Phibro Animal Health (PAHC) Q4 2026 earnings call transcript

Thank you, Regina. Good day, and welcome to the Vibro Animal Health Corporation earnings call for a fiscal fourth quarter and full year in the June 30th, 2026. My name is Glen David, and I'm the Chief Financial Officer of Vibro Animal Health Corporation. I am joined on today's call by Donnie Bentime, President 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, P-A-H-C.

com. Also, on the investor's section of our website, you will find copies of the earnings press release in annual form 10K, 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 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, Bonnie Bentime, to share his opening remarks.

Thanks, Glenn, and good morning, everyone. Fiscal 2026 was a strong year for five-row. We delivered record net sales of more than in the fourth quarter, sales grew 5%, and adjusted EBITDA grew 29%. More importantly, these results reflect the 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 experienced continuing sales momentum throughout the year. Our total legacy business grew 10% in the fourth quarter and 7% of the full year. Minimum nutrition delivered particularly strong performance. With sales increasing 20% in the quarter and 11% of the year. Growth came from multiple parts of the portfolio and reflect the benefits of serving as diverse set customers, species, and end markets. Annual health, our core business, remains the primary growth engine.

Our legacy annual health business grew 8% in the quarter and 7% of the full year. Legacy MFA's increased 11% in the quarter, while nutritional specialties and vaccines grew 5% and 4% respectively. To the full year, legacy MFA increased 4%, nutritional specialties increased 9%, and vaccines increased 14%. Sales from the acquired Zwes MFA 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 benefit that position 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. June marked the formal conclusion of five or four or three year transformation programs. While the program has for the most part ended, the capabilities they created remain embedded throughout the organization. The stronger execution, accountability, and discipline develop through five or four 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 plan 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 it is certainly not a reflection of their dedication and 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 Mison and 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 Mison and 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 that 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 with tenure as CEO, my priorities are straightforward. Server customers, advanced innovation, improved operating performance, allocate capital with discipline, and create long-term value for all stakeholders. We answer 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 saying 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 read value. We've made significant progress over the last several years, but I believe our best opportunities remain ahead of us.

With that, we turn the call back to Glenn.

Thanks, Don. I'm starting with our Q4 performance on slide 4. Consolidated net sales for the quarter ended June 30th, 26, 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%. Gathnet income and deluded EPS increased 26% during 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 Gath results, including acquisition-related items, foreign currency losses, and certain monovitums, the fourth quarter of adjusted EBITDA increased $14.3 million, or 29% versus prior year. Adjusted net income increased 37%, and adjusted deluded EPS increased 35%. Increased gross profit driven by sales growth and 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, for $1,518 million, 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%. Gath net income and deluded EPS increased significantly, driven by the successful integration of the new MFA business, the positive impact of a private forward 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 employee-related costs and higher interest expense. After making our standard adjustments to Gath results, including acquisition-related items, foreign currency losses, and certain one-off items, full year adjusted even to increased $71.3 million, or 39%. Adjusted net income and adjusted deluded 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 the animal health segment hosted $297.6 million net sales per the quarter, an increase of 5.1 million for 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 comparator order in Q4 2025. Nutritional specialties net sales increased $2.5 million, or 5% due to increased dairy demand in North America.

Facting net sales growth of $1.5 million or 4% are rarely due to continued growth of poultry products in Latin America and higher international demand, particularly in Israel.

Animal health adjusted even done 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 high-res tuning, moving to full-year performance for animal health on slide 7. The animal health segment posted $1.162 million of net sales for the year, an increase of $199.4 million for 21% versus the prior year. Within the animal health segment we reported, legacy MFA and other net sales growth of $18.2 million for 4% due to demand for certain MFA's in Mexico and Southeast Asia, and for products sold by our ethanol performance business, including ethanol curovials 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 even though was $303.6 million, a 37% increase, driven by the new MFA business, high birth profit from improved mixed and legacy business, partially offset by higher SG&A.

Moving on to fourth quarter financial performance for our other business segments on slide eight, starting with mineral nutrition, net sales for the quarter were $77 million, an increase of $12.8 million for 20%, due to a combination of demand for pre-mixes and an increased cost of underlying commodities like zinc and copper. Looking at a performance product segment, net sales of $22.2 million, an increase of $0.1 million, or 1% primarily as a result of increasing demand for copper-based products offset by lower demand to the ingredients used in personal account products. Mineral nutrition adjusted even to increased 1% versus prior year with revenue growth offset by higher input costs, while performance products adjusted even to 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% 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 reflected 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. We generated $69 million 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 trailing 12-month adjusted EBITDA. Returning to dividends, consistent weather 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 fiber 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 Mayans in Brazil. Minimal sales of Virginia Mayans 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 unobserved 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 $15-20 million on an annual basis. Please note that during the transition period of fiscal year 2027, we will be building some additional inventory of the site, but 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 million to $1,600 million. 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 improving versus fiscal year 26 is driven by an anticipated favorable mix of earnings. Adjust the net income of $140 to $147 million. This represents a growth of 6% to 11% with a midpoint of approximately 9%.

Gap net income and EPS assumes constant currency and no gains or losses from effects moves. In addition, gap net income and EPS does not currently reflect any one-time costs related to 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 will build in 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 even to grow to be negative and then positive for the rest of the year. In closing, we're excited about the strong performance we saw throughout fiscal year 2026 and 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.

Thanks for the question, Erin. So the Q port decline in the Zweta SMA portfolio was something we always anticipated and expected as part of our forecasting and really is driven by the difficult compared to the Q4 in last year versus any negative underlying growth trends. We really continue to believe this portfolio will outpace the overall revenue growth for five growth in fiscal year 2027. And some of the positive drivers are continuous trauma, 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 even though. And maybe Larry can add some more color to some of the commercial drivers.

Sure, thanks. In poultry, key part of the acquisition was a very strong Anacic City MFA portfolio that really complements our legacy products and gives micro a broad set of molecules across several compound classes for strategic rotation programs. Our team has integrated these MFA 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. But with tech is the platform supporting higher feed intake, complimented by Decox for Coxiosis 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.

So again, we're investing in this portfolio. Again, the medicated feed adives and complimented with the nutrition specialties and vaccines. As you know, the market demand and the meat sector and the dairy sector continue to be 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 well-being 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 in a good market environment.

Yeah, so the exposure to Virginia Mises is isolated to Brazil related to the therapeutic claims. In fiscal year 2026, we had about $27 million in sales related to Virginia Mises in Brazil. We are assuming very minimal sales in fiscal year 2027. Essentially, we had some sales in the first couple of months of the year, but we don't expect any sales post that once the therapeutic period. And 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 the sales overall for the company.

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

As far as business development, sir, you know, I think we have, 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 complement our internal targets, we're obviously looking and we're active. It's a reminder, you know, kind of vaccines and nutritional specialties are the two areas that we most focus on. And as we've also obviously identified pets, the companion animal as an area, as well as as climate. So I think those are, you know, the key areas that we're pursuing. And, you know, 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. Yeah, 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. Virginia Miason is a very unique and important therapeutic product in helping our customers keep their cattle and poultry flocks healthy and protecting their investment. Yeah, I think the issue that Brazil is facing with, just particularly, is the EU put in some new regulations as far as the ability of countries to sell to the EU.

And some of them deal with hormones, some of them deal with antibiotics. There are other countries, there are many other countries that have permission to sell the EU that have Virginia Miason for therapeutic claims. And Brazil is aware of that and understands that 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 the first round on Central Round will be a couple of weeks after that. So while we're again optimistic that we can get this done within the, or cautiously optimistic that we can get this done within the period of the 180 days, I think, you know, prudently we're saying, hey, this might slip 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 therapeutic claim eventually.

Yeah, thanks for the question, Daniel. I agree that free cash flow was limited in 2026 with about $10 million in free cash flow. Now, as you mentioned, this was greatly impacted by the inventory bill due to the ZOIS Potter portfolio of about $86 million. The good news is that inventory bill is stabilized in Q4. And for fiscal year 2027, we really do expect any inventory bill to be limited to the Chicago Heights transition. We expect to be that in the range of $25 to $30 million.

Also, as part of our five or four initiative, we have enhanced our focus on inventory as a company and become a Lansing more robust SMOP processes across the organization. Related to CapEx, we spent about $59 million in CapEx and 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 ship 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.

Yeah. So in terms of the overall one-time cost, and it's real difficult to estimate the exact amount based on what the ultimate end will be for the site in terms of whether it's, you know, purchases and ongoing consideration or not. In terms of some of the cash costs, you know, 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, you know, non-cash costs, assets, right, those things of that nature, they're still unknown as well as the, you know, ultimate purchase of value of the site as well. But cash costs, you know, relatively, you know, smaller in terms of around $10 million cash one-time cost and then CapEx around $10 million as well.

Yeah. And in terms of the impact between fiscal year 2027 and fiscal year 2028, as we're beginning the process right now, as we mentioned the prepare remarks, the impact in fiscal year 2027 will be relatively minimal to to adjusted even though it's a small positive contribution. As we said in the prepare 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.

Sure. There's all stars, man. I'll let down. He had some some additional colors. So, hey, you know, 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 and fiscal year 2728, rebuilding, you know, regarding building capacity out of vaccine 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, you know, continues to be business development and looking to expand in areas of higher growth and margins, such as vaccines, environmental, companion animal. And 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, you know, continue to evaluate other options, depending on the revenue, additional color. 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, you know, investment, either capital or opex. And that is going to be our first priority. And, you know, we think that that's the prudent way to go here. There's a lot to do with them within what we have.

Yeah, so I'll start my thanks to 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 even to growth, it was much slower, 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 100% in this year. So the even to growth didn't necessarily follow. We do expect actually stronger even to growth next year with potentially lower revenue growth, not necessarily in that, you know, called it 11% range that we see year to date.

So somewhat slower revenue growth, but more even to growth following forward.

Yeah, so I'll think that thank you. You know, I think the company has really changed within fibro 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 fibro forward. And we set ourselves some fairly lofty goals. And, you know, we expect to deliver on it because we've seen that we can't. So there's not to be a formal transformation program, but there is, you know, the learnings and the way that we operate will continue. And we put together, you know, 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.

Yeah, so I'll take that the last time, actually, because Glenn's taken over this business. But the, you know, that actually was called out in artificial specialty as far as why I was up was partly because of companion animal. So we continue to see growth, especially with regents, as we've broadened from initially, we had one distributor. Now we've broadened that to multiple distributors. And we're seeing a nice uptick with that. With restorists, 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 are able to show from real use cases, the stronger our proposition, the product, you know, really does what we say it does. And so, while disappointed with our performance last fiscal year and, you know, in this fiscal year, we've tempered our expectations within our guidance. We do believe that this is something that really could do very well for us as we move forward.

Thanks for the question. This will initially have very modest impact on U. S. beef production in 2026 by an increasing 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 face approach with veterinarian inspection to each animal. The first port of entry opened last week for cattle coming across to 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 about 1.2 million head per year, that equals about 3% of the U. S. 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 27 million head fed for slaughter in the United States. And the consistency of supply, uniformity and quality is adding significant value to the U. S. beef industry.

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