Q4 2021 Phibro Animal Health Corp Earnings Call
Okay.
Thank you for standing by and welcome to the Fibro Animal Health Corporation, Q4, 2020 conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the 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.
<unk> Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you Rebecca good morning, and welcome to the Fibro animal Health earnings call for our fourth quarter and year ended June 32021 my.
My name is Damien <unk> and I'm, the Chief Financial Officer of Phibro Animal Health Corporation I'm joined on today's call.
By Jack Mannheim fiber is chairman, President and Chief Executive Officer, and Daniel <unk> Director and Executive Vice President of corporate strategy.
On today's call, we will cover our financial performance for the fourth quarter and our full fiscal year 2021, as well as guidance for our fiscal year ending June 32022.
At the conclusion of our opening remarks, we will open the lines for questions.
To remind you that we are providing a simultaneous webcast of this call on our website THC dot com.
Also on the investors section of our website you will find copies of the earnings press release and annual report on Form 10-K filed with the SEC.
SEC yesterday as well as the transcript and slides 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.
<unk> 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.
Earnings press to the most directly comparable U S. GAAP measures are included in the financial tables that accompany the earnings press release.
We present, our results on a GAAP basis and on an adjusted basis, our adjusted results exclude acquisition related items.
Unusual nonoperational or nonrecurring items, including.
Measured.
<unk> compensation and restructuring costs.
Other income expense separately reported in the consolidated statements of operations, including foreign currency gains and losses.
And lastly income tax effects related to pre tax adjustments and unusual or nonrecurring income tax items.
Now.
Let me introduce our chairman President and Chief Executive Officer, Jack Mannheim to share his opening remarks, which will include his perspective on the fourth quarter full year financial performance and guidance for our fiscal year 2022.
Jack.
Thank you Damian and Hello, everyone.
I am pleased to announce that we ended our fiscal year.
Strong posting our fourth consecutive quarter of net sales growth and financial results ahead of our previously communicated projections.
Net sales for the quarter were up 19% versus a year ago, while full year sales were up 4%.
Adjusted EBITDA for the quarter was up 13%, while full year adjusted EBITDA.
<unk> was up 6%.
I would be proud of these numbers on under any circumstances, but as we all know too well the year ending.
June 32021 was one filled with unprecedented challenges for our industry.
Quarantine lockdowns and political unrest around the world drove input prices higher.
Prompted significant shipping delays and labor shortages, which required all of us to work that much harder and be that much more innovative.
Our employees really stepped up and I want to acknowledge a significant efforts, which enabled our organization to not only survive but grow during these turbulent times.
Our efforts to build.
The companion animal franchise are progressing.
Sales of our canine growth joint care products <unk> continued to grow in fact, doubling again in the second half of the year.
Our plan going forward is to continue working with our exclusive distribution partner while at the same time, expanding our direct sales force in order to service veterinary.
With the intent to double sales of agenda again in our upcoming fiscal year.
And behind <unk> reagents reagents, we completed a quarter of steady progress on our product development pipeline, specifically in terms of our direct care and oral care product.
We are optimistic these parts will propel our growth in.
Mid to long term.
We made significant efforts to better streamline our business and financial process to strengthen our internal control framework.
Although we've been in business in 1946, we went public in 2014.
We're running our business as a privately held company for nearly 70 years, coupled with the diversity and complexity.
Cleaning product offerings and geographic spread of our facilities gaining compliance under the Sarbanes Oxley Act of 2002 presented presented some challenges to our organization.
But as you will read in the annual Form 10-K filed yesterday with the SEC our material weaknesses have been fully remediated and we.
We are now fully in compliance with Sox.
<unk>.
Now, let me share a few thoughts on the current state of the business and what we plan to deliver on our fiscal year head hits.
Since the beginning of the global pandemic, our perspective and approach to managing the challenges presented have not wavered.
We continue to sell our products in over 80 countries across the.
All species of feed animals.
It's the diversity of our portfolio has enabled us to keep our business stable.
We had some modest growth.
Challenging conditions, we face as a business are in those countries, where the economies are struggling we expect this rapidly ability by country to continue.
You bet.
I'm confident the diversity of our product portfolio will keep viable in a course of growth, while we continue making investments in our future.
For our fiscal year 2022, we are projecting net sales in the range of $840 million to $870 million, which reflects growth of approximately 1% to 4% and.
And adjusted EBITDA of $110 million to $114 million, reflecting about 2% to 6% growth.
Im excited that despite our increased spend on future projects. We are in a position to lever our organization to see greater bottom line margin expansion.
Overall, it was a great quarter and a solid year all around we are projecting top and bottom.
We wound growth next year. Despite the continued challenges of the pandemic now let me hand, the call back to Damien to go through these items in more detail Damien.
Thanks, Jack let me start with our consolidated financial performance for the fourth quarter ended June 32021 versus the same quarter one year ago.
Now keep in mind.
Bottomline quarter, ending June 32020 was the first full quarter impacted by the effects of COVID-19, phibro like most others in our industry. We're navigating through a time when consumer demand for shifting and there were disruptions in the supply chain ranging anywhere from labor shortages to shipping delays and consequently, we posted lower than expected.
<unk> fixed and Bottomline performance.
That said on a consolidated basis, our fourth quarter financial performance was significantly ahead of the prior period net sales increased 19% driven by improvements across all three of our business segments, namely animal health mineral nutrition and performance products.
GAAP based net.
The diluted earnings per share were up 203% and 200% versus the same quarter a year ago. Although a portion of this significant improvement was attributable to higher sales and gross profit was also driven by a material swing in our provision for income taxes in the prior quarter our financial results included unanticipated.
Income relating to federal global intangible low taxed income tax expense often referred to as the guilty tax coupled with incremental reserves needed to cover uncertain international tax positions. These tax related adjustments recorded in the prior quarter were unfavorable to net income and earnings per share.
Our current.
Quarter results includes similar tax related adjustments. However, these more recent tax related adjustments were favorable to net income and earnings per share, thus, causing the large swing between prior quarter and current quarter provision for income taxes.
After making our standard adjustments to GAAP results, including acquisition related items foreign currency movements.
And one offs such as the tax related adjustments I just described.
First quarter adjusted EBITDA, adjusted net income and adjusted diluted EPS were up 13%, 89% and 88% respectively.
Turning to slide five looking at the same financial metrics, but now for the full year.
On a consolidated basis, our full year financial performance improved over the prior year net sales increased 4% driven by stronger net sales performance for each of our three business segments.
GAAP based net income and diluted EPS for the full year were up considerably versus the prior year consistent with what drove the fourth quarter variance the year over year variance.
Is driven by sales and gross profit improvement as well as the delta between the tax related adjustments I mentioned previously offset partially by increases in SG&A costs on strategic investments and interest expense.
Now, let's dig a bit deeper into the fourth quarter and full year financial performance for each of our business segments.
On slide six I'll start with fourth quarter financial performance for our largest segment animal health, which is comprised of msas and other nutritional specialties and vaccine.
Net income of our animal health segment increased 20% versus the same quarter prior year. The increase in our animal health segment net sales is comprised of three components.
First a 26% increase in MSA is another versus the prior quarter driven by stronger demand across geographies and species.
Second 18% growth in nutritional specialties, driven by strong domestic and international growth in dairy products and third a 1% improvement in vaccine net sales driven primarily by growth.
In North America, and Asia Pacific offset partially by lower demand in eastern Europe due to continuing economic challenges in.
In terms of profitability animal health adjusted EBITDA was $29.5 million, which was consistent with the same quarter prior year as higher gross profits were offset by increases in SG&A costs.
Now on slide seven looking at our full year financial performance for our animal Health segment net sales for the full year increased 4% versus the prior year. The increase in animal health full year net sales was driven by a 2% increase in MSA is another versus the prior year, primarily due to domestic growth in swine coupled with increased international.
And poultry.
10% growth in nutritional specialties, driven by domestic and international growth in dairy products, partially offset by lower demand in domestic poultry.
And lastly, the 3% decline in vaccine net sales as domestic volume growth and increased demand in our Asia Pacific region was more than offset by challenging.
Gnomic conditions in eastern Europe.
In terms of profitability animal health adjusted EBITDA was $124 million up 1% in comparison to the prior year driven by increased gross profit offset partially by higher SG&A costs.
Moving on the fourth quarter financial performance for our other.
Segments on slide eight.
Mineral nutrition net sales for the fourth quarter were $56.8 million, an increase of 14% versus the same quarter prior year, driven by favorable product pricing correlated with the movement of the underlying raw material costs.
Mineral nutrition adjusted EBITDA was $4.7 million an increase of 30.
34% driven by increased gross profit unfavorable customer and product mix and the adjusted EBITDA margin for the quarter was eight 2% an improvement of 130 basis points versus a year ago.
Our performance products segment continued to perform well, finishing the year strong net sales of $16.7 million.
For the three months ended June 32021 reflects an increase of 23% over the same quarter prior year, driven by strong demand for copper based products and favorable product pricing correlated with the movement of the underlying raw material costs the.
The increased gross profit drove $2.3 million of adjusted EBIT for the quarter.
216% increase versus prior year and an adjusted EBITDA margin of 13, 6% also an improvement from one year ago.
Lastly, corporate expenses decreased 4% versus the same quarter prior year due to savings in SG&A costs, driven by lower professional fees, partially offset by incremental investments in our future.
And an increase in employee performance based incentives.
Now looking at full year financial performance for these segments on slide nine mineral nutrition net sales for the full year were $226 million, an increase of 3% versus the prior year driven by favorable product pricing correlated with the movement of the underlying raw materials.
It costs.
Mineral nutrition, adjusted EBITDA was $17.1 million, an increase of 17% driven by increased gross profit on a favorable product mix.
Adjusted EBITDA margin for the quarter was seven 8% an improvement of 100 basis points versus a year ago.
Our performance products segment.
<unk> had a great year net sales of $67.1 million for fiscal year 'twenty. One reflects an increase of 14% over the prior year driven by stronger demand and increased volume of copper based products sold.
The increased gross profit drove $9.4 million of adjusted EBITDA for the quarter, a 108% increase.
Segment for the prior year and an adjusted EBITDA margin of 14, 1% an improvement of 640 basis points.
Lastly, corporate expenses increased 6% versus prior year, driven by incremental investments in our future employee performance based incentives professional fees and related expenses offset partially.
<unk> lower travel due to COVID-19 related restrictions.
Turning to key capitalization related metrics on slide 10, our business provided nearly $30 million of cash before financing activities for the full year.
Our gross leverage ratio, which is calculated by dividing total debt of 393 million.
<unk> trailing 12 month adjusted EBITDA of $108 million has been stable and sits at three six times at year end.
In terms of liquidity, we had $245 million available at year end. This includes cash and short term investments of $93 million and $152 million of unused and available.
<unk> revolving credit reflective of the incremental credit secured when we amended our loan agreement on April 22021.
Now. Please note the accessibility of available revolving credit is subject to leverage ratio limitations, which are outlined in the loan agreement.
And lastly, consistent with the past several quarters, we announced our quarterly dividend.
<unk> of <unk> 12 per share or $4.9 million.
That concludes our perspective on both fourth quarter and full year financial performance. So, let's turn our attention to fiscal year 2022 financial guidance on slide 11.
For fiscal year 2022, despite the lingering uncertainties in country by.
Country variability relating to COVID-19, we are projecting net sales in the range of $840 to $870 million, which reflects a growth rate of approximately 1% to 4%. These.
These projections assumed growth for each of our three business segments, but driven primarily by animal health.
We are projecting adjusted EBITDA in the range.
$110 million to $114 million, which reflects a growth rate of 2% to 6%. Despite an approximate $20 million increase in SG&A about half of which is earmarked for planned incremental fiscal year 2020 to spend on future investments.
Future investments include research and development projects as well as other strategic.
Initiatives.
Net income and diluted earnings per share are projected to declined 14% to 17% in comparison to fiscal year 2021, due primarily to the favorable favorable one off tax items recorded in the fourth quarter of fiscal year, 2021, which our fiscal year 2022 guidance.
Assumes we will not be repeated.
This leads to an adjusted net income in the range of $50.7 million to $53.3 million and a projected adjusted diluted earnings per share in the range of $1.25 to $1.32.
Both of which reflect an improvement of 4% at the high end of the.
<unk> for a decline of 1% at the low end of the range.
Net income and earnings per share guidance, both on a GAAP and adjusted basis implies a return to a more normalized effective tax rate ranging from 29% to 31%.
Just to give you a bit more color on what's driving our net sales growth projections for our animal health segment keeping.
<unk> in a COVID-19 variance remain a risk let me share three key assumptions.
One we will drive growth in nutritional specialties by expanding our existing portfolio and further leveraging our 2019 acquisition of Osprey.
This will enable us to penetrate the microbial as market and identify opportunities to better integrate ospreys.
<unk> capabilities into the broader fiber business.
Our plan is to drive growth in our vaccines business by bringing new products to the market and expanding our sales efforts into new markets.
Placing distributor sales models with direct sales strategies, where possible and seeking opportunities to recover in those geographies facing economic challenges.
And might that hampered our efforts in fiscal year 2021.
And three we intend to maintain our position in medicated feed additives global market.
Our guidance assumes an increase in operating expenses of about $20 million or 10% year over year roughly half of the increase relates to the planned incremental spending on future investments.
<unk>, which include but are not limited to efforts to progress our pipeline of companion animal products develop a vaccine for African swine fever, the ongoing registration of products in new markets and the continued build out of our vaccine facility in Sligo, Ireland, we expect our first product registrations for the Sligo facility to be issued.
Towards the end of our fiscal year 2022.
Lastly, our plans include an approximate $8 million, a 30% increase in capital expenditures part of which relates to carryover projects from our last fiscal year, while the remainder relates primarily to further investments to increase our vaccine manufacturing capacity.
And consistently.
Prior years with the exception of last year, which was impacted by Covid due to the seasonality of our portfolio. We expect a decline in our upcoming first quarter top and bottom line financial performance relative to the fourth quarter of the prior fiscal year.
So in summary, our fiscal year 2022 financial guidance is as follows net.
With approximately $840 to $870 million.
Net income of approximately $45 million to $47 million.
Diluted earnings per share of approximately $1.11 to $1.16.
Adjusted EBITDA of approximately $110 million to $114 million.
Adjusted net income of approximately 57% to $53.3 million and lastly, adjusted diluted EPS of approximately $1.25 to $1.32.
That concludes our opening remarks, Rebecca could you. Please open the line for questions.
Sales at this time, if you would like to ask a question. Please press star one on your telephone keypad.
So our first question comes from the line of <unk> <unk> with credit Suisse.
Hi, Thank you for taking my question.
Can you just maybe expand a little bit further about the.
The demand trends.
Vcs, including policy slide dairy and goodbye.
Domestically and how to think about those or what's embedded in your guidance for fiscal year 2019. Thank you.
Thanks for the question is as we look at.
Towards.
Fiscal.
Okay.
We are still sitting.
Sort of in a renewed world of Covid.
Initial thoughts so towards the end of.
Our fiscal year 'twenty. One was this thing was sort of in hand pretty much but we're seeing what's going on with the delta strain.
Yes.
As increase.
Our concern and definitely we see in the business environment around the world.
In the U S.
Well <unk>.
Interestingly enough, where we're sitting with a highest population dairy cows and we have since 1994.
<unk>.
So it's about 94 million.
Derek has where historically many years, we kept talking about 90% $91 million.
Alright, Im, saying $9.5 million.
Looking at the wrong here.
We're seeing the <unk> business being strong.
Export demand being good.
And again talking domestically and again same thing for the swine business all of our customers United States are making money.
Around the world, it's a mixed bag.
David mentioned the Covid related.
Economic problems in the far East also at the same thing in South America.
So it's.
Our outlook has been really sort of tempered a bit by the pandemic.
Hi.
But we see continuing strong underlying demand for the business and that's really.
The basis for these numbers.
Okay got it that's that's great and then maybe on <unk> I know you mentioned that sales doubled but can you help us understand I mean, how has that product trended relative to your internal expectations and perhaps maybe what would've been some key learnings Dan as you know <unk>.
Entered the companion animal market.
Hi.
<unk> speaking.
So I think our returns.
Has largely met our expectations for the past year.
Truthfully pre pandemic, we were growing at a faster clip.
As.
Access to the vet was limited and has remained somewhat limited.
Our growth slowed relative to our initial expectations, but it's been consistently growing.
Throughout the last 12 months and as we discussed in our guidance, we expect it to double again in the next 12 months.
<unk>.
As far as.
Our learnings.
It's probably hard to draw lessons from the current time period.
But.
Clearly getting access to the vet.
The challenge and Theres multiple ways to do it and we're still.
Figuring out for ourselves the best way of.
Now, we're working with our exclusive distributor and we're happy and pleased with the the.
The access distributor for the most part is getting but we are also at the same time.
Adjusting and increasing the number of our direct sales reps, who are working with our distributor and that will be a trend that will continue and truthfully it sets us up.
As we.
Right in the years to come and expand our product portfolio, we will have a larger footprint on the ground to build those products.
Okay, great. Thank you.
If you would like to ask a question. Please press star one on your telephone keypad. Your next question comes.
From the line of Michael <unk> with Bank of America.
Okay. Thank you for taking my question.
I wanted to follow up a little bit on sort of the.
The outlook and in animal health.
Could you give us a little bit more insight into your expectations for next year.
<unk>.
Msas and other between.
In the nutritional specialties and vaccines.
Safe to assume that.
Nutritional specialties vaccines are back to that historical sort of high single digit maybe.
Maybe 10% range and MSA is another is more of a low single digit 2% to 3% result next year, just sort of putting all the pieces together.
Let me start.
So as I mentioned on a consolidated basis, our sales growth next year ranges from 1% to 4%, which I would say reflects general market growth in the animal protein industry growth globally, and also mentioned that <unk>.
Animal health could drive those growth numbers, so within our animal health segment, we have MSA and others nutritional specialties.
Michael vaccine, we see the majority of the growth coming from the nutritional specialty and vaccine product line.
Nutritional specialties, we expect to be fueled with some of the mentioned we've made around our acquisition of Osprey and some other products.
We launched and in vaccines, we hope to recover and some of those markets.
<unk>.
While economic challenges in 2021, and also launched some new products and expand existing products into new markets.
Okay. Okay. That's helpful and then on the on the gross margin line.
You saw some nice gains this quarter and then go out that was probably impact.
Yeah.
It's where the underlying commodity pricing.
<unk>.
In Manila Nutrition and performance product do you anticipate gross margin to sort of continue along that trajectory next year.
Could you give us any sense on sort of your assumptions around Cogs also keep in mind, you know inflationary pressures everything else going on in the broader economy.
As we.
Put out these numbers I think saying earlier.
The challenges we faced we.
Generally we feel gross margin should improve the unknowns.
The commodity price increases we're seeing around the world.
The unusual situation with shipping.
And freight costs.
In some ways tripling quadrupling and what impact that will have in our ability to pass that on.
As we will do it but it's going to be a struggle.
So in a normal year I would say the answer is yes.
And freight the margins will increase.
We received.
A greater percent and sales growth and in vaccines and nutritionals and the lower growth in MSA, but it's still an upside down market out there and.
We still have.
We had the ability in many countries to sit in front of the customers.
Things are still going in a bit of a long distance. So the information is slower but overall underlying.
Growth is there.
And we see.
We see it returning to trend whether.
It will.
Not that you return this year fiscal year, not sure but definitely returning.
Okay. Thanks, so much.
And at this time there are no further questions.
Oh.
Thanks.
Sure.
Alright, Thank you Rebecca and thank you again to our employees for delivering such a strong financial performance in fiscal year 2021.
And thank you everybody on today's call for your time attention and questions and interest in fiber Animal Health Corporation. Please enjoy these last days of summer with all be diligent about keeping ourselves and one another safe.
Thank you and have a great rest of your day.
Thank you for participating this concludes today's conference call you may now disconnect.
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