Hello, and thank you for joining us. My name is Regina, and I will be your conference operator today. I would like to welcome everyone to the Phibro Animal Health Corporation Third Quarter Investor Conference Call. All lines are muted to minimize background noise. After the speakers finish their remarks, we will have a question-and-answer session. I will now turn the conference over to Glenn David, Chief Financial Officer. Please proceed.

Thank you, Regina, and good day everyone, and welcome to the Phibro Animal Health Corporation earnings call for our fiscal third quarter ended March 31, 2024. My name is Glenn David and I am the Chief Financial Officer. I'm joined on today's call by Jack Bendheim, Phibro's Chairman, President and Chief Executive Officer; Daniel Bendheim, Director and Executive Vice President of Corporate Strategy; and Larry Miller, our Chief Operating Officer. Today we will cover our financial performance for the third quarter and provide an update on financial guidance for our fiscal year ending June 30, 2024. At the conclusion of our remarks, we will open the line 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 third quarter 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 these 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. Reconciliation of these non-GAAP financial measures to the most directly comparable US GAAP measures are included in the financial tables that accompany the 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 and Brazil employment taxes. Other income expenses as separately reported in the consolidated statement of operations, including foreign currency losses gains net and income taxes related to pre-tax income adjustments and unusual or nonrecurring 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 a very strong third quarter performance led by our Animal Health division, which delivered double-digit top line growth. Within Animal Health, our vaccines segment achieved 26% growth and we delivered an exceptional 16% growth in our MFA and other segment. This translated to an overall growth of 9% in adjusted EBITDA. As I'm sure you can all imagine, it has been a busy few months for all of us here at Phibro and I am glad to reflect that this growth was achieved while at the same time my team was heavily involved in the process that led to our announcement last week of our signed agreement to purchase Zoetis medicated feed additive portfolio. We are excited to onboard new colleagues and products of Phibro and we are very confident that we have the operational strength and focus to ensure a smooth transition. This acquisition will also serve to enhance, diversify and broaden Phibro species and product offerings, and we are confident in our ability to maximize the opportunity related to this portfolio. We anticipate this transaction will lead to strong earnings accretion and debt pay down and will also serve as the engine that will continue to power our investments in the faster growing vaccines, nutritional specialties and companion animal product segments where we continue to see and invest in both short and long-term opportunities. Looking ahead, we expect continuing growth in the Animal Health business as we close out our fiscal year. We also expect to see continued improvements in our Mineral Nutrition and Performance Products businesses as we work through inventory imbalances and now see a rebound in demand. We have affirmed our guidance for net sales adjusted EBITDA and adjusted diluted EPS, and then will go into greater detail in this presentation. I look forward to hearing your questions following Glenn's review of our financials.

Thanks, Jack. I'm also really excited about the strong results in the quarter. Total company sales for the quarter grew 7% and our adjusted EBITDA and our adjusted net income grew 9%. As Jack mentioned, our Animal Health sales grew 10% with Vaccines growth of 26%, MFA growth of 16% offset by declines in our Nutritional Specialties. In the quarter, our Mineral Nutrition segment grew 2%, offset by a decline in our Performance Products. The performance of both Mineral Nutrition and Performance Products improved in Q3, versus the first half of the year as we expected. On a fiscal year-to-date basis, we have seen revenue growth of 3% and adjusted EBITDA growth of negative 3%. Year-to-date performance is led by Animal Health, with 7% growth in revenue with Vaccines sales growth of 23%, our MFA business at 7% and declines in Nutritional Specialties. Growth in Animal Health is partially offset by declines in both the Mineral Nutrition and Performance Products segments. As we spoke last week, we are also excited about the acquisition of the Zoetis MFA business. These products are a strong strategic fit with our existing Phibro core competencies and capabilities. And we expect to deliver a rapid deleveraging profile and significant adjusted EBITDA accretion. As discussed, we expect this transaction to close in the second half of calendar year 2024. For guidance, we are affirming our guidance on net sales, adjusted EBITDA and adjusted EPS. We have updated our GAAP net income and diluted EPS to reflect one-time costs related to the Zoetis MFA acquisition. I'll start with consolidated financial performance on Slide 4, then cover segment level performance, capitalization metrics and conclude with a review of our affirmed or updated financial guidance for the full fiscal year 2024. Consolidated net sales for the quarter ended March 31st 2024 were $263.2 million, reflecting an increase of $17.6 million or a 7% increase over the same quarter one year ago. The Animal Health segment grew 10%, while Mineral Nutrition grew at 2% and the Performance Products segment declined. GAAP net income and diluted EPS decreased, driven by increased SG&A due to higher employee-related costs, higher interest expense and higher foreign currency losses partially offset by favorable gross profit as a result of higher product demand in the Animal Health segment. Income tax expense also decreased by $0.5 million. After making our standard adjustments to GAAP results, third quarter adjusted EBITDA increased $2.3 million. Animal Health improved by $2.3 million or 7%, due to gross profit from increased sales partially offset by higher SG&A. Mineral Nutrition increased $0.8 million, driven by higher gross profit. Performance Products adjusted EBITDA remained relatively the same. Corporate expenses increased $0.7 million driven by increased employee-related costs. Adjusted net income and adjusted diluted EPS both increased 9%. Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense with a partial benefit from the reduced adjusted provision for income taxes. Moving to segment level financial performance on Slide 5, we'll cover the third quarter performance of our largest segment Animal Health. The Animal Health segment posted $181.3 million net sales for the quarter, an increase of $16.9 million or 10% versus the same quarter prior year. Within the Animal Health segment we reported MFA and other net sales growth of $15 million or 16% due to demand in both Domestic and International regions. Vaccine net sales growth of $6.7 million, a healthy 26% increase driven by product launches in Latin America plus an increase in domestic demand. Nutritional Specialties net sales declined $4.8 million or 11%, mostly due to lower demand for microbial and dairy products. Animal Health adjusted EBITDA was $36.5 million, a 7% increase due to higher gross profit from increased sales partially offset by higher SG&A. Moving on to the third quarter financial performance for our other business segment on Slide 6. Starting with Mineral Nutrition, net sales for the quarter were $64.2 million, an increase of $1.3 million, due to increased sales volume, partially offset by decreased average selling price. Mineral Nutrition adjusted EBITDA was $4.7 million reflecting a year-on-year increase of $0.8 million, driven by higher gross profit. Looking at our Performance Products segment, net sales of $17.7 million for the three months ended March 31, 2024 reflects a decrease of $0.7 million or 4%, driven by decreased demand for personal care product ingredients and industrial chemicals. Adjusted EBITDA was $2.4 million and declined 2% versus the same quarter prior year. Corporate expenses increased $0.7 million, driven by increased employee-related costs. Now turning to key capitalization-related metrics on Slide 7. We saw $40 million of positive free cash flow for the 12 months ended March 31, 2024. We generated $79 million of operating cash flow and invested $39 million in capital expenditures. Cash and cash equivalents and short-term investments were $99 million at the end of the quarter. Our gross leverage ratio was 4.4 times at the end of the third quarter based on $487 million of total debt and $110 million of trailing 12-month adjusted EBITDA. Our net leverage ratio was 3.5 times at the end of the third quarter based on $388 million of total debt and $110 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. As a reminder, $300 million of our debt is at a fixed rate of 0.61% plus the applicable margin. The remaining $187 million of total debt is subject to variable interest rates, although offset somewhat by interest income earned on short-term investments. Let's turn to Slide 8, which lays out our updated guidance for the fiscal year ending June 30, 2024. We have affirmed our guidance for net sales, adjusted EBITDA and adjusted diluted EPS. We have updated our guidance for GAAP net income and GAAP diluted EPS. The updated guidance includes one-time costs related to the integration of Zoetis products. This is reflected in our GAAP guidance but are excluded from adjusted measures. Our affirmed or updated fiscal year 2024 financial guidance is shown in the table. Comparisons are to the prior fiscal year and year-over-year percentages are calculated using the midpoint of the guidance ranges. Net sales of $980 million to $1.02 billion with growth of 2%. Net income of $7 million to $12 million. Diluted EPS of $0.17 to $0.30. Adjusted EBITDA of $106 million to $112 million, a decline of 3%. Adjusted net income of $42 million to $47 million, a decline of 9%. Adjusted diluted EPS of $1.04 to $1.16, a decline of 9%. And our adjusted effective tax rate range of 28% to 30%. In closing, we are optimistic as we enter the final quarter of our fiscal year. We are confident in demand for our products around the world and look forward to seeing continued improvement in our business as we move forward. And we are very excited about the pending Zoetis MFA acquisition. With that, Regina, could you please open the line for questions?

Our first question will come from Erin Wright with Morgan Stanley. Please go ahead.

Great. Thanks. So on the MFA side of the business, what drove some of the strength I guess even on the comp? And does this continue? And whether there are any kind of one-time dynamics we should be thinking about? And how do we think about kind of the normalized underlying growth rate for the MFA business now? And then once you fold in Zoetis, their MFA portfolio kind of what does the underlying growth look like for that MFA other segment? Thanks.

Hi, Erin. Thanks for the questions. This is Larry. I'll address the first part of your question having to do with what drove the growth. And it's really strong growth in our Animal Health segment, as Glenn stated, with very strong growth in our Medicated Feed Additives and in our vaccines in particular. And so those were the key growth drivers. We experienced that growth geographically in North America and also in South America. Those were the highest-growing areas of our business.

Sure. Erin, to provide some additional context, we noted that the Medicated Feed Additives grew 16% in the quarter, which is higher than our expected run rate. There were some one-time factors influencing this growth, particularly from larger customers and strong overall performance. We also saw notable success in the other category, which relates to our EPG group. Year-to-date, our MFA business has achieved a growth rate of 7%, indicating strong performance throughout the year. Regarding the integration of the Zoetis MFA products, we anticipate that once they are fully integrated, they will likely reach a growth rate in the low to mid-single digit range.

Okay. As we consider the $0.60 increase from the Zoetis deal, that's definitely a significant number. What would be the starting point for this? I believe the consensus EPS is around $1.25 for your fiscal 2025. Is that the correct range we should be looking at as a starting point? Are there other factors we should consider for the underlying business in 2025?

Yes, Erin, obviously, for our own guidance for 2025, we'll be providing that on our next call as we update guidance. In terms of the $0.60 accretion that we referenced on the call last week that we do see in the first 12 months of acquiring the business. So depending on the timing of close, whether we have a full fiscal year or not that might impact the $0.60. But I do also want to mention that we do see that accretion growing over time as we continue to pay down debt and lower our interest expense related to the deal.

Okay. Great. Thank you so much.

Your next question will come from the line of Navann Ty with BNP Paribas. Please go ahead.

Hi. Good morning. Thanks for taking my question. I wanted to ask if you could discuss the Companion Animal pipeline and your capital allocation after the Zoetis acquisition? Thank you.

Good morning. It's Donny Bendheim. Thank you for the question. There are no significant updates on the Companion Animal pipeline. We are making progress, but there is nothing to announce in the short term. However, we believe that the acquisition of the Zoetis MFA business will enhance our capacity to invest in Companion Animal, especially as we pay down debt and reduce our interest expenses. We have received plenty of pipeline ideas, and so far, we have been careful in our selections. We will continue to be cautious, but this will certainly enable us to increase our efforts within Companion Animal.

Yeah. And so the second part of your question related to capital allocation. Obviously, the first priority will continue to be to invest in our business. And as Donny mentioned, areas such as Companion Animal, Vaccines, Nutritional Specialties as well will be the key areas to focus. Second, obviously, we'll always continue to look for opportunities outside. But obviously, this is a large deal for us with the Zoetis MFA acquisition. So I expect those to be small in nature. And then we'll look to continue to delever over time. And I think we've committed that we will get to a net leverage ratio below three before the end of fiscal year 2027. And then we'll continue to return capital to our shareholders in the form of our dividend. We remain committed to the dividend. We are in the process of refinancing all of our debt to support this deal. There may be some covenants related to the dividend, but our projections show us well below those covenants, and we understand the importance of the dividend to our shareholders and plan to maintain them.

Thank you.

Our next question will come from the line of Balaji Prasad with Barclays. Please go ahead.

Hi. Good morning. Thanks for the questions. Two from me. Getting back to the deal, can you help me understand what this means to you incrementally in terms of your focus on Companion Animal and the appetite for potential business development deals of the site? Second, could you also comment on the shift in the veterinary feed directives on the change from no antibiotics ever to no human antibiotics? And what does this mean to you in terms of market opportunity opening up? Thanks.

I'll take the first question. As mentioned in the opening comments, we see this as an opportunity to invest more in Companion Animals, Nutritional Specialties, and Vaccines. We expect significant cash generation from the combined business and recognize that the biggest growth opportunities are in those highlighted areas. Therefore, we plan to intensify our efforts and continue to invest in these sectors.

It's Larry. Regarding your second question, the Zoetis MFA business has many products that the World Health Organization does not classify as medically important for human medicine. This includes ionophores, which are not used in human medicine, and anticoccidials, which also have no applications in human medicine. Additionally, bacitracins are not considered medically important. Consequently, the combined Zoetis MFA and Phibro portfolios of Medicated Feed Additives, Nutrition Specialties, and Vaccines provide various options for livestock producers, including those who raise animals without antibiotics or avoid antibiotics that are used in human medicine. Concerning the poultry industry and recent developments, this relates to the reintroduction of ionophores, which are not classified as medically important antimicrobials but are used to manage coccidiosis and other intestinal diseases. Phibro does not currently offer ionophores in the US, so we have not experienced any impact on our business. However, the Zoetis MFA business includes ionophores, allowing us to serve customers with products from this category.

Thank you.

And that will conclude our question-and-answer session. I'll hand the call back to Glenn David for any closing remarks.

Thank you, Regina, and thank you everyone for listening in to today's call. We really appreciate your time and attention.