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 Phibro Animal Health Corporation Second Quarter 2025 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. If you would 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. Go ahead.

Thank you, Regina. Good morning, and welcome to the Phibro Animal Health Corporation earnings call for our second quarter ended December 31, 2024. My name is Glenn David, and I am the Chief Financial Officer of Phibro Animal Health Corporation. I am 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. Today, we will cover our financial performance for our second quarter and provide updated financial guidance for our fiscal year ending June 30, 2025. 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 pahc.com. Also, on the investor 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. Our remarks include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles (US GAAP). I will 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 nonrecurring 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 nonrecurring income tax items. Now let me introduce our Chairman, President, and Chief Executive Officer, Jack Bendheim, to share his opening remarks.

Thank you, Glenn, and good morning, everyone. By any measure, this is one of the strongest quarters since going public. We successfully integrated the Zoetis medicated feed additive portfolio, a testament to our unwavering customer-centric approach, one that I believe Zoetis shares as well. While no integration is without challenges, our guiding principle remains clear: serving the customer. This focus has ensured seamless execution of our most critical priorities. At the same time, our Phibro 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 Zoetis MFA portfolio. Total sales declined 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 Zoetis' contribution, our legacy animal health business showed double-digit growth across all three product categories, with MFA and other sales increasing 11%, vaccines expanding 12%, and nutritional specialties up 11%. Rounding out our performance, our Mineral Nutrition segment grew 3% while our performance product 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 have built positions us well for the remainder of fiscal 2025 and beyond. We remain confident in our ability to drive sustainable growth and create long-term value through Phibro Forward strategic innovation, targeted portfolio expansion, and disciplined financial management.

We broader protein industry, both in the US and globally, remains 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 Phibro is well-positioned to navigate these headwinds and capitalize on the opportunities ahead. As Glenn will discuss, we are updating our fiscal year 2025 guidance to reflect this momentum and our strengthening outlook.

Thank you, Jack. Starting with our Q2 performance on slide four, consolidated net sales for the quarter ended December 31, 2024, were $309.3 million, reflecting an increase of $59.3 million or a 24% increase over the same quarter one year ago. The animal health segment grew 33%, while mineral nutrition grew at 3%, and the performance product 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&A due to higher employee-related costs. 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 $18.7 million or 64% versus the 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&A and higher adjusted interest expense. Moving to segment-level financial performance, the animal health segment posted $229.4 million of net sales for the quarter, an increase of $56.3 million or 33% versus the same quarter prior year. Within the animal health segment, we reported legacy MFA and other net sales growth of $11.7 million or 11% due to demand in both domestic and international regions. The new MFA business contributed two months of sales or $36.7 million 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 $4.5 million or 11%, mostly due to…

Our net leverage ratio was 2.9 times at the end of the second quarter based on $693 million of net debt and $242 million for trailing twelve-month adjusted EBITDA. Turning to dividends, consistent with our history, we paid a quarterly dividend of twelve cents per share or $4.9 million in aggregate. As a reminder, $300 million of our debt is at a fixed rate of 0.51% plus the applicable margin through June 2025. In addition, in September of 2024, we entered into a new swap arrangement for $150 million 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 2025.

Please note, our guidance now includes the acquisition of the Zoetis medicated feed additive portfolio. Included in this guidance for fiscal year 2025 are early benefits related to our Phibro 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. 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 2025, updated to include the acquisition of the Zoetis medicated feed additive portfolio, is as follows. Total net sales of $1.25 billion to $1.3 billion. This represents a total growth range of 23% to 28% and a midpoint of approximately 25%. Total adjusted EBITDA of $172 million to $180 million. This represents a growth range of 55% to 62% and a midpoint of approximately 58%. Total adjusted net income of $76 million to $82 million. This represents growth of 57% to 70%, with a midpoint of approximately 63%. The preliminary estimates for the Zoetis MFA contribution to fiscal year 2025 include 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 assume constant currency and no further gains or losses from net tax. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiative and acquisition-related costs from the new MFA products. We are confident in our ability to deliver a total adjusted diluted EPS between $1.87 and $2.01 for the full fiscal year of 2025, which represents an improvement 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 in the seamless integration and strong performance alongside improving profitability in our legacy business.

We will now open for questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question will come from the line of Ekaterina Knyazkova with JPMorgan. Please go ahead.

Hey. Thank you so much, and congrats on the quarter. So first question is just on the guidance update. I think you have touched upon this a little bit, but perhaps you can give a bit more color. So how much of the fifty-cent increase for the EPS range, how much of that is coming from the acquisition versus the underlying business? And I guess what is some of that change relative to the outlook you provided last quarter and that twenty-five cents number you were talking about? And then the second question is just on the animal health performance. Seems like another very strong quarter of growth backing out the acquisition. Just elaborate a bit on trends you are seeing across the portfolio and which products and regions have been driving some of that performance. Thanks.

Thanks for the question, Ekaterina. I will start with the EPS guidance, and I will let Jack comment a little bit on the business performance. When you look at the overall increase in EPS at both the bottom and top of the range, it is about fifty-three cents. 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 guided to probably about an additional twenty-five cents of EPS related to Zoetis. The current guide does include more than twenty-five cents. But, again, it is a combination of both improved performance in our expectations for Zoetis, but also improved performance in our legacy business as well.

Yeah. And 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 of protein, whether it is in cattle, in chickens, in pigs, they are doing okay. When they are doing okay, you know, their concern is let us keep these animals healthy so they perform better and they get better to the market. And that is what we are seeing around the world, and that is basically what is driving the business.

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

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. EPS guidance came in quite a bit higher than expected. Can you walk us through the drivers behind that upside? And then similarly, now that you have owned the MFA asset for about three to four months, is there anything you would like to call out that you have heard about the business that surprised you? I know in the release, you called out the contribution of thirty-seven million for the last two months. That seems a bit light if it is going to be two hundred million in eight months. Can you talk about, if you have it started versus expectations? And anything unusual you are seeing in terms of stocking, destocking, transition, like that. Thank you.

Sure. So just to address the first part of your question in terms of the revenue guidance being aligned with the incremental two hundred million dollars which we had initially called out, this is the Zoetis 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 Zoetis, we did see some higher profitability than initially anticipated, and that is driven by a couple of factors. A, 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 just in general, we have seen, you know, some pretty positive mix as well with, you know, the US 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 thirty-seven million dollars 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. Not fully out of the destocking, but we see a nice trend moving forward that we feel confident in the two hundred million dollars that we had guided previously.

Thank you. Our next question comes from the line of Balaji Prasad. Please go ahead.

Hi. This is Mikaela on for Balaji. Thanks for taking our questions. Just a quick one. So with the MFA deal now complete, is this still a key focus area? And if so, can you provide any additional details on your pipeline here? Thanks so much.

Hey. Good morning. It is Daniel. I will take that. Companion animal continues to be a key priority for us. However, you know, we are making nice progress. We purposely in this quarter did 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. There is actually a lot of pipeline products within livestock as well. So while we continue to make progress on our pipeline in pets, you know, I think the livestock business is, you know, a shining star for us, and we do want people to recognize the growth that we are having and continue to have and continue to expect to have there.

Our next question comes from the line of Navann Ty with BNP Paribas. Please go ahead.

Hi. Good morning. Can you discuss the integration of the Zoetis 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.

Yeah. So in terms of the integration today, 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. They have done a tremendous job on that. I think, you know, we have gotten very positive feedback from our customers in terms of our ability to support them and the care that we are able to provide and their pleasure with us having a broader portfolio now and able to support their needs. So that was priority number one, and that has progressed very well. Also, obviously, onboarding colleagues from Zoetis into our organization. That was a key priority as well, and that has gone extremely well. You know, there are some additional things that we need to do over the next number of months, including, you know, some system transitions on the manufacturing side. As well as as we continue to, you know, evolve with marketing authorizations. But everything is going according to plan. I am very pleased with the progress that we have made with the integration. In terms of headcount reduction, we have 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. So we never had any intentions of headcount reductions as part of the acquisition. Thank you.

Our next question will come from the line of Linda with Morgan Stanley. Go ahead.

Thanks. Good morning. This is Linda on for Erin Wright, and thanks for taking our question. For the company, what are the implications of tariffs on Phibro and any potential color on the exposure that you could share with us? Also, any thoughts on EBITDA margin compression throughout the year? 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.

I will take the easy one, the tariffs. So I would say sort of based on where we are on as we call, last night's announcement of the White House. We are 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. Correctly? And our factories are in Brazil and in Israel and the United States. We do import from China some stuff. But overall, we think the impacts will be very, very small.

And then in terms of EBITDA margin and progression, yeah. We continue to see improvements in EBITDA margin in our core business with the Phibro Forward business. With the Phibro Forward initiative as well as with the acquisition of the Zoetis portfolio. So, you know, we saw in terms of adjusted EBITDA versus last year, you know, 380 basis points improvement. You know, we would expect that with the continued focus that we have with the Phibro Forward Growth Initiative, as well as, you know, continuing to optimize the Zoetis 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, you know, as Jack mentioned earlier, you know, we are seeing very good profitability across, you know, many of the categories across poultry, swine, cattle. And in many of our major markets. You know, so just, you know, we gather a dashboard internally that shows green, yellow, and red. And in all of our key markets, the majority of those flashlights are flashing green. Which, you know, we see as very positive for us for the rest of the year. And just, you know, just to follow-up on the tariff implications, you know, as Jack said, those are not we are working through the implications of the tariffs. You know, we do have a plant in China that we acquired as part of the Zoetis acquisition. You know, we have looked across all our business units to understand the exposure there. You know, it varies across some of the business units between animal health, mineral nutrition. We do have mitigation plans in place, you know, in the event that some of those tariffs do become burdensome to our profitability. You know, whether that is passing on to the customers or looking for alternative sources, you know, we feel very confident in our ability to mitigate the impact. And when you look at our guidance for fiscal year 2025, the majority of the tariffs would impact our cost of goods sold. And based on inventory turns, we would not really see any impact into 2026. So we feel very confident that the guidance that we provided today would accommodate any implications of current further tariffs.

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

Thank you, Regina. And thank you, everyone, for listening in on today's call. We really appreciate your time, interest, and support of Phibro Animal Health. Hope you have a great day.

That will conclude today's call. Thank you all for joining. You may now disconnect.