Good morning. My name is Shantel and I'll be your conference operator today. At this time, I would like to welcome everyone to the Phibro Animal Health Corporation Second Quarter 2022 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. Thank you. Damian Finio, CFO, you may begin your conference.

Thank you, Shantel. Good morning and welcome to the Phibro Animal Health Corporation earnings call for the quarter ended December 31, 2021 which is the second quarter of our fiscal year 2022. My name is Damian Finio and I'm the Chief Financial Officer of Phibro Animal Health Corporation. I'm joined on this call today 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'll cover financial performance for our second quarter as well as a revised financial 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 the second quarter Form 10-Q filed with the SEC yesterday 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 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 a discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release. We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual, nonoperational or nonrecurring items, including stock-based compensation and restructuring costs. Other income and expenses as separately reported in consolidated statements of operations, including foreign currency gains or losses net. And lastly, income tax effects related to pretax adjustments and unusual or nonrecurring 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 Phibro's second quarter financial performance and a revised financial guidance for our fiscal year 2022. Jack?

Thank you, Damian and good morning, everyone. We had a strong second quarter. In fact, we posted $233 million of net sales, the highest single quarter of sales in the company's history. This was an 8% increase over last quarter and a 13% increase over the same quarter of the prior year. As we discussed on our last call, the latter rising cost to do business over the course of the last few months, we have taken stronger steps to raise prices and pass-through incremental freight costs. This is reflected in our performance this last quarter, where in our core Animal Health segment, we saw our margin improve each month over the previous month and we expect it to continue to play out positively over the balance of fiscal year. Notwithstanding our pricing actions, we saw continued strong demand for our products globally and we expect this trend to also continue for the balance of this fiscal year. Our largest segment, Animal Health, posted sales growth of 11% over the same quarter of prior year, driven by continued strong growth in our vaccine product line but also a 12% growth in the MFAs and other. And Mineral Nutrition seems to perform well, posting a net sales increase over the prior quarter of 23%. Strong top line sales drove adjusted EBITDA of $29.1 million, reflecting a 2% improvement over the same quarter period last year. More importantly, this equates to a second quarter adjusted EBITDA margin of 12.5% which is a 200 basis point improvement versus last quarter and just 40 basis points shy of our fiscal year 2021 adjusted EBITDA margin of 12.9%. Given our first half performance and outlook for the remaining of the fiscal year, we are raising full year net sales guidance for a second time. We're now projecting net sales for the year of $890 million to $920 million. We are maintaining our adjusted EBITDA guidance of $110 million to $114 million and raising our guidance on adjusted net income and adjusted diluted EPS by about 5%, driven by the favorable change in our projected adjusted effective tax rate. Lastly, I've said it before and unfortunately need to say it again, COVID-19 variants remain a risk. The Omicron variant has created scheduling challenges with the higher-than-normal number of employees having to quarantine. We seem to be through the worst of it, although we remain optimistic that Phibro will continue to navigate the situation successfully as we've done in the past. Now, let me ask Damian to review our financial results and we will come back to you with questions.

Thanks, Jack. I'll start with consolidated financial performance on Slide 4 and then cover segment level performance, key balance sheet metrics and conclude with a review of our revised financial guidance for the full fiscal year 2022. The Consolidated net sales for the quarter ended December 31, 2021, were $232.7 million, reflecting a $26.6 million or 13% increase over the same quarter one year ago. This increase was driven by improvements in our largest segments, Animal Health and Mineral Nutrition, offset slightly by a $0.6 million sales decline in our Performance Products segment. GAAP-based net income and diluted earnings per share increased 36% and 34%, respectively, versus the same quarter a year ago. The net income increase was driven by stronger volumes and selling prices, partially offset by increases in raw material costs and unfavorable product mix as well as a $4.8 million increase in foreign currency gains, offset by a $2.8 million increase in income tax expense reported below operating income. Although it was good to see a foreign currency gain this quarter, volatility in foreign currency exchange rates continues. For Phibro, the impact is primarily driven by the effect of translating intercompany balances to the U.S. dollar for reporting purposes at the end of the reported period. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency movements and one-offs, second quarter adjusted EBITDA improved 2% over the same quarter prior year. The adjusted EBITDA improvements were driven by higher gross profit in our Animal Health and Mineral Nutrition segments, offset by higher SG&A and a decline in the profitability of our Performance Products segment. Adjusted net income and adjusted diluted earnings per share improved 9%, driven by higher gross profit from an increase in volumes and average selling prices partially offset by increased SG&A…

Our first question comes from Erin Wright with Morgan Stanley. Your line is open.

Hi everyone. Great, thank you so much. Can you speak to the magnitude of the price increases you were able to take in the quarter? What's embedded in your expectations for the balance of the year? And are you seeing any pushback? Or what's the feedback from a customer perspective? And how does the strategy or your strategy compared to your competitors out there? Thanks.

Let me take the second half first, Erin. I think I saw this morning something that inflation was up 7%. So we're living in a time where everyone is seeing higher prices. And so the pushback on price increases are less than it would be in a normal time. Everyone's seeing it in wherever they're going. And so we've been able to increase our prices. It's -- I would say, it's not over because if inflation continues and our costs go up, we will have to and we will raise prices again. But to the exact amount, I'm -- we're not going to talk about.

Okay. And then excluding the pricing dynamics from a volume perspective, how are trends and demand trends progressing here with like macro dynamic hopefully some of that subsiding? But if you could speak to that across species groups globally and which species groups may be better positioned over the next 12 months? Thanks.

That's a great broad question. We are seeing strong demand in most BCs and in pretty much all markets. I mean, some of the markets that are still high hit with COVID. Clearly, demand has not come back as rapidly as in other markets. But in the major markets we deal with in North America, South America and somewhere in the Far East we are seeing demand increase across all species.

Okay. And just one quick one, if I could sneak it in. The $3.5 million benefit to the MFA category, is that something that continues here or was embedded in expectations for the balance of the year?

And is that specifically talking about the sales for the ethanol?

Yes.

So I mean, the ethanol sales are products that are sales for either the coproducts that they produce or for ethanol self-using products that typically we sell throughout animal health, that's an ongoing business. And that's a business that has continue to strengthen year-over-year and it's an international business for us and one that we continue to see great horizons for.

Okay, all right. Thank you.

Our next question comes from Michael Ryskin with Bank of America. Your line is open.

Great. Thanks for taking the questions. Jack, I want to ask first on some recent news we've seen in the space. The bird flu, the avian flu outbreaks in the United States, I think just yesterday, it was detected in a commercial port to operation first time in a couple of years. We've gotten a lot of questions on this. And given you have relatively high poultry exposure, I'm just wondering if you could characterize the risk. Obviously, still very early but sort of walk us through the various scenarios and how you think that play out over the rest of the year?

So avian influenza is a big risk to the poultry industry. So -- and the response to it, I mean how it affects us, really depends on the country. The U.S. is always well prepared for any outbreaks because we have a really good biosecurity. We have good protocols of what you do when you detected it, like you do to sort of clean out the area around it to minimize what will happen. Some other countries of the world are not as good. So it is out there. It is so far has not had a big impact on the business.

Okay. And then a follow-up question on Mecadox. Last month, you noted that there's going to be a public hearing with the FDA in mid-March. Obviously, Mecadox has been sort of an issue for a number of years now. Can you talk about any recent dialogue with the agency sort of what are your expectations? And what's your outlook going into the hearing?

I think the dialogue is the fact that the agency published this public hearing sort of focusing on areas that we're quite comfortable with focusing on areas of looking for the safety of this product which has been on the market, as we know, for over 40 years which is used by over 90% of the feed producers in the United States, in nurseries and is an extremely important product. The other sort of interesting thing is the use of Mecadox or carbadox allows the producers to use a lot less antibiotics that are important for humans. So we're sort of in an entering dynamic where there are some people in the agency who feel, "Hey, let's get this product off the market, it's been around for 45 years." But the agency and people in this country and the consumer has spent so much time and so much effort to try to reduce the amount of, call it, human antibiotics that are used in animal and that's a clash. So, we're appreciative of the agency sort of opening up and looking for this public hearing. And -- but as you know, we never know where the government goes.

Okay, great. And if I could squeeze in one last one, just a follow-up to something Erin just asked earlier. I want to make sure I get it right. On the price increases in the past, you've sort of been careful to call out that a lot of it is freight surcharges and therefore, somewhat temporary in nature. Is it still safe to assume that -- assuming at some point in the future inflation normalizes a little bit that those price increases are going to be rolled back and we're going to go back to sort of a historical pricing?

So we've been -- as we said often in the past, we produce the majority of products we sell. And we've been sort of hit with a range of price increases. Everyone knows and one reads about the shortage of labor. We've seen labor price increases. We've seen raw material price increases. And those are things that we pass along and that will not get rolled back. We've also seen and what you read, GreatStar's about shortage of drivers in the United States and freight increases. So in our industry, in many industries, it's not abnormal to see some to go freight surcharge which as long as those costs are up, you easily can pass those prices on, everyone seeing them. So yes, if prices of trucking goes back down, then yes, the prices will go back then but our costs will go down. The main thing on a price increase is to cover your increased costs that don't go away and we've done both.

Okay, that's really great. Thank so much.

There are no further questions at this time. Damian, I turn the call back over to you.

Great. Thank you, Shantel and thank you, everybody who joined today's call. As always, we appreciate your time, attention, questions and interest in Phibro Animal Health Corporation. As always, feel free to reach out to Jack, Donny or myself directly or via the Investors section of our website, should you have any further questions. Have a great rest of your day and please continue to stay safe.

This concludes today's conference call. You may now disconnect.