Phibro(PAHC) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (unaudited) The company reported increased net sales for both the quarter and six-month period, with quarterly net income up significantly, while total assets and operating cash flow saw modest changes Consolidated Statements of Operations Net sales increased for both the three and six-month periods, with quarterly net income growing significantly, while six-month net income experienced a slight decrease Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | For the Periods Ended December 31 | Three Months 2021 | Three Months 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $232,712 | $206,149 | $447,377 | $401,343 | | Gross profit | $70,672 | $68,265 | $135,350 | $132,384 | | Operating income | $22,294 | $19,890 | $36,906 | $35,578 | | Net income | $17,465 | $12,801 | $23,999 | $25,103 | | Diluted EPS | $0.43 | $0.32 | $0.59 | $0.62 | Consolidated Balance Sheets Total assets and liabilities increased slightly as of December 31, 2021, driven by higher inventories and increased borrowings under the revolving credit facility Consolidated Balance Sheet Highlights (in thousands) | As of | December 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Total current assets | $508,610 | $498,909 | | Total assets | $848,958 | $841,325 | | Total current liabilities | $166,628 | $164,116 | | Total liabilities | $609,664 | $602,796 | | Total stockholders' equity | $239,294 | $238,529 | Consolidated Statements of Cash Flows Net cash provided by operating activities decreased due to higher inventories, while investing and financing activities resulted in net cash outflows, including dividend payments Six Months Ended Dec 31 - Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,943 | $28,611 | | Net cash used by investing activities | ($3,098) | ($21,259) | | Net cash used by financing activities | ($6,311) | ($10,084) | | Net increase (decrease) in cash | $13,173 | ($1,809) | Notes to Consolidated Financial Statements Notes provide details on business segments, revenue, debt, and contingencies, highlighting strong sales growth in Animal Health and Mineral Nutrition, alongside ongoing environmental and product safety issues Net Sales by Product Type (Six Months Ended Dec 31, in thousands) | Product Category | 2021 | 2020 | | :--- | :--- | :--- | | Animal Health | | | | MFAs and other | $175,482 | $160,280 | | Nutritional specialties | $73,327 | $68,994 | | Vaccines | $43,122 | $35,333 | | Total Animal Health | $291,931 | $264,607 | | Mineral Nutrition | $121,087 | $105,597 | | Performance Products | $34,359 | $31,139 | | Total | $447,377 | $401,343 | Net Sales by Region (Six Months Ended Dec 31, in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | United States | $265,464 | $241,077 | | Latin America and Canada | $90,674 | $78,421 | | Europe, Middle East and Africa | $60,961 | $57,157 | | Asia Pacific | $30,278 | $24,688 | | Total | $447,377 | $401,343 | - The company entered into an amended credit agreement in April 2021, which includes a $300 million Term A Loan and a $250 million revolving credit facility. As of December 31, 2021, the company was in compliance with all financial covenants[51][52] - The company is named as a potentially responsible party (PRP) by the EPA for groundwater contamination at the Omega Chemical Superfund Site. The ultimate liability cannot be predicted with certainty at this time[61] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes sales growth to Animal Health and Mineral Nutrition, despite gross margin pressure from rising costs, while actively managing COVID-19 impacts and FDA discussions on carbadox, maintaining strong liquidity Results of Operations Net sales increased for both the three and six-month periods, driven by Animal Health and Mineral Nutrition, though gross margin declined due to cost pressures, and six-month Adjusted EBITDA decreased Segment Net Sales (Three Months Ended Dec 31, in thousands) | Segment | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Animal Health | $150,927 | $136,238 | $14,689 | 11% | | Mineral Nutrition | $66,655 | $54,157 | $12,498 | 23% | | Performance Products | $15,130 | $15,754 | ($624) | (4)% | Segment Adjusted EBITDA (Three Months Ended Dec 31, in thousands) | Segment | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Animal Health | $33,696 | $33,349 | $347 | 1% | | Mineral Nutrition | $5,525 | $4,185 | $1,340 | 32% | | Performance Products | $1,324 | $2,266 | ($942) | (42)% | - Gross margin for Q2 FY22 decreased by 270 basis points to 30.4% compared to 33.1% in the prior year, primarily due to increased raw material and logistics costs, and unfavorable product mix[100][101] - The FDA is reviewing the safety of carbadox (Mecadox), which had sales of $22 million for the twelve months ended December 31, 2021. A potential withdrawal of approval would adversely affect financial results[90] Liquidity and Capital Resources The company maintains strong liquidity with substantial cash and available credit, sufficient to fund operations for the next twelve months, and declared a quarterly dividend Liquidity Measures (in thousands, except ratios) | As of | December 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Cash, cash equivalents & short-term investments | $95,485 | $93,212 | | Working capital | $259,622 | $250,956 | | Ratio of current assets to current liabilities | 2.69:1 | 2.62:1 | - As of December 31, 2021, the company had $107.0 million in outstanding borrowings under its 2021 Revolver, with $140.3 million available for further borrowings[131] - The Board of Directors declared a quarterly cash dividend of $0.12 per share, payable on March 23, 2022[132] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates, foreign currency, and commodity prices using non-speculative derivative instruments, with no material changes since the last Annual Report - The company uses interest rate swaps to hedge exposure to fluctuating interest rates and foreign currency contracts to manage foreign currency risks[151] - There were no material changes in the company's financial market risks from those disclosed in the Annual Report on Form 10-K[152] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[153] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[154] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal claims and lawsuits, not expected to have a material adverse effect, with environmental contingencies detailed in the financial statement notes - Information regarding legal proceedings is incorporated by reference from Note 7, "Commitments and Contingencies," in the financial statements[155][65] Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K, advising investors to consider previously disclosed risks - There were no material changes in the Company's risk factors from the risks disclosed in the Annual Report[157] Other Information The company entered a severance agreement with CFO Damian Finio, providing a lump-sum payment and pro-rata bonus upon specific involuntary or voluntary termination conditions - The company entered into a severance protection letter agreement with CFO Damian Finio on February 7, 2022[161] - The agreement provides for a severance payment of 100% of base salary plus a pro-rata bonus upon involuntary termination without 'Cause' or resignation for 'Good Reason'[161]