Phibro Animal Health (PAHC) Q3 2026 earnings call transcript

Thank you, Regina. Good day and welcome to the Phyro Animal Health Corporation Earnings Call for a fiscal 3rd quarter ended March 31, 2026. My name is Glen David, and I'm the Chief Financial Officer of Phyro Animal Health Corporation. I'm joined on today's call by Jack Benton, Phyro Chairman, President, and Chief Executive Officer. Tommy Benton, Director and Executive Vice President of Corporate Strategy, and has previously announced our CEO designee, and Larry Miller, Chief Operating Officer.

Today, we will cover financial performance for our 3rd quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. After 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, KAC. com. Also, on the investor section of our website, you will find copies of the earnings press release and quarterly 410Q, 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 for US 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, so the most directly comparable US GAAP measures, are included in the financial tables that accompany the earnings press release.

We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual non-operational or non-recurring items, including thought-based compensation.

Other income expense is separately reported in the consolidated statement of operations, including foreign currency lawsuit gains net. And income tax is related to pre-tax income adjustments and unusual or non-recurring income tax items.

Now, let me introduce our chairman, president, and chief executive officer, Jack Bentang, 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 even to an increased 11% to $60 million. Animal health sales increased 13% with solid demand across MFA's, nutritional specialties, and vaccines.

This performance is all the more impressive, neutral, complex, broader protein background. And beef supply remains tight, which continue support prices. And dairy was saying early signs of stabilization, even as fat, have remained under pressure. And while coping 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 three updates, one touch on. First, Brazil and antimicrobial. Brazil has implemented a new regulatory framework that removes growth promotion and performance indications for certain antimicrobials, including within your mice and investment tracing, with a 180-day transition period. While we are working closely with regulators and industries who support an orderly transition and maintain continuity for customers, we are also engaged with MFA, the Brazilian regulatory agency, for several years on therapeutic registration, Virginia Mison, and cattle and broilers.

And those are in the final stages of review. So then we'll provide some framing of the dollar amounts later in the school, but I want to put this in context.

This change has been in motion, Brazil, for a long time. And what we're seeing now is a combination of processes that's been underway for years. In many ways, Brazil is catching up to regulatory approach that's already in place across the other major markets, which is why we view this as the last major shoot to drop in this area, not to start a new wave or changes.

Just as importantly, our history has shown that we emerge from these transitions stronger than when we enter them. Sometimes, that's why maintaining demand is products moved to therapeutics, and sometimes it's by winning shares, share with other parts of our portfolio, but the constant is growth. And as the market moves towards prescription-based use, a fiber of red 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, a sustainable solutions platform and veritain. We launch a new sustainable solutions platform and can introduce veritain, verify sustainably solutions to a partnership of access. The customer need is clear. Many are being asked or will be asked to show progress on supply-chaining missions and feed us off from the biggest level. What managed for adoption is practically solutions, and that can scale and fit into existing systems without requiring customers to overhaul their operations.

With still the only 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, and this is something I'm confident you'll be hearing a lot more from Donnie in the years to come.

Third, we strength and liquidity. We upsize and we rob and credit facility by $125 million to an over-subscribed process, further enhancing our financial flexibility.

Before I turn it back to Glenn, I want to close on a personal note. As previously announced, Donnie will assume the CEO role in July. Having we're closely with him in 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 the approach supporting Donnie in 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 support over the years. The thoughtful questions and the long-term perspective. And 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. I'm starting with a few brief moments on slide four. The solidated net sales for this order ended March 31, 2026, worth $383.5 million, reflecting an increase of $35.7 million or a 10% increase over the same quarter one year ago. The animal health segment grew 13%. While mineral nutrition grew at 10% and the performance project declined by 17%. Gap net income and delirid EPS increased, driven by favorable gross profit, partially offset by increased SG&A through the higher employer 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 31, 2026, as compared to June's $5.5 million for the three months ended March 31, 2025. Income tax expense decreased by a half million dollars.

After making our standard adjustments to gap results, including acquisition related items, foreign currency losses, and certain one-up items. The third quarter adjusted EBITDA increased $5.9 million or 11% versus prior year. Adjusting net income increased 19% and adjusted delirid 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 excitement 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 MSA net sales increase of 5% driven by demand in North America and certain antimicrobial sold by our ethanol performance business.

The new RFA business contributed a full quarter of sales of $95.9 million or 25% growth versus last year. Traditional specialty net sales increased $3.5 million or 8% due to increased demand in North America and higher imaginable sales.

Vaccine net sales growth of $5.2 million or a 16% increase driven by higher sales demand in Israel and higher sales or endogenous vaccines.

Animal health adjusted either to increase $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 other business segments on slide six. Starting with mineral nutrition, net sales for the quarter were $73.4 million and an increase of $6.6 million or 10% due to an increase in demand for zinc and trace minerals.

Looking at our performance product 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 getting 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. Now turning to key capitalization related metrics on slide seven. We generate $13 million positive free cash flow for the 12 ones ended March 31, 2026. We generate $66 million of operating cash flow and invest in $53 million in capital expenditures.

Please note that our cash generation has been negatively impacted by a build up of inventory in advance of tariffs and to meet increase in cost and demand. We expect inventory to stabilize in the common quarters. Cash and cash equivalents and short-term investments were $77.5 million at the end of the quarter. Our gross leverage ratio is 3.1 times at the end of the quarter based on $741 million total debt and $241 million in trailing 12 months adjusted EBITDA. Our net leverage ratio is 2.8 times at the end of the quarter based on $663 million of net debt and $241 million from trailing 12 months adjusted EBITDA. On interest rates, there are no changes to our current swap and greens.

Turning to dividends consistent with our history, we paid a quarterly dividend of $0.12 per share for $4.9 million in aggregate. As Jack mentioned, we also upsized our involvement by $125 million. This process was significantly oversubscribed reflecting our strong financial position.

Now, let's turn to slide 8, which lays out our guidance for fiscal year 2026. Based on our performance to date and prove 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 $1,450 million to $1,500 million to $1,460 million to $1,500 million. This represents a growth range of 34 to 39% and a midpoint of approximately 37%. Adjust the net income updated from a range of $120 to $127 million to $122 to $127 million. This represents growth of 44 to 49% with a midpoint of approximately 47%.

Dapnet income in EPS assumes constantly currency and no additional gains or losses from effects movements. Also included in our Dapnet income in EPS are one-time costs related to our five-year-old forward income growth initiative.

Regarding the Virginia Biasing in Brazil, sales of Virginia Biasing 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 six-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 headway for fiscal year 2027, we are confident with growth in our business and other areas will more than offset this impact. In closing, we are 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, Virginia, can you please open the lines for the questions? We will now begin the question and answer session. In order to ask a question, simply press star followed by the number one on your telephone keypad.

Donnie, I'll take the first question on sustainability. So on Veritain, the market potentially is huge. I think we talked about our press release, the sustainability market based on scope free pledges within the Fortune 500 measures in the tens of billions to hundreds of billions dollars. Obviously, that's not the market for this product. But it really depends on the ability of these companies that made these pledges to act on their pledges. And what's special about Veritain 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 product out there, you mentioned two, one of them is filled with ammonia. It's not really a greenhouse gas. It's not a carbon intensity product. It actually has ammonia as well. Production claims that's not really the competition. The other product is a methane reduction that is greenhouse gas. Obviously, it's a different form. There's plenty of room for both products. Our product works across species.

The methane product would be primarily for the dairy industry. So that would be the competitive profile there.

Yeah, in terms of the ability to kind of, so now our guidance that we have fiscal year 27 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've currently haven't seen much of an impact. So, you know, we think on the downside, that's a small risk, but our guidance range does incorporate that.

Yeah, so we didn't have any any pull forward in Q3. I think one of the things to know when you look at the growth ranges is particularly when you look at the comparators for 2025. So just for context, in Q3 or 25, we did $348 million of sales. The step up to Q4 or 25 was another $31 million to $379 million. So the comparator becomes a lot stronger between Q3 and Q4, which does impact the growth that we would expect in Q4. The other thing that I would mention related to the revenue guide and the implied Q4.

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.

Thank you, Regina. And thank you for everyone for listening in on today's call. We really appreciate the time, the interest and support of our Colorado Health Corporation. Hope you all have a great day.