Phibro Animal Health Q2 2025 Earnings Call Transcript

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Operator

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 second quarter twenty twenty five earnings 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.

Operator

If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Thank you, Regina. Good morning, and welcome to the Fibro Animal Health Corporation earnings call for our second quarter ended 12/31/2024. 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 Benton, Fibro's Chairman, President and Chief Executive Officer, and Donnie Benton, 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 06/30/2025.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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, pahec.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 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 as separately reported in the consolidated statements of operations, including foreign currency losses gains net and income taxes related to pretax income adjustments and unusual or non recurring income tax items.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Now, let me introduce our Chairman, President and Chief Executive Officer, Jack Bentyne to share his opening remarks. Jack?

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

Thank you, Glenn, and good morning, everyone. By every measure, this was one of the strongest quarters since going public. We successfully integrated the ZOEUS Medicaid feed additive portfolio, a testament to our unwavering customer centric approach, one that I believe ZOELET's shares as well. While no integrations without challenges, our guiding principle remains clear, serving the customer. This focus has ensured seamless execution of our most critical priorities.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

At the same time, our Fiber 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 Zoidis MFA portfolio. Total sales climbed 24% while adjusted EBITDA surged 64%, demonstrating both top line strength and expanding profitability. Our Animal Health segment led the way with MFA and other product sales rising 47%. Even excluding this OS contribution, our legacy animal health business delivered double digit growth across all three product categories with MSA and other sales increasing 11%, vaccines expanding 12% and nutritional specialties up 11%.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

Rounding out our performance, our Mineral Nutrition segments grew 3% while our Performance Products 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 twenty twenty five and beyond. We remain confident in our ability to drive sustainable growth and create long term value through the fiber forward strategic innovation, targeted portfolio expansion and disciplined financial management. The broader protein industry both in The U.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

S. And globally remain strong. We expect continued growth despite challenges such as emerging diseases like avian influenza and geopolitical factors, including the newly announced tariffs. We are confident that Freibor was well positioned to navigate these headwinds and capitalize on the opportunities ahead. As Glenn will discuss, we are updating our fiscal year twenty twenty five guidance to reflect this momentum and our strengthening outlook.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

Glenn?

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Thank you, Jack. Starting with our Q2 performance on Slide four. Consolidated net sales for the quarter ended 12/31/2024 were $309,300,000 reflecting an increase of $59,300,000 or 24% decrease over the same quarter one year ago. The Animal Health segment grew 33%, while Mineral Nutrition grew at 3% and the Performance Products segment grew by 7%. GAAP 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 and A due to higher employee related costs.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 $18,700,000 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 and A and higher adjusted interest expense. Now moving to segment level financial performance. The Animal Health segment posted $229,400,000 of net sales for the quarter, an increase of $56,300,000 or 33% versus the same quarter prior year.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Within the Animal Health segment, we reported legacy MFA and other net sales growth of $11,700,000 or 11% due to demand in both domestic and international regions. The new MFA business contributed two months of sales or $36,700,000 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 net sales increased $4,500,000 or 11%, mostly due to higher sales of microbial and companion animal products.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Vaccine net sales growth of $3,400,000 a healthy 12% increase, driven by vaccines in Latin America, plus an increase in both domestic and international demand. Animal health adjusted EBITDA was $58,200,000 a 48% increase driven by the new MFA business, higher gross profit from increased legacy sales and partially offset by higher SG and A. For comparison purposes only, we are providing a rough estimate of ZOELETES EBITDA contribution. Please note that many expenses are not easily attributed to the new business. Our estimated EBITDA of $12,000,000 includes only those expenses that can be directly attributed to the new MFA business.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 $63,300,000 an increase of $1,900,000 or 3% due to increased sales volume and price. Mineral Nutrition adjusted EBITDA was $5,700,000 reflecting a year on year increase of $2,200,000 driven by higher gross profit and improved cost positions. Looking at our Performance Products segment, net sales of $16,600,000 reflects an increase of $1,100,000 or 7% as a result of higher demand for the ingredients used in personal care products. Adjusted EBITDA was $1,900,000 and grew $1,100,000 versus the same quarter prior year.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Corporate expenses increased $3,400,000 driven by increased employee related costs. Turning to key capitalization related metrics on Slide seven. We generated $15,000,000 of positive free cash flow for the twelve months ended 12/31/2024. We generated $55,000,000 of operating cash flow and invested $40,000,000 in capital expenditures. Cash and cash equivalents were $67,000,000 at the end of the quarter.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Our gross leverage ratio was 3.1 times at the end of the second quarter based on $760,000,000 total debt and $242,000,000 of trailing twelve month adjusted EBITDA. Please note that the trailing twelve months of adjusted EBITDA includes twelve months from the Zoetis medicated feed additive portfolio, ten months of ZOELETIS history and two months from Fibro ownership. Our net leverage ratio was 2.9 times at the end of the second quarter based on $693,000,000 of net debt and $242,000,000 of trailing twelve month adjusted EBITDA. Turning to dividends, consistent with our history, we paid a quarterly dividend of $0.12 per share or $4,900,000 in aggregate. As a reminder, dollars 300,000,000 of our debt is at a fixed rate of 0.51% plus the applicable margin through June 2025.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

In addition, in September of twenty twenty four, we entered into a new swap arrangement for $150,000,000 at a fixed rate of 3.18% plus the applicable margin. Let's turn to Slide eight, which lays out our guidance for fiscal year twenty twenty five. Please note that our guidance now includes the acquisition of the Zoetis Medicaid portfolio. Included in this guidance for fiscal year twenty twenty five are early benefits related to our fibro 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 twenty twenty five 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% and a midpoint of approximately 25%.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Total adjusted EBITDA of $172,000,000 to $180,000,000 This represents a growth range of 55% to 62 and a midpoint of approximately 58%. Total adjusted net income of $76,000,000 to $82,000,000 this represents growth of 57% to 70% with a midpoint of approximately 63%. The preliminary estimates for the Zweta's MFA contribution to fiscal year twenty twenty five includes 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. GAAP net income and EPS assumes constant currency and no further gains or losses from FX. Also included in our GAAP 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

We are confident in our ability to deliver a total adjusted diluted EPS between one point eight seven dollars and two point zero one dollars 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, the seamless integration and strong performance alongside improving profitability in our legacy business. With that, Regina, could you please open the line for questions?

Operator

Our first question will come from the line of Ekaterina Kyskova with JPMorgan. Please go ahead.

Ekaterina Knyazkova
Ekaterina Knyazkova
Senior Associate, Equity Research at JP Morgan

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 $0.5 increase for the EPS range, how much of that is coming from the acquisition versus the underlying business? And I guess what's some net change relative to the outlook you provided last quarter and that $0.25 number you were talking about?

Ekaterina Knyazkova
Ekaterina Knyazkova
Senior Associate, Equity Research at JP Morgan

And then 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 in which products the regions have been driving some of that performance? Thanks.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Thanks for the question, Catarina. 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 $0.25 of EPS related to ZOE DES. The current guide does include more than $0.25 But again, it's a combination of both improved performance in our expectations for ZOE DES, but also improved performance in our legacy business as well.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

And

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

then on the general performance of the business, this has been a great time for our customers. Our customers across The US and the world and this is true for every category in protein whether it's in cattle, in chickens, in pigs, they're doing okay. And when they're doing okay, their 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.

Ekaterina Knyazkova
Ekaterina Knyazkova
Senior Associate, Equity Research at JP Morgan

Thank you.

Operator

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

Analyst

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 EPS guidance came in quite a bit higher than expected. Can you walk us through the drivers behind that upside?

Analyst

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 $37,000,000 for the last two months. But that seems a bit light if it's going to be $200,000,000 in eight months. Can you talk about, if you have it started, risk expectations and anything unusual you're seeing in terms of stocking, destocking, transition, things like that? Thank you.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Sure. So just to address the first part of your question in terms of the revenue guidance being aligned with the incremental $200,000,000 which we had initially called out for the Zueta's 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 Zoettis, we did see some higher profitability than initially anticipated.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

And that's driven by a couple of factors. A, the timing of hiring some of the colleagues across the organization whose cost 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 $37,000,000 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 work 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 $200,000,000 that we had guided previously.

Analyst

Thank you.

Operator

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

Mikaela Franceschina
Mikaela Franceschina
Analyst at Barclays Capital

Hi. This is Makila on for Balaji. Thanks for taking our questions.

Mikaela Franceschina
Mikaela Franceschina
Analyst at Barclays Capital

Just a quick one.

Mikaela Franceschina
Mikaela Franceschina
Analyst at Barclays Capital

So with the MFA deal now complete, can you guys talk to us

Mikaela Franceschina
Mikaela Franceschina
Analyst at Barclays Capital

just a bit more about your priorities and companion animal? Is this can you guys talk to us just a bit more about your priorities in 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.

Daniel Bendheim
Daniel Bendheim
Director and EVP of Corporate Strategy at Phibro Animal Health

Hey, good morning. It's Donnie. I'll take that. Companion animal continues to be a key priority for us. However, we are making nice progress.

Daniel Bendheim
Daniel Bendheim
Director and EVP of Corporate Strategy at Phibro Animal Health

We purposely in this quarter 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 strength in livestock, our continued 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, I think the livestock business is a shining star for us and we do want people to recognize the growth that we're having and continue to have and continue to expect to have there.

Operator

Our next question comes from the line of Nevan T. With BNP Paribas. Please go ahead.

Navann Ty Dietschi
Lead Analyst at BNP Paribas

Hi, good morning. Can you discuss the integration of the Vouettis MFA 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 tremendous job on that. And I think, you know, we've gotten very positive feedback from our customers

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

in terms of our ability

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

to support them and the care that we're able to provide and their pleasure with us having a broader portfolio now enabled 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 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 some system transitions on the manufacturing side, as well as as we continue to evolve with marketing authorizations.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

But everything is going according to plan. 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.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

So we never had any intentions of headcount reductions as part of the acquisition.

Navann Ty Dietschi
Lead Analyst at BNP Paribas

Thank you.

Operator

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

Linda Bolduc
Linda Bolduc
Analyst at Morgan Stanley

Thanks. Good morning. This is Linda on for Erin 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 compression throughout the year?

Linda Bolduc
Linda Bolduc
Analyst at Morgan Stanley

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? Thanks.

Jack Bendheim
Jack Bendheim
Chairman, President & CEO at Phibro Animal Health

I'll take the easy one, the tariffs. So I would say sort of base 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 our 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 all the impacts will be very, very small.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

And then in terms of EBITDA margin and progression, 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 we saw in terms of adjusted EBITDA versus last year three eighty basis points improvement. We'd expect that with the continued focus that we have with the fiber forward growth initiative, as well as continuing to optimize the 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, as Jack mentioned earlier, we're seeing very good profitability across many of the categories across poultry, wine, cattle, and in many of our major markets. So just, we get a dashboard internally that shows green, yellow, and red.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

And in all of our key markets, the majority of those flashlights are flashing green, which we see is very positive for us for the rest of the year. And just to follow-up on the tariff implications. As Jack said, those aren't we are working through the implications of the tariffs. We do have a plant in China that we acquired as part of, as well as acquisition. We've looked across all of our business units to understand the exposure there.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

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 our profitability. Whether that's passing on to the customers or looking for alternative sources, we feel very confident in our ability to mitigate the impact. And when you look at our guidance for fiscal year twenty twenty five, the majority of the tariffs would impact our cost of goods sold. And based on inventory turns, we wouldn't really see any impact into 2026.

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

So we feel very confident that the guidance that we provided today would accommodate any implications of current or further tariffs.

Operator

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

Glenn David
Glenn David
Chief Financial Officer at Phibro Animal Health

Thank you, Regina. And thank you everyone for listening in on today's call. We really appreciate your time, interest and support of Fiber Alto at Fiber Animal Health and we hope you have a great day. Thank you so much.

Executives
    • Glenn David
      Glenn David
      Chief Financial Officer
    • Jack Bendheim
      Jack Bendheim
      Chairman, President & CEO
    • Daniel Bendheim
      Daniel Bendheim
      Director and EVP of Corporate Strategy
Analysts
Earnings Conference Call
Phibro Animal Health Q2 2025
00:00 / 00:00

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