Phibro Animal Health Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Fibro Animal Health Corporation Q2 2021 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 1 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, Damian Finio, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Mariama. Good morning and welcome to the FIBRO Animal Health Earnings Call for our second quarter ended December 31st, 2020. I am Damian Finio, Chief Financial Officer of Fibro, and I am joined on today's call by Jack Benheim, Fibro's Chairman, President, and Chief Executive Officer. We will cover key themes for the quarter, our second quarter financial results, guidance for third quarter ending March 31st, 2021, and then open the line to respond to your questions. Before we begin, let me remind you that the earnings press release and financial tables can be found on the Investors section of our website at pahc.com we are also providing a simultaneous webcast of this morning's call which can also be accessed on the website a replay of today's presentation the slides that accompany the presentation and a transcript of the call will also be available on our website on to slide two our remarks today will include forward-looking statements and actual results could differ materially from those projections For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statement section in our earnings press release. Our remarks include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles for U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release. Before we get into the numbers, we want to remind everyone that we present our results on a GAAP basis and on an adjusted basis. We present adjusted results that exclude acquisition-related items, unusual non-operational or non-recurring 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 income tax effects related to pre-tax adjustments and unusual or non-recurring income tax items. And now, I'm pleased to begin today's presentation by asking Jack to share his opening remarks, starting on slide three. Jack?

Thank you, Damian. Welcome to your first investor call as our Chief Financial Officer, and good morning, everyone. I'd like to start today's call with four key themes for the quarter. First, we are excited about our second quarter and year-to-date financial results. In the second quarter, although on a consolidated basis company sales decreased 4%, diluted EPS increased 10% versus the same quarter last year. The decline in consolidated sales were driven by a 5% decline in the animal health segment of our business. and a 3% decline in minimum nutrition, while performance products net sales increased 8%. Keep in mind, there was no COVID-19 impact in the prior year results, which is why I am pleased with our bottom line performance this quarter. Second quarter performance also reflects growth over last quarter. Second quarter sales have got lower EPS from 6% and 7% over last quarter, respectively. These are solid gap financial results in a tough market. Second, we are encouraged by signs the industry is stabilizing despite the continued global pandemic. The world, and more specifically the animal health industry, is learning to cope with the ongoing impacts of COVID-19. In our own business, we're learning new ways to service our customers, and what were new safety protocols on our production facilities about a year ago are now just part of everyone's daily routine. We are encouraged but remain cautiously optimistic about the near term. Third, we are projecting solid third quarter financial results. Although, as mentioned, sales in the animal health segment of our business were down versus the same quarter last year, looking ahead to our third quarter, we anticipate flat sales of MFAs, continued strong growth in nutritional specialties, particularly in Europe and in Asia, and in the United States, and continued expansion in the vaccine space. We also expect continued strong adjusted EBITDA performance from our mineral nutrition segment as favorable product mix continues. And lastly, we expect our performance product segment to continue to benefit from higher copper volumes in the near term. Despite the pandemic, we continue to invest in our future. I am proud of the fact that our Phytec vaccine device is now being trialed and sold in over a dozen countries and increasingly being serviced remotely. a unique capability that we will look to build upon even as we emerge from the pandemic. The nutritional specialties growth is underpinned by our recently launched Omnigen Pro for the dairy sector, and we continue to spend time and money in developing unique nutritional specialty products that we are confident will be a key pillar of Fibro for years to come. Further, many of you probably saw the announcement we made on January 20th about the expansion of our mineral nutrition facility in Omaha, Nebraska. The Omaha production facility is geographically positioned to manufacture and supply mineral nutrition products and trace mineral premixes to our U.S. livestock producers. The facility upgrades provide the next evolution of food safety, product quality, and output, while enhancing our customers' ability to meet growing consumer needs. Moving on, as promised on our last call, I want to give you a bit more information about our expanding efforts in the pet business where we continue to identify, explore, and progress opportunities. Regenza, a proprietary tool for canine joint health, continues to grow with sales doubled in the last six months versus the prior six months. Despite the continuing challenges accessing vet clinics due to COVID-19-related restrictions, We are optimistic that we can continue to drive profitable growth in this grant. We also have a number of products in development. The first is a novel line vaccine delivery system, which we have previously disclosed. Although our development progress is slow due again to COVID, we expect the program to restart in about six, nine months in the early part of our fiscal year 2022. We're also pleased to announce that we have a licensed and unique Dermacare compound for treatment of atopic dermatitis in dogs. We secured this opportunity at the outcome of a competitive process where we believe our ability to focus on development and marketing efforts on this product was a key differentiator to our being selected. While early stage, we are enthusiastic about the prospect of launching this product down the road into one of the fastest growing segments of the pet marketplace. Lastly, as another example of the types of opportunities we're interested in, we're currently evaluating potential opportunities in the oral space for cats and dogs, a space with an estimated addressable market of over $2 billion. These are just a few of the many activities that I wanted to share to help you better understand how we are looking to expand in the multi-billion dollar pet care industry to add another pillar to our business. With that, I'd like to ask Damien to share more details on our second quarter financial performance. At the conclusion of Damien's remarks, we look forward to taking your questions. Damien.