that were selected pricing actions in the growth. MFA is another. We saw the growth principally in our international markets, notably Latin America and Asia-Pacific.

Nutritional Specialties, that category is predominantly products that we sell to the dairy industry in both the United States and Europe. And Vaccines, across most of our markets, we saw good growth. .

At the EBITDA line that sales growth translated to $32.5 million of EBITDA, $8 million of growth over the prior year, 35%, 10% growth x the licensing, and it was really that sales and volume growth dropping down through with continued operating expense investment, more or less matching the sales growth. .

Looking at other segments on Page 7. Mineral Nutrition, about $55 million of sales in the quarter, $9 million of growth, 20%.

And that sales growth was primarily volume driven, and we also saw some margin increase -- margin improvement on increased demand so that margin in the quarter was better than 6%, up $1 million over last year and about a 40% overall increase. .

Performance Products, as I said, roughly stable, both top line and bottom line. And corporate, $6.5 million of spending in the quarter, up $400,000, largely still incurring those run rate increases as we now have some public company costs. .

Looking at Page 8, capitalization and capital allocation. On the leverage front, gross leverage 2.9x, $289 million of debt, with trailing EBITDA of just under $100 million. We closed the quarter with $20 million of cash on the books. Had a good cash flow quarter, generated about $13 million of cash flow before financing.

In other words, operating minus investing activities. And then of that $13 million, we funded the $3.9 million payment of a quarterly dividend and, in addition, just under $1 million of scheduled debt reduction. And looking forward, we have declared the next quarterly dividend, same amount, $0.10 per share, payable in late December. .

Looking at our guidance for next year. We've updated our guidance to add the accelerated receipt of the $4 million licensing revenue and profit that we'd previously expected in our following fiscal.

So net sales and EBITDA and the equivalent effect in earnings per share, both the bottom end and the top end of the guidance have been increased by that $4 million. And just to remind everyone, we now have, in our guidance, a total of $8 million of licensing revenue and profit in the current fiscal. .

So with that, that concludes my prepared remarks. So operator, let's open it up for questions, please. .

[Operator Instructions] Our next question is from Louise Chen of Guggenheim Securities. .

I had a few. First question I had was on your volume growth. It's been quite robust. I'm curious what is driving that? Is that international expansion? Is it overall market growth? Is it the market share gains? So just curious if you could give us some more color there.

And then secondly, do you have any update on the antibiotic labeling changes? I know you were working on that. And then, lastly, just on the Animal Health industry in general. Looks like there's been talk of consolidation. I'm just curious how you look at M&A.

Are you more interested in bolt-on deals? Or would you consider something more transformational?.

Yes. Let me take that first part on volumes, Louise.

I would say our volume growth is largely coming -- it's coming across all species and the animal numbers have not increased that much, so we're really getting better penetration on our products, whether it's penetration into the diary market, penetration into some of the growth initiatives that we've talked about in the past for some of our MFAs.

It's -- the animal numbers are probably inching up slightly, but we're -- I think we're seeing growth more on some of our focused initiatives rather than just riding the rising tide. .

But come back -- it's Jack, as well. But beyond that, besides what we look at and what it affects our business besides the number of animals, it's also the weight of animals. And what we are seeing around the world as well is -- sort of the larger animals, because of better nutrition, because corn, soybean is cheaper.

So it pays to grow an animal a bit larger than in the past. So -- and that the bigger the animal, the more it eats, the more it needs our ingredients. So we are seeing a combination of, as Dick says, penetrations. We increased our sales forces.

We're seeing some growth in animals and some restoration in some of the markets around the world, especially where there was drought or where there was diseases. And finally, the overall increase in the weight of the animals. And then, finally, to the issue of -- we'll continue on label changes.

We continue to work with -- in the United States with the FDA and with our regulatory development teams on building towards compliance with, call it, 209, 213. And we see no change in the time frame. We expect all these things to be implemented sometime towards the end of 2015 calendar, maybe early 2016.

And we are on target, hopefully, to achieve our goals. Finally, on overall industry trends. It seems -- we read the announcement the same as you did. There seems to be a lot of excitement. We continue, as we said in the past, to look for bolt-on acquisitions.

And it's -- we are seeing some possibilities and nothing that we're at a stage to want to announce. But this business overall is growing around the world. I mean, it's a business, as I said earlier, that basically for the people to eat healthier and better.

And as the world economy recovers from the 2008, 2009 and as we see -- we are seeing growth around the world. So that pertains well for our organic business as well as some potential acquisitions. .

Our next question is from Erin Wilson of Bank of America. .

On the MFA, their business was a little bit lower than what we had expected or at least somewhat of a deceleration. Is this -- how should we think about the quarterly progression of that segment? And then, I guess, for the second question, again on the Animal Health industry consolidation.

There was a bid out there by Cargill for Nutreco? Do you see any pressure from potential consolidation of some of your customers at all?.

So the first one we -- the MFAs, at the end of the day, are involved with treating diseases in animals and it's not like looking at same-store sales. I mean, the animal diseases ebb and flow around the world depending on various conditions. We were satisfied with the growth of this quarter.

We look at our business sort of, again, across species and across the products so we deliver to them. I don't think it portends anything for the next quarter, up or down. We are seeing, still, strong demand of all our products across all platforms and in all markets.

Consolidation, the -- typically the interest in Nutreco, I don't think what we're seeing, I mean, around the world, will affect our business.

And I mean, at the end of the day, and I think I've said it often in the past, our ultimate customer is the single animal and whether it's a chicken, a pig, a cow, as we grow into fish, and those animals need to be fed and they need to be treated and they need to be supplemented. And we are fairly agnostic who delivers, who does that.

So in other words, a larger Nutreco or a smaller Nutreco, a larger Cargill, et cetera, et cetera, I don't think really affects our business at all. .

Okay, great. And just quickly on the tax rate.

What's anticipated or embedded in your guidance at this point? And can you give us also an update on China?.

Yes. So taxes, we're -- our guidance for the year was $10 million to $12 million of cash income taxes, and that's still our guidance. We haven't changed that. So that's what's embedded in those EPS numbers. And China... .

Typically, China, what we've spoken in the past is -- was on additional specialties, we're waiting to receive certain licenses, which we have now received. And we've recently signed on with an important distributor, to begin to market our specialty products in China.

So it's so far no business yet, but that -- the milestone of getting that registration was achieved, and we're starting up that business. .

[Operator Instructions] Our next question comes from Mohammed Sajanlal [ph] of Barclays. .

This is Mohammed [ph] in for Doug Tsao.

Just curious about the declining Performance Products business, are there any plans to divest that business?.

I mean, we, again, stated often, Mohammed -- and thank you for asking the question. We -- this is a business that we call our legacy business. Some of these products date back sort of generational for us. And we continue to look for opportunities, really to return the best value to shareholders.

Right now, the best value is continuing to operate those businesses, but they're not core, as you can tell so from Dick's presentation and for time that I spent on it on this call, what we think about every day is our Animal Health and Nutrition business and then whatever time is left over, we spend on the Performance Products. .

I'm showing no further questions at this time. I'd like to turn the conference back over to Richard Johnson for closing remarks. .

All right, everyone. Well, thank you for listening in. We'll look forward to talking again in about another 90 days. So in the meantime, I hope you're all well and enjoy the Thanksgiving holiday. Bye now. .

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day..