PART I—FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents the company's unaudited consolidated financial statements and related notes for the periods ended March 31, 2024 Consolidated Statements of Operations Details the company's revenues, costs, and profits for the three and nine months ended March 31, 2024 and 2023 Consolidated Statements of Operations (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $263,223 | $245,673 | | Gross profit | $79,600 | $75,540 | | Operating income | $19,924 | $18,553 | | Net income | $8,405 | $10,042 | | Basic EPS | $0.21 | $0.25 | | Diluted EPS | $0.21 | $0.25 | Consolidated Statements of Operations (Nine Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $744,515 | $722,840 | | Gross profit | $225,942 | $221,571 | | Operating income | $34,899 | $48,081 | | Net income | $1,664 | $21,108 | | Basic EPS | $0.04 | $0.52 | | Diluted EPS | $0.04 | $0.52 | Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income changes for the three and nine-month periods Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net income | $8,405 | $10,042 | | Other comprehensive income (loss) | $(4,389) | $(1,223) | | Comprehensive income | $4,016 | $8,819 | Consolidated Statements of Comprehensive Income (Nine Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net income | $1,664 | $21,108 | | Other comprehensive income (loss) | $206 | $3,359 | | Comprehensive income | $1,870 | $24,467 | Consolidated Balance Sheets Outlines the company's assets, liabilities, and stockholders' equity as of March 31, 2024 Consolidated Balance Sheets (As of March 31, 2024 vs. June 30, 2023) | Metric (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total current assets | $597,180 | $585,723 | | Total assets | $979,035 | $971,397 | | Total current liabilities | $189,072 | $176,000 | | Total liabilities | $708,941 | $688,888 | | Total stockholders' equity | $270,094 | $282,509 | Consolidated Statements of Cash Flows Summarizes cash movements from operating, investing, and financing activities for the nine-month period Consolidated Statements of Cash Flows (Nine Months Ended March 31) | Activity (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $59,165 | $(6,928) | | Net cash used by investing activities | $(39,083) | $(63,736) | | Net cash (used) provided by financing activities | $(8,555) | $33,319 | | Net increase (decrease) in cash and cash equivalents | $8,944 | $(37,010) | | Cash and cash equivalents at end of period | $50,225 | $37,238 | Consolidated Statements of Changes in Stockholders' Equity Details the changes in stockholders' equity components over the nine-month period Changes in Stockholders' Equity (Nine Months Ended March 31, 2024) | Metric (in thousands) | As of June 30, 2023 | As of March 31, 2024 | | :--- | :--- | :--- | | Total Stockholders' Equity | $282,509 | $270,094 | | Retained Earnings | $260,912 | $247,995 | | Accumulated Other Comprehensive Loss | $(114,210) | $(114,004) | - Dividends declared remained constant at $0.12 per share for each quarter during the nine months ended March 31, 2024 and 20231719 Notes to Consolidated Financial Statements Provides supplementary details on accounting policies, segment data, debt, and other financial items 1. Description of Business - Phibro Animal Health Corporation is a diversified global developer, manufacturer, and marketer of animal health and mineral nutrition products for food and companion animals, as well as performance products for personal care, industrial chemical, and chemical catalyst industries21 2. Summary of Significant Accounting Policies and New Accounting Standards - No material changes to significant accounting policies as of March 31, 202424 - The company is evaluating the impact and potential early adoption of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), which will be effective for fiscal years ending June 30, 2025, and June 30, 2026, respectively3031 3. Statements of Operations—Additional Information - The company recognized $10,674 thousand of expense in SG&A during the nine months ended March 31, 2024, due to a partial pension plan settlement43 Net Sales by Product Type (Three Months Ended March 31) | Product Type (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Animal Health | $181,333 | $164,434 | | MFAs and other | $108,216 | $93,217 | | Nutritional specialties | $40,194 | $45,016 | | Vaccines | $32,923 | $26,201 | | Mineral Nutrition | $64,228 | $62,922 | | Performance Products | $17,662 | $18,317 | | Total | $263,223 | $245,673 | Net Sales by Region (Three Months Ended March 31) | Region (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | United States | $159,314 | $148,529 | | Latin America and Canada | $53,653 | $53,881 | | Europe, Middle East and Africa | $33,175 | $28,174 | | Asia Pacific | $17,081 | $15,089 | | Total | $263,223 | $245,673 | 4. Balance Sheets—Additional Information Inventories (As of March 31, 2024 vs. June 30, 2023) | Category (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Raw materials | $75,638 | $84,328 | | Work-in-process | $26,110 | $22,350 | | Finished goods | $180,541 | $170,892 | | Total Inventories | $282,289 | $277,570 | Accumulated Other Comprehensive Loss (As of March 31, 2024 vs. June 30, 2023) | Category (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Derivative instruments | $16,182 | $24,589 | | Foreign currency translation adjustment | $(117,249) | $(115,062) | | Unrecognized net pension losses | $(12,485) | $(23,996) | | Income tax (provision) benefit | $(452) | $259 | | Total | $(114,004) | $(114,210) | 5. Debt - As of March 31, 2024, the company had $165,000 thousand in borrowings drawn under the 2021 Revolver, with $142,706 thousand available for further borrowings51 - The company was in compliance with all financial covenants under the 2021 Credit Agreement as of March 31, 202450 Debt Maturities (As of March 31, 2024 vs. June 30, 2023) | Debt Type (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | 2021 Term A Loan | $262,500 | $273,750 | | 2023 Incremental Term Loan | $46,250 | $50,000 | | 2022 Term Loan | $11,370 | $11,685 | | Long-term debt (net of current maturities) | $291,008 | $311,541 | 6. Related Party Transactions - Relatives of the CEO provided services, receiving approximately $392 thousand and $1,209 thousand in compensation for the three and nine months ended March 31, 2024, respectively55 7. Stock Incentive Plan - The Board approved grants of 600,000 restricted stock units (RSUs) to officers, with vesting based on time and performance (stock price targets)56 - Stock-based compensation expense for the three and nine months ended March 31, 2024, was $135 thousand and $296 thousand, respectively; Unrecognized compensation expense was $2,967 thousand as of March 31, 2024, to be recognized over 4.1 years58 8. Commitments and Contingencies - The company is subject to extensive environmental laws and regulations, with ongoing investigation and remediation efforts at various sites5960 - Estimated costs for environmental investigation and remediation, including the Omega Chemical Site lawsuit, were approximately $4,270 thousand at March 31, 2024, down from $8,505 thousand at June 30, 202365 - A definitive settlement agreement was signed in February 2023 for the Omega Chemical Site groundwater plume lawsuit, providing a 'cash-out' settlement for Phibro-Tech and its affiliates, with all cash payments made as of March 31, 202464 9. Derivatives - The company uses foreign currency option contracts and an interest rate swap to manage exposure to foreign currency exchange rates and interest rates, designating them as cash flow hedges6769 Fair Value of Derivatives (As of March 31, 2024 vs. June 30, 2023) | Derivative (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Foreign currency option contracts, net | $467 | $333 | | Interest rate swap | $15,813 | $24,256 | 10. Fair Value Measurements - Short-term investments, current assets, current liabilities, and debt are generally carried at amounts representative of their fair value due to their nature or variable rates727374 - Derivative instruments' fair values are determined using pricing models with observable market inputs75 11. Business Segments - The company evaluates performance and allocates resources based on three segments: Animal Health, Mineral Nutrition, and Performance Products, using Adjusted EBITDA as the primary operating measure7879 Segment Net Sales (Nine Months Ended March 31) | Segment (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Animal Health | $514,967 | $483,096 | | Mineral Nutrition | $181,601 | $184,212 | | Performance Products | $47,947 | $55,532 | | Total segments | $744,515 | $722,840 | Segment Adjusted EBITDA (Nine Months Ended March 31) | Segment (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Animal Health | $104,317 | $98,240 | | Mineral Nutrition | $11,053 | $13,555 | | Performance Products | $4,597 | $7,069 | | Total segments | $119,967 | $118,864 | 12. Subsequent Event – Agreement to Acquire an MFA product portfolio and related assets - In April 2024, Phibro entered an agreement to acquire Zoetis Inc.'s medicated feed additive (MFA) product portfolio and related assets for $350,000 thousand, to be financed primarily with $325,000 thousand of new debt8485 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial performance, condition, liquidity, and operational results Introduction - The MD&A aims to help readers understand the company's performance, financial condition, and cash flows, and should be read with the consolidated financial statements87 Overview of our business - Phibro Animal Health Corporation is a global diversified animal health and mineral nutrition company, also manufacturing specialty ingredients for personal care, industrial chemical, and chemical catalyst industries88 Agreement to acquire an MFA product portfolio and related assets - Phibro plans to acquire Zoetis' medicated feed additive (MFA) product portfolio and related assets for $350,000 thousand, primarily funded by $325,000 thousand in new debt8990 Armed Conflicts - The company has three manufacturing sites and approximately 500 employees in Israel, which account for 28% of consolidated assets and 21% of consolidated net sales for the nine months ended March 31, 20249394 - Despite initial disruptions from the Israel-Hamas conflict and a significant escalation in April 2024, operations in Israel have maintained supply commitments93 - Sales to Russia and Ukraine represented approximately 1% of consolidated net sales for the 12 months ended March 31, 2024, with no production or direct distribution operations in Russia96 Regulatory developments - The FDA issued a final order in November 2023 to revoke the approved method for detecting carbadox residues and proposed withdrawing approval for carbadox use in medicated swine feed99 - Phibro has formally requested an evidentiary hearing and filed a lawsuit to invalidate the order revoking the regulatory method for carbadox (Mecadox), which generated approximately $20.0 million in sales for the 12 months ended March 31, 202499 Analysis of the consolidated statements of operations Summary Results of Operations Summary Results of Operations (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $263,223 | $245,673 | $17,550 | 7% | | Gross profit | $79,600 | $75,540 | $4,060 | 5% | | Operating income | $19,924 | $18,553 | $1,371 | 7% | | Net income | $8,405 | $10,042 | $(1,637) | (16)% | | Basic EPS | $0.21 | $0.25 | $(0.04) | (16)% | | Diluted EPS | $0.21 | $0.25 | $(0.04) | (16)% | Summary Results of Operations (Nine Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $744,515 | $722,840 | $21,675 | 3% | | Gross profit | $225,942 | $221,571 | $4,371 | 2% | | Operating income | $34,899 | $48,081 | $(13,182) | * | | Net income | $1,664 | $21,108 | $(19,444) | * | | Basic EPS | $0.04 | $0.52 | $(0.48) | * | | Diluted EPS | $0.04 | $0.52 | $(0.48) | * | Net sales, Adjusted EBITDA and reconciliation of GAAP net income to Adjusted EBITDA Segment Net Sales (Three Months Ended March 31) | Segment (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Animal Health | $181,333 | $164,434 | $16,899 | 10% | | Mineral Nutrition | $64,228 | $62,922 | $1,306 | 2% | | Performance Products | $17,662 | $18,317 | $(655) | (4)% | | Total | $263,223 | $245,673 | $17,550 | 7% | Segment Adjusted EBITDA (Three Months Ended March 31) | Segment (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Animal Health | $36,524 | $34,217 | $2,307 | 7% | | Mineral Nutrition | $4,665 | $3,859 | $806 | 21% | | Performance Products | $2,371 | $2,413 | $(42) | (2)% | | Corporate | $(13,856) | $(13,122) | $(734) | 6% | | Total | $29,704 | $27,367 | $2,337 | 9% | Reconciliation of Net Income to Adjusted EBITDA (Nine Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | | :--- | :--- | :--- | :--- | | Net income | $1,664 | $21,108 | $(19,444) | | Interest expense, net | $13,798 | $10,822 | $2,976 | | Provision for income taxes | $2,844 | $11,522 | $(8,678) | | Depreciation and amortization | $26,977 | $25,438 | $1,539 | | EBITDA | $45,283 | $68,890 | $(23,607) | | Pension settlement cost | $10,674 | — | $10,674 | | Brazil employment taxes | $4,202 | — | $4,202 | | Foreign currency losses (gains), net | $16,593 | $4,629 | $11,964 | | Adjusted EBITDA | $77,807 | $80,413 | $(2,606) | Adjusted net income Adjusted Net Income (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income | $8,405 | $10,042 | $(1,637) | (16)% | | Adjusted net income | $12,697 | $11,643 | $1,054 | 9% | | Adjusted diluted EPS | $0.31 | $0.29 | $0.02 | 9% | Adjusted Net Income (Nine Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,664 | $21,108 | $(19,444) | * | | Adjusted net income | $31,697 | $33,754 | $(2,057) | (6)% | | Adjusted diluted EPS | $0.78 | $0.83 | $(0.05) | (6)% | Comparison of three months ended March 31, 2024 and 2023 - Net sales increased by $17.6 million (7%) to $263.2 million, driven by Animal Health (up $16.9 million or 10%) and Mineral Nutrition (up $1.3 million or 2%), partially offset by a decrease in Performance Products109 - Gross profit increased by $4.1 million (5%) to $79.6 million, but gross margin decreased by 50 basis points to 30.2% due to unfavorable product mix113 - Net income decreased by $1.6 million (16%) to $8.4 million, primarily due to increased interest expense, higher foreign currency losses, and increased SG&A, despite higher operating income120 - Adjusted EBITDA increased by $2.3 million (9%) to $29.7 million, mainly from Animal Health's gross profit increase121 Comparison of nine months ended March 31, 2024 and 2023 - Net sales increased by $21.7 million (3%) to $744.5 million, primarily due to Animal Health sales increasing by $31.9 million (7%)126 - Gross profit increased by $4.4 million, but gross margin decreased by 40 basis points to 30.3% due to unfavorable product mix130 - Net income decreased by $19.4 million to $1.7 million, largely due to a $13.2 million decrease in operating income (driven by higher SG&A including pension settlement costs and Brazil employment taxes) and increased foreign currency losses138 - Adjusted EBITDA decreased by $2.6 million (3%) to $77.8 million, with Animal Health increasing by $6.1 million, offset by decreases in Mineral Nutrition and Performance Products, and higher Corporate expenses140 Analysis of financial condition, liquidity and capital resources - Operating activities provided $59.2 million in cash for the nine months ended March 31, 2024, a significant improvement from a $6.9 million usage in the prior year, driven by changes in operating assets and liabilities147 - Investing activities used $39.1 million, primarily for capital expenditures ($28.2 million) and net purchases of short-term investments ($8.5 million), and a business acquisition ($3.3 million)148 - Financing activities used $8.6 million, including $14.6 million in dividends paid and $15.3 million in long-term debt payments, partially offset by $24.0 million in net borrowings from the revolving credit facility149 - The company expects adequate liquidity for at least the next 12 months, supported by cash on hand, operating cash flows, and financing arrangements, including $142.7 million available under the 2021 Revolver as of March 31, 2024150153 Net Cash Provided (Used) by Activities (Nine Months Ended March 31) | Activity (in thousands) | 2024 | 2023 | Change ($) | | :--- | :--- | :--- | :--- | | Operating activities | $59,165 | $(6,928) | $66,093 | | Investing activities | $(39,083) | $(63,736) | $24,653 | | Financing activities | $(8,555) | $33,319 | $(41,874) | | Net increase (decrease) in cash and cash equivalents | $8,944 | $(37,010) | $45,954 | General description of non-GAAP financial measures - Adjusted EBITDA is used by management as a primary operating measure for financial and operating decisions, and annual budgets, reflecting performance before certain income statement elements and unusual/non-recurring items159160 - Adjusted net income and adjusted diluted EPS are presented to show operational results before certain income statement elements, including amortization of acquired intangibles, acquisition-related costs, stock-based compensation, and unusual/non-recurring items162 - Foreign currency gains and losses are considered non-operational and largely non-cash, arising principally from intercompany transactions166 New accounting standards - Refers to Note 2 for discussion of new accounting standards, including ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes)1673031 Critical Accounting Policies - No significant changes in critical accounting estimates since June 30, 2023, as disclosed in the Annual Report on Form 10-K167 Forward-Looking Statements - The report contains forward-looking statements subject to risks and uncertainties, including outbreaks of animal diseases, regulatory actions (e.g., FDA withdrawal of Mecadox), competition, weather, armed conflicts (Israel-Hamas, Russia-Ukraine), and economic conditions168169171 - The company cautions that actual results may differ materially from expectations due to various factors, and undertakes no obligation to update these statements173174 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's exposure to interest rate, foreign currency, and commodity price risks - The company is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices175 - Derivatives (foreign currency contracts and interest rate swaps) are used for hedging, not speculative purposes175 - No material changes in financial market risks from those disclosed in the Annual Report as of the report date176 Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and notes no material changes in internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024177 - There were no material changes to internal control over financial reporting during the quarter ended March 31, 2024178 PART II—OTHER INFORMATION Item 1. Legal Proceedings Refers to the financial statement notes for details on legal matters and contingencies - Information on legal proceedings is incorporated by reference from 'Notes to Consolidated Financial Statements—Commitments and Contingencies' (Note 8)179 Item 1A. Risk Factors Directs readers to the Annual Report for a comprehensive discussion of risk factors - Readers should consider risk factors discussed in Item 1A of the Annual Report180 - No material changes in the company's risk factors from those disclosed in the Annual Report181 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Indicates no unregistered sales of equity securities or use of proceeds occurred - No unregistered sales of equity securities and use of proceeds182 Item 3. Defaults Upon Senior Securities States that no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities183 Item 4. Mine Safety Disclosures Indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable184 Item 5. Other Information Discloses a Rule 10b5-1 trading arrangement adopted by an entity controlled by the CEO - BFI Co, LLC, controlled by the CEO, adopted a Rule 10b5-1 trading arrangement to sell up to 528,000 shares of Class A common stock through November 15, 2024185 Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 (Sections 302 and 906), along with Inline XBRL documents186 SIGNATURES Contains the official signatures of the company's executive officers, dated May 8, 2024 - The report was signed by Jack C. Bendheim, Chairman, President and Chief Executive Officer, and Glenn C. David, Chief Financial Officer, on May 8, 2024190
Phibro(PAHC) - 2024 Q3 - Quarterly Report