Phibro Animal Health Corporation

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Fibro Animal Health Corporation third quarter 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Damian Finio, Chief Financial Officer. Please go ahead.

Thank you, Regina. Good morning, and welcome to the Fibro Animal Health Corporation earnings call for our fiscal year 2023 third quarter, ended March 31st, 2023. My name is Damian Finio, and I am the Chief Financial Officer of Fibro Animal Health Corporation. I'm joined on today's call by Jack Benheim, Fibro's Chairman, President, and Chief Executive Officer, and Daniel Benheim, Director and Executive Vice President of Corporate Strategy. Today, we will cover our third quarter and fiscal year-to-date financial results before opening the lines for your questions. 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 investor section of our website, you will find copies of the earnings press release and third quarter Form 10-Q filed with the SEC yesterday, as well as the transcript and slides discussed and presented on this morning's call. Our remarks today will include forward-looking statements, and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer to you 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 or U.S. GAAP. I refer to you the non-GAAP financial information section in our earnings press release for a discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release. We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual non-operational or non-recurring items, other income and expenses separately reported in the consolidated statements of operations, including foreign currency gains and losses net, 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 perspective on Fibro's third quarter and fiscal year-to-date financial performance.

Jack? Thank you, Damian, and good morning, everyone. We posted strong fiscal year-to-date sales growth. Our third quarter net sales were $246 million, which reflected 3% growth over the same quarter last year. Despite the challenging market and economic conditions, our consolidated sales growth has been driven primarily by our animal health segment and with well-balanced improvements across our three product categories. Our animal health segment has achieved a remarkable 10% year-to-date increase in net sales compared to the same period of the previous year. We are unfortunately seeing some signs of recessionary pressure in our mineral nutrition segment as our customers are seeking to reduce purchases and lower inventories. We will take steps over the next few months to ensure our inventory is better balanced for our customers' needs. Overall, we have posted strong fiscal year-to-date sales growth despite the challenging conditions. We see continued opportunities for growth in our animal health segment. As I mentioned, on a year-to-date basis, our animal health segment has achieved a 10% increase in net sales compared to last year, and this segment continues to present us with multiple growth opportunities. We have posted eight consecutive quarters of year-over-year sales growth in each of our three major product categories. From a year-to-date comparative perspective, the product categories of MFAs and other is up 9%, while nutritional specialties are up 12% and vaccines up 9%. I am especially pleased with our vaccine growth in Latin America. We recently opened a new autogenous vaccine facility in Brazil and launched commercial poultry vaccines in the region. And regarding nutritional specialties, we continue to find ways to leverage the products and technologies we acquired with the 2019 acquisition of Osprey Biotechnics. I'm also happy to report that our companion animal development pipeline continues to progress. We see companion animals as a medium-term growth driver for the company, and we will provide updates as the pipeline progresses. In terms of profitability on today's portfolio over time, margins should be improved as input costs return to historical levels. The animal health segment adjusted EBITDA margin was 20.8% for the third quarter, which is a 110 basis point improvement over last year. Although the year-to-date EBITDA margin is still 30 basis points shy versus last year, we see signs that input costs are returning to normal levels. For margin improvements to continue, input costs will need to continue to decline, and we will need to work through higher-priced inventory on hand. We are taking other actions to manage working capital more closely, which we anticipate will help to improve our free cash flow. We continue to focus on raising prices when market conditions allow, and we remain bullish on our business and our ability to grow sales, given the strong demand for our current portfolio of products and the projected demand for the pipeline of future nutritional specialty, vaccine, and companion animal products we have in development. Lastly, Fiber had a strong third quarter, And as we approach our fiscal year end, we remain confident in our full year guidance. I will now ask Damian to review our third quarter financial performance and fiscal year 2023 guidance in more detail before opening the line for questions. Damian.