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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-36410

Phibro Animal Health Corporation

(Exact name of registrant as specified in its charter)

Delaware

13-1840497

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

Glenpointe Centre East, 3rd Floor

300 Frank W. Burr Boulevard, Suite 21

Teaneck, New Jersey

07666-6712

(Address of Principal Executive Offices)

(Zip Code)

(201) 329-7300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Class A Common Stock, $0.0001
par value per share

PAHC

Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 3, 2024, there were 20,337,574 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 20,166,034 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.

PHIBRO ANIMAL HEALTH CORPORATION

TABLE OF CONTENTS

Page

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

3

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Cash Flows

6

 

Consolidated Statements of Changes in Stockholders’ Equity

7

 

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

SIGNATURES

40

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months

Nine Months

    

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

(unaudited)

(in thousands, except per share amounts)

Net sales

$

263,223

$

245,673

$

744,515

$

722,840

Cost of goods sold

 

183,623

 

170,133

 

518,573

 

501,269

Gross profit

 

79,600

 

75,540

 

225,942

 

221,571

Selling, general and administrative expenses

 

59,676

 

56,987

 

191,043

 

173,490

Operating income

 

19,924

 

18,553

 

34,899

 

48,081

Interest expense, net

 

4,575

 

3,871

 

13,798

 

10,822

Foreign currency losses (gains), net

 

2,427

 

(422)

 

16,593

 

4,629

Income before income taxes

 

12,922

 

15,104

 

4,508

 

32,630

Provision for income taxes

 

4,517

 

5,062

 

2,844

 

11,522

Net income

$

8,405

$

10,042

$

1,664

$

21,108

Net income per share

 

  

 

  

 

  

 

  

basic

$

0.21

$

0.25

$

0.04

$

0.52

diluted

$

0.21

$

0.25

$

0.04

$

0.52

Weighted average common shares outstanding

 

 

 

 

basic

 

40,504

 

40,504

 

40,504

 

40,504

diluted

40,520

40,504

40,509

40,504

The accompanying notes are an integral part of these consolidated financial statements

3

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months

Nine Months

    

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

(unaudited)

(in thousands)

Net income

$

8,405

$

10,042

$

1,664

$

21,108

Change in fair value of derivative instruments

 

(1,793)

 

(3,765)

 

(8,407)

 

1,804

Foreign currency translation adjustment

 

(3,045)

 

1,469

 

(2,187)

 

1,597

Pension settlement recognition

10,674

Unrecognized net pension gains

 

92

 

177

 

837

 

545

(Provision) benefit for income taxes

 

357

 

896

 

(711)

 

(587)

Other comprehensive income (loss)

 

(4,389)

 

(1,223)

 

206

 

3,359

Comprehensive income

$

4,016

$

8,819

$

1,870

$

24,467

The accompanying notes are an integral part of these consolidated financial statements

4

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 

June 30

As of

    

2024

    

2023

(unaudited)

 

(in thousands, except share and per share amounts)

ASSETS

Cash and cash equivalents

$

50,225

$

41,281

Short-term investments

 

48,523

 

40,000

Accounts receivable, net

 

161,087

 

163,479

Inventories, net

 

282,289

 

277,570

Other current assets

 

55,056

 

63,393

Total current assets

 

597,180

 

585,723

Property, plant and equipment, net

 

202,061

 

195,568

Intangibles, net

 

48,239

 

54,987

Goodwill

 

54,644

 

53,274

Other assets

 

76,911

 

81,845

Total assets

$

979,035

$

971,397

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Current portion of long-term debt and other

$

29,811

$

22,295

Accounts payable

 

82,613

 

73,853

Accrued expenses and other current liabilities

 

76,648

 

79,852

Total current liabilities

 

189,072

 

176,000

Revolving credit facility

 

165,000

 

141,000

Long-term debt

 

291,008

 

311,541

Other liabilities

 

63,861

 

60,347

Total liabilities

 

708,941

 

688,888

Commitments and contingencies (Note 8)

 

 

Common stock, par value $0.0001 per share; 300,000,000 Class A shares authorized, 20,337,574 shares issued and outstanding at March 31, 2024, and June 30, 2023; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at March 31, 2024, and June 30, 2023

 

4

 

4

Preferred stock, par value $0.0001 per share; 16,000,000 shares authorized, no shares issued and outstanding

 

Paid-in capital

 

136,099

 

135,803

Retained earnings

 

247,995

 

260,912

Accumulated other comprehensive loss

 

(114,004)

 

(114,210)

Total stockholders’ equity

 

270,094

 

282,509

Total liabilities and stockholders’ equity

$

979,035

$

971,397

The accompanying notes are an integral part of these consolidated financial statements

5

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

(unaudited)

(in thousands)

OPERATING ACTIVITIES

 

  

 

  

Net income

$

1,664

$

21,108

Adjustments to reconcile net income to

 

 

net cash provided (used) by operating activities:

 

 

Depreciation and amortization

 

26,977

 

25,438

Amortization of debt issuance costs

 

780

 

514

Deferred income taxes

 

(6,806)

 

235

Foreign currency losses (gains), net

 

4,261

 

(5,024)

Acquisition-related items

1,033

Pension settlement cost

10,674

Brazil employment taxes

4,202

Stock-based compensation

296

Other

 

3,865

 

(1,201)

Changes in operating assets and liabilities, net of business acquisition:

 

 

Accounts receivable, net

 

3,045

 

14,985

Inventories, net

 

(5,891)

 

(30,458)

Other current assets

 

3,437

 

(7,481)

Other assets

 

624

 

(317)

Accounts payable

 

8,099

 

(19,718)

Accrued expenses and other liabilities

 

2,905

 

(5,009)

Net cash provided (used) by operating activities

 

59,165

 

(6,928)

INVESTING ACTIVITIES

 

  

 

  

Purchases of short-term investments

 

(65,523)

 

(40,000)

Maturities of short-term investments

 

57,000

 

 

17,000

Capital expenditures

(28,166)

 

 

(40,903)

Business acquisition, net of cash acquired

(3,282)

Other, net

 

888

 

167

Net cash used by investing activities

 

(39,083)

 

(63,736)

FINANCING ACTIVITIES

 

 

Revolving credit facility borrowings

 

155,000

 

229,000

Revolving credit facility repayments

 

(131,000)

 

(181,000)

Proceeds from long-term debt

12,000

Payments of long-term debt

 

(15,315)

 

(11,460)

Debt issuance costs

(640)

Proceeds from insurance premium financing and other short-term debt

2,694

Payments of insurance premium financing and other short-term debt

(5,353)

Dividends paid

 

(14,581)

 

(14,581)

Net cash (used) provided by financing activities

 

(8,555)

 

33,319

Effect of exchange rate changes on cash

 

(2,583)

 

335

Net increase (decrease) in cash and cash equivalents

 

8,944

 

(37,010)

Cash and cash equivalents at beginning of period

 

41,281

 

74,248

Cash and cash equivalents at end of period

$

50,225

$

37,238

The accompanying notes are an integral part of these consolidated financial statements

6

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

Other

Shares of

Comprehensive

Common

Common

Preferred

Paid-in

Retained

Income

    

Stock

    

Stock

    

Stock

    

Capital

    

Earnings

    

(Loss)

    

Total

(unaudited)

(in thousands, except share and per share amounts)

As of June 30, 2023

    

40,503,608

$

4

$

$

135,803

$

260,912

$

(114,210)

$

282,509

Comprehensive income (loss)

(8,015)

3,354

(4,661)

Dividends declared ($0.12 per share)

(4,860)

(4,860)

Stock-based compensation expense

 

 

 

 

81

 

 

 

81

As of September 30, 2023

40,503,608

$

4

$

$

135,884

$

248,037

$

(110,856)

$

273,069

Comprehensive income

1,274

1,241

2,515

Dividends declared ($0.12 per share)

(4,861)

(4,861)

Stock-based compensation expense

80

80

As of December 31, 2023

 

40,503,608

$

4

$

$

135,964

$

244,450

$

(109,615)

$

270,803

Comprehensive income (loss)

8,405

(4,389)

4,016

Dividends declared ($0.12 per share)

(4,860)

(4,860)

Stock-based compensation expense

 

 

135

135

As of March 31, 2024

40,503,608

$

4

$

$

136,099

$

247,995

$

(114,004)

$

270,094

Accumulated

    

    

  

    

  

Other

Shares of

Comprehensive

Common

Common

Preferred

Paid-in

Retained

Income

    

Stock

    

Stock

    

Stock

    

Capital

    

Earnings

    

(Loss)

    

Total

(unaudited)

(in thousands, except share and per share amounts)

As of June 30, 2022

40,503,608

$

4

$

$

135,803

$

247,748

$

(121,113)

$

262,442

Comprehensive income

 

 

 

 

 

3,856

 

1,318

 

5,174

Dividends declared ($0.12 per share)

 

 

 

 

 

(4,860)

 

 

(4,860)

As of September 30, 2022

40,503,608

$

4

$

$

135,803

$

246,744

$

(119,795)

$

262,756

Comprehensive income

7,210

3,264

10,474

Dividends declared ($0.12 per share)

(4,860)

(4,860)

As of December 31, 2022

 

40,503,608

$

4

$

$

135,803

$

249,094

$

(116,531)

$

268,370

Comprehensive income (loss)

10,042

(1,223)

8,819

Dividends declared ($0.12 per share)

(4,861)

(4,861)

As of March 31, 2023

40,503,608

$

4

$

$

135,803

$

254,275

$

(117,754)

$

272,328

The accompanying notes are an integral part of these consolidated financial statements

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(unaudited)

1.  Description of Business

Phibro Animal Health Corporation (“Phibro” or “PAHC”) and its subsidiaries (together, the “Company”) is a diversified global developer, manufacturer and marketer of a broad range of animal health and mineral nutrition products for food and companion animals including poultry, swine, beef and dairy cattle, aquaculture and dogs. The Company is also a manufacturer and marketer of performance products for use in the personal care, industrial chemical and chemical catalyst industries. Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,” “us,” and similar expressions refer to Phibro and its subsidiaries.

The unaudited consolidated financial information for the three and nine months ended March 31, 2024 and 2023, is presented on the same basis as the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (the “Annual Report”), filed with the Securities and Exchange Commission on August 30, 2023 (File no. 001-36410). In the opinion of management, these financial statements include all adjustments necessary for a fair statement of the financial position, results of operations and cash flows of the Company for the interim periods, and the adjustments are of a normal and recurring nature. The financial results for any interim period are not necessarily indicative of the results for the full year. The consolidated balance sheet information as of June 30, 2023, was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report.

The consolidated financial statements include the accounts of Phibro and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated from the consolidated financial statements. The decision to consolidate an entity requires consideration of majority voting interests, as well as effective control over the entity.

2.  Summary of Significant Accounting Policies and New Accounting Standards

Our significant accounting policies are described in the notes to the consolidated financial statements included in our Annual Report. As of March 31, 2024, there have been no material changes to any of the significant accounting policies contained therein.

Net Income per Share and Weighted Average Shares

Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period.

Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period after giving effect to dilutive common share equivalents, resulting from the assumed vesting of restricted stock units, unless the effect would be antidilutive. Common share equivalents were included in the calculation of diluted net income per share for the three and nine months ended March 31, 2024.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Three Months

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

    

Net income

$

8,405

$

10,042

$

1,664

$

21,108

Weighted average number of shares – basic

 

40,504

 

40,504

 

40,504

 

40,504

Dilutive effect of restricted stock units

16

5

Weighted average number of shares - diluted

40,520

40,504

40,509

40,504

Net income per share

basic

$

0.21

$

0.25

$

0.04

$

0.52

diluted

$

0.21

$

0.25

$

0.04

$

0.52

 

 

New Accounting Standards

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requires the disclosure of significant segment expenses that are included in segment profit or loss and how the segment measures are used for decision-making. The ASU will be effective for Phibro’s fiscal year ending June 30, 2025, including retrospective disclosure for all prior periods presented, and interim periods subsequent to June 30, 2025. We are evaluating both the impact to our segment disclosures and the possibility of early adoption of the ASU.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, enhances income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU outlines specific categories to be provided in the rate reconciliation and requires additional information for those reconciling items that meet a quantitative threshold. The ASU requires disaggregated disclosure of federal, state and foreign income taxes paid, including disaggregation by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). The ASU also requires disaggregated disclosure of federal, state and foreign income from continuing operations before income taxes. The enhanced disclosures will be applied on a prospective basis and are required for Phibro’s fiscal year ending June 30, 2026. We are evaluating the impact of the additional income tax-related disclosures.

 

 

 

3.  Statements of Operations—Additional Information

Disaggregated revenue, deferred revenue and customer payment terms

We develop, manufacture and market a broad range of products for food and companion animals including poultry, swine, beef and dairy cattle, aquaculture, and dogs. The products help prevent, control and treat diseases and enhance nutrition to help improve animal health and well-being. We sell animal health and mineral nutrition products directly to integrated poultry, cattle and swine customers and through commercial animal feed manufacturers, distributors and veterinarians. The animal health industry and demand for many of the animal health products in a particular region are affected by changing disease pressures and by weather conditions, as product usage follows varying weather patterns and seasons. Our operations are primarily focused on regions where the majority of livestock production is consolidated in large commercial farms.

We have a diversified portfolio of products that are classified within our three business segments—Animal Health, Mineral Nutrition and Performance Products. Each segment has its own dedicated management and sales team.

Animal Health

The Animal Health business develops, manufactures and markets products in three main categories:

MFAs and other: MFAs and other products primarily consist of concentrated medicated products administered through animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Specific product classifications include

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

antibacterials, which inhibit the growth of pathogenic bacteria that cause bacterial infections in animals; anticoccidials, which inhibit the growth of coccidia (parasites) that damage the intestinal tract of animals; and other related products. The MFAs and other category also includes antibacterials and other processing aids used in the ethanol fermentation industry.
Nutritional specialties: Nutritional specialty products enhance nutrition to help improve health and performance in areas such as immune system function and digestive health. We are also a developer, manufacturer and marketer of microbial products and bioproducts for a variety of applications serving animal health and nutrition, environmental, industrial and agricultural customers.
Vaccines: Vaccine products are primarily focused on preventing diseases in poultry, swine, beef and dairy cattle and aquaculture. They protect animals from either viral or bacterial disease challenges. We develop, manufacture and market conventionally licensed and autogenous vaccine products, as well as adjuvants for animal vaccine manufacturers. We have developed and market an innovative and proprietary delivery platform for vaccines.

Mineral Nutrition

The Mineral Nutrition business is comprised of formulations and concentrations of trace minerals such as zinc, manganese, copper, iron and other compounds, with a focus on customers in North America. Our customers use these products to fortify the daily feed requirements of their livestock’s diets and maintain an optimal balance of trace elements in each animal. We manufacture and market a broad range of mineral nutrition products for food animals including poultry, swine, and beef and dairy cattle.

Performance Products

The Performance Products business manufactures and markets specialty ingredients for use in the personal care, industrial chemical and chemical catalyst industries.

The following tables present our revenues disaggregated by major product category and geographic region:

Net Sales by Product Type

Three Months

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

Animal Health

 

  

 

  

  

 

  

MFAs and other

$

108,216

$

93,217

$

304,261

$

283,186

Nutritional specialties

 

40,194

 

45,016

 

121,840

 

127,926

Vaccines

 

32,923

 

26,201

 

88,866

 

71,984

Total Animal Health

$

181,333

$

164,434

$

514,967

$

483,096

Mineral Nutrition

 

64,228

 

62,922

 

181,601

 

184,212

Performance Products

 

17,662

 

18,317

 

47,947

 

55,532

Total

$

263,223

$

245,673

$

744,515

$

722,840

Net Sales by Region

Three Months

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

United States

$

159,314

$

148,529

$

431,083

$

433,716

Latin America and Canada

 

53,653

 

53,881

 

177,539

 

159,946

Europe, Middle East and Africa

 

33,175

 

28,174

 

89,572

 

85,518

Asia Pacific

 

17,081

 

15,089

 

46,321

 

43,660

Total

$

263,223

$

245,673

$

744,515

$

722,840

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net sales by region are based on country of destination.

Our customer payment terms generally range from 30 to 120 days globally and do not include any significant financing components. Payment terms vary based on industry and business practices within the regions in which we operate. Our average worldwide collection period for accounts receivable is approximately 60 days after the revenue is recognized.

Interest Expense, Net

Three Months

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

Interest expense, net

2021 Credit Facilities

$

5,127

$

4,517

$

15,421

$

12,316

2022 Term Loan

215

191

648

379

Amortization of debt issuance costs

 

260

 

188

 

780

 

514

Other

 

43

 

10

 

164

 

20

Interest expense

 

5,645

 

4,906

 

17,013

 

13,229

Interest income

 

(1,070)

 

(1,035)

 

(3,215)

 

(2,407)

$

4,575

$

3,871

$

13,798

$

10,822

 

Depreciation and Amortization

Three Months

Nine Months

For the Periods Ended March 31 

    

2024

    

2023

    

2024

    

2023

Depreciation and amortization

 

 

  

 

 

  

Depreciation of property, plant and equipment

$

6,770

$

6,067

$

19,638

$

18,177

Amortization of intangible assets

 

2,426

 

2,422

 

7,339

 

7,261

$

9,196

$

8,489

$

26,977

$

25,438

 

Pension Settlement

In July 2023, we entered into an annuity purchase agreement to irrevocably transfer a portion of our pension benefit obligation to a third-party insurance company. The annuity purchase price was $26,381 and was approximately equal to the benefit obligation transferred. The annuity purchase was funded from pension assets. We recognized a partial settlement of the pension plan, resulting from the recognition of net pension losses previously included in Accumulated other comprehensive loss. We recorded $10,674 of expense in selling, general and administrative expenses in our consolidated statement of operations during the nine months ended March 31, 2024.

 

 

 

4.  Balance Sheets—Additional Information