Phibro Animal Health Q1 2025 Earnings Report

Phibro Animal Health EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.23
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $0.14

Phibro Animal Health Revenue Results

• Actual Revenue: $260.40 million
• Expected Revenue: $277.76 million
• Beat/Miss: Missed by -$17.36 million
• YoY Revenue Growth: N/A

Phibro Animal Health Announcement Details

• Quarter: Q1 2025
• Date: 11/6/2024
• Time: After Market Closes
• Conference Call Date: Thursday, November 7, 2024
• Conference Call Time: 9:00AM ET

Phibro Animal Health (NASDAQ:PAHC) is a global animal-health and nutrition company that develops, manufactures and markets products intended to support the health, productivity and well-being of food-producing animals and companion animals. Its customers include livestock producers, veterinarians, feed manufacturers and distributors.

The company’s product portfolio includes vaccines, medicated feed additives, nutritional specialties, mineral and vitamin premixes, feed additives and other products used in poultry, swine, cattle, aquaculture and companion-animal applications. Phibro also supplies performance products and specialty ingredients used in animal nutrition and agricultural markets.

Phibro serves customers through operations and distribution networks across North America, Latin America, Europe, Asia, the Middle East and Africa. The company traces its roots to 1916 and became a publicly traded company on the Nasdaq in 2014. Its business is organized around animal health, mineral nutrition and performance products.

Phibro Animal Health Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 sales with 13% net sales growth to $260.4 M, driven by Animal Health (+14%), Mineral Nutrition (+5%) and Performance Products (+27%).
• Adjusted EBITDA rose 64% year-over-year, reflecting improved product mix, favorable input costs and operating efficiencies.
• FY25 standalone guidance raised for net sales of $1.05 B–$1.10 B (+3%–8%), adjusted EBITDA of $124 M–$132 M (+11%–19%) and adjusted net income of $55 M–$60 M (+14%–24%).
• Closed the Zoetis medicated feed additive acquisition, expecting ~$200 M incremental revenue and ~20% EBITDA margin over the remaining eight months, with integration guidance due in Q2.
• FY25 GAAP EPS expected negative from the Zoetis deal due to purchase price accounting adjustments and one-time transaction costs.

Presentation

[Operator]

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 speaker's 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. Please go ahead.

[Glenn David, CFO at Phibro Animal Health Corporation]

Thank you, Regina. Good morning and welcome to the Phibro Animal Health Corporation earnings call for our first quarter ended September 30th, 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, Dani 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 30th, 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, phibro.com.

[Glenn David, CFO at Phibro Animal Health Corporation]

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 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 U.S. 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 U.S. GAAP measures are included in the financial tables that accompany the earnings press release.

[Glenn David, CFO at Phibro Animal Health Corporation]

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.

[Jack Bendheim, Chairman of the Board of Directors, President, and CEO at Phibro Animal Health Corporation]

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%. In 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 product 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, increase seasonal disease pressures. Our leveraged 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.

[Jack Bendheim, Chairman of the Board of Directors, President, and CEO at Phibro Animal Health Corporation]

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 for the closing of the acquisition.

[Jack Bendheim, Chairman of the Board of Directors, President, and CEO at Phibro Animal Health Corporation]

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 categories, 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's standalone and does not include the Zoetis portfolio.

[Jack Bendheim, Chairman of the Board of Directors, President, and CEO at Phibro Animal Health Corporation]

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 one-time deal cost. I'm going to give it back to Glenn.

[Glenn David, CFO at Phibro Animal Health Corporation]

Thanks, Jack. I'm starting with our Q1 performance on slide four. Consolidated net sales for the quarter ended September 30th, 2024, were $260.4 million, reflecting an increase of $29.1 million, or a 13% increase over the same quarter one year ago. The animal health segment grew 14%, while mineral nutrition grew at 5%, and the performance product segment grew by 27%. GAAP net income and diluted EPS increased significantly, driven by increases in demand in both domestic and international regions, improved gross margin 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 first quarter adjusted EBITDA increased $12 million, or 64%, versus prior year. Adjusted net income and adjusted diluted EPS both significantly increased.

[Glenn David, CFO at Phibro Animal Health Corporation]

Increased gross profit, driven by sales growth, was partially offset by higher adjusted SG&A and higher adjusted interest expense, with a benefit from a reduced adjusted provision for income taxes. Moving to segment-level financial performance, the animal health segment posted $182.5 million of net sales for the quarter, an increase of $22 million, or 14%, versus the same quarter prior year. Within the animal health segment, we reported MFAs and other net sales growth of $13.7 million, or 15%, due to demand in both domestic and international regions. Vaccine net sales growth of $5.8 million, a healthy 22% increase, driven by poultry product introductions in Latin America, plus an increase in both domestic and international demand. Nutritional specialty products net sales increased $2.4 million, or 6%, mostly due to higher sales of microbial and companion animal products.

[Glenn David, CFO at Phibro Animal Health Corporation]

Animal Health Adjusted EBITDA was $40.4 million, a 42% increase due to higher gross profit from increased sales, partially offset by higher SG&A. Moving on to the first quarter financial performance for our other business segments on slide six. Starting with mineral nutrition, net sales for the quarter were $59.1 million, an increase of $3 million, or 5%, due to increased sales volume and price. Mineral nutrition Adjusted EBITDA was $3.8 million, reflecting a year-on-year increase of $0.9 million, driven by higher gross profit. Looking at our performance product segment, net sales of $18.8 million reflects an increase of $4.1 million, or 27%, as a result of higher demand for the ingredients used in personal care products. Adjusted EBITDA was $2.3 million and grew $0.9 million versus the same quarter prior year. Corporate expenses increased $1.7 million, driven by increased employee-related costs.

[Glenn David, CFO at Phibro Animal Health Corporation]

Turning to key capitalization-related metrics on slide seven, we generated $41 million of positive free cash flow for the 12 months ended September 30th, 2024. We generated $84 million of operating cash flow and invested $43 million in capital expenditure. Cash and cash equivalents and short-term investments were $90 million at the end of the quarter. Our gross leverage ratio was 3.9 times at the end of the first quarter, based on $477 million of total debt and $123 million of trailing 12-month adjusted EBITDA. Our net leverage ratio was 3.1 times at the end of the first quarter, based on $387 million of net debt and $123 million of trailing 12-month adjusted EBITDA. Turning to dividends, consistent with our history, we paid a quarterly dividend of $0.12 per share, or $4.9 million in aggregate.

[Glenn David, CFO at Phibro Animal Health Corporation]

As a reminder, $300 million of our debt is at a fixed rate of 0.51% plus the applicable margin. 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. As of quarter end, the remaining $27 million of our total debt is subject to variable interest rates, although offset somewhat by interest income earned in short-term investments. As of the date of the delayed draw of the $350 million in additional Term Loan A, the remaining $377 million of our debt is subject to variable interest rates. Effective July 3rd, we refinanced our credit facilities. Our new 2024 credit facility had an initial aggregate principal amount of $610 million, consisting of a $300 million Term Loan A and a $310 million revolver.

[Glenn David, CFO at Phibro Animal Health Corporation]

Included a $300 million Term Loan A, which replaced the company's existing 2021 Term Loan A and 2023 incremental term loan. Included a $310 million revolver, which replaced the company's existing $310 million revolver. Extended the maturity date of the company's 2021 credit facilities from April 2026 to maturity dates ranging from July 2029 to July 31. It also included a $350 million delayed draw term loan that has been exercised with the closing of the Zoetis transaction. Additional information regarding the terms and conditions of the 2024 credit facilities are contained in our Form 10-Q that was filed yesterday. Let's turn to slide nine, which lays out our guidance for fiscal year 2025. Please note that our guidance is on a standalone basis without giving effect to the completed acquisition of the Zoetis medicated feed additive portfolio.

[Glenn David, CFO at Phibro Animal Health Corporation]

Included in this guidance for fiscal year 2025 are early benefits related to our Phibro Forward income growth initiative that will help drive additional EBITDA and margin growth. One-time costs related to this initiative are also included in our GAAP guidance and primarily consist of one-time consulting fees. The initiative is focused on unlocking additional areas of revenue growth and cost savings, areas such as potential price increases, expanded product offerings, procurement initiatives, and other cost savings initiatives. Please note, we do not anticipate significant headcount reductions as part of this initiative. Our increased guidance for fiscal year 2025 on a standalone basis is as follows: net sales of $1.05 billion-$1.1 billion. This represents a growth range of 3%-8% and a midpoint of approximately 6%.

[Glenn David, CFO at Phibro Animal Health Corporation]

Growth versus prior year is driven by continued growth in our animal health segment, as well as recovery in both our mineral nutrition and performance products. Adjusted EBITDA of $124,000,000-$132,000,000. This represents a growth range of 11%-19%, with a midpoint of approximately 15%. Adjusted net income of $55,000,000-$60,000,000. This represents growth of 14%-24%, with a midpoint of approximately 18%. This growth is driven by growth in EBITDA and an improvement in our adjusted effective tax rate, partially offset by incremental interest expense due to our new debt deal. GAAP net income and EPS assumes constant currency and no further gains or losses from FX movements. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiative.

[Glenn David, CFO at Phibro Animal Health Corporation]

As mentioned previously, this guidance does not include the Zoetis MFA acquisition, as we just closed on the business a few days ago. Our preliminary estimates for Zoetis for the eight months remaining in our fiscal year 2025 are as follows: 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 include 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 three times net leverage by fiscal year 2027.

[Glenn David, CFO at Phibro Animal Health Corporation]

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]

At this time, I'd like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Ekaterina Knyazkova with J.P. Morgan. Please go ahead.

[Ekaterina Knyazkova, Equity Research Associate at JPMorgan Chase]

Hey, thank you so much, and congrats on the quarter. So first question is just around gross margins. 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.

[Glenn David, CFO at Phibro Animal Health Corporation]

Yeah, 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, Chairman of the Board of Directors, President, and CEO at Phibro Animal Health Corporation]

Yeah, 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.

[Ekaterina Knyazkova, Equity Research Associate at JPMorgan Chase]

Thank you so much.

[Operator]

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

[Michael Ryskin, Managing Director at Bank of America]

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?

[Glenn David, CFO at Phibro Animal Health Corporation]

Sure. So when you look at the guidance that you mentioned, right, we had talked about a trailing 12-month 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. 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.

[Glenn David, CFO at Phibro Animal Health Corporation]

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 needs 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, you can 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-month revenue gain, and in terms of $0.25 in EPS, as you mentioned, we had guided to $0.60 for the first 12 months.

[Glenn David, CFO at Phibro Animal Health Corporation]

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 transitory in nature, did impact that delivery of what would have been a straight $0.40.

[Michael Ryskin, Managing Director at Bank of America]

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 dermatitis project. Just curious on any additional color you could provide there. Was that tied to any of the other developments in the dermatology 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? Just how do we think about the pipeline there?

[Daniel Bendheim, Director and EVP of Corporate Strategy at Phibro Animal Health Corporation]

Michael, I'll take it, Dani, so we've always had a very strong target product profile 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 licensor, but we are continuing to be bullish about our overall pipeline and continue to invest in it. As far as where the dollars from Dermacare, what we call the atopic dermatitis product, go, I think that's still to be determined, but we will continue with that going forward.

[Michael Ryskin, Managing Director at Bank of America]

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 honestly 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?

[Michael Ryskin, Managing Director at Bank of America]

Just big picture thoughts on the strength of MFAs for you.

[Larry Miller, COO at Phibro Animal Health Corporation]

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 continued strong trend that we experienced, particularly in the second half of our FY24. So that trend continued. Within the first quarter itself, we do certainly have had some favorable seasonality disease challenges, particularly in the Southern Hemisphere. There are winter months that really added a lot of demand for our products in the fourth quarter of 2024, our FY24, and the first quarter of our FY25. 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.

[Glenn David, CFO at Phibro Animal Health Corporation]

Yeah, Mike, I would just add, right? I think it's products and people. We have a strong focus on these products, and we are dedicated every day 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.

[Larry Miller, COO at Phibro Animal Health Corporation]

Within our animal health products, certainly MFAs, but also we have very strong performance in our nutrition specialty products as well as our vaccines.

[Michael Ryskin, Managing Director at Bank of America]

Great. Thanks so much. Congrats again, guys.

[Operator]

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 Enav Patrick with BNP Paribas. Please go ahead.

[Operator]

Oh, hi. Actually, my question has 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. Yeah, I think my question was answered unless you have anything to add. Thank you.

Participants

Executives

• Glenn David, CFO
• Daniel Bendheim, Director and EVP of Corporate Strategy
• Jack Bendheim, Chairman of the Board of Directors, President, and CEO
• Larry Miller, COO

Analysts

• Michael Ryskin, Managing Director at Bank of America
• Analyst at BNP Paribas
• Ekaterina Knyazkova, Equity Research Associate at JPMorgan Chase