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 ~~December~~March 31, ~~2022~~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 ~~February 3,~~April 28, 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 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	3233
Item 4.	Controls and Procedures	33
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	3334
Item 1A.	Risk Factors	3334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334
Item 3.	Defaults Upon Senior Securities	3334
Item 4.	Mine Safety Disclosures	3334
Item 5.	Other Information	3334
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				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022

	(unaudited)								(unaudited)
	(in thousands, except per share amounts)								(in thousands, except per share amounts)
Net sales	$	244,646	$	232,712	$	477,167	$	447,377	$	245,673	$	239,619	$	722,840	$	686,996
Cost of goods sold		167,261		162,040		331,136		312,027		170,133		167,993		501,269		480,020
Gross profit		77,385		70,672		146,031		135,350		75,540		71,626		221,571		206,976
Selling, general and administrative expenses		61,541		48,378		116,503		98,444		56,987		52,432		173,490		150,876
Operating income		15,844		22,294		29,528		36,906		18,553		19,194		48,081		56,100
Interest expense, net		3,884		2,953		6,951		5,842		3,871		2,925		10,822		8,767
Foreign currency (gains) losses, net		(149)		(4,189)		5,051		(2,061)		(422)		(10,564)		4,629		(12,625)
Income before income taxes		12,109		23,530		17,526		33,125		15,104		26,833		32,630		59,958
Provision for income taxes		4,899		6,065		6,460		9,126		5,062		9,144		11,522		18,270
Net income	$	7,210	$	17,465	$	11,066	$	23,999	$	10,042	$	17,689	$	21,108	$	41,688

Net income per share
basic and diluted	$	0.18	$	0.43	$	0.27	$	0.59	$	0.25	$	0.44	$	0.52	$	1.03
Weighted average common shares outstanding
basic and diluted		40,504		40,504		40,504		40,504		40,504		40,504		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 INCOME


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022

	(unaudited)								(unaudited)
	(in thousands)								(in thousands)
Net income	$	7,210	$	17,465	$	11,066	$	23,999	$	10,042	$	17,689	$	21,108	$	41,688
Change in fair value of derivative instruments		(1,536)		4,810		5,569		4,781		(3,765)		14,958		1,804		19,739
Foreign currency translation adjustment		4,271		(10,311)		128		(17,275)		1,469		3,514		1,597		(13,761)
Unrecognized net pension gains		192		117		368		234		177		120		545		354
(Provision) benefit for income taxes		337		(1,231)		(1,483)		(1,253)		896		(3,770)		(587)		(5,023)
Other comprehensive income (loss)		3,264		(6,615)		4,582		(13,513)		(1,223)		14,822		3,359		1,309
Comprehensive income	$	10,474	$	10,850	$	15,648	$	10,486	$	8,819	$	32,511	$	24,467	$	42,997

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

Table of Contents

PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


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

	(unaudited)				(unaudited)
	(in thousands, except share and per share amounts)				(in thousands, except share and per share amounts)
ASSETS
Cash and cash equivalents	$	68,422	$	74,248	$	37,238	$	74,248
Short-term investments		10,000		17,000		40,000		17,000
Accounts receivable, net		151,830		166,537		152,740		166,537
Inventories, net		288,984		259,158		292,833		259,158
Other current assets		62,453		49,289		62,672		49,289
Total current assets		581,689		566,232		585,483		566,232
Property, plant and equipment, net		186,122		165,490		188,939		165,490
Intangibles, net		59,064		63,861		56,901		63,861
Goodwill		53,228		53,226		53,243		53,226
Other assets		81,730		82,890		80,866		82,890
Total assets	$	961,833	$	931,699	$	965,432	$	931,699
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt	$	15,420	$	15,000	$	15,420	$	15,000
Accounts payable		80,487		95,596		75,768		95,596
Accrued expenses and other current liabilities		71,662		80,236		74,120		80,236
Total current liabilities		167,569		190,832		165,308		190,832
Revolving credit facility		184,000		145,000		193,000		145,000
Long-term debt		276,806		272,925		273,016		272,925
Other liabilities		65,088		60,500		61,780		60,500
Total liabilities		693,463		669,257		693,104		669,257
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 December 31, 2022, and June 30, 2022; 30,000,000 Class B shares authorized, 20,166,034 shares issued and outstanding at December 31, 2022, and June 30, 2022		4		4
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
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		135,803		135,803
Retained earnings		249,094		247,748		254,275		247,748
Accumulated other comprehensive loss		(116,531)		(121,113)		(117,754)		(121,113)
Total stockholders’ equity		268,370		262,442		272,328		262,442
Total liabilities and stockholders’ equity	$	961,833	$	931,699	$	965,432	$	931,699

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

Six Months
For the Periods Ended December 31

2022

2021

(unaudited)

(in thousands)
OPERATING ACTIVITIES




Net income

$
11,066

$
23,999
Adjustments to reconcile net income to

net cash (used) provided by operating activities:

Depreciation and amortization

16,949

15,855
Amortization of debt issuance costs

326

295
Deferred income taxes

(121)

(537)
Foreign currency gains, net

(875)

(2,890)
Gain on sale of investment

—

(1,203)
Other

(702)

259
Changes in operating assets and liabilities:

Accounts receivable, net

14,839

1,427
Inventories, net

(29,082)

(21,975)
Other current assets

(7,744)

(561)
Other assets

1,035

(2,578)
Accounts payable

(14,614)

13,859
Accrued expenses and other liabilities

(4,264)

(2,007)
Net cash (used) provided by operating activities

(13,187)

23,943
INVESTING ACTIVITIES




Purchases of short-term investments

(10,000)

(32,100)
Maturities of short-term investments

17,000

43,000
Capital expenditures

(32,995)

(15,139)
Cash proceeds from the sale of investment

—

1,353
Other, net

36

(212)
Net cash used by investing activities

(25,959)

(3,098)
FINANCING ACTIVITIES

Revolving credit facility borrowings

197,000

163,000
Revolving credit facility repayments

(158,000)

(151,000)
Proceeds from long-term debt

12,000

—
Payments of long-term debt

(7,605)

(3,750)
Debt issuance costs

(640)

—
Dividends paid

(9,720)

(9,721)
Payment of contingent consideration

—

(4,840)
Net cash (used) provided by financing activities

33,035

(6,311)
Effect of exchange rate changes on cash

285

(1,361)
Net (decrease) increase in cash and cash equivalents

(5,826)

13,173
Cash and cash equivalents at beginning of period

74,248

50,212
Cash and cash equivalents at end of period

$
68,422

$
63,385


	Nine Months
For the Periods Ended March 31	2023		2022

	(unaudited)
	(in thousands)
OPERATING ACTIVITIES
Net income	$	21,108	$	41,688
Adjustments to reconcile net income to
net cash (used) provided by operating activities:
Depreciation and amortization		25,438		24,300
Amortization of debt issuance costs		514		442
Acquisition-related items		—		78
Deferred income taxes		235		(120)
Foreign currency gains, net		(5,024)		(13,492)
Gain on sale of investment		—		(1,203)
Other		(1,201)		284
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable, net		14,985		(10,815)
Inventories, net		(30,458)		(30,548)
Other current assets		(7,481)		(1,879)
Other assets		(317)		(2,364)
Accounts payable		(19,718)		19,961
Accrued expenses and other liabilities		(5,009)		3,743
Net cash (used) provided by operating activities		(6,928)		30,075
INVESTING ACTIVITIES
Purchases of short-term investments		(40,000)		(54,100)
Maturities of short-term investments		17,000		75,000
Capital expenditures		(40,903)		(25,154)
Business acquisition		—		(10,786)
Sale of investment		—		1,353
Other, net		167		645
Net cash used by investing activities		(63,736)		(13,042)
FINANCING ACTIVITIES
Revolving credit facility borrowings		229,000		215,000
Revolving credit facility repayments		(181,000)		(186,000)
Proceeds from long-term debt		12,000		—
Payments of long-term debt		(11,460)		(5,625)
Debt issuance costs		(640)		—
Dividends paid		(14,581)		(14,581)
Payment of contingent consideration		—		(4,840)
Net cash provided by financing activities		33,319		3,954
Effect of exchange rate changes on cash		335		(451)
Net (decrease) increase in cash and cash equivalents		(37,010)		20,536
Cash and cash equivalents at beginning of period		74,248		50,212
Cash and cash equivalents at end of period	$	37,238	$	70,748

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

Other

Shares of

Comprehensive

Common

Common

Preferred

Paid-in

Retained

Income


Stock

Stock

Stock

Capital

Earnings

(Loss)

Total

(unaudited)

(in thousands, except share and per share amounts)
As of June 30, 2022

40,503,608

$
4

$
—

$
135,803

$
247,748

$
(121,113)

$
262,442
Comprehensive income

—

—

—

—

3,856

1,318

5,174
Dividends declared ($0.12 per share)

—

—

—

—

(4,860)

—

(4,860)
As of September 30, 2022

40,503,608

$
4

$
—

$
135,803

$
246,744

$
(119,795)

$
262,756
Comprehensive income

—

—

—

—

7,210

3,264

10,474
Dividends declared ($0.12 per share)

—

—

—

—

(4,860)

—

(4,860)
As of December 31, 2022

40,503,608

$
4

$
—

$
135,803

$
249,094

$
(116,531)

$
268,370


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

	(unaudited)
	(in thousands, except share and per share amounts)
As of June 30, 2022	40,503,608	$	4	$	—	$	135,803	$	247,748	$	(121,113)	$	262,442
Comprehensive income	—		—		—		—		3,856		1,318		5,174
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)
As of September 30, 2022	40,503,608	$	4	$	—	$	135,803	$	246,744	$	(119,795)	$	262,756
Comprehensive income	—		—		—		—		7,210		3,264		10,474
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)
As of December 31, 2022	40,503,608	$	4	$	—	$	135,803	$	249,094	$	(116,531)	$	268,370
Comprehensive income (loss)	—		—		—		—		10,042		(1,223)		8,819
Dividends declared ($0.12 per share)	—		—		—		—		(4,861)		—		(4,861)
As of March 31, 2023	40,503,608	$	4	$	—	$	135,803	$	254,275	$	(117,754)	$	272,328

Accumulated











Other

Shares of

Comprehensive

Common

Common

Preferred

Paid-in

Retained

Income


Stock

Stock

Stock

Capital

Earnings

(Loss)

Total

(unaudited)

(in thousands, except share and per share amounts)
As of June 30, 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


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

	(unaudited)
	(in thousands, except share and per share amounts)
As of June 30, 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
Comprehensive income	—		—		—		—		17,689		14,822		32,511
Dividends declared ($0.12 per share)	—		—		—		—		(4,860)		—		(4,860)
As of March 31, 2022	40,503,608	$	4	$	—	$	135,803	$	245,122	$	(113,984)	$	266,945

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 ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~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 (the “Annual Report”), filed with the Securities and Exchange Commission on August 24, 2022 (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 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 ~~December~~March 31, ~~2022,~~2023, there have been no material changes to any of the significant accounting policies contained therein.

Net Income per Share and Weighted Average Shares

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

Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period after giving effect to dilutive common share equivalents. There were no common share equivalents in the periods included in the consolidated financial statements.


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Net income	$	7,210	$	17,465	$	11,066	$	23,999	$	10,042	$	17,689	$	21,108	$	41,688

Weighted average number of shares – basic and diluted		40,504		40,504		40,504		40,504		40,504		40,504		40,504		40,504

Net income per share - basic and diluted	$	0.18	$	0.43	$	0.27	$	0.59	$	0.25	$	0.44	$	0.52	$	1.03

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 that are accounted for by applying 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 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.

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 nutrition to help improve animal health and well-being. The animal health and mineral nutrition products are sold directly to integrated poultry, cattle, and swine ~~integrators~~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 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 and swine. They protect animals from either viral or bacterial disease challenges. We develop, manufacture and market conventionally licensed and

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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.

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

Net Sales by Product Type


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Animal Health
MFAs and other	$	97,179	$	91,724	$	189,969	$	175,482	$	93,217	$	84,330	$	283,186	$	259,812
Nutritional specialties		43,856		37,330		82,910		73,327		45,016		41,394		127,926		114,721
Vaccines		22,768		21,873		45,783		43,122		26,201		22,865		71,984		65,987
Total Animal Health	$	163,803	$	150,927	$	318,662	$	291,931	$	164,434	$	148,589	$	483,096	$	440,520
Mineral Nutrition		61,644		66,655		121,290		121,087		62,922		69,033		184,212		190,120
Performance Products		19,199		15,130		37,215		34,359		18,317		21,997		55,532		56,356
Total	$	244,646	$	232,712	$	477,167	$	447,377	$	245,673	$	239,619	$	722,840	$	686,996

Net Sales by Region


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
United States	$	149,386	$	139,145	$	285,190	$	265,464	$	148,529	$	146,820	$	433,716	$	412,284
Latin America and Canada		53,820		48,013		106,066		90,674		53,881		45,048		159,946		135,722
Europe, Middle East and Africa		27,827		30,029		57,344		60,961		28,174		29,931		85,518		90,889
Asia Pacific		13,613		15,525		28,567		30,278		15,089		17,820		43,660		48,101
Total	$	244,646	$	232,712	$	477,167	$	447,377	$	245,673	$	239,619	$	722,840	$	686,996

Net sales by region are based on country of destination.

Deferred revenue was ~~$1,505~~$1,479 and $2,051 as of ~~December~~March 31, ~~2022,~~2023 and June 30, 2022, respectively. Accrued expenses and other current liabilities included ~~$448~~$508 and $822 of the total deferred revenue as of ~~December~~March 31, ~~2022,~~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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest Expense


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Interest expense, net
2021 Term A loan	$	2,604	$	2,264	$	3,386	$	4,537	$	1,450	$	2,208	$	4,836	$	6,745
Revolving credit facility		1,648		647		4,413		1,246		3,067		690		7,480		1,936
2022 Term loan		188		—		188		—		191		—		379		—
Amortization of debt issuance costs		179		147		326		295		188		147		514		442
Other		9		44		10		89		10		67		20		156
Interest expense		4,628		3,102		8,323		6,167		4,906		3,112		13,229		9,279
Interest income		(744)		(149)		(1,372)		(325)		(1,035)		(187)		(2,407)		(512)
	$	3,884	$	2,953	$	6,951	$	5,842	$	3,871	$	2,925	$	10,822	$	8,767

Depreciation and Amortization


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Depreciation and amortization
Depreciation of property, plant and equipment	$	6,059	$	5,864	$	12,110	$	11,578	$	6,067	$	6,214	$	18,177	$	17,792
Amortization of intangible assets		2,440		2,137		4,839		4,277		2,422		2,231		7,261		6,508
	$	8,499	$	8,001	$	16,949	$	15,855	$	8,489	$	8,445	$	25,438	$	24,300

4. Balance Sheets—Additional Information


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Inventories
Raw materials	$	96,552	$	87,030	$	86,596	$	87,030
Work-in-process		20,009		15,468		20,113		15,468
Finished goods		172,423		156,660		186,124		156,660
	$	288,984	$	259,158	$	292,833	$	259,158


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Other assets
ROU operating lease assets	$	35,759	$	37,680	$	36,452	$	37,680
Deferred income taxes		6,311		5,849		6,268		5,849
Deposits		5,932		5,905		6,162		5,905
Insurance investments		6,073		5,984		6,087		5,984
Equity method investments		5,056		4,362		5,463		4,362
Derivative instruments		13,367		12,976		9,926		12,976
Debt issuance costs		1,656		1,436		1,532		1,436
Other		7,576		8,698		8,976		8,698
	$	81,730	$	82,890	$	80,866	$	82,890

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Accrued expenses and other current liabilities
Employee related	$	27,338	$	34,278	$	28,084	$	34,278
Current operating lease liabilities		5,748		6,051		6,215		6,051
Commissions and rebates		5,375		7,125		5,178		7,125
Professional fees		6,318		5,493		6,073		5,493
Income and other taxes		7,187		7,211		7,618		7,211
Insurance-related		1,180		1,174		1,354		1,174
Other		18,516		18,904		19,598		18,904
	$	71,662	$	80,236	$	74,120	$	80,236


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Other liabilities
Long-term operating lease liabilities	$	29,768	$	31,508	$	30,060	$	31,508
Long-term and deferred income taxes		12,386		9,264		12,149		9,264
Supplemental retirement benefits, deferred compensation and other		7,543		7,368		7,210		7,368
U.S. pension plan		1,781		1,793		1,779		1,793
International retirement plans		4,436		4,620		4,441		4,620
Other long-term liabilities		9,174		5,947		6,141		5,947
	$	65,088	$	60,500	$	61,780	$	60,500


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Accumulated other comprehensive loss
Derivative instruments	$	26,460	$	20,891	$	22,695	$	20,891
Foreign currency translation adjustment		(118,906)		(119,034)		(117,437)		(119,034)
Unrecognized net pension losses		(23,840)		(24,208)		(23,663)		(24,208)
Provision for income taxes on derivative instruments		(6,672)		(5,281)		(5,732)		(5,281)
Benefit for income taxes on long-term intercompany investments		8,166		8,166		8,166		8,166
Provision for income taxes on net pension losses		(1,739)		(1,647)		(1,783)		(1,647)
	$	(116,531)	$	(121,113)	$	(117,754)	$	(121,113)

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 as the reference for the fluctuating rate of interest on the 2021 Credit Facilities, replacing the LIBOR reference rate. All other terms and conditions of the 2021 Credit Agreement were unchanged.

The 2021 Term A Loan is repayable in quarterly installments, with the balance payable at maturity. The 2021 Revolver ~~contains~~includes a letter of credit facility. The interest rate per annum applicable to the loans under the 2021 Credit Facilities is based on a fluctuating rate of interest plus an applicable rate equal to 2.00%, 1.75% or 1.50% in the case of adjusted SOFR rate loans and 1.00%, 0.75% or 0.50% 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). 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 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 ~~December~~March 31, ~~2022,~~2023, we were in compliance with the financial covenants.

As of ~~December~~March 31, ~~2022,~~2023, we had ~~$184,000~~$193,000 in borrowings drawn under the 2021 Revolver and had outstanding letters of credit of $2,479, leaving ~~$123,521~~$114,521 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 ~~are all~~extend less than one year.

In July 2017, 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 interest rate of 1.83%. The agreement matured in June 2022. We had designated the interest rate swap as a highly effective cash flow hedge. For additional details, see “Note 8 — Derivatives.”

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 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 8 — Derivatives.”

As of ~~December~~March 31, ~~2022,~~2023, the interest rates for the 2021 Revolver and the 2021 Term A Loan were ~~5.76%~~6.18% and 2.36%, respectively. The weighted-average interest rates for the 2021 Revolver were ~~4.57%~~5.07% and ~~1.83%~~1.87% for the ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The weighted-average interest rates for the 2021 Term A Loan were 2.37% and 2.98% for ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~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 SOFR plus 1.00%, 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%. The 2022 Term Loan is repayable in monthly installments of $35, with the balance payable at maturity. The weighted-average interest rate was ~~5.74%~~6.07% for the period during which the 2022 Term Loan was outstanding ~~during~~in the ~~six~~nine months ended ~~December~~March 31, ~~2022.~~2023.

Maturities of Long-Term Debt


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
2021 Term A Loan due April 2026	$	281,250	$	288,750	$	277,500	$	288,750
2022 Term Loan due September 2027		11,895		-		11,790		-
		293,145		288,750		289,290		288,750
Unamortized debt issuance costs		(919)		(825)		(854)		(825)
		292,226		287,925		288,436		287,925
Less: current maturities		(15,420)		(15,000)		(15,420)		(15,000)
	$	276,806	$	272,925	$	273,016	$	272,925

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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 ~~$397~~$385 and ~~$471~~$465 during the three months ended ~~December~~March 31, 2023 and 2022, and ~~2021,~~$1,561 and ~~$1,177 and $1,300~~$1,765 during the ~~six~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~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.

7. 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.

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

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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 ~~January~~February 2023, the plaintiffs in the OPOG lawsuit ~~the EPA~~ and certain defendants in the OPOG lawsuit, including Phibro-Tech, ~~reached~~signed a ~~tentative~~definitive settlement agreement that ~~would provide~~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 in August 2022.~~EPA. As part of the ~~tentative~~ settlement, Phibro-Tech ~~would~~ also ~~resolve~~resolved all claims for indemnification and contribution between Phibro-Tech and the successor to the prior owner of the Phibro-Tech site. The ~~terms of the tentative settlement, which is subject to negotiation and court approval of a~~ definitive settlement agreement ~~contemplate~~contemplates cash payments by Phibro-Tech and one of its affiliates ~~with~~over a period ending in February 2024. The definitive settlement agreement is subject to formal approval by the ~~option for payments to be made in installments over several years with interest.~~EPA, the DOJ and the district court. In the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, we ~~have~~ recognized ~~a reserve~~expense for the ~~OPOG lawsuit representing the cash payments contemplated under the tentative~~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 ~~reserve~~liability for the OPOG lawsuit referred to in the preceding paragraph, to be approximately ~~$10,480~~$8,614 and $4,287 at ~~December~~March 31, ~~2022,~~2023, and June 30, 2022, 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.

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. 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 other comprehensive income (loss).

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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 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 9 — 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 within the respective balance sheet line items, based on the expected timing of the cash flows. The consolidated balance sheet includes ~~assets for~~ the fair values of outstanding derivatives that are designated and effective as cash flow hedges as follows:


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Other current assets
Brazil Real options, net	$	453	$	498	$	536	$	498
Interest rate swap		12,640		7,417		12,233		7,417
Other assets
Brazil Real options, net		—		104		—		104
Interest rate swap		13,367		12,871		9,926		12,871
Total Fair Value
Brazil Real options, net		453		602		536		602
Interest rate swap		26,007		20,288		22,159		20,288

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


	December 31,		March 31,
As of	2022		2023
Brazil Real call options	R$	40,000	R$	25,000
Brazil Real put options	R$	(40,000)	R$	(25,000)
Interest rate swap	$	300,000	$	300,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The consolidated statements of operations and statements of other comprehensive income (“OCI”) for the periods ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022 included the effects of derivatives as follows:


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Brazil Real options, net
Expense recorded in consolidated statements of operations	$	355	$	99	$	792	$	527	$	368	$	155	$	1,161	$	682
Consolidated statement of operations - total cost of goods sold	$	167,261	$	162,040	$	331,136	$	312,027	$	170,133	$	167,993	$	501,269	$	480,020
Expense (income) recorded in OCI	$	(18)	$	(360)	$	150	$	407	$	(83)	$	(2,058)	$	67	$	(1,651)
Interest rate swap
Expense (income) recorded in consolidated statements of operations	$	(2,298)	$	874	$	(3,508)	$	1,742	$	(2,994)	$	814	$	(6,502)	$	2,556
Consolidated statement of operations - total interest expense, net	$	3,884	$	2,953	$	6,951	$	5,842	$	3,871	$	2,925	$	10,822	$	8,767
Expense (income) recorded in OCI	$	1,554	$	(4,450)	$	(5,719)	$	(5,188)	$	3,848	$	(12,900)	$	(1,871)	$	(18,088)

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 ~~December~~March 31, ~~2022,~~2023 included realized net ~~losses~~gains of ~~$101~~$532 related to matured contracts. We anticipate the net ~~losses~~gains included in inventory will be recognized in cost of goods sold within the next eighteen months.

9. 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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Assets


As of	December 31, 2022						June 30, 2022						March 31, 2023						June 30, 2022
	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	$	10,000	$	—	$	—	$	17,000	$	—	$	—	$	40,000	$	—	$	—	$	17,000	$	—	$	—
Foreign currency derivatives	$	—	$	453	$	—	$	—	$	602	$	—	$	—	$	536	$	—	$	—	$	602	$	—
Interest rate swap	$	—	$	26,007	$	—	$	—	$	20,288	$	—	$	—	$	22,159	$	—	$	—	$	20,288	$	—

There were no transfers between levels during the periods presented.

10. 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 certain costs related to executive management, business technology, legal, finance, human resources and business development.

We evaluate performance of our segments based on Adjusted EBITDA. We ~~define~~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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Three Months				Six Months				Three Months				Nine Months
For the Periods Ended December 31	2022		2021		2022		2021
For the Periods Ended March 31									2023		2022		2023		2022
Net sales
Animal Health	$	163,803	$	150,927	$	318,662	$	291,931	$	164,434	$	148,589	$	483,096	$	440,520
Mineral Nutrition		61,644		66,655		121,290		121,087		62,922		69,033		184,212		190,120
Performance Products		19,199		15,130		37,215		34,359		18,317		21,997		55,532		56,356
Total segments	$	244,646	$	232,712	$	477,167	$	447,377	$	245,673	$	239,619	$	722,840	$	686,996

Depreciation and amortization
Animal Health	$	6,934	$	6,517	$	13,845	$	12,937	$	6,888	$	6,935	$	20,733	$	19,872
Mineral Nutrition		659		660		1,314		1,299		671		661		1,985		1,960
Performance Products		453		437		895		856		453		436		1,348		1,292
Total segments	$	8,046	$	7,614	$	16,054	$	15,092	$	8,012	$	8,032	$	24,066	$	23,124
Adjusted EBITDA
Animal Health	$	37,059	$	33,696	$	64,023	$	61,333	$	34,217	$	29,232	$	98,240	$	90,565
Mineral Nutrition		4,399		5,525		9,696		10,058		3,859		7,303		13,555		17,361
Performance Products		2,292		1,324		4,656		3,462		2,413		2,865		7,069		6,327
Total segments	$	43,750	$	40,545	$	78,375	$	74,853	$	40,489	$	39,400	$	118,864	$	114,253
Reconciliation of income before income taxes to Adjusted EBITDA
Income before income taxes	$	12,109	$	23,530	$	17,526	$	33,125	$	15,104	$	26,833	$	32,630	$	59,958
Interest expense, net		3,884		2,953		6,951		5,842		3,871		2,925		10,822		8,767
Depreciation and amortization – Total segments		8,046		7,614		16,054		15,092		8,012		8,032		24,066		23,124
Depreciation and amortization – Corporate		453		387		895		763		477		413		1,372		1,176
Corporate costs		12,838		11,453		25,329		23,295		13,122		11,404		38,451		34,699
Environmental remediation costs		6,569		—		6,569		—		325		—		6,894		—
Gain on sale of investment		—		(1,203)		—		(1,203)		—		—		—		(1,203)
Acquisition-related cost of goods sold										—		78		—		78
Acquisition-related transaction costs										—		279		—		279
Foreign currency (gains) losses, net		(149)		(4,189)		5,051		(2,061)		(422)		(10,564)		4,629		(12,625)
Adjusted EBITDA – Total segments	$	43,750	$	40,545	$	78,375	$	74,853	$	40,489	$	39,400	$	118,864	$	114,253


	December 31,		June 30,		March 31,		June 30,
As of	2022		2022		2023		2022
Identifiable assets
Animal Health	$	670,336	$	654,862	$	686,510	$	654,862
Mineral Nutrition		95,190		87,379		91,205		87,379
Performance Products		51,097		39,490		47,522		39,490
Total segments		816,623		781,731		825,237		781,731
Corporate		145,210		149,968		140,195		149,968
Total	$	961,833	$	931,699	$	965,432	$	931,699

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.

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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 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 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 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.

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. 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.

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Regulatory 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 the FDA continues to assert that carbadox should be removed from the market, 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 ~~December~~March 31, ~~2022,~~2023 were ~~$20.0~~$20.8 million. As of the date 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”~~Regulations-United States-Carbadox”; and ~~“Business - Compliance~~“Business-Compliance with Government ~~Regulations - Global~~Regulations-Global policy and guidance” in Item 1 of our Annual Report.

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Analysis of the consolidated statements of operations

Summary Results of Operations


	Three Months										Six Months										Three Months										Nine Months
For the Periods Ended December 31	2022			2021			Change				2022			2021			Change
For the Periods Ended March 31																					2023			2022			Change				2023			2022			Change

					(in thousands, except per share amounts and percentages)																				(in thousands, except per share amounts and percentages)
Net sales	$	244,646		$	232,712		$	11,934	5	%	$	477,167		$	447,377		$	29,790	7	%	$	245,673		$	239,619		$	6,054	3	%	$	722,840		$	686,996		$	35,844	5	%
Gross profit		77,385			70,672			6,713	9	%		146,031			135,350			10,681	8	%		75,540			71,626			3,914	5	%		221,571			206,976			14,595	7	%
Selling, general and administrative expenses		61,541			48,378			13,163	27	%		116,503			98,444			18,059	18	%		56,987			52,432			4,555	9	%		173,490			150,876			22,614	15	%
Operating income		15,844			22,294			(6,450)	(29)	%		29,528			36,906			(7,378)	(20)	%		18,553			19,194			(641)	(3)	%		48,081			56,100			(8,019)	(14)	%
Interest expense, net		3,884			2,953			931	32	%		6,951			5,842			1,109	19	%		3,871			2,925			946	32	%		10,822			8,767			2,055	23	%
Foreign currency (gains) losses, net		(149)			(4,189)			4,040	*			5,051			(2,061)			7,112	*			(422)			(10,564)			10,142	*			4,629			(12,625)			17,254	*
Income before income taxes		12,109			23,530			(11,421)	(49)	%		17,526			33,125			(15,599)	(47)	%		15,104			26,833			(11,729)	(44)	%		32,630			59,958			(27,328)	(46)	%
Provision for income taxes		4,899			6,065			(1,166)	(19)	%		6,460			9,126			(2,666)	(29)	%		5,062			9,144			(4,082)	(45)	%		11,522			18,270			(6,748)	(37)	%
Net income	$	7,210		$	17,465		$	(10,255)	(59)	%	$	11,066		$	23,999		$	(12,933)	(54)	%	$	10,042		$	17,689		$	(7,647)	(43)	%	$	21,108		$	41,688		$	(20,580)	(49)	%

Net income per share
basic and diluted	$	0.18		$	0.43		$	(0.25)	(59)	%	$	0.27		$	0.59		$	(0.32)	(54)	%	$	0.25		$	0.44		$	(0.19)	(43)	%	$	0.52		$	1.03		$	(0.51)	(49)	%

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

Ratio to net sales
Gross profit		31.6	%		30.4	%						30.6	%		30.3	%						30.7	%		29.9	%						30.7	%		30.1	%
Selling, general and administrative expenses		25.2	%		20.8	%						24.4	%		22.0	%						23.2	%		21.9	%						24.0	%		22.0	%
Operating income		6.5	%		9.6	%						6.2	%		8.2	%						7.6	%		8.0	%						6.7	%		8.2	%
Income before income taxes		4.9	%		10.1	%						3.7	%		7.4	%						6.1	%		11.2	%						4.5	%		8.7	%
Net income		2.9	%		7.5	%						2.3	%		5.4	%						4.1	%		7.4	%						2.9	%		6.1	%
Effective tax rate		40.5	%		25.8	%						36.9	%		27.6	%						33.5	%		34.1	%						35.3	%		30.5	%

Certain amounts and percentages may reflect rounding adjustments.

*	Calculation not meaningful

Net sales, Adjusted EBITDA and reconciliation of GAAP net 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										Six Months										Three Months										Nine Months
For the Periods Ended December 31	2022			2021			Change				2022			2021			Change
For the Periods Ended March 31																					2023			2022			Change				2023			2022			Change

Net sales						(in thousands, except percentages)																				(in thousands, except percentages)
MFAs and other	$	97,179		$	91,724		$	5,455	6	%	$	189,969		$	175,482		$	14,487	8	%	$	93,217		$	84,330		$	8,887	11	%	$	283,186		$	259,812		$	23,374	9	%
Nutritional specialties		43,856			37,330			6,526	17	%		82,910			73,327			9,583	13	%		45,016			41,394			3,622	9	%		127,926			114,721			13,205	12	%
Vaccines		22,768			21,873			895	4	%		45,783			43,122			2,661	6	%		26,201			22,865			3,336	15	%		71,984			65,987			5,997	9	%
Animal Health		163,803			150,927			12,876	9	%		318,662			291,931			26,731	9	%		164,434			148,589			15,845	11	%		483,096			440,520			42,576	10	%
Mineral Nutrition		61,644			66,655			(5,011)	(8)	%		121,290			121,087			203	0	%		62,922			69,033			(6,111)	(9)	%		184,212			190,120			(5,908)	(3)	%
Performance Products		19,199			15,130			4,069	27	%		37,215			34,359			2,856	8	%		18,317			21,997			(3,680)	(17)	%		55,532			56,356			(824)	(1)	%
Total	$	244,646		$	232,712		$	11,934	5	%	$	477,167		$	447,377		$	29,790	7	%	$	245,673		$	239,619		$	6,054	3	%	$	722,840		$	686,996		$	35,844	5	%

Adjusted EBITDA
Animal Health	$	37,059		$	33,696		$	3,363	10	%	$	64,023		$	61,333		$	2,690	4	%	$	34,217		$	29,232		$	4,985	17	%	$	98,240		$	90,565		$	7,675	8	%
Mineral Nutrition		4,399			5,525			(1,126)	(20)	%		9,696			10,058			(362)	(4)	%		3,859			7,303			(3,444)	(47)	%		13,555			17,361			(3,806)	(22)	%
Performance Products		2,292			1,324			968	73	%		4,656			3,462			1,194	34	%		2,413			2,865			(452)	(16)	%		7,069			6,327			742	12	%
Corporate		(12,838)			(11,453)			(1,385)	12	%		(25,329)			(23,295)			(2,034)	9	%		(13,122)			(11,404)			(1,718)	15	%		(38,451)			(34,699)			(3,752)	11	%
Total	$	30,912		$	29,092		$	1,820	6	%	$	53,046		$	51,558		$	1,488	3	%	$	27,367		$	27,996		$	(629)	(2)	%	$	80,413		$	79,554		$	859	1	%

Adjusted EBITDA ratio to segment net sales
Adjusted EBITDA as a percentage of segment net sales
Animal Health		22.6	%		22.3	%						20.1	%		21.0	%						20.8	%		19.7	%						20.3	%		20.6	%
Mineral Nutrition		7.1	%		8.3	%						8.0	%		8.3	%						6.1	%		10.6	%						7.4	%		9.1	%
Performance Products		11.9	%		8.8	%						12.5	%		10.1	%						13.2	%		13.0	%						12.7	%		11.2	%
Corporate⁽¹⁾		(5.2)	%		(4.9)	%						(5.3)	%		(5.2)	%						(5.3)	%		(4.8)	%						(5.3)	%		(5.1)	%
Total⁽¹⁾		12.6	%		12.5	%						11.1	%		11.5	%						11.1	%		11.7	%						11.1	%		11.6	%

(1)	Reflects ratio to total net sales

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


	Three Months									Six Months								Three Months									Nine Months
For the Periods Ended December 31	2022		2021			Change				2022		2021		Change
For the Periods Ended March 31																		2023		2022			Change				2023		2022		Change

					(in thousands, except percentages)																	(in thousands, except percentages)
Net income	$	7,210	$	17,465		$	(10,255)	(59)	%	$	11,066	$	23,999	$	(12,933)	(54)	%	$	10,042	$	17,689		$	(7,647)	(43)	%	$	21,108	$	41,688	$	(20,580)	(49)	%
Interest expense, net		3,884		2,953			931	32	%		6,951		5,842		1,109	19	%		3,871		2,925			946	32	%		10,822		8,767		2,055	23	%
Provision for income taxes		4,899		6,065			(1,166)	(19)	%		6,460		9,126		(2,666)	(29)	%		5,062		9,144			(4,082)	(45)	%		11,522		18,270		(6,748)	(37)	%
Depreciation and amortization		8,499		8,001			498	6	%		16,949		15,855		1,094	7	%		8,489		8,445			44	1	%		25,438		24,300		1,138	5	%
EBITDA		24,492		34,484			(9,992)	(29)	%		41,426		54,822		(13,396)	(24)	%		27,464		38,203			(10,739)	(28)	%		68,890		93,025		(24,135)	(26)	%
Environmental remediation costs		6,569		—			6,569	*			6,569		—		6,569	*			325		—			325	*			6,894		—		6,894	*
Gain on sale of investment		—		(1,203)			1,203	*			—		(1,203)		1,203	*			—		—			—	*			—		(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		(149)		(4,189)			4,040	*			5,051		(2,061)		7,112	*			(422)		(10,564)			10,142	*			4,629		(12,625)		17,254	*
Adjusted EBITDA	$	30,912	$	29,092		$	1,820	6	%	$	53,046	$	51,558	$	1,488	3	%	$	27,367	$	27,996		$	(629)	(2)	%	$	80,413	$	79,554	$	859	1	%

Certain amounts may reflect rounding adjustments.

* Calculation not meaningful

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Comparison of three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022

Net sales

Net sales of ~~$244.6~~$245.7 million for the three months ended ~~December~~March 31, ~~2022,~~2023, increased ~~$11.9~~$6.1 million, or 5%3%, as compared to the three months ended ~~December~~March 31, ~~2021.~~2022. Animal Health increased $15.8 million. Mineral Nutrition and Performance Products ~~increased $12.9~~decreased $6.1 million and ~~$4.1~~$3.7 million, respectively. ~~Mineral Nutrition decreased $5.0 million.~~

Animal Health

Net sales of ~~$163.8~~$164.4 million for the three months ended ~~December~~March 31, ~~2022,~~2023, increased ~~$12.9~~$15.8 million, or 9%11%. Net sales of MFAs and other increased ~~$5.5~~$8.9 million, or 6%11%, due to increased demand for our MFAs in the U.S., Latin America and Canada and for our processing aids used in the ethanol fermentation industry. Net sales of nutritional specialty products increased ~~$6.5~~$3.6 million, or ~~17%~~9%, due mostly to higher domestic demand and higher average selling prices for dairy products, along with growth in the companion animal product. Net sales of vaccines increased ~~$0.9~~$3.3 million, or 4%15%, due to ~~increased demand.~~an increase in domestic and international demand, along with new product launches in Latin America.

Mineral Nutrition

Net sales of ~~$61.6~~$62.9 million for the three months ended ~~December~~March 31, 2023, decreased $6.1 million, or 9%, driven by a decrease 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 to the movement of the underlying raw material costs.

Performance Products

Net sales of $18.3 million for the three months ended March 31, 2023, decreased $3.7 million, or 17%, driven by decreased demand for both 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 million for the three months ended March 31, 2023, increased $3.9 million, or 5%, as compared to the three months ended March 31, 2022. Gross margin increased 80 basis points to 30.7% of net sales for the three months ended March 31, 2023, as compared to 29.9% for the three months ended March 31, 2022, due to higher product demand and favorable product and geographical mix.

Animal Health gross profit increased $7.5 million, primarily driven by higher sales volumes and favorable production costs. Mineral Nutrition gross profit decreased $3.4 million, driven by lower sales volume and an increase in raw material costs. Performance Products gross profit decreased $0.2 million as a result of lower product demand and higher costs for raw materials.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) of $57.0 million for the three months ended March 31, 2023, increased $4.6 million, or 9%, as compared to the three months ended March 31, 2022. SG&A for the three months ended March 31, 2023, included $0.3 million of additional environmental remediation costs. SG&A for the three months ended March 31, 2022, included $0.3 million of acquisition-related transaction costs. Excluding these items, SG&A increased $4.5 million.

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

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Interest expense, net

Interest expense, net of $3.9 million for the three months ended March 31, 2023, increased by $0.9 million, as compared to the three months ended March 31, 2022, due to 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, net

Foreign currency gains, net for the three months ended March 31, 2023, were $0.4 million, as compared to $10.6 million of net gains for the three months ended March 31, 2022. Prior period gains were driven by fluctuations in certain currencies relative 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 8%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 primarily in U.S., Latin America 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.

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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 ~~$19.2~~$55.5 million for the ~~three~~nine months ended ~~December~~March 31, ~~2022, increased $4.1~~2023, decreased $0.8 million, or ~~27%~~1%, ~~primarily as a result of increased~~driven by decreased demand ~~for copper-based~~in personal care product ingredients and copper-related products, ~~and~~partially offset by higher average selling prices for ~~copper-based products and ingredients for personal care~~these products.

Gross profit

Gross profit of ~~$77.4~~$221.6 million for the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, increased ~~$6.7~~$14.6 million, or 9%7%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2021.~~2022. Gross margin increased ~~120~~60 basis points to ~~31.6%~~30.7% of net sales for the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, as compared to ~~30.4%~~30.1% for the ~~three~~nine months ended ~~December~~March 31, ~~2021, due to favorable product and geographical mix and lower production costs.~~2022.

Animal Health gross profit increased ~~$6.3~~$16.4 million ~~primarily driven~~as a result of higher product demand, partially offset by higher ~~sales volumes~~raw material and ~~favorable production~~logistics costs. Mineral Nutrition gross profit decreased ~~$1.1~~$3.6 million, driven ~~primarily~~ by lower sales volume and an increase in raw material costs. Performance Products gross profit increased ~~$1.5~~$1.8 million ~~as a result of increased demand and~~due to higher ~~average selling prices for copper-based products.~~sales, partially offset by higher raw material costs.

Selling, general and administrative expenses

~~Selling, general and administrative expenses (“~~SG~~&A”)~~&A of ~~$61.5~~$173.5 million for the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, increased ~~$13.2~~$22.6 million, or ~~27%~~15%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2021.~~2022. SG&A for the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, included ~~$6.6~~$6.9 million of environmental remediation ~~costs. The majority of these environmental remediation~~ costs ~~relate~~mostly related to ~~a tentative~~the definitive settlement ~~we have reached in a lawsuit concerning alleged historical environmental contamination from a facility in California we acquired years ago within our Performance Products segment.~~agreement related to the Omega Chemical Site. SG&A for the ~~three~~nine months ended ~~December~~March 31, ~~2021,~~2022, included a $1.2 million gain on sale of ~~investment.~~investment and $0.3 million acquisition-related transaction costs. Excluding ~~the environmental remediation costs and the gain on sale of investment,~~these items, SG&A increased ~~$5.4~~$14.8 million, or ~~11%~~10%.

Animal Health SG&A increased ~~$3.4~~$9.4 million primarily due to an increase in employee-related ~~and other miscellaneous~~ costs. Mineral Nutrition SG&A ~~was comparable to prior year.~~increased $0.3 million. Performance Products SG&A increased ~~$0.5 million.~~$1.1 million, mainly due to an increase in employee-related costs. Corporate ~~costs~~expenses increased ~~by $1.4~~$4.0 million ~~driven by net changes~~due to an increase in employee-related costs ~~related to employees~~ and strategic investments.

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Interest expense, net

Interest expense, net of ~~$3.9~~$10.8 million for the ~~three~~nine months ended ~~December~~March 31, ~~2022,~~2023, increased ~~by $0.9~~$2.1 million, or 23%, as compared to the ~~three~~nine months ended ~~December~~March 31, ~~2021, due to~~2022. Interest expense increased as a result of increased debt outstanding and higher floating interest rates on portions of debt outstanding, partially offset by ~~an increase in~~increased interest income and a lower average fixed ~~rates in~~rate from our interest rate swap ~~agreement.~~agreements.

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

Foreign currency ~~gains,~~(gains) losses, net for the ~~three~~nine months ended ~~December~~March 31, ~~2022, were $0.1~~2023, amounted to net losses of $4.6 million, as compared to ~~$4.2 million of~~ net gains of $12.6 million for the ~~three~~nine months ended ~~December~~March 31, ~~2021. Prior~~2022. Current period ~~gains~~losses were driven by ~~the weakening of~~fluctuations in certain currencies relative to the U.S. dollar.

Provision for income taxes

The provision for income taxes was ~~$4.9~~$11.5 million and ~~$6.1~~$18.3 million for the ~~three~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The effective income tax rate was ~~40.5%~~35.3% and ~~25.8%~~30.5% for the ~~three~~nine months ended ~~December~~March 31, ~~2022~~2023 and ~~2021, 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 December 31,~~ 2022, ~~in addition to losses generated in international jurisdictions where no tax benefit is being recognized.~~

~~Net income~~

Net income of $7.2 million for the three months ended December 31, 2022, decreased $10.3 million, as compared to net income of $17.5 million for the three months ended December 31, 2021. Operating income decreased $6.5 million, driven by higher SG&A, partially offset by favorable gross profit. Excluding the $6.6 million environmental remediation costs, operating income would have increased $0.1 million. The increase in gross profit was due to higher product demand and higher selling prices. Interest expense, net increased $0.9 million and foreign currency gains, net decreased $4.0 million. Income tax expense decreased by $1.2 million.

~~Adjusted EBITDA~~

Adjusted EBITDA of $30.9 million for the three months ended December 31, 2022, increased $1.8 million, as compared to the three months ended December 31, 2021. Animal Health Adjusted EBITDA increased $3.4 million due to higher gross profit margin, partially offset by higher SG&A. Performance Products Adjusted EBITDA increased $1.0 million due to higher gross profit, also partially offset by higher SG&A. Mineral Nutrition Adjusted EBITDA decreased $1.1 million, driven by lower gross profit. Corporate expenses increased $1.4 million, driven by increased costs related to employees and strategic investments.

~~Comparison of six months ended December 31, 2022 and 2021~~

~~Net sales~~

Net sales of $477.2 million for the six months ended December 31, 2022, increased $29.8 million, or 7%, as compared to the six months ended December 31, 2021. Animal Health, Mineral Nutrition and Performance Products sales increased $26.7 million, $0.2 million, and $2.9 million, respectively.

~~Animal Health~~

Net sales of $318.7 million for the six months ended December 31, 2022, increased $26.7 million, or 9%. Net sales of MFAs and other increased $14.5 million, or 8%, due to higher demand for MFAs primarily in Latin America and for processing aids used in the ethanol fermentation industry. Net sales of nutritional specialty products grew $9.6 million, or 13%, driven by strong demand in dairy products and increased sales of our companion animal product. Net sales of vaccines increased $2.7 million, or 6%, due to increased domestic and international volumes.

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~~Mineral Nutrition~~

Net sales of $121.3 million for the six months ended December 31, 2022, increased $0.2 million, driven by higher average selling prices for trace minerals, mostly offset by a decrease in demand. The increase in average selling prices is correlated to the movement of the underlying raw material costs.

~~Performance Products~~

Net sales of $37.2 million for the six months ended December 31, 2022, increased $2.9 million, or 8%, driven by higher average selling prices of personal care product ingredients and copper-related products.

~~Gross profit~~

Gross profit of $146.0 million for the six months ended December 31, 2022, increased $10.7 million, or 8%, as compared to the six months ended December 31, 2021. Gross margin increased 30 basis points to 30.6% of net sales for the six months ended December 31, 2022, as compared to 30.3% for the six months ended December 31, 2021.

Animal Health gross profit increased $8.9 million as a result of average selling prices, partially offset by higher raw material and logistics costs. Mineral Nutrition gross profit decreased $0.2 million. Performance Products gross profit increased $2.0 million due to higher sales, partially offset higher raw material costs.

~~Selling, general and administrative expenses~~

SG&A of $116.5 million for the six months ended December 31, 2022, increased $18.1 million, or 18%, as compared to the six months ended December 31, 2021. SG&A for the six months ended December 31, 2022, included $6.6 million of environmental remediation costs. SG&A for the six months ended December 31, 2021, included a $1.2 million gain on sale of investment. Excluding these items, SG&A increased $10.3 million, or 10%.

Animal Health SG&A increased $7.1 million primarily due to an increase in employee-related and other miscellaneous costs. Mineral Nutrition SG&A was comparable to the prior year. Performance Products SG&A increased $0.8 million, mainly due to an increase in employee costs. Corporate expenses increased $2.1 million due to an increase in employee and employee-related costs.

~~Interest expense, net~~

Interest expense, net of $7.0 million for the six months ended December 31, 2022, increased $1.1 million, or 19%, as compared to the six months ended December 31, 2021. Interest expense increased as a result of increased debt outstanding, partially offset by an increase in interest income and lower average fixed rates in our interest rate swap agreement.

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

Foreign currency (gains) losses, net for the six months ended December 31, 2022, amounted to net losses of $5.1 million, as compared to net (gains) of $(2.1) million for the six months ended December 31, 2021. Current period losses were driven by the weakening of the certain currencies relative to the U.S. dollar.

~~Provision for income taxes~~

The provision for income taxes was $6.5 million and $9.1 million for the six months ended December 31, 2022 and 2021, respectively. The effective income tax rate was 36.9% and 27.6% for the six months ended December 31, 2022 and 2021, respectively. The provision for income taxes for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, included a $0.9 million benefit related to exchange rate differences on intercompany dividends and 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 41.0% for the six months ended December 31, 2022.~~

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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 ~~$11.1~~$21.1 million for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, decreased ~~$12.9~~$20.6 million, as compared to net income of ~~$24.0~~$41.7 million for the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. Operating income decreased ~~$7.4~~$8.0 million driven by higher ~~gross profit~~SG&A, partially offset by higher ~~SG&A.~~gross profit. The increase in gross profit was driven by higher ~~average selling prices~~product demand in Animal Health, ~~and Performance Products,~~ 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 ~~$7.1~~$4.6 million reduction in income before income ~~taxes.~~taxes for the nine months ended March 31, 2023. Income tax expense decreased ~~$2.7~~$6.7 million.

Adjusted EBITDA

Adjusted EBITDA of ~~$53.0~~$80.4 million for the ~~six~~nine months ended ~~December~~March 31, ~~2022,~~2023, increased ~~$1.5~~$0.9 million, or 3%1%, as compared to the ~~six~~nine months ended ~~December~~March 31, ~~2021.~~2022. Animal Health Adjusted EBITDA increased ~~$2.7~~$7.7 million, resulting from higher sales and increased gross profit, partially offset by higher SG&A. Performance Products Adjusted EBITDA increased ~~$1.2~~$0.7 million, driven by higher sales and gross profit, partially offset by an increase in SG&A. Mineral Nutrition Adjusted EBITDA decreased ~~$0.4~~$3.8 million. Corporate expenses increased ~~$2.0~~$3.8 million due to increased ~~employee~~employee-related costs and ~~employee-related costs.~~strategic investments.

Analysis of financial condition, liquidity and capital resources

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


	Six Months						Nine Months
For the Periods Ended December 31	2022		2021		Change
For the Periods Ended March 31							2023		2022		Change

	(in thousands)						(in thousands)
Cash (used) provided by:
Operating activities	$	(13,187)	$	23,943	$	(37,130)	$	(6,928)	$	30,075	$	(37,003)
Investing activities		(25,959)		(3,098)		(22,861)		(63,736)		(13,042)		(50,694)
Financing activities		33,035		(6,311)		39,346		33,319		3,954		29,365
Effect of exchange-rate changes on cash and cash equivalents		285		(1,361)		1,646		335		(451)		786
Net (decrease) increase in cash and cash equivalents	$	(5,826)	$	13,173	$	(18,999)	$	(37,010)	$	20,536	$	(57,546)

Certain amounts may reflect rounding adjustments.

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


	Six Months						Nine Months
For the Periods Ended December 31	2022		2021		Change
For the Periods Ended March 31							2023		2022		Change

	(in thousands)						(in thousands)
EBITDA	$	41,426	$	54,822	$	(13,396)	$	68,890	$	93,025	$	(24,135)
Adjustments:
Environmental remediation costs		6,569		—		6,569		6,894		—		6,894
Gain on sale of investment		—		(1,203)		1,203		—		(1,203)		1,203
Acquisition-related cost of goods sold								—		78		(78)
Acquisition-related transaction costs								—		279		(279)
Foreign currency (gains) losses, net		5,051		(2,061)		7,112		4,629		(12,625)		17,254
Interest paid, net		(6,606)		(5,471)		(1,135)		(10,289)		(8,220)		(2,069)
Income taxes paid		(9,319)		(6,048)		(3,271)		(16,163)		(13,432)		(2,731)
Changes in operating assets and liabilities and other items		(50,308)		(16,096)		(34,212)		(60,889)		(27,827)		(33,062)
Net cash (used) provided by operating activities	$	(13,187)	$	23,943	$	(37,130)	$	(6,928)	$	30,075	$	(37,003)

Certain amounts may reflect rounding adjustments.

Operating activities

Operating activities used ~~$13.2~~$6.9 million of net cash for the ~~six~~nine months ended ~~December~~March 31, ~~2022.~~2023. Cash provided by net income and non-cash items, including depreciation and amortization, was ~~$26.8~~$41.1 million. Cash used in the ordinary course of business

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for changes in operating assets and liabilities and other items was ~~$50.3~~$60.9 million. Cash provided by receivables was ~~$14.8~~$15.0 million as a result of ~~changes~~an increase in net sales ~~levels from seasonality~~ and a favorable reduction in days sales outstanding. Cash used for inventory was ~~$29.1~~$30.5 million due to increased raw material and production costs, product mix, lower demand in Mineral Nutrition, and a projected increase in demand. ~~Other current assets used $7.7 million of cash, primarily due to prepayment of taxes, including value-added tax.~~ Accounts payable used ~~$14.6~~$19.7 million of cash due to timing of purchases and payments. Accrued expenses and other liabilities used cash of ~~$4.3~~$5.0 million, primarily due to changes in employee-related liabilities and lease payments.

Investing activities

Investing activities used ~~$26.0~~$63.7 million of net cash for the ~~six~~nine months ended ~~December~~March 31, ~~2022.~~2023. Capital expenditures totaled ~~$33.0~~$40.9 million, ~~which included~~related primarily to continued investments in expanded production capacity and productivity improvements, and the $15.0 million ~~for the~~ purchase of additional land and building at an operating ~~facility, primarily for continued investments in expanded production capacity~~facility. Net purchases and ~~productivity improvements. Maturities~~maturities of our short-term investments ~~provided $7.0~~used $23.0 million.

Financing activities

Financing activities provided ~~$33.0~~$33.3 million of net cash for the ~~six~~nine months ended ~~December~~March 31, ~~2022.~~2023. Net borrowings on our 2021 Revolver provided ~~$39.0~~$48.0 million. Proceeds from the 2022 Term Loan provided $12.0 million. We paid ~~$7.6~~$11.5 million in scheduled debt maturities. We paid ~~$9.7~~$14.6 million in dividends to holders of our Class A 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. 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:


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

	(in thousands, except ratios)				(in thousands, except ratios)
Cash and cash equivalents and short-term investments	$	78,422	$	91,248	$	77,238	$	91,248
Working capital		351,118		299,152		358,357		299,152
Ratio of current assets to current liabilities		3.31:1		2.70:1		3.39:1		2.70:1

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 ~~December~~March 31, ~~2022,~~2023, we had ~~$184.0~~$193.0 million in outstanding borrowings under the 2021 Revolver and outstanding letters of credit and other commitments of $2.5 million, leaving ~~$123.5~~$114.5 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 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 and Class B common stock, payable on ~~March 22,~~June 28, 2023. Our future ability to pay dividends will depend upon our results of operations, financial condition, capital

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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 ~~December~~March 31, ~~2022,~~2023, our cash and cash equivalents and short-term investments included ~~$75.3~~$75.6 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 ~~December~~March 31, ~~2022,~~2023, there were no material changes in payments due under contractual obligations from those disclosed in the Annual Report.

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 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 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 losses, 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 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:

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

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

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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 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

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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.

Certain significant items

Adjusted EBITDA is 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 accounting policies are those that require application of management’s most difficult, subjective and/or complex judgments, often as a result of 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 in accordance with generally accepted 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.

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:

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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;

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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;

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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;

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

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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;

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

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

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

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

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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;

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any unforeseen material loss or casualty;

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misuse or extra-label use of our products;

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exposure relating to rising costs and reduced customer income;

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

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unanticipated safety or efficacy concerns;

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our dependence on suppliers having current regulatory approvals;

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

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

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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 armed conflict between Russia and Ukraine;

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terrorist attacks, particularly attacks on or within markets in which we operate;

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risks related to changes in tax rates and exposure;

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our ability to successfully implement our strategic initiatives;

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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;

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

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

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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;

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

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our dependence on our Israeli and Brazilian operations;

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

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

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restrictions imposed by covenants in our debt agreements;

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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 (the “Exchange Act”))~~1934). Based upon that evaluation as of ~~December~~March 31, ~~2022,~~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 ~~December~~March 31, ~~2022.~~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” 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 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.

Item 5. Other Information

~~None.~~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.

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Item 6.Exhibits


~~Exhibit 10.1~~		First Amendment to Amended and Restated Credit Agreement, among Phibro Animal Health Corporation, Bank of America, N.A., and each lender party thereto, dated as of November 8, 2022 (incorporated by reference to Exhibit 10.1 to Phibro Animal Health Corporation’s Quarterly Report on Form 10-Q filed on November 9, 2022 (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

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

~~February 8,~~May 3, 2023	By:	/s/ Damian Finio
		Damian Finio
		Chief Financial Officer