Q2 2021 Phibro Animal Health Corp Earnings Call
[music].
Yeah.
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the fiber on Animal Health Corp, Q2, 'twenty 'twenty One conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Damien Finial Chief Financial Officer. Thank you. Please go ahead.
Thank you Mariano good morning, and welcome to the Fibrose Animal Health earnings call for our second quarter ended December 31, 2020, I am Damian <unk>, Chief Financial Officer of Phibro, and I'm joined on today's call by Jack Manheim, Fibrous Chairman, President and Chief Executive Officer.
We will cover key themes for the quarter, our second quarter financial results guidance for third quarter, ending March 31, 2021, and then open the line to respond to your questions.
Before we begin let me remind you that the earnings press release and financial tables can be found on the investors section of our website at P. A H C dot com.
We're also providing a simultaneous webcast of this mornings call, which can also be accessed on the website.
Replay of todays presentation slides that accompany the presentation and a transcript of the call will also be available on our website.
On to slide two.
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.
Before we get into the numbers, we want to remind everyone that we present our results on a GAAP basis and on an adjusted basis. We present adjusted results that exclude acquisition related items unusual nonoperational or nonrecurring items, including stock based compensation and restructuring costs.
Other income and expenses separately reported in the consolidated statements of operations, including foreign currency gains and losses net.
And income tax effects related to pre tax adjustments and unusual or nonrecurring income tax items.
And now I'm pleased to begin today's presentation by asking Jack to share his opening remarks, starting on slide three Jack.
Thank you Damian welcome to your first Investor call as our Chief Financial Officer, and good morning, everyone.
Like to start today's call with four key themes for the quarter.
First we are excited about our second quarter and year to date financial results.
In the second quarter, although on a consolidated basis company sales decreased 4% diluted EPS increased 10% versus the same quarter last year the.
The decline in consolidated net sales were driven by a 5% decline on the animal health segment of our business.
<unk> 10 decline in mineral nutrition, while performance products net sales increased 8%.
Keep in mind, there was no COVID-19 impact on the prior year results, which is why I am pleased with our bottom line performance this quarter.
Second quarter performance also reflects growth over last quarter second quarter sales and diluted EPS grew 6% and 7% over last quarter respectively.
These are solid GAAP financial results in a tough market.
Second we are encouraged by signs the industry stabilizing despite the continued global pandemic.
The world and more specifically the animal health industry of money to cope with the ongoing impacts of COVID-19.
In our own business, we're learning new ways to service, our customers and what.
And what were new safety protocols on our production facilities about a year ago and now just part of everyone's daily routine, we're encouraged but remain cautiously optimistic about the near term.
Third we are projecting solid third quarter financial results.
Although as mentioned sales in the animal health segment of our business were down versus the same quarter last year looking ahead to our third quarter. We anticipate flat sales of Msas continued strong growth in nutritional specialties, particularly in Europe and in Asia and in poultry in the United States and continued expansion in the vaccine space.
We also expect continued strong adjusted EBITDA performance from our mineral nutrition segment as favorable product mix continued and lastly, we expect our performance products segment to continue to benefit from higher copper volumes in the near term.
Despite the pandemic, we continue to invest in our future.
I'm proud of the fact that our Phi Tech vaccine devices now being trialed installed on over a dozen countries and increasingly being serviced remotely a unique capability that we want.
With that we will look to build upon even as we emerge from the pandemic.
Nutritional specialties growth is underpinned by our recently launched on the Jim Crow for the dairy sector and we continue to spend time and money in developing unique nutritional specialty products that we are confident it will be a key pillar of fiber for years to come.
Sure then many of you probably saw the announcement we made on January 20th about the expansion of our mineral nutrition facility in Omaha, Nebraska. The on my production facilities geographically positioned to manufactured supply on mineral nutrition products and trace mineral premixes to our U S livestock produces the fulfill.
On the upgrade to provide the next evolution of food safety product quality and output, while enhancing our customers' ability to meet growing consumer needs.
Moving on as promised on our last call I wanted to give you a bit more information about on expanding efforts in the pet business, where we continue to identify explorer and progressed opportunity.
<unk> for canine joint health.
Gross sales doubled in the last six months versus the prior six months.
Right the continuing challenges accessing vet clinics due to COVID-19 related restrictions. We are optimistic that we can continue to drive profitable growth on this brand.
We also have a number of number of products in development. The first is a novel.
Vaccine delivery system, which we have previously disclosed although our development progress is slow due again to Covid, we expect the program to restart in about six to nine months and the early part of our fiscal year 2022.
We're also pleased to announce that we have license on unique Jim Mccann compound for treatment of atopic dermatitis in dogs, we secured this opportunity.
As the outcome at the outcome of a competitive process, where we believe our ability to focus on development and marketing efforts on this product was a key differentiator to our being selected.
But at this stage, we are enthused enthusiastic about the prospect of launching this product down the road and to one of the fastest growing segments of the pet marketplace.
Lastly, as another example on the type of opportunities while interest and we're currently evaluating potential opportunity in the aerospace for cats and dogs, a space with an estimated addressable market of over $2 billion.
These are just a few of the many activities I want to share to help you better understand how we are looking to expand in the multibillion dollar petcare and is free to add another pillar to our basis.
With that I would like to ask day means to share more details on our second quarter financial performance and the inclusion of gaming.
We look forward to taking your questions Jamie.
Thanks, Jack onto slide five.
Start by reviewing consolidated results for our second quarter ended December 31, 2020, and then sharing some more detail on our individual business segments, and then close out my remarks with our expectations for the third quarter on.
In summary, we posted strong second quarter financial results on a consolidated basis versus the prior year second quarter sales declined 4%, but net income and diluted EPS grew 8% and 10% respectively.
On an adjusted basis adjusted EBITDA adjusted net income and adjusted diluted EPS were comparable to the prior year.
Our GAAP profitability measures improved versus the prior year due to reduced spending and a lower effective tax rate the effective tax rate for the quarter was 23% versus 29, 6% in the prior year due primarily to the impact of the final global intangible low tax income we're guilty regulations issued in July two.
<unk> thousand 20 and benefit related to exchange rate differences on intercompany dividends.
Next page.
Now, let me explain what's driving consolidated results in a little bit more detail as mentioned consolidated net sales were $206 $1 million for the quarter, that's a decrease of $7 9 million or 4% versus the prior year the.
The sales decrease was driven by a $7 5 million a 5% decline in the animal health segment, $1 5 million or 3% decline in mineral nutrition, partially offset by $1 1 million or 8% increase in performance products.
As Jack mentioned in his opening remarks, there was no COVID-19 impact in the comparable prior quarter.
Despite the decrease in sales, we reported GAAP net income of $12 $8 million, an 8% increase versus the prior year and diluted EPS of <unk> 32.
A 10% increase versus the prior year.
These increases were driven by an improvement in gross margin lower SG&A costs and provision for income taxes, offset partially by foreign currency losses.
Moving from GAAP results to adjusted results second quarter financial results after adjustments to exclude things like one off acquisition related items, other income and expense, including foreign currency gains or losses adjusted EBITDA adjusted net income and adjusted diluted EPS were all comparable to the prior year. The adjusted net income.
Adjusted diluted EPS calculations also reflect the income tax effects related to the pre tax adjustments and unusual or nonrecurring income tax items.
Now on slide seven.
Let's break down our consolidated results by business segment, starting with our largest segment animal health, which is comprised of msas on other nutritional specialty products and vaccines.
As I mentioned earlier net sales of our animal health segment decreased 5% versus the prior year the decrease in animal health net.
Net sales is comprised of three components first an 11% decline in msas and others versus the prior period. The decline was driven by lower international demand, primarily in Asia, and Latin America, offset by favorable domestic customer order patterns.
A 10% growth in nutritional specialties, driven by domestic and international growth in dairy products and third a 2% decline in vaccine net sales driven by higher domestic vaccine sales, which was more than offset by lower international volume due to timing of customer orders and reduced demand.
In terms of profitability animal health, adjusted EBITDA decreased $5 million or 1% on lower sales and gross profit, partially offset by favorable SG&A cost driving an adjusted EBITDA margin improvement of 100 basis points to 24, 5% next.
Next page please.
Now, let's walk through financial performance of our other business segments, namely mineral nutrition and performance products than a brief word about corporate expenses.
Starting with mineral nutrition net sales for the second quarter were $54 2 million, a decrease of $1 5 million or 3% versus prior year, driven by lower average selling prices. The decline in average selling prices is correlated with the movement of the underlying raw material costs.
Mineral nutrition adjusted EBITDA was $4 2 million, an increase of <unk> 5 million or 14% driven by increased gross profit on favorable product mix mineral nutrition, adjusted EBITDA margin improved 110 basis points to seven 7%.
In terms of our performance products segment, we are having a strong year net sales of $15 8 million for the three months ended December 31, 2020 was an increase of $1 1 million or 8% over prior year as increased volumes of copper based products were partially offset by lower sales of personal care product ingredients the increase.
Gross profit drove $2 $3 million of adjusted EBITDA for the quarter, which is up 56% increase versus prior year and an adjusted EBITDA margin of 14, 4% an improvement of 440 basis points versus the prior year.
Lastly, corporate expenses.
The increased <unk> $8 million or 7% versus prior year due to increased costs for professional fees and information technology.
Now on slide nine shifting gears to capitalization related metrics the business provided $19 million of cash in the second quarter before financing activities.
And our gross leverage ratio, which is calculated by taking our total debt of $387 million divided by trailing 12 month adjusted EBITDA of $107 million was three six times as of December 31, 2020, now that's a slight improvement from the quarter ending September 32020.
In terms of liquidity, we had $165 million available. This includes cash and short term investments of $96 million and $69 million of unused and available revolving credit.
And consistent with the past several quarters, we will pay a routine quarterly dividend of <unk> 12 per share or $4 $9 million.
Lastly on slide 10, looking ahead, the financial guidance on.
Though we are seeing stabilization across the animal health industry and within our company specifically given the uncertainty of the future course of the pandemic. We will continue to provide only near term guidance.
That said, we expect solid financial results again for our third quarter as follows.
Net sales of approximately $205 million to $208 million net income of approximately $11 million to $12 million.
Diluted EPS of approximately 27% to 30.
Adjusted EBITDA of approximately $27 million to $29 million adjusted net.
Net income of approximately 12 to $13 $5 million and lastly, adjusted diluted EPS of 30 to 33.
To conclude our opening remarks and to reinforce Jack sentiments, we posted solid financial results for the second quarter. We are encouraged by signs of stability across the industry. We continue to invest in our future and are projecting solid third quarter financial results.
Thank you for your time and attention.
<unk> if you could please open the lines for questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone.
Jay Your question press, the pound or hash key please standby, while we compile the Q&A roster.
Thanks.
Your first question comes from David Westenburg. Your line is open.
Hi, Thank you for taking the question and congrats on the on the good margins here.
First can you describe the derma care product.
Just kind of approach. We're taking is this IL 31, Jack and is this a JAK inhibitor monoclonal antibody.
Dry why why is this the right approach and can you give us a little bit of in terms of time to launch.
Yes.
A lot of good questions and im not going to really add to any of them.
Yes.
Where what's sort of earlier I think.
We feel that the product that we've been able one sort of a competitive.
Licensing competition.
We'll definitely serve the market.
Lee.
On.
And but it has a lot of milestones through those through.
And the next three four years before we see get to market and that's with everything going well so.
It's in the future, but we would not have entered into it if not we wouldn't have felt that we would answer.
Sort of all the demands of what a derma care product needs to be.
Got it okay, I know I totally understand that being early in the pipeline can you talk about performance products margin contribution relative to the overall base business I'm just trying to get a feel for as that grows we should be thinking about in terms of bottom line contribution I mean, because this quarter seem like.
It was a little bit different than unusual past years past, where you had such.
Really good.
Margin contribution despite the revenue slowdown.
Yes.
Normally when we talk about performance products, we talk about well, it's a business, we're not really concentrating on.
It had some.
Some unusual factors came together as some volumes.
On products and definitely higher prices and copper and that made it to really stand out this quarter.
And might continue and other one or two quarters, but long term as we've always said this is not when we put our focus.
Totally understand okay. So just maybe the last one in terms of.
More and more growth in the portfolio on new products well what is your appetite for maybe generics and in cattle.
Obviously, jackson's coming off patent and it tends to be on easier product to kind of develop.
But then since been generic for or at least like that patent has been expired for a long time.
They are large markets I mean, it is is cattle and generic something that debt interest you in the next few years.
Overall cat on <unk>.
US a lot and we're very active sort of ex U S cattle market.
And specifically in.
Mexico, and Brazil are growing in Canada, Australia.
South Africa, I think I've made more of a big market.
So we are looking and matter of fact, we recently signed an agreement.
And that was very back to distribute their generic <unk> in the Canadian market.
And we're going to look for opportunities like that I think theres a lot of generics coming into the Jackson market, but where we have feet on the ground and where we can make some money and one on so I think that specifically what we're looking at right now I don't think on wont go any further on to the other products we're looking at.
Perfect Yeah, I'll jump back in queue. Thank you so much.
Your next question comes from <unk> <unk> Your line is open.
Thank you hi, good morning, this biology.
Couple of questions, maybe first let me start with China.
So 10 days go interest in days ago, there seemed to be reported self newest trains of African swine fever emerging in China, and what I find most concerning is that there seems to be on farms on by the fourth largest pulp producer. So what are the implications of this and for the industry in the near term and looking beyond as you as youll seek to <unk>.
In the rehearing in China, what implications does Zhao for for your business.
And you definitely are on top of the nose.
The Chinese overall.
Im making great efforts to repopulate.
On the D population, but a few years ago because of African swine fever.
What seems to be happening on some of these funds.
Is that there are some illegal.
Vaccines that have not been approved by the government.
That people are using that are causing African swine fever.
<unk>.
That seems to be that's number one and number two debt.
<unk> network control documents why volume or the way they are controlling it is doing it is by doing it at a big box they can afford to and because of the high price of.
Hogs in China.
A lot better buyer security, meaning that the population on our bonds is not as dense as it used to be.
So yes, there have been outbreaks of African swine fever, but overall Chinese on working very hard to repopulate, having said that it's going to take them a long time.
So.
I don't see any reason why exports from the markets we are active in.
The U S. Brazil won't continue strongly in the next couple of years.
Thank you Jack maybe just a follow up to that.
Also Australia countries time with dealer registration process, which is ongoing in China and at what point should we factor you participating in the rehearing cycle.
So the good news is that we.
China is on such a great job.
And recovering from Covid.
On the.
On the Chinese regulatory authorities have reopened and we have submitted our bid.
Our registration package.
That's a good news because unless you buy a lottery ticket you can win the lottery. So we've begun.
I'm not sure I mean, let's assume the numbers we are using internally is between one and a half two years.
That's helpful. Maybe one quick question on that day will join the queue.
Could you provide us an update on where you are with the Nextgen Mommy Gen. What kind of traction you're ahead on the last quarter.
So.
We are starting to.
Hey traction at with the next generation, we call that Amgen pro.
Most of the sales increases that we had this past quarter had been in that product.
And I think we will continue to see success.
<unk>.
Like most people animal health business. The biggest problem today is being able to really bring in payment.
With a with a customer's team and go over all the data and on a success because until lift on top vaccination rates will be a lot higher than the on today.
Things are going to go move very very slowly.
So we're seeing good success, it's a great product.
But it's going to be my guests a year until we really get back in and we see accelerated success for that product.
That's helpful. Thank you.
Okay.
Your next question comes from Erin Wright with Credit Suisse. Your line is open.
Hi, This is <unk> on for Erinn. This morning, Thanks for taking the question on.
Kind of wanted to focus on vaccines can you speak to the key drivers of the lower demand trends internationally that you called out this quarter and when do you think we could potentially return to double digit growth across that segment longer term.
So.
That's a great question.
<unk>.
In certain parts of the world.
And parts of the World, where poultry is the key.
Protein.
The effect of Covid has been mostly an economic effect.
The average effective <unk> sic and people dying as to everywhere.
But.
Those markets.
Net.
The demand has dropped significantly significantly because the economic activity has dropped.
Significantly.
So I think again that will be totally driven by the success.
Vaccination programs that we're starting to see becoming successful.
In North America, and Europe, and those markets, where those countries depend on exports.
So I think.
Not seeing increases.
But until we get back to normal again this on the assumption on the vaccines will be complete successful the sofa.
We will be will be again in about a year's time.
Okay. That's helpful that makes sense, thank you and kind of a follow up to that.
You provided some helpful clarity on the animal health trends by segment for <unk>, but I was wondering if you could kind of go into demand trends across species be on poultry.
How we should think about those.
In the next couple of quarters.
So this is sorry on which market.
And globally.
Well.
The next biggest market for us would be.
Hogs.
And.
That business and the market weighted often dependent on exports in China as I said earlier.
It is still the biggest importer of health.
<unk> Corp.
In the world and so I think that continues.
And gross growth a little bit over the next couple of years.
So I think for that fully.
Net production animal.
The volume is going to be good.
The thing you have to start thinking about which we have not had to think about for many many years and higher input costs.
The cost of corn and soybeans have risen dramatically.
So that's going to change the economics, which changes the dynamics of the overall animal protein business.
Yes.
Our business because our products help make.
Those products work better alright helps the animal stay healthier so they convert the corn and soybean at better rates.
There was a balance in the first numbers net of Europe.
Big producer of chicken producing would you look at is what is what is my input costs.
And that is the that is the big biggest dynamics all of all of our customers all over the world on price.
That makes sense. Thank you.
Our next question comes from Michael <unk> with Bank of America. Your line is open.
Hey, Jack Thanks for taking my question actually one of them I want to pick up exactly where you just left off on input cost and corn prices. So on a go into that a little bit deeper if you will.
I mean, just looking at the price of corn and how much debt spiked in the last couple of months, especially I mean, even some flat since mid December.
I was just reading a lot of reports about especially poultry and hog producers being a little bit more cautious I was just wondering how much of that are you factoring into your outlook for the third quarter is it too early to make any assumptions or guesses on what it's going to do to.
Sort of herd size and expansion.
In the U S and internationally are.
Or are you waiting to see if the prices are sustained at these levels.
Or.
Have you gotten any feedback from customers in terms of purchase orders slowing things down at all I'm, just wondering because we've seen a lot of concerns on that front.
So.
Thanks, Michael It's a great question right now.
Right.
And I'm talking space, most people, who we deal with around the world have hedged and locked in their prices six months ago.
So they might not even be seeing these higher prices, but it is something they start thinking about going forward the balance of demand.
So.
Demand for.
For chicken.
Pork.
Someone's going to make it on someone's going to have to use the input cost no matter what the prices.
If you ask me do I think the price of chicken in pigs will go up around the world I think the answer to that is yes.
If you asked me when I don't know, but.
Overall, we.
We're seeing these higher input costs.
And that means ultimately the price of protein will be higher.
Okay. That's helpful. I appreciate that color and then also I noticed that you had a couple of comments, calling out strength in nutritional specialties on the back of dairy I think that's on.
Net market that we've been talking about for it feels like years now about how that's been a challenged end market on the U S. I'm just wondering if that's any.
If you think any of that it's a little bit of a catch up or easy comps or are you seeing any fundamental changes on a market that makes you think that maybe the outlook for Terry is finally, turning.
The outlook for dairy.
Is like the weather in California. It was always good the week before you got there.
Good day.
So.
It's complicated I think the dairy guys thought had thought to do better.
And now you're seeing that higher input costs again.
So.
It's.
They are still okay.
If I look at our segments in the United States very you guys are doing okay.
<unk>.
Hawkeye defining doing okay in the poultry guidance, Brian not to do Okay again based on input direct input costs, but.
As I said earlier, it's balance if you hedged your your corn prices.
Six months ago, and you have a two year hedged and youre going to be fine.
On.
That.
We don't have that clarity.
And to our customers.
I think this is going to go back to supply demand.
If the demand is there.
Supply will be there and the prices will average out.
Okay. That's helpful. Yeah, I totally agree with you on the many many false starts we've had in dairy you were approved for one quarter and then it was one step forward two steps back. So a completely makes sense. One last one for me and then I'll hop back.
I think the biggest price lift in the quarter was actually on the P&L on the SG&A.
<unk>.
Your ability to contain cost there.
Despite the improved performance on the topline.
Same time Youre talking about a lot of investment going forward in the companion animal business.
On the Derma care.
The other products there and also just continued investment.
Being a core.
Nutritional specialties businesses.
How should we think about debt Weber going forward or was this just a little bit of a timing benefit in the quarter or are you able to find some some cost constraints that you think will carry forward.
Yeah.
So I think there.
They are.
The other three factors, but on the SG&A.
Two main factors.
One.
Clearly with everyone staying at home and no one traveling and non visiting customers.
And non entertaining we are spending less money.
All over the world.
So that's one saving an offset of that but thats buried into the price of goods, it's hard to break out.
As the costs of maintaining on our plans and our production and we have maintained it through atmosphere.
We haven't shut down.
But it's gotten a lot more expensive.
Whether it's PPE is.
The cheapest part.
The separation of the plans of transportation of the work is coming in it's managing the plant.
One person gets sick.
And like you have kids in.
In our small group everyone stays home everyone gets paid obviously, so then you have other people coming in and substituting overtime all those costs.
That doesn't add up to the amount on Monday with savings by not visiting customers.
Thats a big savings on that is in these numbers.
The flip side of that.
Which is.
Calling on customers makes sense.
Selling new products makes sense.
Your stock you are selling is selling the same products you can't move much you can add new partners and new customers.
I think thats all well in these numbers.
Which is why we would go out quarter by quarter, because theres still a lot of effect of Covid.
All over the world.
Okay. That's all really helpful. Thanks.
Your next question comes from Kevin <unk> with G Research Your line is open.
Hi, Thanks for taking my questions want to come back to the companion animal story.
Obviously this is an area of focus for you guys with for Jensen and then the pipeline.
Do you feel that that what you have right now on development kind of go to are you guys looking to further expand in that area and have you considered moving also into the <unk>.
Equine market given the.
The strength of livestock I would imagine that there's greater synergies, there and equine than necessarily dogs and cats.
So as strange as it is equine is a pain.
So.
Our being.
Selling cash until the GAAP market doesn't help you sell either the equine market.
Number one number two we are going forward, we are going to create this fourth pillar to the business and that is companion animal.
And we're going to do it.
Net.
Politically and.
Net.
And then you sort of in a unique way.
Okay.
Very competitive field when you have to go on byproduct line in cost for Tim you know the multiples.
Some of these companion animal business itself.
So we are using our abilities. We are using our scientists we are using our.
Our development people were using.
Knowledge on market.
And we've added some really very very talented people specifically on the companion animal side.
And we're seeing a lot of input we're seeing a lot of people who have interesting products.
They are unable to go to.
To the market to the to their giant companies because it's.
Non invented here, it's because they've looked at something like that et cetera et cetera.
And so far we've looked at dozens of products.
And as you see we have successfully launched one and we are investing in 234 on these right now so it wouldn't take a slow approach.
But I would say.
Going forward 345 years from now.
Companion animals will be a significant part of our business.
That's helpful.
Want to ask about cash flow as you had very good cash flow quarter. It.
It gives good metrics for Q3, but I'm just wondering if you could give us any sort of sense directionally on how we should.
Should be thinking about the cash flows for Q3, I mean for the balance of the year and then.
Kind of related to that.
The Omaha plant expansion and anything we should be thinking about in terms of our capex and the impact there.
So I'll take the second half first.
We overall, we plan on Capex a year on demand.
And then.
And on these projects big projects.
So on my expansion was.
Finishing.
On a year and a half in.
And expanding and modernizing facility that we had there.
And we continue to look at Capex all over our businesses as you know from prior discussions.
We produced approximately 70 percentage of the things we saw.
And we see business growing so that means you continue events.
Divesting in Capex, but for the cash flow moving kick it back to Damian.
Alright, Thanks, Kevin for the question so you're right year to date. We're ahead of our plan in terms of cash flow and that's driven by our stronger than anticipated bottom line performance.
Say for second half of the year, given our inventory levels at December 31.
Coupled with the guidance for the third quarter, we should have steady cash flows in the second half of the year.
I would expect some of that cash, though would be invested back in the business more so than first half to do two things one expected ramp up on some of our capital improvement projects.
And as Jack alluded to continued investments in the future.
Great appreciate it.
As a reminder, it is star one on your telephone if he would like to ask a question. Your next question comes from David Risinger. Your line is open.
Hey, listen Molina Santoro on for Dave.
First can you maybe discuss what the key factors are to consider for the March quarter, I know guidance kind of implies flat revenue sequentially at the midpoint.
But EBITDA is expected to be down slightly at the midpoint on EPS down as well.
I'm sorry.
Yeah I'll take that one also so I think it's consistent with what I just said what youre seeing on cash flows youre also going to see in the results. So we're expecting more of the same in the third quarter.
In terms of sales, but when you look to profitability we.
We do expect a ramp up of <unk>.
Expenses to invest in the future et cetera, so from a profitability perspective quarter to quarter three youre right. The bottom line, a little bit less as a percentage of top line.
Okay. Thank you that's helpful.
Then my second question is can you provide any updates on the FTE assessment of economics and maybe.
Any updates from the Brazilian regulatory agencies on Virginia Mason.
Thanks.
So we've.
We're staying in touch with the FDA, we are not hearing much back my guess is with the change in administration and they haven't pointed on new commissioning yet.
Things will be slow.
And but as we said early on we're going to rigorously defend this product because it's been a great product when on a market with 40 years safe.
Safe and effective and.
We.
We are going to make sure. This five days on the market.
<unk> is moving we haven't heard anything yet but.
Hi.
It's Brazil.
But we continue.
Well on everything is in all of our applications are in for the change and right.
Now, it's everything is grandfathered and thats, what they tell us.
I will get to us when they get to us.
Okay, great. Thank you that's very helpful.
There are no further questions at this time I will now turn the call back to al.
One more question that just entered the queue from bylaw <unk>. Your line is open.
Hi, Thanks, Thanks for taking the follow up.
So Jack just wanted to get an update on on.
I think she vessel day when we last spoke you had received the.
Approval after the inspection so are we still on for our mid 'twenty, one launch and would you be able to quantify the impact of the market. This first lending would open for Ya and also at what point of time could we start seeing improvements in opex coming through from this facility.
So we.
We received that debt first regulatory approval.
We are in the midst of submitting now getting ready for the second which involve inspection.
So we are on target.
Four.
Sometime I would say early in our.
Next fiscal year.
You'll be able to start operating that facility.
Yes.
Opens up the middle East to us.
On a range of products.
I don't want to quantify the number because I'm not sure.
But it will be.
Once we start selling it will be profitable.
So it's.
As I said, we're on target nothing is delayed.
And.
We're optimistic that day.
It's a great facility for us to be half.
Great. Thank you.
There are no further questions at this time I will now turn the call back to Damien <unk> for closing remarks.
Okay. Thank you everyone for your thoughtful questions.
For those interested Jack and I will be hosting a fireside chat on February 25th at the Bank of America Merrill Lynch 2021, virtual animal health summit details to be issued on that via press release Tomorrow. We appreciate you taking the time to join US on today's call have a great rest of your day and continue to stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Loans.
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