PAHC earnings call transcript, November 4, 2026

And welcome to Fibro Animal Health Corporation to host webcast and conference call on first quarter results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise. your hand. To withdraw your question, press star one again. I will now hand the conference over to Glenn David, chief financial officer. Glenn, please go ahead and welcome to the. Fibro Animal Health Corporation earnings call for a fiscal first quarter ending September 30th, 2026. My name is Glenn David and I'm the chief financial officer of Fibro Animal Health Corporation. I'm joined on today's call by Donnie Bantime, president and. Chief executive officer and Larry Miller, chief operating officer. Also on today's call is Patrick Rodriguez, our treasurer and new head of investor relations. Welcome Patrick to the call and I'm going to turn things over to you.

Thank you, Glenn.

Thanks, Patrick, and good morning, everyone. Patrick, welcome to your first call. Fiscal 2027 is off to a good $28 million and a few minutes on what drew over the court. and how we're thinking about the rest of the year. Our two non-animal health segments did a lot of the heavy lifting this quarter. Performance products grew 16% and mineral nutrition grew 17%. I want to spend a moment on mineral nutrition. Because I think it's part of our business that tends to get overlooked. Part of this quarter's growth reflects higher prices for zinc, copper, and other underlying commodities. And those prices obviously move up and down. But over time, we've also been moving this business toward the higher margin, faster growing parts of the market, including plant nutrition, dairy, and pet food. Customers in these markets are asking for more on ingredient sourcing, quality, consistency, and technical support. Those requirements play to our strength. because of the investments we've made in talent, facilities, and processes. That's a credit to the mineral nutrition management team who have been patient in building those relationships and capabilities. We expect the business to continue growing in these higher margin areas. And animal health sales grew 3%, about right where we planned. MFA's were up 6% with good demand in North America and Asia and continued growth in ethanol processing aids. And that's net of a $5.2 million decline in Virginia mites.

Thanks, Donnie. I'm starting with our Q1 performance on slide four. Consolidated net sales for the quarter ended September 30th, 2026 with $386.8 million. Reflecting an increase of $22.9 million or a 6% increase over the same quarter one year ago. The animal health segment grew 3% while minimum nutrition grew at 17% and performance. Products grew at turning to the bottom line. Net income for the first quarter was $29.5 million. That's an increase of $3 million or about 11% compared to 20. $26.5 million in the same quarter last year. Let me walk you through the key drivers. Operating income was down $1.6 million as higher SG&A more than offset the improvement we do. Deliberating gross profit. Below the operating line, we saw several favorable items. First, net interest expense declined $0.8 million, reflecting lower interest rates and higher interest income, including interest received on our... EPA tariff recoveries. Second, foreign currency was a $0.4 million gain this quarter compared to a $2.1 million loss a year ago, a favorable swing of $3.3 million. And third, income tax expense was $0.5 million lower. Taken together, these items more than offset the lower operating income and drove the $3 million improvement in that income for the quarter. After making a. Standard adjustments to gap results, including acquisition related items, foreign currency losses and certain one off items, the first quarter adjusted EBITDA increased $2.4 million or 4% versus prior year.

Adjusted net income of $32.4 million increased $2.5 million, primarily due to higher gross profit, lower interest expense, and a lower adjusted effective income tax rate, partially offset. A higher adjusted SG&A due to higher employee-related costs. Moving to segment level financial performance on slide five, the animal health segment posted $293 million net sales for the quarter, an increase of nine. $9.6 million or 3% versus the same quarter prior year. Within the animal health segment, we reported MFAs and other net sales increase of $11.3 million or an increase of 6%. Due to increased demand for certain of our MFAs in North America and Asia and higher sales of ethanol processing aids, partially offset by a decrease of $5.2 million in Virginia myosin sales in Brazil. Attributable to regulatory developments in the country. Nutritional specialty net sales decreased $1.1 million or 2% due to lower poultry demand in North America and decreased aquaculture demand. In South America, partially offset by higher overall demand in China and higher companion animal sales. Vaccine net sales decreased by $0.6 million or 2% due to lower demand for poultry products in Brazil and lower sales. Partly due to timing offset by higher swine demand in North America and higher sales of adjuvant products. Animal health adjusted EBITDA decreased $1 million due to higher SG&A. Setting high to gross profit from increased sales. Moving on to first quarter financial performance for our other business segments on slide six. Starting with mineral nutrition, net sales for the quarter were 73.6.

million dollars. An increase of 10.6 million dollars or 17 percent due to an increase in demand and average selling prices to zinc oxide, copper, and trace minerals. Looking at our performance product segment. Net sales of 20.2 million dollars reflects an increase of 2.7 million dollars or 16 percent as a result of an increase in demand for copper-based and fluoride products. Mineral nutrition and performance products adjusted EBITDA increased 1.6 million and 1.2 million dollars respectively. Corporate expenses decreased 0.6 million dollars driven by lower consulting and business development costs. Starting to key capitalization related metrics on slide 7. We generated 22 million dollars of positive free cash flow for the 12 months ending September 30th, 2026. We generated 86 million dollars of operating cash flow and invested 64 million dollars in capital expenditures. Cash and cash equivalents and short-term investments were 83 million dollars at the end of the quarter. Leverage ratio was 2.9 times at the end of the first quarter based on 740 million dollars of total debt and 257 million dollars of trailing 12-month adjusted EBITDA. Our net leverage ratio was 2.6 times at the end of the first quarter. Based on 656 million dollars of net debt and 257 million dollars of trailing 12-month adjusted EBITDA. On interest rates, there are no changes to our current swap arrangement. Turning to dividends, consistent with our history, we paid a quarterly dividend of 12 cents per share or 4.9 million dollars in aggregate. Now let's turn to slide 8 which lays out our guidance for fiscal year 2027. We are maintaining

our previous guidance for fiscal year 2027 as follows. Net sales at 1 billion 550 million dollars to 1 billion 600 million dollars. This represents a growth range of two to five percent and a midpoint of approximately four percent. Total adjusted EBITDA of 258 to 268 million dollars. This represents a growth range of one to five percent and a midpoint of approximately three percent. Our adjusted effective income tax rate for fiscal year 2027 is estimated at approximately 20 percent and includes the benefit of the resolution of a foreign tax audit expected in the future quarter. We do expect our adjusted effective income tax rate to be higher in fiscal year 2028. Adjusted net income of 140 to 147 million dollars. This represents growth of 6 to 11 percent with a midpoint of a. Approximately 9 percent. Gap net income and EPS assumes constant currency and no additional gains or losses from FX. As we look ahead to the second quarter, we want to highlight the comparability item. In the second quarter, fiscal year 2026, net sales were reduced by approximately $13 million of product returns related to the transition of certain Tier 3 markets, including Canada and Europe, from Zoetis back to Fibro. Because this product was originally transferred at cost, the returns had no impact on gross profit. However, they lowered the prior unit sales base. As a result, reported second quarter net sales growth will benefit

to an easier comparison. In addition, as Donnie mentioned, certain costs have shifted from Q1 to Q2. Based on these two dynamics, we expect revenue growth to be higher than EBITDA growth in Q2. In closing,

we are pleased with the performance in our first quarter and the momentum we are carrying into the rest of fiscal year 2027. With that, Kendra, can you please open the lines for questions?

the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Thank you so much.

So first, just on Virginia Meison in Brazil, you kind of mentioned this in the prepared room. But just maybe you can give a little bit more color on your thinking, you know, post elections. Have there been any recent communications from regulators or just anything else that kind of gives you more or less confidence as you kind of think about, you know, the timing of that potential label? And then the next question I want to ask.

Is just on your MFA portfolio, you know, can you just provide a little bit of, you know, some color in terms of like how much of the growth was coming from your legacy kind of portfolio versus the Zola's portfolio? I know you're no longer kind of breaking those out, but just the flavor of, you know, how much of the growth was coming kind of from both pieces. And then last question is just on livestock trends kind of more broadly and how you're thinking about the durability of growth for the industry and the trends that you're kind of seeing, you know, both on the producer side and then also on the protein demand side of things. You've mentioned, you know, some of the stuff that's happening. on the poultry side, but maybe you can also talk about, you know, cattle and swine. Thanks.

Thanks for the question, Ekaterina.

I'll start with the MFA portfolio and growth and then turn it to Larry and Donny for virginia myosin and some of the live

stock trends. In terms of the overall growth, as we mentioned, we're not really breaking out between Zoetis and the our legacy portfolio going forward. But just to give some context, obviously, we said that we expected the Zoetis portfolio to be one of our higher growth contributors for the year, and we definitely saw that in the quarter. Zoetis was a major contributor to the overall MFA growth in the quarter. On the legacy side, you know, we called out that our ethanol performance group had a very strong performance in the quarter as well. That helped all offset the negative $5.2 million that we commented on virginia myosin. So overall, you know, legacy called relatively flat because of the impact of virginia myosin offset by EPG and then strong growth in our Zoetis portfolio. And then I'll turn it to Donnie to talk about virginia myosin in Brazil.

Yeah. So post-election, we have not had any renewed contact yet with the regulators. We're not expecting to have, you know, in the week or two afterwards any contact. We remain, obviously. Overall, bullish that, you know, eventually we will get the VM approval, as has happened basically in the rest of the world. But, you know, recognizing that things sometimes don't move as quickly as we'd like it to move, we still, as we've talked about, maintained. Our guidance that we have no VM sales in Brazil for the year. And obviously, if that changes, we will let you know. All right. Okay. I'll talk a little bit about some of the protein profitability factors that we see. First, you know. What we've seen so far and then kind of what we expect to see and what some of the projections are going forward as we finish out, as the industry finishes out 2026 and into 2027. So as Donnie mentioned, we do see squeezed producer. in both our poultry segments, as well as the swine industry, which is reduced wholesale.

Your next question from the line of Curtis Miles with BNP Paribas. Curtis, your line is open. Please go ahead.

Hi, good morning.

Thank you for taking my questions. I just have a couple here. So first, I wanted to start on the adjusted EBITDA. It looks like that's kind of progressed ahead of expectations in the first quarter. So I wanted to get a sense of why you decided not to raise guidance on that metric. Is it just because expenses were pushed a bit? Or are you also kind of baking in a little bit of servitism on that front? And then secondly, I wanted to see if you could share any color on the impact seen today from the USDA's phased reopening of the Southern Ports for Livestock. Has that trended as expected? And maybe any color on what you're thinking for 2027 on that? Thank you.

Thanks for the question.

Regarding EBITDA, we did perform a little better in the quarter than expected, having EBITDA growth of 4%. As Donnie mentioned in his remarks, some of that was driven by performance products. But a good part was also driven by the fact that we did have some of the expenses shift from Q1 to future quarters. Also, we're only one quarter into the year. You know, we just gave guidance about two months ago and the forecast still shows us. within the guidance range. So those factors are what's contributing to us holding the guidance at this point. Larry, do you want to talk about the USDA and the border? Sure. So the border, the importation of live Mexican cattle coming across the border, they are currently three ports that are open now, three stations, two in New Mexico and one in Arizona. They are bringing across the average about 700 animals per day. They're projecting that in 2026, they will have imported 200,000 head of cattle. And the projection for 2027 is just over a million head of cattle that will be brought across the border for finishing in the United States. So it is helpful. The supply into feed yards. Again, a million head if that happens next year. Over 27 million head that are fed for slaughter and feed lots is a little under 4%. So it is making some. The other area that we are seeing that is helping feed lot supply and beef supply is the amount of animals that are coming off the beef on dairy. Coming off dairy as I mentioned earlier.

It is about five and a half million head that are being purpose bred, if you will, and supplied into the beef chain. So that's about 20% of, again, the 27 million head that we feed per year. A little bit of outlook what we see currently and also into 2027 for incoming feeder cattle supply. Great. Thank you.

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

today's call.

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