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,~~September 30, 2023


☐	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 ~~April 28,~~November 3, 2023, 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.

Table of Contents

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 (Loss) 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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3332
Item 4.	Controls and Procedures	33
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	3433
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3433
Item 3.	Defaults Upon Senior Securities	3433
Item 4.	Mine Safety Disclosures	3433
Item 5.	Other Information	34
Item 6.	Exhibits	34
SIGNATURES		35

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
For the Periods Ended September 30									2023		2022

	(unaudited)								(unaudited)
	(in thousands, except per share amounts)								(in thousands, except per share amounts)
Net sales	$	245,673	$	239,619	$	722,840	$	686,996	$	231,349	$	232,521
Cost of goods sold		170,133		167,993		501,269		480,020		163,623		163,875
Gross profit		75,540		71,626		221,571		206,976		67,726		68,646
Selling, general and administrative expenses		56,987		52,432		173,490		150,876		68,452		54,962
Operating income		18,553		19,194		48,081		56,100
Operating (loss) income										(726)		13,684
Interest expense, net		3,871		2,925		10,822		8,767		4,564		3,067
Foreign currency (gains) losses, net		(422)		(10,564)		4,629		(12,625)
Income before income taxes		15,104		26,833		32,630		59,958
Provision for income taxes		5,062		9,144		11,522		18,270
Net income	$	10,042	$	17,689	$	21,108	$	41,688
Foreign currency losses, net										6,689		5,200
(Loss) income before income taxes										(11,979)		5,417
(Benefit) provision for income taxes										(3,964)		1,561
Net (loss) income									$	(8,015)	$	3,856

Net income per share
basic and diluted	$	0.25	$	0.44	$	0.52	$	1.03
Net (loss) income per share
basic									$	(0.20)	$	0.10
diluted									$	(0.20)	$	0.10
Weighted average common shares outstanding
basic and diluted		40,504		40,504		40,504		40,504
basic										40,504		40,504
diluted										40,504		40,504

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

Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
For the Periods Ended September 30									2023		2022

	(unaudited)								(unaudited)
	(in thousands)								(in thousands)
Net income	$	10,042	$	17,689	$	21,108	$	41,688
Net (loss) income									$	(8,015)	$	3,856
Change in fair value of derivative instruments		(3,765)		14,958		1,804		19,739		(1,891)		7,105
Foreign currency translation adjustment		1,469		3,514		1,597		(13,761)		(3,560)		(4,143)
Pension settlement recognition										10,425		—
Unrecognized net pension gains		177		120		545		354		644		176
(Provision) benefit for income taxes		896		(3,770)		(587)		(5,023)
Other comprehensive income (loss)		(1,223)		14,822		3,359		1,309
Comprehensive income	$	8,819	$	32,511	$	24,467	$	42,997
Provision for income taxes										(2,264)		(1,820)
Other comprehensive income										3,354		1,318
Comprehensive (loss) income									$	(4,661)	$	5,174

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

Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31,		June 30,		September 30,		June 30,
As of	2023		2022		2023		2023

	(unaudited)				(unaudited)
	(in thousands, except share and per share amounts)				(in thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	37,238	$	74,248	$	43,153	$	41,281
Short-term investments		40,000		17,000		48,000		40,000
Accounts receivable, net		152,740		166,537		149,228		163,479
Inventories, net		292,833		259,158		279,154		277,570
Other current assets		62,672		49,289		64,889		63,393
Total current assets		585,483		566,232		584,424		585,723
Property, plant and equipment, net		188,939		165,490		193,359		195,568
Intangibles, net		56,901		63,861		52,184		54,987
Goodwill		53,243		53,226		53,251		53,274
Other assets		80,866		82,890		81,305		81,845
Total assets	$	965,432	$	931,699	$	964,523	$	971,397
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt	$	15,420	$	15,000	$	24,150	$	22,295
Accounts payable		75,768		95,596		77,216		73,853
Accrued expenses and other current liabilities		74,120		80,236		70,989		79,852
Total current liabilities		165,308		190,832		172,355		176,000
Revolving credit facility		193,000		145,000		154,000		141,000
Long-term debt		273,016		272,925		304,717		311,541
Other liabilities		61,780		60,500		60,382		60,347
Total liabilities		693,104		669,257		691,454		688,888
Commitments and contingencies (Note 7)
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, 2023, and June 30, 2022; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at March 31, 2023, and June 30, 2022		4		4
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 September 30, 2023, and June 30, 2023; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at September 30, 2023, 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		135,803		135,803		135,884		135,803
Retained earnings		254,275		247,748		248,037		260,912
Accumulated other comprehensive loss		(117,754)		(121,113)		(110,856)		(114,210)
Total stockholders’ equity		272,328		262,442		273,069		282,509
Total liabilities and stockholders’ equity	$	965,432	$	931,699	$	964,523	$	971,397

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

Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months				Three Months
For the Periods Ended March 31	2023		2022
For the Periods Ended September 30					2023		2022

	(unaudited)				(unaudited)
	(in thousands)				(in thousands)
OPERATING ACTIVITIES
Net income	$	21,108	$	41,688
Adjustments to reconcile net income to
net cash (used) provided by operating activities:
Net (loss) income					$	(8,015)	$	3,856
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities:
Depreciation and amortization		25,438		24,300		8,871		8,450
Amortization of debt issuance costs		514		442		260		147
Acquisition-related items		—		78
Stock-based compensation						81		—
Deferred income taxes		235		(120)		(2,691)		(13)
Foreign currency gains, net		(5,024)		(13,492)
Gain on sale of investment		—		(1,203)
Foreign currency losses, net						3,222		3,370
Pension settlement cost						10,425		—
Other		(1,201)		284		959		(309)
Changes in operating assets and liabilities, net of business acquisition:
Changes in operating assets and liabilities:
Accounts receivable, net		14,985		(10,815)		12,781		22,347
Inventories, net		(30,458)		(30,548)		(5,005)		(24,977)
Other current assets		(7,481)		(1,879)		(3,297)		(7,682)
Other assets		(317)		(2,364)		(191)		(31)
Accounts payable		(19,718)		19,961		4,603		(5,595)
Accrued expenses and other liabilities		(5,009)		3,743		(5,804)		(10,261)
Net cash (used) provided by operating activities		(6,928)		30,075
Net cash provided (used) by operating activities						16,199		(10,698)
INVESTING ACTIVITIES
Purchases of short-term investments		(40,000)		(54,100)		(17,000)		—
Maturities of short-term investments		17,000		75,000		9,000		7,000
Capital expenditures		(40,903)		(25,154)		(7,476)		(23,176)
Business acquisition		—		(10,786)
Sale of investment		—		1,353
Other, net		167		645		124		27
Net cash used by investing activities		(63,736)		(13,042)		(15,352)		(16,149)
FINANCING ACTIVITIES
Revolving credit facility borrowings		229,000		215,000		51,000		62,000
Revolving credit facility repayments		(181,000)		(186,000)		(38,000)		(36,000)
Proceeds from long-term debt		12,000		—		—		12,000
Payments of long-term debt		(11,460)		(5,625)		(5,105)		(3,750)
Debt issuance costs		(640)		—		—		(71)
Payments of insurance premium financing						(1,739)		—
Dividends paid		(14,581)		(14,581)		(4,860)		(4,860)
Payment of contingent consideration		—		(4,840)
Net cash provided by financing activities		33,319		3,954		1,296		29,319
Effect of exchange rate changes on cash		335		(451)		(271)		(440)
Net (decrease) increase in cash and cash equivalents		(37,010)		20,536
Net increase in cash and cash equivalents						1,872		2,032
Cash and cash equivalents at beginning of period		74,248		50,212		41,281		74,248
Cash and cash equivalents at end of period	$	37,238	$	70,748	$	43,153	$	76,280

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

Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


										Accumulated													Accumulated
										Other													Other
	Shares of									Comprehensive				Shares of									Comprehensive
	Common	Common		Preferred		Paid-in		Retained		Income				Common	Common		Preferred		Paid-in		Retained		Income
	Stock	Stock		Stock		Capital		Earnings		(Loss)		Total		Stock	Stock		Stock		Capital		Earnings		(Loss)		Total

	(unaudited)													(unaudited)
	(in thousands, except share and per share amounts)													(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
As of June 30, 2023														40,503,608	$	4	$	—	$	135,803	$	260,912	$	(114,210)	$	282,509
Comprehensive (loss) income														—		—		—		—		(8,015)		3,354		(4,661)
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)	—		—		—		—		(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
Stock-based compensation expense														—		—		—		81		—		—		81
As of September 30, 2023														40,503,608	$	4	$	—	$	135,884	$	248,037	$	(110,856)	$	273,069


										Accumulated													Accumulated
										Other													Other
	Shares of									Comprehensive				Shares of									Comprehensive
	Common	Common		Preferred		Paid-in		Retained		Income				Common	Common		Preferred		Paid-in		Retained		Income
	Stock	Stock		Stock		Capital		Earnings		(Loss)		Total		Stock	Stock		Stock		Capital		Earnings		(Loss)		Total

	(unaudited)													(unaudited)
	(in thousands, except share and per share amounts)													(in thousands, except share and per share amounts)
As of June 30, 2021	40,503,608	$	4	$	—	$	135,803	$	218,015	$	(115,293)	$	238,529
Comprehensive income (loss)	—		—		—		—		6,534		(6,898)		(364)
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)
As of September 30, 2021	40,503,608	$	4	$	—	$	135,803	$	219,689	$	(122,191)	$	233,305
Comprehensive income (loss)	—		—		—		—		17,465		(6,615)		10,850
Dividends declared ($0.12 per share)	—		—		—				(4,861)		—		(4,861)
As of December 31, 2021	40,503,608	$	4	$	—	$	135,803	$	232,293	$	(128,806)	$	239,294
As of June 30, 2022														40,503,608	$	4	$	—	$	135,803	$	247,748	$	(121,113)	$	262,442
Comprehensive income	—		—		—		—		17,689		14,822		32,511	—		—		—		—		3,856		1,318		5,174
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)	—		—		—		—		(4,860)		—		(4,860)
As of March 31, 2022	40,503,608	$	4	$	—	$	135,803	$	245,122	$	(113,984)	$	266,945
As of September 30, 2022														40,503,608	$	4	$	—	$	135,803	$	246,744	$	(119,795)	$	262,756

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

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,~~September 30, 2023 and 2022, 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, ~~2022~~2023 (the “Annual Report”), filed with the Securities and Exchange Commission on August ~~24, 2022~~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, ~~2022~~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,~~September 30, 2023, there have been no material changes to any of the significant accounting policies contained therein.

Net (Loss) Income per Share and Weighted Average Shares

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

Diluted net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the reporting period after giving effect to dilutive common share ~~equivalents. There were no common~~equivalents, resulting from the assumed vesting of restricted stock units. The restricted stock units have been excluded from the computation of diluted earnings per share ~~equivalents in~~for the ~~periods included in~~three months ended September 30, 2023, as the ~~consolidated financial statements.~~effect would have been antidilutive.


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
Net income	$	10,042	$	17,689	$	21,108	$	41,688
For the Periods Ended September 30									2023		2022
Net (loss) income									$	(8,015)	$	3,856

Weighted average number of shares – basic and diluted		40,504		40,504		40,504		40,504
Weighted average number of shares – basic										40,504		40,504
Dilutive effect of restricted stock units										—		—
Weighted average number of shares - diluted										40,504		40,504

Net income per share - basic and diluted	$	0.25	$	0.44	$	0.52	$	1.03
Net (loss) income per share
basic									$	(0.20)	$	0.10
diluted									$	(0.20)	$	0.10

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

New Accounting Standards

~~Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2021-10,~~ ~~Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance~~ ~~has established annual disclosure requirements over transactions with a government~~We do not expect the new accounting standards that are ~~accounted for~~pending adoption by ~~applying~~us to have a ~~grant accounting model. The disclosures include the nature of the transactions and the related accounting policy used to account for the transactions, the line items and amounts included in the~~material effect on our consolidated balance sheet and consolidated statement of operations, and the significant terms and conditions of the transactions, including commitments and contingencies. The disclosures are required for the annual periods beginning after December 15, 2021. We intend to include these disclosures for the year ending June 30, 2023.

~~ASU 2020-04, 2021-01 and 2022-06,~~ ~~Reference Rate Reform (Topic 848)~~, provide optional expedients to GAAP guidance if certain criteria are met for contracts, hedging relationships and derivative instruments that reference the London Interbank Offered Rate (“LIBOR”) planned to be discontinued by rate reform. In November 2022, we amended our 2021 Credit Agreement and our 2020 interest rate swap agreement to replace LIBOR as the interest rate benchmark with the Secured Overnight Financing Rate (“SOFR”), as provided for under ASU 2018-16, ~~Derivatives and Hedging (Topic 815): Inclusion of the SOFR Overnight Index Swap (OIS) Rate as a Benchmark for Hedge Accounting Purposes.~~ ~~We applied the optional expedients to treat the amendments as a continuation of existing contracts at the time the amendments were executed.~~financial statements.

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 ~~support~~enhance nutrition to help improve animal health and well-being. ~~The~~We sell animal health and mineral nutrition products ~~are sold~~ directly to integrated poultry, cattle and swine customers and through commercial animal feed manufacturers, ~~wholesalers,~~ 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 ~~that are~~ administered through animal feeds, commonly referred to as Medicated Feed Additives (“MFAs”). Specific product classifications include 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 ~~antibacterial products and~~ 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 ~~swine.~~dairy cattle and aquaculture. They protect animals from either viral or bacterial disease challenges. We develop, manufacture and market conventionally licensed and

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

autogenous vaccine products, as well as adjuvants for animal vaccine manufacturers. We have ~~also~~ 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Net Sales by Product Type


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
For the Periods Ended September 30									2023		2022
Animal Health
MFAs and other	$	93,217	$	84,330	$	283,186	$	259,812	$	94,104	$	92,790
Nutritional specialties		45,016		41,394		127,926		114,721		40,210		39,054
Vaccines		26,201		22,865		71,984		65,987		26,216		23,015
Total Animal Health	$	164,434	$	148,589	$	483,096	$	440,520	$	160,530	$	154,859
Mineral Nutrition		62,922		69,033		184,212		190,120		56,026		59,646
Performance Products		18,317		21,997		55,532		56,356		14,793		18,016
Total	$	245,673	$	239,619	$	722,840	$	686,996	$	231,349	$	232,521

Net Sales by Region


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
For the Periods Ended September 30									2023		2022
United States	$	148,529	$	146,820	$	433,716	$	412,284	$	131,287	$	135,804
Latin America and Canada		53,881		45,048		159,946		135,722		58,703		52,246
Europe, Middle East and Africa		28,174		29,931		85,518		90,889		26,879		29,517
Asia Pacific		15,089		17,820		43,660		48,101		14,480		14,954
Total	$	245,673	$	239,619	$	722,840	$	686,996	$	231,349	$	232,521

Net sales by region are based on country of destination.

Deferred revenue was $1,479 and $2,051 as of March 31, 2023 and June 30, 2022, respectively. Accrued expenses and other current liabilities included $508 and $822 of the total deferred revenue as of March 31, 2023 and June 30, 2022, respectively. The deferred revenue resulted primarily from certain customer arrangements, including technology licensing fees and discounts on future product sales. The transaction price associated with our deferred revenue arrangements is generally based on the stand-alone sales prices of the individual products or services.

Our customer payment terms generally range from 30 to 120 days globally and ~~exclude~~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


	Three Months
For the Periods Ended September 30	2023		2022
Interest expense, net
2021 Credit Facilities	$	5,101	$	3,547
2022 Term Loan		216		—
Amortization of debt issuance costs		260		147
Other		68		1
Interest expense		5,645		3,695
Interest income		(1,081)		(628)
	$	4,564	$	3,067

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Depreciation and Amortization


	Three Months
For the Periods Ended September 30	2023		2022
Depreciation and amortization
Depreciation of property, plant and equipment	$	6,431	$	6,051
Amortization of intangible assets		2,440		2,399
	$	8,871	$	8,450

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. During the three months ended September 30, 2023, we recognized a partial settlement of the pension plan and recorded $10,425, in selling, general and administrative expenses in our consolidated statement of operations, resulting from the recognition of net pension losses previously included in Accumulated other comprehensive loss.

~~Interest Expense~~

Three Months

Nine Months
For the Periods Ended March 31

2023

2022

2023

2022
Interest expense, net

2021 Term A loan

$
1,450

$
2,208

$
4,836

$
6,745
Revolving credit facility

3,067

690

7,480

1,936
2022 Term loan

191

—

379

—
Amortization of debt issuance costs

188

147

514

442
Other

10

67

20

156
Interest expense

4,906

3,112

13,229

9,279
Interest income

(1,035)

(187)

(2,407)

(512)

$
3,871

$
2,925

$
10,822

$
8,767

~~Depreciation and Amortization~~

Three Months

Nine Months
For the Periods Ended March 31

2023

2022

2023

2022
Depreciation and amortization




Depreciation of property, plant and equipment

$
6,067

$
6,214

$
18,177

$
17,792
Amortization of intangible assets

2,422

2,231

7,261

6,508

$
8,489

$
8,445

$
25,438

$
24,300

4. Balance Sheets—Additional Information

March 31,

June 30,
As of

2023

2022
Inventories


Raw materials

$
86,596

$
87,030
Work-in-process

20,113

15,468
Finished goods

186,124

156,660

$
292,833

$
259,158


	September 30,		June 30,
As of	2023		2023
Inventories
Raw materials	$	84,369	$	84,328
Work-in-process		25,159		22,350
Finished goods		169,626		170,892
	$	279,154	$	277,570

March 31,

June 30,
As of

2023

2022
Other assets

ROU operating lease assets

$
36,452

$
37,680
Deferred income taxes

6,268

5,849
Deposits

6,162

5,905
Insurance investments

6,087

5,984
Equity method investments

5,463

4,362
Derivative instruments

9,926

12,976
Debt issuance costs

1,532

1,436
Other

8,976

8,698

$
80,866

$
82,890


	September 30,		June 30,
As of	2023		2023
Other assets
ROU operating lease assets	$	36,320	$	35,759
Deferred income taxes		8,981		8,711
Deposits		6,518		6,617
Insurance investments		6,096		6,067
Equity method investments		5,814		5,027
Derivative instruments		8,500		10,225
Debt issuance costs		1,284		1,408
Other		7,792		8,031
	$	81,305	$	81,845


	September 30,		June 30,
As of	2023		2023
Accrued expenses and other current liabilities
Employee related	$	26,647	$	29,359
Current operating lease liabilities		6,452		6,053
Commissions and rebates		3,442		5,833
Professional fees		4,643		5,032
Income and other taxes		5,951		8,663
Insurance-related		1,364		1,284
Insurance premium financing		2,898		4,769
Other		19,592		18,859
	$	70,989	$	79,852

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31,

June 30,
As of

2023

2022
Accrued expenses and other current liabilities




Employee related

$
28,084

$
34,278
Current operating lease liabilities

6,215

6,051
Commissions and rebates

5,178

7,125
Professional fees

6,073

5,493
Income and other taxes

7,618

7,211
Insurance-related

1,354

1,174
Other

19,598

18,904

$
74,120

$
80,236


	September 30,		June 30,
As of	2023		2023
Other liabilities
Long-term operating lease liabilities	$	29,022	$	29,077
Long-term and deferred income taxes		12,823		12,146
Supplemental retirement benefits, deferred compensation and other		6,628		6,552
U.S. pension plan		1,687		2,286
International retirement plans		4,130		4,210
Other long-term liabilities		6,092		6,076
	$	60,382	$	60,347

March 31,

June 30,
As of

2023

2022
Other liabilities

Long-term operating lease liabilities

$
30,060

$
31,508
Long-term and deferred income taxes

12,149

9,264
Supplemental retirement benefits, deferred compensation and other

7,210

7,368
U.S. pension plan

1,779

1,793
International retirement plans

4,441

4,620
Other long-term liabilities

6,141

5,947

$
61,780

$
60,500


	March 31,		June 30,		September 30,		June 30,
As of	2023		2022		2023		2023
Accumulated other comprehensive loss
Derivative instruments	$	22,695	$	20,891	$	22,698	$	24,589
Foreign currency translation adjustment		(117,437)		(119,034)		(118,622)		(115,062)
Unrecognized net pension losses		(23,663)		(24,208)		(12,927)		(23,996)
Provision for income taxes on derivative instruments		(5,732)		(5,281)
Benefit for income taxes on long-term intercompany investments		8,166		8,166
Provision for income taxes on net pension losses		(1,783)		(1,647)
Income tax (provision) benefit						(2,005)		259
	$	(117,754)	$	(121,113)	$	(110,856)	$	(114,210)

5. Debt

Term Loans and Revolving Credit Facilities

In April 2021, we entered into an amended and restated credit agreement (the “2021 Credit Agreement”) under which we had a term A loan in an aggregate initial principal amount of $300,000 (the “2021 Term A Loan”) and a revolving credit facility under which we could borrow up to an aggregate amount of $250,000, subject to the terms of the 2021 Credit Agreement (the “2021 Revolver” ~~and together with the 2021 Term A Loan, the “2021 Credit Facilities”~~). In November 2022, we amended the 2021 Credit Facilities to increase the revolving commitments under the 2021 Revolver to an aggregate amount of $310,000 and to adopt ~~SOFR~~Secured Overnight Financing Rate (“SOFR”) as the reference for the fluctuating rate of interest on the 2021 Credit Facilities, replacing the ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) reference rate. ~~All other terms and conditions~~In June 2023, we obtained an additional incremental term loan (the “2023 Incremental Term Loan”) in the amount of $50,000 (the 2021 Revolver, the 2021 Term A Loan and the 2023 Incremental Term Loan are collectively referred to as the “2021 Credit ~~Agreement were unchanged.~~Facilities”).

The 2021 Term A Loan isand the 2023 Incremental Term Loan are repayable in quarterly installments, with the ~~balance~~balances payable at maturity. The 2021 Revolver ~~includes~~contains a letter of credit facility. The interest rate per annum applicable to the ~~loans under~~2021 Revolver and the 2021 ~~Credit Facilities~~Term A Loan is based on a fluctuating rate of interest plus an applicable rate equal to 1.50%, 1.75%, 2.00% or 2.25% in the case of adjusted SOFR rate loans and 0.50%, 0.75%, 1.00% or 1.25%, in the case of base rate loans. The interest rate per annum applicable to the 2023 Incremental Term Loan is based on a fluctuating rate of interest plus an applicable rate equal to 2.00%, ~~1.75%~~2.25%, 2.50% or ~~1.50%~~2.75% in the case of adjusted SOFR rate loans and 1.00%, ~~0.75%~~1.25%, 1.50% or ~~0.50%~~1.75% in the case of base rate loans. The applicable rates are based on the First Lien Net Leverage Ratio (as defined in the 2021 Credit ~~Agreement)~~Agreement, as amended). The 2021 Credit Facilities mature in April 2026.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The 2021 Credit Agreement requires, among other things, compliance with financial covenants that permit: (i) a maximum First Lien Net Leverage Ratio of 4.00:1.00 (or, specifically with respect to the test periods ending September 30, 2023, December 31, 2023, March 31, 2024, and June 30, 2024, a maximum of 4.25:1.00); and (ii) a minimum interest coverage ratio of 3.00:1.00, each calculated on a trailing four-quarter basis. The 2021 Credit Agreement contains an acceleration clause should an event of default (as defined in the 2021 Credit Agreement) occur. As of ~~March 31,~~September 30, 2023, we were in compliance with the financial covenants.

As of ~~March 31,~~September 30, 2023, we had ~~$193,000~~$154,000 in borrowings drawn under the 2021 Revolver and had outstanding letters of credit of $2,479, leaving ~~$114,521~~$153,521 available for further borrowings and letters of credit under the 2021 Revolver, subject to restrictions in our 2021 Credit Facilities. We obtain letters of credit in connection with certain regulatory and insurance obligations, inventory purchases and other contractual obligations. The terms of these letters of credit ~~extend~~are all less than one year.

~~In July 2017, we entered into an~~12

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest Rates

Interest rates as of the balance sheet dates and the weighted-average rates for the periods presented were:


					Three Months
	September 30,		June 30,		Ended September 30,
	2023		2023		2023		2022
2021 Revolver	6.23	%	6.09	%	6.19	%	3.92	%
2021 Term A Loan	2.36	%	2.36	%	2.36	%	2.37	%
2023 Incremental Term Loan	7.66	%	7.44	%	7.57	%	—
2022 Term Loan	7.42	%	7.25	%	7.43	%	—

Interest rates as of the balance sheet dates are based on rates in effect as of those dates, including SOFR fluctuating rates of interest, rate swap agreement on $150,000 of notional principal that effectively converted the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.83%. The agreement matured in ~~June 2022. We had designated~~applicable rates and the interest rate swap ~~as a highly effective cash flow hedge. For additional details, see “Note 8 — Derivatives.”~~agreement.

In March 2020, we entered into an interest rate swap agreement on $150,000 of notional principal that effectively converted the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.62%. In July 2022, this agreement increased to a notional principal amount of $300,000. In November 2022, we amended ~~the March 2020 interest rate swap~~this agreement to convert the floating portion of our interest obligation to SOFR. The agreement effectively converts the floating portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.61% through June 2025. We ~~have~~ designated the interest rate swap as a highly effective cash flow hedge. For additional details, see “Note 89 — Derivatives.”

As of March 31, 2023, the interest rates for the 2021 Revolver and the 2021 Term A Loan were 6.18% and 2.36%, respectively. The weighted-average interest rates for the 2021 Revolver were 5.07% and 1.87% for the nine months ended March 31, 2023 and 2022, respectively. The weighted-average interest rates for the 2021 Term A Loan were 2.37% and 2.98% for nine months ended March 31, 2023 and 2022, respectively.

Other Long-Term Debt

In September 2022, we entered into a credit agreement (the “2022 Term Loan”) in the amount of $12,000, collateralized by certain facilities. The 2022 Term Loan matures in September 2027. The interest rate per annum applicable to the 2022 Term Loan is based on a fluctuating rate of interest, at the Company’s election from time to time, equal to either (i) one-month ~~Adjusted~~adjusted SOFR plus ~~1.00%~~2.0%, or (ii) a base rate determined by reference to the greater of (a) the prime rate and (b) the Federal Funds Effective Rate plus ~~0.50%~~0.5%. The 2022 Term Loan is repayable in monthly installments of $35, with the balance payable at maturity. ~~The weighted-average interest rate was 6.07% for the period during which the 2022 Term Loan was outstanding in the nine months ended March 31, 2023.~~

Maturities of Long-Term Debt


	March 31,		June 30,		September 30,		June 30,
As of	2023		2022		2023		2023
2021 Term A Loan due April 2026	$	277,500	$	288,750	$	270,000	$	273,750
2023 Incremental Term Loan due April 2026						48,750		50,000
2022 Term Loan due September 2027		11,790		-		11,580		11,685
		289,290		288,750		330,330		335,435
Unamortized debt issuance costs		(854)		(825)		(1,463)		(1,599)
		288,436		287,925		328,867		333,836
Less: current maturities		(15,420)		(15,000)		(24,150)		(22,295)
	$	273,016	$	272,925	$	304,717	$	311,541

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

6. Related Party Transactions

Certain relatives of Jack C. Bendheim, our Chairman, President and Chief Executive Officer, provided services to the Company as employees or consultants and received aggregate compensation and benefits of approximately ~~$385~~$438 and ~~$465~~$780 during the three months ended ~~March 31, 2023 and 2022, and $1,561 and $1,765 during the nine months ended March 31,~~September 30, 2023 and 2022, respectively. Mr. Bendheim has sole authority to vote shares of our stock owned by BFI Co., LLC, an investment vehicle of the Bendheim family.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Stock Incentive Plan

Restricted Stock Units

In July 2023, our Board of Directors approved the grant of 300,000 restricted stock units (“RSUs”) to an officer of the Company, pursuant to the Company's 2008 Incentive Plan and the RSU award agreement. Each RSU represents the right to receive a share of our common stock upon vesting. The RSUs are subject to performance-based vesting. The RSUs will vest on June 30, 2027, subject to continuation of employment on such date, in increments of 10% (but no less than 20%) (with linear interpolation between increments) based upon the arithmetic average of the Company’s closing stock price per share for each trading day in the 90-calendar day period ending on the vesting date (the “90-Day Average”). None of the RSUs will vest if the 90-Day Average is below $20, and 100% of the RSUs will vest if the 90-Day Average is $60 or above. In the event of a change in control of the Company, following which either (i) 100% of the shares of stock cease to be traded on a nationally recognized stock exchange and the Company is no longer listed on any such exchange or (ii) a Qualifying Termination occurs within 12 months, all unvested RSUs will immediately vest in full.

We used a Monte Carlo simulation model to determine the grant date fair value of the RSUs. Assumptions used by the model were based on information as of the grant date and included a risk-free rate of return, expected volatility and an expected dividend yield. The risk-free rate of return is based on U.S. treasury yields for bonds with similar maturities. Expected volatility is based on the historical volatility of the Company’s common stock. The expected dividend yield considers estimated annual dividends and the closing share price of the underlying common stock.

The total grant date fair value of the RSUs was $1,284, equivalent to $4.28 per share. We will recognize the total grant date fair value of the RSUs as stock-based compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense related to the RSUs was $81 for the three months ended September 30, 2023. We expect stock-based compensation expense related to the RSUs will be $321 in each of the years ending June 30, 2024, 2025, 2026 and 2027.

8. Commitments and Contingencies

Environmental

Our operations and properties are subject to extensive federal, state, local and foreign laws and regulations, including those governing pollution; protection of the environment; the use, management, and release of hazardous materials, substances and wastes; air emissions; greenhouse gas emissions; water use, supply and discharges; the investigation and remediation of contamination; the manufacture, distribution, and sale of regulated materials, including pesticides; the importing, exporting and transportation of products; and the health and safety of our employees (collectively, “Environmental Laws”). As such, the nature of our current and former operations exposes us to the risk of claims with respect to such matters, including fines, penalties, and remediation obligations that may be imposed by regulatory authorities. Under certain circumstances, we might be required to curtail operations until a particular problem is remedied. Known costs and expenses under Environmental Laws incidental to ongoing operations, including the cost of litigation proceedings relating to environmental matters, are included within operating results. Potential costs and expenses may also be incurred in connection with the repair or upgrade of facilities to meet existing or new requirements under Environmental Laws or to investigate or remediate potential or actual contamination, and from time to time we establish reserves for such contemplated investigation and remediation costs. In many instances, the ultimate costs under Environmental Laws and the period during which such costs are likely to be incurred are difficult to predict.

While we believe that our operations are currently in material compliance with Environmental Laws, we have, from time to time, received notices of violation from governmental authorities, and have been involved in civil or criminal action for such violations. Additionally, at various sites, our subsidiaries are engaged in continuing investigation, remediation and/or monitoring efforts to address contamination associated with historic operations of the sites. We devote considerable resources to complying with Environmental Laws and managing environmental liabilities. We have developed programs to identify requirements under, and maintain compliance with Environmental Laws; however, we cannot predict with certainty the effect of increased and more stringent regulation on our operations, future capital expenditure requirements, or the cost of compliance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The nature of our current and former operations exposes us to the risk of claims with respect to environmental matters and we cannot assure we will not incur material costs and liabilities in connection with such claims. Based on our experience, we believe that the future cost of compliance with existing Environmental Laws, and liabilities for known environmental claims pursuant to such Environmental Laws, will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.

The United States Environmental Protection Agency (the “EPA”) is investigating and planning for the remediation of offsite contaminated groundwater that has migrated from the Omega Chemical Corporation Superfund Site (“Omega Chemical Site”), which is upgradient of the Santa Fe Springs, California facility of our subsidiary, Phibro-Tech, Inc. (“Phibro-Tech”). The EPA has entered into a settlement agreement with a group of companies that sent chemicals to the Omega Chemical Site for processing and recycling (“OPOG”) to remediate the contaminated groundwater that has migrated from the Omega Chemical Site in accordance with a general remedy selected by the EPA. The EPA has named Phibro-Tech and certain other subsidiaries of PAHC as potentially responsible parties (“PRPs”) due to groundwater contamination from Phibro-Tech’s Santa Fe Springs facility that has allegedly commingled with contaminated groundwater from the Omega Chemical Site. In September 2012, the EPA notified approximately 140 PRPs, including Phibro-Tech and the other subsidiaries, that they have been identified as potentially responsible for remedial action for the groundwater plume affected by the Omega Chemical Site and for EPA oversight and response costs. Phibro-Tech contends that any groundwater contamination at its site is localized and due to historical operations that pre-date Phibro-Tech and/or contaminated groundwater that has migrated from upgradient properties. In addition, a successor to a prior owner of the Phibro-Tech site has asserted that PAHC and Phibro-Tech are obligated to provide indemnification for its potential liability and defense costs relating to the

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

groundwater plume affected by the Omega Chemical Site. PAHC and Phibro-Tech have vigorously contested this position and have asserted that the successor to the prior owner is required to indemnify Phibro-Tech for its potential liability and defense costs. In 2014, several members of OPOG filed a complaint under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and the Resource Conservation and Recovery Act in the United States District Court for the Central District of California against many of the PRPs allegedly associated with the groundwater plume affected by the Omega Chemical Site (including Phibro-Tech) for contribution toward past and future costs associated with the investigation and remediation of the groundwater plume affected by the Omega Chemical Site. In August 2022, the United States Department of Justice (the “DOJ”), on behalf of the EPA, sent Phibro-Tech and certain other PRPs a pre-litigation notice letter regarding potential CERCLA Sec. 107 cost recovery claims seeking unrecovered past costs related to the groundwater plume affected by the Omega Chemical Site, along with a declaration allocating liability for future costs.

In February 2023, the plaintiffs in the OPOG lawsuit and certain defendants in the OPOG lawsuit, including Phibro-Tech, signed a definitive settlement agreement that provides for a “cash-out” settlement, with contribution protection, for Phibro-Tech and its affiliates (as well as certain other defendants) releasing Phibro-Tech and its affiliates from liability for contamination of the groundwater plume affected by the Omega Chemical Site (with certain exceptions), including past and future EPA response costs that were the subject of the August 2022 pre-litigation notice letter sent by the DOJ on behalf of the EPA. As part of the settlement, Phibro-Tech also resolved all claims for indemnification and contribution between Phibro-Tech and the successor to the prior owner of the Phibro-Tech site. The definitive settlement agreement contemplates cash payments by Phibro-Tech and one of its affiliates over a period ending in February 2024. The definitive settlement agreement is subject to formal approval by the EPA, the DOJ and the district court. In the nine months ended March 31, 2023, we recognized expense for the definitive settlement agreement and other related costs, which is included in our consolidated statement of operations as selling, general and administrative expenses.

Based upon information available, to the extent such costs can be estimated with reasonable certainty, we estimated the cost for further investigation and remediation of identified soil and groundwater problems at operating sites, closed sites and third-party sites, and closure costs for closed sites, including ~~a portion of~~ the remaining liability for the OPOG lawsuit ~~referred to~~described in the preceding paragraph, to be approximately ~~$8,614~~$8,531 and ~~$4,287~~$8,505 at ~~March 31,~~September 30, 2023 and June 30, ~~2022,~~2023, respectively, which is included in current and long-term liabilities on the consolidated balance sheets. However, future events, such as new information, changes in existing Environmental Laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material. For all purposes of the discussion under this caption and elsewhere in this report, it should be noted that we take and have taken the position that neither PAHC nor any of our subsidiaries are liable for environmental or other claims made against one or more of our other subsidiaries or for which any of such other subsidiaries may ultimately be responsible.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Claims and Litigation

PAHC and its subsidiaries are party to various claims and lawsuits arising out of the normal course of business including product liabilities, payment disputes and governmental regulation. Certain of these actions seek damages in various amounts. In many cases, such claims are covered by insurance. We believe that none of the claims or pending lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, cash flows or liquidity.

~~Development Agreements~~

We have entered into various licensing agreements for the development, manufacture and commercialization of certain companion animal products. Under the agreements, we may be liable for future payments upon the achievement of certain development milestones and as a percentage of net sales.

8.9. Derivatives

We monitor our exposure to foreign currency exchange rates and interest rates and from time-to-time use derivatives to manage certain of these risks. We designate derivatives as a hedge of a forecasted transaction or of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability (cash flow hedge). All changes in the fair value of a highly effective cash flow hedge are recorded in ~~accumulated~~Accumulated other comprehensive ~~income (loss).~~loss.

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

We routinely assess whether the derivatives used to hedge transactions are effective. If we determine a derivative ~~no longer is~~ceases to be an effective hedge, we discontinue hedge accounting in the period of the assessment for that derivative, and immediately recognize any unrealized gains or losses related to the fair value of that derivative in the consolidated statements of operations.

We record derivatives at fair value in the consolidated balance sheets. For additional details regarding fair value, see “Note 910 — Fair Value Measurements.”

In July 2017, we entered into an interest rate swap agreement on the first $150,000 of notional principal that effectively converted the floating LIBOR portion of our interest obligation on that amount of debt to a fixed interest rate of 1.83%. The agreement matured in ~~June 2022~~. In March 2020, we entered into an interest rate swap agreement on ~~an additional~~ $150,000 of notional principal that effectively converted the floating LIBOR portion of our interest obligation on that amount of debt to a fixed rate of 0.62%. In July 2022, this agreement increased to a notional principal amount of $300,000. In November 2022, we amended the March 2020 interest rate swap agreement to convert the floating portion of our interest obligation to SOFR. The agreement effectively converts the floating portion of our interest obligation on $300,000 of debt to a fixed interest rate of 0.61% through June 2025. We have designated the interest rate swap as a highly effective cash flow hedge.

~~We have entered into foreign currency option contracts to hedge cash flows related to monthly inventory purchases. The individual option contracts mature monthly through~~ ~~August 2023. The forecasted inventory purchases are probable of occurring and the individual option contracts were designated as highly effective cash flow hedges.~~

The consolidated balance sheet includes the net fair values of our outstanding foreign currency option contracts within the respective line items, based on the net financial position and maturity date of the individual contracts. The consolidated balance sheet includes the net fair values of our outstanding interest rate ~~swap~~swaps within the respective balance sheet line items, based on the expected timing of the cash flows. The consolidated balance sheet includes assets and liabilities for the fair values of outstanding derivatives that are designated and effective as cash flow hedges as follows:


	March 31,		June 30,		September 30,		June 30,
As of	2023		2022		2023		2023
Other current assets
Brazil Real options, net	$	536	$	498	$	—	$	333
Interest rate swap		12,233		7,417		14,198		14,031
Other assets
Brazil Real options, net		—		104
Interest rate swap		9,926		12,871		8,500		10,225
Total Fair Value
Brazil Real options, net		536		602		—		333
Interest rate swap		22,159		20,288		22,698		24,256

Notional amounts of the derivatives as of the balance sheet date were:


	March 31,		September 30,
As of	2023		2023
Brazil Real call options	R$	25,000
Brazil Real put options	R$	(25,000)
Interest rate swap	$	300,000	$	300,000

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The consolidated statements of operations and statements of ~~other~~ comprehensive (loss) income ~~(“OCI”)~~ for the periods ended ~~March 31,~~September 30, 2023 and 2022 included the effects of derivatives as follows:


	Three Months				Nine Months				Three Months
For the Periods Ended March 31	2023		2022		2023		2022
For the Periods Ended September 30									2023		2022
Brazil Real options, net
Expense recorded in consolidated statements of operations	$	368	$	155	$	1,161	$	682
(Income) expense recorded in consolidated statements of operations									$	(181)	$	438
Consolidated statement of operations - total cost of goods sold	$	170,133	$	167,993	$	501,269	$	480,020	$	163,623	$	163,875
Expense (income) recorded in OCI	$	(83)	$	(2,058)	$	67	$	(1,651)
Expense recorded in comprehensive (loss) income									$	333	$	168
Interest rate swap
Expense (income) recorded in consolidated statements of operations	$	(2,994)	$	814	$	(6,502)	$	2,556
Income recorded in consolidated statements of operations									$	(3,570)	$	(1,211)
Consolidated statement of operations - total interest expense, net	$	3,871	$	2,925	$	10,822	$	8,767	$	4,564	$	3,067
Expense (income) recorded in OCI	$	3,848	$	(12,900)	$	(1,871)	$	(18,088)
Expense (income) recorded in comprehensive (loss) income									$	1,558	$	(7,273)

We recognize gains and losses related to foreign currency derivatives as a component of cost of goods sold at the time the hedged item is sold. Inventory as of ~~March 31,~~September 30, 2023, included realized net gains of ~~$532~~$1,182 related to matured contracts. We anticipate the net gains included in inventory will be recognized in cost of goods sold within the next twelve to eighteen months.

9.10. Fair Value Measurements

Short-term Investments

Our short-term investments consist of cash deposits held at financial institutions. We consider the carrying amounts of these short-term investments to be representative of their fair value.

Current Assets and Liabilities

We consider the carrying amounts of current assets and current liabilities to be representative of their fair value because of the current nature of these items.

Debt

We record debt, including term loans and revolver balances, at amortized cost in our consolidated financial statements. We believe the carrying value of the debt is approximately equal to its fair value, due to the variable nature of the instruments and our evaluation of estimated market prices.

Derivatives

We determine the fair value of derivative instruments based upon pricing models using observable market inputs for these types of financial instruments, such as spot and forward currency translation rates.

Non-financial Assets

Our non-financial assets, which primarily consist of goodwill, other intangible assets, property and equipment, and lease-related ~~ROU~~right-of-use (“ROU”) assets, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value in the consolidated balance sheet. Assets and liabilities may be required to be measured at fair value on a non-recurring basis, either upon initial recognition or for subsequent accounting or reporting, including the initial recognition of net assets acquired in a business combination. These fair value measurements involve unobservable inputs that reflect estimates and assumptions that represent Level 3 inputs.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Assets (Liabilities)


As of	March 31, 2023						June 30, 2022						September 30, 2023						June 30, 2023
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Short-term investments	$	40,000	$	—	$	—	$	17,000	$	—	$	—	$	48,000	$	—	$	—	$	40,000	$	—	$	—
Foreign currency derivatives	$	—	$	536	$	—	$	—	$	602	$	—	$	—	$	—	$	—	$	—	$	333	$	—
Interest rate swap	$	—	$	22,159	$	—	$	—	$	20,288	$	—	$	—	$	22,698	$	—	$	—	$	24,256	$	—

There were no transfers between levels during the periods presented.

~~10.~~11. Business Segments

We evaluate performance and allocate resources, based on the Animal Health, Mineral Nutrition and Performance Products segments. Certain of our costs and assets are not directly attributable to these segments and we refer to these items as Corporate. We do not allocate Corporate costs or assets to the segments because they are not used to evaluate the segments’ operating results or financial position. Corporate ~~includes~~costs include certain costs related to executive management, business technology, legal, finance, human resources and business development. The accounting policies of our segments are the same as those described in the summary of significant accounting policies included herein.

We evaluate performance of our segments based on Adjusted EBITDA. We calculate Adjusted EBITDA as income before income taxes plus (a) interest expense, net, (b) depreciation and amortization, (c) (income) loss from, and disposal of, discontinued operations, ~~and~~ (d) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency (gains) losses, net and (e) certain items that we consider to be unusual, non-operational or non-recurring.

~~The accounting policies of our segments are the same as those described in the summary of significant accounting policies included herein.~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Three Months

Nine Months
For the Periods Ended March 31

2023

2022

2023

2022
Net sales

Animal Health

$
164,434

$
148,589

$
483,096

$
440,520
Mineral Nutrition

62,922

69,033

184,212

190,120
Performance Products

18,317

21,997

55,532

56,356
Total segments

$
245,673

$
239,619

$
722,840

$
686,996

Depreciation and amortization

Animal Health

$
6,888

$
6,935

$
20,733

$
19,872
Mineral Nutrition

671

661

1,985

1,960
Performance Products

453

436

1,348

1,292
Total segments

$
8,012

$
8,032

$
24,066

$
23,124
Adjusted EBITDA

Animal Health

$
34,217

$
29,232

$
98,240

$
90,565
Mineral Nutrition

3,859

7,303

13,555

17,361
Performance Products

2,413

2,865

7,069

6,327
Total segments

$
40,489

$
39,400

$
118,864

$
114,253
Reconciliation of income before income taxes to Adjusted EBITDA

Income before income taxes

$
15,104

$
26,833

$
32,630

$
59,958
Interest expense, net

3,871

2,925

10,822

8,767
Depreciation and amortization – Total segments

8,012

8,032

24,066

23,124
Depreciation and amortization – Corporate

477

413

1,372

1,176
Corporate costs

13,122

11,404

38,451

34,699
Environmental remediation costs

325

—

6,894

—
Gain on sale of investment

—

—

—

(1,203)
Acquisition-related cost of goods sold

—

78

—

78
Acquisition-related transaction costs

—

279

—

279
Foreign currency (gains) losses, net

(422)

(10,564)

4,629

(12,625)
Adjusted EBITDA – Total segments

$
40,489

$
39,400

$
118,864

$
114,253


	Three Months
For the Periods Ended September 30	2023		2022
Net sales
Animal Health	$	160,530	$	154,859
Mineral Nutrition		56,026		59,646
Performance Products		14,793		18,016
Total segments	$	231,349	$	232,521

Depreciation and amortization
Animal Health	$	7,349	$	6,911
Mineral Nutrition		646		655
Performance Products		426		442
Total segments	$	8,421	$	8,008
Adjusted EBITDA
Animal Health	$	28,494	$	26,964
Mineral Nutrition		2,881		5,297
Performance Products		1,409		2,364
Total segments	$	32,784	$	34,625
Reconciliation of income before income taxes to Adjusted EBITDA
(Loss) income before income taxes	$	(11,979)	$	5,417
Interest expense, net		4,564		3,067
Depreciation and amortization – Total segments		8,421		8,008
Depreciation and amortization – Corporate		450		442
Corporate costs		14,133		12,491
Pension settlement cost		10,425		—
Stock-based compensation		81		—
Foreign currency losses, net		6,689		5,200
Adjusted EBITDA – Total segments	$	32,784	$	34,625

March 31,

June 30,
As of

2023

2022
Identifiable assets




Animal Health

$
686,510

$
654,862
Mineral Nutrition

91,205

87,379
Performance Products

47,522

39,490
Total segments

825,237

781,731
Corporate

140,195

149,968
Total

$
965,432

$
931,699


	September 30,		June 30,
As of	2023		2023
Identifiable assets
Animal Health	$	679,935	$	698,522
Mineral Nutrition		74,060		75,814
Performance Products		49,939		49,678
Total segments		803,934		824,014
Corporate		160,589		147,383
Total	$	964,523	$	971,397

The Animal Health segment includes all goodwill of the Company. Corporate assets include cash and cash equivalents, short-term investments, ~~interest rate swap agreement,~~ debt issuance costs, income tax-related assets and certain other assets.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Our management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided to assist readers in understanding our performance, as reflected in the results of our operations, our financial condition and our cash flows. The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. This MD&A should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Our future results could differ materially from our historical performance as a result of various factors such as those discussed in “Risk Factors” in Item 1A of our Annual Report and “Forward-Looking Statements.”

Overview of our business

Phibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. 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. Our products help prevent, control and treat diseases, and support nutrition to help improve animal health and well-being. In addition to animal health and mineral nutrition products, we manufacture and market specific ingredients for use in the personal care, industrial chemical and chemical catalyst industries.

Armed ~~Conflict between~~ Conflicts

Hamas and Israel

On October 7, 2023, Hamas militants crossed into Israel from Gaza in a large-scale, surprise terrorist attack. Hamas terrorists invaded Israel, first firing rockets into the country and then carrying out attacks inflicting mass casualties with hundreds more taken hostage. In order to provide immediate assistance to the victims of the attacks and their families, we and our employees provided monetary donations that will be distributed to charities that offer relief services, welfare, equipment, food and other necessities.

We have three manufacturing sites in Israel. A manufacturing plant in Neot Hovav that produces active pharmaceutical ingredients for certain of our anticoccidial and antimicrobial products, a facility in Beit Shemesh that produces vaccines and a plant in Petah Tikvah that manufactures premix products and nutritionals. In addition, we have an office location near Tel Aviv in Airport City. As of September 30, 2023, we had approximately 550 employees located in Israel. While we have had some disruption to our operations, at the current time, we have confidence in our ability to meet our supply commitment to customers and maintain sufficient inventory to continue regional support. While the situation surrounding the ongoing conflict remains fluid, our operations in Israel have navigated numerous challenging situations over the years.

The prolonged continuation or escalation of this conflict may trigger bans, economic and other sanctions, as well as broader military conflict, which could include neighboring nations. The potential impacts of the current conflict, or escalation thereof, on our business is unclear but may include, without limitation, the possible disruption of our operations, particularly at our facilities in Israel, supply chain and logistics disruptions, personnel and raw material shortages, and other consequences, including as a result of the actions of, or disruption of the operations of, certain regulatory and governmental authorities and of certain of our suppliers, collaborative partners, licensees, manufacturing sites, distributors and customers. Our Israeli manufacturing facilities and local operations account for 27% of our consolidated assets as of September 30, 2023, and 19% of our consolidated net sales, for the three months ended September 30, 2023.

Russia and Ukraine

In response to the armed conflict between Russia and Ukraine that began in February 2022, we and our employees have provided support to Ukraine in the form of monetary donations, free products and humanitarian services. Our limited intent for the Russian market is to continue to provide medicines and vaccines, and related regulatory and technical support, to help existing customers combat disease challenges in the production of food animals on their farms. We have no production or direct distribution operations and no planned investments in Russia.

Table of Contents

Since the conflict began, the United States and other North Atlantic Treaty Organization (“NATO”) member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises. The continuation or escalation of the conflict may trigger additional economic and other sanctions, as well as broader military conflict. The potential impacts of any resulting bans, sanctions, boycotts or broader military conflicts on our business ~~is uncertain at the current time due to the fluid nature of the conflict.~~are uncertain. The potential impacts could include supply chain and logistics disruptions, macroeconomic impacts resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy as well as heightened cybersecurity threats. Our annual sales to Russia and Ukraine represent approximately 1% of consolidated net sales.

We cannot know if the conflict could escalate and result in broader economic and security concerns that could adversely affect our business, financial condition, or results of operations.

~~Effects of the COVID-19 pandemic~~

The global food and animal production industry has experienced demand disruption, production impacts, price volatility and currency volatility in international markets due to the COVID-19 pandemic. The situation surrounding the COVID-19 pandemic remains fluid. We are unable to predict the future impact of COVID-19 on the economies where we manufacture and/or sell our products. We continue to evaluate the nature and extent of the effects of COVID-19 on our business, consolidated results of operations, financial condition and liquidity. For additional considerations and risks associated with COVID-19 on our business, see “Risk Factors” in Item 1A of our Annual Report.

~~Table of Contents~~

Regulatory ~~Developments~~developments

In April 2016, the Food and Drug Administration (“FDA”) began initial steps to withdraw approval of carbadox (the active ingredient in our Mecadox product) via a regulatory process known as a Notice of Opportunity for Hearing (“NOOH”), due to concerns that certain residues from the product may persist in animal tissues for longer than previously determined. In the years following, Phibro has continued an ongoing process of responding collaboratively and transparently to the FDA’s Center for Veterinary Medicine (“CVM”) inquiries and has provided extensive and meticulous research and data that confirmed the safety of carbadox. In July 2020, the FDA announced it would not proceed to a hearing on the scientific concerns raised in the 2016 NOOH, consistent with the normal regulatory procedure, but instead announced that it was withdrawing the 2016 NOOH and issuing a proposed order to review the regulatory method for carbadox. Phibro reiterated the safety of carbadox and the appropriateness of the regulatory method and offered to work with the CVM to generate additional data to support the existing regulatory method or select a suitable alternative regulatory method.

In ~~the event~~March 2022, the FDA ~~continues~~held a Part 15 virtual public hearing seeking data and information related to ~~assert~~the safety of carbadox in which Phibro participated and again detailed the extensive research and data that confirm the safety of carbadox. In November 2023, the FDA, through CVM, provided notice of a Federal Register publication issuing a final order to revoke the approved method for detecting residues of carbadox. The FDA has also provided notice of a second Federal Register publication proposing to withdraw approval of all new animal drug applications (NADAs) providing for use of carbadox ~~should be removed from~~in medicated swine feed and announcing an opportunity for Phibro to request a hearing on this proposal. This second action is based on CVM’s determination that there is no approved regulatory method to detect carbadox residues in the ~~market,~~edible tissues of the treated swine. Phibro intends to take appropriate action and next steps to continue to defend swine producers’ ability to use Mecadox, and we will argue that we are entitled to and expect to have a full evidentiary hearing on the merits before an administrative law judge. Should we be unable to successfully defend the safety of the product, the loss of carbadox sales will have an adverse effect on our financial condition and results of operations. Sales of Mecadox (carbadox) for the twelve months ended ~~March 31,~~September 30, 2023, were ~~$20.8~~approximately $20 million. As of the date of the filing of this Quarterly Report on Form 10-Q, Mecadox continues to be available for use by swine producers. For additional information, see also ~~“Business-Compliance~~“Business – Compliance with Government ~~Regulations-United States-Carbadox”~~Regulation – United States – Carbadox”; and ~~“Business-Compliance~~“Business – Compliance with Government ~~Regulations-Global policy~~Regulation – Global Policy and ~~guidance”~~Guidance” in Item 1 of our Annual Report.

Table of Contents

Analysis of the consolidated statements of operations

Summary Results of Operations


	Three Months										Nine Months										Three Months
For the Periods Ended March 31	2023			2022			Change				2023			2022			Change
For the Periods Ended September 30																					2023			2022			Change

					(in thousands, except per share amounts and percentages)																(in thousands, except per share amounts and percentages)
Net sales	$	245,673		$	239,619		$	6,054	3	%	$	722,840		$	686,996		$	35,844	5	%	$	231,349		$	232,521		$	(1,172)	(1)	%
Gross profit		75,540			71,626			3,914	5	%		221,571			206,976			14,595	7	%		67,726			68,646			(920)	(1)	%
Selling, general and administrative expenses		56,987			52,432			4,555	9	%		173,490			150,876			22,614	15	%		68,452			54,962			13,490	25	%
Operating income		18,553			19,194			(641)	(3)	%		48,081			56,100			(8,019)	(14)	%
Operating (loss) income																						(726)			13,684			(14,410)	*
Interest expense, net		3,871			2,925			946	32	%		10,822			8,767			2,055	23	%		4,564			3,067			1,497	49	%
Foreign currency (gains) losses, net		(422)			(10,564)			10,142	*			4,629			(12,625)			17,254	*
Income before income taxes		15,104			26,833			(11,729)	(44)	%		32,630			59,958			(27,328)	(46)	%
Provision for income taxes		5,062			9,144			(4,082)	(45)	%		11,522			18,270			(6,748)	(37)	%
Net income	$	10,042		$	17,689		$	(7,647)	(43)	%	$	21,108		$	41,688		$	(20,580)	(49)	%
Foreign currency losses, net																						6,689			5,200			1,489	*
(Loss) income before income taxes																						(11,979)			5,417			(17,396)	*
(Benefit) provision for income taxes																						(3,964)			1,561			(5,525)	*
Net (loss) income																					$	(8,015)		$	3,856		$	(11,871)	*

Net income per share
basic and diluted	$	0.25		$	0.44		$	(0.19)	(43)	%	$	0.52		$	1.03		$	(0.51)	(49)	%
Net (loss) income per share
Basic																					$	(0.20)		$	0.10		$	(0.30)	*
Diluted																					$	(0.20)		$	0.10		$	(0.30)	*

Weighted average number of shares outstanding
basic and diluted		40,504			40,504							40,504			40,504
Basic																						40,504			40,504
Diluted																						40,504			40,504

Ratio to net sales
Gross profit		30.7	%		29.9	%						30.7	%		30.1	%						29.3	%		29.5	%
Selling, general and administrative expenses		23.2	%		21.9	%						24.0	%		22.0	%						29.6	%		23.6	%
Operating income		7.6	%		8.0	%						6.7	%		8.2	%
Income before income taxes		6.1	%		11.2	%						4.5	%		8.7	%
Net income		4.1	%		7.4	%						2.9	%		6.1	%
Operating (loss) income																						(0.3)	%		5.9	%
(Loss) income before income taxes																						(5.2)	%		2.3	%
Net (loss) income																						(3.5)	%		1.7	%
Effective tax rate		33.5	%		34.1	%						35.3	%		30.5	%						33.1	%		28.8	%

Certain amounts and percentages may reflect rounding adjustments.

*	Calculation not meaningful

Net sales, Adjusted EBITDA and reconciliation of GAAP net (loss) income to Adjusted EBITDA

We report Net sales and Adjusted EBITDA by segment to understand the operating performance of each segment. This enables us to monitor changes in net sales, costs and other actionable operating metrics at the segment level. See “—General description of non-GAAP financial measures.”

Table of Contents

Segment net sales and Adjusted EBITDA:

Three Months

Nine Months

For the Periods Ended March 31

2023

2022

Change


2023

2022

Change

Net sales

(in thousands, except percentages)

MFAs and other

$
93,217

$
84,330

$
8,887

11
%

$
283,186

$
259,812

$
23,374

9
%
Nutritional specialties

45,016

41,394

3,622

9
%

127,926

114,721

13,205

12
%
Vaccines

26,201

22,865

3,336

15
%

71,984

65,987

5,997

9
%
Animal Health

164,434

148,589

15,845

11
%

483,096

440,520

42,576

10
%
Mineral Nutrition

62,922

69,033

(6,111)

(9)
%

184,212

190,120

(5,908)

(3)
%
Performance Products

18,317

21,997

(3,680)

(17)
%

55,532

56,356

(824)

(1)
%
Total

$
245,673

$
239,619

$
6,054

3
%

$
722,840

$
686,996

$
35,844

5
%

Adjusted EBITDA















Animal Health

$
34,217

$
29,232

$
4,985

17
%

$
98,240

$
90,565

$
7,675

8
%
Mineral Nutrition

3,859

7,303

(3,444)

(47)
%

13,555

17,361

(3,806)

(22)
%
Performance Products

2,413

2,865

(452)

(16)
%

7,069

6,327

742

12
%
Corporate

(13,122)

(11,404)

(1,718)

15
%

(38,451)

(34,699)

(3,752)

11
%
Total

$
27,367

$
27,996

$
(629)

(2)
%

$
80,413

$
79,554

$
859

1
%

Adjusted EBITDA as a percentage of segment net sales











Animal Health

20.8
%

19.7
%





20.3
%

20.6
%



Mineral Nutrition

6.1
%

10.6
%





7.4
%

9.1
%



Performance Products

13.2
%

13.0
%





12.7
%

11.2
%



Corporate⁽¹⁾

(5.3)
%

(4.8)
%





(5.3)
%

(5.1)
%



Total⁽¹⁾

11.1
%

11.7
%





11.1
%

11.6
%


	Three Months
For the Periods Ended September 30	2023			2022			Change

Net sales	(in thousands, except percentages)
MFAs and other	$	94,104		$	92,790		$	1,314	1	%
Nutritional specialties		40,210			39,054			1,156	3	%
Vaccines		26,216			23,015			3,201	14	%
Animal Health		160,530			154,859			5,671	4	%
Mineral Nutrition		56,026			59,646			(3,620)	(6)	%
Performance Products		14,793			18,016			(3,223)	(18)	%
Total	$	231,349		$	232,521		$	(1,172)	(1)	%

Adjusted EBITDA
Animal Health	$	28,494		$	26,964		$	1,530	6	%
Mineral Nutrition		2,881			5,297			(2,416)	(46)	%
Performance Products		1,409			2,364			(955)	(40)	%
Corporate		(14,133)			(12,491)			(1,642)	13	%
Total	$	18,651		$	22,134		$	(3,483)	(16)	%

Adjusted EBITDA as a percentage of segment net sales
Animal Health		17.7	%		17.4	%
Mineral Nutrition		5.1	%		8.9	%
Performance Products		9.5	%		13.1	%
Corporate ⁽¹⁾		(6.1)	%		(5.4)	%
Total ⁽¹⁾		8.1	%		9.5	%

(1)	Reflects ratio to total net sales

The table below sets forth a reconciliation of net (loss) income, as reported under GAAP, to Adjusted EBITDA:

Three Months

Nine Months

For the Periods Ended March 31

2023

2022

Change


2023

2022

Change

(in thousands, except percentages)

Net income

$
10,042

$
17,689

$
(7,647)

(43)
%

$
21,108

$
41,688

$
(20,580)

(49)
%
Interest expense, net

3,871

2,925

946

32
%

10,822

8,767

2,055

23
%
Provision for income taxes

5,062

9,144

(4,082)

(45)
%

11,522

18,270

(6,748)

(37)
%
Depreciation and amortization

8,489

8,445

44

1
%

25,438

24,300

1,138

5
%
EBITDA

27,464

38,203

(10,739)

(28)
%

68,890

93,025

(24,135)

(26)
%
Environmental remediation costs

325

—

325

*

6,894

—

6,894

*

Gain on sale of investment

—

—

—

*

—

(1,203)

1,203

*

Acquisition-related cost of goods sold

—

78

(78)

*

—

78

(78)

*

Acquisition-related transaction costs

—

279

(279)

*

—

279

(279)

*

Foreign currency (gains) losses, net

(422)

(10,564)

10,142

*

4,629

(12,625)

17,254

*

Adjusted EBITDA

$
27,367

$
27,996

$
(629)

(2)
%

$
80,413

$
79,554

$
859

1
%


	Three Months
For the Periods Ended September 30	2023		2022		Change

	(in thousands, except percentages)
Net (loss) income	$	(8,015)	$	3,856	$	(11,871)	*
Interest expense, net		4,564		3,067		1,497	49	%
(Benefit) provision for income taxes		(3,964)		1,561		(5,525)	*
Depreciation and amortization		8,871		8,450		421	5	%
EBITDA		1,456		16,934		(15,478)	(91)	%
Pension settlement cost		10,425		—		10,425	*
Stock-based compensation		81		—		81	*
Foreign currency losses, net		6,689		5,200		1,489	*
Adjusted EBITDA	$	18,651	$	22,134	$	(3,483)	(16)	%

Certain amounts may reflect rounding adjustments.

* Calculation not meaningful

Adjusted net (loss) income

We report adjusted net (loss) income to portray the results of our operations prior to considering certain income statement elements. See “—General description of non-GAAP financial measures.”

A reconciliation of net (loss) income, as reported under GAAP, to adjusted net income:

Table of Contents


	Three Months
For the Periods Ended September 30	2023			2022			Change

	(in thousands, except per share amounts and percentages)
Net (loss) income	$	(8,015)		$	3,856		$	(11,871)	*
Acquisition-related intangible amortization ⁽¹⁾		1,673			1,657			16	1	%
Acquisition-related intangible amortization⁽²⁾		766			739			27	4	%
Pension settlement cost ⁽²⁾		10,425			—			10,425	*
Stock-based compensation ⁽²⁾		81			—			81	*
Foreign currency losses, net ⁽³⁾		6,689			5,200			1,489	29	%
Adjustments to income taxes ⁽⁴⁾		(6,079)			(3,126)			(2,953)	*
Adjusted net income	$	5,540		$	8,326		$	(2,786)	(33)	%

Statement of Operations Line Items - adjusted
Adjusted cost of goods sold ⁽¹⁾	$	161,950		$	162,218		$	(268)	(0)	%
Adjusted gross profit		69,399			70,303			(904)	(1)	%
Adjusted selling, general and administrative ⁽²⁾		57,180			54,223			2,957	5	%
Adjusted interest expense, net		4,564			3,067			1,497	49	%
Adjusted income before income taxes		7,655			13,013			(5,358)	(41)	%
Adjusted provision for income taxes ⁽⁴⁾		2,115			4,687			(2,572)	(55)	%
Adjusted net income	$	5,540		$	8,326		$	(2,786)	(33)	%

Adjusted net income per share
diluted	$	0.14		$	0.21		$	(0.07)	(33)	%

Weighted average common shares outstanding
diluted		40,504			40,504

Ratio to net sales
Adjusted gross profit		30.0	%		30.2	%
Adjusted selling, general and administrative		24.7	%		23.3	%
Adjusted (loss) income before income taxes		3.3	%		5.6	%
Adjusted net (loss) income		2.4	%		3.6	%
Adjusted effective tax rate		27.6	%		36.0	%

Certain amounts and percentages may reflect rounding adjustments.

* Calculation not meaningful

⁽¹⁾ Adjusted cost of goods sold excludes acquisition-related intangible amortization

⁽²⁾Adjusted selling, general and administrative excludes acquisition-related intangible amortization, pension settlement cost and stock-based compensation

⁽³⁾ Foreign currency losses, net are excluded from adjusted net income

⁽⁴⁾ Adjusted provision for income taxes excludes the income tax effect of pre-tax income adjustments and certain income tax items

Comparison of three months ended ~~March 31,~~September 30, 2023 and 2022

Net sales

Net sales of ~~$245.7~~$231.3 million for the three months ended ~~March 31,~~September 30, 2023, ~~increased $6.1~~decreased $1.2 million, or 3%1%, as compared to the three months ended ~~March 31,~~September 30, 2022. Animal Health increased ~~$15.8 million.~~$5.7 million, while Mineral Nutrition and Performance Products decreased ~~$6.1~~$3.6 million and ~~$3.7~~$3.2 million, respectively.

Table of Contents

Animal Health

Net sales of ~~$164.4~~$160.5 million for the three months ended ~~March 31,~~September 30, 2023, increased ~~$15.8~~$5.7 million, or ~~11%~~4%. Net sales of MFAs and other increased ~~$8.9~~$1.3 million, or ~~11%~~1%, ~~due to~~primarily driven by increased ~~demand for our MFAs in the U.S., Latin America and Canada and for our~~sales of processing aids used in the ethanol fermentation industry. Net sales of nutritional specialty products increased ~~$3.6~~$1.2 million, or 9%3%, ~~due mostly to higher domestic demand and higher average selling prices for dairy products, along~~ with ~~growth~~increased volumes in ~~the companion animal product.~~poultry customers, primarily domestic. Net sales of vaccines increased ~~$3.3~~$3.2 million, or ~~15%~~14%, due to ~~an increase in domestic and international demand, along with new~~poultry product ~~launches~~introductions in Latin ~~America.~~America and growth in the U.S. swine sector, partially offset by timing of deliveries in other international regions.

Mineral Nutrition

Net sales of ~~$62.9~~$56.0 million for the three months ended ~~March 31,~~September 30, 2023, decreased ~~$6.1~~$3.6 million, or 9%6%, ~~driven by a decrease~~due to declines in ~~demand for trace minerals as customers reduced purchases with~~ the ~~higher costs of capital, partially offset by higher average selling prices. The increase in~~ average selling prices ~~is correlated~~and reduced volumes due to ~~the movement of the underlying raw material costs.~~reduced demand.

Performance Products

Net sales of ~~$18.3~~$14.8 million for the three months ended ~~March 31,~~September 30, 2023, decreased ~~$3.7~~$3.2 million, or ~~17%~~18%, ~~driven by decreased~~as a result of lower demand for ~~both~~the ingredients used in personal care ~~product ingredients and copper-related products, partially offset by higher average selling prices for these~~ products.

Gross profit

Gross profit of ~~$75.5~~$67.7 million for the three months ended ~~March 31,~~September 30, 2023, ~~increased $3.9~~decreased $0.9 million, or 5%1%, as compared to the three months ended ~~March 31,~~September 30, 2022. Gross margin ~~increased 80 basis points~~decreased to ~~30.7%~~29.3% of net sales for the three months ended ~~March 31,~~September 30, 2023, as compared to ~~29.9%~~29.5% for the three months ended ~~March 31, 2022, due to higher product demand and favorable product and geographical mix.~~September 30, 2022.

Animal Health gross profit increased ~~$7.5~~$2.4 million, primarily driven by higher sales ~~volumes and favorable production costs.~~volume. Mineral Nutrition gross profit decreased ~~$3.4~~$2.3 million, driven by lower sales ~~volume~~ and ~~an increase in raw material~~higher costs. Performance Products gross profit decreased ~~$0.2~~$1.1 million as a result of lower ~~product demand and higher~~sales volumes of ingredients for personal care products, along with increased costs for ~~raw materials.~~these products.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) of ~~$57.0~~$68.5 million for the three months ended ~~March 31,~~September 30, 2023, increased ~~$4.6~~$13.5 million, or 9%25%, as compared to the three months ended ~~March 31,~~September 30, 2022. SG&A for the three months ended ~~March 31,~~September 30, 2023, included ~~$0.3~~$10.4 million of ~~additional environmental remediation costs. SG&A for the three months ended March 31, 2022, included $0.3~~pension settlement cost and $0.1 million of ~~acquisition-related transaction costs.~~stock-based compensation. Excluding these items, SG&A increased ~~$4.5~~$3.0 million.

Animal Health SG&A increased ~~$2.3~~$1.3 million, primarily due to an increase in employee and employee-related costs. Mineral Nutrition ~~SG&A was comparable to the prior year.~~increased $0.2 million, while Performance Products ~~SG&A increased $0.3~~decreased $0.1 million. Corporate costs increased by ~~$1.8~~$1.6 million, ~~driven by the planned increase in~~due to strategic ~~investments.~~investments and employee-related costs.

~~Table of Contents~~

Interest expense, net

Interest expense, net of ~~$3.9~~$4.6 million for the three months ended ~~March 31,~~September 30, 2023, increased by ~~$0.9~~$1.5 million, as compared to the three months ended ~~March 31,~~September 30, 2022, ~~due to~~as a result of the increased debt ~~outstanding~~with the issuance of 2023 Incremental Term Loan and the higher ~~floating~~variable interest ~~rates on portions of debt outstanding, partially offset by increased interest income and a lower average fixed rate from our interest rate swap agreements.~~rates.

Foreign currency ~~gains,~~losses, net

Foreign currency ~~gains,~~losses, net for the three months ended ~~March 31,~~September 30, 2023, were ~~$0.4~~$6.7 million, as compared to ~~$10.6~~$5.2 million of net ~~gains~~losses for the three months ended ~~March 31,~~September 30, 2022. ~~Prior~~Current period ~~gains~~losses were driven by fluctuations in certain currencies ~~relative~~related to the U.S. ~~dollar.~~

~~Provision for income taxes~~

The provision for income taxes was $5.1 million and $9.1 million for the three months ended March 31, 2023 and 2022, respectively. The effective income tax rate was 33.5% and 34.1% for the three months ended March 31, 2023 and 2022, respectively. The current provision for income taxes was impacted by the final foreign tax credit regulations that were in effect during the three months ended March 31, 2023, in addition to losses generated in international jurisdictions where no tax benefit is being recognized.

~~Net income~~

Net income of $10.0 million for the three months ended March 31, 2023, decreased $7.6 million, as compared to net income of $17.7 million for the three months ended March 31, 2022. Operating income decreased $0.6 million, driven by higher SG&A, partially offset by favorable gross profit. The increase in gross profit was due to higher product demand and higher average selling prices. Interest expense, net increased $0.9 million and foreign currency gains, net decreased $10.1 million. Income tax expense decreased by $4.1 million.

~~Adjusted EBITDA~~

Adjusted EBITDA of $27.4 million for the three months ended March 31, 2023, decreased $0.6 million, or 2%, as compared to the three months ended March 31, 2022. Animal Health Adjusted EBITDA increased $5.0 million due to gross profit from increased sales, partially offset by higher SG&A. Mineral Nutrition Adjusted EBITDA decreased $3.4 million, driven by lower gross profit. Performance Products Adjusted EBITDA decreased $0.5 million due to lower gross profit and higher SG&A. Corporate expenses increased $1.7 million, driven by increased strategic investments.

~~Comparison of nine months ended March 31, 2023 and 2022~~

~~Net sales~~

Net sales of $722.8 million for the nine months ended March 31, 2023, increased $35.8 million, or 5%, as compared to the nine months ended March 31, 2022. Animal Health sales increased by $42.6 million. Mineral Nutrition and Performance Products sales decreased $5.9 million and $0.8 million, respectively.

~~Animal Health~~

~~Net sales of $483.1 million for the nine months ended March 31, 2023, increased $42.6 million, or 10%. Net sales of MFAs and other increased $23.4 million, or 9%, due to higher demand for MFAs~~dollar, primarily in ~~U.S., Latin America~~Argentina and Canada and for processing aids used in the ethanol fermentation industry. Net sales of nutritional specialty products increased $13.2 million, or 12%, driven by strong demand in dairy products and increased sales of our companion animal product. Net sales of vaccines increased $6.0 million, or 9%, due to increased domestic and international volumes.Brazil.

Table of Contents

~~Mineral Nutrition~~

Net sales of $184.2 million for the nine months ended March 31, 2023, decreased $5.9 million, or 3%, driven by a decrease in demand for trace minerals, partially offset by higher average selling prices. The increase in average selling prices is correlated to the movement of the underlying raw material costs.

~~Performance Products~~

Net sales of $55.5 million for the nine months ended March 31, 2023, decreased $0.8 million, or 1%, driven by decreased demand in personal care product ingredients and copper-related products, partially offset by higher average selling prices for these products.

~~Gross profit~~

Gross profit of $221.6 million for the nine months ended March 31, 2023, increased $14.6 million, or 7%, as compared to the nine months ended March 31, 2022. Gross margin increased 60 basis points to 30.7% of net sales for the nine months ended March 31, 2023, as compared to 30.1% for the nine months ended March 31, 2022.

Animal Health gross profit increased $16.4 million as a result of higher product demand, partially offset by higher raw material and logistics costs. Mineral Nutrition gross profit decreased $3.6 million, driven by lower sales volume and an increase in raw material costs. Performance Products gross profit increased $1.8 million due to higher sales, partially offset by higher raw material costs.

~~Selling, general and administrative expenses~~

SG&A of $173.5 million for the nine months ended March 31, 2023, increased $22.6 million, or 15%, as compared to the nine months ended March 31, 2022. SG&A for the nine months ended March 31, 2023, included $6.9 million of environmental remediation costs mostly related to the definitive settlement agreement related to the Omega Chemical Site. SG&A for the nine months ended March 31, 2022, included a $1.2 million gain on sale of investment and $0.3 million acquisition-related transaction costs. Excluding these items, SG&A increased $14.8 million, or 10%.

Animal Health SG&A increased $9.4 million primarily due to an increase in employee-related costs. Mineral Nutrition SG&A increased $0.3 million. Performance Products SG&A increased $1.1 million, mainly due to an increase in employee-related costs. Corporate expenses increased $4.0 million due to an increase in employee-related costs and strategic investments.

~~Interest expense, net~~

Interest expense, net of $10.8 million for the nine months ended March 31, 2023, increased $2.1 million, or 23%, as compared to the nine months ended March 31, 2022. Interest expense increased as a result of increased debt outstanding and higher floating interest rates on portions of debt outstanding, partially offset by increased interest income and a lower average fixed rate from our interest rate swap agreements.

~~Foreign currency (gains) losses, net~~

Foreign currency (gains) losses, net for the nine months ended March 31, 2023, amounted to net losses of $4.6 million, as compared to net gains of $12.6 million for the nine months ended March 31, 2022. Current period losses were driven by fluctuations in certain currencies relative to the U.S. dollar.

~~Provision~~(Benefit) provision for income taxes

The benefit for income taxes was $4.0 million for the three months ended September 30, 2023, compared to the provision for income taxes ~~was $11.5 million and $18.3~~of $1.6 million for the ~~nine~~three months ended ~~March 31, 2023 and 2022, respectively.~~September 30, 2022. The effective income tax rate was ~~35.3%~~33.1% and ~~30.5%~~28.8% for the ~~nine~~three months ended ~~March 31,~~September 30, 2023 and 2022, respectively. The ~~provision~~benefit for income taxes ~~for~~during the ~~nine~~three months ended ~~March 31,~~September 30, 2023, included (i) a ~~$0.9~~$1.2 million benefit related to ~~exchange rate differences~~the determination of whether a foreign tax is eligible for a U.S. foreign tax credit related to our fiscal year 2023, based on ~~intercompany dividends~~IRS guidance provided subsequent to our fiscal year-end and (ii) a $0.2 million expense from changes in uncertain tax positions related to prior years. The provision for income taxes for the three months ended September 30, 2022, included (i) a $0.9 million benefit related to exchange rate differences on intercompany dividends and (ii) a $0.2 million expense from changes in uncertain tax positions related to prior years. The effective income tax rate, without these items, would have been 24.8 % and 42.8% for the three months ended September 30, 2023 and 2022, respectively.

Net (loss) income

Net loss of $8.0 million for the three months ended September 30, 2023, represented a decrease of $11.9 million compared to net income of $3.9 million for the three months ended September 30, 2022. Operating loss resulted in a decrease of $14.4 million, driven mostly by higher SG&A, which included the $10.4 million pension settlement cost. Interest expense, net increased $1.5 million due to the issuance of new debt and higher variable interest rates. Foreign currency losses, net also increased by $1.5 million. Income tax expense decreased by $5.5 million.

Adjusted EBITDA

Adjusted EBITDA of $18.7 million for the three months ended September 30, 2023, decreased $3.5 million, as compared to the three months ended September 30, 2022. Animal Health Adjusted EBITDA increased $1.5 million due to higher gross profit, partially offset by increased SG&A. Mineral Nutrition Adjusted EBITDA decreased $2.4 million, due to lower sales. Performance Products Adjusted EBITDA decreased $1.0 million due to lower sales and gross profit. Corporate expenses increased $1.6 million, due to increased strategic investments and employee-related costs.

Adjusted provision for income taxes

The adjusted effective income tax rates for the three months ended September 30, 2023 and 2022, were 27.6% and 36.0%, respectively. The improvement in our adjusted effective income tax rate was driven by a favorable mix of international earnings and the benefit of recently implemented tax savings strategies.

Adjusted net income

Adjusted net income of $5.5 million for the three months ended September 30, 2023, decreased $2.8 million, or 33.0%, as compared to the prior year. The decrease was driven by lower gross profit, higher SG&A expenses and higher interest expense, partially offset by a lower tax provision. The lower gross profit results from lower sales. SG&A expenses increased due to strategic investments and increased employee-related costs.

Adjusted diluted earnings per share

Adjusted diluted earnings per share was $0.14 for the quarter, a decrease of $0.07, or 33.0% as compared to the adjusted diluted earnings per share of $0.21 in the prior year.

Table of Contents

effective income tax rate, without these items, would have been 37.5% for the nine months ended March 31, 2023. The provision for income taxes for the nine months ended March 31, 2022, included a $0.5 million expense for a change in deferred taxes, a $0.6 million expense from changes in uncertain tax positions related to prior years, and a $0.2 million benefit related to final regulations for the GILTI tax. The effective income tax rate, without these items, would have been 29.0% for the nine months ended March 31, 2022.

~~Net income~~

Net income of $21.1 million for the nine months ended March 31, 2023, decreased $20.6 million, as compared to net income of $41.7 million for the nine months ended March 31, 2022. Operating income decreased $8.0 million driven by higher SG&A, partially offset by higher gross profit. The increase in gross profit was driven by higher product demand in Animal Health, partially offset by higher raw material cost and production costs. SG&A expenses increased by $22.6 million due to environmental remediation costs, higher employee-related costs and strategic investments. The change in foreign currency (gains) losses resulted in a $4.6 million reduction in income before income taxes for the nine months ended March 31, 2023. Income tax expense decreased $6.7 million.

~~Adjusted EBITDA~~

Adjusted EBITDA of $80.4 million for the nine months ended March 31, 2023, increased $0.9 million, or 1%, as compared to the nine months ended March 31, 2022. Animal Health Adjusted EBITDA increased $7.7 million, resulting from higher sales and increased gross profit, partially offset by higher SG&A. Performance Products Adjusted EBITDA increased $0.7 million, driven by higher sales and gross profit, partially offset by an increase in SG&A. Mineral Nutrition Adjusted EBITDA decreased $3.8 million. Corporate expenses increased $3.8 million due to increased employee-related costs and strategic investments.

Analysis of financial condition, liquidity and capital resources

Net ~~(decrease)~~ increase in cash and cash equivalents was:


	Nine Months						Three Months
For the Periods Ended March 31	2023		2022		Change
For the Periods Ended September 30							2023		2022		Change

	(in thousands)						(in thousands)
Cash (used) provided by:
Cash provided (used) by:
Operating activities	$	(6,928)	$	30,075	$	(37,003)	$	16,199	$	(10,698)	$	26,897
Investing activities		(63,736)		(13,042)		(50,694)		(15,352)		(16,149)		797
Financing activities		33,319		3,954		29,365		1,296		29,319		(28,023)
Effect of exchange-rate changes on cash and cash equivalents		335		(451)		786		(271)		(440)		169
Net (decrease) increase in cash and cash equivalents	$	(37,010)	$	20,536	$	(57,546)
Net increase in cash and cash equivalents							$	1,872	$	2,032	$	(160)

Certain amounts may reflect rounding adjustments.

~~Table of Contents~~

Net cash ~~(used)~~ provided by operating activities was comprised of:


	Nine Months						Three Months
For the Periods Ended March 31	2023		2022		Change
For the Periods Ended September 30							2023		2022		Change

	(in thousands)						(in thousands)
EBITDA	$	68,890	$	93,025	$	(24,135)	$	1,456	$	16,934	$	(15,478)
Adjustments:
Environmental remediation costs		6,894		—		6,894
Gain on sale of investment		—		(1,203)		1,203
Acquisition-related cost of goods sold		—		78		(78)
Acquisition-related transaction costs		—		279		(279)
Foreign currency (gains) losses, net		4,629		(12,625)		17,254
Pension settlement cost								10,425		—		10,425
Stock-based compensation								81		—		81
Foreign currency losses, net								6,689		5,200		1,489
Interest paid, net		(10,289)		(8,220)		(2,069)		(4,304)		(2,906)		(1,398)
Income taxes paid		(16,163)		(13,432)		(2,731)		(4,658)		(3,802)		(856)
Changes in operating assets and liabilities and other items		(60,889)		(27,827)		(33,062)		6,510		(26,124)		32,634
Net cash (used) provided by operating activities	$	(6,928)	$	30,075	$	(37,003)
Net cash provided (used) by operating activities							$	16,199	$	(10,698)	$	26,897

Certain amounts may reflect rounding adjustments.

Operating activities

Operating activities ~~used $6.9~~provided $16.2 million of net cash for the ~~nine~~three months ended ~~March 31,~~September 30, 2023. Cash provided by net (loss) income and non-cash items, including depreciation and amortization, was ~~$41.1~~$13.1 million. Cash ~~used~~provided in the ordinary course of business for changes in operating assets and liabilities and other items was ~~$60.9~~$3.1 million. Cash provided by receivables was ~~$15.0~~$12.8 million as a result of ~~an increase~~quarterly variations in ~~net~~ sales ~~and a favorable reduction in days sales outstanding.~~levels. Cash used for inventory was ~~$30.5~~$5.0 million due to increased cost for raw material and production costs, ~~product mix, lower~~forecasted future demand ~~in Mineral Nutrition,~~ and ~~a projected increase in demand.~~internal production schedules. Other current assets used $3.3 million of cash, primarily due to prepayment of taxes. Accounts payable ~~used $19.7~~provided $4.6 million of cash due to timing of purchases and payments. Accrued expenses and other liabilities used cash of ~~$5.0~~$5.8 million primarily due to ~~changes in~~ employee-related liabilities and ~~lease payments.~~payments of commissions and rebates.

Investing activities

Investing activities used ~~$63.7~~$15.4 million of net cash for the ~~nine~~three months ended ~~March 31,~~September 30, 2023. Capital expenditures totaled ~~$40.9~~$7.5 million ~~related primarily~~as we continue to ~~continued investments~~invest in ~~expanded~~expanding production capacity and productivity ~~improvements, and the $15.0 million purchase of additional land and building at an operating facility.~~improvements. Net purchases and maturities of our short-term investments used ~~$23.0 million.~~$8.0 million in cash.

Table of Contents

Financing activities

Financing activities provided ~~$33.3~~$1.3 million of net cash for the ~~nine~~three months ended ~~March 31,~~September 30, 2023. Net borrowings on our 2021 Revolver provided ~~$48.0 million. Proceeds from the 2022 Term Loan provided $12.0 million.~~$13.0 million in cash. We paid ~~$11.5~~$6.8 million in scheduled debt ~~maturities.~~maturities and insurance premium financing. We also paid ~~$14.6~~$4.9 million in dividends to holders of our Class A common stock and Class B common stock.

Liquidity and capital resources

We believe our cash on hand, operating cash flows and financing arrangements, including the availability of borrowings under the 2021 Revolver and foreign credit lines, will be sufficient to support our ongoing cash needs. We are aware of the current and potential future effects of the macroeconomic market conditions in the financial markets. At this time, we expect adequate liquidity for at least the next twelve months. However, we can provide no assurance that our liquidity and capital resources will be adequate for future funding requirements. We believe we will comply with the terms of the covenants under the 2021 Credit Facilities and foreign credit lines based on our operating plan. In the event of adverse operating results and/or violation of covenants under the facilities, there can be no assurance we would be able to obtain waivers or amendments. Other risks to our meeting future funding requirements include global economic conditions and macroeconomic, business and financial disruptions that could ~~arise, including those caused by COVID-19.~~arise. There can be no assurance that a challenging economic environment or an economic downturn would not affect our

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liquidity or ability to obtain future financing or fund operations or investment opportunities. In addition, our debt covenants may restrict our ability to invest.

Certain relevant measures of our liquidity and capital resources follow:


	March 31,		June 30,		September 30,		June 30,
As of	2023		2022		2023		2023

	(in thousands, except ratios)				(in thousands, except ratios)
Cash and cash equivalents and short-term investments	$	77,238	$	91,248	$	91,153	$	81,281
Working capital		358,357		299,152		345,066		350,737
Ratio of current assets to current liabilities		3.39:1		2.70:1		3.33:1		3.28:1

We define working capital as total current assets (excluding cash and cash equivalents and short-term investments) less total current liabilities (excluding current portion of long-term debt). We calculate the ratio of current assets to current liabilities based on this definition.

As of ~~March 31,~~September 30, 2023, we had ~~$193.0~~$154.0 million in outstanding borrowings under the 2021 Revolver and had outstanding letters of credit and other commitments of $2.5 million, leaving ~~$114.5~~$153.5 million available for further borrowings and letters of credit, subject to restrictions in our 2021 Credit Facilities.

We currently intend to pay quarterly dividends on our Class A common stock and Class B common stock, subject to approval from the Board of Directors. Our Board of Directors declared a cash dividend of $0.12 per share on Class A common stock and Class B common stock, payable on ~~June 28,~~December 20, 2023. Our future ability to pay dividends will depend upon our results of operations, financial condition, capital requirements, our ability to obtain funds from our subsidiaries and other factors that our Board of Directors deems relevant. Additionally, the terms of our current and any future agreements governing our indebtedness could limit our ability to pay dividends or make other distributions.

As of ~~March 31,~~September 30, 2023, our cash and cash equivalents and short-term investments included ~~$75.6~~$89.6 million held by our international subsidiaries. There are no restrictions on cash distributions to PAHC from our international subsidiaries. Distributions may be subject to taxation by U.S. or non-U.S. taxing authorities.

Contractual obligations

As of ~~March 31,~~September 30, 2023, there were no material changes in payments due under contractual obligations from those disclosed in the Annual Report.

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Off-balance sheet arrangements

We do not currently use off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions, investment or other financial purposes.

In the ordinary course of business, we may indemnify our counterparties against certain liabilities that may arise. These indemnifications typically pertain to environmental matters. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications generally are subject to certain restrictions and limitations.

General description of non-GAAP financial measures

Adjusted EBITDA

Adjusted EBITDA is an alternative view of performance used by management as our primary operating measure, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted EBITDA to reflect the results of our operations prior to considering certain income statement elements. We have defined EBITDA as net (loss) income ~~(loss)~~ plus (i) interest expense, net, (ii) provision for income taxes or less benefit for income taxes, and (iii) depreciation

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and amortization. We ~~have defined~~calculate Adjusted EBITDA as EBITDA plus (a) (income) loss from, and disposal of, discontinued operations, (b) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency ~~gains and~~(gains) losses, net and (c) certain items that we consider to be unusual, non-operational or non-recurring. The Adjusted EBITDA measure is not, and should not be viewed as, a substitute for GAAP reported ~~net~~net(loss) income.

The Adjusted EBITDA measure is an important internal measurement for us. We measure our overall performance on this basis in conjunction with other performance metrics. The following are examples of how our Adjusted EBITDA measure is utilized:

●

senior management receives a monthly analysis of our operating results that is prepared on an Adjusted EBITDA basis;

●

our annual budgets are prepared on an Adjusted EBITDA basis; and

●

other goal setting and performance measurements are prepared on an Adjusted EBITDA basis.

Despite the importance of this measure to management in goal setting and performance measurement, Adjusted EBITDA is a non-GAAP financial measure that has no standardized meaning prescribed by GAAP and, therefore, has limits in its usefulness to investors. Because of its non-standardized definition, Adjusted EBITDA, unlike GAAP net (loss) income, may not be comparable to the calculation of similar measures of other companies. Adjusted EBITDA is presented to permit investors to more fully understand how management assesses performance.

We also recognize that, as an internal measure of performance, the Adjusted EBITDA measure has limitations, and we do not restrict our performance management process solely to this metric. A limitation of the Adjusted EBITDA measure is that it provides a view of our operations without including all events during a period, such as the depreciation of property, plant and equipment or amortization of acquired intangibles, and does not provide a comparable view of our performance to other companies.

Adjusted net income and adjusted diluted earnings per share

Adjusted net income and adjusted diluted earnings per share represent alternative views of performance and we believe investors’ understanding of our performance is enhanced by disclosing these performance measures. We report adjusted net (loss) income and adjusted diluted earnings per share to portray the results of our operations prior to considering certain income statement elements. We have defined adjusted net income as net (loss) income plus (i) other expense or less other income, as separately reported on our consolidated statements of operations, including foreign currency gains and losses and loss on extinguishment of debt, (ii) amortization of acquired intangibles and other acquisition-related costs, such as accrued compensation and accrued interest, (iii) stock-based compensation, (iv) certain items that we consider to be unusual or non-recurring and (v) the income tax effect of pre-tax (loss) income adjustments and certain income tax items. Adjusted diluted earnings per share is calculated using the adjusted net income

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divided by the diluted weighted average number of shares. The adjusted net income and adjusted diluted earnings per share measures are not, and should not be viewed as, a substitute for GAAP reported net (loss) income.

Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measure that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of its non-standardized definition, adjusted net income and adjusted diluted earnings per share, unlike GAAP net (loss) income, may not be comparable to the calculation of similar measures of other companies. Adjusted net (loss) income and adjusted diluted earnings per share are presented to permit investors to more fully understand how management assesses performance.

Certain significant items

Adjusted EBITDA, isadjusted net income and adjusted diluted earnings per share are calculated prior to considering certain items. We evaluate such items on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual or non-operational nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis.

We consider acquisition-related activities and business restructuring costs related to productivity and cost saving initiatives, including employee separation costs, to be unusual items that we do not expect to occur as part of our normal business on a regular basis. We consider foreign currency gains and losses to be non-operational because they arise principally from intercompany transactions and are largely non-cash in nature.

New accounting standards

For discussion of new accounting standards, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies and New Accounting Standards.”

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Critical Accounting Policies

~~Critical~~Our significant accounting policies, which include management’s best estimates and judgments, are ~~those that require application of management’s most difficult, subjective and/or complex judgments, often as a result of~~included in Note 2 to the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all accounting policies require management to make difficult, subjective or complex judgments or estimates. In presenting our consolidated financial statements for the year ended June 30, 2023 included in ~~accordance~~our Annual Report on Form 10-K filed with ~~generally accepted~~the Securities Exchange Commission on August 30, 2023. There have been no significant changes in our critical accounting ~~principles in the United States of America (GAAP), we are required to make~~ estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results that differ from our estimates and assumptions could have an unfavorable effect on our financial position and results of operations. Critical accounting policies include revenue recognition, business combinations, long-lived assets, goodwill, and income taxes.since June 30, 2023.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Examples of such risks and uncertainties include:

●

~~the negative effects~~outbreaks of ~~a pandemic, epidemic,~~animal diseases could significantly reduce demand for our products or ~~outbreak~~availability of ~~an infectious disease in humans, such as COVID-19, on our business, financial results, manufacturing facilities and supply chain, as well as our customers, protein processors and markets;~~raw materials;

●

perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products could cause a decline in the sales of those products;

●

restrictions on the use of antibacterials in food-producing animals may become more prevalent;

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●

the potential FDA withdrawal of approval of our Mecadox^® (carbadox) product;

●

a material portion of our sales and gross profits are generated by antibacterials and other related products;

●

competition in each of our markets from a number of large and small companies, some of which have greater financial, research and development (“R&D”), production and other resources than we have;

●

~~outbreaks of animal diseases could significantly reduce demand for our products;~~

●

our business may be negatively affected by weather conditions and the availability of natural resources;

●

the negative effects of a pandemic, epidemic, or outbreak of an infectious disease in humans, such as COVID-19; on our business, financial results, manufacturing facilities and supply chain, as well as our customers, protein processors and markets;

●

climate change could have a material adverse impact on our operations and our customers’ businesses;

●

actions of regulatory bodies, including obtaining approvals related to the testing, manufacturing and marketing of certain of our products;

●

the continuing trend toward consolidation of certain customer groups as well as the emergence of large buying groups;

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●

our ability to control costs and expenses;

●

any unforeseen material loss or casualty;

●

misuse or extra-label use of our products;

●

exposure relating to rising costs and reduced customer income;

●

heightened competition, including those from generics and those deriving from advances in veterinary medical practices and animal health technologies;

●

unanticipated safety or efficacy concerns;

●

our dependence on suppliers having current regulatory approvals;

●

our raw materials are subject to price fluctuations and their availability can be limited;

●

natural and man-made disasters, including but not limited to fire, snow and ice storms, flood, hail, hurricanes and earthquakes;

●

business interruption from political and social instability, including crime, civil disturbance, terrorist activities, outbreaks of disease and pandemics and armed conflicts, such as the ~~current~~ongoing armed ~~conflict~~conflicts between Russia and ~~Ukraine;~~Ukraine and Israel and Hamas;

●

terrorist attacks, particularly attacks on or within markets in which we ~~operate;~~operate, including the recent terrorist attack on Israel by Hamas militants and the ongoing related conflict;

●

risks related to changes in tax rates and exposure;

●

our ability to successfully implement our strategic initiatives;

●

our reliance on the continued operation of our manufacturing facilities and application of our intellectual property;

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●

adverse U.S. and international economic market conditions, including currency fluctuations;

●

failure of our product approval, R&D, acquisition and licensing efforts to generate new products;

●

the risks of product liability claims, legal proceedings and general litigation expenses;

●

the impact of current and future laws and regulatory changes, including risks related to the protection of our customers’ privacy and risks related to environmental, health and safety laws and regulations;

●

modification of foreign trade policy may harm our food animal product customers;

●

our dependence on our Israeli and Brazilian operations;

●

impact of increased or decreased inventory levels at our direct customers or channel distributors;

●

our substantial level of indebtedness and related debt-service obligations;

●

restrictions imposed by covenants in our debt agreements;

●

the risk of work stoppages; and

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●

other factors as described in “Risk Factors” in Item 1A of our Annual Report.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of operations, we are exposed to market risks arising from adverse changes in interest rates, foreign currency exchange rates and commodity prices. As a result, future earnings, cash flows and fair values of assets and liabilities are subject to uncertainty. We use, from time to time, foreign currency contracts and interest rate swaps as a means of hedging exposure to foreign currency risks and fluctuating interest rates, respectively. We do not utilize derivative instruments for trading or speculative purposes. We do not hedge our exposure to market risks in a manner that eliminates the effects of changing market conditions on earnings, cash flows and fair values. We monitor the financial stability and credit standing of our major counterparties.

For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosures about Market Risk” section in the Annual Report and to the notes to the consolidated financial statements included therein. As of the date of this report, there were no material changes in the Company’s financial market risks from the risks disclosed in the Annual Report.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of ~~1934)~~1934, as amended). Based upon that evaluation as of ~~March 31,~~September 30, 2023, our Chief Executive Officer and Chief Financial Officer each concluded that, as of the end of such period, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2023.

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PART II—OTHER INFORMATION

Item 1.Legal Proceedings

Information required by this Item is incorporated herein by reference to “Notes to ~~the~~ Consolidated Financial Statements—Commitments and ~~Contingencies~~”Contingencies” in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in ~~the~~ “Risk Factors” ~~section~~ in ~~the~~Item 1A of our Annual Report, which could materially affect our business, financial condition or future results.

There were no material changes in the Company’s risk factors from the risks disclosed in the Annual Report.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

On May 1, 2023, Mr. Gerald K. Carlson, a member of the Board of the Directors of the Company (the “Board”), informed the Company that he intended to resign his position as Director of the Company effective immediately. Mr. Carlson was a Class II director of the Company. Mr. Carlson’s resignation was not the result of any disagreement with the Company. The Board has not filled the vacancy left by Mr. Carlson’s resignation.

None.

Item 6.Exhibits


Exhibit 10.1		Executive Long-Term Incentive Agreement dated July 5, 2023 by and between Phibro Animal Health Corporation and Larry L. Miller (incorporated by reference to Exhibit 10.18 to Phibro Animal Health Corporation’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on August 30, 2023 (File No. 001-36410)).
Exhibit 31.1		Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
Exhibit 31.2		Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
Exhibit 32.1		Chief Executive Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
Exhibit 32.2		Chief Financial Officer—Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
Exhibit 101 .INS		Inline XBRL Instance Document ~~– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL document~~
Exhibit 101.SCH		Inline XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Phibro Animal Health Corporation

~~May 3,~~November 8, 2023	By:	/s/ Jack C. Bendheim
		Jack C. Bendheim
		Chairman, President and Chief Executive Officer

~~May 3,~~November 8, 2023	By:	/s/ ~~Damian Finio~~Richard G. Johnson
		~~Damian Finio~~Richard G. Johnson
		Chief Financial Officer