PHIBRO ANIMAL HEALTH CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Animal Health business grew sales at 14% in the quarter led by vaccines growth of 22% and MFA and other growth of 15%. Mineral Nutrition segment grew at 5% and Performance Products segment grew at 27%.
• Results reflect successes in increasing customer wallet share, raising prices, industry tailwinds, and seasonal disease pressures. Increased attention to operating efficiencies is highlighted with the rollout of Phibro Forward program.
• Impressive performance with the backdrop of work done for the acquisition of Zoetis' Medicated Feed Additive business, thanking employees and welcoming new colleagues.

Segment Performance

• Animal Health segment: Net sales of $182.5 million for the quarter, an increase of $22 million or 14% versus the same quarter prior year. MFAs and other net sales grew $13.7 million or 15%, vaccine net sales grew $5.8 million (22% increase), and Nutritional Specialty Products net sales increased $2.4 million or 6%. Adjusted EBITDA was $40.4 million, a 42% increase.
• Mineral Nutrition segment: Net sales of $59.1 million, an increase of $3 million or 5% due to increased sales volume and price. Adjusted EBITDA was $3.8 million, a year-on-year increase of $0.9 million.
• Performance Products segment: Net sales of $18.8 million, an increase of $4.1 million or 27%. Adjusted EBITDA was $2.3 million, growing $0.9 million versus the same quarter prior year.

Guidance

• For fiscal year 2025 (stand-alone basis without Zoetis acquisition): Net sales expected $1.050 billion to $1.1 billion (3%-8% growth, midpoint ~6%). Adjusted EBITDA expected $124 million to $132 million (11%-19% growth, midpoint ~15%). Adjusted net income expected $55 million to $60 million (14%-24% growth, midpoint ~18%).
• Preliminary estimates for Zoetis portfolio for eight months in fiscal year 2025: Net sales ~$200 million, adjusted EBITDA margin ~20%, adjusted EPS ~$0.25. Early benefits from Phibro Forward initiative included, with onetime costs related to the initiative in GAAP guidance.

Risks

• Incremental opportunities and challenges related to the acquisition such as destocking of inventory, impact of blackout periods and regulatory transitions.
• Financial risks including foreign currency fluctuations and interest rate changes.
• Seasonal variations in product demand that could affect performance.

Question and Answer

Q: 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?

A: 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. Jack Bendheim: 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.

Q: 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?

A: 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.

Q: 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.

A: Nothing to add. Thanks, Navann