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 Fibro Animal Health Corporation's second quarter 2025 earnings 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 1 on your telephone keypad. To withdraw your question, press star 1 again. 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 Fibro Animal Health Corporation earnings call for our second quarter ended December 31st, 2024. My name is Glenn David, and I'm the Chief Financial Officer of Fibro Animal Health Corporation. I am joined on today's call by Jack Benteen, Fibro's Chairman, President, and Chief Executive Officer, and Donnie Bentheim, Director and Executive Vice President of Corporate Strategy. Today, we will cover our financial performance for our second 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 Investor section of our website, you will find copies of the earnings press release in 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 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 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. 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 as separately reported in the consolidated statements of operations, including foreign currency losses gained net, and 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 Bentheim, to share his opening remarks.

Thank you, Glenn, and good morning, everyone. By every measure, this was one of the strongest quarters since going public. We successfully integrated the Zoetis Medicaid free additive portfolio, a testament to our unraving customer-centric approach, one that I believe Zoetis shares as well. While no integration is without challenges, our guiding principle remains clear, serving the customer. This focus has ensured seamless execution of our most critical priorities. At the same time, our Frivo Forward initiative continues to drive operational excellence, helping us identify opportunities for growth while improving efficiency and execution. Financially, we delivered exceptional results, driven by strong demand in our animal health business and two months of contributions from the Zoidus MFA portfolio. Total sales climbed 24%, while adjusted EBITDA surged 64%, demonstrating both top-line strength and expanding pocketability. Our animal health segment led the way, with MFA and other product sales rising 47%. Even excluding Zoidus' contribution, our legacy animal health business delivered double-digit growth across all three product categories. with MFA and other sales increasing 11%, vaccines expanding 12%, and nutritional specialties up 11%. Rounding out our performance, our mineral and nutrition segments grew 3%, while our performance product segment posted a 7% increase. As noted in our press release, these results highlight the strength of our diversified portfolio, our relentless focus on execution, and our commitment to delivering essential solutions to customers worldwide. The momentum we've built positions us well for the remainder of fiscal 2025 and beyond. We remain confident in our ability to drive sustainable growth and create long-term values through the fiber-forward strategic innovation, targeted portfolio expansion, and disciplined financial management. The broader protein industry, both in the U.S. and globally, remains strong. We expect continued growth despite challenges such as emerging diseases like apine influenza and geopolitical factors, including the newly announced tariffs. We are confident that FIBO is well positioned to navigate these headwinds and capitalize on the opportunities ahead. As Glenn will discuss, we are updating our fiscal year 2025 guidance to reflect this momentum and our strengthening outlook.

Thank you, Jack. Starting with our Q2 performance on slide four. Consolidated net sales for the quarter ended December 31st, 2024, were $309.3 million, reflecting an increase of $59.3 million, or a 24% increase over the same quarter one year ago. The animal health segment grew 33%, while mineral nutrition grew at 3%, and the performance product segment grew by 7%. Gap net income and diluted EPS increased significantly, driven by the integration of the new MFA business, increases in demand in both domestic and international regions, improved gross margins 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 second quarter adjusted EBITDA increased $18.7 million, or 64% versus prior year. Adjusted net income and adjusted diluted EPS both significantly increased as well. Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense. Now moving to segment level financial performance. The animal health segment posted $229.4 million of net sales for the quarter, an increase of $56.3 million or 33% versus the same quarter prior year. Within the animal health segment, we reported legacy MFA and other net sales growth of $11.7 million, or 11%, due to demand in both domestic and international regions. The new MFA business contributed two months of sales, or $36.7 million, in the quarter, driving the total MFA and other growth to 47%. Please note that November sales for the Zoetis MFAs were impacted by blackout periods and other transition factors. We saw a nice acceleration of sales in December, with sales approximately double that of November. Nutritional specialty products and sales increased $4.5 million, or 11%, mostly due to higher sales of microbial and companion animal products. Vaccine-led sales growth of $3.4 million, a healthy 12% increase, driven by vaccines in Latin America, plus an increase in both domestic and international demand. Animal health-adjusted EBITDA was $58.2 million, a 48% increase, driven by the new MFA business, higher gross profit from increased legacy sales, and partially offset by higher SG&A. For comparison purposes only, we are providing a rough estimate of Zoetta's EBITDA contribution. Please note that many expenses are not easily attributed to the new business. Our estimated EBITDA of $12 million includes only those expenses that can be directly attributed to the new MFA business. Moving on to the second quarter financial performance for our other business segments on slide six. Starting with mineral nutrition, net sales for the quarter were $63.3 million, an increase of $1.9 million, or 3%, due to increased sales volume and price. Mineral nutrition adjusted EBITDA was $5.7 million, reflecting a year-on-year increase of $2.2 million, driven by higher gross profit and improved cost positions. Looking at a performance product segment, net sales of $16.6 million reflects an increase of $1.1 million, or 7%, as a result of higher demand for the ingredients used in personal care products. Adjusted EBITDA was $1.9 million and grew $1.1 million versus the same quarter prior Corporate expenses increased $3.4 million, driven by increased employee-related costs. Turning to key capitalization-related metrics on slide 7, we generated $15 million of positive free cash flow for the 12 months ended December 31, 2024. We generated $55 million of operating cash flow and invested $40 million in capital expenditures. Cash and cash equivalents were $67 million at the end of the quarter. Our gross leverage ratio was 3.1 times at the end of the second quarter based on $760 million of total debt and $242 million of trailing 12-month adjusted EBITDA. Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis Medicated Feed Added Portfolio, 10 months of Zoetis history, and 2 months from fibro ownership. Our net leverage ratio was 2.9 times at the end of the second quarter based on $693 million dollars of net debt and 242 million dollars of trailing 12-month adjusted EBITDA. Turning to dividends, consistent with our history, we paid a quarterly dividend of 12 cents per share or 4.9 million dollars in aggregate. As a reminder, 300 million dollars of our debt is at a fixed rate of 0.51 percent plus the applicable margin through June 2025. 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. Let's turn to slide A, which lays out our guidance for fiscal year 2025. Please note that our guidance now includes the acquisition of the Zoetis Medicaid and FEDAD portfolio. Included in this guidance for fiscal year 2025 are early benefits related to our FIBO 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 that we do not anticipate significant headcount reductions as part of this initiative. Our increased guidance for fiscal year 2025, updated to include the acquisition of the Zoetis Medicaid feed additive portfolio, is as follows. Total net sales of $1,250,000,000 to $1,300,000,000. This represents a total growth range of 23 to 28 percent and a midpoint of approximately 25 percent. Total adjusted EBITDA of 172 to 180 million dollars. This represents a growth range of 55 to 62 percent and a midpoint of approximately 58 percent. Total adjusted net income of 76 to 82 million dollars. This represents growth of 57 to 70 percent with a midpoint of approximately 63 percent. The preliminary estimates for this wettest 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 agreements. Gap net income and EPS assumes constant currency and no further gains or losses from FX means. Also included in our gap net income and EPS are one-time costs related to our Fibro Forward Income Growth Initiative and acquisition related costs from the new MFA products. We are confident in our ability to deliver a total adjusted diluted EPS between $1.87 and $2.01 for the full fiscal year of 2025, which represents a growth of 57% to 69% with a midpoint of approximately 63%. In closing, with our updated financial guidance, we reaffirm our commitment to strong performance and enhancing shareholder value. We are excited to include the new MFA portfolio in our guidance, which reflects our confidence in seamless integration and strong performance alongside improving profitability in our legacy business. With that, Regina, could you please open a line for questions?

At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Ekaterina Kiskova with J.P. Morgan. Please go ahead.

Hey, thank you so much, and congrats on the quarter. So, first question is just on the guidance update. I think you've touched upon this a little bit, but perhaps you can give a bit more color. So, how much of the $0.50 increase for the EPS range, how much of that is coming from the acquisition versus the underlying business, and I guess what's in that change relative to the outlook you provided last quarter and that $0.25 number you were talking about? And then the second question is just on the animal health performance. It seems like another very strong quarter of growth backing out the acquisition. Just elaborate a bit on the trends you're seeing across the portfolio and which products or regions have been driving some of that performance. Thanks.

Thanks for the question, Katarina. I'll start with the EPS guidance, and I'll ask Jack to comment a little bit on the business performance. So, when you look at the overall increase in EPS at both the bottom and top of the range, it's about $0.53. The majority of that is coming from the addition of Zoetis, with a portion coming from continued strong performance in our legacy business as well. As you mentioned in previous calls, we got into probably about an additional 25 cents of EPS related to Zoetis. The current guide does include more than 25 cents, but again, it's a combination of both improved performance in our expectations for Zoetis, but also improved performance in our legacy business as well.

And then on the general performance of the business, this has been a great time for our customers. Our customers across the U.S. and the world, and this is true for every category of protein, whether it's in cattle, in chickens, in pigs, they're doing okay. And when they're doing okay, you know, the concern is let's keep these animals healthy so they perform better and they get better to the market. And that's what we're seeing around the world, and that's basically what's driving the business.

Thank you. Our next question comes from the line of Michael Riskin with Bank of America. Please go ahead.

Hello. This is Gemma on for Mike. Two questions related to the MFA acquisition, please. The first, on your updated revenue guidance, which now includes the MFA acquisition, this aligns with our prior expectations or estimates, but the EPS guidance came in quite a bit higher than expected. Can you walk us through the drivers behind that upside? And then similarly, now that you've owned the MFA asset for about three to four months, is there anything you'd like to call out that you've heard about the business that surprised you? I know in the release you called out the contribution of $37 million for the last two months. That seems a bit light if it's going to be $200 million in eight months. Can you talk about how it started versus expectations and anything unusual you're seeing in terms of stocking, de-stocking, transition, things like that? Thank you.

Sure.

So, just to address the first part of your question in terms of the revenue guidance being aligned with the incremental $200 million, which we had initially called out for the Zoetis guidance versus the EPS guidance being a bit higher. So, two factors there. One, as I mentioned, we are seeing improved performance in the underlying business, but also related to Zoetis, we did see some higher profitability than initially anticipated, and that's driven by a couple of factors. A, the timing of hiring some of the colleagues across the organization whose costs will see a little bit more in the second half of the year. So that timing benefits us a bit as well. And just in general, we've seen some pretty positive mix as well with the U.S. being one of the stronger performers, and we continue to expect that for the full year as well. Related to the performance in the quarter and the $37 million that we had in the quarter, as we mentioned on the previous call, we did expect some transitionary impacts related to the integration related to destocking as well as blackout periods. And in the prepared remarks, we mentioned a little bit how the month of November, the sales were about half of the month of December. And what that means essentially is we saw a nice acceleration from November to December as we worked through some of the blackout period impacts, as well as the destock impacts. We're not fully out of the destocking, but we see a nice trend moving forward that we feel confident in the $200 million that we had guided previously.

Thank you.

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

Hi, this is Mikaela on for Balaji. Thanks for taking our questions. Just a quick one. So with the MFA deal now complete, can you guys talk to us just a bit more about your priorities and companion animal? Is this still a key focus area? And if so, can you provide any additional details on your pipeline here? Thanks so much.

Good morning. I'll take that. Companion animal continues to be a key priority for us. However, you know, we are making nice progress. We purposely in this quarter, you know, wanted to not call it out in our prepared remarks because we are excited as well about our livestock business, and we want to focus on our continued strengthen livestock or continue investment in livestock and there's actually a lot of pipeline products within livestock as well so while we continue to make progress on our pipeline in pets um you know i think the the livestock business is you know a shining star for us and and we do want you know people to recognize the growth that we're having and continue to have and continue to expect to have there our next question comes from the line of nevin t with

B&P Paribas. Please go ahead.

Hi, good morning. Can you discuss the integration of the Redis and the state portfolio to date and your plans for the rest of the year, and if you expect any potential impact of the headcount reduction? Thank you.

Yeah, so in terms of the integration to date, the integration is moving very smoothly. Obviously, our key priority on day one was to make sure that we were able to effectively support our customers and our colleagues across the globe did a tremendous job on that. And I think, you know, we've gotten very positive feedback from our customers in terms of our ability to support them and the care that we're able to provide and their pleasure with us having a broader portfolio now and able to support their needs. So that was priority number one, and that has progressed very well. Also, obviously, onboarding the colleagues from Zoetis into our organization, that was priority and a key priority as well, and that's gone extremely well. You know, there are some additional things that we need to do over the next number of months, including, you know, some system transitions on the manufacturing side, as well as we continue to, you know, evolve with marketing authorizations, but everything is going according to plan, and we're very pleased with the progress that we've made with the integration. In terms of headcount reduction, we've never indicated that there would be headcount reductions related to this initiative. Just as a reminder, the majority of the acquisition was six plants globally, and obviously we need those colleagues to continue to produce the product. So, we've never had any intentions of headcount reductions as part of the acquisition.

Thank you.

Our next question will come from the line of Linda Bolduc with Morgan Stanley. Please go ahead.

Thanks. Morning. This is Linda on for Aaron Wright, and thanks for taking our question. So for the company, what are the implications of tariffs on fibro and any potential color on the exposure that you could share with us? Also, any thoughts on EBITDA margin progression throughout the year? And additionally, what is your latest view on underlying demand trends across key species groups in animal health, and how do you expect those to play out for the balance of the year?

I'll take the easy one to tariffs. So, I would say sort of based where we are on, let's recall, last night's announcement of the White House, we're just dealing with Chinese tariffs right now. And overall, looking at the portfolio and looking at the fact that most of us, we have no production in China directly. And our factories are in Brazil and in Israel and the United States. We do import from China some stuff, but overall, we think the impacts will be very, very small.

And in terms of EBITDA margin and progression, you know, we continue to see improvements in EBITDA margin in our core business with the Fibro Forward business, with the Fibro Forward initiative, as well as with the acquisition of the Zoetis portfolio. So, you know, we saw, you know, in terms of adjusting diversity of last year, you know, 380 basis points improvement. You know, we'd expect that with the continued focus that we have with the Fibro Forward Growth Initiative, as well as, you know, continuing to optimize this weather portfolio, that we would continue to see strong margins in the business moving forward. And in terms of demand trends for the rest of the year, you know, as Jack mentioned earlier, you know, we're seeing very good profitability across, you know, many of the categories, across poultry, swine, cattle, and in many of our major markets. You know, so just, you know, we get a dashboard internally that shows green, yellow, and red. And in all of our key markets, the majority of those flashlights are flashing green, which, you know, we see is very positive for us for the rest of the year.

And as a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. We'll pause for approximately 30 seconds to allow analysts to queue for any last-minute questions.

Just to follow up on the tariff implications, as Jack said, we are working through the implications of the tariffs. We do have a plant in China that we acquired as part of Zueda's acquisition. We've looked across all of our business units to understand the exposure there. It varies across some of the business units between animal health, mineral nutrition, and we do have mitigation plans in place in the event that some of those tariffs do become burdensome to to our profitability you know whether that's passing on to um to the customers or looking for alternative sources you know we feel very confident in our ability to mitigate the impact and when you look at our guidance for fiscal year 2025 the majority of the towers would impact our cost of goods sold and based on inventory turns we wouldn't really see any impact into um into 2026. so we feel very confident that the guidance that we provided today would accommodate any implications of current or further tariffs.

And that will conclude our question and answer session. I'll turn the call back over 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, interest, and support of Fibroanoma Health, and we hope you have a great day. Thank you so much.

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