Q4 2023 Phibro Animal Health Corporation Earnings Call

Speaker 1: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your operator today. At this time, I'd like to welcome everyone to the Fibro Animal Health Corporation.

Ladies and gentlemen, thank you for standing by my name is Brent and I will be your operator today at.

At this time I'd like to welcome everyone to the Fibril Animal Health Corporation fourth quarter 2023 conference call.

Speaker 1: fourth quarter 2023 conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise.

All lines have been placed on mute to prevent any background noise.

Speaker 1: After the speaker's remarks, there will be a question and answer session.

After the Speakers' remarks, there will be a question and answer session.

Speaker 1: If you'd like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. It is now my pleasure to turn today's call over to Damian Finio. Sir, please go ahead.

If you'd like to ask a question at that time simply press Star followed button number one on your telephone keypad.

He would like to withdraw your question again press Star one thank you.

My pleasure to turn today's call over to Damien is thinning out.

Sir Please go ahead.

Speaker 2: Thank you, Brent. Good morning and welcome to the Cyber Animal Health Corporation earnings call for our fourth quarter and year end of June 30th, 2020.

Thank you Brad good morning, and welcome to the Ciber Animal Health Corporation earnings call for our fourth quarter and year ended June 32023. My name is Damien <unk> and I'm, the Chief Financial Officer Febrile I'm joined on today's call by Jack <unk>, Chairman, President and Chief Executive Officer, and Donavan High director and executive.

Speaker 2: My name is Damian Finio and I am the chief financial officer of FIBRO. I'm joined on today's call by Jack Benheim, FIBRO's chairman, president, and chief executive officer, and Donny Benheim, director and executive vice president of corporate strategy.

Give vice president of corporate strategy.

Speaker 2: Today, we will review financial performance for our fourth quarter and fiscal year ending June 30th, 2023, as well as provide financial guidance for the fiscal year ending June 30th, 2024. At the conclusion of our opening remarks, we will open the lines for questions.

Today, We will review financial performance for our fourth quarter and fiscal year, ending June 32023, as well as provide financial guidance for the fiscal year ending June 32024.

At the conclusion of our opening remarks, we will open the lines for questions I'd like to remind you that we are providing a simultaneous webcast of this call on our website www Dot P. H C. Dot com also on the investors section of our website you will find copies of the earnings press release annual report on Form 10-K filed with the SEC.

Speaker 2: I'd like to remind you that we are providing a simultaneous webcast of this call on our website, www.pahc.com. Also, on the investors section of our website, you will find copies of the earnings press release, annual report on Form 10-K filed with the SEC yesterday, as well as the transcript and slides presented on this call.

Yesterday as well as the transcripts and slides presented on this call.

Speaker 2: 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 report.

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.

Speaker 2: Our remarks include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or US GAT. I refer you to the non-GAT financial information section in our earnings press release for a discussion of these measures.

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.

Speaker 2: 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

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.

Speaker 2: We present our results on both a GAAP and an adjusted basis. Our adjusted results exclude acquisition related items, unusual, nonoperational, or nonrecurring items, including stock-based compensation and restructuring costs, other income and expense, as separately reported in the consolidated statements of operations, including foreign currency gains and losses, net, and lastly, income tax effects related to pretax adjustments and unusual or nonrecurring income tax items.

We present, our results on both a GAAP and an adjusted basis, our adjusted results exclude acquisition related items unusual nonoperational or nonrecurring items, including stock based compensation and restructuring costs.

Other income and expense is separately reported in the consolidated statements of operations, including foreign currency gains and losses net.

Lastly income tax effects related to pre tax adjustments and unusual or nonrecurring income tax items.

Speaker 2: Now, let me introduce our chairman, president, and chief executive officer, Jack Benheim, to share his opening remarks, which will include his perspective on our fiscal year 2023 fourth quarter and full year financial performance and guidance for our fiscal year 2024. Jack? Thank you, Damian. And hello, everyone.

Now, let me introduce our chairman President and Chief Executive Officer, Jack that time to share his opening remarks.

I'll include his perspective on our fiscal year 2023 fourth quarter and full year financial performance and guidance for our fiscal year 2024, Jack Thank you Damian and Hello, everyone.

Speaker 1: For our year ending June 30th, 2023, our business delivered both sales and adjusted EBITDA performance in line with the guidance we communicated to the market.

Ending June 32023 business delivered both sales and adjusted EBITDA performance in line with the guidance, we communicated to the market.

Speaker 1: On a confology basis, net sales was $978 million, a 4% improvement over the prior year.

On a consolidated basis net sales were $978 million, a 4% improvement over the prior year.

Speaker 1: An adjusted EBITDA of $113 million, a 2% improvement.

And adjusted EBITDA of $113 million, a 2% improvement.

Speaker 1: Our largest and core segment, Animal Health, reported that we believe to be above market performance, posting sales growth of 9% and adjusted EBITDA growth of 10% over the prior year.

Our largest segment animal health reported that we believe to be above market performance.

<unk> sales growth of 9%.

Good EBITDA growth of 10% over the prior year.

Speaker 1: Within animal health, each product category grew net sales significantly. MFA and other sales were up 7%, while nutritional specialties improved 10% and vaccines were up 13%. Reflected of the double digit percentage growth expectations we've historically communicated.

Within animal health each product category grew net sales significantly.

Sales were up 7%, while nutritional specialties improved 10% and vaccines were up 13% reflective of the double digit percentage growth expectations, we've historically communicated.

Speaker 1: The impressive financial performance of our animal health segment was somewhat dampened by our mineral nutrition and performance product segments, which when combined, accounted for a decline in both net sales and adjusted EBITDA in comparison to their respective strong financial performances delivered in fiscal year 2022.

The impressive financial performance of our animal health segment were somewhat dampened by our mineral nutrition and performance products segments, which when combined accounted for a decline in both net sales and adjusted EBITDA income into their respective strong financial performances delivered in fiscal year 2022.

The strength of our animal health segment had helped to fuel our manufacturing capacity in the basin, we made investments to expand manufacturing capacity most notably.

Speaker 1: The strength or animal health segment had helped to fuel our manufacturing capacity innovation. We made investments to expand manufacturing capacity most notably in our site in Illinois, and with the opening of a newer Titan's vaccine facility in Brazil.

Illinois, and with the opening of a new adventures vaccine facility in Brazil.

Speaker 1: We also introduce new vaccine products, mind extensions and new physical specialties, and continue to progress on companion animal development pipeline.

We also introduced new vaccine products line extensions in nutritional specialties.

Continued to progress our companion animals development pipeline.

As we look ahead to the opportunities before us in fiscal year 2024, we are projecting continued top and bottom line growth.

Speaker 1: As we look ahead to the opportunities before us from fiscal year 2024, we are projecting continued top and bottom line growth. From a sales perspective, we are projecting sales of billion to a billion five.

Mr perspective, we.

Projecting sales of $1 billion to $1 billion five.

Speaker 1: In fiscal year 2024, from a justity, but not perspective, we are projecting 115 million to $121 million.

In fiscal year 2020 for them from adjusted EBITDA perspective, we are projecting $115 million to $121 million.

Speaker 1: Both sales and adjusted even not the traction if you flex roughly 5% year in year growth at the midpoint of our guidance range.

Both sales and adjusted EBITDA projected to be roughly 5% year on year growth at the midpoint of our guidance range.

Speaker 1: This world is driven by animal health, while we expect mental nutrition and performance products performance in line with this year, 2023.

This growth is driven by animal health, while we expect mineral nutrition and performance product performance in line, but fiscal year 2023.

Speaker 1: Overall, we've delivered financial results in line with guidance and I'm projecting further growth in the coming year. But that, I asked Damon to go to our actual results and projections in more detail before opening the line for questions. Damon. Thank you, Jack. Let me start with our consolidated financial performance for the fourth quarter and at June 30th, 2023, versus the same quarter one year ago.

Overall, we delivered financial results in line with guidance and a projected further growth in the coming year with that statement to actual results and projections in more detail before opening the line for questions Damien.

Jack Let me start with our consolidated financial performance for the fourth quarter ended June 32023 versus the same quarter one year ago.

Speaker 2: On a consolidated basis, Ford quarter net sales were $255 million. We selected a daily less than 1% decline versus prior year, driven by a decline in mineral nutrition offset by growth in animal health and performance products.

On a consolidated basis fourth quarter net sales were $255 million reflective of a less than 1% decline versus prior year, driven by a decline in mineral nutrition offset by growth in animal health and performance products.

Speaker 2: Despite flat sales, gap-based net income and diluted earnings per share both increased 54% versus the same quarter a year ago. The increase was driven primarily by lower selling, general and administrative expenses and favorable currency movements, offset partially by lower gross profit due to lower demand for trace minerals and higher interest and income tax.

Despite flat sales GAAP based net income and diluted earnings per share both increased 54% versus the same quarter a year ago. The increase was driven primarily by lower selling general and administrative expenses and favorable currency movements offset partially by lower gross profit due to lower demand for trace minerals and higher interest and income tax expense.

Speaker 2: After adjusting our gap results for acquisition related adjustments, foreign currency movements, and one-offs, fourth quarter adjusted EBITDA of $32.3 million reflects an increase of $0.8 million, or 3%, driven by growth in animal health, offset partially by declines in mineral nutrition and performance products.

After adjusting our GAAP results for acquisition related adjustments foreign currency movements, and one offs fourth quarter adjusted EBITDA of $332 $3 million reflects an increase of point $8 million or 3% driven by growth in animal health offset partially by declines in mineral nutrition and performance products.

Speaker 2: adjusted net income and adjusted diluted earnings for share were both up 5% respectively driven by decreases in S.G.N.A. and a lower tax provision. Partially offset by lower gross profit and higher interest.

Adjusted net income and adjusted diluted earnings per share were both up 5%, respectively, driven by decreases in SG&A and a lower tax provision, partially offset by lower gross profit and higher interest expense.

Speaker 2: On slide 5, 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 were $978 million, reflecting an increase of $35.6 million of 4%. Driven again by strong growth in our course segment, Animal Health, offset by declines and mineral nutrition of performance products.

On 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 were $978 million, reflecting an increase of $35 $6 million or 4% driven again by strong growth in our core segment animal.

Helps offset by declines in mineral nutrition and performance products.

Speaker 2: Gap-based net income and diluted earnings per share for the full year declined 34% versus the prior year, driven primarily by higher selling general and administrative expenses due to environmental remediation costs, higher employee related costs, strategic investments, currency movements, and interest in the future.

GAAP based net income and diluted earnings per share for the full year declined 34% versus the prior year, driven primarily by higher selling general and administrative expenses due to environmental remediation costs higher employee related costs strategic investments currency movements and interest expense.

Speaker 2: I'll step partially by higher growth profit and a reduction in income tax.

Offset partially by higher gross profit and a reduction in income tax expense.

Speaker 2: After adjusting gap results for one-off, acquisition related items and foreign currency movements adjusted even at improved 2%. Driven by sales and gross profit growth, partially offset by an increase in selling, general, and administrative expenses and strategic investments.

After adjusting GAAP results for one off acquisition related items and foreign currency movements, adjusted EBITDA improved 2% driven by sales and gross profit growth, partially offset by an increase in selling general and administrative expenses and strategic investments.

Speaker 2: Lastly, adjusted net income and adjusted diluted earnings per share declined 8%. Driven by higher selling general and administrative expenses, interested income taxes, partially offset by higher gross profits.

Lastly, adjusted net income and adjusted diluted earnings per share declined 8% driven by higher selling general and administrative expenses interest and income taxes, partially offset by higher gross profit.

Speaker 2: Turning the business segment performance, starting with fourth quarter financial performance of our largest segment, Animal Health, which is comprised of the MSAs and other nutritional specialties and vaccine product categories. Net sales increased $10.2 million or 6% versus the same quarter prior year. The increase in our animal health segment, net sales was driven by improvements in all product categories.

Okay.

Turning to business segment performance, starting with fourth quarter financial performance of our largest segment animal health, which is comprised of the msas and other nutritional specialties and vaccine product categories net sales increased $10 2 million or 6% versus the same quarter prior year.

The increase in our animal health segment net sales was driven by improvements in all product categories.

Speaker 2: First, the 2.4 million or 2% increase in MFCs and other versus the prior quarter. Driven by increased sales of processing aids used in the ethanol fermentation industry.

The $2 4 million or 2% increase in msas and other versus the prior quarter driven by increased sales of processing AIDS used in the ethanol fermentation industry second the $2 1 million or 5% improvement nutritional specialties net sales driven by higher average selling prices and increased demand.

Speaker 2: Second, the 2.1 million or 5% improvement in nutritional specialty's net sales driven by higher average selling prices and increased demand for microbial products. And third, a 5.7 million or significant 25% improvement in vaccine net sales driven by increased demand globally coupled with new product launches in Latin America.

For microbial products and third a $5 7 million were significant 25% improvement in vaccine net sales driven by increased demand globally, coupled with new product launches in Latin America.

Speaker 2: In terms of profitability, animal health adjusted even. It was $37.9 million and increased its $4.4 million. We're 13% over the prior year quarter, while the adjusted EBITDA margin improved 130 faces. Quence. The improvement was driven by higher revenue driving incremental growth profits and a decline in selling gen on administrative.

In terms of profitability animal health adjusted EBITDA was $37 $9 million, an increase of $4 4 million or 13% over the prior year quarter, while adjusted EBITDA margin improved 130 basis points.

Proven it was driven by higher revenue driving incremental gross profit and a decline in selling general and administrative expenses.

Okay.

Speaker 2: Moving to slide seven, which reflects full-year fiscal financial performance for our animal health segment, net sales were up 52.8 million dollars or 9% versus the prior year. The increase in animal health full-year net sales was driven by the 25.8 million or 7% increase in MSAs and other versus the prior year. Driven by increased demand for MFAs, particularly in the US and Latin American regions, coupled with strong demand for processing age, used in the ethanol fermentation industry.

Moving to slide seven which reflects full year fiscal financial performance for our animal Health segment net sales were up $52 8 million or 9% versus the prior year.

The increase in animal health full year net sales was driven by a $25 8 million or 7% increase in MSA is another versus the prior year driven by increased demand for msas, particularly in the U S. Latin American regions, coupled with strong demand for processing AIDS used in the ethanol fermentation industry.

Speaker 2: Also, a 15.3 million or 10% growth nutritional specialties driven by stronger demand for dairy products coupled with growth in our companion animal product, Bridget.

Also a $15 3 million or 10% growth in nutritional specialties, driven by stronger demand for dairy products, coupled with growth in our companion animal product for Joseph.

Speaker 2: And lastly, an 11.7 million were 13% increase in vaccine net sales, driven by strong demand globally and new product launches in Latin America.

And lastly, $11 7 million or 13% increase in vaccine net sales driven by strong demand globally and new product launches in Latin America.

Speaker 2: In terms of profitability, animal health adjusted EBITDA was $136.1 million to $12 million, where 10% improvement over the prior year. While the adjusted EBITDA margin improved 20 basis points as stronger sales and gross profits were partially offset by higher selling general administrative.

In terms of profitability animal health adjusted EBITDA was $136 1 million to $12 million or 10% improvement over the prior year, while the adjusted EBITDA margin improved 20 basis points as stronger sales and gross profits were partially offset by higher selling general and administrative expenses.

Moving on to the fourth quarter financial performance for our other segments on slide eight starting with mineral nutrition net sales for the fourth quarter were $58 4 million, a decrease of $10 9 million or 16% versus the same quarter prior year driven by a decrease in demand for trace minerals, partially offset by higher.

Speaker 2: Moving on to the fourth quarter financial performance for our other segments on slide 8. Starting with Miner on Nutrition, net sales for the fourth quarter were 58.4 million dollars, a decrease of 10.9 million or 16 percent. Versus the same quarter prior year, driven by a decrease in demand for trace minerals, partially offset by higher average selling price.

Average selling prices increased.

Speaker 2: The increase in average fuel in prices is correlated to the movement of the underlying raw material costs.

The increase in average selling prices as correlated to the movement of the underlying raw material costs.

Speaker 2: Mineral nutrition adjusted EBITDA was $3.9 million. A decrease of $2.8 million, or 42%, driven by lower gross profit partially offset by a decline in selling general and administrative costs, resulting in a 300 basis point adjusted EBITDA margin decline versus the same quarter one year ago.

Mineral nutrition adjusted EBITDA was $3 9 million, a decrease of $2 8 million or 42% driven by lower gross profit, partially offset by a decline in selling general and administrative costs, resulting in a 300 basis point adjusted EBITDA margin declined versus the same quarter one year ago.

Moving to our performance products segment net sales were $19 9 million for the three months ended June 32023, reflecting an increase of $500000 or 3% over the prior year same quarter, driven by slightly stronger demand and pricing for copper based products.

Speaker 2: Moving to our performance products segment, net sales were $19.9 million for the three months and a June 30 of 2023, reflecting an increase of $500,000 or 3% over the prior year, same quarter, driven by slightly stronger demand and pricing for copper based products.

Speaker 2: Adjusted the evidus for the quarter was relatively flat and reflected in 80 bases pointed just to the evidomaraging define on lower gross process.

Adjusted EBITDA for the quarter was relatively flat and reflected an 80 basis point adjusted EBIT margin declined on lower gross profit.

Lastly, corporate expenses increased 600000, or 6% versus the same quarter. The prior year, primarily driven by an increase in investments relating to strategic initiatives.

Speaker 2: Now looking at full year financial performance for these segments on slide 9, Mineral nutrition. Net sales for the full year were $242.7 million, reflecting a decline of 6%. Person to prior year driven by a decrease in demand for trace minerals, partially offset by higher average selling.

Now looking at full year financial performance for these segments on slide nine mineral nutrition net sales for the full year were $242 $7 million, reflecting a decline of 6% versus the prior year driven by a decrease in demand for trace minerals, partially offset by higher average selling prices increased.

Speaker 2: The increased and average sound prices is correlated to the movement of the underlying raw material.

Average selling prices as correlated to the movement of the underlying raw material costs.

Speaker 2: Mineral nutrition adjusted even it was $17.4 million, the client of $6.6 million or 28%. Driven by lower sales volume and higher raw material costs.

Nutrition, adjusted EBITDA was $17 $4 million decline of $6 $6 million or 28% driven by lower sales volume and higher raw material costs and adjusted EBITDA margin for the year was seven 2% a decline of 210 basis points versus one year ago.

Speaker 2: And adjusted even a margin for the year was 7.2% for the fine of 210 basis points versus one year.

Speaker 2: Turning to full fiscal year results for our product, our performance product segment, net sales were $75.4 million, just slightly behind the prior year, driven by decreased demand for both personal care product ingredients and copper-related products, partially offset by higher average selling prices. However, adjusted EBITDA of $9.3 million for the full year represented a 7% improvement due to higher gross profit, partially offset by an increase in selling general administrative expenses.

Turning to full fiscal year results for our product our performance products segment net sales were $75 4 million just slightly behind the prior year driven by decreased demand for both personal care product ingredients and copper related products, partially offset by higher average selling prices. However, adjusted EBITDA of $9.

$3 million for the full year, representing a 7% improvement due to higher gross profit, partially offset by an increase in selling general and administrative expenses lastly.

Speaker 2: Lastly, corporate expenses increase $4.4 million or 10% versus prior. The increase was driven primarily by increased employee related costs and strategic.

Lastly, corporate expenses increased $4 4 million or 10% versus prior year. The increase was driven primarily by increased employee related costs and strategic investments.

Now, let's turn our attention to key capitalization related metrics on slide 10.

Speaker 2: Let's turn our attention to key capitalization related metrics on slide 10.

Speaker 2: On a trailing 12 month basis, free cash flow was a negative $24 million as capital expenditures exceeded operating cash flow generated by the business. However, as projected on previous calls, both operating and free cash flow continued to improve throughout the year, posting three consecutive quarters of growth with the delivery of a really strong fourth quarter. The trailing 12 months free cash flow of minus $24 million was driven primarily by the $18 million inventory bill over that same period of time.

On a trailing 12 month basis free cash flow was a negative $24 million as capital expenditures exceeded operating cash flow generated by the business. However is projected on previous calls both operating and free cash flow continued to improve throughout the year posting three consecutive quarters of growth with the delivery of a really strong fourth quarter.

The trailing 12 months free cash flow of minus $24 million was driven primarily by the $18 million inventory build over that same period of time.

Speaker 2: We had $248 million of liquidity at year end. This includes cash and short-term investments of $81 million and $167 million of unused and available revolving credit.

We had $248 million of liquidity at year end. This includes cash and short term investments of $81 million and $167 million of unused and available revolving credit.

Speaker 2: During the fourth quarter, we secured a $50 million incremental term loan and negotiated an increase in the leverage ratio of covenant to 4.25x for all fiscal year 2024 quarters, providing liquidity in the event the economy was.

During the fourth quarter, we secured a $50 million incremental term loan and negotiated an increase in the leverage ratio covenant to four point to five X for all fiscal year 2024 quarters, providing liquidity in the event the economy worsens upon executing the transaction the funds were used to pay down our revolving credit facility.

Speaker 2: upon executing the transaction, the funds were used to pay down our revolving credit for

Speaker 2: Accessibility of revolving credit is subject to leverage ratio limitations as defined in our 2021 loan agreement.

The accessibility of revolving credit to subject to leverage ratio limitations as defined in our 2021 loan agreement.

Speaker 2: Consistent with the past several quarters, we also announced a quarterly dividend of 12 cents per share or $4.9 million.

Consistent with the past several quarters, we also announced a quarterly dividend of <unk> 12 per share or $4 $9 million.

Speaker 2: Moving on to our gross leverage ratio. It was 4.2 times at June 30th. This is calculated by dividing total debt of $476 million by trailing 12 month adjusted EBITDA about $113 million.

Moving onto our gross leverage ratio was four two times at June 30th. This is calculated by dividing total debt of $476 million by trailing 12 month adjusted EBITDA.

$13 million. Please note, we use net debt and adjusted EBITDA as defined by our existing loan agreement to calculate the net leverage ratio and used for covenant compliance purposes.

Speaker 2: Please note, we use net debt and adjusted EBIT as defined by our existing loan agreement to calculate the net leverage ratio I used for covenant compliant purposes.

Speaker 2: Lastly, we had $300 million of our total debt is covered under an interest rate swap agreement, which in essence converted the floating portion of our interest expense obligation to a fixed interest rate of 0.61% through June of 2025.

Lastly, we had $300 million of our total debt is covered under an interest rate swap agreement, which in essence converted the floating portion of our interest expense obligation to a fixed interest rate of six 1% through June of 2025.

Speaker 2: In summary, we reported three consecutive quarters of improved operating and free cash flow. The negative $24 million of trailing 12 month, free cash flow was driven primarily by the $18 million bill to the inventory over the same period. The improving trend is a direct consequence of steps we've taken to manage working capital more tightly. Best reflected in the $15 million reduction of inventory realized in the fourth quarter of fiscal year 20.

In summary, we reported three consecutive quarters of improved operating and free cash flow the negative $24 million of trailing 12 month free cash flow was driven primarily by the $18 million build of inventory over the same period.

The improving trend is a direct consequence of steps we've taken to manage working capital more tightly best reflected in the $15 million reduction of inventory realized in the fourth quarter of fiscal year 'twenty three.

That concludes our perspective on the fourth quarter and full year financial performance. So, let's now turn our attention to the outlook for fiscal year 2024.

Speaker 2: That concludes our perspective on both fourth quarter and full year financial performance. So let's now turn our attention to the outlook for fiscal year 2020.

On slide 12, looking ahead to fiscal year 2024 highlights we are projecting another year of profitable growth.

Speaker 2: On slide 12, looking ahead to fiscal year 2024 highlights, we are projecting another year of profitable growth.

Speaker 2: Our projected growth is driven by animal health while we anticipate mineral nutrition and performance products by natural performance in line last year.

Our projected growth is driven by animal health, while we anticipate mineral nutrition and performance products financial performance in line with last year.

Speaker 2: From a sales perspective, we're projecting sales in the range of 1 to 1.05 billion dollars, reflecting approximately 5% growth at the midpoint of the range versus last year's sales of 978 million dollars.

From a sales perspective, we are projecting sales in the range of $1 billion to $1.05 billion, reflecting approximately 5% growth at the midpoint of the range versus last year sales of $978 million.

Brent: Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your operator today at this time. I'd like to welcome everyone to the Phibro Animal Health Corporation fourth quarter 2023 conference call. All lines have been placed on you to prevent any background noise. After the speakers remarks, and there will be a question and answer session. If you'd like to ask a question at that time, simply press star. Follow button number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you.

Speaker 2: From an adjusted EBITDA perspective, we are projecting adjusted EBITDA in the range of $115 to $121 million, reflecting approximately 5% growth at the midpoint in the range versus last year as adjusted even of $113 million.

From an adjusted EBITDA perspective, we are projecting adjusted EBITDA in the range of $115 million to $121 million, reflecting approximately 5% growth at the midpoint of the range versus last year's adjusted EBITDA of $113 million.

Speaker 2: This projection also assumes the modest increase in animal and health related strategic

This projection also assumes a modest increase in animal health related strategic investments.

Speaker 2: So turning to slide 13 in summary on a consolidated basis to company's full financial guidance for the year ending June 30th, 2024, with year over year percentage growth estimates calculated using the midpoint of the ranges provided is as follows.

So turning to slide 13 in summary on a consolidated basis, the company's full financial guidance for the year ending June 32024 with year over year percentage growth estimates calculated using the midpoint of the ranges provided is as follows.

Damian Finio: It is now my pleasure to turn today's call over to Damian Finio. Sir, please go ahead. Thank you, Brent. Good morning, and welcome to the Phibro Animal Health Corporation earnings call for our fourth quarter and year end of June 30th, 2023. My name is Damian Finio, and I am the Chief Financial Officer of Phibro. I'm joined on today's call by Jack Bendheim, Phibro's Chairman, President and Chief Executive Officer and Donnie Bendheim, Director and Executive Vice President and Corporate Strategy.

Speaker 2: Net sales of 1 billion to 1.05 billion dollars reflecting 5% growth.

Net sales of 1 billion to $1.05 billion, reflecting 5% growth.

Damian Finio: Today, we will review financial performance for our fourth quarter and fiscal year ending June 30th, 2023, as well as provide financial guidance for the fiscal year ending June 30th, 2024. At the conclusion of our opening remarks, we will open the lines for questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website, www.phc.com. Also, on the investor section of our website, you will find copies of the earnings press release, annual report on form 10k, filed with the SEC yesterday, as well as the transcription slides presented on this call.

Speaker 2: Net income of 31 to 36 million dollars reflecting 2%.

Net income of 31% to $36 million, reflecting 2% growth.

Speaker 2: diluted earnings per share of 76 cents to 90 cents or 2% growth.

Diluted earnings per share of <unk> 76 to 94, 2% growth.

Speaker 2: Just a debita of 115 to 120 million dollars representing 5% growth.

Adjusted EBITDA of $115 million to $121 million, representing 5% growth.

Speaker 2: adjusted net income of $45 to $51 million.

Adjusted net income of $45 million to $51 million.

Speaker 2: representing 2% decline, adjusting the adjusted diluted earnings per share of $1.12 to $1.27 also a 2% decline, and an adjusted effect of tax rates of 33 to 35%.

Representing 2% decline in <unk>.

<unk> adjusted diluted earnings per share of $1 12 to $1 27, also a 2% decline and an adjusted effective tax rate of 33% to 35%.

Speaker 2: Overall, we delivered financial performance in line with our guidance in fiscal year 2023 and our projecting continued top and bottom line growth as we look ahead to fiscal year 2024. The with that Brent could you please.

Overall, we delivered financial performance in line with our guidance in fiscal year 2023, and are projecting continued top and bottom line growth as we look ahead to fiscal year 2024.

So with that Brent could you. Please open the lines for questions.

Speaker 3: At this time I would like to remind everyone in order to ask a question, press star followed by number one on your telephone keypad.

Damian Finio: 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 of 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 US gap. I refer you to the non-GAP financial information section in our earnings press release for a discussion of these measures.

At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.

Speaker 3: If you would like to withdraw your question, again press star 1.

If you would like to withdraw your question again press Star one.

Speaker 3: question comes from the line of Brian Reich with Ross, MKM. Your line is open.

Your first question comes from the line of Brian Wright with Ross and Kate your.

Your line is open.

Speaker 4: Thank you, good morning, thanks for the question. One thing to just dig in a little further, could you help us understand the vaccine growth and maybe quantify how much of that in the quarter year, with from the autonomous vaccine business in South America?

Thank you and good morning, and thanks for the question.

One is they're just taking a little further could you help us understand the.

Damian Finio: Reconciliation of these non-GAP financial measures to the most directly comparable US gap measures are included in the financial tables that accompany the earnings press release. We present our results on both a GAP and an adjusted base. Our adjusted results exclude acquisition related items, unusual, non-operational or non-recurring items, including stock-based compensation and restructuring clauses. Other income and expense have separately reported in the consolidated statements of operations, including foreign currency gains and losses, net.

Vaccine growth and maybe quantify how much of that in the quarter year over year was from the autologous vaccine business in South America.

Yes.

Speaker 1: as thanks and good morning. The, on the, the attaches factor, we just built that, we just had an opening a few months ago. So, sales are diminimous, hopefully by the end of the,

Thanks, and good morning.

On the attach is factor we just built that we just had in opening a few months ago.

So yes.

10 minutes.

Hopefully by the end of the year, we will not reported.

Speaker 1: You know, nice sales growth. It takes that cycle to get the vaccines approved on the farms and then make what's called the custom vaccine takes a while. The other growth in South America is our response to disease pressures.

Nice sales growth it takes that cycle.

Jack Bendheim: And lastly, income tax effects related to pre-tax adjustments and unusual or non-recurring income tax items. Now, let me introduce our Chairman, President and Chief Executive Officer Jack Benheim to share his opening remarks, which will include his perspective on our fiscal year 2023-4th quarter and full year financial performance and guidance for our fiscal year 2024. Jack? Thank you, Damien and hello everyone. For our year ending June 30th, 2023, our business delivered both sales and adjusted EBITDA performance and line with the guidance we communicated to the market.

Did the vaccines approved on the phones and then to make what's called the cost of vaccine takes a while.

The other growth in South America.

<unk>.

Our response to the expenses.

Speaker 1: And there are some diseases.

Got it.

And there is certain diseases that are growing in the poultry industry and it's literally we were responding to the market.

Speaker 1: that are growing down in the poultry industry and it's literally responding to the market.

Yeah.

Speaker 4: Great, so that's the additional growth on top of what we've seen in the fourth quarter. That's great. I did have a follow-up as well. Can you tell the potential benefit of Tyson reintroducing certain antibiotics for poultry?

Great. So that's additional growth on top of what we've seen in the fourth quarter.

That's great.

Have a follow up as well.

You talked to the potential benefit of Tyson reintroducing certain antibiotics.

Jack Bendheim: On a consolidate basis, net sales was $978 million, a 4% improvement over the prior year, and adjusted EBITDA of $113 million, a 2% improvement. Our largest and core segment animal health reported that we believe to be above market performance, posting sales growth of 9% and adjusted EBITDA growth with 10% over the prior year. With an animal health, each product category grew net sales significantly. MFA and other sales were up 7%, one nutritional specialties improved 10% and vaccines were up 13%.

For poultry.

Speaker 1: Right, I am, you know, a lot of people talk about it. So, the patients after about, I think, maybe over five years of working with somebody called N-A-E, which is no antibiotic ever. And...

Right.

People talk about it tightens.

Tysons.

I think maybe almost five years.

We're doing something called <unk>, which is no antibiotics ever.

And.

Speaker 1: come back to what is more standard for the industry around the world and are using no antibiotics that are used by humans.

Come back.

More standard for the industry around the world.

And are using no antibiotics.

Used by humans.

Speaker 1: and going back to antibiotics and I'm interested with the Kuala Lianophores, which has been in the market for 25, 35 years.

Going back to antibiotics.

Not an issue for us.

Which has been in the market for 25 to 35 years.

Jack Bendheim: Reflected of the double-digit percent growth expectations, we've historically communicated. The impressive financial performance over animal health segment was going to dampen by our mineral nutrition and performance product segments, which when combined it can't afford to climb in both net sales and adjusted EBITDA in comparison to their respective strong financial performances delivered in fiscal year 2022. The strength of our animal health segment had helped to fuel our manufacturing capacity and innovation. We made investments to expand manufacturing capacity, most notably in our site in Illinois, and with the opening of a new retirement vaccine facility in Brazil.

Speaker 1: that range. So overall, would we see a very little effect for our business?

That range so.

Overall, we see very little effect for our business.

And it will.

Speaker 1: And you know, it has come effect to some people, but overall, I think the effect will be quite small.

We'll have some effect on some people, but overall I think.

The effect will be quite small.

Speaker 4: Okay, thank you. And then if I could just add one last one, just wanted to think about like inventory levels, Damien, we've seen some improvement here in the fourth quarter, so some nice improvement. Or should we see some further improvement in 24 or is it ever uncomfortable where we're at now to just kinda how to think about that in terms of cash flow dynamics?

Okay. Thank you and then if I could just.

And one last one just wanted to think about like inventory levels Damian.

Seen some improved mature in the fourth quarter saw some nice improvement.

Or should we see some further improvement.

In 24 or are we comfortable where we're at now or just kind of how to think about that in terms of the cash flow dynamics.

Jack Bendheim: We also introduced new vaccine products, line extensions and new fiscal specialties, and continued to progress our companion animal development pipeline. As we look ahead to the opportunities before us from fiscal year 2024, we are projecting continued top and bottom line growth. From a sales perspective, we are projecting sales of billion to a billion five in fiscal year 2024. From a adjusted EBITDA perspective, we are projecting 115 million to 121 million dollars.

Speaker 2: We are targeting additional improvement in fiscal year 24. We ended the year a little in the four months of inventory on average across all products across the world. Our target is still to get down to four million. So we hope we will see that in fiscal year 24. And it will help to improve free cash flow as it did in the fourth quarter.

We are targeting additional improvement in fiscal year 'twenty four we ended the year a little north of four months of inventory on average across all products across the world. Our target is still to get down to $4 million.

So we hope we will see that in fiscal year 'twenty four and it will help to improve free cash flow as it did in the fourth quarter. We will say, we typically start off the year slow in the first quarter. So we may not see that improvement at the end of September 32024, or 23, but we do expect to see as the year progresses.

Speaker 2: We'll say we typically start off the year slow in the first quarter, so we may not see that improvement at the end of September 30th, 2024 or 23, but we do expect to see it as the year progresses.

Jack Bendheim: Both sales and adjusted EBITDA projections reflect roughly 5% year-in-year growth at the midpoint of our guidance range. This growth is driven by animal health while we expect mineral nutrition and performance product performance in line with this year 2023. Overall, we've delivered financial results in line with guidance and are projecting further growth in the coming year.

Great. Thank you so much.

Speaker 3: Your next question is from the line of Michael Riskin with Bank of America. Your line is open.

Your next question is from the line of Michael Riskin with Bank of America. Your line is open.

Speaker 5: Hey guys, thanks for taking the questions. Gonna start on the margins and sort of what's implied in fiscal year 24 guide.

Hey, guys.

For taking the questions I'm going to start on the margins and sort of what's implied in fiscal year 'twenty four guide.

Damian Finio: With that, I ask Damien to go through our actual results and projections in more detail before opening the line for questions. Damien. Thank you, Jack. Let me start with our consolidated financial performance for the fourth quarter and at June 30, 2023, versus the same quarter one year ago. On a consolidated basis, Ford quarter net sales were $255 million, reflective of a less than 1% decline versus prior year, driven by decline in mineral nutrition, offset by growth in animal health and performance products.

Speaker 5: By my math, you're sort of guiding to, you know, slightly down operating margins of your year, and you call it out that increment, you know, three million strategic investment.

Bye bye math, youre sort of guiding to slightly down operating margins year over year and you called out.

Incremental 3 million strategic investment.

Speaker 5: Can you add a little bit more color on where that's going? That's going towards the companion business, but any additional color there, and then also a little bit on. What are your expectations for growth margins, what are your expectations for input costs that go into the model right now? Thanks.

Can you add a little bit more color on the way that's going to assume.

And thats going towards the companion business, but any additional color. There and then also a little bit on what are your expectations for gross margins what are your expectations for input costs that go into the model right now.

Speaker 2: Yeah, thanks Michael. Let me start with strategic investment. So as we mentioned, there's a $3 million assumed increase in fiscal year 24, so 32 million in fiscal year 23, 35 million in fiscal year 24. I would say that there's no significant additions or deletions within that estimate. It's really just the timing of the spend on multiple projects.

Yeah. Thanks, Michael Let me start with strategic investment. So as we mentioned there was a $3 million assumed increase in fiscal year, 'twenty $4 million to $32 million in fiscal year, 'twenty $3 35 million in fiscal year 'twenty four I would say that there's no significant additions or deletions, but then within that estimate it's really just the timing of the spend on multiple projects.

Damian Finio: Despite flat sales, gap-based net income and diluted earnings per share both increased 54% versus the same quarter a year ago. The increase was driven primarily by lower selling general and administrative expenses and favorable currency movements, offset partially by lower growth profit due to lower demand for trace minerals and higher interest in income tax expense. After adjusting our gap results for acquisition related adjustments, foreign currency movements and one-offs, fourth quarter adjusted EBITDA of $32.3 million reflects an increase of $0.8 million or 3%.

Speaker 2: across multiple project categories. We'll say that the majority of the spend is going to vaccines, which as you can see in our fiscal year, 23 fourth quarter results is delivering returns. And it's in our guidance as well next year that we expect continued growth. That vaccine strategic investment will continue to reap returns into the medium term as well.

Multiple project categories will say that the majority of the spend is going to vaccines, which as you can see in our fiscal year.

23 fourth quarter results as delivering returns and that's in our guidance as well next year that we expect continued growth at vaccine strategic investment will continue to reap returns into the medium term as well and behind that I would say, we continue to invest in companion animals. As we've said on previous calls not a short term return on that for the medium term.

Damian Finio: Driven by growth in animal health, offset partially by declines in mineral nutrition and performance Adjusted net income and adjusted diluted earnings per share were both up 5% respectively, driven by decreases in SG&A and a lower tax provision, partially offset by lower gross profit and higher interest expense. On slide 5, 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.

Speaker 2: And behind that, I would say we continue to invest in companion animals, as we've said on previous calls, not a short term return on ads, or the medium term opportunity. But overall, I'd say the delta is more related to timing of spend than anything, and we continue to invest in vaccines and companion animals.

Opportunity, but overall I'd say the delta is more related to timing of spend than anything and we continue to invest in vaccines atmos.

Speaker 2: In terms of gross margin, and Jackie may want to speak to this a bit too, we continue to see rising input costs with change in currency movements, product mix, et cetera. So there is a slight change in the assumption, I guess, going forward in fiscal year 24. But again, nothing major. It's more product mix than any.

In terms of gross margin.

Jack you may want to speak to this a bit too we continue to see rising input costs with the change in currency movements product mix et cetera. So there is a slight change in the assumption I guess going forward in fiscal year, 'twenty, four but again nothing major its more product mix than anything else.

Damian Finio: Net sales were 978 million dollars, reflecting an increase of 35.6 million dollars of 4%. Driven again by strong growth in our core segment animal health, offset by declines in mineral nutrition and performance products. Cat-based net income and diluted earnings per share for the full year declined 34% versus the prior, driven primarily by higher selling, general and administrative expenses due to environmental remediation costs, higher employee-related costs, strategic investments, currency movements and interest expense, offset partially by higher gross profit and a reduction in income tax expense.

Speaker 1: things. I think it's a combination of product mix. It's also a settling out, you know, everyone's aware and we've spoken about it, then, you know, in the previous two years, very, very high and free rate changes because of what happened to COVID.

I think it's a combination of product mix sold.

So it is settling out.

Everyone's aware and we've spoken about it then.

Previous two years with very very high.

<unk>.

Freight rate changes because of what happened to COVID-19.

Speaker 1: Also input costs in terms of labor, the availability of labor here in the United States, and we like other people being...

Also the input costs in terms of labor.

Availability of labor here in the United States.

Damian Finio: After adjusting gap results for one-offs, acquisition related items and foreign currency movements adjusted even at improved 2%, driven by sales and gross profit growth, partially offset by an increase in selling, general and administrative expenses and strategic investments. Lastly, adjusted net income and adjusted diluted earnings per share declined 8% driven by higher selling, general and administrative expenses, interest in income taxes, partially offset by higher gross profit.

Okay.

We like other people.

Speaker 1: basically paying a lot more to get people to come to work. That is all sort of, that has impacted the gross margins. And it's mostly stabilized. I say on the freight side, there is some...

Basically paying a lot more to get people to come to work that.

It's all sort of that has impacted the gross margins and it's.

It's mostly stabilized I would say on the freight side there is some.

Speaker 1: problems brewing with the lack of water in the Panama Canal, forcing rates to be up from products that are shipped through the Panama Canal. But the labor rates have sort of stabilized and we're still doing that sort.

Problems brewing with lack of water in the Panama Canal.

Forcing rates to be up for products that are shipped through the Panama Canal.

But the the labor rates have sort of stabilized.

Damian Finio: Turning the business segment performance, starting with fourth quarter financial performance of our largest segment, animal health, which is comprised of the MSAs and other nutritional specialties and vaccine product categories. Net sales increased 10.2 million dollars for 6% versus the same quarter prior year. The increase in our animal health segment net sales was driven by improvements in all product categories. First, the 2.4 million or 2% increase in MSAs and other versus the prior quarter, driven by increased sales of processing aids used in the ethanol fermentation industry.

We're still looking at.

Speaker 1: going back our margins. So we did a bit at the end of this last year, we have more plans for this year. And I think we will get back some months as we had in the past.

Pulling back.

Margins. So we did a bit at the end of this last year, we have more plan for this year and I think we will get back to a minus as we had in the past.

Speaker 5: Okay, that's really helpful. And then on the, just on the top line guide and the volumes that are implied, you're forecasting another strong year.

Okay. That's really helpful and then on the just on the topline guide in the volumes.

Our implied you're forecasting another strong year.

Speaker 5: for the animal health business. You talked about some of the strength just seeing a vaccine and you product, you talked about the new launches. If there's anything else that's noteworthy that's sustaining this growth, you know, five to 11%. Um.

For for the animal Health business, you talked about some of the strength youre seeing in vaccine and the new products, you're talking about the new launches is there anything else. That's noteworthy that's that's sustaining this growth 5% to 11%.

Damian Finio: Second, the 2.1 million or 5% improvement in nutritional specialties net sales driven by higher average selling prices and increased demand for microbial products and third. A 5.7 million were significant 25% improvement in vaccine net sales driven by increased demand globally coupled with new product launches in Latin America. In terms of profitability, animal health adjusted even at was 37.9 million dollars and increased at 4.4 million dollars or 13% over the prior year while the adjusted EBITDA margin improved 130 faces points. The improvement was driven by higher revenue driving incremental growth profits and a decline in selling general administrative expenses.

Speaker 5: top line growth, maybe you've come a little bit on underlying market conditions, underlying demand, any geographies or species that are standing out.

Top line growth, maybe you could comment a little bit on underlying market conditions underlying demand.

Any geographies or species that are standing out.

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Speaker 1: I think we had called out some of the growth we're seeing in South America on the vaccines. We're seeing some other growth around the world.

So I think we had pulled out some of the growth we're seeing.

South America on the vaccines, we're seeing some other growth around the world.

Speaker 1: We've made investments and some of those investments in terms of plant capacity will be coming on screen in early January of 24. And that gives us the ability on something that is traditional products to respond to mock demand that we have created. So I think that's between those two things I can account for the majority of the growth.

We've made investments in some of those restaurants.

Plenty of capacity will be coming on stream.

Early January 24, and that gives us the ability on some of the nutritional products.

To respond to market demand that we have created.

So I think that's it.

Damian Finio: Moving to slide 7, which reflects full year fiscal financial performance for our animal health segment, net sales were up 52.8 million dollars or 9% versus the prior year. The increase in animal health, full year net sales was driven by the 25.8 million or 7% increase in MSAs and other versus the prior year. Driven by increased demand for MSAs, particularly in the US and Latin American regions coupled with strong demand for processing aids used in the ethanol fermentation, also a 15.3 million or 10% growth nutritional specialties driven by stronger demand for dairy products coupled with growth in our companion animal product for a Genza.

When those two things account for the majority of the growth.

That's helpful. Thank you.

Speaker 3: your next question is from the line of a la G Prada with Barclays. Your line is open.

Your next question is from the line of <unk> process with Barclays. Your line is open.

Yes.

Speaker 6: This is Xiao An for Bolognese. Thanks for taking our questions. You highlighted the choppenies of the US beef cutoff feed logs in the last few quarters. And wondering do you have any updates in terms of the feed log dynamics? Thanks.

Laurie this is shell for biologics. Thanks for taking our question you highlighted that the choppiness of the USPS cardholder isn't.

Caldwell feedlots in the last few quarters and I'm wondering do you have any updates in terms of the feedlot dynamics. Thank you.

Speaker 1: I think it's what we said often. We do.

I think as we've said.

Damian Finio: And lastly, an 11.7 million or 13% increase in vaccine net sales driven by strong demand globally and new product launches in Latin America. In terms of profitability, animal health adjusted EBITDA was 136.1 million dollars to 12 million or 10% improvement over the prior year, while the adjusted EBITDA margin improved 20 basis points as stronger sales and gross profits were partially offset by higher selling general administrative expenses.

Often.

We do.

Speaker 1: basically no feedlot business in the United States, but overall, you know, just...

No feedlot business, the United States, but overall.

Just.

Speaker 1: So, preparing for this call, the encounter surprise that it kept tighten and throughout remains a concern across North America. So, I think we're still not going to see a rise in feedlots. I think we'll see some continuing decline.

Sort of preparing for this call it got surprised with Titan.

<unk> remains a concern across North America, So I think.

We still need to see a rise in feed lots I think we will see some depleted some continuing decline.

Speaker 1: But then we'll get to some sort of equilibrium in some stability.

Damian Finio: Moving on to the fourth quarter financial performance for our other segments on slide 8, starting with mineral nutrition net sales for the fourth quarter were 58.4 million dollars, a decrease of 10.9 million or 16% versus the same quarter prior year driven by a decrease in demand for trace minerals, partially offset by higher average selling prices.

And then we'll get to some some sort of equilibrium and some stability.

Thank you very helpful.

Speaker 3: There are no further questions at this time. I want to turn the call back to Mr. Damien Sinyo.

There are no further questions at this time I will now turn the call back to Mr game in Seo.

Okay. Thank you Brent and on behalf of Jack in the rest of the fiber management team. Thank you. All we are excited about the year ahead and appreciate you taking the time today to join our call to learn more about the exciting things taking place here at Fireeye.

Speaker 2: Okay, thank you Brent and on behalf of Jack and the rest of the fibro management team. Thank you all. We are excited about the year ahead. Appreciate you taking the time today to join our call to learn more about the exciting things taking place here at fibro. Thank you again and enjoy

Damian Finio: The increase in average selling prices is correlated to the movement of the underlying raw material costs. Mineral nutrition adjusted EBITDA was 3.9 million dollars, a decrease of 2.8 million dollars or 42% driven by lower gross profit, partially offset by a decline in selling general administrative costs, resulting in a 300 basis point adjusted EBITDA margin defined versus the same quarter one year ago.

Thank you again and enjoy these last few days of summer.

Okay.

Speaker 3: Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.

Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.

Speaker 7: Please wait, the conference will begin shortly.

Please wait the conference will begin shortly.

Damian Finio: Moving to our performance products segment net sales were 19.9 million dollars for the three months ended June 30 of 2023, reflecting an increase of $500,000 or 3% over the prior year, same quarter driven by slightly stronger demand and pricing for copper based products.

[music].

Damian Finio: Adjusted EBITDA for the quarter was relatively flat and reflected in 80 basis point adjusted EBITDA margin defined on lower gross profits.

Yes.

Damian Finio: Lastly, corporate expenses increased 600,000 or 6% versus the same quarter of the prior year, primarily driven by an increase in investments relating to strategic commissioners.

Okay.

Okay.

[music].

Damian Finio: Now looking at full year financial performance for these segments on slide nine, mineral nutrition net sales for the full year were 242.7 million dollars reflecting a decline of 6%. Person to prior year driven by a decrease in demand for trace minerals, partially offset by higher average selling prices. The increase in average selling prices is correlated to the movement of the underlying raw material costs.

Uh huh.

[music].

Yes.

[music].

Damian Finio: Mineral nutrition adjusted EBITDA was 17.4 million dollars, a decline of 6.6 million dollars or 28%, driven by lower sales volume and higher raw material costs. An adjusted EBITDA margin for the year was 7.2%, the decline of 210 basis points versus one year bill.

Damian Finio: Turning the full fiscal year results for our performance product segments net sales were 75.4 million dollars, just slightly behind the prior year driven by decreased demand for both personal care product ingredients and the copper related products, partially offset by higher average selling prices. However, adjusted EBITDA of 9.3 million for the full year represented a 7% improvement due to higher gross profit, partially offset by an increase in selling general administrative expenses.

Damian Finio: Lastly, corporate expenses increased 4.4 million dollars or 10% versus prior year. The increase was driven primarily by increased employee related costs and strategic expenses.

Damian Finio: Let's turn our attention to key capitalization-related metrics on slide 10. On a trailing 12-month basis free cashflow was a negative $24 million as capital expenditures exceeded operating cashflow generated by the business. However, as projected on previous calls, both operating and free cashflow continued to improve throughout the year, posting three consecutive quarters of growth with the delivery of a really strong fourth quarter.

Damian Finio: The trailing 12-month free cashflow of minus $24 million was driven primarily by the $18 million inventory bill over that same period of time. We had $248 million of liquidity at year end. This includes cash and short-term investments of $81 million and $167 million of unused and available revolving credit. During the fourth quarter, we secured a $50 million incremental term loan and negotiated an increase in the leverage ratio of covenant to 4.25x for all fiscal year 2020-4 quarters, providing liquidity in the event the economy worsens. Upon executing the transaction, the funds were used to pay down our revolving credit facility. The accessibility of revolving credit is subject to leverage ratio limitations as defined in our 2021 loan agreement.

Damian Finio: Consistent with the past several quarters, we also announced a quarterly dividend of $12 cents per share or $4.9 million. Moving on to our gross leverage ratio, it was 4.2 times at June 30. This is calculated by dividing total debt of $476 million by trailing 12-month adjusted EBITDA of $113 million. Please note, we use net debt and adjusted EBITDA as defined by our existing loan agreement to calculate the net leverage ratio used for covenant-compliant purposes.

Damian Finio: Lastly, we had $300 million of our total debt is covered under an interest rate swap agreement, which in essence converted the floating portion of our interest expense obligation to a fixed interest rate of 0.61% through June of 2025.

Damian Finio: In summary, we reported three consecutive quarters of improved operating and free cash flow. The negative $24 million of trailing 12-month free cash flow was driven primarily by the $18 million build of inventory over the same period. The improving trend is a direct consequence of steps we've taken to manage working capital more tightly, best reflected in the $15 million reduction of inventory realized in the fourth quarter of fiscal year 23.

Damian Finio: That concludes our perspective on both fourth quarter and full year financial performance, so let's now turn our attention to the outlook for fiscal year 2024. On slide 12, looking ahead to fiscal year 2024 highlights, we are projecting another year of profitable growth. Our projected growth is driven by animal health while we anticipate mineral nutrition and performance products financial performance in line last year. From a sales perspective, we are projecting sales in the range of 1 to $1.05 billion, reflecting approximately 5% growth at the midpoint of the range versus last year's sales of $978 million. From an adjusted EBITDA perspective, we are projecting adjusted EBITDA in the range of $115 to $121 million, reflecting approximately 5% growth at the midpoint of the range versus last year's adjusted EBITDA of $113 million.

Damian Finio: This projection also assumes a modest increase in animal and health related strategic investments So turning the slide 13 in summary on a consolidated basis to companies full financial guidance for the year ending June 30 of 2024 with year over year percentage growth estimates calculated using the midpoint of the ranges provided is as follows net sales of 1 billion to 1.05 billion dollars reflecting 5% growth. Net income of 31 to 36 million dollars reflecting 2% growth diluted earnings per share of 76 cents to 90 cents or 2% growth just a debita of 115 to 120 million dollars representing 5% growth.

Damian Finio: Adjusted net income of 45 to 51 million dollars representing 2% decline adjusting that adjusted diluted earnings per share of $1.12 to $1.27 also a 2% decline and an adjusted effective tax rate of 33 to 35%. Overall, we delivered financial performance in line with our guidance and fiscal year 2023 and our projecting continued top and bottom line growth as we look ahead to fiscal year 2024.

Brent: The with that Brent could you please open the lines for questions. At this time, I would like to remind everyone in order to ask a question press star followed by number one on your telephone team. If you would like to withdraw your question, again, press star one.

Brian Wright: Your first question comes from the line of Brian right with Roth MKM your line is open. Thank you. Good morning. Thanks for the question. One thing to just to get a little further, could you help us understand the vaccine growth and maybe quantify, you know, how much of that in the quarter year or year was from the top and just vaccine business in South America. Thanks and good morning. The we on the the attaches factor we just built that we just had an opening a few months ago.

Brian Wright: So sales are the minimum is hopefully by the end of the year we will have reported. You know, nice sales growth. It takes that cycle to get the vaccines approved on the farms and then make what's called the custom vaccine takes a while. The other growth in South America is our response to disease pressures. And there is certain diseases that are growing down in the poultry industry and you know, it's literally responding to the market. Great. So that's the additional growth on top of what we've seen in the fourth quarter. That's that's great. I did have a follow up as well.

Jack Bendheim: Can you talk to the potential benefit of Tyson reintroducing certain antibiotics for poultry? Right. You know, a lot of people are talking about it. So Tyson's after about I think maybe over five years of working with something called NE, which is no antibiotic ever, and come back to what is more standard for the industry around the world and are using no antibiotics that are used by humans and going back to antibiotics, not an issue with the colionophores, which has been in the market for 25, 35 years, some of that range. So, overall, would we see a very little effect for our business and, you know, it has some effect on some people, but overall, I think the effect will be quite small. Okay.

Damian Finio: Thank you. And then, if I could just add one last one, just wanted to think about like inventory levels, Damian, or we've seen some improvement here in the fourth quarter, or some nice improvement, or should we see some further improvement in 24, or is it are we comfortable where we're at now to just kind of how to think about that in terms of cash flow dynamics? Yeah, we are targeting additional improvement in fiscal year 24.

Damian Finio: We ended the year a little north for four months of inventory on average across all products across the world. Our target is still to get down to 4 million. So, we hope we will see that in fiscal year 24, and it will help to improve free cash as it did in the fourth quarter. We'll say we typically start off the year slow in the first quarter, so we may not see that improvement at the end of February of 2024, or 23, but we do expect to see it as the year progresses.

Unknown Executive: Great.

Unknown Executive: Thank you so much.

Michael Ryskin: Your next question is from the line of Michael Riskin with Bank of America. Your line is open. Hey guys, thanks for taking the questions. I'm going to start on the margins and sort of what's implied in fiscal year 24 guide. By my math, you're sort of guiding some, you know, slightly down operating margins year-to-year, and you call it out that incremental, you know, three million strategic investment. Can you add a little bit more color on the way that's going, you know, soon that's going towards the companion business, but any additional color there, and then also a little bit on, you know, what are your expectations for gross margin, what are your expectations for input costs that go into the model right now? Thanks. Yeah, thanks, Michael.

Jack Bendheim: Let me start with strategic investment. So, as we mentioned, there's a $3 million assumed increase in fiscal year 24 to 32 million in fiscal year 2335 million, fiscal year 24. I would say that there's no significant additions or deletions within that estimate. It's really just the timing of the spend on multiple projects across multiple project categories. We'll say that the majority of the spend is going to vaccines, which as you can see in our fiscal year 23 fourth quarter results is delivering returns, and it's in our guidance as well next year that we expect continued growth.

Jack Bendheim: That vaccine strategic investment will continue to reap returns into the medium term as well. And behind that, I would say we continue to invest in companion animals, as we've said on previous calls, not a short term return on that or the medium term opportunity, but overall, I'd say the delta is more related to timing of spend than anything, and we continue to invest in vaccines and companion animals. In terms of gross margin, and Jackie may want to speak to this a bit too, we continue to see rising input costs with change in currency movements, product mix, etc.

Jack Bendheim: So there is a slight change in the assumption I guess going forward in fiscal year 24. But again, nothing major is more product mix than anything. One thing, I think it's a combination of product mix. It's also assembling out, you know, everyone's aware and we've spoken about it. Then, you know, in the previous two years with a very, very high and free rate changes because of what happened to COVID. Also input costs in terms of labor, the availability of labor in the United States and, you know, we like other people being, you know, basically paying a lot more to get people come to work.

Jack Bendheim: That is all sort of that is impacted the gross margins and it's, it's mostly stabilized. I say on the freight side, there is some problems brewing with the lack of water in the Panama Canal, forcing rates to be up from products to the ship through the Panama Canal. But the labor rates have sort of stabilized and we're sort of going to start going back on margins. So we did a bit at the end of this last year, we have more plans for this year. And I think we will get back some months as we had in the past.

Jack Bendheim: Okay, that's really helpful. And then on the, just on the top line guide and the volumes that are implied, you know, you're forecasting another strong year for the animal health business. You talked about some of the strength just seeing a vaccine and you product yourself about the new launches. Is there anything else that's noteworthy that's that's sustaining this growth, you know, five to 11% top line growth, maybe you've come a little bit on underlying market conditions under one demand, any geographies or species that are standing out.

Jack Bendheim: Thanks. I think we had pulled out some of the growth was seeing in South America on the vaccines was seeing some of the growth around the world. So we've made investments and some of the residents in terms of plan capacity will be coming on screen early January of 24. And that gives us the ability on some of the nutritional products to respond to market demand that we have created. So I think that's between those two things I can account for the majority of the growth. That's okay.

Unknown Executive: Thank you.

Unknown Executive: Your next question is from no line of a logic browser with barclays. Your line is open.

Jack Bendheim: Good morning. This is Xiao An for biology. Thanks for taking our question. You highlighted the choppenies of the US beef cutoff with beef cutoff feed logs in the last few quarters. And wondering do you have any updates in terms of terms of the feed load dynamics. Thanks. I think as we've said often, we do basically no feedlot business in the United States, but overall, you know, just sort of preparing for this call, the encounter surprise that kept tighten and throughout remains a concern across North America. So I think we're still not going to see a rise in feedlots, I think we'll see some continuing decline, but then we'll get to come some sort of equilibrium and some stability.

Unknown Executive: Thank you very helpful.

Damian Finio: There are no further questions at this time, I want to turn the call back to Mr. Damian Finio. Okay.

Damian Finio: Thank you, Brent, and on behalf of Jack and the rest of the Phibro Management team, thank you all. You're excited about the year ahead, and I appreciate you taking time today to join our call to learn more about the exciting things taking place here at Phibro. Thank you again and enjoy these last few days of summer.

Brent: Ladies and gentlemen, thank you for participating.

Brent: This concludes today's conference call, you may now disconnect.

Unknown Executive: Please wait, the conference will begin shortly.