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 First Quarter 2025 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. [Operator Instructions] I would now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead..

Thank you, Regina. Good morning and welcome to the Phibro Animal Health Corporation earnings call for our first quarter ended September 30, 2024. My name is Glenn David, and I'm the Chief Financial Officer of Phibro Animal Health Corporation.

I am joined today on today's call by Jack Bendheim, Phibro's Chairman President and Chief Executive Officer; Donny Bendheim, Director and Executive Vice President of Corporate Strategy; and Larry Miller, Chief Operating Officer.

Today, we will cover our financial performance for our first 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 Investors 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 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 include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or US GAAP.

I 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 non-recurring items including stock-based compensation. Other income expense is separately reported in the consolidated statement of operations including foreign currency losses, gains net.

Also income taxes related to pre-tax income adjustments and unusual or non-recurring 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 thank you to everyone joining us this morning. We had an extremely strong start to the year with our Animal Health business growing sales at 14% in the quarter led by vaccines growth of 22% and MFA and other growth of 15%.

And continuing the trend we saw at the end of our last fiscal year our Mineral Nutrition segment grew at 5% in the quarter, while our Performance Products segment grew at 27%.

These results reflect successes in many different areas as we look to increase our share of customer wallet, raise prices where appropriate, benefit from industry tailwinds and in certain areas increased seasonal disease pressures. Our leverage bottom-line growth also reflects our increased attention to operating efficiencies.

We anticipate that these gains will be highlighted in the future as we begin to roll out the initiatives of our Phibro Forward program. As previously discussed, most of the impact from Phibro Forward should be seen in the upcoming fiscal years.

These results are impressive in their own right, but even more so with the backdrop of the incredible amount of work done by so many of my colleagues preparing for the close of our acquisition of the Zoetis' Medicated Feed Additive business.

As such I would also like to take this opportunity to thank the many Phibro employees for their tireless work and welcome our new colleagues who have joined us with the closing of the acquisition.

As I stated in our press release, we see an extremely bright future for the new Phibro as we are not only well-positioned to grow our MFAs and other category, but we are now at a much more significant size and scale overall which we intend to leverage for the benefit of all our portfolio.

As Glenn will further detail we are also providing updated guidance for our fiscal year 2025 which shows mid single-digit growth in revenue and a leveraged P&L on a standalone basis. We anticipate the favorable momentum we saw this past quarter will continue throughout the fiscal year.

The guidance provided is Phibro standalone and does not include the Zoetis portfolio.

Preliminary estimates for the Zoetis portfolio for the eight-month period in fiscal year 2025 include net sales of approximately $200 million with an adjusted EBITDA margin of approximately 20% and adjusted earnings per share of approximately $0.25 inclusive of incremental interest expense.

Negative GAAP earnings per share is driven by required purchase price accounting adjustments on cost of goods sold and onetime deal costs. I'll give it back to Glenn..

approximately $200 million in revenue, approximately 20% EBITDA margin, approximately $0.25 adjusted EPS impact. We will incorporate Zoetis into our fiscal year 2025 guidance in our Q2 earnings release.

The preliminary estimates for the Zoetis MFA contribution to fiscal year 2025 includes some of the usual impacts you would expect during an integration such as destocking of inventory, the impact of blackout periods and incremental costs related to transition service and distribution service agreements.

We remain confident in our ability to deliver over $0.60 adjusted EPS in our first full fiscal year 2026 and our ability to deliver below 3x net leverage by fiscal year 2027. In closing, we're excited about the strong performance in the quarter and the momentum for fiscal year 2025.

We are confident in the demand for our products around the world and look forward to seeing continued improvement in our business as we move forward.

With that, Regina, could you please open the line for questions?.

[Operator Instructions] Our first question will come from the line of Ekaterina Knyazkova with JPMorgan. Please go ahead..

Thanks you much and congrats on the quarter. So first question is just around gross margins. It seems that, that was particularly healthy, especially relative to last year. Can you talk a little bit about what drove that? Is that coming mostly from price or product mix or something else? And then second question is just on the acquisition.

Just any surprises as you've gone through the process of closing that transaction? Any areas of the portfolio where you're seeing any incremental opportunities or any areas where you think you will need to put additional investment behind? Thank you so much..

Yes. Thanks for the question, Ekaterina. So gross margin. There are a number of factors that drove the positive gross margin that we saw in the quarter. First was mix, starting very strong performance in our vaccine portfolio with 22% growth.

And also even within the MFA and other category, there are certain products that have higher gross margin performed very well in the quarter. We also saw a benefit from input costs in some of our products being favorable and also foreign exchange had some favorability as well in terms of the overall gross margin.

In terms of surprises from the acquisition, as I mentioned, we're only a few days in at this point, and we're obviously working through additional information that we got at closing, but nothing initially poses any big surprises that we've seen..

Let me just add to that, that our sales force, both domestic and internationally, continue to be very, very optimistic about the portfolio that we acquired. And obviously, we'll work through some early month starts, early day starts. But overall, I think this is going to prove to be an exceptional acquisition for the company..

Thank you so much..

Our next question will come from the line of Michael Ryskin with Bank of America. Please go ahead..

Great. Thanks for taking the question guys and congrats on a great start to the year. Let me fire some of these off in rapid succession. First, on the Zoetis MFA acquisition, the $200 million in revenues, 20% EBITDA margin.

I think you previously talked and $0.25 of EPS, right? I think you previously talked about full year first 12 months, $400 million in revenues and $0.60 in EPS.

Is this just timing? Is there some seasonality? I mean, I guess, I realize it's eight months versus 12 months, but I would have thought that the eight-month contribution would be a little bit higher.

So just kind of can you walk me through the bridge there?.

Sure. So when you look at the guidance that you mentioned, right, we had talked about a trailing 12 months revenue initially at the time of the deal of about $400 million. We updated that in one of the future calls that the trailing 12 months was around $375 million.

And I'll say our deal terms did not necessarily translate that exactly into what the future revenue would be. When you look at the revenue of $200 million, obviously, that's lower than what we'd expect for a normal eight-month period. Within the first eight months, there is destocking related to the deal.

And that's just destocking that we sort of required as part of the transition. There are certain markets where due to the regulatory transition, you're not allowed to sell, call it, six months to a year, and the customers then had to purchase in advance to make sure that they could satisfy the customer need over that time.

And then in a lot of our larger markets as well, there are certain blackout periods as we transition to us providing new orders as well. So those are all normal things that you'd expect. And those hit most impactfully in, call it, the first three to six months of the deal.

So it's really more transitionary impact and not a reflection of lack of confidence in still being able to deliver a significant normal 12 months of revenue gain. And in terms of $0.25 in EPS, as you mentioned, we had guided to $0.60 for the first 12 months. If you translate that to eight months, that's $0.40.

Some of these impacts that we're talking about at revenue, which, again, are just transitionary in nature, did impact that delivery of what would have been a straight $0.40..

Okay. Okay. All right. That's helpful. In the press release, I think you also called out that as you're curating your portfolio, you discontinued the atopic derm product project.

Just curious on any additional color, you could provide there? Was that tied to any of the other developments in the derm space that you've seen from others in the last couple of months? And just sort of how should we think about the companion animal investment going forward? Is that money just directly being shifted somewhere else? Is there just how do we think about the pipeline there?.

Michael, I'll take it, Donny. So we've always had a very strong target product profile for our, for that product as well as all of our products and we stick to it. We have quarterly updates where we look at where we're doing, and how we're doing versus our TPP. And frankly, it missed the mark. And so we discontinued it.

I'm not going to get into specifically where it missed, because it's not fair to our licensure. But we are continuing to be bullish about our overall pipeline and continue to invest in it. As far as where the dollars from Derma Care or what we call the atopic dermatitis product go, I think that's still to be determined.

But we will continue in that going forward..

Okay. And if I can squeeze in one last one, maybe just a high-level question on the MFA business on the legacy, on your existing MFAs and other business, 15% growth in the quarter. You guys have obviously had a really impressive stretch here, multiple quarters in a row.

I mean going back the last couple of years, what I would think to be above market growth or above what we would historically have thought of MFAs. You called out a couple of drivers in terms of just demand, some new products. But just maybe take a step back and put that MFA performance for Phibro over the last year or two in context.

Just how sustainable is that? Is this meaningful share gains from others? Is this -- the market is sort of taking an incremental step higher and now, it's a better performing market. Just big picture thoughts on the strength in MFAs for you..

Sure, Mike. This is Larry. I'll take the question. So as you mentioned, the first thing in particular as we look at first quarter performance, it was continuing strong trend that we experienced particularly in the second half of our FY 2024. So that trend continued.

Within the first quarter itself, we do certainly have had some favorable seasonality disease challenges particularly in the Southern Hemisphere, their winter months that really added a lot of demand for our products in the fourth quarter of 2024 our FY 2024 and the first quarter of our FY 2025.

And we did have a couple of timing pattern orders, that took place in our first quarter, that were favorable to the first quarter of last year. But I guess, overlying we just see very strong continued demand for our products. And I think that's, how we see it..

Yes, Mike. I would just add, right? I think it's products and people, right? We have strong focus on these products and we are dedicated to going out and discussing these products with our customers, and really sharing the benefits.

And that's what gives us additional confidence in acquiring the Zoetis MFA portfolio, and believing that we could have better performance than perhaps they've had in the past..

And within our Animal Health products, certainly MFAs, but also we had very strong performance in our nutrition specialty products as well as our vaccines.

Great. Thanks so much. Congrats again, guys..

Our next question will come from the line of Lynn Schultz with Morgan Stanley. Please go ahead. Lynn , you might be on mute. Our next question will come from the line of Navann Ty with BNP Paribas. Please go ahead..

Hi. Actually my question have been answered. I had the same question about the different numbers on the Zoetis MFA and maybe on the strategic priorities after the discontinuation of AD. Yes, I think my questions were answered, unless you have anything to add. Thank you..

Nothing to add. Thanks, Navann.

[Operator Instructions] And with that I will now turn the call back 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 attention interest and support of Phibro Animal Health and hope you have a great day..

That will conclude today's call. Thank you all for joining and you may now.