Phibro Animal Health Corp (PAHC) May 13, 2026 Conference Transcript

All right. Thanks, everyone, for joining us. We'll kick off the next session. My name is Mike Riskin. I'm on the Bank of America Life Science Tools and Diagnostics team, also covering animal health. And for our next Fireside Chat, I'm excited to be joined by Fiber Animal Health Corp. We're joined by a number of members from the team here. To my right, I've got Danny Benheim, Corporate Strategy and Future CEO, Larry Miller, Chief Operating Officer, and then Glenn David, Chief Financial Officer. Danny, Larry, Glenn, thanks for being here. Thank you for visiting with us. Format of the session will be a fireside chat Q&A. If you've got a question in the audience, feel free to throw up your hand and we'll get you in. Maybe just to kick things off, you very recently reported your fiscal 3Q calendar, 1Q result, updated the guide, implications for 4Q. Can you just kind of give us a quick rundown for how the quarter played out relative to your expectations? What came in a little bit stronger? Where you saw some of the challenges?

I guess I'll start with that and Glenn jump in. It was a really strong quarter. It was, for those who know our story, this was the first quarter we had a full overlap with the Zoetis MFA business as part of our business. Despite that, or with that, we showed 10% overall growth. Our MFA group, or segment, I think grew about 25% overall. and we saw strength throughout nutritional specialties and vaccines as well so overall business continues as it has been for the last you know number of quarters it's been very strong and with that we we reiterated our guidance we actually raised it a little bit by by raising the lower lower half of it and you know we are we're excited by by where the business is With that, I mean, a couple of announcements we made actually after the quarter. We had announced that we enlarged our revolver, which is oversubscribed, showed the strength of our underlying business and the view of it within the banking community. We also announced some negative news about a potential headwind that we'll face in Brazil, and I'm sure we can talk about that a little bit more with dealing with one of our products. And then finally, one thing that, you know, I think I'm extremely excited about is we launched our sustainability program. There's a huge unmet need in the protein market with regard to the commitments companies have made to lower their carbon emissions, the carbon intensity. And we have announced a platform and specifically a product that we're launching that we think can address this opportunity. And when people begin to dig into this opportunity, and I know Elanco's been out there talking somewhat about it, but the size of this market is tremendous. There's nothing that's been like this in animal health for decades as far as an opportunity, and we think we're really well positioned and excited about it.

So all those things kind of came together towards the end of our quarter, and we think we're in a really good spot. all right let's uh maybe we'll start on the start a little bit deeper on the quarter and then we'll follow up on a lot of those points danny um so um on the fiscal 3q you know talk about really strong mfa results uh but sort of broad strength um you know any specifics on what kind of drove that was it more of the um legacy fiber portfolio and more some of the products that came from from zoetis do you still you know how long are you going to keep differentiating those or is it just going to be fibros fibro well i just like where'd you see the strength yeah no i think the the strength was broad in the quarter and across all areas.

So the MFAs in total grew 13% for the quarter, and that was across both the legacy as well as the Zouetta's portfolio. So the legacy portfolio grew 5%. It's grown for the year as well. The Zouetta's portfolio grew 25%. It was an easier comp to last year based on the fact that we were still growing the business at that point in time and building the field force. So there was a ramp last year. We had a very strong Q4 last year as well as we were building, but Q3 was a little weaker. But then we also had strong performance in our vaccine portfolio. Our vaccine portfolio grew 16%. Our nutritional specialty portfolio grew 8%. So the strength was really broad across the portfolio. And it was a strong quarter on top of a very strong first half to the year. So we continue to see strong momentum in the quarter and good performance pretty much across the entire portfolio. As Donnie mentioned, we had 10% revenue growth. The EBITDA growth was 11%, so the margin appreciation was a little less than we've seen in the first half of the year. FX was a negative impact for us for the quarter from a margin perspective, but still really strong performance overall for the quarter on top of a very strong start to the first half to the year.

Anything to call out from a geography perspective, any region that was a little bit better than others, or maybe from species, or again, was it just really broad-based?

So I think we continue to see our North America unit perform particularly well. And Larry can talk a little bit about particularly with the new MFA portfolio. We built a cattle field force there, and the team has been executing extremely well. But we've seen growth in the quarter across all geographies as well. But Larry, I don't know if you want to comment further.

No, I think we did see growth. Specie, we're nicely diversified, particularly after the acquisition now. Now, by specie, we're much more balanced, and by geographic area, also stronger and more balanced. And we did see growth in all major regions.

Danny, maybe then on the other point you brought up, the other recent update, I believe it was in the AK on the Brazil regulatory change. Just walk us through that. You kind of talked about this is something that's, I think, happened in other parts of the world before. You have experience with this. It's not a complete surprise that Brazil has gone down this path, but still sort of, you know, what are your contingencies for that update and just sort of give us a timeline of how that plays out going forward.

Larry, do you want to take that? So in April, late April, MAPA, who is a regulatory agency that governs over animal health products in Brazil, removed any growth promotion claims, products that have growth promotion claims, antibiotics in particular that have growth promotion claims, and that affected two of our products, but virginamycin, the major one. The second one, bacitracin, already had both the growth promotion and the therapeutic claim. So this is – Brazil is the last major country in the world to do this. We've gone through this migration in every other major livestock-producing country. So that's the first step is that they removed those claims. In our case with virginamycin, we have made a submission last year on, you know, for the therapeutic claims, and we are expecting to get those claims, one for use in cattle for acidosis, the second for poultry, chickens, primarily in necrotic enteritis. We expect to get those therapeutic claims within the 180-day transition period. In that 180-day transition period, we could continue to sell product. Producers and customers continue to use the product as labeled as a transition.

Okay. And like you said, this has happened in other regions in the past. You've got experience with this. We always kind of debate this. When you have these label changes, especially if it's related to growth promotion, um like yes so we'll stick with virginia mice right so let's let's assume that you will have a non-growth promotion therapeutic use label um should you expect the same amount of revenues that you would have had otherwise um sort of like how will how will the users respond to that i know that and there's also some usually some requirements about veterinarian involvement sort of how does that portal over more in the near term and in the long term yeah as donnie said we The transition period, it's going to be different in poultry than it's going to be in feedlot cattle.

So obviously, poultry integrator is very fully integrated. They have veterinarians on staff as employees, and their job is to manage health of their flocks. And so they have systems internally to write the prescription and track the prescription, et cetera. So our expectation in Brazil is that's going to be the smoother transition, and that's what we've seen in other markets as well. In the cattle, it's a little bit different. You know, cattle is more fragmented. They tend not to have, you know, they tend to use consulting veterinarians who are independent who will visit, you know, an operation in, you know, let's talk about feed yards, for instance. They'll visit an operation maybe every four to six weeks, check in on the healthy animals, the records, update prescriptions, et cetera. You know, and that's all in fulfillment of their vet client, valid vet client relationship that they need to maintain for prescriptions. So, you know, we think that's going to be a more challenging one as far as specie. And as we disclosed, our total sales in Brazil of virginia myosin last year were about $26 million.

Yeah, and Mike, too, also in the short term, you know, we do expect in fiscal year 27 for it to have a negative impact as we work through this change. and our customers learn how to adapt to it as well. Over time, we do expect to claw a bit of that back. So in the long term, you know, we think we can recover, but in the short term, we definitely do expect an impact.

I'm going by memory here, correct me if I'm wrong, but I think, you know, like you said, something similar was done in Europe, I want to say like 20, 25 years ago, around the turn of the century. Is that about right? And then the U.S. was like five to 10 years ago. My date's right, or?

No, it's about right for the veterinary feed directive in the U.S.

Yeah, yeah, that was in late 16 or 17. Yeah, yeah. I'm just trying to think of, are there other precedents we can look back to historically to see what the impact was? Are those the two best examples?

I think the best example probably, I mean, from our mind, I mean, there's no one exact fit. The most recent large country was Mexico, and there we were pretty quick to get back to the levels. Again, each country has some factors that are different, and the cattle market's probably a little bit more concentrated in Mexico than it is in Brazil, so that's an easier lift for us, but we do expect to be bent within a few years to where we are today.

And remind me, when did the Mexico transition happen? A few years ago. And, yeah, I mean, you'd think that having gone through this two, three, four times, you now have the processes to work for. You've got the products ready in terms of all that operational work. I mean, yeah, every country, every region is going to be a little bit different, but it's going to be easier a second time, third time, fourth time, every time down, right? Is that reasonable? And then the last one on that, and we'll move on to other topics. So what's the next timeline? What's the next update you're waiting for? Like you said, it's 180 days. You expect to hear on the label change for virginia mycine within that time period.

Yeah, we're in contact with the map of the regulator. And, you know, again, we've made our full submissions. So it's a very consultative process as far as outlining the studies that needed to be done locally, other data that needed to be submitted. And, you know, the studies showed excellent efficacy. And so, you know, again, we're hoping we don't have it. There's no number of days that they have set as a clock stop or anything like that. But we're expecting and hopefully that it will happen soon in this transition period.

And we've been in collaboration with MAPA on this from the start. So this is not something that is surprising to them or to us. And our expectation is well known by them.

Okay, Danny, let's talk about that other topic you brought up, the sustainability program you announced in the quarter. That was really interesting. Like you said, we've had a lot of similar conversations with Alonk over the last couple of years. They've certainly been very loud and very vocal on beating the drum on this. Now, you know, it's exciting to have you talking about some of the same. We'd love to hear more about the program and the product you're discussing.

Yeah, so, you know, I think there's a lot of education that needs to happen within the investor community. But basically, if you look at this market, you look at, let's say, the Fortune 500 companies, And you look at their pledges that they have made as far as their greenhouse gases, right? There's scope one, scope two, and scope three. Scope one being the emissions that their factories themselves emit. Scope two would be the electricity they buy, the move from coal to solar. And scope three, which represents typically 90% of your emissions as a company, is your supply chain. And the ag companies or ag within those Fortune 500 represents a huge opportunity. If you look at the people who publicly pledged and you kind of look at the carbon intensity that they've pledged to reduce, the typical pledge being to reduce by 30 percent by 2030, which is not that long from now, and then you take the market signals as far as what the cost of that is. So for every ton of carbon that a company needs to reduce to meet their pledge, if you take the WHO or the Science-Based Target Initiative, SPTI, which most companies sign up for, they've been told to look for $40 to $100 per ton. You put that math together, and we're looking at $100 to $200 billion opportunity across ag. That's a huge opportunity, and it's hardly been addressed to date. Right. So these pledges were mostly made three or four years ago. We're getting closer to 2030. Now, for those companies that are in Europe, these pledges actually there's governmental tax incentives or fines or whatever it is. A lot of them are going to have to do it no matter what. The American companies, there's no governmental mandate there. But what has been surprising is even under the current administration, the number of companies that have been signing up for new pledges have actually gone up. It's been the opposite of what you might have expected. So there's a rising tide of pledges. There's a huge gap between what they've actually done and what they have pledged to do in the next few years. Our product, specifically the one that we've launched, called Veritain, where we've partnered with a company called Vaxa Technologies based out of Iceland. And they have a really unique process where they have created a product, a spirulina product or omega-3 product from algae that actually, through the manufacturing process, is carbon negative. So you add this product to your feed, and it's an easy feed insert, and it doesn't change your chicken or your cow or anything like that. We're not making any changes to the process of how these animals operate like other processes might. and now you're able to say legally that this animal or our company has now met our pledge or our scope three supply chain pledge where we have brought down our carbon intensity and it doesn't take that much of this product to do a huge effect so we've just launched this we know that there's a unmet need based on these pledges ultimately it's going to be based on whether or not companies decide to fulfill their pledges until now frankly they haven't had the ability to because the you know you can move your trucks to to ev um that that work on your on your site you can work on on some crop conservation methods on soil tilling things of that but that hardly moves the needle overall if you're looking to reduce 30 you need a breakthrough product and we have now have this breakthrough product are there any um like nutritional benefits from the product i mean what else does it provide besides the negative carbon so to be honest there are nutritional benefits but the value of the carbon so exceeds the the benefits that we don't think we're we're not going to be selling this based on the benefits alone at least the and the carbon value is is by far the most important part of it and it and it's doing real work it's really removing carbon from the atmosphere the the removal is happening in iceland but carbon is a global phenomenon when you remove it if you know if miraculously we removed carbon from las vegas today, in two weeks it's gone halfway around the world and in one year it's mixed fully. So it doesn't make a difference where you remove the carbon from, right? And so the benefit of this is that it really is doing real good work without, and a company is able to fulfill their pledge without really changing the way that they do their business.

And then the carbon removal happens during the manufacturing process? During the manufacturing process.

That's really interesting.

I mean, something you talked about earlier is there's a lot of education needs to happen about this. Just, you know, given our prior experience with Alonco on similar moves in sustainability, you know, a lot of it was having to overcome any preconceptions or just sort of familiarize, you know, ranchers, livestock producers, feedlot operators with these products and getting them on board.

Do you anticipate having to do, you know, a lot of heavy lifting there? what's been the initial receptivity to that and how have those conversations gone we literally launched this a week or two ago I would say the advantage of our product well there's room for everybody and Elenco's product goes after methane which is part of the global the larger need within carbon methane is more immediate because removing methane can do for every ton of methane it's worth 28 times or 28 tons in the math of a carbon. So you want to do both to start with. The advantage of our product, I'd say, though, is it does not change the physiology of the animal. The other products, all methane inhibitors that you'll see, be it Elankos product or seaweed products that are out there or synthetic seaweed, they are changing the way that the cow rumen functions, and this does not. So this will be a lot easier on the farmer point of view. Having said that, there's still, you know, there's questions who pays, right, up the supply chain. Is it the CPG? Is it the protein company? Is it the farmer? Who's going to pay for this? There is a cost. This is not a free good. This is a good for society as a whole. The consumer might end up paying ultimately, or always does, I guess. But, you know, I think there is, it's going to take a while to ramp up. But we know by 2029, if you're going to hit 2030, you've got to be ready by 2029. And so we expect, you know, while not this year to see an impact, beginning in the years going forward, if this program works like we expect, we would expect a real impact.

Are you launching it globally? Sort of where's going to be your regional focus? And do you think that, you know, U.S. and Western Europe is going to be more engaged here?

So our initial trials will be in Europe. But we do expect U.S. to be a large focus as well. The rest of the world, you have companies in South America and Asia that have made scope three pledges, but it's less predominant there as far as the need of those companies to make those pledges to satisfy their own internal stakeholders.

And anything you can say in terms of the economics here? I know you're not, like you said, it doesn't seem like it's going to be a fiscal year 26 impact, but cost per cow per year, just sort of like any data points we can say to kind of try to evaluate?

Yeah, I mean, you know, this would add, you know, 10 to 20 cents to a cheeseburger. So, you know, our pricing isn't set yet, but you kind of work backwards on, you know, What we have said is it will be within the $40 to $100 that the Science-Based Target Initiative says should be the cost of carbon removals. And, you know, depending on – there is a lot of work that has to go on as far as accounting and things like that. So there is – you know, you're going to charge more to people who are taking a smaller amount, obviously. But overall, it's a lot – it's going to add cost, but it's nothing that's going to be, you know, earth shattering.

Okay, okay. We'll ask one on that topic, and then we'll move on. I also just want to say, do you see this as a one-off? Is there opportunity for more products in that vein? So this is like your first foray into this market. How do you see that?

Yeah, so we have a platform that we're starting, and clearly we've seen a number of products out there. This is by far the one that we think is most unique and most exciting. But I would anticipate eventually we'll come up with a methane product, not in the same vein, but a methane product. We see other areas on the farm that we can tackle as well related to environmental sustainability. So I do think we will have other products, but this will be the anchor and the star.

I mean, again, Alonco is very constructive and optimistic on both Xperia and Beauvais for them. So it certainly does seem to be like a market with a lot of opportunity down the road. I want to chat a little bit about sort of broader market dynamics and what you've seen in livestock markets the last couple of years. I think we've been, you know, very pleasantly surprised by the strength we've seen in livestock demand for therapeutics, both for, you know, feed additives, but, you know, nutritional specialties, vaccines sort of across the board, the entire portfolio over the last couple of years. There are a lot of sort of like moving pieces or cross currents in terms of rising input costs, consumer demand, supply demand, you know, in terms of number of animals, number of animals in the feedlot. There's all these moving pieces, but just at a high level, what's your take on why livestock markets have been so strong for several years now? Sure. You guys pointed the ladder to say that.

You can't pass the buck. It's ultimately all about consumption, right? And in the protein sector, we've seen rising chicken consumption has risen for many years, decades, actually, at a pretty constant rate. Beef actually had not. It had, you know, done the opposite, and we have seen for the first time in the United States beef consumption per capita increase in the last two years. And so, you know, we think there's a lot of, you know, it's always as far as supply, you know, for cost, as you mentioned, inflation, et cetera. But within that, people that are protein consumers tend to stay within that, right? And so they might shift down if inflation rises much, but we expect it to be, you know, the whole sector to be strong. Obviously, after the acquisition, as I mentioned earlier, we are now participating in a lot of these segments that we had not participated in before. So the U.S. feedlot, we didn't have a presence, and we have a very nice portfolio now with the acquired products, particularly for starting cattle. So we have a group of five or six products that can be used and should be used at the start. starting phase of feedlots. So the opportunity, I think, for animal health companies and for our customers is that we are at historic high levels of values of animals, right? Every animal coming into a feed yard is worth record prices, and the harvest weight is also record. So people are willing to invest in keeping those animals healthy, and so that's a very good thing. I guess the other thing I would say is that, you know, people are feeding animals longer, So they've gone, in the last three years, you know, right now I think the average animal coming out of feed yard for a harvest is at 475 pounds. That's gone up 100 pounds in the last two years. So they're feeding them longer, so there's more opportunity and more opportunity cost to keep them healthy. Obviously, healthy animals will perform better, right? They're on a better, you know, their immune system, everything else, so they're able to convert. And the other thing that is really, really important is a healthy animal will grade higher either choice or prime. And today in the U.S., almost 90% of all animals are grading either choice and prime, and almost 15% of those are grading prime. And that's very premium priced. And so, you know, our products come in to help producers keep animals healthy. and it's a great value proposition.

Yeah, I mean, I think what's been most striking is how broad it's been, right? It's been in multiple geographies. It's been across species. You mentioned both poultry and beef and also swine. And it's sustained that growth at a demand level despite inflation concerns, consumer weakness concerns. I mean, there's been continued pressure. And, you know, other parts of the economy, you're seeing some challenges on spending from the consumer. You really haven't seen it in the livestock yet. Is there sort of like a breaking point you're worried about? Or, I mean, just I guess my question is sort of like how sustainable is this level of demand longer term?

So I think, you know, a lot of the trends that we see, we see continuing. And outside of the U.S. and some of the more developed countries, you still have to remember that what has been driving a lot of demand has been the global. You know, some of these markets, underdeveloped markets, that people are starting to be able to go to a meat-based diet, right? They may have been on an olive edge or rice diet or whatever else. And as those economies rise and as incomes rise in some of those countries, that raises the whole tide, if you will. And so that's also an important part of growth, I think, for the sector.

Okay. Glenn, maybe let's get you in for a couple. Now that you've annualized the Zodos and FI acquisition, so we have the new organization all put together, Can you talk to us about operating leverage going forward for the new co, in a sense? And in terms of investment priorities, could you lay out certain areas you're going to be attacking a little bit more?

Yeah, so as you said, we're starting to annualize the Zoetis portfolio, but we still have many areas that we think will help contribute to continued margin growth. You know, we talk about the fact that we expect to see our vaccines and nutritional specialties grow faster than the MFAs, right? Those come at a higher margin than the MFA is doing will help with our growth and continue to contribute to margin growth. We do see opportunity for continued price increase as we move forward, you know, sort of in that one to two percent range. And then we also we've talked about our Fibro Forward Income Growth Initiative, which carries forward into 2027 and helps drive additional margin growth there as well. But it's really something that we've embedded in the organization, and it's a skill set that we've embedded in the organization to help continue to drive growth and drive greater EBITDA margins. So when we look past fiscal year 27, even, that goal of making sure that from a revenue perspective, we're growing at or faster than the livestock market, but then growing our income faster is something that we're going to continue to strive for and expect to achieve. And it's something that's really embedded within the organization right now.

So is there any kind of longer-term framework in terms of margin expansion, or is it too early to say?

We haven't given a specific margin target, but we are confident that we'll be able to grow our income faster than our revenue, which will drive additional margin expansion. But as I mentioned, it's something that we're looking at every day internally to see how we could continue to improve our efficiencies.

And then maybe one last one for you, Danny, you kind of mentioned in your opening remarks that you were able to sort of increase the cash on the balance sheet and the revolver. Any plans for that you specifically want to call out as just working capital and just being able to sort of service the needs of the business or anything you've got in mind for that?

Yeah, so in terms of the increase in the revolver, that's really for general corporate purposes, right? It was a good opportune time to go to the market, you know, represented the strength that we have on our balance sheet and our overall income generation as well. And, you know, it should BD come up. It gives us more flexibility to act quickly. But it really was for more general corporate purposes. Right. In terms of overall capital allocation priorities, it's going to remain to first invest within the business. We have seen strong growth within our vaccine portfolio. So there will be some investments to continue to support the growth that we expect there from a capital perspective. And then we'll look, you know, to continue to look for opportunities externally through business development, through licensing, to generate additional revenue and income growth moving forward as well. And then finally, to look to pay down debt over time as well.

Maybe last minute that we have left, Dan, I don't know if there's any closing remarks you want to make or maybe any big picture thoughts you want to lay out for us as your incoming CEO.

Yeah, you know, I think we're really in a good place. Our business has done really well. But as I step into the role, obviously, on the one hand, we have a very strong management team that's continuing, and it's going to be really a seamless transition. On the other hand, I think it would be shame on us for not taking advantage of kind of just the fact that when you do make a transition, you are able to look at things a little bit differently. And I know all of us within management are going to take a fresh set of look at our business and see where we can double down, see areas that maybe make less sense. And, you know, I think we will take, you know, the best parts of the continuity and really grow from there. So I'm really confident about the future of Fibro. And I know that's shared by others on the stage. And we're excited to show what we can do.

Okay.

Great.

Thank you so much. We'll leave it right there. Thank you, gentlemen.

Thanks so much.