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.

Thanks, Jack. On to slide five. I'll start by reviewing consolidated results for our second quarter ended December 31, 2020, and then sharing some more detail on our individual business segments, and then close out my remarks with our expectations for the third quarter. In summary, we posted strong second quarter financial results on a consolidated basis. Versus the prior year, second quarter sales declined 4%, but net income and diluted EPS grew 8% and 10% respectively. On an adjusted basis, adjusted EBITDA, adjusted net income, and adjusted diluted EPS were comparable to the prior year. Our gap profitability measures improved versus the prior year due to reduced spending and a lower effective tax rate, The effective tax rate for the quarter was 20.3% versus 29.6% in the prior year, due primarily to the impact of the final global intangible low tax income, or GILTI, regulations issued in July 2020, and a benefit related to exchange rate differences on intercompany dividends. Next page. Now, let me explain what's driving consolidated results in a little bit more detail. As mentioned, consolidated net sales were $206.1 million for the quarter. That's a decrease of 7.9 million or 4% versus the prior year. The sales decrease was driven by a 7.5 million or 5% decline in the animal health segment, a 1.5 million or 3% decline in mineral nutrition, partially offset by a $1.1 million or 8% increase in performance products. As Jack mentioned in his opening remarks, there was no COVID-19 impact in the comparable prior quarter. Despite the decrease in sales, we reported gap net income of $12.8 million, an 8% increase versus the prior year, and diluted EPS of $0.32, a 10% increase versus the prior year. These increases were driven by an improvement in gross margin, lower SG&A costs, and provision for income taxes, offset partially by foreign currency losses. Moving from GAAP results to adjusted results, second quarter financial results after adjustments to exclude things like one-off acquisition-related items, other income and expense, including foreign currency gains or losses, adjusted EBITDA, adjusted net income, and adjusted diluted EPS were all comparable to the prior year. The adjusted net income and adjusted diluted EPS calculations also reflect the income tax effects related to the pre-tax adjustments and unusual or non-recurring income tax items. Now, slide seven. Let's break down our consolidated results by business segment, starting with our largest segment, animal health, which is comprised of MFA's and other nutritional specialty products and vaccines. As I mentioned earlier, net sales of our animal health segment decreased 5% versus the prior year. The decrease in animal health net sales is comprised of three components. First, an 11% decline in MFA's and others versus the prior period. The decline was driven by lower international demand, primarily in Asia and Latin America, offset by favorable domestic customer order patterns. Second, a 10% growth in nutritional specialties, driven by domestic and international growth in dairy products. And third, a 2% decline in vaccine net sales, driven by higher domestic vaccine sales, which was more than offset by lower international volume due to timing of customer orders and reduced demand. In terms of profitability, Animal Health adjusted EBITDA decreased $0.5 million or 1% on lower sales and gross profit, partially offset by favorable SG&A costs, driving an adjusted EBITDA margin improvement of 100 basis points to 24.5%. Next page, please. Now, let's walk through financial performance of our other business segments, namely mineral nutrition and performance products, then a brief word about corporate expenses. Starting with mineral nutrition, net sales for the second quarter were $54.2 million, a decrease of 1.5 million or 3% versus prior year driven by lower average selling prices. The decline in average selling prices is correlated with the movement of the underlying raw material costs. Mineral nutrition adjusted EBITDA was $4.2 million, an increase of 0.5 million or 14% driven by increased gross profit on favorable product mix, Mineral nutrition adjusted EBITDA margin improved 110 basis points to 7.7%. In terms of our performance product segment, we are having a strong year. Net sales of $15.8 million for the three months ended December 31, 2020, was an increase of $1.1 million, or 8% over prior year, as increased volumes of copper-based products were partially offset by lower sales of personal care product ingredients. The increased gross profit drove $2.3 million of adjusted EBITDA for the quarter, which is a 56% increase versus prior year and an adjusted EBITDA margin of 14.4%, an improvement of 440 basis points versus the prior year. Lastly, corporate expenses. They increased $0.8 million or 7% versus prior year due to increased costs for professional fees and information technology. Now, on slide nine, shifting gears to capitalization-related metrics, the business provided $19 million of cash in the second quarter before financing activities. And our gross leverage ratio, which is calculated by taking our total debt of $387 million divided by trailing 12-month adjusted EBITDA of $107 million, was 3.6 times as of December 31, 2020. Now, that's a slight improvement from the quarter ending September 30, 2020. In terms of liquidity, we had $165 million available. This includes cash and short-term investments of $96 million and $69 million of unused and available revolving credit. And consistent with the past several quarters, we will pay a routine quarterly dividend of 12 cents per share, or $4.9 million. Lastly, on slide 10, looking ahead to financial guidance, Although we are seeing stabilization across the animal health industry and within our company specifically, given the uncertainty of the future course of the pandemic, we will continue to provide only near-term guidance. That said, we expect solid financial results again for our third quarter as follows. Net sales of approximately $205 to $208 million. Net income of approximately $11 to $12 million. Diluted EPS of approximately 27 to 30 cents. adjusted EBITDA of approximately $27 to $29 million, adjusted net income of approximately $12 to $13.5 million, and lastly, adjusted diluted EPS of $0.30 to $0.33. To conclude our opening remarks and to reinforce Jack's sentiments, we posted solid financial results for the second quarter. We are encouraged by signs of stability across the industry. We continue to invest in our future and are projecting solid third quarter financial results. Thank you for your time and attention. Mariama, if you could please open the lines for questions.

Certainly. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from David Westenberg. Your line is open.

Hi. Thank you for taking the question, and congrats on the good margins here. First, can you describe the Dermacare product, you know, just kind of the approach you're taking? Is this IL-31, is this a JAK inhibitor, monoclonal antibody, et cetera? Why is this the right approach, and can you give us a little bit in terms of time to launch? Thank you.

A lot of good questions, and I'm not going to really answer any of them. We're sort of early. I think we feel that the product that we've been able, you know, we won sort of a competitive licensing competition, will definitely serve the market broadly. but it has a lot of milestones to go through in the next three, four years before we see it get to market, and that's with everything going well. So it's in the future, but we would not have entered into it if not, we wouldn't have felt that we would answer sort of all the demands of what a Dermacare product needs to be.

Got it. Okay. I totally understand that being early in the pipeline. Can you talk about performance, products, margin contribution relative to the overall base business? I'm just trying to get a feel for as that grows, what we should be thinking about in terms of bottom line contribution. I mean, this quarter seemed like it was a little bit different than in years past where you had such really good margin contribution despite the revenue slowdown.

Yeah, no, you know, normally when we talk about performance products, we talk about, well, it's a business we're not really concentrating on. It had some, you know, some unusual factors came together, some volumes of our copper products and definitely higher prices in copper, and that made it to really stand out this quarter. It might continue another one or two quarters, but, you know, long term, as we've always said, this is not where we put our focus.

Totally understand. Okay, so just maybe the last one in terms of more growth in the portfolio or new products. What are your appetites for maybe generics in cattle? I mean, obviously, Jackson's coming off patent. It tends to be an easier product to kind of develop, you know, When NSIN's been generic, or at least like that patent's been expired for a long time, and they are large markets, I mean, is cattle in generics something that interests you in the next few years?

Overall, cattle interests us a lot, and we're a very active sort of ex-U.S. in cattle markets. specifically in Mexico and Brazil, growing in Canada, Australia, South Africa. I think I've named all the big markets. So we are looking, and as a matter of fact, we recently signed an agreement announced with Virbac to distribute their generic Jackson in the Canadian market. And, you know, we're going to look for opportunities like that. I think there's a lot of generics coming into the Jackson market, but where we have feet on the ground and where we can make some money and why not. So I think that's specifically what we're looking at right now. I don't think I want to go any further, you know, to the other products we're looking at.

Perfect. Yeah, I'll jump back in, Q. Thank you so much.

Your next question comes from Bala Japrasad. Your line is open.

Thank you. Hi, good morning. This is Balaji. A couple of questions. Maybe first let me start with China. So 10 days ago, 8-10 days ago, there seemed to be reports of newer strains of African swine fever emerging in China. And what I find most concerning is that they seem to be on farms owned by the fourth largest hog producer. So what are the implications of this, A, for the industry in the near term? And looking beyond, as you seek to participate in the reherding in China, What implications does this have for your business?

You're definitely right on top of the news. The Chinese overall are making great efforts to repopulate after the depopulation a few years ago because of African spawning fever. What seems to be happening on some of these farms, is that there are some illegal vaccines that have not been approved by the government that people are using that are causing African swine fever to reemerge. That seems to be, that's number one. And number two, they've never controlled African swine fever. The way they're controlling it is by doing, at the big farms they can afford to, and because of the high price of hogs in China, a lot better biosecurity, meaning that the population on the farm is not as dense as it used to be. So, yes, there have been outbreaks of African swine fever, but overall, the Chinese are working very hard to repopulate. Having said that, it's going to take them a long time. So, I don't see any reason why exports from the markets we are active in, you know, The U.S., Brazil won't continue strongly in the next couple of years.

Thank you, Jack. Maybe just to follow up to that, so I also asked, where do you currently stand with your registration process, which is ongoing in China, and at what point should we factor you participating in the reherting cycle?

So the good news is that we've, you know, because China has done such a great job in recovering from COVID-19, The, you know, the Chinese regulatory authorities have reopened, and we have submitted our re-registration package. So, that's the good news, because unless you buy the lottery ticket, you can't win the lottery. So, we've begun. I'm not sure. I mean, let's assume the numbers we're using internally is between one and a half and two years.

That's helpful. Maybe one quick question, and then I'll join the queue. So could you provide us an update on where you are with NextGen Omnigen, what kind of traction you had in the last quarter?

So we are starting to take traction with the next generation. We call it Omnigen Pro. Most of the sales increases that we had this past quarter have been in that product, and I think we will continue to see success. Like most people in the animal health business, the biggest problem today is being able to really bring a team in to sit with a customer's team and go over all the data and all the success. Because until vaccination rates will be a lot higher than they are today, things are going to move very, very slowly. So we're seeing good success. It's a great product. But it's going to be, I guess, a year until we really get back in and we see accelerated success for that product.

That's helpful. Thank you.

Your next question comes from Erin Wright with Credit Suisse. Your line is open.

Hi. This is Haley. for Erin this morning. Thanks for taking the question. I kind of wanted to focus on vaccines. Can you speak to the key drivers of the lower demand trends internationally that you called out this quarter? And when do you think we can potentially return to double-digit growth across that segment longer term?

So it's a great question. In certain parts of the world and parts of the world where poultry is the key protein, the effect of COVID has been mostly an economic effect. I mean, the average effect of people getting sick and people dying is true everywhere, and that's horrible. But in those markets, the demand has dropped significantly because the economic activity has dropped significantly. So I think, again, that will be totally driven by the success of vaccination programs that we're starting to see becoming successful, you know, in North America, in Europe, in those markets where those countries depend on vaccine exports. So I think we're starting increases, but until we get back to normal, and again, this is on the assumption that vaccines will be completely successful, but so far I've looked at that they will be. will be again in about a year's time.

Okay, that's helpful. That makes sense. Thank you. And kind of a follow-up to that, you provided some helpful clarity on the animal health trends by segment for 3Q, but I was wondering if you could kind of go into demand trends across species beyond poultry and how we should think about those in the next couple of quarters.

So this is starting with markets.

globally?

Well, you know, the next biggest market for us would be hogs. And that business and market rate often depend on exports. And China, as I said earlier, is still the biggest importer of hogs, pork in the world. So I think that continues. and grows a little bit over the next couple of years. So I think for the production animal, the volume is going to be good. The thing you have to start thinking about, which we have not had to think about for many, many years, is higher input costs. The cost of corn and soybeans have risen dramatically. So that's going to change the economics, which changes the dynamics of the overall animal protein business. It helps our business because our products help make those products work better. It helps the animals stay healthier, so they convert the corn and the soybean at a better rate. But there is a balance, and the first number is if you're Big producer, if you're a chicken producer, what you look at is what is my input cost? And that is the biggest dynamic that all of our customers all over the world are facing.

That makes sense. Thank you.

Your next question comes from Michael Reiskin with Bank of America. Your line is open.

Hey, Jack. Thanks for taking my question. I actually want to pick up exactly where you just left off on input costs and corn prices. So I want to go into that a little bit deeper, if you will. I mean, just looking at the price of corn and how much that's spiked in the last couple of months, especially, I mean, even since mid-December, I was just reading a lot of reports about especially poultry and hemp producers being a little bit more cautious about I'm just wondering how much of that are you factoring into your outlook for the third quarter? Is it too early to make any assumptions or guesses on what it's going to do to sort of herd size and expansion in the U.S. and internationally? Are you waiting to see if the prices are sustained at these levels? Or have you gotten any feedback from customers in terms of purchase orders slowing things down at all? I'm just wondering because we've seen a lot of concerns on that front.

So thanks, Michael. That's a great question. Right now, right, it's in the talking stage. Most people who we deal with around the world have hedged and locked in their prices six months ago. So they might not even be seeing these higher prices, but it's something they start thinking about going forward. The balance is demand. So if there's a demand for chicken or for pork, Someone's going to make it, and someone's going to have to use the input cost no matter what the price is. So if you ask me, do I think the price of chicken and pigs will go up around the world, I think the answer to that is yes. If you ask me when, I don't know. But, you know, overall, we're seeing these higher input costs, and that means ultimately the price of protein will be higher.

Okay. That's helpful. I appreciate that color. And then I also noticed that you had a couple of comments calling out strength and nutritional specialties on the back of dairy. I think that's an end market that we've been talking about for, it feels like years now, about how that's been a challenge to end market in the U.S. I'm just wondering if that's any, if you think any of that is a little bit of a catch up or easy comps, or are you seeing any fundamental changes in that market that makes you think that, you know, maybe the outlook for dairy is finally turning?

You know, the outlook for dairy is like the weather in California. It was always good the week before you got there. So it's complicated. I think the dairy guys had started to do better, and now you're seeing this higher input cost again. So that's still okay. I mean, if I look at segments in the United States, dairy guys are doing okay. The pork guys are finally doing okay, and the poultry guys are starting, you know, not to do okay. Again, based on direct input costs. But as I said earlier, it's balanced. If you hedged your corn prices, which it was six months ago, and you have a two-year hedge, then you're going to be fine. We don't have that clarity into our customers. But I think this is going to go back to supply-demand. And if the demand is there, the supply will be there, and the prices will average out.

Okay. That's awesome. And, yeah, I totally agree with you on the many, many false starts we've had in dairy where it improved for one quarter, and then it was one step forward, two steps back. So it completely makes sense. One last one for me, and then I'll hop back. I think the biggest surprise for us in the quarter was actually on the P&L, on the SG&A, and sort of the – your ability to contain cost there despite the improved performance in the top line. At the same time, you're talking about a lot of investment going forward in the companion animal business, you know, in the derma care and some of the other products there, and also just continued investment, you know, in your core MSA and nutritional specialties businesses. How should we think about that lever going forward? Was this just a little bit of a timing benefit in the quarter, or are you able to find some cost constraints that you think will carry forward?

So I think there are three factors, but on the SG&A, there are two main factors. One, clearly, with everyone staying at home and no one traveling and no one visiting customers, and no one entertaining, we are spending less money per month all over the world. So that's one saving. And also to that, but that's buried into the price of goods and it's harder to break out, is the cost of maintaining our plants and our production. And we have maintained it throughout this period. We haven't shut down. But it's gotten a lot more expensive. You know, whether it's, you know, PPE is the cheapest part. It's the separation of the plants, the transportation of the workers coming in. It's managing the plants. You know, when one person gets sick and, you know, like your kids in a small group, everyone stays home. Everyone gets paid, obviously. So then you have other people coming in, substituting over time, all those costs. So that doesn't add up to the amount of money we're saving by not visiting customers but that's a big saving and that is in these numbers the flip side of that which is you know calling on customers makes sense uh selling new products makes sense you're stuck you're selling you're selling the same products you can't move much you can't add new products you can't add new customers so I think that's all in these numbers, which is why we go out quarter by quarter, because there's still a lot of effective COVID all over the world.

Okay. That's all really helpful. Thanks.

Your next question comes from Kevin Kedra with G Research. Your line is open.

Hi, thanks for taking the questions. I want to come back to the companion animal story. Obviously, this is an area of focus for you guys with Vigenza and then the pipeline. Do you feel that what you have right now in development is kind of good? Are you guys looking to further expand in that area? And have you considered moving also into the equine market, given the strength in livestock? I would imagine there's greater sandwiches there in equine than necessarily dogs and cats.

So as strange as it is, equine is a pet. So, you know, our being, you know, our selling cat into the cow market doesn't help you sell into the equine market, number one. Number two, we are going forward, we are going to create this fourth pillar to the business, and that is companion animals. And we're going to do it sort of late in, you know, in a unique way. I mean, it's a very competitive field. When you have to go and buy a product line, it costs a fortune. You know the multiples that some of these companion animal businesses sell for. So we are using our abilities. We're using our scientists. We're using our development people. We're using our knowledge of markets. And we've added some really very, very talented people, specifically on the companion animal side. And we're seeing a lot of input. We're seeing a lot of people who have interesting products that they are unable to go to the market, to the giant companies, because it's not invented here. It's because they've looked at something like that, et cetera, et cetera. And so far, we've looked at dozens of products. And as you've seen, we've successfully launched one, and we are investing in two, three, four others right now. So we're going to take a slower approach, but I would say, you know, going forward, three, four, five years from now, companion animals will be a significant part of our business.

That's helpful. I wanted to ask about cash flows. You had a very good cash flow quarter. It gives good metrics for Q3, but I was wondering if you could give us any sort of sense directionally on how we should be thinking about the cash flows for Q3 and maybe for the balance of the year. And then kind of related to that, the Omaha plan expansion, anything we should be thinking about in terms of CapEx and the impact there?

I'll take the second half first. You know, we overall, we plan our CapEx a year in advance. And some of these projects are big projects. So the Omaha expansion was just, you know, the finishing, we've been in a year and a half in expanding and modernizing a facility that we had there. And we continue to, you know, to look at CapEx all over our businesses. As you know from prior discussions, we produce approximately 70% of the things we sell. And We see business growing, so that means you continue investing in CapEx. But for the cash flow, I'm going to kick it back to Damian.

All right. Thanks, Kevin, for the question. So you're right. Year to date, we're ahead of our plan in terms of cash flow, and that's driven by our stronger than anticipated bottom line performance. I would say for second half of the year, given our inventory levels at December 31st, coupled with the guidance for the third quarter, we should have steady cash flows in the second half of the year. I would expect some of that cash, though, would be invested back in the business more so than first half to do two things. One, an expected ramp-up of some of our capital improvement projects, and as Jack alluded to, continued investments in the future.

I appreciate it.

As a reminder, it is Star 1 on your telephone if you would like to ask a question. Your next question comes from David Reisinger. Your line is open.

Hi, this is Melina Santoro on for Dave. First, can you maybe discuss what the key factors are to consider for the March quarter? I know guidance kind of implies a flat revenue sequentially at the midpoint, but EBITDA is expected to be down slightly at the midpoint and APS down as well sequentially.

Yeah, I'll take that one also. I think it's consistent with what I just said. What you're seeing in cash flows, you're also going to see in the results. So we're expecting more of the same in the third quarter in terms of sales. But when you look to profitability, we do expect a ramp-up of certain expenses to invest in the future, et cetera. So from a profitability perspective, quarter two to quarter three, you're right, the bottom line is a little bit less as a percentage of top line.

OK, thank you. That's helpful. And then my second question is, can you provide any updates on the FDA's assessment of MECADOX, and maybe any updates from the Brazilian regulatory agencies on virginia mycin?

So we're staying in touch with the FDA. We're not hearing much back. My guess is, with the change in administration, and they haven't appointed a new commissioner yet, Things will be slow. But as we said earlier, we're going to rigorously defend this product. It's been a great product. It's been on the market for 40 years. Safe and effective. And, you know, we are going to make sure this product stays on the market. Brazil is moving. We haven't heard anything yet. But, you know, it's Brazil. But we continue, all our, everything is in, all of our applications are in for the change. And, you know, right now, it's everything's grandfathered, and that's what they tell us. And they'll get to us when they get to us.

Okay, great. Thank you. That's very helpful.

There are no further questions at this time. I will now turn the call back to, oh, we have one more question that just entered the queue from Bala Jiprasad. Your line is open.

Hi, thanks for taking the follow-up. So, Jack, just wanted to get an update on your Irish facility. When we last spoke, you had received the approval after the inspection. So, are we still on for a mid-21 launch? And would you be able to quantify the impact of the market this facility would open for you? And also, at what point of time could we start seeing improvements in OPEX coming through from this facility? Thank you.

So we received that first regulatory approval. We're in the midst of submitting now, getting ready for the second, which involves an inspection. So we are on target for sometime, I would say, early in our next fiscal year to be able to start operating that facility. it opens up the Middle East to us on a range of products. I don't want to quantify the number because I'm not sure, but it will be, you know, once we start selling, it will be profitable. So it's, you know, as I said, we're on target. Nothing is delayed. And, you know, we're optimistic that it's a great facility for us to be having.

Great. Thank you.

There are no further questions at this time. I will now turn the call back to Damian Finio for closing remarks.

Okay. Thank you, everyone, for your thoughtful questions. For those interested, Jack and I will be hosting a fireside chat on February 25th at the Bank of America Maryland's 2021 Virtual Animal Health Summit. Details should be issued on that via press release tomorrow. We appreciate you taking the time to join us on today's call. Have a great rest of your day and continue to stay safe.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.