Ladies and gentlemen, thank you for standing by. And welcome to the Phibro Animal Health Corporation Q4 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your speaker today Richard Johnson, CFO. Please go ahead.

Thank you, operator, and good morning, everyone. And welcome to the Phibro Animal Health earnings call for our fourth quarter and fiscal year ended June 2020. On the call today are Jack Bendheim, our Chief Executive Officer; and myself Richard Johnson, Chief Financial Officer. We'll provide an overview of our quarterly and full year results and then we'll open the lines for your questions. [Technical Difficulty]

Hello Mr. Johnson. This is the operator. I'm not able to hear you.

Let me switch. Just one moment. Okay. Can you hear me now?

Yes, I can hear you now.

All right. Just one moment. I'm going to switch to some – something else.

Yeah. This is the age of COVID.

Right. Okay. Can you hear me now, operator?

Yes, I can. Loud and clear.

All right. All right. My apologies. Okay. So I will start over. Yeah. So thank you, operator and my apologies to everyone who experienced that moment of blackout silence. I guess, my technology wasn't working. So let me start from the beginning. Good morning. Welcome to the Phibro Animal Health Earnings call for our fourth quarter and fiscal year ended June 2020. On the call today are Jack Bendheim, our Chief Executive Officer; and myself Richard Johnson, Chief Financial Officer. We'll provide an overview of our quarterly and full year results. And then, we'll open the line for your questions. Before we begin, let me remind you, that the earnings press release and financial tables can be found on the Investors section of our website at pahc.com. We're also providing a simultaneous webcast of this morning's call, which can be accessed on the website as well. Today's presentation slides and a replay and transcript of the call will also be available, on the website later today. 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 on our earnings press release. Our remarks today will also 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. Before we get into the numbers, let me remind everyone, that we present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude, acquisition-related items, unusual non-operational or other nonrecurring items, certain other income and expense items and the income tax effects related to any of those pre-tax adjustments as well as any unusual or nonrecurring income tax items. And with that, here is Jack Bendheim, with some introductory comments. Jack?

Thanks Dick. And thank you everyone, who is joining us on this call today. The June quarter was certainly a difficult one for Phibro, as it was for all those, who are involved in supply chain to feed the world, with healthy proteins. We did however, highlight our continuing, evolution to a more balanced Animal Health company, as despite the incredible challenges we, and our customers face across the board, we were able to grow our nutritional specialties for vaccine product lines. We are happy to turn the page. And while we enter our new fiscal year without the typical visibility, we would normally have. I do anticipate the macro trend of our nutritional specialties and vaccine products, growing at a faster clip than our MFAs and other products will continue. We have a number of growth initiatives relating to our nutritional specialties and vaccine product offerings, planned for the current year. Already in the first two months we have seen successes executing, against these plans. And I'm confident, that our momentum will continue to grow throughout the year, as we access new customers and enter new geographies. Over the coming fiscal year, we expect our market to gradually rebound to pre-COVID levels. And importantly, we also anticipate gaining greater in personal access to our customers, access to will allow us to resume the work on the multiple new initiatives that were paused by the pandemic. While we are adding a number of new initiatives on top of the ones, we are carrying forward from last year, we are cognizant of the need to our -- for our industry to get back on its feet. So we're exercising the strength in a number of projects we have green lighted. Finally I want to reiterate, our commitment to stand behind our products assigned. As we stated in our recent press release regarding carbadox, we are deeply disappointed that the FDA has not followed, in its own procedures and afforded Phibro's hearing, the law requires. And that the FDA previously agreed to. We will continue to work on highlighting the safety and efficacy of this product and we will take whatever steps are necessary to make sure the product is judged on the science. With that, I will turn it back to Dick and look forward to taking your questions at the conclusion of his presentation. Dick?

Thank you, Jack. So let's start by reviewing the results for our June quarter. Our consolidated sales for the quarter were $186 million that was a decline of $18 million or 9% versus the prior year. During the quarter, we experienced a short-term decline in demand for our products due to the pandemic. The animal production industry faced unprecedented demand disruptions, production impacts, price declines, plus substantial currency volatility in a number of international markets. We experienced sales declines in all three segments of our business, primarily due to lower volumes. In Animal Health, we saw increased sales in nutritional specialty and vaccine products, but those were partially offset by the lower sales of MFAs and other products. We'll get into further details regarding segment results later in the presentation. Our reported net income was $5.6 million for the quarter that was a decline of $3.2 million or 36% compared to the prior year. Income before income taxes improved, primarily due to restructuring costs in the same quarter last year. However, an unusually higher provision for income taxes caused the net income decline. The increase in income tax was driven by the effects of the complex additional federal income tax known as GILTI, that's an acronym changes in uncertain tax positions and the absence of tax benefits on the operating results of some of our newer international operations. As a result, diluted earnings per share was $0.14 for the current quarter that was a decrease of $0.08 per share from the prior year. Now let's look at adjusted results on page 6. I'll discuss net sales in more detail when we look at the individual segments level. In total, adjusted gross profit was $62.1 million for the quarter. That was a decline of $4.5 million or 7% compared to the…

[Operator Instructions] Your first question comes from Balaji Prasad with Barclays. Your line is open.

Hi. Good morning, everyone and thanks for taking the questions. Just a couple from me. Firstly on the guidance, I kind of wanted to draw your attention to last week's report outlook report from the USDA which where it states that it expects poor production of around £7.2 billion pounds or around 7% growth versus last year. So could you please help me understand that outlook with regard to your Q3 guidance? Secondly, with regard to China, can you give an update on what is the current impact of ASF? And isn't the repopulation or re-herding in China taking up pace enough to start offsetting the impact of ASF? Thank you.

Thanks for the questions. So first of all, as we all know, we all have read, the hog production in the U.S. was greatly disrupted by -- at the processing factories, high level of infection COVID infection forced many of these facilities to close down or operate at different rates. So that has pushed back in this past year there were a lot of pigs that went unprocessed. There were lots of -- it was a combination of culling, combination of sort of product may move to different markets. I think things have -- the USA is projecting things will get back onto normal production. Even though some of these plants are still operating, we understand still having problems of getting people commence to operating with fairly high levels of COVID. So I think this is just a projection, but I think the feeling generally is that things will return to the past, past not being last year, the past being years back gone back. So we will all see some level or increase in hog production this coming year. As far as China goes, there is no ASF vaccine yet in China. So the way the Chinese producers are combating ASF is to very cautiously, do a better job in biosecurity and sort of moving into some of these larger farms where they can do that. So yes there is an increase in hog population as big producers go on to repopulate. Prices have been very high and so it's very profitable. But in many, many of the smaller farms, they are very -- they are still very scared to put pigs on the ground and run the risk of these great losses. So there is some increase. And I don't think they will ever be able to get back to the 400 million pigs they had on the ground in China until there is a vaccine.

Thank you.

Your next question comes from David Westenberg with Guggenheim Securities. Your line is open.

Hi. Thank you for taking my question. So I know you made some investments in this last fiscal year in terms of new product development. So can you talk about the contribution for new products in 2021 quantitative or qualitatively? And then how do you feel your position in kind of a new precision livestock farming paradigm? I mean are any of those investments in new products around technology solutions? I have a couple of follow-up.

So let me starting going backwards. One of our investments in sort of new technology is a more precision vaccinator, I believe to vaccinate checks, but so we made that investment -- continue to make the investment in that product. I think we've developed it. But the problems of the pandemic is the ability to get on farms, the ability to bring on salesman and our technical teams to demonstrate this product has been severely curtailed. So while we made the investment prior year and continuing doing this past year, the ramp up is hard to project because people on these farms are being very, very cautious of bringing people from the outside. And so I would say it's sort of an answer to sort of both of those questions. So we had made investments, but to bring new products to market will be continually to be slow until there is a vaccine for COVID and then people will feel more comfortable bringing outside events.

Yes. Okay. Got it. That makes sense. So maybe we should think about contribution of products being after a COVID vaccine or at least a little bit more open to the sales channel. And then I do admit you're one of the only companies that I cover -- or you are the only company that I cover that has Mineral Nutrition as a big contribution to business. Can you remind us kind of the fluctuation in prices, why is there not a way to be kind of opportunistic given the fact that you are probably a little bit more sophisticated of a buyer than the people -- the companies and farmers that you are selling to? Thank you.

Well, so I'll take great umbrage of that not for ourselves, but for our customers. There is no one smarter in pricing and in raw materials than a farmer. There was no one, I mean, the first exchanges in terms of commodity exchanges happen in Chicago. It happened with grains and happened with pork belly and stuff like that. So the farmer gets up -- the poor farmer gets up really early in the morning, and he does his calculation, and he then goes out to feed the animals, and then he comes back and he trades on the exchange. So everyone is very smart. Everyone knows every raw material costs. Everyone knows everything. So if prices change anywhere in the world believe me, our customers know it, and they are right they are asking for -- to stay current in the prices. So that's why it's quite apparent what happened. Prices go up and prices go down by many other factors in the world, and so that gets translated to the pricing to the customers. This past quarter -- last quarter with COVID, it created so many imbalances that what we saw very often is that the shock of farm is not being able to move their animal in the normal course of events, right? You are growing your pigs and all of a sudden the exporter assess, I can't take any. I'm backed up. So now what do you do? And so what happened across the industry is that the farmers said, okay, I've raised sort of the product has been sold. I sold on the exchange a long time ago. I'm not going to invest more money literally if I'm not going to get more money. So they looked to cut back wherever they can cut back in animals, which is what they did cut back in what they can feed. See if they can get away with cheaper feed, et cetera, et cetera. And that created for the industry this craziness we saw in the quarter plus foreign exchange rates and so on and so forth. But I think we're more back -- as Dick said, we're back to normal. We are very optimistic on trends in the industry. Even right now without a vaccine people are managing much better. And again, we'll see a vaccine hopefully sometime early in the middle of next year, and then I think things will completely come back to normal.

That was a really good answer. Thanks Jack. I’ll leave it there.

Your next question comes from Michael Ryskin with Bank of America. Your line is open.

Hey, Jack. Thanks for taking the questions. Hope you are doing well. I want to have a couple of quick ones. One -- or hopefully quick. One, I want to start on the guidance for 1Q and the outlook, and I realize that there's obviously a lot of as you had discussed a lot of uncertainty in the market in terms of what's going on both as a result of the underlying market, but especially if you layer COVID on top of it. But looking sequentially fiscal 4Q versus the fiscal 1Q guide, it still implies even though it's flat sequentially on a -- or roughly flat sequentially on a dollar amount and on a year-year amount, it still implies there will still bit of an improvement in the markets. So I just want to dig deeper into what you see the bigger drivers. Maybe we can get your thoughts on U.S. versus OUS balance as far as COVID impact goes and/or whether it's a particular business line or species that you are thinking about for fiscal 1Q? And then I have a couple of follow-ups after that.

So, I think, part of it is that in -- we see in our dairy business, the prices of milk hasn't taken great gyration. It's sort of steady to a level that has given the farmers a bit more confidence. And even though, it's still as I said just in the prior call, it's quite difficult to get on farms. We are getting out and meeting with the customers maybe not on their farms and maybe sort of car to car. In the industries, we call belly to belly, but that's not done these days. Sitting in car and being able to talk about your products and what's going on and trying to help the customers. So we're starting to see a pickup one in our dairy business. We're starting to see – some of the products, we've worked on, we've introduced it's starting to be picked up a lot slower than we had hoped for, but we're starting to see pickup in new poultry products that we have entered. We are constantly getting growth in our vaccine business. We had really good poultry and swine vaccines. So again, when we are able to introduce some we are seeing pickup there. So I think it's the general tone of the optimism that we have. It's slow going, because it's – people are not back to normal. But looking at our customers, they have managed to rearrange their supply chains and they are selling more to supermarkets today than ever before. And if you look at it quite interestingly, up till very recently normally when you hit the summer and you see lots of sales being offered to move product into the barbecue, which means that there's surplus in the warehouse, but only now we're starting to see sales being offered in supermarkets. So I think our customers have balanced it. The supply chain is sort of set up. And they have had – at least the supermarkets have had a pretty good year.

Great. Thanks. Sorry, I was on mute there. I appreciate that. And then on the international markets, I don't know, if you can answer this or not, but in places like South America, Latin America where you're seeing some of the more recent pressures, is it fair to say that, those markets have at least bottomed for you? And it's as bad as it's going to get, or is it too early to say that too much uncertainty kind of depends on COVID?

Yeah, I hate to call bottoms. But I think overall looking at the biggest markets in South America, which is really Brazil, Argentina, Central America, Mexico I think things seem have bottomed out, and markets there – out of Brazil a lot of it depends on exports. I think, I saw a stabilizing sign to get better. Some of the smaller markets still is unpredictable like Chile and Peru with COVID. But where we are seeing still the effects of COVID and it sort of interestingly is at places like most Far East like Indonesia, Bangladesh where a lot of those markets, it's just driven by the economy. Their economy has been so badly devastated by the effects of COVID, one in the country and two in the markets, they sell normally their product too might be U.S. and Europe is that people don't have the same economic ability to buy protein as they have it a year ago. So for those markets, it's going to take longer to come out of this COVID-related disaster, right? It's because not necessarily pushed by their own people being sick, but being pushed by no people having work.

Great. Thanks. And then a couple of really quick ones. One is apologies, if I missed it in the prepared remarks, I know you touched on Mecadox briefly, but could you remind me of sort of, the next steps catalysts time line? How we should think about that situation evolving on Mecadox? And then the second question is, could you quantify what was the dollar contribution of Osprey for the year? I think it's been almost a full year it's been in your business? So I just want to make sure I got it right in my model.

Okay. Well as I said towards the end of my prepared remarks the FDA surprised us a little over a month ago with – only to call end run. We were proceeding for the last 4, 5 years and answering questions they had, investing a lot in doing the scientific research and proving I think to ourselves and I think also to them that the product is say -- it's always been effective, but it's methodically safe as used. Something I don't know what's going on in FDA. I know what they are not doing, but what they should be doing in terms of the Animal Health space it's just continuing on the normal pattern and looking at the science here. And if they are not happy, we could continue to hearing and then proving in sort of a hearing that the product is safe. They decided to withdraw it that NOOH and said, okay, forget that and now we're going to come up with another way may be to move the product. So we are protesting that. We most likely will end up in a lawsuit with them. So I don't have a short-term prediction, but I think again if this thing would end up in the right procedures we would win because the product -- we have proven scientifically the product is safe.

Great, and Osprey?

I don't know. Dick, do you have those numbers?

Yes, we say that about two-thirds of our nutritional specialty growth for the year was the Osprey business and that should -- that's the legacy business. That's not the new poultry product that we developed, sort of, separately. So that will give you a sense of the magnitude of the Osprey sales contribution.

Perfect. That’s exactly I want see. Thanks so much. Thanks, Richard.

Thank you.

Your next question comes from David Risinger with Morgan Stanley. Your line is open.

Thanks very much. Good morning, Jack and Dick. And thanks for all the comments. So I have three questions please. First with respect to China there is an opportunity for the company to begin to sort of, regenerate sales in China. Could you talk about those prospects? Second, with respect to Brazil, is there anything to watch with respect to virginiamycin regulation in Brazil? And third, with respect to the tax rate, Dick could you just -- and maybe you've mentioned it earlier, but is there anyway that you could frame for us how we should think about medium to long-term prospects for the corporate tax rate?

All right. Thank you, David. So in China -- and I think maybe I forget. So I'll start with China and go back to Brazil. So in China like in most markets in the world virginiamycin, which was our leading product was used in for growth promotion, was not -- did not have a therapeutic label. So, China changed the rules pretty suddenly as they sometimes do. And the ability for us to have continue in that market as a growth promotion product ended. And we have -- we applied to move that product to a therapeutic claim. And as a therapeutic product, we were selling virginiamycin and we continue to sell it around the world. So, we got held up in China with COVID that many of the government agencies we needed to deal with shutdown. It's hard to get product tested, et cetera, et cetera, et cetera. We know China when they shut, they really shut. So, what we thought would take, we would have by now, I think will take us another year to get our therapeutic claim and then to start rebuilding the product not at the same level we had before, but at a very decent level. In the meanwhile, we've sort of reengineered our sales force and our product line and we've begun selling some of our nutritional products that we have selling around the world in China. It's not that significant yet, but we're seeing growth of those products in that marketplace. So, going forward, hopefully, a year from now we will be talking both about MFAs and nutritional specialties in the Chinese market. In Brazil, Brazil made the change and we made the change in Brazil, from a growth promotion to a therapeutic model over a year ago, maybe even a little longer. So, our sales continue to reuse product virginiamycin, which continues to be used as a therapeutic product there, both in -- across all three species: poultry, swine and cattle, and we are seeing decent uptake.

Thank you.

And on the tax rate, David, I would say -- before this, I hate to use the much overused terminology of something like a perfect storm. But, I would say that in the medium-term, even this year, we're looking at a rate to be back sub-30%, so something in the upper 20% range as an effective tax rate on it on an adjusted basis.

Thank you, gents.

[Operator Instructions] Your next question comes from Kevin Kedra with G.Research. Your line is open.

Hi. Thanks for taking the questions. First wanted to ask about what you are seeing as far as inventory levels out there within the channel after COVID created some disruption. So, over time if we seen that start to normalize, is there still a lot of movement there?

So, you're talking about our customers, right?

Yes.

Right. So, the big mystery -- so, I think around the world, things are pretty balanced. Again, the big mystery and the big -- everyone was sort of trying to focus on -- it was in the U.S., as I started talking earlier, with so much attention put in so many big hogs, loaded facilities setting down and the backup. And the industry had more speculating that looked like about three million pigs were backed up and what would happen with it. So, somehow they disappeared as best we can tell. And they weren't -- I don't think a lot of them were culled. I think a lot of them ended up in the market may be with small slaughterhouses that are not tracked by the USDA. Some of these places maybe even hadn't been worked in a long time because these pigs got bigger and they really couldn't be handled well on the more automated lines. So maybe some of the older factories with slower lines and stuff like that handled it. But as far as we can tell, we will see a little bit of gap coming up because in some cases people culled some of the baby pigs and so that took it out of the marketplace and maybe we will see that effect in November, December. But I don't think, there's a great overhang from what we see and what we hear in the hog industry. And everywhere else, I don't see it as a problem. The poultry guys respond very quickly. They did. I think things are back normal there. And in the cullings the business is okay.

Great. Appreciate the color. And then secondly, I don't know if I missed this, but did you guys give a revenue number, could you give a revenue number on carbadox? What the contribution was for the full year?

Yes. It's in the 10-K. It was $17 million last fiscal Kevin 1-7.

Okay. Great. Thanks for that. And then, finally any update on what you guys are doing with the African Swine Fever vaccine. I know there's something that you guys were looking at before. Anything new there?

Yes. So we continue to look like everything else in China. COVID sort of shut down one our ability to get over there and test products that we have in development. It -- we have not been able to get into China now for nine months. And so, we still are doing some development work outside of China, but nor we did test what we've developed to see if it has potential to work the African Swine Fever was sort of blocked. And we'll hopefully -- hopefully by the -- maybe by this winter, the end of this calendar -- towards the end of the calendar year, things will open up, flights will start opening up and we can get back in and then move -- flex on moving the product forward.

Okay. Thanks.

There are no further questions. At this time, I'll turn the call back over to Richard Johnson for closing remarks.

All right. Well, we thank everyone for listening and your insightful questions and comments. And we'll talk to you again when we talk about our first quarter results in early November we should be having that call. And if we don't have any interesting earnings results to talk about, we'll probably be reporting a couple of days after the election so, we can talk about that as an alternative. Thank you everyone and talk next time. Bye.

This concludes today's conference call. You may now disconnect.