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. 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 by 14% in the quarter, led by vaccine growth of 22% and MFA and other growth of 15%. Continuing the trend we saw at the end of our last fiscal year, our Mineral Nutrition segment grew by 5% in the quarter, while our Performance Products segment grew by 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 against the backdrop of the incredible amount of work done by so many of my colleagues in 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 one-time deal costs. I'll give it back to Glenn.

Thanks, Jack. I'm starting with our Q1 performance on Slide 4. Consolidated net sales for the quarter ended September 30, 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 by 14%, while Mineral Nutrition grew by 5%, and the Performance Products 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 by $12 million or 64% versus the prior year. Adjusted net income and adjusted diluted EPS both significantly increased. 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 represented 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 by $2.4 million or 6%, mostly due to higher sales of microbial and companion animal products. 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 6. 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 Products segment, net sales of $18.8 million reflect 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 by $0.9 million versus the same quarter prior year. Corporate expenses increased by $1.7 million, driven by increased employee-related costs. Turning to key capitalization-related metrics on Slide 7, we generated $41 million of positive free cash flow for the 12 months ended September 30, 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. 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 on short-term investments. As of the date of the delayed draw of the $350 million in additional Term A loans, the remaining $377 million of our debt is subject to variable interest rates. Effective July 3, 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 A loan and a $310 million revolver, which included a $300 million Term A loan that replaced the company's existing 2021 Term A loan and 2023 incremental term loan. It also included a $310 million revolver that 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 2031. It also included a $350 million delayed draw provision that has been exercised with the closing of the Zoetis transaction. Additional information regarding the terms and conditions of the 2024 credit facilities is contained in our Form 10-Q that was filed yesterday. Let's turn to Slide 9 which lays out our guidance for fiscal year 2025. Please note that our guidance is on a stand-alone basis without giving effect to the completed acquisition of the Zoetis' Medicated Feed Additive Portfolio. 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, 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 stand-alone basis is as follows: net sales of $1.050 billion to $1.1 billion. This represents a growth range of 3% to 8% and a midpoint of approximately 6%. Growth versus prior year was 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 million to $132 million. This represents a growth range of 11% to 19% with a midpoint of approximately 15%. Adjusted net income of $55 million to $60 million. This represents growth of 14% to 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. 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, and 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 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?

Our first question will come from Ekaterina Knyazkova with JPMorgan. Please go ahead.

Thanks so 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, product mix, or something else? And then the 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 investments 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 with a very strong performance in our vaccine portfolio with 22% growth. Also, even within the MFA and other category, there are certain products that have higher gross margins that 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, continues to be very, very optimistic about the portfolio that we acquired. Obviously, we'll work through some early month starts and 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 about $400 million in revenues and $0.60 in EPS, right? Is this just timing? Is there some seasonality? 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 can you walk me through the bridge there?

Sure. When you look at the guidance that you mentioned, right, we had discussed 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 to say 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, which was required as part of the transition. There are certain markets where due to the regulatory transition, you're not allowed to sell, say 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. 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 the first three to six months of the deal. It’s really more transitionary impact, not a reflection of a 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 affect that delivery of what would have been a straight $0.40.

Okay. 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 how should we think about the companion animal investment going forward? Is that money just directly being shifted somewhere else? How do we think about the pipeline there?

Michael, I'll take it. 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 how we're doing versus our TPP. 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, you reported 15% growth in the quarter. You guys have had a really impressive stretch here, with multiple quarters in a row of 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 and some new products. But just take a step back and put that MFA performance for Phibro over the last year or two in context. How sustainable is that? Is this meaningful share gains from others? Is the market 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. As you mentioned, the first thing in particular as we look at first quarter performance, it was a continuation of the strong trend that we experienced particularly in the second half of our fiscal year 2024. That trend continued. Within the first quarter itself, we certainly had some favorable seasonality disease challenges, particularly in the Southern Hemisphere during their winter months, which really added a lot of demand for our products in the fourth quarter of 2024 and the first quarter of our fiscal year 2025. We did have a couple of timing pattern orders that occurred in our first quarter, which were favorable compared to the first quarter of last year. Overall, we just see very strong continued demand for our products, and that’s how we see it.

Yes, 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 to going out and discussing these products with our customers, really sharing the benefits. That gives us additional confidence in acquiring the Zoetis MFA portfolio and believing that we can have better performance than perhaps they’ve had in the past.

And within our Animal Health products, we certainly had 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 questions 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.

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.