Prepared remarks
Hello, and thank you for joining us. Welcome to the Phibro Animal Health Corporation First Quarter 2026 Webcast and Conference Call. I will now hand the conference over to Glenn David, our Chief Financial Officer. You may begin.
Thank you, Sarah. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal first quarter ending September 30, 2025. My name is Glenn David, and I am the Chief Financial Officer of Phibro Animal Health Corporation. I am joined on today's call by Jack Bendheim, Phibro's Chairman, President and Chief Executive Officer; Donny Bendheim, Director and Executive Vice President, Corporate Strategy; and Larry Miller, our Chief Operating Officer. Today, we will cover financial performance for our first quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. At the conclusion of our remarks, we will open the lines for your questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website, pahc.com. Also, in the Investors section of our website, you will find copies of the earnings press release and quarterly Form 10-Q as well as the transcript and slides discussed and presented on this 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 you to the forward-looking statements 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 you to 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 nonrecurring items, including stock-based compensation, other income expense as separately reported in the consolidated statement of operations, including foreign currency gains and losses net, income taxes related to pretax income adjustments and unusual or nonrecurring income tax items. Now let me introduce our Chairman, President and Chief Executive Officer, Jack Bendheim, to share his opening remarks.
Thanks, Glenn. In the first quarter, we delivered 55% growth in Animal Health sales and an 85% increase in Animal Health adjusted EBITDA, clear evidence that our strategy is working. Medicated Feed Additives led the way with 81% growth, supported by solid gains in nutritional specialties and vaccines. This performance reflects our continued success in seamlessly integrating the acquired MFA portfolio into our operations. At the same time, our legacy Animal Health business continues to outperform, delivering 11% growth overall and 6% growth in legacy MFA and other products. These results highlight the strong demand across our diversified animal health portfolio and the enduring strength of global protein production. We are also encouraged by emerging research showing that GLP-1 users, while spending less overall on food, are increasingly choosing high-quality animal-derived proteins. This evolving consumer preference supports our industry’s long-term growth and reinforces the relevance and value of Phibro's offerings.
Our ability to translate this demand into stronger bottom line performance is being driven by our Phibro Forward initiatives. These efforts continue to enhance operational discipline, accelerate innovation, and sharpen our focus on strategic growth. As a result, we're gaining the flexibility to invest in high-impact opportunities across our portfolio, positioning Phibro for sustainable long-term value creation. Looking ahead, we remain focused on innovation and execution. The recent launch of Restoris, our proprietary dental gel for dogs, marks a major milestone in our companion animal strategy. Together with our newly licensed early-stage therapeutic compound targeting canine periodontal disease, we're building a differential oral care portfolio that we believe will drive long-term growth. As Glenn will discuss in more detail, thanks to our strong performance and disciplined approach, we're raising our full year earnings guidance and continue to invest in the future of animal health. I'll now hand it back to Glenn, and I look forward to your questions.
Thanks, Jack. Starting with our Q1 performance on Slide 4. Consolidated net sales for the quarter ended September 30, 2025, were $363.9 million, reflecting an increase of $103.5 million or a 40% increase over the same quarter one year ago. The Animal Health segment grew 55%, while Mineral Nutrition grew at 7% and the Performance Products declined by 7%. GAAP net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, offset by increased SG&A due to higher employee-related costs. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses and certain one-off items, the first quarter adjusted EBITDA increased $31.2 million or 102% versus the prior year. Adjusted net income increased 112% and adjusted diluted EPS increased 108%.
Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to segment-level financial performance. The Animal Health segment posted $283.5 million net sales for the quarter, an increase of $100.9 million or 55% versus the same quarter prior year. Within the Animal Health segment, we reported legacy MFA's net sales increase of $6.9 million or an increase of 6%. The new MFA business contributed a full quarter of sales of $80.5 million, driving the total MFA and other growth to 81%. Nutritional Specialties net sales increased $5.5 million or 13%, mostly due to higher demand for microbial and companion animal products. Vaccine net sales grew $8.1 million, a healthy 25% increase, driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $74.9 million, an 85% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A. Moving on to first quarter financial performance for our other business segments on Slide 6.
Starting with Mineral Nutrition. Net sales for the quarter were $63 million, an increase of $3.9 million or 7% due to an increase in demand for copper and trace minerals. Looking at our Performance Products segment, net sales of $17.4 million reflects a decrease of $1.4 million or a decrease of 7% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were $4.5 million and $1.6 million, respectively. Corporate expenses increased $3.4 million, driven by higher employee-related costs. Turning to key capitalization-related metrics on Slide 7. We generated $34 million of positive free cash flow for the 12 months ended September 30, 2025. We generated $77 million of operating cash flow and invested $43 million in capital expenditures. Cash and cash equivalents and short-term investments were $85 million at the end of the quarter.
Our gross leverage ratio was 3.3x at the end of the first quarter based on $749 million of total debt and $227 million of trailing 12 months adjusted EBITDA. Our net leverage ratio was 2.9x at the end of the first quarter based on $664 million of net debt and $227 million for trailing 12 months adjusted EBITDA. Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis Medicated Feed Additive portfolio, 1 month of Zoetis history, and 11 months from Phibro ownership. On interest rates, there are no changes to our current swap agreements. Turning to dividends. Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate. Let's turn to Slide 8, which lays out our guidance for fiscal year 2026. Please note that this guidance includes a full 12 months of the Zoetis Medicated Feed Additive portfolio. Also included in this guidance for fiscal year 2026 are benefits related to our Phibro Forward income growth initiative that will help drive additional EBITDA and margin growth.
One-time costs related to this initiative are also included in our GAAP guidance and primarily consist of one-time consulting fees. This initiative is focused on unlocking additional areas of revenue growth and cost savings. Our guidance for fiscal year 2026 is as follows: Net sales remain the same at $1.425 billion to $1.475 billion. This represents a growth range of 10% to 14% and a midpoint of approximately 12%. Total adjusted EBITDA increased from $225 million to $235 million to $230 million to $240 million. This represents a growth range of 25% to 30% and a midpoint of approximately 28%. Adjusted net income increased from $103 million to $110 million to $108 million to $115 million. This represents growth of 26% to 34% with a midpoint of approximately 31%. GAAP net income and EPS assume constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are one-time costs related to our Phibro Forward income growth initiative.
In closing, we're excited about the strong performance and start to fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued improvement in our business as we move forward in the coming months. With that, Sarah, could you please open the line for questions?
Questions and answers
Your first question comes from Erin Wright with Morgan Stanley.
So first on the MFA business. How are you thinking about the sustainability of growth in that legacy MFA business? Can you break out a little bit of what you're seeing price versus volume on that front? And what I'm trying to get at here is what's the underlying run rate that we should be thinking about? And I get there's some other drivers going on, but were there any timing dynamics in the quarter? Is the Zoetis business growing faster than you would have expected at the core? So yes, just what's the appropriate run rate for that business as we lap the deal?
This is Larry. Thank you for the question. We are experiencing continued growth and strong demand, especially within the MFA portfolio, including poultry, swine, and beef cattle segments. As we examine the indications of protein consumption growth, we see it continuing to rise. Regarding our future growth expectations, we are observing positive synergies between the Phibro legacy products and the acquired offerings, allowing us to introduce more products and create tailored programs for our customers.
Yes, to your question about price versus volume, I would note that in the first quarter, the impact on price was minimal. This is largely because all the growth from the Zoetis MFA is reflected in volume, as we lack a comparison for the previous year. We are focused on enhancing the overall net price for Zoetis products, which has positively influenced our profitability. Moving into the second half of the year, we expect to see a pricing impact, especially from the Zoetis portfolio.
Okay. That's helpful. And then another run rate question just on the margin profile that definitely stood out to us and maybe that's some of what you were just speaking to. But anything to call out on that front? How do we think about the margin profile for the remainder of the year in the context of both what you were saying and any other dynamics from an expense perspective that we should be thinking about?
We experienced positive margin performance in the first quarter, largely due to product mix, with significant growth in our vaccine portfolio of 25% and a 13% increase in nutritional specialties, which are both higher-margin segments. This positively influenced our overall margins. Additionally, our expenses were more favorable than initially anticipated due to the timing of investments in support for new products. Looking ahead, we plan to continue investing in upcoming product launches, such as Restoris. While we’ve had a strong start to the year, our guidance indicates that we expect margins to decline slightly as the year progresses.
The next question comes from Ekaterina Knyazkova with JPMorgan.
So first is just on the guidance update. It seems like the EBITDA and EPS range are coming up, but I think the revenue range isn't, despite what looks like a nice top line beat in the quarter. Just anything you would call out there, maybe just some degree of conservatism or some headwinds we should keep in mind on the revenue side of things? And then second question is just on the licensing you announced for the dental asset. Just elaborate a bit on what brought you to the product and how it fits into your strategy? And maybe just more broadly, your latest thoughts on the role the company can play in the companion space.
Yes. So I'll start with the guidance, and then Donny will cover Restoris. In terms of the guidance, so the favorability that we saw particularly in the first quarter was related to some of our expenses as well as the favorability that we saw in gross margin related to mix. Very strong performance at the top line, but we're really only one quarter into the year. So we didn't find it necessary to update the revenue guidance at this point in time, but we did take the favorability that we saw in the first quarter related to expenses and the favorable mix into account in updating the guidance.
Regarding our dental assets, we announced two assets this quarter. The first is a licensed pharmaceutical product, which is a long-term strategy and not something we expect to impact us in the near term. Overall, we are very excited about the dental category, especially with Restoris. There is a significant unmet need in the veterinary and dog market, as only about 15% of dog owners take their dogs for annual dental checkups, and only about 4% brush their dogs' teeth daily. This creates a considerable need for solutions, and we believe we have a strong offering. Restoris, which we launched last week and is shipping this week, will enable dentists and veterinarians to treat periodontal disease. As a medical device, it allows us to enter the market quickly. Currently, the primary method for treating periodontal disease is tooth extraction. We believe Restoris will provide an alternative that can help avoid this procedure.
This is beneficial for veterinary clinics as well, because in most states, only veterinarians can perform extractions, which are classified as oral surgery. The use of Restoris will allow vet techs to handle this application, thereby allowing veterinarians to focus on more complex procedures. In the future, we aim to complement this with our licensed product, which we anticipate will help prevent the bacteria buildup leading to periodontal disease through daily or weekly applications.
The next question comes from Michael Ryskin with Bank of America.
This is Alexa on for Mike. My question is on end markets. So you've talked about the strong livestock demand you're seeing, and peers have called out the same strength, especially in cattle. Can you talk about what's driving this? And how sustainable do you think it is? Is it more protein cycle driven based on input feed dynamics or consumer demand? Additionally, is it geography-specific or more broad-based? And should we be thinking about this as a two- to three-year phenomenon or something shorter term or something more structural?
This is Larry. I’ll respond to that question by addressing it in three parts. First, regarding protein demand, we are observing a significant resurgence in the appetite for animal-based proteins, including meat, eggs, poultry, and dairy. We believe this trend will persist, fueled by global population growth and increasing incomes. This demand is also reinforced by shifting consumer perceptions about dietary fats, as people are seeking higher quality, simpler, and more wholesome protein options while moving away from heavily processed foods. These trends make animal-based proteins increasingly compatible with consumers' dietary preferences and lifestyle changes. Second, on livestock sector profitability, all livestock segments are currently experiencing favorable overall profitability, not just in North America but also in major global markets. This remains in the high-margin territory, supported by strong poultry fundamentals, robust beef demand, disciplined pork supply, and good performance in dairy demand.
All livestock sectors are benefiting from reduced feed costs and lower grain prices. As the value of each animal increases, livestock producers are more willing to invest in animal health products to prevent diseases and maintain animal health, making every pound of protein more important than ever. Finally, regarding Phibro’s position, we have a strong geographical presence in key livestock production markets worldwide. Our market reach has been boosted, particularly by the recent acquisition of the MFA business, enhancing our foundation in regions like Asia, China, Western Europe, the Middle East, and the U.S. beef and swine sectors. We believe Phibro is very well positioned to support our farm customers and are uniquely capable of providing tailored solutions to address animal health and disease challenges. This includes an extensive range of MFAs, nutritional specialties, and vaccine products, enhanced by the high-quality service and animal production expertise our field team brings to our customers’ operations.
The next question comes from Navann Ty with BNP Paribas.
One more on the legacy business. The growth was above our expectations. So what drove the better growth than the two last quarters? Was there any nonrecurring or pull-forward items to be aware of? And then my second question is on the Lighthouse licensing agreement and Restoris. Does that signal a higher focus on companion animals? And generally, is your business development strategy to target innovation in areas that are not targeted by the big four players?
Yes, Navann, I'll take the first question in terms of the legacy portfolio. As we said, really strong performance across legacy MFA, nutritional specialty, as well as vaccine. Nothing significant to call out. I think we're just seeing good underlying demand across the board. One thing I will point out within the legacy MFA, there are certain customers that make larger purchases that occurs between one quarter or another, could have a small impact on the performance. We did see some of those purchases occur in Q1, probably see a little less of that in Q2, but overall, nothing too material to results.
It's Donny. Regarding our business development, we have emphasized that our primary focus is on the production animal sector, particularly in nutrition and vaccines. This is where we plan to allocate most of our resources. However, we are also exploring opportunities in the companion animal market. For the most part, we do not intend to compete directly with larger players in the companion animal segments. Instead, we are seeking unique opportunities where we believe we can make a meaningful impact.
With no further questions, this will conclude the question-and-answer session and today's conference call. We thank you for joining. You may now disconnect.