Phibro Animal Health Corporation Class A Stock

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 4th Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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. Please go ahead.

Thank you, Regina. Good day and welcome to the Fibro Animal Health Corporation earnings call for our fifth fourth quarter and full year ended June 30th, 2026. My name is Glen David and I'm the Chief Financial Officer of Fibro Animal Health Corporation. I'm joined on today's call by Donnie Bentime, resident and chief executive officer, and Larry Miller, chief operating officer. Today, we will cover financial performance for our fourth quarter and full year 2026, and provide financial guidance for our fiscal year ending June 30th, 2027. 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 in annual form 10-K, 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. list and description of certain factors that could cause results to differ, I refer you to the forward-looking statement 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 non-operational or non-recurring items, including stock-based compensation, other income expense as separately reported in the consolidated statement of operations, including foreign currency losses gains net. and income taxes related to pre-tax income adjustments and unusual or non-recurring income tax items.

Now, let me introduce our President and Chief Executive Officer, Donnie Bentime, to share his opening remarks. Thanks, Glenn, and good morning, everyone. Fiscal 2026 was a strong year for Fibro. we delivered record net sales of more than $1.5 billion and increased adjusted EBITDA by 39% to $255 million. In the fourth quarter, sales grew 5% and adjusted EBITDA grew 29%. More importantly, these results reflect a company that's executing better, operating more efficiently, and positioning itself for long-term growth. Let me spend a few minutes discussing the key themes behind those results. We experience continuous sales momentum throughout the year.

Our total legacy business grew 10% in the fourth quarter and 7% the full year. Minimal Nutrition delivered particularly strong performance, with sales increasing 20% in the quarter and 11% for the year. Growth came from multiple parts of the portfolio and reflects the benefits of serving a diverse set of customers, and end markets. Animal health, our core business, remains the primary growth engine. Our legacy animal health business grew 8% in the quarter and 7% for the full year. Legacy MFA's increased 11% during the quarter, while nutritional specialties and vaccines grew 5% and 4% respectively. For the full year, legacy MFA increased 4%, nutritional specialties increased 9%, and vaccines increased 14%.

Sales from the Acquired's OSSFA portfolio were down 11% in the quarter, largely reflecting a difficult comparison against a strong prior year period. The result was in line with our expectations and internal planning. For the full year, the portfolio grew 70% and beyond the strong sales of the acquired products themselves, we are extremely pleased with both the integration and the strategic benefits the acquisition is bringing to the company, which we believe will continue to play out across our entire portfolio in the years to come. Now that we have completed a full fiscal year with the integrated business, we do not expect to continue reporting the acquired portfolio separately. Before turning to fiscal 2027 guidance, let me touch on two important business updates. First, June marked the formal conclusion of FIBRA Forward, our three-year transformation program. While the program has for the most part ended, the capabilities they created remain embedded throughout the organization.

The stronger execution, accountability, and discipline developed through FibroForward continues to shape how we run the company today. Based on our current outlook, the expected cumulative EBITDA contributions from the program reaches approximately $50 million in fiscal 2027 compared with our fiscal 2024 baseline. Second, we announced yesterday the planned closure of our Chicago Heights manufacturing facility following a comprehensive review of the manufacturing network added through the MFA acquisition. This was a difficult decision, particularly because of the impact on our employees, and is certainly not a reflection of their dedication or performance. I believe leadership requires balancing multiple responsibilities. We have a responsibility to our employees to treat them with honesty, respect, and fairness. We also have a responsibility to our customers, shareholders, and the long-term health of the business.

Those responsibilities occasionally require difficult decisions and this is one of them. This action better aligns our manufacturing footprint with the future needs and supports stronger long-term returns. Our focus now is on supporting employees, maintaining customer service, and managing the transition responsibly. One of the key uncertainties we considered developing our fiscal 2027 outlook is the regulatory status of Virginia MISIN in Brazil. We continue to work constructively with Brazilian regulatory authorities and remain very optimistic regarding the long-term outcome. However, we have assumed only a minimal contribution from Virginia Mice and Sales in Brazil in our planning for this fiscal year. As a result, a favorable outcome will represent upside to our expectations rather than something required to achieve our outlook.

With that context, our fiscal 2027 guidance reflects confidence in the underlying business while taking a prudent view of known uncertainties. We expect debt sales of $1.55 billion to $1.6 billion. adjusted EBITDA of $258 million to $258 million, and adjusted diluted EPS of $3.41 to $3.59. In closing, as I begin my tenure as CEO, my priorities are straightforward. Serve our customers, advance innovation, improve operating performance, allocate capital with discipline, and create long-term value for all stakeholders. We enter fiscal 2027 with a broader portfolio, a more profitable animal health business, and a stronger operating model. I believe the actions we are taking today are setting the stage for us to exit fiscal 2027 in an even stronger position, with a more competitive company, a more efficient asset base, and an additional opportunity to create value. We've made significant progress over the last several years, but I believe our best opportunities remain ahead of us.

With that, let me turn the call back to Glenn. Thanks, Donnie. And starting with our Q4 performance on slide 4, consolidated net sales for the quarter ended June 30, 2026, with $396.7 million, reflecting an increase of $18.1 million, or a 5% increase over the same quarter one year ago. the animal health segment grew 2%, while mineral nutrition grew 20%, and the performance product segment grew by 1%. GapNet income and diluted EPS increased 26% driven by the successful integration of the new MFA business, increases of demand, improved gross margin due to favorable mix and lower input costs and the net impact of tariff recoveries partially 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 fourth quarter adjusted EBITDA increased $14.3 million, or 29%, versus prior year. Adjusted net income increased 37% and adjusted diluted EPS increased 35%. Increased gross profit driven by sales growth and an improved adjusted tax rate was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to the full year, consolidated net sales for the year ended June 30th, 2026 were $1,518,000,000, reflecting an increase of $221.9 million, or a 17% increase over the prior year.

The animal health segment grew 21%, while mineral nutrition grew 11%, and performance products decreased by 8%. Gap net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, the positive impact of our FibroForward initiative, and favorable gross profit due to higher product demand in the animal health segment, which were partially offset with increased SG&A due to higher employer related costs and higher interest expense. After making our standard adjustments to GAAP results, including acquisition related items, foreign currency losses, and certain one-off items, full year adjusted EBITDA increased $71.3 million, or 39%. 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 $297.6 million net sales for the quarter, an increase of 5.1 million, or 2%, versus the same quarter prior year. Within the animal health segment, we reported legacy MFA net sales increase of $11.7 million, or an increase of 11%, primarily due to increased demand for certain antimicrobials sold by our ethanol performance business.

The new MFA business had sales of $83.9 million in the quarter, a decrease of $10.6 million, or 11%, driven by a strong comparative order in Q4 2025. Nutritional specialties net sales increased $2.5 million, or 5%, due to increased dairy demand in North America. Vaccine net sales growth of $1.5 million, or 4%, primarily due to continued growth of poultry products in Latin America and higher international demand, particularly in Israel. Animal Health adjusted EBITDA was $75.4 million, a 25% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, a one-time tariff recovery in the quarter, partially offset by higher SG&A. Moving to full year performance for animal health on SPI-7. The animal health segment posted $1,162,000,000 of net sales for the year, an increase of $199.4 million or 21% versus the prior year. Within the animal health segment, we reported legacy MFA and other net sales growth of $18.2 million or 4% due to demand for certain MFAs in Mexico and Southeast Asia and for products sold by our ethanol performance business, including antimicrobials and processing aids used in the fermentation. industry.

The new MFA business contributed $354.3 million in sales, growing 70% versus the prior year. Nutritional specialties net sales increased $15.8 million, or 9%, due to increased worldwide demand, particularly in North America and South America, and higher companion animal sales. Vaccine net sales growth of $19.3 million, a 14% increase, driven by continued growth of poultry products in Latin America and an increase in domestic and international demand in Israel and Southeast Asia. Animal Health adjusted EBITDA was $303.6 million, a 37% increase driven by the new MFA business, gross profit from improved mix in the legacy business partially offset by higher sgna Moving on to fourth quarter financial performance for our other business segments on slide 8. Starting with mineral nutrition, net sales for the quarter were $77 million, an increase of $12.8 million, or 20%, due to a combination of demand for premixes and an increased cost of underlying commodities like zinc and copper. Looking at our performance product segment, net sales of $22.2 million, an increase of $0.1 million, or 1%, primarily as a result of increase in demand for copper-based products offset by lower demand to the ingredients used in personal care products. Mineral Nutrition adjusted EBITDA increased 1% versus prior year with revenue growth offset by higher input costs, while Performance Products adjusted EBITDA was up 12%.

Corporate expenses increased $1 million driven by higher employer-related costs and strategic investments. Moving on to the full year of financial performance of our other business segments. Starting with mineral nutrition, net sales for the year were $282.3 million, an increase of $29.1 million or 11 percent due to increases in demand for copper, zinc, and trace minerals. Mineral nutrition adjusted EBITDA was $21.7 million, reflecting a year-on-year increase of $0.8 million, or 4%. Looking at our performance product segment, net sales of $73.5 million for the year reflects a decrease of $6.6 million, or a decrease of 8%, as a result of lower demand for the ingredients used in personal care products. Adjusted EBITDA was $8.1 million, a decrease of $2.5 million versus the prior year. Corporate expenses increased $8.4 million due to higher employer-related costs and strategic investments.

Turning to key capitalization related metrics on slide 10. We generated $10 million of positive free cash flow for the 12 months ended June 30th, 2026. generated $69 million of operating cash flow and invested $59 million in capital expenditures. Cash flow was negatively impacted by inventory growing $86.3 million in fiscal year 2026, primarily in the newly acquired MFA portfolio. Cash and cash equivalents and short-term investments were $82 million at the end of the year. Our gross leverage ratio was 2.9 times at the end of the fourth quarter based on $738 million of total debt and $255 million of trailing 12-month adjusted EBITDA. Our net leverage ratio was 2.6 times at the end of the fourth quarter based on $656 million of net debt and $255 million of trailing 12-month adjusted EBITDA. Returning to dividends, consistent with our history, we paid a quarterly dividend of $0.12 per share, or $4.9 million in aggregate.

Let's turn to slide 11, which lays out our guidance for fiscal year 2027. As Bounty mentioned, included in this guidance are benefits related to our FIBRO Forward Income Growth Initiative that will help drive additional EBITDA and margin growth, and this guidance reflects a prudent view of known uncertainties, most notably the regulatory status of Virginia Myosin in Brazil. Minimal sales of adjunct myosin in Brazil negatively impacts revenue growth in the year and has a much greater impact on EBITDA growth due to the higher margin profile of the product and unabsorbed overhead. In addition, the closer of our Chicago Heights facility will have a small benefit to adjusted EBITDA in fiscal year 2027, with the majority of the benefit in fiscal year 2028 and beyond estimated to be between $15 to $20 million on an annual basis. Please note that during the transition period of fiscal year 2027, we will be building some additional inventory at the site, inventory growth in fiscal year 2027 for the company will be significantly less than fiscal year 2026. Our guidance for fiscal year 2027 is as follows. Net sales of $1,550,000,000 to $1,600,000,000.

This represents a growth range of 2 to 5% and a midpoint of approximately 4%. Total adjusted EBITDA of $258 to $268 million. This represents a growth range of 1% to 5% and a midpoint of approximately 3%. an adjusted effective income tax rate of approximately 20%. The improvement versus fiscal year 26 is driven by an anticipated favorable mix of earnings. Adjust the net income of $140 to $147 million. This represents growth of 6% to 11% with a midpoint of approximately 9%. Gap Net Income assumes constant currency and no gains or losses from FX moves.

In addition, Gap Net Income does not currently reflect any one-time costs related to the Chicago Heights Plan closure. While we don't provide quarterly guidance, I do want to remind everybody that Q1 tends to be a low order in terms of absolute revenue dollars. As we were building the infrastructure to support the newly acquired business in fiscal year 2026, we ended the year at a higher SG&A base that will carry forward into fiscal year 2027. Due to this dynamic, we expect Q1 EBIT growth to be negative and then positive for the rest of the year. In closing, we are excited about the strong performance we saw throughout fiscal year 2026 and the momentum we are carrying forward into fiscal year 2027.

With that, Regina, could you please open the lines for questions? Thank you. We will now begin the question and answer session. To ask a question, press star and the number one on your telephone keypad. Our first question will come from the line of Aaron Wright with Morgan Stanley. Please go ahead.

My question, so the first one I guess is, how do you think about that underlying new MSA business? It dropped down kind of in the quarter, but you've been doing really well with that before. Is there anything to call out in terms of timing? I know you've mentioned the tough comp, but was there anything timing last year to call out on that front And what are you expecting then in terms of that growth across that business into 2027? I know you won't be breaking that out, but just conceptually, how should we think about it? Thanks.

Thanks for the question, Aaron. So the Q4 decline in the Zoueta Semi-Faith Portfolio was something we always anticipated and expected as part of our forecasting. And really is driven by the difficult comparator to Q4 in last year versus any negative underlying growth trends. We really continue to believe this portfolio will outpace the overall revenue growth. growth for Fibro in fiscal year 2027. And some of the positive drivers are continued strong momentum in North America. And we also do expect some positive growth drivers in international as well. In addition, I also want to remind we did have a negative impact on revenue in Q2 of fiscal year 2026 due to returns related to the tier three market transitions, which will help revenue growth in fiscal year 2027. So it won't have any impact on gross profit or EBITDA.

And maybe Larry can add some more colors to some of the commercial drivers.

Sure, thanks. In poultry, a key part of the acquisition was a very strong anticoccidial MFA portfolio that really compliments our legacy products and gives Fibro a broad set of molecules across several compound classes for strategic rotation programs. Our team has integrated these MFAs well and is promoting combined MFA, nutrition specialty product, and vaccine solutions for prevention, control, and treatment of disease. In the beef segment, we are repositioning the key acquired cattle products in feed lots as our Start Strong package. Boba Tech is a platform supporting higher feed intake, complemented by Decox for coccidiosis prevention and Oriomycin for treatment and control of bacterial pneumonia or respiratory disease. Our team is re-educating customers on how these products can help cattle start strong and protect their investments.

Okay, that's helpful. And can you speak to just broadly underlying demand trends kind of by species group? I guess, how would you characterize that in terms of overall animal health and what do you expect in terms of animal health performance into 2027 on that front if you back out kind of obviously the virginia myosin brazil headwind on an underlying basis what are those key drivers fundamentally speaking into 2027.

So again, we can we're investing in this portfolio. and the medicated feed additives and complemented with the nutrition specialties and vaccines. As you know, you know, the market demand and the meat sector and the dairy sector continue to be in in good state with good underlying demand. And animals in all species are at all time record high in value. So our customers are very motivated and interested in investing to protect the health and wellbeing of their animals. And those animals obviously that are healthy are going to perform better. So we think it's still a really good opportunity and a good market environment.

Okay, and sorry, one quick last one for me. Just the Virginia myosin exposure, I guess anything else to call out from a regulatory perspective that we should be paying attention to, or is this just really isolated to Brazil at the moment? And can you remind us of your overall exposure to Virginia myosin?.

Yes, so the exposure to Vaginomycin is isolated to Brazil related to the therapeutic claims. In fiscal year 2026, we had about $27 million in sales related to Vaginomycin in Brazil. We are assuming very minimal sales in fiscal year 2027. Essentially, we had some sales, you know, in the first couple of months of the year, but we don't expect any sales post that once the therapeutic period ends. We do believe there is a chance we may get approval within that period, but to be conservative, we haven't included any sales post Q1. And we don't break out VM sales overall for the company.

Yep, just thought I'd try. Thank you so much. Our next question will come from the line of Ike Terunikis-Kova with J.P. Morgan. Please go ahead.

Thanks and congrats on the quarter. So first just on margins, can you elaborate a bit on what you're assuming for both gross margins and SG&A and just what's a good way to think about gross margins given the dynamic. Second question is just around business development, just you know, latest thoughts on your appetite as well as type of assets you could be interested in. And then third question is just to follow up on the Brazil discussion. Just any updates on the regulatory kind of review process? Has there been any interactions with the regulators? And have any other kind of competitors potentially gotten their labels already? Just any kind of snippets you can share there. Thanks.

Thanks to Katarina. So I'll take the first question and let Donny address the BD and regulatory developments in Brazil. So related to margins, moving into next year, we expect gross margins to be essentially flat. Obviously, the impact of adrenomycin is negative to margins as we move. move into next year, but we will offset that with other efficiencies that we look to get through our five row forward initiative, as well as some of the gains that we do expect related to the Chicago Heights closure that will materialize into fiscal year 2027. Related to SG&A, because of the run rate that we left year 2026 with, we do expect SG&A to be a little above that of revenue growth, but not materially above.

As far as business development is concerned, you know, I think we have a lot of opportunities internally and definitely there's a lot that we are doing in support of those. But if there are business development opportunities that compliment our internal, you know, targets, we're obviously looking and we're active. Just a reminder, you know, kind of vaccines and nutritional specialties are the two areas that we most focus on. And we've also obviously identified pets, a companion animal as an area, as well as climate. So I think those are the key areas that we're pursuing. And I think we'll do it prudently as we've done in the past and continue to invest both internally and external opportunities.

Let me pass it to Larry actually to deal with the Brazil question. Yes, as Donnie mentioned, in his opening comments, we continue to work constructively with the Brazilian regulatory authorities. We remain optimistic about receiving a therapeutic use approvals, very similar indications to what we have in other leading livestock markets. And we hope and expect to have those within the 180-day transition period, which ends at the end of October. Virginimyosin is a very unique and important therapeutic product in helping our customers keep their cattle and poultry flocks healthy and protecting their investment.

Yes, I mean, I think the issue that Brazil is facing with this particularly is the EU put in some new regular regulations as far as the ability of countries to to sell to the EU and some of them deal with with hormones and then deal with antibiotics. There were other countries. There are many other countries that sells that have permission to sell as the EU that have Virginia bison for therapeutic claims and Brazil is aware of that and understands that that you know is putting them at a competitive disadvantage if they don't do that. However, this is a very big political football right now in Brazil. There are local elections or federal elections, I guess, in the next couple of weeks, which which first round second round will be a couple weeks after that. So while we're again optimistic that we can get this done within the or cautiously optimistic we can get this done within the period of the 180 days. I think, prudently we're saying, hey, this might split post elections. because of the noise around it. And therefore, as we've discussed, we've taken it out of our fiscal 27 guidance.

We do believe though very strongly that we will get the therapy to claim eventually.

Thanks. Appreciate all the color. Our next question will come from the line of Daniel Grossleit with Citi. Please go ahead.

Hi, guys. Thanks for taking the question. I want to focus a little bit on free cash flow and working capital dynamics in 27. Obviously, you mentioned you had that big inventory build in fiscal 26 due to the Zoetis MFA acquisition. And I think you mentioned that you'll still need to build some inventory in 27, but not nearly as much as you did in 26. Can you just talk to us a little bit about the working capital investment needed in fiscal 27 and, you know, what your expectations for CapEx and free cash flow conversion are into fiscal 27. Thanks.

Yes, thanks for the question, Daniel. I agree that free cash flow was limited in 2026 with about $10 million in free cash flow. As you mentioned, this was greatly impacted by the inventory build due to the Zoetis product portfolio of about $86 million. The good news is that inventory build did stabilize in Q4. And for fiscal year 2027, we really do expect any inventory bill to be limited for the Chicago Heights transition. We expect to be that in the range of $25 to $30 million. Also, as part of our five-year forward initiative, we have enhanced our focus on inventory as a company and begun implementing more robust S&OP processes. across the organization.

Related to CapEx, we spent about $59 million in CapEx in fiscal year 2026. We do expect this number to be higher in fiscal year 2027 and 28, as we continue to invest to grow our vaccine capacity to support the building demand in our manufacturing sites in both Ireland and Israel. There will also be some other small capital investments required to shift some of the Chicago Heights production to other internal sites, but net-net we expect significantly greater free cash flow in fiscal year 27 and fiscal year 2026.

Got it. That's helpful. And on the closing of the Chicago Heights facility, are you able to quantify the expected one-time cash charges related to that? And it sounds like much of the anticipated benefit is going to come through starting in the second half of the year. Is that right? And when will the benefits of that closure be fully realized here.

Yes, so in terms of the overall one-time cost, Dan, it's a little difficult to estimate the exact amount based on what the ultimate end will be for the site in terms of whether it's purchased as an ongoing consideration or not. In terms of some of the cash costs, we do expect cash costs. related to the site closure to be around $10 million, and then about another $10 million in CapEx. But some of the other non-cash costs, asset write-offs, things of that nature, they're still unknown as well as the ultimate purchase of value of the site as well. But cash costs, relatively smaller in terms of around $10 million cash one-time costs and then capex around $10 million as well. And then he asked about the impact. Yes, in terms of the impact between fiscal year 2027 and fiscal year 2028, as we're beginning the process right now, as we mentioned in the prepared remarks, the impact in fiscal year 2027 will be relatively minimal to adjusted EBITDA, but a small positive contribution. As we said in the prepared remarks, the ongoing impact we expect to be about $15 to $20 million, of which we expect that to materialize in fiscal year 2028 and beyond.

Yes, and last one for me, just sticking with the cash theme here. Gross leverage is now down to under three times. Seems like most of the major integration work with Zoetis is complete. How are you thinking about capital deployment and in particular returns to shareholders that maybe liquidity limits, which you can do on a share buyback side of things, but how are you thinking about further debt pay down, perhaps a buyback or dividend? And you already kind of touched on the M&A front, but, maybe a little bit more detail on how you're thinking about organic versus inorganic growth too. Thanks.

Sure, Daniel. I'll start and then I'll let Donnie add some additional color. So, A, we continue to see organic growth opportunities within the business, and that's going to continue to be our first priority. We mentioned a little bit about the elevated capex in fiscal year 27 and 28 regarding building capacity out of vaccine management. manufacturing sites in Ireland and Israel. Also some greater funding in R&D to support combination products, some market expansion, as well as supporting our companion animal business. Second priority continues to be business development and looking to expand in areas of higher growth and margins such as vaccines, environmental, companion animal. And then in terms of returning capital shareholders, we'll continue to support our dividend. We'll continue to look to pay down debt as well.

And then beyond fiscal year 2027,.

and continue to evaluate other options. Donnie, I don't know if you have any additional comments. I'll just echo what Glenn said. I think we're pretty excited about the opportunities, as I mentioned earlier, within our portfolio. But some of that does require investment, either capital or OpEx. And that is going to be our first priority. And we think that that's the prudent way to go here.

There's a lot to do within what we have.

Thanks, guys. Thanks, guys. Our next question will come from the line of Michael Riskin with Bank of America. Please go ahead.

Great, thanks for Susan and maybe first I'll ask on mineral nutrition. That's the season that we're Excuse me. That's done better the last couple quarters. I mean, I know you guys always talk about that being a pretty much a pass through business. and so reflecting underlying commodity pricing. But still there's been a, you know, 11% growth in 26 and 20% in the fourth quarter. Just how much visibility do you have into trends there into 2027? I guess. Kind of my question is, like, how quickly can those prices swing, and what are your assumptions there for at least the first half of the year? Do you expect this strength to continue, these elevated prices to persist? Yes.

Yes, so I'll start, Mike. Thanks for the question. So in terms of mineral nutrition, as you mentioned, we did have very strong revenue growth in both the quarter and the year. However, when you look at our EBITDA growth, it was much slower, right? Growing 1% in quarter and 4% for the year. That's really due to the fact that prices of some of these materials have increased significantly. So the cost to us has increased significantly and our ability to pass that price all the way to the customer wasn't at a hundred percent in this year. So the EBITDA growth didn't necessarily follow. We do expect actually stronger EBITDA growth next year with potentially lower revenue. growth not necessarily in that you know call it 11 range that we see year to date so somewhat slower revenue growth but more even the growth following forward.

Okay, okay. That's fair. And then maybe on... On Fibro Forward, as you called out, you're sort of like wrapping that up in terms of the actions. But the you know 50 million EBITDA is a pretty impressive number for for fiscal year 27 versus the 24 baseline. So congrats on that. Just a thought on sort of like the next leg or the next opportunity there? Are there, is there a FibroForward 2.0? So what do you see going forward now that you've taken those first initial steps? Yes, so I'll take that.

Thank you. You know, I think the company has really changed within Fiber Forward and basically how we operate is really the legacy. So there's not a transformation 2.0, but there definitely is a forward plan. for a three year planning cycle, which includes a lot of the learnings and the implementation aspects within Viro Forward. And we set ourselves some fairly lofty goals and we expect to deliver on it because we've seen that we can. So it's not going to be a formal transformation program, but there is the learnings and the way that we are operate will continue and we put together what we call a transformation office, might change to kind of more of a strategy implementation office, but we do expect to continue to reap the benefit of the way that we operate now.

OK, and then last one if I could squeeze in. I didn't hear too much in the prepared remarks on the companion animal, you know, Regensa. Restores just would be great to get an update on that how that that's trended in the quarter and just sort of, you know, expectations for 27 at a high level. Thanks.

I'll take that the last time actually, because Glenn's taking over this business. But the, you know, You know, actually it was called out within our nutritional specialties as far as why I was up was partly because of the companion animal. We continue to see growth, especially with Regenza, as we've brought in from initially we had one distributor. Now we've brought in that to multiple distributors and we're seeing a nice nice uptick with that with restorers. Frankly, you know it's growing. Obviously it has a zero base. It's growing. We're seeing a lot of reorders now, which is very strong, but we have not had the success that we had anticipated we are starting to see a snowball effect. So early days on that. But you know, the longer we're out there and the more kind of evidence we were able to show from real use cases, the stronger our proposition that the product you know really does what we say it does and so while disappointed with our performance last year, fiscal year and and you know in this fiscal year we've tempered our our expectations within our guidance.

We do believe that this is something that that really could.

do very well for us as we move forward. Excellent, thank you.

Our next question will come from the line of Nevin T. with BNP Paribas. Please go ahead.

Hi, good morning. Thanks for taking my questions. I just have one left. Do you have early thoughts on the impact of the phased Mexican border reopening for the cattle herd and for fiber? Thank you.

Thanks for the question. This will initially have very modest impact on U.S. beef production in 2026 by increasing the number of cattle available to fill some of the excess feedlot capacity. And it's unlikely to have any material impact on lowering consumer prices for beef in the near future. This is being implemented in a controlled phase approach with veterinary inspection of each animal. The first port of entry opened last week for cattle coming across in Arizona, and a second will open near Chihuahua. With total imports in the next year to be projected about 12,000 cattle per month or less than 150,000 head by mid-27. That equates to about one half of 1% of the 27 million head of annual beef feedlot production. Assuming that the Mexican cattle imports resumes to what had been normal historic averages of about 1.2 million head per year, that equals about 3% of the US feedlot production.

So it does have potential to have impact. It should be noted that the beef on dairy market development and growth is having a much more significant impact on feeder cattle availability. Currently supplying about five and a half million or 20% of the million head fed for slaughter in the United States and the consistency of supply uniformity and quality is adding significant value to the US beef industry Thank you. That's very exhaustive and helpful. Thank you.

And once again, to ask a question, press star followed by the number one on your telephone keypad. And this will conclude our question and answer session. I'll hand the call back over to Glynne David for any closing comments.

Thank you, Regina, and thank you, everyone, for listening on today's call. We appreciate your attention, interest, and support of FibroIdom Health Corporation. Have a great day.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Thank you for joining us. We'll kick off the next session. My name is Mike Ryskin. 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 Phibro Animal Health Corp. We're joined by a number of members from the team here. To my right, I've got Dani Bendheim, Corporate Strategy and Future CEO; Larry Miller, Chief Operating Officer; and then Glenn David, Chief Financial Officer. Dani, Larry, Glenn, thanks for being here. Thank you for visiting with us.

Thank you.

Thank you.

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 results, 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 sort of, and what came in a little bit stronger, where you saw some unique challenges, and?

Yes. 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 had -- 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 number of quarters. It's been very strong.

And with that, we reiterated our guidance. We actually raised it a little bit by raising the lower half of it. And we are -- we're excited 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 I think I'm extremely excited about is we launched our sustainability program. There is 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 has 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 -- maybe we'll start on the -- start a little bit deeper on the quarter, and then I'll follow up on a lot of those points, Dani. So on the fiscal 3Q, you talked about really strong MFA results, but sort of broad strength. Any specifics on what kind of drove that? Was it more of the, legacy Phibro portfolio, more some of the products that came from Zoetis. Do you still -- how long are you going to keep differentiating those? Or is it just going to be Phibro's fibro? Just where do you see the strength?

Yes. No, I think 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 Zoetis portfolio. So the legacy portfolio grew 5%. It's grown for the year as well. The Zoetis 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 Dani 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 of species. We're nicely diversified, particularly after the acquisition now. By species, we're much more balanced and by geographic area, also stronger and more balanced, and we did see growth in all major regions.

Okay. Dani, maybe then on the other point you brought up the other recent update. The -- I believe it was in the 8-K 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 how -- what are your contingencies for that update? And just sort of give us a time line of how that plays out going forward?

Larry, do you want to take that?

Sure. So in April -- late April, MAPA, who is the 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 2 of our products, but virginiamycin is 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 first step is that they removed those claims. In our case, with virginiamycin, we have made a submission last year on -- 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 can continue to sell product. Producers and customers continue to use the product as labeled as a transition, so.

Okay. And like you said, you've had -- 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, like yes, so let's stick with virginiamycin, right? So let's assume that you will have a nongrowth promotion therapeutic use label. Should you expect the same amount of revenues that you would have had otherwise? Sort of like 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 port over more in the near term and in the long term?

Yes. As Dani 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 a smoother transition, and that's what we've seen in other markets as well.

In the cattle, it's a little bit different. Cattle is more fragmented. They tend not to have -- they tend to use consulting veterinarians who are independent, who will visit an operation, and let's talk about feed yards for instance. They'll visit an operation maybe every 4 to 6 weeks, check-in on the healthy animals, the records, update prescriptions, et cetera. And that's all in fulfillment of their vet client -- valid vet client relationship that they need to maintain for prescriptions. So we think that's going to be the more challenging one as far as species. And as we disclosed, our total sales in Brazil of virginiamycin last year were about $26 million, so.

Yes. And Mike, to your question, also in the short term, 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, we think we can recover. But in the short term, we definitely do expect an impact.

I'm going my memory here, correct me if I'm wrong, but I think 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 5 to 10 years ago, my dates are right or?

That's about right for the veterinary feed directive in the U.S.

That was in late '16 or '17.

Yes, yes. 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 2 best examples?

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

Okay. And remind me, when did the Mexico transition happen?

3 years ago.

Yes. Okay. And yes, I mean, you think that having gone through this 2, 3, 4 times, you now have the processes that work for. You've got the products ready in terms of all that operational work. I mean, every country and region is going to be a little bit different. But is going to be easier second time, third time, fourth time, every time down, right? Is that reasonable?

100%.

Okay. Great. And then the last one on that, and we'll move on to other topics. So what's the next time line -- 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 virginiamycin within that time period?

Yes. We're in contact with the MAPA, the regulator. And again, we've made our full submission. So, it was a very consultative process as far as outlining the studies that needed to be done locally, other data that need to be submitted and the studies showed excellent efficacy. And so 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. All right. Okay, Dani, 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 Elanco over the last couple of years. They've certainly been very loud and very vocal on beating the drum on this. Now it's exciting to have you talking about some of the same. Would have to hear more about the program and the product you're discussing?

Yes. So I think there's a lot of education that needs to happen within the investor community. But basically, if you take -- if you look at this market, you look at it and 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 1, Scope 2 and Scope 3. Scope 1 being the emissions that their factories themselves emit; Scope 2 would be the electricity they buy, the move from coal to solar; and Scope 3, 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 their -- the carbon intensity that they've pledged to reduce, the typical pledge being to reduce by 30% 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, right? 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, SBTi, 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 are looking at $100 billion to $200 billion opportunity across ag, okay? That's a huge opportunity and it's hardly been addressed to date, right? So these pledges were mostly made 3 or 4 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 products, specifically the one that we've launched called Verratain, 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 with carbon negative. So you add this product to your feed and it's an easy feed insert. And your -- 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, our Scope 3 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 an 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 you can move your trucks to EV that work on your site, you can work on some crop conservation methods, on soil tilling, things of that nature, 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 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 benefits that we don't think -- we're not going to be selling this based on the benefits alone at least. And the carbon value is by far the most important part of it. And it's doing real work. It's really removing carbon from the atmosphere. The removal is happening in Iceland, but carbon is a global phenomenon. When you remove it, miraculously, we removed carbon from Las Vegas today. In 2 weeks, it's gone halfway around the world. And in 1 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.

Okay. That's really interesting. I mean something you talked about earlier is there's a lot of education that needs to happen about this. Just given our prior experience with Elanco on similar moves in sustainability. A lot of it was having to overcome any preconceptions or just sort of familiarize ranchers, livestock producers, feedlot operators with these products and getting them on board. Do you anticipate having to do a lot of heavy lifting there? Sort of what's been the initial receptivity to that? And sort of how have those conversations gone?

Right. So we literally launched this a week or 2 ago. I would say the advantage of our products -- well, there's room for everybody. And Elanco'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 28x 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 Elanco's 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 -- 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 good for society as a whole. The consumer might end up paying ultimately or always does, I guess. But 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 got to be ready by 2029. And so we expect, 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? Or sort of where is going to be your regional focus? And do you think that U.S. and Western Europe is going to be more engaged here or?

So we're -- 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 3 pledges, but it's less predominant there as far as their -- the need of those companies to make those pledges to satisfy their own internal stakeholders.

And anything you say in terms of like 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 could say to kind of try to evaluate?

Yes. I mean this would add $0.10 to $0.20 to a cheeseburger. So our pricing isn't set yet, but you kind of work backwards on 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 depending on -- there is a lot of work that has to go on as far as accounting and things of that. So there's -- 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 [indiscernible].

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

Yes. 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.

Yes. I mean again, Elanco is very constructive and optimistic on both Experior and Bovaer for them. So certainly it 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 end market dynamics and what you've seen in the livestock markets the last couple of years.

I think we've been very pleasantly surprised by the strength we've seen in livestock, demand for therapeutics, both for feed additives, but 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 in terms of the number of animals, number of animals in the feedlot. There's all these moving pieces. But just at a high level, sort of what's your take on why livestock markets have been so strong for several years now? Surely, you guys pointed to Larry to say?

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 done the opposite. And we have seen, for the first time in the United States, beef consumption per capita increase in the last 2 years. And so we think there's a lot of -- it's always as far as supply -- 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 -- 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 5 or 6 products that can be used and should be used at the 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 a 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 people are feeding animals longer. So they've gone in the last 3 years. 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 2 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 -- their immune system, everything else, so they're able to convert.

And the other thing that's 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 our products come in to help producers keep animals healthy, and it's a great value proposition.

Yes. 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 and that demand level despite inflation concerns, consumer weakness concerns. I mean, there's been continued pressure in 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 a lot of the trends that we see, we see continuing. And outside of the U.S. in some of the more developed countries still have to remember that what has been driving a lot of demand has been the global. 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 all-veg 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 Zoetis MFA acquisition, so we have the new organization all put together. Can you talk to us about operating leverage going forward for the NewCo 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?

Yes. So as you said, we are starting to annualize the Zoetis portfolio, but we still have many areas that we think will help contribute to continued margin growth. 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 MFAs do and will help with our growth and continue to contribute to margin growth.

We do see opportunity for continued price increase as we move forward, sort of in that 1% to 2% range. And then we also -- we've talked about our Phibro 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 margin. 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.

Okay. 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.

Okay. Okay. And then maybe one last one for you. Dani, 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? Is it 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?

Yes. 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, represented the strength that we have on our balance sheet and our overall income generation as well. And 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 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.

Okay. Okay. Maybe the last minute that we have left. Dani, 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?

Yes. I think we're really in a good place. Our business has done really well. 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 I think we will take the best parts of the continuity and really grow from there. So I'm really confident about the future of Phibro, 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. I guess, we'll leave it right there. Thank you, gentlemen.

Thank you.

Thank you.

Thanks, Mike.

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 Third Quarter 2026 Earnings Conference Call. [indiscernible] I'd now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead.

Thank you, Regina. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal third quarter ended March 31, 2026. My name is Glenn David, and I'm 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; Daniel Bendheim, Director and Executive Vice President of Corporate Strategy and as previously announced, our CEO designate; and Larry Miller, Chief Operating Officer. Today, we will cover financial performance for our third quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. 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 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 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. Other income expense is separately reported in the consolidated statement of operations, including foreign currency losses, gains 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. Jack?

Thanks, Glenn, and good morning, everyone. We had a strong third quarter. Net sales increased 10% to $383 million and adjusted EBITDA increased 11% to $60 million. Animal Health sales increased 13% with solid demand across MFAs, nutritional specialties and vaccines. This performance is all the more impressive due to a complex broader protein backdrop and beef supply remains tight, which continues to support prices. In dairy, we're seeing early signs of stabilization even as fats have remained under pressure. And while poultry demand is positive, we are managing through elevated geopolitical volatility in the Middle East. Importantly, our diversified portfolio and geographic reach allow us to navigate these different cycles effectively.

Since quarter end, there are 3 updates I want to touch on. First, Brazil and antimicrobials. Brazil has implemented a new regulatory framework that removes growth promotion and performance indications for certain antimicrobials, including virginiamycin and bacitracin with 180-day transition period. While we are working closely with regulators and industry to support an orderly transition and maintain continuity for customers. We are also engaged with MAPA, the Brazilian regulatory agency for several years on therapeutic registrations for virginiamycin and bacitracin, and those are in the final stages of review. Glenn will provide some framing of the dollar amounts later in this call, but I want to put this in context.

This change has been in motion in Brazil for a long time. And what we're seeing now is a culmination of a process that's been underway for years. In many ways, Brazil is catching up to a regulatory approach that's already in place across the other major markets, which is why we view this as the last major shoe to drop in this area, not the start of a new wave of changes. Just as importantly, our history has shown that we emerge from these transitions stronger than when we entered them. Sometimes that's by maintaining demand as products move to therapeutic use and sometimes it's by winning share with other parts of our broad portfolio, but the content is growth. And as the market moves towards prescription-based use, our Phibro Vet platform is designed to make compliance easier for veterinarians and producers and to position us as the partner of choice in this new environment. Second, our sustainable solutions platform and Verratain. We launched our new sustainable solutions platform and introduced Verratain, Verified Sustainability Solutions through our partnership with VAXA. The customer need is clear. Many are being asked or will be asked to show progress on supply chain emissions and feed is often the biggest lever. What managed for adoption is practically solutions, and that can scale and fit into existing systems without requiring customers to overhaul their operations. We're still in the early stages of rollout. The scalability of this platform provides a clear path for long-term growth as customers increasingly prioritize credible, high-impact sustainability solutions. This is something I'm confident you'll be hearing a lot more from Danny in the years to come. Third, we strengthened liquidity. We upsized our revolving credit facility by $125 million through an oversubscribed process, further enhancing our financial flexibility.

Before I turn it back to Glenn, I want to close on a personal note. As previously announced, Danny will assume the CEO role in July. Having worked closely with him and our long-term strategy for many years, I have full confidence in his leadership and the depth of our management team. While I'm transitioning to Executive Chairman, I'm excited about this next chapter and look forward to supporting Danny and the board as we continue building on the momentum of the business. I also want to thank the analysts and investor community for the engagement and support over the years, the thoughtful questions, and the long-term perspective. I want to thank our employees around the world because the performance you see in our results is a product of their work every day. With that, I'll turn it back to Glenn.

Thanks, Jack. Starting with the Q3 performance on slide 4. Consolidated net sales for this quarter ended March 31, 2026, were $383.5 million, reflecting an increase of $35.7 million or a 10% increase over the same quarter 1 year ago. The Animal Health segment grew 13%, while Mineral Nutrition grew at 10% and the Performance Products declined by 17%. GAAP net income and diluted EPS increased, driven by favorable gross profit, partially offset by increased SG&A due to higher employee-related costs. Interest expense net increased $1.1 million due to the expiration of an interest rate swap agreement.

Foreign currency losses were $1.9 million for the three months ended March 31st, 2026, as compared to gains of $5.5 million for the three months ended March 31st, 2025. Income tax expense decreased by a half million dollars. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses, and certain one-off items, the third quarter adjusted EBITDA increased $5.9 million or 11% versus prior year. Adjusted net income increased 19% and adjusted diluted EPS increased 19%. The increase was driven by higher gross profit, partially offset by higher SG&A expenses and higher interest expense. The higher gross profit resulted from higher sales.

SG&A expenses increased due to higher employee-related costs. Interest expense increased due to the expiration of an interest rate swap agreement. Now moving to segment-level financial performance.

The Animal Health segment posted $291.2 million of net sales for the quarter, an increase of $32.8 million or 13% versus the same quarter prior year. Within the Animal Health segment, we reported legacy MFA net sales increase of 5%, driven by demand in North America and certain antimicrobials sold by our Ethanol Performance business. The new MFA business contributed a full quarter of sales of $95.9 million or 25% growth versus last year. Nutritional specialties net sales increased $3.5 million or 8% due to increased demand in North America and higher companion animal sales. Vaccine net sales growth of $5.2 million or a 16% increase driven by higher sales demand in Israel and higher sales of autogenous vaccines.

Animal Health adjusted EBITDA increased $8 million or 13% due to higher sales and gross profit, partially offset by increased SG&A. Moving on to third quarter financial performance for our other business segments on slide 6. Starting with Mineral Nutrition, net sales for the quarter were $73.4 million, an increase of $6.6 million or 10% due to an increase in demand for zinc and trace minerals. Looking at our Performance Products segment, net sales of $18.9 million reflects a decrease of $3.8 million or a decrease of 17% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were $5.1 million and $2.2 million, respectively.

Mineral Nutrition adjusted EBITDA decreased $0.6 million due to lower gross profit. Performance Products adjusted EBITDA decreased $1.1 million due to lower sales. Corporate expenses increased $0.3 million due to higher employee-related costs. Turning to key capitalization-related metrics on slide 7. We generated $13 million of positive free cash flow for the 12 months ended March 31, 2026. We generated $66 million of operating cash flow and invested $53 million in capital expenditures.

Please note that our cash generation has been negatively impacted by a buildup of inventory in advance of tariffs and to meet increasing customer demand. We expect inventory to stabilize in the coming quarters. Cash and cash equivalents and short-term investments were $77.5 million at the end of the quarter.

Our gross leverage ratio was 3.1x at the end of the quarter based on $741 million of total debt and $241 million of trailing-twelve-month adjusted EBITDA. Our net leverage ratio was 2.8x at the end of the quarter based on $663 million of net debt and $241 million of trailing twelve-month adjusted EBITDA. On interest rates, there are no changes to our current swap agreements. Turning to dividends, consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate. As Jack mentioned, we also upsized our revolver by $125 million. This process was significantly oversubscribed, reflecting our strong financial position.

Let's turn to slide 8, which lays out our guidance for fiscal year 2026. Based on our performance to date and improved visibility into the remainder of the year, we updated our full year guidance by increasing the lower end of several of our guidance ranges, resulting in higher midpoints across key financial measures. Our guidance for fiscal year 2026 is as follows: Net sales updated from a range of $1.45 billion-$1.5 billion to $1.46 billion-$1.5 billion. This represents a growth range of 13%-16% and a midpoint of approximately 14%. Total adjusted EBITDA updated from a range of $245 million-$255 million to $247 million-$255 million.

This represents a growth range of 34%-39% and a midpoint of approximately 37%. Adjusted net income updated from a range of $120 million-$127 million to $122 million-$127 million. This represents growth of 44%-49% with a midpoint of approximately 47%. GAAP net income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiative. Regarding virginiamycin in Brazil, sales of virginiamycin in Brazil were $26 million in fiscal year 2025.

The margin profile of the product in Brazil is above our average for the company.

As mentioned in the press release, we do anticipate receiving approval for therapeutic claims during the 6-month transition period. We will be able to better quantify the impact for fiscal year 2027 once the final approval is received. While this will be a headwind for fiscal year 2027, we are confident that growth in our business in other areas will more than offset this impact. In closing, we're excited about the continued strong performance in fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued growth in our business. With that, Regina can you please open the line for the questions.

Our first question comes from the line of Ekaterina Knyazkova with J.P. Morgan. Please go ahead.

Thank you guys so much.

First, just on the sustainability offering you've recently announced, just how are you thinking about the size of debt that opportunity, and how does the offering fit into relative to some of the other products out there like Experior and Bovaer? The second question is just on the conflict in the Middle East. Just any exposure there as you think about shipping costs and higher oil prices? Thank you.

Hey, this is Danny. I'll take the first question on the sustainability, so on Verratain. The market potentially is huge. I think we talked about in our press release the sustainability market based on Scope 3 pledges, within the Fortune 500 measures in the tens of billions to hundreds of billions of dollars. Obviously, that's not the market for this product, it really depends on the ability of these companies that made these pledges to act on their pledges. What's special about Verratain is we believe it allows these companies to actually achieve what they set out to do and allows them to hit their pledges with a product that until now it was just not economically feasible for them to actually act on their pledges.

As far as the competitive products out there, you mentioned two. One of them deals with ammonia. It's not really a greenhouse gas. It's not a carbon intensity product. It actually has ammonia as well production claims, so that's not really the competition. The other product is a methane reduction that is, you know, greenhouse gas. Obviously, it's a different form. It, you know, there's plenty of room for both products. Our product works across species. The methane product would be primarily for the dairy industry. You know, that would be the competitive profile there.

In terms of the Middle East, Ekaterina Knyazkova, our guidance that we have for fiscal year 2027 includes any additional shipping costs or additional freight costs related to that. It also includes any potential downsides to our business in the Middle East, as we do sell a number of vaccines there. We currently haven't seen much of an impact, you know, we think on the downside that's a, you know, small risk, but our guidance range does incorporate that.

Our next question comes from the line of Luis Higuera with Citi. Please go ahead.

Hey, this is Luis Mario in for Daniel. The fourth implied guidance does imply a notable slowdown. Was there any pull-forward dynamics that may have occurred in this quarter or anything else you'd call out that may be causing this cadence? Thanks.

Yeah. We didn't have any pull forward in Q3. I think one of the things to note when you look at the growth ranges is particularly when you look at the comparators for 2025.

Just for context, in Q3 of 2025, we did $348 million of sales. The step up to Q4 of 2025 was another $31 million to $379 million. The comparator becomes a lot stronger between Q3 and Q4, which does impact the growth that we would expect in Q4.

You know, the other thing that I would mention related to the revenue guide, you know, and the implied Q4, you know, we probably did take a somewhat conservative approach for the revenue guide for the year based on some of the unknowns with the conflict in the Middle East. We would anticipate to be towards the higher end.

Once again, for questions, simply press star one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. We have no further questions at this time. I'll now hand the call back to Glenn for any closing comments.

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

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Michael Ryskin. You may begin.

Great. Thanks for joining us, everyone. My name is Mike Ryskin. I'm on the BofA Life Science Tools and Diagnostics team, also covering Animal Health. For our next session, we're excited to host Phibro Animal health and we're joined by a number of members of the team. We've got Dani Bendheim with us, Chief Strategy Officer and soon to be CEO as of later this year. We've got Glenn David, Chief Financial Officer and Larry Miller, Chief Operating Officer.

Dani, Glenn, Larry, thank you so much for being with us, taking the time.

Thank you.

Thank you.

Maybe just to kick things off, we'll start with sort of a recap and to help set the table for the conversation. We're a couple of weeks past your fiscal 2Q calendar 4Q print. The market had another positive reaction to your results. Can you give us a recap of the quarter, what really stood out for you? What kind of drove the results and what investor feedback has really been focused on?

Yes. Thanks, Mike, and thanks for having us. So as you mentioned, we had a really strong second quarter. Very positive revenue growth with 21% growth in revenue. We had 60% growth in adjusted net income. And also, we continue to execute really well with the integration of the Zoetis Medicaid feed adder portfolio.

We had $94 million in revenue in the quarter, which was a very strong performance, very strong profitability as well. When you look at our MF -- legacy MFA business, we did decline in the quarter about 5%. But as we mentioned, that was due to the timing of an order from a large customer that we produce API for. Once you normalize for that, our legacy MFA grew as well. That was around 3%.

And then we continue to have sort of outpaced or strong growth in our vaccine portfolio with growth of 13% and our nutritional specialty for the quarter grew 9%. So really strong performance across the business from both the revenue perspective as well as an EBITDA and margin perspective.

And that strong second quarter, combined with a strong first quarter and the strong first half, really gave us confidence to raise the guidance, both at a revenue, EBITDA and adjusted net income perspective. So really pleased with the start to the year and the performance that we expect for the rest of the year. And based on this positive performance, based on the raise to the guidance, the feedback from investors has been very positive.

Okay. In terms of that timing in the legacy MFA business, is it fair to say you're kind of -- are you catching that up in the fiscal third quarter? Is the timing adjusted for that? No change to underlying conditions. And as you said, you've got major customers, these types of shifts are not unusual. It was sort of outsized in fiscal 2Q?

Yes. It was just sort of outsized in fiscal 2Q. As you say, with this particular customer, we have good visibility to orders for Q3 and Q4, and we do expect a recovery in the second half of the year. It's not an underlying demand issue.

Okay. And maybe I'll start with sort of a big picture question, following up on the Zoetis MFA deal. I mean I don't think it's overstatement to call that a transformative transaction in terms of what it's done to Phibro if you look at over the past 12 months and obviously going forward.

So first of all, congrats again on pulling that off and completing that. If we look forward from where you are now, it's certainly, again, a different business than it looked like 18 months ago. How would you characterize new Phibro going forward in terms of what your expectations are from MFAs going forward? Maybe if you want to touch on nutritional specialties and vaccines as well on the mix, on the strategy, just sort of on the portfolio as you sit today?

Yes. So I'll start with that in terms of the mix and what we see going forward. So obviously, with the acquisition, we'll be lapping as we move into fiscal year '27, we'll have a full 12 months to a full 12 months and the MFAs will be a larger portion of our overall business.

As we move into fiscal year '27, we are excited about the opportunity to continue to build on momentum with the Medicaid Feed Additive portfolio, particularly the ones that we acquired. We built a field force in the U.S. for U.S. cattle. We expect them to continue to penetrate the market as well as some of the field force that we built in Western Europe as well.

When you look at the overall MFA portfolio, sort of in the long-term cycle, we expect that to grow sort of flat to low mid-single digits. It's a relatively mature portfolio. But as I said, for fiscal year '27, as we build on that momentum, we expect to do better than that.

Vaccines with the investments that we're making from an R&D perspective as well, we expect that to grow more mid- to high single digits over a longer period of time and similar for nutritional specialty, right? We expect that to be in mid- to high single-digit growth based on new innovation, but also based on geographic expansions.

As we look at Mineral and Performance, that's somewhat cyclical and dependent more on market dynamics. So it's hard to give sort of a long-term projection on that. But from a margin perspective, we expect to continue to be able to grow income faster than revenue and grow margins obviously better. And that's driven by mix, continuing having the vaccines and traditional specialty, which are higher margin than the MFAs continue to make up a bigger portion of the business over time. And we think that will help overall.

From a strategy perspective, Dani, I don't know if you want to comment.

Yes. I think our strategy remains the same. We're heavily focused on growing our vaccines and our nutritional specialties business and see a lot of runway there and opportunity. And then I think as a lower level, our companion animal business as well. So those really are the key focuses of the management team.

Okay. Yes, I mean that's been a part of your strategy for a while. I mean, for years, and you sort of emphasized the growth opportunities in vaccines and nutritional specialties and in companion. So that sounds very consistent with what you said in the past.

I want to go back to kind of the way you broke it down, Glenn, in terms of the subsegment growth within Animal Health or the line item growth. You've done meaningfully better than that in the last couple of years. If you look at nutritional specialties, if you look at vaccines over the last 3, 4 years, I mean, nutritional specialties has been effectively a 10% CAGR. Vaccines has been in the low teens, low to mid-teens even. So -- and even the MFA business and even the legacy MFA, you say flat to low to mid-single. It's been pretty solidly low to mid-single, if not mid-single. So really strong performance across all of Animal Health for you the last couple of years.

Can you dive into that a little bit more. Is that -- how much of that is the market is doing a little bit better? I mean I think we've seen livestock markets be pretty robust the last couple of years, and I'm going to expand on that later in terms of why. How much of it is portfolio, new product introductions, commercial execution, just sort of walk us through what's led to these results?

Yes, Larry, do you want to talk to the market dynamics a little bit and then our position there?

Yes. So as you mentioned, we've had -- the industry has had nice growth in protein -- animal-based protein consumption has been doing very well. And we can talk more about that, as you said, in a moment about some of the trends driving that. But more specifically, your question by segment, -- we really do -- the livestock business is our main business today, and we do focus on really working with our customers and having meaningful relationships.

And so when you look by segment, the medicated feed additives, it's been some geographic expansion and reminding customers of the claims that these products have. And our customers are always facing new disease challenges, new market dynamic challenges and making sure they understand not only what those indications are, what that means practically on their farms.

And so we've had nice, I think, continued growth there with the MFAs. In the case of nutrition specialties, we bring -- it's a lot of different types of products that are sold in nutrition specialties, and we really bring different approaches to our customers, I think, in this regard. And so that's been a mix of some launching some different products, some life cycle management products, but also some geographic expansion.

In the area of vaccines, I think really, it's about bringing different things to the market. So you tend to follow where surveillance where maybe new disease or new disease strains are popping up and spreading across the globe. So there's been some geographic expansion in particularly vaccines that we have strains that are very effective against those emerging pathogens there. And yes, so I think, again, bringing different innovation to meet the market needs and growing with the spread of some of these diseases and has been a key part of our growth.

And Larry, you kind of hinted at it yourself there. There's also been an end market animal protein consumption driver there as well. We would love to dig into that more. I mean, how much of that is -- when we think about the livestock markets as being -- from a demand perspective as being cyclical, but sort of on a multiyear basis cyclical, 2-, 3-, 5-year cycles, maybe even 5- to 10-year cycles. Is that what we're experiencing?

Is this just sort of typical seasonality, and we're just going through a really good time. Is this something that's a little bit different? Just sort of what the underlying drivers of that are? And where are we in that cycle? Are we in first inning, ninth inning over time?

So I think, again, the underlying factors here. First of all, it all is about consumer demand, right? And our consumers consuming product, meat-based products, whether that's beef, whether that's pork, whether that's chicken meat, turkey meat or eggs or dairy products. And demand for those has been strong. And despite inflation and increased costs, particularly in the case of beef, consumers have continued to gravitate towards those products and put more in their diets.

One of the things that's been interesting in this, and we look at some of the demographic trends that are happening in the U.S. and expanding and I think beyond that is the whole attitude, I think, around animal-based proteins has changed. I think that's diet. I think it's things such as the GLP weight loss products, where people that are on those have really -- they seek out high-quality simple proteins. And clearly, meat-based proteins are key to that. So they tend to eat more and consume more of meat-based proteins, but also calcium is really important.

So in addition to the protein calcium. So a lot of the dairy products, I think it's a favorable trend for them as well. So I think we will continue to see strong demand for these proteins. The first phase of GLPs is strictly about weight loss, but a lot of the sponsors of these drugs are investing in things such as fatty liver and cholesterol and prediabetes, et cetera. So I think the use of those products will continue as -- and probably insurance coverage will change as well as some of these other broader label claims happen, we'll continue to drive that.

And I think we expect that you'll probably see more of that, not only just in the U.S. but spreading to other countries as well.

So do you think that maybe -- I mean, it might be too early to tell, but do you think maybe the we're seeing a structural change in livestock markets where there'll be 50 basis points, 100 basis points stronger than they've been historically? Or is it still too early to tell?

I think it's too early to tell. Again, you're seeing -- I think the good thing is that we're diversified across all basically key livestock production markets. So sometimes you do see some shifts between countries saying we're going to produce more ourselves and be less reliant on imports.

Sometimes you have disease outbreaks that countries will say, "Well, if you have an outbreak of this, we won't import from you." So you always see a little bit of churn, if you will, a little bit in the pattern of import and export of meats. But I guess I would just say that we see certainly, as we sit here today, a very promising outlook for protein production.

Okay. Okay. Going back to the Zoetis MFA transaction and the assets you brought over, Glenn, I think you pretty much just annualized them in this past quarter. So it's been 12 months. It's has been sort of wholly owned from now on. You're not going to have an outsized M&A contribution per se. It's all going to be organic from this point on. How has the integration of that business gone? How has that slotted in alongside your legacy MFA portfolio? Just sort of can you talk through the integration of the business, both from a product lens and also from a people lens, from a culture lens, from a facility operations perspective?

Larry, do you want to start with that?

Sure. So first of all, we are really pleased with the acquisition and the integration. One of the key things that we have to do is get the marketing authorizations transferred from the previous owner over to us. And we are nicely on track with that. A vast majority of the markets, it's been completed. And so that is moving along really nicely.

As far as our teams, one of the key things that this integration brought was it brought strength in a couple of species areas where we were not as strong or not present even. And so if we start in the U.S., we were not in the U.S. cattle segment, the fed cattle segment at all. We didn't have really products that had strong presence there or strong application.

So we got a tremendous group of portfolio of products during -- through this acquisition that really put us in a very nice position to serve the U.S. beef segment. We hired a specialized team of professionals, people that had a franchise with customers, most of them from production side somewhere in their history, but we really have a wonderful opportunity to hire a great team of beef specialists that are out there, brought in relationships that they've had, existing relationships with customers and being able to support these products.

So -- and also in the U.S., the swine segment, we certainly have had products there, MFAs, some nutrition and vaccines, but a really nice portfolio of products in the swine as well that allow us to bring more customized solutions, more different approaches to our customers there. And the same is true in poultry in the U.S. where we -- particularly in the area of the Medicated Feed Additives, anticoccidials, to be able to bring more different types of solutions to our customers.

From a geographic standpoint, there were a few other geographic areas where we weren't as strong in. And one of those was Asia, particularly in China, but even some Southeast Asian countries, some of the Northwestern South American countries as well as Western Europe. And this acquisition gave us a much stronger foundation from which to build organizations and ultimately to put resources in the market and focus on demand creation. So not just pushing product through, but being able to have people out there in touch with the end-use customers on farm with them, working on farm with them, bringing solutions.

From a plant standpoint. So there were 6 locations that came with it, 4 in the U.S., 1 in China and 1 in Italy. And those were pretty much dedicated to these products. And so the transition of those was pretty direct and clean, straightforward. And we've integrated those, I would say, very, very rapidly as part of our business. It's mostly the same type of products, same type of distribution and that kind of thing. So...

Okay. On those integration activities and what you were talking about earlier in terms of maybe hiring some specialists balancing out the commercial organization. Is that pretty much done? I know it's sort of -- you're never done, done. You're always continuing to evolve and continue to integrate. But have the major steps been completed? And is it pretty integrated, pretty seamless in terms of the legacy business and the Zoetis business?

Yes, I'd say, go ahead...

I think we're pretty much done at this point, right? There are some regulatory things that still remain. But in terms of integrating the colleagues, building the field force in the U.S. and Western Europe, we're definitely in the later stages of that. It's just more stuff from a regulatory perspective. Systems are all integrated at this point as well.

And to Larry's point, right, we basically -- we mostly acquired the plants and the colleagues in the plants. And from a cultural perspective, I think it's gone extremely well, right? I think they're very excited to be part of Phibro. These products are a priority for us in probably a different way than they experienced in the past. And so they're very excited to be part of the team.

Okay. And then what about from a customer perspective? I mean, I imagine you probably had relatively high overlap on customers between the 2 businesses, but still is going to bring in some new ones. What's been the reception? What's been the -- has it helped you strengthen any relationships, build new relationships sort of for those part of the portfolio, I mean seeing some pretty transformative difference. So can you talk about the reception you've seen in the market?

Yes, I would say it's been really positive. I've had a chance to get out a lot in the field and particularly in the last few weeks with some of the big trade shows that happened where we're meeting the end users, right, and getting the chance to talk to them. And I think they're really pleased that we have these products as part of our portfolio because this is a high priority for us.

And they appreciate the support that we're going to give these products in terms of product supply, in terms of support, field support, and, in many cases, reminding and promoting the products and reminding our customers how these products are indicated, but really how they can practically be used on farm to address some of the unique challenges that health challenges, those types of things. And so I think our customers have been really positive on this.

As you said, in primary markets, the overlap of customers has been pretty large. Most of the industries are fairly integrated. With the exception, as I mentioned earlier, beef is a new segment for us. And in some of the secondary markets where perhaps either Phibro and/or the Zoetis had distributors here, we're able to really look at demand creation here and dedicate resources to open new relationships with some of the livestock producers.

And we're also seeing not only within the combined MFA portfolios, but also good complementary between the combined MFAs, but also with our nutrition specialties in our vaccines. And our vision is to bring comprehensive health solutions to our customers that really makes sense on their farm. And in many cases that involves a vaccine for preventions. It involves nutrition specialty products for gut health or general health as well as medicated products for prevention control and treatment of diseases.

Okay. That kind of brings me to the next topic I wanted to touch on, which would be sort of competitive landscape and the position of the portfolio relative to some of your peers. When you think about animal health market, a lot of people think about Elanco and Zoetis you guys don't necessarily compete with them as much or overlap with them as much, especially now that you acquired of business. Some of your competitors are more along the lines of Huvepharma, some of these specialty livestock feed producers. Could you walk us through how you're positioned relative to your actual competitors in the livestock markets, how that changes post deal? And just sort of what -- how it's enhanced your competitive positioning in go-to-market?

Yes, sure. Yes. So Michael, as you pointed out, in our different segments, there's different competitors. You alluded to the MFA market. So there, the global competition is chiefly Elanco and Huvepharma, as you said. Some markets like the U.S. are fairly highly regulated with fairly high barriers to entry. So there's fewer local generic players.

Other markets have lots of generic, lots of local players. Though I will note that most of our legacy products and even some of our purchase products, the Zoetis portfolio do not have generic competition despite being around for a decade. So we are the pioneer drug owner. And in certain cases, we remain the only the only person providing those drugs.

So I think on -- specifically on MFA place spot, we probably are #2 globally. And we do see a strengthening dynamics as far as our ability to kind of complete a rotation for our customer and have them with products that they never have to leave -- with a situation when they never have to leave our products despite the fact that they want to rotate.

Within vaccines, a lot more competition out there, Zoetis, Elanco, Merck, BI, Ceva is a company that's not public, but it's a large player in the vaccine business. There, as I think as Larry had talked about, margins are higher, and it really comes down to the strain sometimes. And we have a couple of strains out -- we have a couple of products for trains out there that are really emerging diseases that we've seen a lot of our growth in South America over the last few years. And while we expect more competition on those trains going forward, we also see those diseases heading towards more geographies and expanding the use case. So I think we also feel pretty confident about our ability to continue with our double-digit growth in the vaccines.

And then finally, nutritional specialties. Here, you see a little bit of Elanco. You don't really see Zoetis. You see other companies, though other public companies like Novonesis, which is the old Novozymes and Chris Hansen, Church & Dwight has an animal nutrition group that we compete with, a company called Balchem, which a public company. So these are all kind of nutritional specialty business companies. It's a little bit different there. It is more about -- it's fragmented, it's rational. Your success there is driven less by price, but more by formulation quality, efficacy and technical support.

And I think we offer a lot in those areas, as you've seen from more historical growth. It's also one of those areas that you will see and as we -- as our innovation pipeline as we put products out there, because there's no label claims, a lot of it is just based on history and your ability to grow and to get market data as far as use cases. And so there is a constant build on successful products there, and we're pretty excited about our portfolio and our ability to grow there going forward as well.

Do you think you're able to -- do you think you're able to take share or you have been taking share from some of your competitors over the past year? Or is that a little bit tougher in these markets?

Larry, do you want to take that?

Yes. So having precise market data is a challenge here because many -- some of the companies don't report and particularly in cases where you have local competitors that don't report. So it's hard to judge that. I would say when you look at our sales growth, obviously, if we're growing faster than market growth, then certainly, we're expanding share. But a lot of what we do is to expand the market.

And so -- and Dani used an example about a vaccination, right? So the vaccine market may be worth x amount today, but all of a sudden, if you have an emerging disease come and it's a problem, then you have a new use, if you will. And a lot of the things that we've brought, I think the innovations we brought in vaccines in nutrition specialties, et cetera, really do create market expansion opportunities, which is really exciting. And as we grow our sales, I guess, our share of the animal health market grows.

Okay. Okay. Sort of along the same lines, I think you've been talking a little bit more about pricing power in recent quarters. I think you called out being able to take some price last quarter. That's not typically something that you see a lot of in animal health. So could you just speak about what's giving you confidence there, how durable that is and your thoughts on price as part of the long-term algorithm?

Larry, do you want to start?

Yes. So I guess we saw opportunities in some of the larger markets here. We saw opportunities to look at the price, particularly of the acquired products and see maybe they were undervalued a little bit. We do try and practice value-based pricing in our products. So we saw an opportunity there to adjust that.

In many cases, there were use of rebates and particularly end-use rebates. And as we looked at that, we -- basically, I guess, we saw opportunities where maybe those programs were not as effective. And we've really simplified our approach in pricing and eliminated many of those end-use rebates with large users. And by doing that, obviously, you affect the net price and can really help with integration -- with the gross margin of the products.

In some of the other markets, secondary markets, in some cases, we did benchmarking versus the other markets where -- how these products sold and versus some of the local competitors, and we saw opportunities where some of the products really had low or even negative margins. And so we were able to take more significant price reset, I would say, to get these products where they should be where we felt they should be versus the value they provide. And so we really have not seen that our volume drops to this point anyway, at least that would be significant on a global basis as a result of that.

Okay. Okay. But it sounds like best way to characterize some of price gains were sort of big in areas where you're miss-pricing previously, just sort of more like a onetime adjustment true-up correction across the portfolio versus something you're going to be doing regularly going forward?

Yes, I think that's a good summary, Mike, right. The outsized price opportunities as sort of part of the integration sort of resetting with the new Zoetis portfolio. On an ongoing basis, like we said, particularly in the MFAs, these are more mature products, we'd expect low single-digit price increase opportunities on this moving forward.

Okay. I want to -- we've got about 5 minutes left, still a bunch of topics I want to talk about. Maybe let's pivot to companion. It's something that's been a major focus area in the past. But obviously, over the last year, we've had to dedicate a lot of time to Zoetis MFA as we did today.

So can you give us an update on how that portfolio is doing? I mean, I think we've certainly seen a lot more ads and a much bigger presence for some of the companion animal assets like Restoris. I know you guys were at VMX earlier this year in January, which I don't believe you've ever been there before or at least I haven't seen there before. So can you talk about companion, what you're seeing over the last couple of years, just how to think about that business going forward?

Go ahead Daniel.

Sure. So I guess we missed you in Orlando, but yes, we were there. We're also in Las Vegas last week, if you were at the Western Metro. So yes, so we've launched Restoris. We took our second product, our first product with Rejensa, continue to do nicely with Rejensa. We're really pleased with the reception though to Restoris. We see a really nice strong growth trajectory in front of us. .

Though I'll note, obviously, in fiscal '26, it's a small contributor. It should be larger in the years to come, but we are -- I think our philosophy is to take the profits from the revenue and -- or from a margin there and to reinvest it into the companion animal space, but at the same time, not to get ahead of it and not to spend too much ahead of it. So I think we're rather fiscally conservative when it comes to the pet side.

We are kind of slowly building to where we reach scale where we can do something larger perhaps at that stage, but we're definitely not there yet. And I think what we've been consistent in talking about our overall strategy in the long term, and I stress the long term is to turn this into kind of a fourth leg to our stool where along with our MFAs, nutritional specialties and our vaccines, we'll be able to talk in meaningful revenue about our companion animals.

Okay. Okay. Looking forward to that, for sure. Glenn, I want to touch on margins briefly. When you were talking about the LRP earlier and sort of how you see about -- how you see margins going forward, you talked about opportunities for margin expansion. Can you talk about what's driving that? How much of that is mix versus execution versus maybe some components of fibro forward? And just any way to quantify the opportunity there?

Yes. I think there are a number of things driving it, Mike, like you said. So mix certainly is a factor. And particularly in the first half of this year and in the second quarter, we had positive mix dynamics: a, within the MFA portfolio, there are certain products that have higher margins and that benefits as well in the first half of the year, we saw a good mix within the MFA portfolio.

Also though vaccine is growing rapidly, nutritional specialty, those are also higher-margin products that helps us from a margin perspective. Another big contributor, though, has been the Phibro Forward growth initiative. As we mentioned, we're looking across the portfolio for where we can drive growth at both the revenue and an income level. One of the big areas has been also, as we talked about within procurement, trying to drive efficiencies in terms of how we work with our suppliers, leverage the broader scale that we also have right now from a Zoetis perspective, adding those MFAs to our portfolio.

So there are a number of initiatives across Phibro Forward, which are helping us drive margin expansion as well. So it's a combination of the mix. It's a combination of new portfolio, but it's also these initiatives that we have, which cut across every area of the business, every market, every species that we're looking to be more efficient and that are helping to drive greater EBITDA margin for the company.

Okay. And any way you want to stab at quantifying how to think about that relative to revenue growth going forward or just too early?

Yes. So we haven't quantified the specific dollar amount from Phibro Forward. Obviously, we have targets internally that we track on a weekly, daily basis sort of. What we shared externally is we do expect that Phibro Forward will hit its peak in fiscal year '27, but it's something that we're going to embed in the company to continue to drive growth. And we do believe that is going to help us really deliver on our value proposition of driving income growth faster than revenue, and that's really going to be our focus moving forward.

Okay. I think we can grow faster than -- all right. We've got only a couple of minutes left. So I guess I'll just jump to my last one. Dani, again, congrats on stepping in as the CEO later this year. Obviously, send my best regards and congratulations to Jack. I mean I hope to speak with him.

I mean I know he'll be sticking around beyond that. But just at a high level, your thoughts as you're going to be walking into the role, how you see the strategy going forward, if there's any changes you're going to make or any things that you're not going to change? Just if you could give us some high-level thoughts.

Yes. So thank you, first, for the congratulations. As you know, my father is not going away. He's staying as Executive Chairman, keeping the office with the bathroom. And, yes, so I would, overall, I'd characterize the transition as one of continuity, not really of change, right? The strategy we're executing today, it's the same strategy I'll be responsible for as CEO. I've been deeply involved in shaping it and the key capital allocation to date and the operating decisions well ahead of July 1, frankly, for the last few years.

And Larry, Glenn, our management team is staying put. And then from a decision-making standpoint, there's no reset. The operating model, strategic framework, they all remain firmly in place. As Glenn just talked about, a good examples is Phibro Forward, which I've actually been leading, and it's translating strategy into the [ bauma ] plan, clear ownership, discipline and just execution throughout the organization. So I see more of the same on that, maybe more paying attention to claw code or something of that nature. But then overall, I think it is really just more of the same and looking to continue kind of on the street that we're on.

Okay. Okay. Yes. I mean it's hard to have a transition with more continuity than what you guys are doing. So I don't doubt that it will be smooth and seamless. So all right. With that, we're out of time. Thanks so much for joining us, everyone. Glenn, Daniel, Larry, thanks so much for taking the time for being with us, and we'll be staying in touch.

Thanks, Mike.

Thank you.

Thank you.

Appreciate it.

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 2026 Conference Call. [Operator Instructions] I'd now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead.

Thank you, Regina. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal second quarter ending December 31, 2025. My name is Glenn David, and I'm 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; Donny Bendheim, Director and Executive Vice President of Corporate Strategy and as recently announced, our CEO Designate; and Larry Miller, Chief Operating Officer.

Today, we will cover financial performance for our second quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. 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 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 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. Reconciliation 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, 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.

Thanks, Glenn. In the second quarter, we delivered 26% growth in Animal Health sales and a 41% increase in Animal Health adjusted EBITDA. a clear sign our strategy is working. Medicated Feed Additives led with a 34% growth, supported by strong gains in nutritional specialties and vaccines. This reflects our continued success integrating the MFA portfolio into our operations.

While our total legacy business continues to perform with a 3% growth. Beyond Animal Health, we saw continued growth in Minerals with decline in our Performance Products segment. Consolidated sales were up 21% in the second quarter, while EBITDA was up 41%. As Glenn will discuss in more detail, we're raising both our full year sales and earnings guidance. These results are encouraging, but what's impressed me just as much is what I have seen firsthand from our people and our customers in the past few weeks. It's one thing to see performance in the numbers. It's another to hear directly from the teams and customers who are living this momentum every day.

Earlier this month, more than 150 of our global leaders came together in Barcelona, our largest meeting of this kind in over a decade. The energy and alignment were outstanding. We heard a consistent message across regions. Our teams remain deeply focused on customer partnerships. We're sharpening our innovation agenda with stronger global coordination. We're executing better and more consistently across the business and the unity across our leadership team has never been stronger.

I left Barcelona feeling incredibly proud of our people and confident in the direction we're heading. When you see the level of alignment and enthusiasm from long-tenured leaders to newer faces, it tells you that the culture is strong and the strategy is working. Last week, I was in Atlanta for the IPPE, the annual Poultry Show. While it was a very cold Atlanta, the conversations they were warm and optimistic. IPPE is always a great pulse check on the protein sector. And this year, the tone was upbeat. Producers across poultry and the broader protein markets are seeing more stability. Demand remains strong. Customers are prioritizing performance, reliability and cost efficiency, all areas where we're delivering real value. And we got a lot of positive feedback about the MFA integration and the strength of our technical support. It's clear that the work our teams have done over the past year is resonating where it matters most with customers.

Taken together with our financial performance, Barcelona and IPPE make it clear that Phibro has real sustainable momentum. And as I looked at that momentum, the strength of our business, the alignment of our people and the opportunities ahead, it's also clear that this is an opportune moment for a leadership transition. And with that, I turn it over to Donny.

Thank you. Before we move into our results, I want to share how honored I am to be stepping into this role in July. I'm deeply grateful for the trust the Board and the entire Phibro team have placed in me. I'm especially pleased that my father will continue as Executive Chairman. The culture and foundation he has built over 5 decades are the bedrock of this company. Having a continued guidance and experience is a significant advantage for Phibro and is incredibly meaningful to me personally. Equally important is the stability of our broader leadership. Our full management team remains in place. These are the leaders who know our customers and our global operations intimately.

That continuity across every region and function is one of our greatest competitive strengths. In short, this leadership transition is occurring from a position of momentum and operational excellence. I'm stepping into this role at a dynamic moment for our industry. We are seeing genuine momentum in the protein markets. Producer confidence is rising and global demand remains resilient. The energy we felt at IPPE recently confirmed this. Our customers are moving forward, investing and planning for growth. Looking ahead, we are entering a new era of opportunity. Producers today are under pressure to do more with less. At Phibro, we see sustainability and profitability as one and the same. Better gut health, improved feed conversion and reduced disease pressure don't just support sustainability, they drive profitability.

By investing in R&D and our digital capabilities, we are positioning Phibro to lead the next wave of breakthroughs in Animal Health. These efforts are central to our Phibro Forward strategy and build on the strength of our core business and our unified leadership team. With that, I'll hand it over to Glenn to discuss our performance for the quarter and our outlook for the remainder of the fiscal year. Glenn?

Thanks, Donny. Starting with our Q2 performance on Slide 4. Consolidated net sales for the quarter ended December 31, 2025, were $373.9 million, reflecting an increase of $64.6 million or a 21% increase over the same quarter 1 year ago. The Animal Health segment grew 26%, while Mineral Nutrition grew at 9% and Performance Products declined by 10%. GAAP net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, partially 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 $19.9 million or 41% versus prior year. Adjusted net income increased 60% and adjusted diluted EPS increased 58%. 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 $290 million of net sales for the quarter, an increase of $60.6 million or 26% versus the same quarter prior year.

Within the Animal Health segment, we reported legacy MFA's net sales decrease of 5%, driven by the timing of inventory purchases from a particular large customer. Excluding the impact of this timing, our legacy MFA growth would have been a positive 3%. The new MFA business contributed a full quarter of sales of $94.1 million versus a partial quarter last year, driving the total MFA and other growth to 34%.

The Nutritional Specialty net sales increased $4.3 million or 9% due to increased North America demand for dairy. Vaccine net sales growth of $4.5 million or a 13% increase driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $82.2 million, a 41% increase, driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A.

Moving on to second quarter financial performance for our other business segments on Slide 6. Starting with Mineral Nutrition. Net sales for the quarter were $68.9 million, an increase of $5.7 million or 9% due to an increase in demand for zinc and trace minerals. Looking at our Performance Products segment, net sales of $15 million reflects a decrease of $1.6 million or negative 10% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA was $6.4 million and $0.8 million, respectively. Corporate expenses increased $3.7 million, driven by higher employee-related costs.

Turning to key capitalization-related metrics on Slide 7. We generated $47 million of positive free cash flow for the 12 months ended December 31, 2025. We generated $93 million of operating cash flow and invested $46 million in capital expenditures. Please note that our cash generation has been negatively impacted by a buildup of inventory in advance of tariffs and to meet increasing customer demand. We expect inventory to stabilize in the coming quarters.

Cash and cash equivalents and short-term investments were $74.5 million at the end of the quarter. Our gross leverage ratio was 3.1x at the end of the quarter based on $737 million of total debt and $235 million of trailing 12-month adjusted EBITDA. Our net leverage ratio was 2.8x at the end of the quarter based on $662 million of net debt and $235 million of trailing 12-month adjusted EBITDA. On interest rates, there are no changes to our current swap agreements. Turning to dividends. Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate.

Let's turn to Slide 8, which lays out our updated guidance for fiscal year 2026. Based on our strong performance year-to-date and continuing momentum, we are raising our revenue, EBITDA and income guidance. Our guidance for fiscal year 2026 is as follows: Net sales increased from a range of $1.425 billion to $1.475 billion to a range of $1.450 billion to $1.500 billion. This represents a growth range of 12% to 16% and a midpoint of approximately 14% Total adjusted EBITDA increased from a range of $230 million to $240 million to $245 million to $255 million. This represents a growth range of 33% to 39% and a midpoint of approximately 36%.

Adjusted net income increased from a range of $108 million to $115 million to $120 million to $127 million. This represents growth of 41% to 49% with a midpoint of approximately 45%. GAAP net income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are onetime costs related to our Phibro Forward income growth initiative.

In closing, we're excited about the continued strong performance in fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued strong performance in our business. So with that, Regina, could you please open the lines for questions?

[Operator Instructions] Our first question will come from the line of Ekaterina Knyazkova with JPMorgan.

Congrats on the results. So first question is just on gross margins. Obviously, a very strong number this quarter. You've touched upon this, but what are the main drivers of this? And how much is mix or anything potentially onetime in there? And how should we think about gross margins over the next few quarters?

And then second bigger picture question just on the guidance update. Can you just elaborate a bit what's kind of doing better than expected as you kind of think about the EPS and the EBITDA upside? How much of this is fiber forward versus mix versus commercial execution versus anything else?

Sure. Thanks for the question, Ekaterina. So in terms of the gross margin, there are a number of factors that are driving it, particularly in this quarter and also on a year-to-date basis as well. So we've been successful in taking additional price, particularly on the Zoetis portfolio, which has exceeded our expectations and helps drive improved margin. We've also seen very positive mix. We continue to see strong performance in our nutritional specialties and our vaccine products, which do come in at a higher margin as well.

So really strong mix, strong price and strong overall performance. And also just a focus internally on driving growth on the higher-margin products as well has helped. In the quarter, in particular, I think I mentioned in last quarter's call that we should have some returns coming as part of our transition from what we call Tier 3 markets to Tier 1 markets. Those returns came at full cost. So the price of sales and the price of cost was the same. So that partially elevated the gross margin as well for that quarter, but that's less than, call it, 100 basis points.

But overall, really strong underlying performance from a gross margin perspective. And from an EPS and guidance perspective, a number of factors that have driven the positive view that we have for the rest of the year. A strong revenue performance, as I mentioned, really strong performance in our acquired portfolio, really exceeding our expectations and how we're performing there. And our ability to leverage our existing infrastructure without building quite as much additional staff or resources to support the new business as well has continued to perform positively and the improved mix that we mentioned as well that helps us for the full year guidance as well. So a lot of factors that are going in the right direction and helping our performance for the first half of the year, but also for our guidance for the full year.

Our next question will come from the line of Michael Ryskin with Bank of America.

This is Alexa on for Mike. I was wondering about if you could talk about the impact of the customer timing on the MFA business. If you could give any details on what happened there and if it will flip into 3Q? And how should we think about the legacy MFA business and Zoetis MFA and those normalized growth rates going forward for both businesses given some of the lumpiness in recent quarters? And then I have a follow-up question.

Okay. Sure. So in terms of the customer timing that we mentioned for the legacy MFA business, that's one customer that we do a significant amount of business for. They hold different inventory levels at different times. So sometimes within the quarter, we'll have pretty significant fluctuations. That ends up varying throughout the year and evening out through the year. It was roughly $10 million in this quarter.

We do expect it to improve as we move into the next quarter. So we don't expect that significant negative hit as we move into the second half of the year. In terms of the legacy MFA and the Zoetis MFA, as we move into the second half of the year, we'll have a full comparative, right?

So this is the last quarter where we sort of had a partial quarter of the previous year. So as we move into the second half, we'll have a full comparative both the legacy portfolio as well as the recently acquired portfolio, which will obviously slow growth. And I think what we talked about for the long term is we expect this business to grow sort of in the low to mid-single digits. With the strength that we have from a field force perspective and technical expertise, we'll look to drive that greater. But overall, we expect this business to be a low to mid-single-digit growth.

Okay. Got it. That's super helpful. And then my follow-up question is on end markets. So they've been really favorable livestock in recent quarters with very strong results. Can you just talk about how sustainable this is versus it being a cyclical upswing?

Yes. Larry, do you want to address the protein markets and the sustainability?

Yes, sure. Thanks for the question. So the demand for high-quality clean proteins continues to be very strong, and we see benefits for that, particularly in our beef sector, our chicken, broiler sector, pork, turkey, dairy and also for eggs. We certainly see continued favorable feed costs, which is obviously the largest input cost of producing animals, and that's helping to maintain margins. We'll probably see -- expect to see a little bit of some shift in trade between certain countries, which is sometimes driven by tariffs and also some disease outbreaks.

But I want to emphasize, we really feel good about our diversification amongst our livestock species as well as geographic presence in all the key global livestock production markets, including many markets which are increasing their domestic production to be more food secure and less reliant on imports. Our diversity has certainly been enhanced with the MFA acquisition.

Great. And if I can just ask one quick follow-up on the MFA business again. I want to talk about share gains. Are you taking share from others given the strong combined portfolio? And that's my final question. Congrats on the great results.

So Larry, do you want to address the share gains?

So I would say that we -- in the quarter in the first half, we've certainly seen strong performance in our poultry anticoccidial range. We are able to offer a much more complete portfolio of offerings, particularly in broiler coccidiosis management. Often people change and rotate every few months on these. So it's allowed us to have more opportunities to participate in those anticoccidial programs. We've also seen good growth in our swine rhinitis business.

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

Just what drove the outperformance of the Zoetis MFA portfolio specifically? And a clarification on the legacy ones. So should we expect the $10 million in -- to come back in Q3, just to make sure. And then I'll have a follow-up.

Yes. So just in terms of the legacy business and the negative impact to the quarter, we will expect that to come back in the second half of the year. But how much of it comes between Q3 and Q4, that will depend on the orders that we receive, but we do expect it to come back within the second half of the year. I'll start on the drivers of the Zoetis MFA, but Larry, if you could add as well in terms of the outperformance. I think it's been tremendous execution from the team in terms of the integration. We've built a very strong team that's been extremely effective in their interactions with our customers. We have been able to take share on some particular products in the marketplace as we continue to gain momentum, and we expect that hopefully to continue as well. But Larry, I don't know if you have additional things to add on the Zoetis MFA outperformance.

I think our team has done a really good job of focusing on these. We've got a lot of shifts, particularly in the segments. People are -- our customers are growing animals to larger, heavier harvest weights. And so that's changing some of the dynamics that they have to deal with. And our team is really doing a great job in promoting and reminding customers of the indications and claims that we have for these new products and how those fit some of these trends and challenges of feeding animals longer.

So we're really seeing good receptivity from our customers. Obviously, the value of animals are at historic highs. So customers are very interested in investing to protect their animals, to keep them healthy and healthier animals, obviously, are more efficient and help optimize the margin and opportunities for returns.

Jack and Donny talked about our presence at the International Poultry and Egg Conference last week in Atlanta. I'm actually at the National Beef Cattlemen's Association right now in Nashville, where we're able to have a presence in the trade show and in a lot of the activities here. And we're meeting a lot of great customers here that are in the beef production segment. And I have to say their interest in these products, how they can fit and help them solve the challenges they're facing really are excited to see us with representing these products, owning these products and investing in these products. And enthusiasm for this beef segment is really high right now. Obviously, consumption of beef has grown for the first time in quite a long time. And so people are feeling really good about this acquisition as are we.

And then in companion animal, can you maybe expand on the commercial traction and the vet feedback of Restoris since the launch?

So it's Donny. I'll take that. So we launched it, obviously, late last year into the holiday season. It's actually gone more or less according to plan. I don't know if you had a chance to be in Orlando for VMX, we actually had our first time that we've been an exhibitor, a lot of foot traffic, a lot of interest. We've seen a boost since then. We'll be continuing on the circuit. We'll be in Vegas for the Western Vet Conference. And overall, there is a lot of excitement within the vet community for what Restoris offers.

[Operator Instructions] Our next question will come from the line of Erin Wright with Morgan Stanley.

This is Linda on for Erin Wright. So could you please provide an update on the Phibro Forward initiatives, specifically what's been realized to date versus what may remain ahead? And also, how much of the margin expansion embedded in the latest outlook is driven by structural cost initiatives versus cyclical or mix-related benefits?

Sure. So I'll start on the Phibro Forward. As in the past, we haven't given specific dollar amounts in terms of the contributions or the expectations. What we have said is it continues to be a significant driver of our growth. We are now halfway through fiscal year '26. And we expect sort of the optimal of the max contributions coming from a full year fiscal year '27. I'd say we're sort of halfway through the process. We expect the contributions from Phibro Forward to continue to accelerate as we move through the end of fiscal year '26. And then we'll get a full annualization of benefits as we move into fiscal year '27, and that will be a key contributor to growth in fiscal year '27. I'll turn it to Donny to see if there's anything additional to add.

Thanks, Glenn. What I'd say is Phibro Forward really touches upon all parts of our company. So there is the structural changes, and we're seeing it in our higher gross margin. I think we're seeing it in some of our revenue strategies. But it's also overall on how we approach R&D, on how we approach technology, we've laid the groundwork for future growth with these initiatives. And it puts us in a really strong place both for today and as we enter kind of the next era.

That's helpful. And then also, there have been a number of innovation developments across companion animal, notably oral health. Is this a meaningful contributor to 2026 or more so going forward?

So that will be more so going forward. So within this quarter, it was a limited contributor. We'll expect a little more in the second half of the year. But I think we'll start to see more material contributions in fiscal year '27 and then beyond.

And that will conclude our question-and-answer session. I'll hand the call back to Glenn David for any closing comments.

Thank you, Regina, and thank you, everyone, for listening in on today's call. We really appreciate your time, attention, interest and support of Phibro Animal Health Corporation. Have a great night.

Hello, and thank you for standing by. Welcome to the Phibro Animal Health Corporation First Quarter 2026 Webcast and Conference Call. [Operator Instructions] I would now like to turn the conference over to Glenn David, Chief Financial Officer. You may begin.

Thank you, Sarah. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal first quarter ending September 30, 2025. 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; Donny Bendheim, Director and Executive Vice President, Corporate Strategy; and Larry Miller, our Chief Operating Officer.

Today, we will cover financial performance for our first quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. 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 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 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, other income expense as separately reported in the consolidated statement of operations, including foreign currency gains and losses net, 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.

Thanks, Glenn. In the first quarter, we delivered 55% growth in Animal Health sales and an 85% increase in Animal Health adjusted EBITDA, clear evidence that our strategy is working. Medicated Feed Additives led the way with 81% growth, supported by solid gains in nutritional specialties and vaccines. This performance reflects our continued success in seamlessly integrating the acquired MFA portfolio into our operations. At the same time, our legacy Animal Health business continues to outperform, delivering 11% growth overall and 6% growth in legacy MFA and other products. These results highlight the strong demand across our diversified animal health portfolio and the enduring strength of global protein production.

We are also encouraged by emerging research showing that GLP-1 users while spending less overall on food are increasingly choosing high-quality animal-derived proteins. This evolving consumer preference supports our industry long-term growth and reinforces the relevance and value of Phibro's offerings. Our ability to translate this demand into stronger bottom line performance is being driven by our Phibro Forward initiatives. These efforts continue to enhance operational discipline, accelerate innovation and sharpen our focus on strategic growth. As a result, we're gaining the flexibility to invest in high-impact opportunity across our portfolio, positioning Phibro for sustainable long-term value creation.

Looking ahead, we remain focused on innovation and execution. The recent launch of Restoris, our proprietary dental gel for dogs marks a major milestone in our companion animal strategy. Together with our newly licensed early-stage therapeutic compound targeting canine periodontal disease, we're building a differential oral care portfolio that we believe will drive long-term growth. As Glenn will discuss in more detail, thanks to our strong performance and disciplined approach, we're raising our full year earnings guidance and continue to invest in the future of animal health.

I'll now hand it back to Glenn, and I look forward to your questions. Glenn?

Thanks, Jack. Starting with our Q1 performance on Slide 4. Consolidated net sales for the quarter ended September 30, 2025, were $363.9 million, reflecting an increase of $103.5 million or a 40% increase over the same quarter 1 year ago. The Animal Health segment grew 55%, while Mineral Nutrition grew at 7% and the Performance Products declined by 7%. GAAP net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, 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 first quarter adjusted EBITDA increased $31.2 million or 102% versus prior year. Adjusted net income increased 112% and adjusted diluted EPS increased 108%. 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 $283.5 million net sales for the quarter, an increase of $100.9 million or 55% versus the same quarter prior year. Within the Animal Health segment, we reported legacy MFA's net sales increase of $6.9 million or an increase of 6%. The new MFA business contributed a full quarter of sales of $80.5 million, driving the total MFA and other growth to 81%. Nutritional Specialties net sales increased $5.5 million or 13%, mostly due to higher demand for microbial and companion animal products. Vaccine net sales grew $8.1 million, a healthy 25% increase, driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $74.9 million, an 85% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A.

Moving on to first quarter financial performance for our other business segments on Slide 6. Starting with Mineral Nutrition. Net sales for the quarter were $63 million, an increase of $3.9 million or 7% due to an increase in demand for copper and trace minerals. Looking at our Performance Products segment, net sales of $17.4 million reflects a decrease of $1.4 million or a decrease of 7% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were $4.5 million and $1.6 million, respectively. Corporate expenses increased $3.4 million, driven by higher employee-related costs.

Turning to key capitalization-related metrics on Slide 7. We generated $34 million of positive free cash flow for the 12 months ended September 30, 2025. We generated $77 million of operating cash flow and invested $43 million in capital expenditures. Cash and cash equivalents and short-term investments were $85 million at the end of the quarter. Our gross leverage ratio was 3.3x at the end of the first quarter based on $749 million of total debt and $227 million of trailing 12 months adjusted EBITDA. Our net leverage ratio was 2.9x at the end of the first quarter based on $664 million of net debt and $227 million for trailing 12 months adjusted EBITDA.

Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis Medicated Feed Additive portfolio, 1 month of Zoetis history and 11 months from Phibro ownership. On interest rates, there are no changes to our current swap agreements. Turning to dividends. Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate.

Let's turn to Slide 8, which lays out our guidance for fiscal year 2026. Please note that this guidance includes a full 12 months of the Zoetis Medicated Feed Additive portfolio. Also included in this guidance for fiscal year 2026 are benefits related to our Phibro Forward income growth initiative that will help drive additional EBITDA and margin growth. Onetime costs related to this initiative are also included in our GAAP guidance and primarily consist of onetime consulting fees. This initiative is focused on unlocking additional areas of revenue growth and cost savings.

Our guidance for fiscal year 2026 is as follows: Net sales remain the same at $1.425 billion to $1.475 billion. This represents a growth range of 10% to 14% and a midpoint of approximately 12%. Total adjusted EBITDA increased from $225 million to $235 million to $230 million to $240 million. This represents a growth range of 25% to 30% and a midpoint of approximately 28%. Adjusted net income increased from $103 million to $110 million to $108 million to $115 million. This represents growth of 26% to 34% with a midpoint of approximately 31%. GAAP net income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are onetime costs related to our Phibro Forward income growth initiative.

In closing, we're excited about the strong performance and start to fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued improvement in our business as we move forward in the coming months. With that, Sarah, could you please open the line for questions?

[Operator Instructions] Your first question comes from Erin Wright with Morgan Stanley.

So first on the MFA business. So how are you thinking about the sustainability of growth in that legacy MFA business? I guess, can you break out a little bit of what you're seeing price versus volume on that front? And what I'm trying to get at here is what's the underlying run rate that we should be thinking about? And I get there's some other drivers going on, but were there any timing dynamics in the quarter? Is the Zoetis business growing faster than you would have expected at the core? So yes, just what's the appropriate run rate for that business as we lap the deal?

This is Larry. Thank you for the question. So we see continued growth, strong demand, particularly across the MFA portfolio and basically the poultry, swine as well as the beef cattle segment. As we look at indications of protein consumption growth, et cetera, we continue to see that grow. I think that we -- as far as our expectations for growth in the future, we are seeing really nice synergies again between the Phibro legacy products as well as the acquired products and being able to bring more products and design programs to our customers.

Yes. The only thing I'd add, Erin, also to your question on price versus volume. When you look at the first quarter, in particular, there was limited impact on price. One of the reasons for that being is all of the legacy -- or all the Zoetis MFA growth gets put into volume just because we have no comparator for the prior year. But this has been an area of focus for us is improving the price -- the overall net price for the Zoetis products, which has helped with our overall profitability. So as we move forward into Q2 to Q4, we will see an impact on price, particularly from the Zoetis portfolio.

Okay. That's helpful. And then another run rate question just on the margin profile that definitely stood out to us and maybe that's some of what you were just speaking to. But anything to call out on that front? How do we think about the margin profile for the remainder of the year in the context of both what you were saying and any other dynamics from an expense perspective that we should be thinking about?

Yes. So in terms of the margin profile, we saw good favorability in Q1. A lot of that was driven by mix. Strong growth in the vaccine portfolio of 25%, strong growth in nutritional specialties of 13%. Those tend to be higher-margin products for us. So that certainly helped with the overall margin. We also saw some favorability in our overall expenses versus our initial expectations just based on the timing of building up some of our support for some of the new products. And again, we'll also be investing in the next future quarters in some of the launches such as Restoris. So we do -- while we've had a very good start to the year, if you look at our guidance, we would expect margins to drop a little bit as we move through the year.

The next question comes from Ekaterina Knyazkova with JPMorgan.

So first is just on the guidance update. It seems like the EBITDA and EPS range are coming up, but I think the revenue range isn't despite what looks like a nice top line beat in the quarter. Just anything you would call out there, maybe just some degree of conservatism or some headwinds we should kind of keep in mind on the revenue side of things?

And then second question is just on the licensing you announced for the dental asset. Just elaborate a bit on what brought you to the product and how it fits into your strategy? And maybe just more broadly, your latest thoughts on the role the company can play in the companion space.

Yes. So I'll start with the guidance, and then Donny will cover Restoris. In terms of the guidance, so the favorability that we saw particularly in the first quarter was related to some of our expenses as well as the favorability that we saw in gross margin related to mix. Very strong performance at the top line, but we're really only 1 quarter into the year. So we didn't find it necessary to update the revenue guidance at this point in time, but we did take the favorability that we saw in the first quarter related to expenses and the favorable mix into account in updating the guidance.

And with regard to our dental assets, so we actually -- we've announced, obviously, 2 assets this quarter. We -- the first one, which you alluded to, the licensing, we licensed a pharmaceutical product. That will not be anything near term. It's a long-term play. But the category as a whole with -- as you see with the Restoris is something we're very excited about. We think dental is an unmet need within the vet and the dog market. Only about 15% of dog owners bring their dogs in for annual dental. Only about 4% of dog owners actually brush the teeth of their dogs every day. As a result, as you can imagine, there's tremendous need for solutions there. And we think we actually have a nice 1-2 punch here with our solution.

So Restoris, which is what we launched last week and which is actually shipping beginning this week, will allow dentists and their vets to actually treat periodontal disease. It's a medical device, so it allowed us to get into the market quickly. But right now, the method that dentists use to treat periodontal disease is extraction, and that's the main method. And this, we believe, will allow them to offer something to their customers that will be able to avoid extraction.

And it's extremely positive from the vet perspective as well because in most states, I think in 35 states, only vets are allowed to do extractions considered oral surgery, whereas the application of Restoris will be able to be done by a vet tech. So that will free up the clinic for more high-value procedures. And then down the road, we will look to follow it up, hopefully, with our licensed product, which we believe will allow people to take -- dogs to take a daily to a weekly application and prevent the buildup of the bacteria that leads to periodontal disease.

The next question comes from Michael Ryskin with Bank of America.

This is Alexa on for Mike. My question is on end markets. So you've talked about the strong livestock demand you're seeing and peers have called out the same strength, especially in cattle. Can you talk about what's driving this? And how sustainable do you think it is? Is it more protein cycle driven based on input feed dynamics or consumer demand? Additionally, is it geography-specific or more broad-based? And should we be thinking about this as a 2- to 3-year phenomenon as something shorter term or something more structural?

This is Larry. I'll take that question. I think you might address that really in 3 aspects. The first would be on the protein demand. And then the second would be on the livestock sector profitability and then really what Phibro's position is given those first 2 market dynamics. First, in protein demand, we continue to see a resurgence in the demand for animal-based proteins, both meat, eggs and poultry and dairy. We believe this trend is poised to continue with global population and income growth and demand is also supported by changing views on things such as dietary fats as consumers increase demand for higher quality, simpler and more wholesome proteins and move away from higher processed foods. These factors all make animal-based proteins highly compatible with consumers' dietary as well as lifestyle changes.

The second, the livestock sector profitability. Overall profitability for all livestock segments, not only in North America, but in the key segment -- key markets around the world continues to be positive in the top positive margin territory with sound poultry fundamentals, strong beef demand, disciplined pork supply and good dairy performance demand. All livestock sectors continue to benefit from lower costs of feed and grain input prices. The value of each animal is worth more, so livestock producers are willing to invest more in animal health products to prevent disease and keep their animals healthy. Every pound of protein matters more than it really ever has.

And on Phibro's position, we've had a strong geographic presence in the key livestock production markets around the world. Our market reach had complementary for expansion even went -- was complemented and got stronger with recent acquisition of the MFA business, particularly giving us a stronger base in Asia and in China, Western Europe, Middle East as well as the U.S. beef and swine sectors. We believe Phibro is really well positioned with our customers on farm, and we're in a unique position to provide customized solutions that address animal health and disease challenges, including a wide choice of MFAs, nutrition specialties and vaccine products, combined with the high level of service and animal production experience that our field team has and brings to our customers' farms.

The next question comes from Navann Ty with BNP Paribas.

One more on the legacy business. The growth was above our expectations. So what drove the better growth than the 2 last quarters? Was there any nonrecurring or pull-forward items to be aware of? And then my second question is on the Lighthouse licensing agreement and Restoris. Does that signal a higher focus on companion animal? And generally, is your BD strategy to target innovation in areas that are not targeted by the big 4 players?

Yes, Navann, I'll take the first question in terms of the legacy portfolio. As we said, really strong performance across legacy MFA, nutritional specialty as well as vaccine. Nothing significant to call out. I think we're just seeing good underlying demand across the board. One thing I will point out within the legacy MFA, there are certain customers that make larger purchases that occurs between one quarter or another, could have a small impact on the performance. We did see some of those purchases occur in Q1, probably see a little less of that in Q2, but overall, nothing too material to results.

And then -- it's Donny. As far as our business development, I think we -- for a couple of years now, we have talked about our main focus remains the production animal side and specifically on the nutritional and the vaccine side of production animals, that's where we're probably going to spend our largest dollars. But we are looking at opportunities on the companion animal side. And to your point, for the most part, we're not looking to go head-to-head with the larger companion animal players in most segments. We're looking for unique opportunities that we think that we can play a real role in.

[Operator Instructions] With no further questions, this will conclude the question-and-answer session and will conclude today's conference call. We thank you for joining. You may now disconnect.

Hi. Good afternoon, everyone. I'm Erin Wright, the health care services analyst at Morgan Stanley. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you do have any questions, please reach out to your Morgan Stanley sales representative.

And with that, we are happy to have Phibro Animal Health with us today. We have Glenn David, the CFO. Thank you so much for joining us.

Thank you for having me.

Yes. So we'll get right into it with the Q&A. Let's talk a little bit about the bigger picture, longer-term vision for Phibro. And can you speak to sort of the growth prospects at Phibro with some of the leading initiatives across kind of production, Animal Health, your recent sizable transaction in MFAs, some of the budding companion animal efforts. Like with all of these combined, what does Phibro look like in 3 to 5 years?

Yes. So really excited about the progress that we made at Phibro, particularly in fiscal year 2025 and what we're carrying forward into fiscal year 2026. So just speaking of the fiscal year '26, and then I'll get into the longer term.

We have a number of growth drivers that will be very positive for us in fiscal year 2026. A, we have the annualization of the Zoetis portfolio. We had 8 months of sales in fiscal year 2025. We'll have the full 12 months in our hands in fiscal year 2026, which really helps contribute significantly to our revenue and our income growth.

We also have the continued growth in our legacy portfolio, and we believe we'll continue to grow our legacy MFAs but really have outside -- beyond market growth in terms of our vaccines and our nutritional specialty portfolio. So that will be another key driver of growth.

And then third, we're really excited about our Phibro Forward income growth initiative. And this is an initiative that really has become part of the culture of the company to drive additional income growth across all areas, and that's also helping to contribute growth in fiscal year '26.

When we look out sort of 3 to 5 years, today, we are primarily a livestock company, about 99% of our revenue within our Animal Health is coming from livestock. 3 to 5 years, I wouldn't expect that percentage to change dramatically. But we would hope that within that time period, we'll have brought maybe one or two companion animal products as we do have products in different stages of the life cycle more in the medium to longer term. As we continue to grow over the next 3 to 5 years, I would also expect that our nutritional specialty and our vaccine portfolio will also represent a bigger percentage of the overall portfolio as we do expect those two categories to grow at a faster rate than our MFA portfolio.

Okay. Great. Yes, we'll get into some of those subsegments. But let's talk a little bit about underlying demand trends across your business, the various different species groups and geographies that you participate in. How much does this cattle cycle, for instance, influence your business? We were speaking earlier today with another industry constituent that was really emphasizing the growth prospects potentially across, for instance, the cattle business. And then which species group overall do you believe is best positioned for 2026?

Sure. So when you look at our livestock portfolio, the biggest species for us is poultry. And we see really good dynamics in the poultry industry right now. Demand remains really high. Prices are high and input costs are low. So overall, very strong dynamics in poultry. We've experienced strong growth there. We expect to continue to have good performance in poultry.

We also do have a presence, as you mentioned, Erin, in beef cattle as well as dairy, where our nutritional specialty products are primarily used and then in swine as well. And when you look across all of the protein categories right now, the dynamics pretty much across the board are strong. Demand for protein continues to rise. Prices remain high and input costs with corn being relatively low, is positive. So producers are more profitable, which certainly makes for a more positive environment.

Yes. One of the things that got brought up earlier today as well was strength in dairy and like we have a big thematic initiative around sort of that we focus on in terms of longevity and some of the consumer wellness type of initiatives as well. Like what are you seeing across the dairy market in particular?

Yes. We're seeing also very strong performance in the dairy market. And that's where we think with our portfolio, we're uniquely leveraged by having nutritional specialties, by having Medicated Feed Additives, also Mineral Nutrition, which are part of feed as well. We have a pretty complete portfolio in the dairy segment, and we see good dynamics there as well.

Let's turn to the MFA deal. It was a sizable transaction for you. You seem to be tracking above expectations. What's driven that? What's been so surprising about the deal so far? And where do we stand now in terms of integration?

Yes. So very pleased with where we are from an integration perspective with the Medicated Feed Additives deal. I've been part of a number of integrations over my career, and I'd say this one is probably operating as smoothly as any that I've worked on. And I think that's because it was just a natural fit for us. We've already had the relationship with the customers. We understand the portfolio very well and the product category very well. And we spent the right amount of time preparing for the integration as well. So from a system perspective, we're fully transitioned already.

There are a number of markets where Zoetis has been supporting us in terms of the sales process. That will transition in the next couple of months, and we'll have 100% control over that as well.

I think in terms of areas that sort of exceeded our expectations, we've really been able to leverage our existing infrastructure and scale to a greater degree than we originally thought. There are obviously areas that we've invested in. So for example, we weren't very strong in beef cattle before, particularly at the feedlot level. So we built a new team to support those customers. Also made some investments in Western Europe as well, where we didn't have a lot of infrastructure. But overall, we've been able to really leverage our existing resources, which has led to greater EBITDA margin than we would have anticipated. So we're really excited for how we've executed on the integration and what the future still holds for this portfolio.

You said that you're taking over 100% control of the sales process from Zoetis. So is there incremental costs that go with that? Does the underlying margin dynamics across that business change as you do that? Or is that fully embedded?

So that's fully embedded in the guidance. And sort of the switch, obviously, that wasn't for free in terms of Zoetis supporting us in these markets. So if anything, we think there might be some incremental margin that we'll be able to get once it's fully in our hands.

Above where you're already tracking, which is above plan.

Yes.

Yes. Okay. And then how do you think that the Zoetis deal, when you kind of thought about it, it seems like a win-win, but -- and I think you add scale, and you talked about what it adds to you. But it doesn't detract from your strategy around nutritional specialties around vaccines. And you think that this can help with the trajectory and bundling capability down the road, right?

Absolutely. So when we look at the Zoetis deal in isolation, a deal has to make both strategic and financial sense. And we think it's pretty obvious from how we've performed so far that the financial merits of the deal were very, very strong.

Strategically, though, it really made sense for us with our presence in Medicated Feed Additives, with our position as one of the leaders in the livestock space and our ability to really support the customers with this portfolio moving forward. But what it also did, Erin, to your point, is it gives us greater cash generation to invest in other areas of the business that we do see as higher growth areas of the business, areas such as our nutritional specialty portfolio, our vaccine portfolio and also companion animal. It gives us a little more flexibility either from internal R&D or more likely with external BD deals to look at more early-stage projects and enhance our R&D platform.

Okay. I want to switch over to kind of the most recent earnings call. You unveiled some -- your initial fiscal '26 EPS guidance as well as broader guidance expectations. It was ahead of Street expectations at the time. There's significant changes in terms of pharmaceutical tariffs and everything else. What's embedded? What's not embedded? Can you talk about some of those tailwinds and headwinds kind of as we think about what's embedded in the guide?

Yes. So what's embedded in the guide is what we know as of today, right? So there is an impact from tariffs based on the existing tariffs that are in place that is embedded in the guide. Obviously, there's a guidance range, so if there are small variations that should occur, the guidance range should accommodate that. Any significant differences that we wouldn't have anticipated, that would be something that wouldn't be embedded in the current guidance range. But again, we've been able to navigate the tariff pretty effectively, and we'd expect that any significant changes we are able to navigate as well.

As I mentioned earlier, some of the key drivers that are embedded in the guidance are the growth of the Zoetis portfolio, the growth of our legacy portfolio and the contributions from the Phibro Forward income growth initiative.

Can you talk a little bit about your mitigation strategy around tariffs too, that -- where are you able to kind of increase price?

Yes. So there are a number of mitigation strategies that we've employed as it relates to tariffs. The first is negotiate with your existing suppliers. So to the extent that a tariff has been put in place, are your suppliers willing to share that tariff with you to a large degree to minimize the impact. And we've been successful in that in a number of cases. Second is looking for alternative suppliers in other markets, which may have lower tariff impact. And then the third is price increase. And where we weren't successful, in the first two categories and where the competitive dynamics allowed, we have been able to take price increase as well.

I think the other thing that's important to note about Phibro is we do have a significant manufacturing footprint within the U.S. A lot of our production is there. So we are somewhat limited from a risk perspective from that perspective as well.

And definitely with the Zoetis transaction as well.

And with the Zoetis transaction that enhanced that presence.

Okay. Let's talk a little bit about Phibro Forward. The company previously noted expectations for benefits both in fiscal '25 and then obviously, anticipated benefits in '26, '27 that hopefully will expand. Any further color on the cost savings, what drops through to the bottom line?

Yes. So we haven't given a specific dollar amount for our Phibro Forward income growth initiative. Just to give some context, this initiative really has become part of the culture and foundation of the company. This is an initiative that cuts across all markets, cuts across all species, cuts across all areas.

There's literally hundreds of initiatives that we track on a weekly basis that are driving incremental income growth for the company. It could start at the revenue line. Do we need a key account manager in a particular geography to drive additional sales? Is there opportunity for greater price growth in a particular market on a particular product? We built the procurement team to further leverage our global scale and buying power and generate savings. Other opportunities within our logistics and how we operate, should we be doing full truckloads on all shipments versus partial truckloads, really going down to the lowest level of detail, looking for areas of savings.

So we often get questions, what are the initiatives. There's just almost too many to highlight, but there are a number of initiatives that it's really embedded in how we're operating to really drive additional income growth for the company.

Do you think we will get a metric in terms of quantifying this for us in terms of just even growth savings or this will contribute to x bps in margin improvement longer term, like...

So I think once we reach the peak, we'll be more confident in sharing a specific number. What I would say, when you look at fiscal year 2026, we're driving significant EBITDA growth. Phibro Forward is a part of that. When we look into fiscal year '27 even, I am confident to say that Phibro Forward should help us deliver double-digit income growth again in fiscal year '27.

And how do we think about the cadence of underlying growth on an organic basis into 2026?

Yes. So when you look at on an organic basis, just the cadence of that growth for fiscal year 2026, there are a number of factors. The MFAs, we always say the MFAs grow flat to low single digits. This year, legacy MFA business grew about 4%, which was strong. We'd expect the nutritional specialty and the vaccine portfolio to grow at a faster rate and in '26 to grow at a faster rate as well than the MFA portfolio.

So those are the general dynamics. MFA is sort of flat to low single digits and mid- to high single-digit growth pretty consistently for the nutritional specialty and vaccine portfolio. We did better than that in fiscal year '25. Obviously, we'll strive to do better in fiscal year '26 as well.

What does the long-term growth algorithm really look like then? You have volume, pricing, new product launches, you also have -- more being kind of the Zoetis transaction, does that enhance that long-term growth algorithm?

So when you look at the long-term growth algorithm, from a pricing perspective, generally 1% to 2% price is what we expect. As I mentioned on the MFAs, it's flat to low single digits. And with the Zoetis portfolio, it enhances that portfolio. So in some ways, it brings down our overall growth a little bit. But from an income perspective and from the amount we'll be able to invest in our future, it definitely supports that.

Then you take into account the vaccine growth being faster and nutritional specialty growth being faster, and we get to a point where we're pretty confident that we should be able to outpace the overall livestock market growth, which has historically been in sort of that 3% to 5% revenue growth range.

How would you characterize, and this goes back to kind of the fundamentals across the industry, but producer profitability right now? I think you kind of mentioned that for poultry, it's still favorable, but are there any spots that you're kind of paying attention to? Where we could see improvement on that front?

Yes. So pretty much across the board, we've seen favorability across most of the areas that we work within across dairy, across beef, across poultry, maybe some in swine in certain markets that maybe not have been quite as profitable. But overall, when you look at historically, I think things are in a very, very positive area from a producer profitability perspective that is a good indication for the industry.

And can you give us an update on the swine business in particular and just how you're thinking about that heading into 2026? And can you give us an update also on China on that front?

Yes. So the swine business is one where the Zoetis portfolio really added significantly to the swine business. So we're excited as we move into fiscal year '26, just with the annualization of the impact of the Zoetis products, swine will be one of our more rapid growing area.

As it relates to China, China still remains a relatively small market for us. It's just a little bit over 1% of our overall company sales. So we do see it as an area of potential growth, but it's not a significant market for us today.

Okay. And then how would you characterize the current regulatory environment as well as innovation environment when it comes to like MFAs and receptiveness to some older legacy products that have been more challenged either from an FDA perspective or otherwise and then kind of newer innovation that's coming to market? Like how do you see Phibro kind of playing into that? Good or bad?

Yes. So from an MFA perspective, within our R&D, we will look to invest in life cycle enhancements, perhaps expansions into other markets, continuing to look to get additional claims for some of our existing products. We haven't seen any significant changes in the regulatory environment as it relates to these products. It's been relatively neutral over the last number of years. But again, we will look to invest to see if we could expand or come out with some incremental innovations.

Okay. And update on Mecadox, it's only 2% of revenue right now, but I have to ask.

Yes. No. So no significant updates on Mecadox. We're still awaiting a response from the agency. We continue to be prepared to support the product with really sound scientific evidence supporting the safety of the product and the product continues to be used safely and effectively with our customers.

An update on virginiamycin. I always ask you what percent of sales is virginiamycin now. If you do have an update there, that would be great. But anything else that would be exposed to some of the medically important MFAs, anything that's being discussed from a government perspective with the MAHA movement and otherwise that we should be thinking about?

Yes. So no significant updates on virginiamycin. It's sold in a number of markets where we do have therapeutic claims and areas that we don't have therapeutic claims, we're working diligently to continue to advance those claims. We don't disclose product level sales. I will say virginiamycin does remain one of our largest products, particularly in the MFA category. So no big changes there, though.

And in terms of other medically important antibiotics, we did receive a few as part of the Zoetis Medicated Feed Additive transaction. But again, we don't disclose product level details.

Okay. Got it. And then can you talk about the other parts of your business in terms of Mineral Nutrition and Performance Products? What's your commitment to those businesses? Are there inherent synergies or overlap? Could you easily walk away from some of those businesses? How do you think about those?

Yes. So I'll start with the Mineral Nutrition business. And there are synergies and overlaps with the Mineral Nutrition business. I mentioned I was out with an account manager last week. And as we discussed with our customers, the product portfolio that we're offering, we're showing side-by-side in many cases, the Mineral Nutrition products along with our MFAs. All the products are used within feed gives us an opportunity to provide a more complete offering to our customers as well as the bundle in terms of being able to provide incremental discounts if you purchase the entire portfolio. So there's definitely some synergies and overlaps related to the Mineral Nutrition business.

The Performance Products segment, that's more of legacy businesses that we've had within Phibro for a number of years, not as much of a strategic overlap with the broader portfolio, but profitable businesses that we believe we are good owners of, but less of a strategic overlap with the rest of the business.

What's the long-term growth and margin profile of those two businesses with Mineral Nutrition and Performance Products?

Yes. So the Mineral Nutrition business, the margins are the lowest within our portfolio. It's mostly a pass-through business, commodity pass-through business. So that fluctuates any given year based on what the commodity prices are and changes in commodity prices.

Performance Products is a little higher in terms of an EBITDA margin perspective. This year, we saw 19% growth within that portfolio. Last year, the growth was a little less, but -- so that is something else that will fluctuate based on the demand within the marketplace. But as part of our Phibro Forward income growth initiative, we are looking to optimize performance of all of these areas and to drive additional margin growth in these areas.

What's the latest in vaccine? So going back to your core Animal Health business. You've done some deals in this space in the past. Like where do we stand now in terms of also like manufacturing exposure and some of the different moving pieces across that business? Like what are the key drivers now across your core vaccine business?

Yes. So vaccines is an area that we are committed to continuing to invest in. As you mentioned, we've made some investments recently in vaccine production capability. We bought an additional plant in Ireland that we're ramping up to support future growth. It's an area that we're really focused on from a research and development perspective as well. And it's an area that we consistently look at from a business development perspective as well. It's the highest margin product portfolio within Phibro. So it's something we're definitely looking to expand in.

And most of it is still dedicated to poultry...

Most of it is still dedicated to poultry. We've also invested in autogenous vaccines, which are more customized vaccines for a challenge that's occurring on any particular farm. Those are more within the swine category, and that's an area that we're continuing to invest in as well. We've had good success with that strategy within the U.S. And now we're working on that strategy within Brazil as well.

In nutritional specialty, that category should be more aligned with hopefully bundling capabilities across like the Zoetis portfolio, right?

Yes, particularly in the dairy segment.

So as I think about vaccines, what's the long-term growth of the vaccine segment then?

So we see that growing sort of above the market growth, sort of high mid-single digits.

And profit profile?

Profit profile, again, we don't give margins by category, but it's the highest margin that we have.

And then nutritional specialty, can you talk about the key drivers across that segment?

Yes. So nutritional specialty is an area that we continue to invest in also from an R&D perspective. So I think life cycle innovations and new products. We recently launched a product called Ephicax. So that -- it's an area of growth that we expect to be higher than the overall growth for the company as well, and it fits very well within our portfolio and broadens the offerings we have to our customers. Today, it's mostly within our dairy space, and we continue to expand and expect to grow that.

How is the competitive landscape across nutritional specialties?

So the competitive landscape, it varies because there are companies that focus on nutritional specialty. There are companies that focus on mineral nutrition. There are companies that focus on MFAs. We think we're sort of uniquely positioned in that we're the only company that's doing all three. So the competitive dynamics are different in each, but we believe we provide sort of the only comprehensive portfolio across the three categories.

Okay. So you talked about the investments in R&D and how are you thinking about that mix of [indiscernible] pet versus livestock in terms of innovation because you are -- you do have initiatives there, but over the medium, longer term, how do you break those down? And then also talk about life cycle enhancement, which is very important in Animal Health and always underappreciated as well as new novel product launches.

Sure. So from an overall perspective, as I mentioned, the majority of our revenue today is within livestock. And so therefore, the majority of our R&D spend, which includes keeping products on the market from a regulatory perspective, life cycle enhancements as well. The majority of our R&D spend is within livestock. That being said, the percentage that has been going to companion animal has been increasing as we do have a number of products within development sort of in the early to mid-stages, and that will require additional expenses moving forward.

One of the things that we've done with the companion animal space to minimize risk, but also still leave plenty of reward moving forward is we partnered with a number of early-stage companies and a lot of the expense there is related to milestones upon success or hitting different clinical milestones. So -- and then obviously, there will be royalties upon commercialization as well. So from a percentage perspective, it's still more livestock, but there's more opportunity as well with companion animal, and there might be some future milestones upon success, which might increase that percentage moving forward.

How material are near term? I think about partnerships like Rejuvenate Bio for MVD that you have a partnership. Are there other areas that you would point to for potential important milestones or the time lines there on?

Yes. So one of the other spaces that we've been investing in from a companion animal perspective is the oral space. That's probably the closest term in terms of development. Also, we've been looking at pain as well as an area. You mentioned Mitral Valve Disease. We also have Lyme disease, which is probably a little further out within the development cycle.

Pain, would that be a monoclonal antibody or an anti-NGF?

We haven't disclosed the mechanism of action, but it would not be one of those two categories.

Okay. And then Rejensa. So you do have like an OTC joint supplement for dogs. How can you kind of build upon that? Any surprises, how that has performed relative to your expectations?

Yes. So Rejensa has performed in line with our expectations. One of the things that we've seen is many of the other products in the category, the growth has slowed pretty significantly with some of the advancements within the pharmaceutical space. Yet Rejensa has been able to continue to grow.

Initially, when we launched the product, we launched it with one distributor. We expanded it to another distributor as well, and we're seeing continued growth. It still remains relatively small. It's less than 1% of overall company revenue, but we continue to see it grow. Really, the intention there was to start within companion animal, get exposure, start to build that within our company. We do have some part-time sales force as well that helps supplement the distributor that as new products come along, we believe we could add to their portfolio.

And I mean, I assume you're taking a diligent approach. I mean, you're coming from -- you'd be competing with others that obviously have size and scale across this category. But at the same time, you see a compelling opportunity. How do you choose what are the right assets to go after from a companion animal perspective? How measured of an approach are you taking in terms of some of these launches or partnerships or investments that you're making in the space?

Yes. So as you mentioned, it's important that we take a very measured approach in how we go about it. We're really looking at products that are not me-toos, that have a real unmet need to be fulfilled or that might have differentiation within the marketplace.

And then upon success, we need to be diligent in terms of how we're going to come to market, right? We currently don't have a large companion animal field force. Obviously, at the beginning, we'll need to work with distributors. Depending on the size, scale, opportunity for the product, we'll then have to evaluate whether or not we want to further build our own internal field force or whether or not we want to continue to work through distribution channels. But those are all things that the product profile, the size of the market will dictate moving forward.

Now with the Zoetis transaction, how much is going through distribution now because some of those did go direct to some producers, right? Like so where -- and maybe that goes back to my question on sort of the sales force [indiscernible] over a little bit. But yes, what's the mix of the business there? And how much do you leverage or value distribution? And where do you leverage it and where do you don't?

Yes. So obviously, distribution is a key partner across the livestock space, and it varies by species, right? So cattle and dairy is a little more dispersed in terms of the number of customers that you need to reach and to ship to as well. So we do definitely leverage distribution, both from a logistics perspective as well as a customer contact perspective. But we do have our own field force that we believe are the key drivers of generating demand for both categories.

And as you know, poultry and swine are a little more consolidated from an industry perspective. So you have key account managers that are talking to many of the key leaders within that industry to help drive demand. To the extent that distribution is required from a logistics perspective, obviously, we'll partner there as well. But primarily, it's our field force that is out there on a daily basis in the livestock space that is driving demand.

What surprised you, I guess, the most in terms of the Zoetis transaction? Like where -- it's clearly operating kind of an -- even better than planned. But was it operationally different under Zoetis than it is under Phibro?

So I think the thing that's operationally different is these products are sort of key to our portfolio. When we have a key account manager or sales representative out there interacting with the customer, these are key products that are being highlighted in those discussions with our customers, whereas if it was part of a bigger, broader portfolio, these products weren't getting necessarily the same attention that we're able to provide.

I think that one of the things that surprised us as we go to industry conferences, as we talk to customers, they're very pleased to see these products in our hand, to see the products getting the attention that they deserve because they believe that these products are critical to their production practices. So very positive reception from the customers with these products now being part of the Phibro portfolio.

And then with the Phibro Forward initiatives and everything you're doing in terms of product mix as well as innovation and investments that you're making, I guess, how do you think about long-term margin profile for the business? I mean we're still, I guess, below some of the peak levels that we saw, but the mix is different. So tell us a little bit about kind of how we should think about the long-term margin trajectory.

Yes. So I think when you look at the fiscal year '26 guidance, if you take the midpoint of the range, our EBITDA guidance probably starts to exceed where we might have been back in 2018 or so when they were at higher levels. So I think when you look at the long-term margin profile of the company, one of the things that we're focused on is making sure that we continue to provide a leveraged P&L, that we're continuing to drive revenue growth, but that we're continuing to drive income growth at a faster pace than revenue. And that, by default, means that you're going to be producing higher margins.

We don't specifically have a margin target, though, because I think sometimes that could lead to bad decision-making. And the example I'll give there is if we have a significant opportunity in the Mineral Nutrition business that doesn't require any additional corporate overhead, we're going to go after that opportunity. It's going to drive additional EBITDA. It might be negative to EBITDA margin, but it's going to drive additional EBITDA growth, and it will be the right thing to do. So we're really focused business on business, how do we drive the greatest EBITDA growth. And I think by default, that's going to lead to higher margins over time.

And speaking of going after new opportunities and investments in other areas, what are you looking at? And from a capital deployment standpoint, what are your priorities in terms of balancing that with deleveraging?

Yes. So you mentioned deleveraging. As we did the Zoetis acquisition, we had targeted a net leverage ratio of below 3 by fiscal year 2027. We've already achieved that target in fiscal year 2025, which was a very positive contribution from the acquisition. So that gives us a lot of flexibility as we move forward.

The capital allocation priorities, obviously, first, to invest in the business to make sure we're making the most of our business, be that in R&D, be that in marketing, be that in increasing the sales force to drive additional EBITDA growth. Second, we'll look at business development opportunities. And we look across all stages, whether that's early stage as we've done in companion animal for new product introductions or whether that's more existing products that will complement our portfolio.

We'll continue to support the dividend. We'll continue to pay down debt. Obviously, we have some mandatory debt repayments that we're in a very good position to continue to support. And we think we're in a good position to effectively support the business internally, look for opportunities externally, pay down debt and continue to support our dividend.

Okay. Great. Thank you so much for your time. I really appreciate it. And yes, always a great conversation.

Thank you. Appreciate it, Erin.

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 Fourth Quarter and Fiscal Year 2025 Results Webcast and Conference Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions].

I would now like to turn the conference over to Glenn David, Chief Financial Officer. Please go ahead.

Thank you Regina. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal Fourth Quarter and Full Year ending June 30, 2025. My name is Glenn David, and I'm 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; Donny Bendheim, Director and Executive Vice President of Corporate Strategy; and Larry Miller, Chief Operating Officer.

Today, we will cover financial performance for our fourth quarter and full year 2025 and provide financial guidance for our fiscal year ending June 30, 2026. At the conclusion of our remarks, we will open the line 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 Investors section of our website, you will find copies of the earnings press release and annual Form 10-K 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, Other income expense is separately reported in the consolidated statement 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. Jack?

Thanks, Glenn, and good morning, everyone. I'm pleased to report another strong quarter and a standout finish to fiscal 2025 for Phibro Animal Health. Our results this quarter reflected continued momentum across the business, led once again by Animal Health, where we saw a 53% sales growth and a 47% increase in adjusted EBITDA.

Within Animal Health, our MFA and other portfolio bolstered by the Zoetis MFA integration grew 77% in the fourth quarter. Nutritional Specialities and Vaccines also delivered solid gains of 11% and 21%, respectively. These results underscore the strength of our diversified portfolio and the value we're delivering to customers across geographies and species. Looking at the full year, Animal Health sales rose 36% with adjusted EBITDA up 53%. MFAs and other grew 54%, while Nutritional Specialties and Vaccines increased 9% and 13%, respectively. Our Legacy Animal Health business contributed meaningfully with a 7% growth for the year, once again outpacing the growth of the underlying industry.

Beyond Animal Health, we saw continued growth in Mineral Nutrition and Performance Products, both in the quarter and for the full year. Consolidated sales were up 39% in the fourth quarter and 27% for the -- while adjusted EBITDA rose 49% and 65%, respectively. Highlighting the operating leverages we're achieving through disciplined execution.

Going to guidance of fiscal year 2026. Outlook reflects continued confidence in non trajectory. We're projecting net sales between $1.425 billion and $1.475 billion. Adjusted EBITDA of $225 million to $235 million and adjusted EPS of $2.52 and $2.70. These targets are granted in the strength of our portfolio and the momentum we've built. They also reflect the tangible impact of our Phibro Forward strategy. We made deliberate investments in scaling operations, strengthening our global footprint and enhancing our innovation pipeline. While it's a long-term initiative, we're already seeing benefits in how we operate and deliver value.

I'll now turn it back to Glenn for more detail on our performance and guidance, and I look forward to your questions at the end.

Thanks, Jack. And starting with our Q4 performance on Slide 4. Consolidated net sales for the quarter ended June 30, 2025, were $378.7 million, reflecting an increase of $105.5 million or a 39% increase over the same quarter 1 year ago. The Animal Health segment grew 53%, while Mineral Nutrition grew 3% and Performance Products segment grew by 13%. GAAP net income and diluted EPS increased significantly driven by the successful integration of the new MFA business, increases in demand, improved gross margin 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 fourth quarter adjusted EBITDA increased $16.5 million or 49% versus prior year. Adjusted net income and adjusted diluted EPS both increased 39%, increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense.

Moving to the full year. Consolidated net sales for the year ended June 30, 2025, were $1.296 billion, reflecting an increase of $278.5 million or a 27% increase over the prior year. The Animal Health segment grew 36%, while Mineral Nutrition grew 4% and Performance Products grew by 19%. GAAP net income and diluted EPS increased significantly driven by the successful integration of the new MFA business, the initiative -- initial positive impact on Phibro Forward initiatives and favorable gross profit due to higher product demand in the Animal Health segment, partially offset with increased SG&A due to higher employee-related costs and higher interest expense.

After making our standard adjustments to GAAP results including acquisition-related items, foreign currency losses and certain one-off items, full year adjusted EBITDA increased $72.4 million or 65%. 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 $292.5 million net sales for the quarter, an increase of $101 million or 53% versus the same quarter prior year. Within the Animal Health segment, we reported Legacy MSA net sales declined of $4.6 million or a decline of 4% due to timing of specific customer orders and strong performance in Q4 last year. The new MFA business contributed a full quarter of sales of $94.5 million, driving the total MFA and other growth to 77%.

Nutritional Specialties net sales increased $4.6 million or 11%, mostly due to higher demand for microbial and companion animal products. Vaccine net sales growth of $6.6 million, a healthy 21% increase, driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $60.6 million, a 47% increase driven by the new MFA business, higher gross profit from improved mix in the Legacy business partially offset by higher SG&A.

Moving to full year performance for Animal Health on Slide 7. The Animal Health segment posted $962.8 million in net sales for the year, an increase of $256.3 million or 36% versus the prior year. Within the Animal Health segment, we reported Legacy MFA and other net sales growth of $17.6 million or 4% due to demand in both domestic and international regions. The new MFA business contributed $208.2 million in sales in an 8 months post acquisition in fiscal year 2025, driving the total MFA and other growth to 54%.

Nutritional Specialties net sales increased $14.6 million or 9%, primarily due to increased domestic demand for dairy and higher sales microbial and companion animal products. Vaccine net sales growth of $16.3 million, a 13% increase, driven by continued growth of poultry products in Latin America and decreased domestic demand for swine products. Animal Health adjusted EBITDA was $222.3 million, a 53% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A.

Moving on to fourth quarter financial performance for our other business segments on Slide 8. Starting with Mineral Nutrition, net sales for the quarter were $64.2 million, an increase of $2.1 million or 3% due to an increase in demand for copper and trace minerals. Looking at our Performance Products segment. Net sales of $22.1 million reflects an increase of $2.5 million or 13%, primarily because of higher demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were nearly the same as the prior year. Corporate expenses increased $2.9 million driven by higher employee-related costs and strategic investments.

Moving on to the full year financial performance for our other business segments. Starting with Mineral Nutrition. Net sales for the year were $253.2 million, an increase of $9.6 million due to increase in demand for copper and trace minerals. Mineral Nutrition adjusted EBITDA was $20.8 million, reflecting a year-on-year increase of $4.4 million or 27% driven by increased gross profit.

Looking at our Performance Products segment. Net sales of $80.2 million for the year reflects an increase of $12.6 million or 19% as a result of higher demand for the ingredients used in personal care products. Adjusted EBITDA was $10.5 million, an increase of $2.8 million versus the prior year. Corporate expenses increased $11.5 million due to higher incentive-related employee costs and strategic investments.

Turning to key capitalization-related metrics on Slide 10. We generated $43 million of positive free cash flow for the 12 months ended June 30, 2025. We generated $80 million of operating cash flow and invested $38 million in capital expenditures. Cash and cash equivalents and short-term investments were $77 million at the end of the year. Our gross leverage ratio was 3.1x at the end of the fourth quarter based on $725 million of total debt and $231 million of trailing 12-month adjusted EBITDA.

Our net leverage ratio was 2.8x at the end of the fourth quarter, based on $648 million of net debt and $231 million of trailing 12-month adjusted EBITDA. Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis medicated Feed Additive portfolio, 4 months of Zoetis history and 8 months from Phibro ownership.

In September of 2024, we entered a new swap arrangement for $150 million at a fixed rate of 3.18% plus applicable margin that runs through September 2029. In March of 2025 we entered a new swap arrangement for $275 million at a fixed rate of 3.64% plus the applicable margin that runs through February 23. In March 2025, we also entered into a Forward-Starting Interest Rate Collar starting in July 2025 for $250 million with an interest rate cap and floor of 4.75% and 1.99%, respectively, through June 2026.

Turning to dividends. Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate. Now let's turn to Slide 11, which lays out our guidance for fiscal year 2026. Please note that this guidance includes a full 12 months of the Zoetis Medicated Feed Additive portfolio. Also included in this guidance for fiscal year 2026, our 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 consists of onetime consulting fees. This 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.

Our guidance for fiscal year 2026 is as follows: Net sales of $1.425 billion to $1.475 billion. This represents a growth range of 10% to 14% at a midpoint of approximately 12%. Total adjusted EBITDA of $225 million to $235 million. This represents a growth range of 22% to 28% at a midpoint of approximately 25%. Adjusted net income of $103 million to $110 million. This represents growth of 21% to 29% with a midpoint of approximately 25%. GAAP net income and EPS assumes constant currency and no gains or losses from FX movements.

Also included in our GAAP net income and EPS are onetime costs related to our Phibro Forward income growth initiative. In closing, we are excited about the strong performance we saw throughout fiscal year 2025 and the momentum we are carrying into fiscal year 2026. We are confident in the demand for our products around the world, and look forward to seeing continued improvement in our business as we move forward in the coming months.

With that, Regina, could you please open the line for questions.

[Operator Instructions] Our first question will come from the line of Erin Wright with Morgan Stanley.

Great. What does guidance now assume in terms of the underlying organic growth? And can you speak to some of those key headwinds and tailwinds embedded in your guidance assumptions for 2026?

Sure. Thanks for the question. So in terms of underlying organic growth, -- there are a number of things that are driving the sales performance as we move into fiscal year 2026. Obviously, the full 12 months of a Zoetis versus 8 months is a key driver. But in terms of the underlying growth for the Legacy business, we're essentially assuming what we see more in the long term.

We look at our MFA business sort of growing in that flat to low single-digit area. And then we expect accelerated growth or continued higher levels growth in both vaccines and Nutritional Specialties and both of those businesses performed particularly well in fiscal year 2025. We expect them to continue to perform well in fiscal year 2026. However, parts, particularly our vaccine portfolio grew over 13% this year. We do expect that to start to stabilize a little bit, but still provide significant growth as we move into fiscal year '26.

Okay. Great. And then on Phibro Forward, can you quantify anything for us in terms of your expectations there and what's ultimately kind of dropping through in terms of cost saves and what some of the key low-hanging fruit areas are for you there? And then also kind of on the cost side, some of the strategic investments that you're making. Could you expand a little bit on that? Is it more about global expansion efforts? Or is it more focused on innovation, any of that more onetime in nature? Or how should we think about those investments going forward?

Yes. Thanks, Erin. So I'll address the first part of your question, and then I'll let Donny address some of the strategic investments that we're making. In terms of Phibro Forward, we saw contributions from Phibro Forward in fiscal year 2025. And and that helped generate the significant earnings growth that we've seen on top of a lot of the other areas that we talked about as well.

We expect that to continue as we move into fiscal year 2026. When you look at the guidance range for EBITDA, for example, it's a growth of anywhere from $40 million to $50 million. And as we look at that, a good part of that growth is coming from the annualization of the Zoetis portfolio, but the remainder comes from contributions to the legacy business and contributions from Phibro Forward as well. The other thing is we look at Phibro Forward, we expect that to peak in fiscal year 2027. So we do expect it to continue to be a driver of growth as we move into fiscal year 2027 as well. I'll let Donny talk about some of these strategic areas of investment.

Yes. Thanks, Erin. So Phibro Forward really is across the entire business. And on the sales side, it involves customer-related focus. It involves CRMs, building up our churn desk, for instance, looking at customers. In other areas, it would cover areas like setting up a global procurement organization. So we've never -- previously, we had not had a global procurement organization and it was more regional. We have now stood up a global procurement organization.

So I think that's giving you a color of the cross organization. It's not onetime. It's -- it's embedded in the SG&A numbers that you're looking at. There are areas on the R&D side as well. But again, those are more kind of baked into the business as opposed to onetime increasing our focus across the business. Both on the livestock business as well as companion animal, and we see opportunities there still. So I think it's an inflection point for our business. And as Glenn said, we'll see even more in 2027, and we hope to embed it within the business itself and to continue to see growth in the years to follow.

Our next question comes from the line of Ekaterina Knyazkova with JPMorgan.

Congratulations on the results. So first question is on the Zoetis Medicated Feed Additive business. You had the asset, I think, for several quarters now. Just where are we in terms of the integration process? And is there anything kind of that you guys are still working through anything kind of left for you to do. And as you've kind of been going through the process, are you seeing any areas where you can kind of maybe put additional resources behind the portfolio, both on the manufacturing side and the commercial side.

And on second question is just around tariffs. Can you just remind us what you're investing in terms of the impact this year and maybe specifically talk about kind of the Brazil side, which just kind of given some of the headlines.

Thanks, Ekaterina. So I'll talk a little bit about the Zoetis integration, and Larry will join in as well and then from a [ tower ] perspective. So in terms of the Zoetis integration, where we had 8 months of results in this year and we're another 2 months in now at this point. And the integration is going very well.

So all of the major system implementations are now complete, and we continue to progress in terms of doing the market trend positions and authorizations across the globe. We're pretty much operating independently for about 90% of the revenue. At this point in time, there are a number of markets that still need to transition over the next few months, but we expect to be operating fully independently by calendar Q4 this year. So everything is going very well and according to plan and all of the major integration items have been -- been complete or on schedule. I'll let Larry talk to a little bit of additional resources.

Yes. So again, we're seeing opportunities that the -- we have -- we're exposing our current products to new markets and new customers, particularly in areas like Asia, Western Europe and also this allowed us to entry into the US [indiscernible] cattle segment. So that has really helped us bring not only the acquired products, but also the combined basket of the type of solutions that we can bring to our customers. And so we are seeing some geographic as well as some market segment expansion opportunities.

And in terms of tariffs, Ekaterina. So our guidance does include tariffs as we know them today. Any significant changes, any changes in pharmaceutical tariffs or things of that nature are not fully embedded in the guidance. That being said, obviously, we have a guidance range, and we could probably accommodate some of that, but any major shifts have not been accounted for in the guidance.

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

Congrats on a strong end to fiscal year '25. Starting on the '26 guide, maybe just a follow-up on an earlier question. You did a $208 million from the Zoetis MFA contribution in 2026. So should we be assuming about $100 million in fiscal year '26 of inorganic contribution before terms organic from those first 4 months. And additionally, if you could say anything, Glenn, in terms of how much of the EBITDA and EPS -- adjusted EBITDA and adjusted EPS in 2026, is some of that lapping of the last 4 months before it turns organic -- just we can break that out.

Sure. Thanks for the question, Mike. As you said, we did $208 million in fiscal year '25. We initially guided to about $200 million. So we're pleased with the results that we saw in fiscal year '25 to the Zoetis MFA portfolio. Within that $208 million, as we talked about previously, the first few months, there was some destocking. So if you get a run rate out another 4 months would probably be a little higher than just half of the $208 million. When you look at the contribution from Zoetis to the EBITDA, as I mentioned, when you look at our current guidance range, it implies anywhere from, call it, $40 million to $50 million in incremental EBITDA next year. I would say at least half of that is coming from the contribution of having the full 12 months of Zoetis versus 8 months in fiscal year 2025. And the remainder comes from the growth in the legacy business and the contributions that we're seeing from Phibro Forward. .

Okay. That's really helpful. And then for a follow-up, I want to go back to last year, the Animal Health business. 7% overall -- I'm talking about the legacy business, to be clear. 7% total growth, 4 MFAs, 9, 13 Nutritional Specialties Vaccines. I think as you answered earlier to Erin's question, Glenn, those are really strong numbers, and it sounds like your assumptions for going forward are just a little bit more sort of back to historical trends for MFAs maybe a little bit more low single digits, maybe a little bit more high single digits, 10% for MFA and vaccines.

So could you just talk about what worked so well for you in fiscal year '25 -- why were you able to execute so much better to hit that 7% in Animal Health this past year? Any specific drivers you could call out? Or just sort of what drove that outlet performance.

Yes. So I'll start just from a number perspective, and then I'll have Larry add in a little more strategic color, I think one of the things to look at from a number perspective, particularly when you look at the MFA growth that we saw this year is when you look at fiscal year 2024, the start to fiscal year 2024 was pretty subdued from an MFA perspective. So the comparators that we had this year helped enable stronger growth for the overall year, sort of seeing, as you mentioned, a little above what we typically see with the 4%.

I think some of that was driven by a weaker comparator to last year, whereas going into fiscal year 2026, we had strong performance this year from the MFA business, which is why we expect slightly slower growth as we move into fiscal year 2026. Larry if you can add additional color.

Yes. In addition to the MFAs, we saw very continued strong sales growth and demand for our vaccines really across all of our geographic regions and also growth in our Nutritional Specialties products. That growth in both of those segments has come through some new product introductions in countries, but also penetration.

Our next question will come from the line of Navann Ty with BNP Paribas. .

Sorry if I missed it, but can you discuss the expected of the the Legacy MFA business? Or what are your expectation of the land market growth? And are you expecting the Legacy to company's market growth here? And also, have you seen any pull forward ahead of tariffs in international in the quarter?

You're a little hard to hear at the moment, but I'm going to try to interpret what I think the question is. So in terms of the expectation of the legacy MFA business, as we said, this year, we had strong growth 4%. We generally expect that market being a very mature market to grow sort of flat to low single digits, and that's the expectation that we have built into our guidance for fiscal year 2026.

I think your questions around tariffs were there any pull forward ahead of tariffs into fiscal year 2025. And obviously, from an inventory perspective, a core opportunities for us to purchase inventory in advance of any potential tariffs.

We took advantage of that where we could. But from our sales perspective, we don't believe that there was any advancement of sales and the sales that we had for Q4 fiscal year 2025 represent a good reflection of underlying demand.

And that will conclude our question-and-answer session. I'll hand the call back to Glenn for any final comments.

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

And this concludes today's call. Thank you all for joining. You may now disconnect.