Thank you for standing by and welcome to the Phibro Animal Health Corporation Q4 2020 (sic) Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Damian Finio, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you, Rebecca. Good morning and welcome to the Phibro Animal Health earnings call for our fourth quarter and year ended June 30, 2021. My name is Damian Finio and I am the Chief Financial Officer of Phibro Animal Health Corporation. I'm joined on today's call by Jack Bendheim, Phibro's Chairman, President, and Chief Executive Officer and Daniel Bendheim, Director and Executive Vice President of Corporate Strategy. On today's call, we will cover financial performance for the fourth quarter and our full fiscal year 2021 as well as guidance for our fiscal year ending June 30, 2022. At the conclusion of our opening remarks, we will open the lines for questions. I'd like to remind you that we are providing a simultaneous webcast of this call on our website, pahc.com. Also, on the Investors section of our website, you will find copies of the earnings press release and Annual Report on Form 10-K filed with the SEC yesterday, as well as the transcript and slides presented on this call. Our remarks today will include forward-looking statements and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements section in our earnings press release. Our remarks include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for our 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 and restructuring costs, other income expense as separately reported in the consolidated statements of operations including foreign currency gains and losses, and lastly income tax effects related to pre-tax adjustments and unusual or non-recurring income tax items. Now let me introduce our Chairman, President and Chief Executive Officer, Jack Bendheim, to share his opening remarks, which will include his perspective on the fourth quarter, full year financial performance, and guidance for our fiscal year 2022. Jack?

Thank you, Damian, and hello, everyone. I'm pleased to announce that we ended our fiscal year strong, posting our fourth consecutive quarter of net sales growth and financial results ahead of our previously communicated projections. Net sales for the quarter were up 19% versus a year ago, while full-year sales were up 4%. Adjusted EBITDA for the quarter was up 13% while full-year adjusted EBITDA was up 6%. I will be proud of these numbers under any circumstances, but as we all know too well, the year ending June 30, 2021 was one filled with unprecedented challenges for our industry. Quarantines, lockdowns, and political unrest around the world drove input prices higher, prompted significant shipping delays and labor shortages, which required all of us to work that much harder and be that much more innovative. Our employees really stepped up and I want to acknowledge their significant efforts, which enabled our organization to not only survive, but grow during these turbulent times. Our efforts to build a companion animal franchise are progressing. Sales of our canine growth joint care product Rejensa continued to grow, in fact doubling again in the second half of the year. Our plan going forward is to continue working with our exclusive distribution partner while at the same time expanding our direct sales force in order to service veterinary clinics with the intent to double sales of Rejensa again in our upcoming fiscal year. And behind Rejensa, we completed a quarter of steady progress on our pet product development pipeline, specifically in terms of our derma care and oral care products. We are optimistic these products will propel our growth in the mid to long-term. We made significant efforts to better streamline our business and financial process to strengthen our internal control framework. Although we've been…

Thanks, Jack. Let me start with our consolidated financial performance for the fourth quarter ended June 30, 2021 versus the same quarter one year ago. Now, keep in mind, the quarter ending June 30, 2020 was the first full quarter impacted by the effects of COVID- 19. Phibro, like most others in our industry, were navigating through a time when consumer demand for shipping and there were disruptions in the supply chain ranging anywhere from labor shortages to shipping delays and consequently, we posted lower than expected top and bottom line performance. That said, on a consolidated basis, our fourth quarter financial performance was significantly ahead of the prior period. Net sales increased 19% driven by improvements across all three of our business segments, namely Animal Health, Mineral Nutrition, and Performance Products. GAAP-based net income and diluted earnings per share were up 203% and 200% versus the same quarter a year ago. Although, a portion of the significant improvement was attributable to higher sales and gross profit, it was also driven by a material swing in our provision for income taxes. In the prior quarter, our financial results included unanticipated adjustments relating to federal global intangible low tax income tax expense, often referred to as the GILTI tax, coupled with incremental reserves needed to cover uncertain international tax position. These tax-related adjustments recorded in the prior quarter were unfavorable to net income and earnings per share. Our current quarter results include similar tax related adjustments. However, these more recent tax-related adjustments were favorable to net income and earnings per share, thus causing the large swing between prior quarter and current quarter provision for income tax. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency movements, and one-offs such as the tax-related adjustments I just described, fourth…

So first question comes from the line of Katie Tryhane of Credit Suisse.

Hi, thank you for taking my question. Can you just maybe expand a little bit further about the demand trends across species, including poultry, swine, dairy, and - domestically and how to think about those, what's embedded in your guidance for fiscal year 2022? Thank you.

Thanks for the question. As we look out towards fiscal year, we are still sitting sort of in a renewed world of COVID. I mean, our initial thoughts towards the end of our fiscal year 2021 was this thing was sort of in hand pretty much, but it's going on with the Delta strain has increased our concern and definitely what we see in the business environment around the world. In the U.S., interestingly enough, we're sitting with the highest population of dairy cows than we have since 1994. So it's about 94 million dairy cows where - and historically we - many years we kept talking around 90 million to 91 million. Sorry, I'm saying - and I meant 9.5 million, looking at the wrong thing here. We're seeing the poultry business being strong, export demand being good and again talking domestically. And again, same thing for the swine business. All of our customers in United States are making money. Around the world, it's a mixed bag. Damian mentioned the COVID-related economic problems in the Far East. Also same thing in South America. So it's - our outlook has been really sort of tempered a bit by the pandemic, but we see continuing strong underlying demand for the business and that's really the basis for these numbers.

Okay, got it. That's great. And then maybe on Rejensa, I know you mentioned that sales doubled, but can you help us understand, I mean, how has that product trended relative to your internal expectations and perhaps maybe what have been some key learnings then as you've entered the companion animal market? Thanks.

Hi, this is Danny speaking. So I think Rejensa has largely met our expectations for the past year. Truthfully, pre-pandemic, we were growing at a faster clip as access to the west was limited and has remained somewhat limited. Our growth slowed relative to our initial expectations, but it's been consistently growing throughout last 12 months and as we discussed in our guidance, we expect it to double again in the next 12 months. As far as our learnings, it's probably hard to draw lessons from the current time period, but clearly getting access to the West is the challenge and there's multiple ways to do it and we are still figuring out for ourselves the best way. Right now, we're working with an exclusive distributor and we're happy and pleased with the access to distributor for the most part is getting, but we are also at the same time adjusting and increasing the number of our direct sales reps. We're working with our distributor and that will be a trend that will continue and truthfully, it sets us up as we, in the years to come, expand our product portfolio, we will have a larger footprint on the ground to build those products.

Your next question comes from the line of Michael Ryskin with Bank of America.

Hi, thank you for taking my question. I want to follow up a little bit on sort of the outlook in Animal Health. Could you give us a little bit more insight into your expectations for next year between MFAs and other, between the nutritional specialties and vaccines? Is it safe to assume that nutritional specialties vaccines are back to that historical sort of high single digit, maybe 10% range and MFAs and other is more of a low single digit 2% to 3% result next year just sort of putting all the pieces together?

Let me start, Michael. So as I mentioned, on a consolidated basis, our sales growth next year ranges from 1% to 4%, which I would say reflects general market growth in the animal protein industry growth globally. I also mentioned that Animal Health would drive those growth numbers. So within our Animal Health segment, we have MFA and others, nutritional specialties and vaccine. We see the majority of the growth coming from the nutritional specialty and vaccine product line. So nutritional specialties, we expect to be filled with some of the mentions we made around our acquisition of Osprey and some other products recently launched. And in vaccines, we hope to recover in some of those markets where we saw economic challenges in 2021 and also launched some new products and expand existing products into new markets.

Okay, that's helpful. And then on the gross margin line, you saw some nice gains this quarter. I think a lot of that was probably impact of the underlying commodity pricing in Mineral Nutrition and in Performance Products. Do you anticipate gross margin to sort of continue along that trajectory next year? Could you give us any sense on sort of your assumptions around COGS, also keeping mind inflationary pressures, everything else going on in the broader economy?

Yes. As we put out these numbers, as I was saying earlier, the challenges we faced - I mean, generally, we feel gross margins should improve. The unknowns are the commodity price increases we're seeing around the world. The unusual situation with shipping and freight and freight costs in some ways tripling, quadrupling and what impact that will have and our ability to pass that on is, we will do it, but it's going to be a struggle. So, in a normal year, I would say, the answer is, yes. The margins will increase, we would see the 10 or greater percent in sales growth in vaccines and in nutritionals and the lower growth in the MFA. But it's still an upside down market out there. And we still have not had the ability in many countries to sit in front of the customers. Things are still going in a bit of long distance. So the information is slower, but overall underlying growth is there and we see know we see it returning to trend. Whether it will completely return this year, fiscal year, not sure. But definitely returning.

And at this time, there are no further questions.

All right. Thank you, Rebecca. Thank you again to our employees for delivering such a strong financial performance in fiscal year 2021. And thank you, everybody, on today's call for your time, attention, questions, and interest in Phibro Animal Health Corporation. Please enjoy these last days of summer, with all diligent about keeping ourselves and one another safe. Thank you and have a great rest of your day.

Thank you for participating. This concludes today's conference call. You may now disconnect.