Phibro Animal Health (PAHC) Q2 2026 earnings call transcript

Thank you, Regina, good day. And welcome to the Fiber Animal Health Corporation earnings call for a fiscal second quarter, ending December 31st, 2025.

My name is Glen David, and I'm the Chief Financial Officer for Fiber Animal Health Corporation. I am joined on today's call by Jack Bantime, Vibros Chairman, President, and Chief Executive Officer. Dondie Bantime, Director and Executive Vice President of Corporate Strategy, and has 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 30th, 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 investor section of our website, you will find copies of the earnings press release and quarterly form 10Q, 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 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 USGAP. I refer you to the non-GAP financial information section in our earnings press release for a discussion of these measures.

Reconciliation of these non-GAP financial measures so the most directly comparable USGAP measures are included in the financial tables that accompany the earnings press release.

We present our results on a GAP 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 incoming expense as separately reported in the consolidated statements of operations, including foreign currency losses, gains net, and income taxes related to pre-tax income adjustments in unusual or non-recurring income tax items.

Now, let me introduce our chairman, president, and chief executive officer, Jack Pentime, to share his opening remarks.

Thanks, Clang. In the second quarter, we deliver 26% growth in animal health sales and a 41% increase in animal health adjusted EBITDA. Criticine our strategy is working. Medicaid providers led with 30, 40, 34% growth supported by strong gains in increased specialties and vaccines. This reflects our continued success into bringing 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 product sector.

Consolidated sales were 21% in the second quarter, while EBITDA was up 41%. It's going to discuss in a more detailed, we're raising both our full year sales and earnings guidance.

These results are encouraging, but what impressed me just as much, and is what I would 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 thing to hear directly from the teams and customers while living this momentum every day. Earlier this month, more than 150 of our global leaders came together in Barcelona. A largest meeting of this kind is an over a decade.

The energy and alignment we're at standing, we've heard a consistent message across regions. Our teams remain deeply focused on customer partnerships, we're shopping on innovation agenda with strong global coordination, we're executing better and more consistently across the business, and the user across our leadership team has never been stronger.

I left Barcelona feeling incredibly proud about people and confident in the direction we're heading. When you see the level of alignment and enthusiasm from long-tenured leaders to new faces, tells you that the culture is strong and the strategy is working. Last week, I was in Atlanta for the IPBE, the annual Poetry Show. While it was a very cold Atlanta, the conversations there were warm and optimistic.

IPBE is always a great pulse check on the protein sector, and this year the tone was upbeat. Producers across poetry and broader protein markets have seen more stability. The bend remains strong. Customers are prioritizing performance, reliability and cost efficiency. All areas where we're delivering real value. And we heard a lot of positive feedback by 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.

Taking together with our financial performance while Solona and my PPE make it clear the part where it 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 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 of the board and the entire FIBO 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 five decades are the bedrock of this company.

I think his continued guidance experience is a significant advantage for FIBO and 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 individually. 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 a momentum and operational excellence. I'm stepping into this role as 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've felt at IVPE 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 FIBO, we see sustainability and profitability as one and the same. Better gut health, improve feed conversion and reduce disease pressure. Don't just support sustainability. They drive profitability. By investing in R&D and our initial capabilities, we are positioning FIBO to lead the next wave of breakthroughs in animal health.

These efforts are essential to our FIBO 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 to the quarter and our outlook for the remainder of the fiscal year. Glenn.

Thanks, then. Starting with our future performance on slide four, consolidated net sales for the quarter into December 31st, 2025, for $373.9 million, reflecting an increase of $64.6 million for a 21% increase over the same quarter one year ago. The animal health segment grew 26%, while mineral nutrition grew at 9%, and performance products declined by 10%.

Gap net income and deluded ETS increased significantly during by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, partially offset, but increased SGMA due to higher employee related costs.

After making our standard adjustments to gap results, including acquisition-related items, farm and currency losses, and certain one-off items, the second quarter adjusted EBITDA increased $19.9 million for 41% versus prior year.

Adjust the net income increased 60% and adjusted deluded ETS increased 58%. Increased gross profit driven by sales growth was partially offset by higher adjusted SGMA 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 for 26% versus the same quarter prior year.

Within the animal health segment, we reported legacy MFA's net sale decreased 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 American demand sedary.

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 of 41% increase. Driven by the new MFA business, higher gross profit from improved mixed in the legacy business, partially offset by higher STMA.

Moving on to segment quarter financial performance for our other business segments on slide six, starting with millionaire nutrition, net sales for the quarter with $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 product segment, net sales of $15 million reflects a decrease of $1.6 million for negative 10% as a result of lower demand for the ingredients used in personal care products. Mineral nutrition and performance products adjusted EBITDA were $6.4 million and $0.8 million respectively.

Corporate expenses increased $3.7 million driven by higher employee related costs. Starting to keep capitalization related metrics on slide seven, we generated $47 million of positive free cash flow for the 12 ones ended December 31st, 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 increase in customer demand. We expect inventory to stabilize in the coming quarters.

Fashion cash equivalents and short-term investments were $74.5 million at the end of the quarter. Our gross leverage ratio was 3.1 times at the end of the quarter based on $737 million for total debt and $235 million a trailing 12 month adjusted EBITDA.

Our net leverage ratio was 2.8 times at the end of the quarter based on $662 million of net debt and $235 million a trailing 12 month adjusted EBITDA.

On interest rates, there are no changes to our current swap of agreements. Turning to dividends consistent with our history, we paid a quarterly dividend of $0.12 per share for $4.9 million in aggregate.

Let's turn to slightly which lays out our updated guidance for fiscal year 2026. Based on our strong performance year date and continuing momentum, we are raising on revenue, EBITDA, and income guidance. Our guidance for fiscal year 2026 is as follows.

Net sales increased from a range of $1,425 million to $1,475 million to a range of $1,450 million to $1,500 million. This represents the growth range of 12 to 16 percent and a midpoint of approximately 14 percent. Total adjusted EBITDA increased from a range of $230 to $240 million to $245 to $255 million. This represents a growth range of 33 to 39 percent and a midpoint of approximately 36 percent.

Adjusted net income increased from a range of $108 to $115 million to $120 to $127 million. This represents growth of 41 to 49 percent with a midpoint of approximately 45 percent.

GAPnet income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAPnet income and EPS are one-time costs related to our five-row forward income growth emissions.

In closing, we're excited about the continued strong performance in fiscal year 2026. We're confident in the manner for our products around the world and look forward to seeing continued strong performance in our business.

With that, Regina, could you please open the lines for questions?

Sure. Thanks for the question, Katarina. So in terms of the gross margin, there are a number of factors that are driving it, you know, particularly in this quarter and also on a year-to-day basis as well. So, hey, we've been successful in taking the additional price, particularly on the Zweta's portfolio, which has exceeded our expectations and helps drive and prove margin. We've also seen very positive mix.

You know, we continue to see strong performance and 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 as helped. In the quarter, in particular, you know, 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 three markets to tier one 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 you'll 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, you know, the positive view that we have for the rest of the year. A strong revenue performance, as I mentioned, a 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, you know, as quite as much additional staff or resources to support your 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 out performance for the first half of the year, but also for our guidance for the full year.

Thank you.

Sure. So in terms of the customer timing that we mentioned for the legacy of 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 a 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 on the pay and as well as the MFA, as we move into the second half of the year, we'll have a full comparative, right? 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, you know, we expect this business to be a low to mid-single digit growth business.

Okay, got it. Thank you. That's super helpful. And then my follow-up questions on end markets. So they've been really favorable on livestock in recent quarters for very strong results. Can you just talk about how sustainable this is versus being a cyclical upside here? Thank you. Yeah, Larry, you want to address the protein markets and the sustainability?

Yeah, 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 expect to see a little bit of some shift, you know, in trade between certain countries, which is sometimes driven by tariffs and also some diseased 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.

Thank you. So, Larry, 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 anacic cideal range. We are able to offer a much more complete portfolio of offerings, particularly in broiler cock cideosis management.

Often people, you know, change and rotate every few months on these. So, it's allowed us to have more opportunities to participate in those anacicic cideal programs. We've also seen good growth in our swine and a right of business.

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.

I'll start on the drivers of this one. But Larry, if you could add as well, in terms of the app performance, I think it's been tremendous execution from the team in terms of the integration. We 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.

Larry, I don't know if you have additional things to add on this way to some FAL performance.

You know, I think our team has done a really good job of focusing on these. We've got a lot of shifts, particularly in segments. And people are, our customers are growing animals to larger, heavier harvest weights. And so that's changing from the dynamics that they have to deal with. And our team is really doing a great job in promoting the, in 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, you know, we're really seeing good receptivity from our customers. Obviously, the value of animals are at historic high. So customers are very interested in besting 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 Donnie 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 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 they're interested in these products, how they can fit and help themselves, the challenges that 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.

So Donnie, I'll take that. So we launched it obviously late last year, you know, 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 track, 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 we saw as offers.

Sure. So I'll start on the fiber 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. You know, we are now halfway through fiscal year 26. And we expect sort of the optimal, the max contributions coming from a full year fiscal year 27.

But say, you know, we're sort of halfway through the process. You know, we expect the contributions from 504 to continue to accelerate as we move through the end of fiscal year 26. And then, you know, we'll get a full annualization of benefits as we move into fiscal year 27. And that will be, you know, a key contributor to growth fiscal year 27.

I'll turn it to Donna. Is there anything additional to add?

Thanks, Glenn. You know, when I say it's five or four really touches upon all parts of our company. So there is the structural changes. And, you know, we're seeing it in our higher gross margin. I think we're seeing it in some of our revenue strategies. But, you know, 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, you know, the next era.

So that'll be more so going forward. So within this corner, it was a limited contributor. We'll expect, you know, 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.

Great. Thank you.

Thank you, Regina. And thank you, everyone, for listening in on today's call. We really appreciate your time, attention, interest, and support for our animal health corporation. Have a great day.