Jack C. Bendheim - Chairman, President and Chief Executive Officer Richard G. Johnson - Chief Financial Officer.

David Risinger - Morgan Stanley Louise A. Chen - Guggenheim Partners, LLC Erin E. Wilson - Bank of America Merrill Lynch Irina R. Koffler - Cantor Fitzgerald LP. Douglas D. Tsao - Barclays Capital, Inc. Matthew Brooks - Macquarie Capital Securities Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Phibro Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Chief Financial Officer, Mr. Richard Johnson. You may begin sir..

Thank you, operator and good morning, everyone and welcome to the Phibro Animal Health earnings call. This is for our third second quarter ending March 2015. With me today, are Jack Bendheim, the Chief Executive Officer, and myself.

We will provide an overview of our quarterly, we prided some updated guidance for our current fiscal year ending in June and then we'll of course open the lines for your questions. Before we begin, let me go through the boiler plate.

Let me remind you 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 of this morning’s call which can be accessed on the website as well.

Today's presentation slides and a replay and transcript of the call will also be available on the website later today. Our remarks today may 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. In addition our remarks today will 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 is included in the tables that accompany the earnings press release.

And now here is Jack Bendheim for some overview comments on our business. Jack..

Thanks Dick, we are pleased with the development of our Animal Health and Mineral Nutrition segments, and believe we are well positioned to take advantage of the continued global growth in animal protein and the need to maintain the health and safety of production animals.

In addition we continue to (ph) [offerly] seek reasonably sized opportunities where we can extend the reach of our sales force into adjacent categories or line expansions. Similar to the MJ Biologics agreement we announced January. Let me comment on recent news from the U.S. Poultry industry and important market for us.

An outbreak of Avian influenza hit the industry mostly in the mid west and especially in Turkeys and egg layers. This serves as a reminder that our business is first and foremost by keeping animals healthy and that there are many packages out there some feed able and some not.

To-date the poultry and expansion the animal health industry has been fortunate that this outbreak has been somewhat limited that is the testament to the extensive bio security and health measures our customers take every day.

To-date our business has as seen limited affect from the outbreaks, through there is a risk that influenza becomes more wide spread should it spread, it could have a short-term effect on our U.S. business, until the industry rebuilds production.

We could also see a pickup in our business in the markets and as those markets step into be global demand currently served by U.S. exports. Also in the news release on these several U.S.

retail outlet and most recently a couple of major poultry producers announced their intentions to sell or produced poultry raise with a more limited number of antibiotics within the next few years. Over overall view of this development is favorable for a number of reasons.

Firstly there appears to be a consensus forming among all industry players that there needs to be some role for antibiotics as appose to completely antibiotics free approach.

Secondly, and related to this point it is a recognition that animal welfare and health is an important ethic and that consumers and the industry wants animals kept healthy and treated when they are sick. As a result there is a role to play going forward, so perhaps a smaller than currently even for those antibiotics that are also immune medicine.

This is captured by recent statement of NASPCA spokes person who said and I quote “if animal welfare is not addressed in conjunction with (ph) [Phibro] backed drugs this actually be a very dangerous move for birds and ultimately for consumers” and finally and looking to minimize the use of antibiotics, industry and technology overall cost for raising poultry and the overall spend in animal health products including vaccines, and nutritionals or likely ingredients.

In some cases these less cost effective products will possibly replace proven antibiotics. We believe we are well positioned to capture our fare share of that increased spend due to our historically unique model represented by our animal health focus on nutritional specialties along with the more established MFAs and vaccine products.

With that I would like to turn and expect Dick to go over the financials and look forward to discussion at the conclusion of our presentation..

Thanks jack. Turning to our Q3 overall results, we reported a $187 million of consolidated sales so that was growth of 8%. Animal Health and Mineral Nutrition segments each had growth and we will discuss the individual segments in a moment.

In addition in the quarter we recoded the final licensing milestone revenue of $2 million contributing to the net sales and EBITDA growth.

At the gross profit line, gross profit was 3.1% of sales and improved 12% on the 8% sales growth, if we look at it without the licensing income gross profit improved 8% on 7% sales growth, so the margin continued to expand.

Selling General and Administrative expenses increased 5% more modest increase than the sales increase, so driving leverage there, and essentially of the increase was in the Animal Health segment.

Dropping that down through to the adjusted EBITDA we reported $27.5 million of adjusted EBITDA that was growth of 23% and excluding the licensing income growth was 14% and an operating margin of 13.7% which was a 70 basis point improvement in the operating margin in the quarter.

Adjusted EBITDA was $0.41 growth of 14%, the improvement was driven by the EBITDA growth partially offset by a higher income tax rate this year, the adjusted effective tax rate was about 17% for the quarter and about 15% year-to-date.

Turning to the Animal Health segment net sales were $117 million and increased 19%, increased 9% including the licensing milestone, setting that aside sales grew 7%, fundamentally on volume growth. MFAs and others growth was driven by the U.S.

and Latin America regions as has been the case for some time now our dairy focus in Nutritional Specialties drove the growth in that product group 23% in the quarter and it primarily came from U.S. volume growth, vaccine showed good volume growth even putting aside the licensing item, sales increased 19% in the quarter primarily from U.S.

initiatives but also from certain international markets and the recent transaction we announced in late January called MJ Biologics, the MJB revenues added a small benefit in the quarter, but organic growth was the primary driver in the vaccine product group.

EBITDA for Animal Health $29.6 million that was growth of 16% setting aside the licensing EBITDA grew 8% and the EBITDA margin improved and the segment by 30 basis points to 24% of sales and that was driven by gross profit improvements from the volume growth as well as favorable cost of goods as we saw reduced production cost in our manufacturing plans due to favorable currency movements.

And we continue to put operating expense investment behind our Animal Health growth initiatives although at a more moderate pace so that again help with leverage. So turning now to our other segments, Mineral Nutrition continued its growth and improved margins that we began seeing in our June quarter last year.

Net sales of $57 million were up 15% on the bond volume growth and generated almost $4 million of EBITDA which was up 34% driven by the volume growth as well as the expanded margins that we've been seeing now for basically a year, this is the fourth quarter we have seen this that driven by improved demand.

Performance Products sales were down in the quarter compared to last year, but improved product mix and favorable operating expenses resulted in slightly improved EBITDA. Corporate costs continued at a consistent run rate and were a slight increase over the prior year.

Looking briefly at our capitalization and capital allocation, our leverage ratio was 2.7 times at the end of March and we ended the quarter with $21 million in cash on hand, we generated $6 million of net cash flow before financing for the quarter and that included funding $10 million for the MJB transaction.

CapEx was just over $5 million in the quarter at about $13 million year-to-date.

We do anticipate increased CapEx investment going forward for the remainder of our current fiscal year and into next fiscal year, we then use that cash flow generated before financing we used it to pay the routine quarterly dividend and make schedule debt reduction and various other items and speaking of the dividend, we’ve declared our next routine quarterly dividend the $0.10 per share and its payable in late June.

Looking now at updated guidance which we've provided in our press release, we’ve updated our expectations for the fiscal year and we now expect net sales to be in the range of $749 million to $754 million for the year, that’s an annual growth rate of 8% to 9%.

It does imply a lower growth rate for the balance of the year, largely due to a slower growth rate in our animal health segment as we’re seeing some customers outside the U.S delay or reduce their purchases due to effect of the strong U.S dollar.

And also our Mineral Nutrition segment, we are expecting net sales there to be approximately even with last year due to the overlap with a strong quarter last year. And we expect adjusted EBITDA in the $109 million to $110 million range that’s 20% to 21% increase for the year.

For the balance of the year, we expect to see EBITDA margins continued to expand as we see leverage from cost to goods and operating expenses. Adjusted EPS expected in the $165 to $1.67 of level for the year fundamentally driven by the EBITDA improvement.

So we’ve updated our guidance for our June 2015 fiscal year, we’ll provide guidance for our next fiscal year at the time we report our year end results, but we do want to note that our fiscal year 2015 results include $8 million of milestone revenues in profits related to the licensing of our proprietary vaccine technology and those are the final milestone of items that we will receive under the licensing agreement.

And included in that $8 million that we booked for our fiscal 2015 was $4 million that we had originally expected to be triggered and receive in next fiscal year. Looking forward future licensing revenues will be royalty based and subject to annual minimums that contractually the annual minimums begin in January of 2016.

Our preliminary estimate for fiscal year 2016 is for royalty revenues of less than $1 million of and occurring primarily in the second half of that fiscal year. So that concludes our prepared comments. Operator if you would please open the lines for questions. Thank you..

Certainly [Operator Instructions] and our first question or comment comes from the line of David Risinger with Morgan Stanley. Your line is now open..

Great, thank you. Congrats on the performance. I just wanted the follow-up on couple of questions that maybe a little bit difficult to answer but, for an understanding, how you’re expecting about it.

Dick you had mentioned that the strengthening dollar did impact to be into some degree, could you just talk about that a little bit further and how we should think about the impact in the future.

And then separately with respect to the bird flu, if you could speak to may be Jack you can comment on that and, whether there is any risk to your revenues in the near-term as a result of the bird flu. Thank you..

Yes, let me take that first part of foreign exchange David, I would say we’re seeing somewhat a low level of reduction in our Animal Health segment, we don’t view it as a longer term issue, there may be people who are just adjusting to some new exchange rate realities, but we do see it having an effect probably in our June quarter.

I don’t know that I can say more than that..

Dave, its Jack.

I think reality it’s a sticker shop, I mean we export our products around the world pretty much dollar basis, so in some countries, Russia for example where the currencies got so wide apart and there need to be an adjustment, because the competing products are also in foreign currencies, not necessarily in dollars but even in the Euros against Rubel was big.

So our products we sell, because of the quality and they need it. So literally there is some adjustment and we were seeing it so we don’t see it to be great problem but it’s just a small problem. On the Avian influenza, I mean you will see a slight reduction down on the export side about 6%, because of countries blocking U.S.

exports, I mean, so if you look at exports for poultry in the United States is around 20%, 25% so there will be an effect across the whole industry. On the other hand as you know so well David, I mean, other people could put on more poultry will move around.

So if this influenza is limited to the central part of the concave we see now, Minnesota, moving down a little bit into Iowa and then down to Missouri. Well, then the poultry production in the parts of the country which is part of the U.S. (ph) [Buyer] security will pick up. So it’s hard to predict exactly..

Okay. Thank you very much..

Thank you, David..

And our next question comes from the line of Louise Chen with Guggenheim. Your line is now open..

Hi, thanks for taking my questions. So my first question is with respect to the I guess OUS issue with the customer orders, I’m just curious which countries have been affected by this exchange rates the most and where seeing an impact in customer orders and secondly, can you remind us what percent of sales are outside the U.S.

and then I just have another question here on the U.S. poultry, curious what percent of your sales are U.S. poultry and what percentage of those are antibiotics. Thanks..

Right. So all of U.S. the major markets where we are is and where currencies have moved dramatically, you can think of countries like Brazil, you can think of eastern Europe and Russia, you can think of maybe some countries in South East Asia. So those are the primary markets where we are seeing some sticker shock as Jack called it.

In terms of, you should look at our business; let’s just focus in on the animal health segment. Alright, because fundamentally all of our Mineral Nutrition business, all our performance products is U.S. but set that aside. Of our animal health segment, we’re about 45% in the United States in 55% OUS, something like that.

And I would without having the numbers directly in front of me poultry is a meaningful part of that business both; it’s as meaningful in the U.S. as it is OUS. So it’s a significant part of our business across all of our regions..

But we are talking literally at about sort of history of the quarter as we are seeing and talking about our business, this coming quarter and through next year, we’re seeing those markets comeback, I mean in many cases we might be readjusting our prices little bit in some cases what happens the other entries of those markets, their inventory is used up they had there and the new prices come in.

So I would say it’s more temporary in terms of the currency and as we see also the currency, the gap is shrinking not widening in these days, sorry..

No go ahead..

On Avian influenza you’re asking..

Yes, I was just curious if you could talk about - start to talk about the actual percentage do you have sort of a percentage of sales that go to U.S.

poultry?.

No we don’t break down our business that way. What we are talking about percentages is the percentages of U.S. poultry that gets exported, talking about the U.S. poultry industry and what USDA has calculated is so far as the effect on U.S. exports because of the Avian Influenza..

Okay. And I just one other question if I could squeeze it in. In the beginning of the call you talked about expanding your product portfolio, I'm just curious what you are looking at there, are you seeing some interesting opportunities that you could act upon this year? Thanks..

I don’t see anything that we would be acting upon this year that would have any major significance, but we are looking both in the U.S. and outside the United States interesting opportunities to grow our business through acquisitions..

Thank you..

And our next question or comment comes from the line of Erin Wilson with Bank of America. Your line is now open..

Great, thanks for taking my questions; hopefully you can hear me here.

Can you breakout geographically what was sort of the underlying growth or demand trends you saw in the MFA segment in the U.S.?.

Well I would say so our MFA business grew $2 million in the quarter, more than all of that was driven by the U.S and Latin America/Brazil..

Okay..

If that gives you a sense..

And how should we think about MJ Biologics contribution going forward?.

I think that it will you can think of it is giving a nice boost to our vaccine growth, it won’t do much for profitability in the early periods as we integrated and began to build mass, but it will give us some incremental growth in vaccines. Not huge, okay..

And then two other things could you talk about OmniGen in China and maybe what are the countries you expect to enter in over the near and longer term like three to five years and then also the opportunity in Agriculture?.

So we continue in China in setting up as we sad in last the quarter, quarter two that we have distributor set up, now we are working on setting up the trials, we need to do Chinese trials to show that the Chinese cow’s reacted than the U.S.

cows, so we are in the midst of joining that and we continue in our European EU plan in adding countries that's what we are focusing on right now.

As we said long time ago, as of April a few months ago the European Union has stopped price supports from no production, so there is a scrambling Europe in terms of who will be the survivors, who won’t be to continue these small farms and consolidations.

So we need to be in these markets as this happens and people recognize that they need higher productive animals and this is our unique product and product that does not employ antibiotics. So we remain excited about these products and in growth areas including the United States.

On Aqua, Aqua is an investment we made maybe a little over year ago; we continued so far spending money.

We are testing a few products some of our own, some outside products and in these preliminary budgets we are seeing and we will be seeing sales in the next fiscal year, but it’s too early to sort of quantify that but there is a lot of growth in Aqua and its good market to be in..

Would that be contributing to the Vaccine segment next year?.

I won’t be next year, but I think it will be in the following years because we’re working on the vaccine development as well out of our Israeli vaccine plant to figure out the right diseases and also the right way to vaccinate, to in the markets that we’re ever been strong in, but something where we’re working on it..

So to answer it the other way around here, and we would see the growth in the MFAs and nutritional specialty product groups in the shorter run..

Got it, got it, great..

That what we need to achieve..

Great, thanks so much..

Thanks, Erin.

And our next question or comment comes from the line of Irina Koffler with Cantor Fitzgerald. Your line is now open..

Hi, good morning.

So my question is about the timing of revenues into next year, you made some kind of cautionary comments about 2016 without the vaccine milestones, but just wondering if there is some cyclicality to these, delayed OUS payments where some of these players might then suddenly jumping in byproduct next year, which would maybe softened some of the comps and then just how you think about that because clearly you’ve been operating for long time and you’ve seen these types of cycles before or so just how does it play out.

Thanks..

I think it plays out fine, as we say, we’ve seen these cycles before. We only went publicly a year ago. So we weren’t so focused on quarterly stuff, but again we've seen these cycles before, these markets comeback, products move around, the customers adjust and we adjust, so we are optimistic about next year.

And we’ll put out our guidance as Dick said when we announce our June earnings, but all of those factors coming together, looks quite positive for next year..

So just to be clear, in spite of the $8 million comps and in spite of the delayed payments, do you think next year you will guide us some degree of growth..

Yes, I mean our view is, we need to look at this on the comps, fundamentally set-aside the $8 million, so we’ll guide to a nice level of growth on that base.

And we should be more than able to offset the $8 million, but I guess our cautionary was we see some analysts out there, who are putting big growth rates on the total number for 2015 and they seem fairly aggressive for 2016..

Got it. Thank you..

And our next question or comment comes from the line of Douglas Tsao with Barclays. Your line is now open..

Hi good morning.

So just maybe if you could provide a little bit more context around your comments regarding sort of the steps we've taken by some consumers regarding use of antibiotics in terms of - maybe I think it would be helpful for people because certainly I’m getting questions that regarding sort of how that plays out and is this something that you think manifesting your business in the next six months or something that you sort of have to address in the next six months or is this more two to three year type of sort of trend in the business?.

That is a very good question, I think stepping back what the industry has gone through if you talk about it five years ago or four years ago, no one have discussed the fact that animals get sick, I mean that was not a way to sell a piece of chicken or anything in supermarket.

So what’s changed as had this outside focus on antibiotics and maybe not the form, but the antibiotics that are used in the United States in animal health are predominantly unimportant antibiotics vis-à-vis use to human consumption, with the bulk of the antibiotics is sold in United States and not even licensed to be used in humans, something called Ionophore.

The other big products are not critically important for human health so there is very, very little antibiotic resistance drugs that are not used by humans, so that's the absolute definition of antibiotics business, but the pressure has been very, very strong and so McDonalds think this is going to be fine for them.

So what’s happening, again animals getting sick, people are recognizing that they need to treat sick animals, all right because no one is going to want to see movie of house 25,000 chickens which 10,000 have dropped dead because of various diseases.

So this can be an alignment and there is also going to be a need if you’re not using antibiotics to prevent diseases, then you’re going to have to use other products.

So this shift will happen quite slowly, it’s going to be a long ramp, it’s something that - and as I said earlier at the beginning of this presentation, we have a range of other products non-drug based that we think will help the growers deal with the conditions the animals see. So there is no ban on these products.

I think more so there is a recognition of the consumers that they want healthy animals and on top of it, if we don’t have the healthy animals besides sick animals, you will also have the potential of animals being sick carried over to the food chain, which will be a disaster.

So the announcements are huge, the change will be quite slow and we’ve been involved in these changes for long time and we think overall our business will be fine..

And then just as a follow-up, that was really helpful, just when you think about sort of capital allocation and sort of portfolio expansion, is this something that you’re thinking about in terms of sort of strategically sort of positioning your business in terms of what else you might want to bring into the business?.

I think strategically what we want to be is, we want to have as many products available to whatever protein is going to get grown, where it’s going to get grown. So, yes, we are focusing on U.S poultry and international poultry. We’re focusing on the swine industry both the United States and across the world.

We’re growing and we’re in dairy cattle as well as cattle and sign of Aqua and our investments and that’s question is continuing in these markets that have the ability to grow animal protein inexpensively.

So that’s why we are expanding our efforts in Asia, we’re expanding our efforts in South America and Latin America, we continue to expand in the United States..

Okay great. Thank you very much..

Thanks Doug..

[Operator Instructions] And our next question or comment comes from the line of Matthew Brooks with Macquarie Capital. Your line is now open..

All right, good morning, guys. I was just wondering as the follow-up to that question about the antibiotics issue. I wonder if you can provide an update on the percent of sales that are currently impact by this.

And also you mentioned the reaction in the USA, do you see the same kind of reaction against antibiotics in other markets in particular some of the emerging markets which are your growth market?.

I didn’t catch the first part of the question, but towards the second part, in the emerging market again people will treat sick animals and we don’t see this effect - in the industry try to cohort the whole foods effect, we don’t see this effect in emerging markets where I’ve said this before in Indonesia, they’ve gone 15 years ago from a chicken a month to market now which is one to two chickens a week.

That people are raising at a poverty, people getting animal protein for first time and you can’t afford to have to raise animals and not treat them when they get sick and the most effective treatment is antibiotics and these antibiotics again not important antibiotics vis-a-vis the human health.

So in those countries where people are raising from being poor and to being wealth, they’re not there yet fast forward 20 years from now, they will have the same thing as United States, but it’s not for the next 10 years..

They would you just say that it is most important today that they get cheap meat rather than having meat without antibiotic?.

So….

Yes, it’s wholesome, healthy, cost effective..

We often stated in Brazil a kilo breast meat of a chicken was different currencies $5, the US $7 and in Europe $14. So obviously there is profitability and also question of the math, so yes I think offering cheap, wholesome, healthy animal protein for the developing world..

And the question that maybe wasn’t clear was what percent of your sales was impacted by this?.

Largely its U.S. poultry which is, I mean it’s a relatively small part of our business, we don’t talk about that level of granularity, but I mean it’s a smaller part of our business, we are fairly diversified across species and across geographies..

Okay, thank you. End of Q&A.

And I'm showing no further questions or comments at this time, so with that I would like to turn the conference back over to Chief Financial Officer, Richard Johnson..

Well thank you everyone from the chief I will say good bye and thank you for your time and we I'll talk again when we release our year end results. So have a good day everyone..

Ladies and gentlemen, thank you for participating in today's conference, this concludes the program. You may now disconnect..