Phibro Animal Health Corp (PAHC) September 15, 2026 Conference Transcript

Hi, good afternoon, everyone. Welcome to the 24th Annual Morgan Stanley Healthcare Conference. I'm Erin Wright, Healthcare Services Analyst at Morgan Stanley. We're happy to have Fibro Animal Health with us today. We have a full team. CEO Daniel Benheim, CFO Glenn David, as well as CEO Larry Miller with us. Thank you so much for joining us today. There's a lot going on in the animal health space, so we'll just get right into it. I guess, can you, a bigger picture kind of question, can you speak to sort of the longer term vision and growth prospects for Fibro with, you know, leading initiatives across kind of production animal, a sizable transaction in MFAs that you've done and are starting to annualize now and then some budding companion efforts, although taking a diligent approach there, you know, what does Fibro look like in three to five years? How do you think about the mix of the business and where it goes from here?

Thank you, Erin. I appreciate you having us. In three to five years, I guess with the 90% chance that AI has not eaten us at that point, I see Fibro as being a bigger, more diversified company, but still with a livestock focus. We went through the MFA, the ZOAS acquisition that you mentioned. We've gotten broader. We have deeper relationships now with a number of producers. We're in regions that we weren't in, and we see our ability to kind of build on that to continue. And I think what we're really on the cusp of is offering enterprise solutions for our customers. No one goes to sleep at night who's a customer of ours saying, thinking about MFAs or a vaccine. They're thinking about their animals as a whole, their herd as a whole, and all the way through the value chain. And we're at the cusp, as I said, and I think over the next three to five years we'll see where we're able to offer solutions for them throughout their entire portfolio and really be seen as a partner of our customers. So that's where I see it. Companion Animal continues to be something that we'd like to build on and to get bigger on. We have a very small role there. It will never be an equal weight to our livestock business, but we still do see it as an opportunity, something that we have a legitimate right to be in, and a space where we do see some opportunities to grow.

Okay. That's great. So can you provide an update just on underlying demand trends across the livestock? So the different species groups, how you think about that going into even next year, and what's embedded in your guidance from that perspective, and geography-wise what you're seeing as well. How much do things like the cattle cycle, for instance, influence your business, and generally what species groups are best positioned into next year?

Sure, thanks for the question. So we're coming out of a period of really unprecedented profitability and growth for both the protein sector across all species, but also profitability has been very good underlying for our producers of protein. We believe that demand should still have some strength in tailwinds. Consumer demand, now it may shift a little bit based on inflation and consumer affordability. We may see some buying down, for instance, even within the beef sector from prime steaks to hamburger to potentially to pork or chicken or whatever else. So we may see some there, but we see some signs of some challenge and softening for the economics and profitability of our customers. And so it's just a matter of supply and demand and how that balances. If we start with the poultry sector and the broiler chickens, particularly in North and South America, we've got pretty high inventories of some products in freezers right now. And obviously across all sectors, the high price of corn today is still over $5. So it depends on how we come through the harvest, what the harvest really looks like as far as the quantity of corn produced. and that will be, as you know, that's the highest input cost of anything in the whole production sector across the segment. So we expect some challenges in profitability for poultry customers. Swine customers, you know, the demand is holding well. U.S. exports about 30%, so it depends on any disruptions in that trade. but again people will continue to consume as they go down it's a very affordable protein the dairy sector most of the profits that are happening on a dairy farm today are through the sale of the calf that is ultimately leaving the dairy not being retained and going into a feedlot and from the feedlot sector you asked about cattle specifically this is an area that Fibro was really not strong in before the acquisition. It's put us in a very strong position in the U.S. segment. We've been active participants in feedlots in other markets. And, you know, I think, again, as long as consumption for beef, which is at high levels, continues, the sector will be profitable there. We don't expect to see a big replacement of the herd size, but due to the shift that we're seeing in some of these calves coming off, beef or dairy calves coming into the feed yard, it is still supporting the $27 million head of capacity. From a fibro standpoint, animals are still worth historic highs, particularly in beef sector. So people are willing to invest to keep their animals healthy, and so we think that's some good positive outlook for us.

Okay. So, yeah, that's what I was going to ask. It's been like now how does that translate into fibro? Like, which one of those factors, whether it's, you know, poultry dynamics that you're seeing some challenges in terms of producer profitability, like, how much does that impact fibro? And, like, if the underlying kind of demand holds up, how do you think about that?

Yeah, so poultry is our largest segment, and we believe that even if there is some supply and demand issues due to the life cycle of a chicken, it can turn around pretty quickly as far as the production amount of product supplied. One of the great things that, you know, the acquisition has helped do us is to bring us really geographic diversity and bringing us into several markets geographically that we were either not in or not very strong in. So it's helped balance us that way, and our balance by species is much stronger than it was as well. So it gives us good diversity, and that's probably with, you know, turbulent global environments and, you know, things that are happening, you know, constantly happening across the world, being diverse is key, and definitely that's a strength of us today.

Can you speak about the latest on, I think what was impressive is you onboarding sort of the Zoetis MFA business and that acquisition, and you really, you know, kicked it into high gear initially kind of with that transaction. More recently, kind of underlying growth there at Float, is that more about just rotation, or what are you seeing on that front in terms of?

Yeah, no, so we saw overall very good performance of the Zoetis portfolio in fiscal year 2026, and we actually expect, you know, sort of above our average growth rate for fiscal year 27, so we're seeing good continued momentum in the business. The challenge we had was in fiscal Q4 of 2026, and we saw that coming, and we always knew that it was going to be a challenging quarter, mostly because in Q4 fiscal year 2025, we had a very strong quarter, partly related to some of the acquisition transitions and timing. So it really was not an issue of underlying demand, and we continue to see really good strength in that portfolio moving forward.

Okay, so on the last earnings call, Well, you introduced the fiscal 27 guidance supported by kind of continued growth across animal health and then all nutrition performance products while kind of prudently embedding, obviously, the dynamic in Brazil with virginia myosin. So can you provide us some more color on what's assumed at the low and the high ends of the range, what sort of buffers you put in there, underlying demand trend dynamics that you're embedding in terms of your guidance?

Yeah, I mean, just for context, right, prior to setting guidance externally, We obviously do our own internal forecasting and budgeting, right? And there's obviously a range of accuracy around that internal budget. So the external guidance also sort of has a range of accuracy around, you know, what we would consider our midpoint, right? Some of the key factors there, market dynamics, like Larry just talked about, pricing, some of the competitive pressures. You mentioned Virginia Myosin in Brazil, right, to the extent that some of those factors are a little more favorable than we anticipated. That takes us to the higher end of the range. So the fact that they're less favorable, that takes us to the lower end of the range.

And then on the quarterly cadence, you flagged on the call negative first quarter EBIT growth, in terms of what some carry forward from SG&E base, I guess, then some positive growth for the rest of the year. How do you, I guess, frame that quarterly cadence, if you could map that out for us?

Yeah, so the quarterly cadence is really, it's an SG&A issue in Q1 in particular. We did flag that we expect Q1 EBIT to decline in fiscal year 2027. And the issue is when you look at our revenue seasonalization on an absolute dollar basis, Q1 is typically our lowest revenue quarter. On a growth perspective, we expect the revenue to grow pretty consistently this year. The challenge comes in SG&A. In fiscal year 2026, we were building the infrastructure to support the newly acquired portfolio. So just for reference, in Q1 of fiscal year 2026, our adjusted SG&A was about $71 million. In Q4 of fiscal year 2026, that grew to $83 million, so plus $12 million. If you carry that over to Q1 of 27, that's an incremental $12 million of expense in Q1 against our weakest quarter in revenue from an absolute dollar perspective. So it's really just a seasonalization issue. As we move to Q2 to Q4, the revenue growth and the SG&A growth becomes much more aligned, therefore driving more consistent EBITDA growth.

And you cited a one-time tariff recovery as a driver in the fourth quarter within the animal health adjusted EBITDA. Can you talk a little bit about then what was the net impact in 26 and then how to think about what's assumed in 2027 from a tariff perspective?

Yeah, so the net impact, as you mentioned, in terms of adjusted EBITDA in Q4, was about $4.2 million that we had a benefit of Q4 in 2026. As we look in the guidance for fiscal year 27, we don't really have any material benefit from the tariff impact. That was really a one-time issue related to Q4 of 2026.

And virginia myosin, could we get an update on the regulatory dynamics there? You know, I'm going to ask this question again, but what percent of your sales are virginia myosin now? or what percent is tied to medically important medicinal feed additives. Can you give some context in terms of the virginium ice and exposure and then what's going on in Brazil?

Okay, so let me apologize. I'll answer the second part of the question first. So Brazil, as we flagged, Brazil is going through a transition, and truthfully it's the last of the major markets or even the mid-major markets to go through this transition. So they've moved from allowing growth promoter label claims to only allowing therapeutic claims. So in the rest of the world, we've moved. We've either had both to start with, or we've moved from growth promotion to a label claim, to a therapeutic claim. In Brazil, we have unfortunately not yet been able to get that therapeutic claim. So there was a six-month phase-out that we're about in month five of right now. As Glenn indicated on our call, we have a tiny bit of sales in the first couple of months of this year. But for the most part, we've zeroed out our Virginia Mycine sales. We do believe we will get the therapeutic indication. However, whereas we were optimistic that we'd get it during the six months, I think at this point it's fair to say that, being that we're five months in, that we probably will not get it. The underlying issue that's caused all this is that the EU has placed Brazil basically on a list of not allowing them to sell their meat into the EU because of Brazil's policies dealing with hormones and antimicrobials. There are many other countries that virginiomycin has therapeutic claims in that are permitted to sell into the EU. So it's not particularly virginiomycin that's the issue. It's just the structure of the Brazilian market that's the issue. But because of this, and we have then the Brazilian election going on, which is the first federal election will be in the middle of October, and then there will be a second round most likely, which will be at the end of October, two weeks later. This has become a bit of a political football. And so our long-term view or view on this is that we will get the therapeutic claim like we've got in virtually every other market, and which is necessary, frankly, for the Brazilian livestock producer. But it probably will wait until after the election. And then even when that does happen, just to be clear, we don't continue at the old level. So we were at $25 million or so, $27 million of sales in our last fiscal year. Even if we had started this year with the therapeutic claim, we would have thought that that would be a significantly lower number. In Brazil, there's the poultry industry. It's pretty well vertically integrated. They have veterinarians on staff. They can order, they can prescribe, you know, virginia mycine or any other product. In the cattle industry, which is the bigger of our, you know, segments there in Brazil, it's much more fragmented and much more difficult for a vet to be, you know, present to order the script that's necessary. Even on the inclusion of virginia mycine means that the feed has to, you know, where it's coming from, The feed mills have to get approved by MAPA, which is the FDA equivalent there. There's a whole structural change that has to happen, which, again, is one of the reasons why the EU issue is happening. So when we do get the therapeutic claims, we expect there will be a multi-year ramp to get. And even then, we won't get back completely to where we were, but we do expect over a few years to get back a significant percentage of it.

And can you remind us the U.S. dynamic in terms of Virginia mice and you do not have to have therapeutic claims? correct or you do?

So we have therapeutic claims in the U.S. The U.S. is actually a difficult comp for us because in the U.S. we actually, when we went to therapeutic claim, at the same time there was a lot of consumer demand for no antibiotics ever. The U.S. actually has moved back now from no antibiotics ever to no antibiotics that have a medical use in humans. And so there's been an increased use of antibiotics over the last few years in the U.S. But, you know, I'd say in most other countries, the move from growth motion to therapeutic, you know, ends up, depending on, again, on the structure of the country and how easy it is for vets to prescribe, ends up probably at 75% to 85% of the usage levels. I think if you look at the U.S. as a whole and say, where was the U.S. for all antibiotics before the U.S. changed its guidance, it's at about the 75% level. So I think that's kind of where you would pose it.

And then on an underlying basis, you do see growth in terms of the MFA business and the key drivers of that kind of go back, I guess, to the fundamentals you were talking about, but anything else to call out?

Well, let me start. You know, I would say, like, ex-Brazil, we will grow Virginia mycine this year. So, in general, you know, as population growth, just, you know, protein growth, our business is growing. We continue to look for opportunities, especially with the broader portfolio with the Zoetis, to, you know, bring to a producer a total solution where they can, you know, deal with all elements of their growing. So we're very bullish on the industry as a whole. Larry, do you want to add anything to that?

Yeah, I think across the board, in all species, really the broader portfolio after the acquisition is allowing us to bring more solutions, more compound, different choices, if you will, for producers to use, particularly the poultry area where you've got rotations that happen with anticoxidials, et cetera. So it enables us to bring a broader selection of choices to our customers, and as I mentioned earlier, the geographic expansion in the MFA business has also helped both the legacy business, exposing us to new customers that we had not done business with or had demand creation in some markets around the world, and now we are.

And as I said earlier, animals are worth more money than ever, so people are really willing to protect their investment and the opportunity cost. so net net when i think about sort of the component well one let's start with just the mfa business so what is the long-term growth rate of the mfa business is it mid-single digits like normalizing for all these kind of external factors yeah i think on a normalized basis we see low to mid-single digits for the mfa business and then let's talk about the other animal health components so vaccines and nutritional specialties which one of those are you more excited about now? Like, how do you think about sort of the long-term growth trajectory? That was always kind of, you know, with the IPO, like a big part of the thesis in terms of, like, those getting bigger and those having, like, more compelling kind of profit profiles and growth profiles over the longer term. Is that still the case, and how do we think about the long-term growth there?

Yeah, I mean, I think it's worn out, I mean, since the IPO. We've grown both of those segments, you know, high single digits, There's low double digits. That's still our, you know, obviously as you get bigger and bigger, the base becomes a little bit more difficult to do that. That's still our belief that we can do that. I'd say, you know, you look at vaccines, at the poultry, the worldwide poultry market, we're probably still in the mid to low single digits as far as market share, probably 5%, 6% of overall on worldwide commercial vaccines. And we see that in certain markets with the right variants relative to what we can present as far as our solutions, we get much more share than that. So there is an element of, I won't call it luck, but there is an element of the strains that we have matching with the needs. We do see there's a number of favorable tailwinds for us as far as certain diseases that we see emerging or have emerged. So we continue to be very bullish on vaccines. During our call, we talked about the fact that over the next two years, we're spending a lot of money, a lot of additional capital on expanding both our Israeli and our Irish vaccine facilities. And that's recognizing within our 10-year plan what the volume needs are. And so we're planning ahead for that, and we're extremely bullish on that. But at the same time, on nutritional specialties, it's a market that continues to really grow for us. And, you know, one of the things that we are uniquely positioned, and I think we've talked about this before, there's really not that many people who have the sales force that we have, that have the relationships that we have. And as people come up with products, especially on the nutritional specialty side, but I'll say, you know, across the board at this point, there's very few addresses that they can knock on. And we are, you know, one of the people that probably get the first look at a lot of interesting compounds out there.

What do you get across your animal health business in terms of price? It never is, like, as meaningful of a driver for you, but I'm just curious, has anything changed on that front?

No, nothing has changed material. I mean, I think over the long term we generally see about 1% to 2% price on the animal health business, right? A lot of our products, particularly in the MFA, they're very mature products. They've been on the market a long period of time, so the opportunity for price increase tends to be a little limited to that 1% to 2% range.

And any changes from a competitive landscape standpoint? Obviously, we're seeing things heat up from a companion animal standpoint in terms of competitive dynamics and aggressive pricing tactics, that kind of stuff. Are you seeing anything on the livestock front to call out any changes in terms of either new entrants or anything else?

Not a lot, really, in the competitive landscape on the livestock side. Fibro is unique in the fact that we are the only manufacturer that really has a strong presence in medicated feed items. We have the nutrition specialties and the vaccines. So defining a purely direct competitor is challenging, but that's an opportunity for us. And, again, we're about bringing solutions to our customers And in many cases, solving a disease issue requires, you know, a medicated feed additive, nutrition specialty, and a vaccine for prevention, control, and treatment of diseases.

Yeah, I'll just call out the one area where we have called out a competitor is in Brazil, where we've seen a lot of success of late on our vaccine, an RB variant, 206. So that's infectious bronchitis. We had that market. there's other infectious vaccines. We were the only one with that strain or with a vaccine for that strain. There has been another market entrant there. We have competed with that market entrant in other markets very successfully. So we continue to believe that we'll retain much of our market position, but there is competition there.

And do you still see the natural kind of rotation of products that you typically see specifically across kind of the more medicinal feed additives business, obviously, but is that playing out similar to what you've seen historically?

So the rotations really are limited with the poultry, and it's about anacocidial. So normally people will rotate seasonally at least two or three times a year, and they will mix up a different class, a compound class, because over time the coccidiosis will become tolerant to a certain entity, And so, again, having that full range of basket of products that we can offer so that customers can strategically choose and design not only for this rotation but thinking out two and three rotations down the line, we can bring a tremendous amount of solutions for them now.

And anything to call out in terms of the nutritional specialty business, just the near-term outlook dynamics in terms of market demand?

And it continues to be, you know, strong. You know, it's a small enough business that in a given quarter you might see, you know, lower single-digit growth or whatever it is. But overall, you know, we continue to see opportunities there for it to be, you know, low double-digit, high single-digit. You know, I guess the one call out which, frankly, I think ultimately will play to our advantage is you are seeing a tightening of the regulatory regime in the United States towards nutritionals. In the short term, that might mean that new products we have, it takes a little bit longer to get to market. But in the long term, I think that, you know, as someone who has a very strong regulatory team, we, in general, do well in those types of, you know, regulatory environments.

In China as well, anything to call out from a China perspective?

We do very little at this point in China, truthfully. In the Zoez transaction, we re-entered on some level the MFA business there. It's an area where, frankly, we'd like to grow more. It's a difficult environment at this stage. I think it's gone from probably about 10 years ago where having a non-Chinese brand name was a positive to today. That's not the case. It's very much a bi-local environment and there's a lot of stuff that's very inexpensive there. So it's probably not a market that we're going to see a lot of strength in the short term.

Okay. And then how do you think about the long-term profile for the mineral nutrition and performance product segment at this point, both from a top-line and, I guess, margin perspective? Sorry, for the mineral nutrition and margin?

Yeah, so I mean, when you look at those two businesses, and I'll start with Mineral Nutrition because it's probably the trickiest. So just as an example, in fiscal year 2026, the revenue grew 11%, right? Commodity prices were really high. So that helped drive revenue growth. EBITDA growth, though, was only 4% because there's a certain absolute margin that you're just going to obtain in the sale process. So really when we look at mineral nutrition, we focus on the EBITDA margin growth. And what we see in terms of EBITDA growth year over year is probably that low to mid-single-digit growth on a long-term basis with some fluctuations in revenue based on the commodity prices. Performance products also is another area of our business that fluctuates pretty significantly just based on the dynamics of the consumer products that we provide and the companies that we support. We have some years with very strong revenue growth, some years where that revenue growth is a little limited. Over time, though, we also see that sort of as a low- to mid-single-digit growth area.

And mineral nutrition has more, I guess, more intuitive in terms of the synergy opportunity there, but performance products less so inherently. Always been the case. But, yeah, any sort of update on your commitment to that business? Yeah.

Listen, I think I refer to mineral nutrition as a semi-core because it does the same customer base. The trucks oftentimes will carry both of our mineral nutrition and our animal health products. Our performance products is not core, but it really does not take a lot of management time. uh there you know a lot of the we have two parts of that of that business one of it is a very asset light distribution business with really nice margins really long-term relationships 50 60 year relationships based on a handshake you know i i think it's it's a type of business that for an outsider might not be worth the same as as it is just as it really is right just as you look at it but if someone came to us we would always entertain it like truthfully we'd entertain any part of our business and you know the other part of our business within performance products is a business that has some environmental legacy and because of that it just is again it runs very you know nicely for the most part on its own does not take a lot of management time and probably not worth the effort in our minds of separating Okay.

And then I want to shift to innovation and some of the things that you're doing across companion animal, for instance. Anything also on the livestock side from an innovation standpoint to call out?

Yeah, so, I mean, on livestock, I'll start with the, we do see climate as a real opportunity. You know, what's exciting to us about climate is the fact that most of our products were limited by the margin that the producer has, right? And, you know, as opposed to pet, which, you know, someone is treating their dog for cancer and there's no price for that, right? No one in the world is treating their chicken for cancer. So you're limited for what you could actually charge. It's a very economic and rational business. When you bring climate in, right, not that it becomes irrational, but you've now expanded the people involved. Now you have the consumer product groups. You have other people who've made pledges. And we have, as a whole, the responsibility as a society to deal with it. Obviously, right now in the U.S., it's less of a focus than it is maybe in Europe. But many of the companies within the United States, Fortune 500 companies, have made pledges. Some of them are backing away. Some of them are keeping to it. I think our belief is in the long term, this is something that we'll continue to see. So what's exciting to us there is the opportunity to broaden the wallet that we're looking at and, again, our share of that wallet. So we have introduced a product in the climate space called Veritain. We're looking at other products as well. and we do see long-term that will be an area of growth within the livestock industry. As far as companion animal?

Yeah, in terms of companion animal, some of the key areas that we continue to be focused on, we recently launched a product in the dental space called Restoris. We do have a follow-up product to that that's a little more medium to long-term in the dental space as well, periodontal disease, so that's an area we continue to be interested in. We also have our product with Rejuvenate Bio from mitral valve disease, a big market, again, a little more medium to long-term, and we'll continue to be active in business development as well to look for areas of opportunity within companion animal. Larry, I don't know if you want to take vaccines.

I think from a life cycle management standpoint, we see some opportunities for expansion with combinations in the United States, particularly with the combination of the acquired MFAs as well as the legacy products. So we expect to see a couple new combinations that will be available to the industry probably in our FY28 and 29 time period that will continue to drive growth and use and availability of solutions to the industry. And in the area of vaccines, it's an area that we are basic in development through our own technologies, licensing technologies, et cetera, to bring innovation. And so we continue to look at that, to come up with new strains of vaccines, new methods of application, et cetera. And we do a lot of surveillance. So watching the disease, monitoring the disease, so that as, you know, particularly with viruses, as they shift geographically, that we're there working with the governments and our producers to identify and confirm that, you know, if a disease virus is present now, that they register the product and that we can have the product available as soon as possible for the industry.

Anything to think about in terms of capital deployment then at this point in terms of external investment and, you know, innovation or partnerships or licensing deals on that front, but also other, you know, acquisition opportunities, particularly in the context of, you know, what you experienced with the Zoetis transaction?

Yeah, I mean, I'll start. We're likely not to find another opportunity like we have with Zoetis where it made sense for both the seller and the buyer for that transaction to occur. Having said that, we are very active in looking at opportunities across the board, mainly in livestock, also in companion, as Glenn mentioned. We see opportunities within our own portfolio as far as where we can add as well as just new areas to expand into. So, you know, historically we've grown through kind of $50 million to $100 million transactions. The Zoet transaction was a much larger scale than that. You know, I think we're very comfortable continuing on the $50 million to $100 million area, and I would expect, you know, more transactions of nothing imminent, you know, along those lines.

And then lastly, as we think about reflecting on sort of the guidance that you gave and sort of the growth profile, I guess, where do you feel kind of most confident about the business in terms of the core MFA business and the trajectory there or some of the others or is it the combined kind of offering? Just curious where you think you have the most confidence.

I think it's the combined. I mean, I think as I started talking, it's the portfolio that we can offer our customers. So, you know, if you recall from when we went public, you know, our goal is to be agnostic. Our goal is not to care if our customer wants to use a Medicaid feed additive or a vaccine or a nutritional product, whether our customer is based in the United States or Brazil or Europe, or whether they're selling, you know, beef or poultry or aqua, right? So we're not all the way there, but I think we're a lot further along than we were, you know, seven, eight years ago when we started this journey, or publicly. So I feel good about the business. I feel that we have a lot of, you know, having an internal view, a lot of opportunities within our own power, and I'm excited, you know, very much so over the next year and next three to five years as we look out.

Thank you so much. Appreciate the time.