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spk09: At this time, all participants are in a listen only mode. If anyone should require assistance during the conference, please press the star zero on your touch tone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Joel Thomas, Chief Financial Officer. Mr. Thomas, you may begin your conference.
spk02: Thank you, David. With me this evening is Peter Sickle, our president and CEO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express a belief, expectation, or intention, as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and other uncertainties are described in detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any changes in management's expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion of non-GAAP financial measurements, including earnings before interest, taxes, depreciation, and amortization, commonly referred to as EBITDA, and adjusted EBITDA, that are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. The table, including a reconciliation of and other disclosures regarding these non-GAAP financial measures, is available on our website at www.PIXIS.com. Note that in connection with the emergence from Chapter 11 cases, PIXIS qualified for fresh start reporting as detailed in our most recent Form 10-K report filed with the SEC. And due to the application of fresh start reporting, the pre-emergence and post-emergence periods may not be comparable. Any replay, rebroadcast, transcript, or other reproduction of this conference call, other than the replay as provided by Pixis International, has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. I'll hand the call over to Peter.
spk03: Hello, everyone, and thank you for joining us this evening. Fiscal year 22 is progressing nicely and is in line with our expectations as far. In the first quarter, we began to catch up from prior period shipping delays driven by the pandemic and timing of customer shipping instructions. With regards to COVID, we are continuing to monitor the impact of the pandemic on our company and workforce, and we will adjust our operations as needed to protect the health and safety of our employees while maintaining business continuity. For active management of shipping, logistics, including container availability and freight costs, remains a high priority as we adapt to the evolving global shipping conditions. In the LEED business, our inventory levels are consistent with our expectations and our uncommitted inventory decreased compared to the prior year. We continue to see customers look for ways to reduce complexity in their supply chains through partnerships with suppliers who support their ESG objectives. Rich American Tobacco's Indonesian subsidiary recently adopted a new leaf supply arrangement, which involves shifting contract volumes from its direct operations to one of our tobacco subsidiaries. Effective this crop season, we will begin processing the additional volume in our local facilities prior to its sale to BAT. This arrangement enhances the sustainability of not only our respective operations, but also the Indonesian tobacco market. thus supporting our mutual goal to enhance farmer livelihoods. We are pleased with the expansion of our relationship with BAT, and we are well positioned to capitalize on additional opportunities with our customers. With regards to eLiquid, we're excited to share that Bantam today received notification from the FDA that its non-flavored electronic nicotine delivery system products have moved into formal scientific review. Scientific review is the final step in the PMTA process prior to the FDA's decision to grant a marketing order and is a significant development given FDA's growing enforcement against non-compliant brands. While the regulation and enforcement activities in the e-liquids industry are continuing to mature, we await our PMTA approval notifications and look forward to the post-PMTA market opportunities. Momentum is building across the business, as we leverage the savings from fiscal 2021 restructuring initiatives. We continue to expect fiscal 2022 sales to be between $1.65 and $1.8 billion, SG&A expense to be between $140 and $145 million, excluding non-recurring items and potential changes in foreign currency exchange rates, and adjusted EBITDA to be between $150 and $170 million U.S. dollars. Our global team is committed to the strengthening of our business, of making positive contributions to a sustainable world. With that, I'll turn it over to Joel to provide a financial update.
spk02: Thank you, Peter. With regards to our first quarter results, sales and other operating revenues for the three months ended June 30th, 2021, were $333.3 million, a 26.8% increase compared to the prior year. This increase was due to an 8.6% increase in leaf volume and a 17.4% increase in leaf average sales price. The 8.6% increase in leaf volume was primarily due to shipments delayed by the COVID-19 pandemic and customer shipping instructions from the fiscal year ended March 31, 2021 into the first quarter of the current fiscal year. This increase was partially offset by the deconsolidation of the Canadian cannabis subsidiaries in the fourth quarter of fiscal 2021 and lower leaf volume in Asia, mainly due to shipments delayed by the COVID-19 pandemic and shipping container availability. The 17.4% increase in leaf average sales price was driven by product mix in Africa, Asia, Europe, and North America having a higher concentration of lamina and was partially offset by product mix having a lower concentration of lamina in South America. Cost of goods and services sold for the three months ended June 30th, 2021 was $291.2 million, a 19.7% increase compared to the prior year. This increase was mainly due to the increase in sales and other operating revenues and was partially offset by a write-down of industrial home inventory last year. It was driven by a shift in expected future product mix in response to market supply conditions and continued market price compression. Gross profit as a percentage of sales increased to 12.6% for the three months into June 30, 2021, from 7.5% compared to the prior year. This increase was attributable to the fiscal 2021 write-down of industrial hemp inventory and lower conversion costs in Africa and South America and product mix in Africa, Asia, and Europe, having a higher concentration of lamina. This increase was partially offset by higher conversion costs in Asia, product mix having a lower concentration of lamina in South America, and foreign exchange rates in Asia and Europe. SG&A expenses were $33.8 million, a 44.4% decrease compared to the prior year, primarily due to expenses included in SG&A in fiscal 2021 for last year's Chapter 11 case that were incurred prior to the commencement of the Chapter 11 proceeding, the deconsolidation of the Canadian cannabis subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives. SG&A expenses as a percent of sales decreased to 10.1% for the three months ended June 30, 2021, compared to 23.1% in the prior year, driven by increased sales and other operating revenues and the aforementioned decrease in SG&A expenses. Reorganization items of $26.9 million were incurred during the prior year as a result of the Chapter 11 cases. The company's liquidity requirements are affected by various factors, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size and quality, and legal and professional costs. As of June 30, 2021, the company's available credit lines and cash totaled $314.4 million, including $224.5 million in availability under foreign seasonal lines of credit. In closing, we are excited about the future of our business. On that note, operator, please open the line for questions.
spk09: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Craig Carlozzi with Longfellow.
spk04: Yeah, hi, guys. Thanks for the time. Hopefully you can hear me. My question is surrounding liquidity. It's obviously tight. It's tight year over year. Hopefully you could walk us through how the back half unfolds. Given all the moving pieces, it's difficult to tell exactly when your peak working capital draw is. So any caller you can give us on liquidity would be great. Thank you very much.
spk02: Yeah, so as we had mentioned before, I think our liquidity was, you know, in line with where we had anticipated at quarter end. And, you know, as we look at what happens through the remainder of the year, the first quarter is typically one of our smaller quarters, the smallest quarter of the year. And then we build as we go throughout the year, with our fourth quarter being our biggest quarter. And so we will see a build in our cash position as we go out from this point. We will see working capital plateau somewhere out in our third fiscal quarter. And then you'll see the release of, you know, the working capital predominantly in the third and fourth quarters. So, again, we're in line with where we anticipated being. And with $314 million of, you know, liquidity at the end of June, we're, you know, in line with, you know, what we anticipated being.
spk04: That's helpful. Thank you. Would you, is it correct then to say that Q3 liquidity will be higher versus Q2? I'm sorry, the 930 numbers, the next numbers we receive will be an elevated liquidity level versus today? Did I understand that correctly?
spk02: Yeah, that's correct. And you'll see also our working capital buildings, you know, we go through the second and third quarters, fiscal quarters. So that would be the quarter ended September and the quarter ended December. And when we get to, you know, the end of the year, that fourth quarter ended March 31st. That's when you see, you know, the really big movement in sales typically in our fourth quarter. And this year should be in line with that. Great.
spk09: Thank you very much. Our next question is from Stan Manikian with Independent Credit Research.
spk10: Good afternoon. I have just a quick question. Based on your perception of the business and what you see in the market, are you guys back to the normal course of business, or there are still some issues on the horizon that can inhibit your returns? to the normalized operations? And if they are, what kind of questions, what kind of issues do we have?
spk03: I think, Stan, we're having a strong year in terms of tobacco volumes, sourcing of those volumes, and customer orders. And we are almost through the catch-up from the delays of last year, the overhang of shipments that we had coming out of quarter four. In fact, I think the vast majority of those will be completed by the end of this week with the final shipments going out. The key for us now to really make the year is the logistics issues that the globe is facing for all products. So container costs are high. Container availability is low depending on where you're going point to point, and we're doing everything we possibly can to keep moving shipments going forward. But all in all, we're on track for a very nice year, and we believe we're building into fiscal 23 with an even stronger year as we look at our projections going forward.
spk10: And margin, margins. What do you think about your margins at the end of the day? And this question is related to both, you know, both gross margins and individual margins, because obviously the cost of shipment and containers has been skyrocketing, and I've noticed that the gross margin has been a little bit lower than normal. You know, is it just because of the product mix, or this is something different?
spk03: I think the first quarter is not really a good quarter to protect the margins for the rest of the year. You get some costs that are attributed to quarter one that you don't have in quarters going out. The vast majority of the shipping costs are borne by the customers. Most of our sales are FOB basis, so they bear the majority of those costs. It's only where we're buying product for value-added processes that we're affected to some extent by that. So we don't have a major cost coming out of that. But in general, we had a massive efficiency program last year. I think you'll see the benefits of that come through as we go through the year. We've got increased volumes running through fewer facilities. And as we go forward, that will continue to benefit the profitability of the business.
spk10: Yeah, but what kind of visibility, realistically speaking, do we have today through the rest of the year? Do we have visibility about the volume? or do you have visibility about the pricing?
spk03: We do. We've completed our purchase programs in South America. We're almost complete now in Africa. We're starting to buy the United States crop this week in the United States, so that's the one we don't have complete visibility to the final pricing and volumes there. A significant amount of pricing negotiations have been completed in both South America and Europe. We've got a significant amount of product in Asia that's really waiting for shipment. It's one of the biggest areas of shipment delays. So we have quite some visibility towards the rest of the year. What we don't have visibility to and where we have that caution is what happens in terms of container availability and relative and what happens in terms of operational delays related to COVID-19. But all in all, I'm positive on this year. I'm excited about where we're going, and I'm excited about how particularly our blue chip customers are growing their business with us.
spk10: I don't usually ask these kind of questions, but I'm really curious. Do you expect the volume to exceed the one of 2019? Or you think that it will still be, I want sort of to get a feeling about where you are in terms of where the industry is kind of moving. I understand that the containers is an issue. The containers are an issue. But, you know, I'm mostly interested in the sort of waving or driven question at this point. So do you believe that you can exceed value by 2019?
spk03: We have not given guidance on volume, but we are seeing growth in our businesses in our various operations around the globe.
spk10: Well, good luck to you both. Thank you.
spk03: Thank you, Stan.
spk09: Our next question comes from Anne Gherkin with Davenport and Company.
spk01: Good evening, everybody.
spk09: Hello, Anne. Hi, Anne.
spk01: Hi. I wanted to start with the gross margin. I thought that was a good number to start the year, and how should we think about that progressing? Should it strengthen? Can you get back to that 13%, 14% historic level?
spk03: I believe we can, yes, Anne.
spk01: Okay, great. And then I was curious about the business you picked up from BAT. Is that business getting sourced from their operations in Brazil through the cruise, or is this a change – BAT historically sourced and processed the majority of their leaf needs. So is this a change in their strategy? Is there more business that you can go after? Can you just help me understand what's going on there?
spk03: This one is in Indonesia, Anne. This is in Indonesia, Anne, yes. So, yes, this is where we are taking over the domestic sourcing of various products from contracted farmers. So, we've novated those farmers across. We're doing the purchasing, processing, and shipment and sales to BAT. And that will all come through our processing factory there. It's a nice business for us. I think it really combines the aspirations of both companies in terms of reducing complexity, pharma sustainability, all the ESG commitments that we make, and I think very, very positive. This is something we've been talking about for some time that we foresaw would happen in global markets as we went forward, and I think this is... something that we can continue to progress in different operations around and different sourcing countries around the world.
spk01: So you think it could progress to Brazil?
spk03: I'm not going to make comments about other origins. Obviously, these are, you know, when both companies are ready to announce something, we'll announce something about different operations around the globe.
spk01: Okay, great. And then when you put out your guidance, On the fourth quarter call, did that include this incremental business from VAT?
spk03: No, it did not.
spk01: Did it include the shipment timing from Q4 into Q1?
spk03: It certainly, we were, we did have, we didn't have the year normalized in terms of the expectations of shipment for this year. We still had COVID delays built into the year.
spk01: into the year, you had delays from Q4 coming into fiscal 22, an outlook?
spk03: We had Q4 into 22. Q4 21 into 22, and that we've recovered in the first two quarters, or will do. And then we have overhangs from fiscal 22 into fiscal 23 potentially as well, yes.
spk01: Okay, great. And then what is the CapEx for the year? I'm sorry, I couldn't find that. I apologize.
spk03: I'm not sure.
spk02: Yeah, and it will be sort of in our normal range that, you know, we put out there before, sort of in that 15 to 25 range, depending on certain projects. But maintenance is what it's focused on.
spk01: Does that include investment to absorb this additional BAP business?
spk03: And there's a little bit of working capital obviously involved in that, but yeah, it's nothing that we need to disclose.
spk01: Okay. And then it looks like your long-term debt went up from Q4 to Q1. What is behind that increase? You're up over a billion dollars now. What is behind that increase?
spk02: It's just the timing of some additional capital that we brought in and the additional $120 million, and that's laid out in our debt footnote. But it will be used across this year, and then we'll probably come back out. So we're actually looking to try to start the repayment on that sometime during the course of this fiscal year.
spk01: And it will pay that through improvement in working capital or asset sales or cash flow generation? How will you get that debt back?
spk02: That's primarily working capital. Remember, we had some overhang at the end of 21, and then also some opportunities to buy some additional tobacco. So those all kind of came together, and that's, you know, the genesis for the additional loans that we've utilized. Okay, okay.
spk01: I was so excited to see it under a billion dollars. I was afraid it was going to start creeping back up. So that's why.
spk00: No.
spk01: Okay. And then my last question is just kind of longer term as you think to manage the business. How are you navigating what looks like a changing customer environment as they focus on non-combustible products, heat not burn technology, vaping products, vapor products? How are you thinking about... the positioning of your business in terms of serving the customers on the lease side and opportunities maybe to pick up business on the non-combustible side?
spk03: Well, I mean, there's a multi-pronged answer to that. Obviously, we supply for a multitude of our customers' products, including the heat-not-burn products as well. I think this focus of the customers on next generation products as well also helps in terms of how they look at their supply chains for traditional products. So there's significant opportunity there for obviously share gains and similar situations to what we've just announced in Indonesia. We're also involved in e-liquids, as you know, and we're excited, actually. Just during this call, we announced that we've moved to stage three of our PMTA process for our Bantam products. So we're one of the few companies, particularly with OpenTank e-liquid products, to move to that stage. And obviously a lot has to be completed by the FDA before September the 9th because that's kind of the one-year deadline. So we're excited to see what happens about that and particularly hoping for additional enforcement in the market. But we have our own e-liquid products we supply to blue chips. We supply to many different customers as part of the supply chain. So we've got B2B and B2C. And we see significant potential with science, with partnerships that we've established to continue to grow that business as well. So we're... from LEED through e-liquid through heat melt burn through various other supply chain projects that we have with our customers where we see we've got good coverage and significant opportunity.
spk01: That's great. Thank you for taking my question. Thank you.
spk09: Thanks, Anne. Our next question comes from Ian Parkinson with Polygon.
spk05: Hello, Ian. Hi. Good evening. Thank you for the update, guys. Two questions. So one of them is Indonesia. Can you comment on the magnitude of that insourcing deal with VAT? And then the second question is, if you look at the non-tobacco division, I think the gross margin there is negative, and the overall results are even more so because of the SG&A. my understanding having the non-tobacco division have been roughly break-even, so if you just comment on what you're expecting for the full year from that part of the business. Thank you.
spk03: Yeah, I think the Indonesia, we haven't given specific guidance for that particular operation, but it will be accretive this year, and it will be even more significant next year as we get through the shipping cycles from that operation, but we're excited about it.
spk02: And, Ian, on the second question, a couple things. One, in that other segment, what you don't have included in those results through operating income and in the breakout for that other products and services segment, you don't have a purulam included in those numbers. So purulam's not there. It's an equity pickup. So you always, you know, got to factor that into looking at that. Additionally, there was a small LCM related to hemp included in that cost of goods sold number, about a million and a half dollars increase related to that. And then lastly, just some overhang as we've, you know, worked to continue to, you know, come out of the hemp CBD business. And so that'll hopefully get cleaned up, you know, cure during the mid part of the year. So at any rate, those are the pieces that you see there. And then, you know, Peter talked some about the great news on PMTAs and the way that that should, you know, over time be helping the top line in profitability related to that segment as well. So a lot of things happening simultaneously there.
spk05: Okay, so when we're thinking about the annualized, if we have some more stuff washing through, what do you think is the annualized run rate for the non-tobacco side?
spk02: Yeah, so we've not provided any guidance with regards to that. But, again, we see a lot of positive things happening right now. And some of the costs that we've experienced in the first quarter should be coming in further as we get into the second, third, and fourth quarters, as the top line should be building over time as well.
spk05: Okay, and then last one. I think Q1, you get some quantification of the sales that moved from Q4 of last year into Q1. There's a comment that some sales slipped from Q1 into Q2, but you don't provide any indication of magnitude. Is that 10 million of sales that you think slipped, or is it 30 million of sales? Just help us think about this.
spk03: About a little bit less than half shipped in quarter one and the remainder in quarter two.
spk05: How should I interpret the... If no sales had slipped from Q1 into Q2, how much higher would Q1 sales have been?
spk02: Yeah, I don't know that we're so much focused on, you know, Q1 is historically a fairly small quarter. And Q2, we have a lot occurring right now related to the sales from 2021 that moved into 2022. And we have the COVID overhang, roughly 77 million that occurred in the last you know, in the first quarter, and so the remainder should be out in primarily the second quarter. There could be a little bit drifting into the third quarter, but generally speaking, that last, you know, call it just over $100 million, you know, should be coming through as we look at the second and maybe a little bit of the third quarter.
spk05: Gotcha. Okay. It's pleasing progress, so congratulations, guys, and those are the questions I have for this evening. Thank you. Great.
spk09: Thank you, Ian. Thank you. Our next question comes from Jeff Rosenkranz with Shelton Capital Management.
spk08: Thank you. So first question, for your annual EBITDA guidance 150 to 170, what would that correspond to on a LEAF EBITDA basis?
spk02: Yeah, we've not provided separate guidance related to the various segments. We've provided consolidated guidance, basically.
spk08: Okay. Suffice it to say it would be higher than the 150 to 170 for lease only?
spk02: Leaf is performing very well, and as Peter laid out a little while ago, we believe 22 is a stepping stone into 23, where we're anticipating improved performance over 22. We'll talk more about that when we get to the end of 22. But right now we're watching Leaf come back and come back pretty strong.
spk08: I appreciate that. I guess I meant – for fiscal 21, for the current fiscal year, if the consolidated guidance is 150 to 170, would LEAF EBITDA in the current fiscal year be higher than 150 to 170, given that, you know, there's a bit of drag from some of the noise and working off hemp and other you know, some of the other drag from some of the other businesses?
spk02: Yeah, LEAF is improving year over year pretty substantially from 21 to 22. Again, we anticipate improvements from 22 to 23. We've not provided separate guidance related to any of the segments. Okay. Or guidance on allocations of SG&A and other things that you would have to do if you were to provide segment guidance, so.
spk08: Understood. Okay. And then to the point where you expect further improvement next fiscal year, is that even with the fact that you had some carryover from last fiscal year to the current fiscal year, so the current fiscal year is benefiting from that carryover, You're saying next fiscal year will be an improvement even above the current fiscal year that saw this carryover benefit?
spk02: Yeah, we'll provide guidance for the next fiscal year when we get to the end of this fiscal year. And right now we're just through the first quarter and in the middle of the second quarter. And we'll provide guidance. more definitive guidance once it's appropriate. But we see ourselves, we see fiscal 22, the year that we're in right now, as very much a rebuilding year. It's going well and in line with our plan. And we see a lot of opportunities out on the horizon. Okay.
spk08: Appreciate that. Last question. Thank you for the explanation on the new financing that you put in place with your but with a couple of your large shareholders, do you see opportunities in either the short or medium term to, let's say, optimize your capital structure and improve your borrowing relationships around the world or find new lenders in local markets You know, either soon or over time, like, yeah, can you just shed any color on your efforts and goals to sort of improve and optimize your borrowings?
spk02: Yeah, so first off, I think that the support that we've had from our offshore lenders has been tremendous. And whether it was, you know, working through the restructuring and reorganization that we did last year or, you know, putting the plan together and helping us to execute on it for this year, there's been, you know, great support. And I think we're very well positioned. As we think about optimizing the capital structure on a go-forward basis, you One of the key points there is to execute on our plan for the full year, hit the credit metrics that we believe we're capable of hitting, and then those obviously can be used to look at ways that we can further enhance and strengthen the capital structure. There are a lot of good things that have happened from last year to this year, and we think a lot of opportunities to see further strengthening as we look at the end of this year and going into next year. So we're excited about where we're sitting right now and the improvements we're seeing in the business, the way that those feed to the credit metrics, and then our ability to go out and improve the capital structure further.
spk08: All right. Sounds good. Thanks very much. Thank you.
spk09: We'll take our next question from Andrew White with Nut Tree Capital.
spk06: Hi, just one for me. Your inventory level as of this most recent quarter, it's a little, you know, if you look at the dollars, it doesn't look high relative to history. I mean, there's been periods where it was much higher, but I know, you know, there's like, and there's prices, and so that might not be the right way to look at it. And so what I was trying to, if you wouldn't mind commenting, is your inventory level right now high? Is it low? Is it normal? For this point in the year, I understand the seasonality, but just trying to think about is there any extra capital tied up there or is it sort of where you think it should be?
spk02: Yeah, we're actually sitting, I think, in a very good position at $854 million, okay? That's up $21.8 million versus the prior year same period end, okay? And so you would expect that based on some of the dynamics that we've been working through. But I think of key importance here is that if we look at uncommitted inventory year over year, while we don't provide a specific number, but we have our range of $50 to $150 million, we are in the lower – 50% of our range at this point, and are down pretty dramatically year over year, about $47 million. So we're sitting in a very good uncommitted inventory position right now, and I think in line with our expectations. So we feel very good about where we are and where we're going.
spk06: So it's not like you're sitting on tons of inventory right now. You're sort of in a normal inventory position.
spk03: level yeah where you want to be we're actually positive about where we are at this time of year particularly with the very low uncommitted uh levels right now we're the the major part of this in order to make to make the year um we need that that inventory we need it committed it's packed and ready to go and and the main thing now is uh for us to get the logistics done to get it out to the customer so we can book it so uh that's This whole year really falls down, you know, falls down. I didn't mean to say that negatively. It falls to us being able to get in this pandemic the product shipped to the customers. We've got one more major market to purchase the tobacco. We started this week. That's the U.S. We've got... Good indications for that. And we're looking forward to getting that product purchased and hopefully on a vessel before the end of the year.
spk02: And, again, record low uncommitted inventory right now.
spk03: That's absolutely key. That's about the lowest I've seen it.
spk06: Maybe I could just ask another one. As you think about your guidance and the scenario you envisioned, I think that the questions come up a few different ways of, you've got these opposing forces of there's volumes that were supposed to ship last year, moved into this year, so that helps you, but you've got issues in Asia regarding shipments and freight availability and these types of things, which are negatives. And so I guess when you sort of add up the whole – and I understand you like the momentum of the business and all that, but if you sort of add up the whole – those conditions, would you say – they average out to be generally better than average conditions for you and your earnings, or are they net sort of a drag still because of this COVID stuff? How do you just think about the backdrop given all of this stuff together?
spk02: Yeah, so I think it's general improvement is the overall theme, okay? And so there are still, you know, issues out there related to COVID and some of the carry-on effects that, you know, impacted transportation. But when you consider all of those, we think that we are, you know, in a better position this year than we were last year. And we are seeing improvements across the board related to timing of shipment, related to what customers are demanding. And so we're having to navigate through some of the challenges that have been existing, but we're seeing improvements along the way. Given we, you know, if something crazy happens related to some variant of COVID or whatever, that's sort of outside of, you know, what we're seeing right now. But generally speaking, things are improving, and we see 22 as a stepping stone to 23, and 22 is really building off of, you know, where we were in 21. So general gradual improvement, and things are looking good.
spk06: Yeah. Yeah. I think the question we're trying to get at is, like, are you over-earning because there's a lot of last year's volume in this year? But it sounds like you guys don't really want to answer that, which is, of course, your right to do so.
spk03: That's all I had. I don't think – obviously, we don't give specific guidance on each component. What I can say is that in each of the core markets in which we're operating – We are seeing additional volumes that we've been able to purchase. We've seen some additional growth in the total volumes procured. We've seen very strong customer demand. We have very little left in those markets still to sell, so it becomes a logistics issue for this year. At the same time, we're already in the planning stage and the forecasting stage for next year in regards to customer demand, crop sizes that were contracting and so on. So we can see steady progression in a positive direction and the overhangs will come here and there on the logistics because of the because of the COVID-related transportation issues. But underlying all of that, we are definitely growing. And we're growing with a multitude of our customer base. We're taking new opportunities in terms of the reversal of vertical integration. in Indonesia that we announced, and we see other opportunities for that as we go forward. So, yes, underlying the noise of shipping delays and COVID and everything else, I will definitely say we are on a very positive trajectory.
spk06: Well, thank you. Have a good rest of your day, and good luck with the next quarter.
spk02: Thank you, Andrew.
spk09: We'll take our next question from Yasir Bari with InterMarket.
spk07: Hey, guys.
spk02: Hey, Sherry.
spk07: Hey, so the first question, I think it's sort of been asked, but about the shipping situation on the deferred revenue that you had. It sounded like you got $77 million in Q1, and I just want to confirm, did you say that you were confident that the rest of the the $170 million or so would be realized or recognized in Q2?
spk02: Yes, so there was about $77 million just over that in Q1. And the remainder of that overhang we anticipate coming through Q2, maybe a little bit in Q3. So just over $100 million still to go there.
spk07: And is that – do you have such confidence because – We're 45 days out of June 30th, and you've kind of seen most of it come through, or is it an expectation based on what you're seeing in terms of the shipping situation?
spk03: We've seen the vessels leave, the containers loaded, and the vessels leave.
spk07: Okay. Just a couple of things to follow on from that. One, we all hear these or see these headlines around Chinese ports shutting down. I think we saw one last week. Does that impact you?
spk03: Yeah, there were some disruptions both going in and out of China related to that. Not so much on the way in. It delayed a few shipments by a couple of weeks, but it wasn't a big issue. Leaving China at the moment is very complex and very expensive at the moment. The country travel is severely restricted because of the Delta variant. We've seen an uptick in shipments actually going out. We had a low point, but it has been picking up in recent weeks. So we're hoping that that will continue. But while travel is restricted domestically within China, that can still play, you know, cause issues related to shipments and particularly leaving the country.
spk07: Okay. And when you think about your, you know, your business is somewhat seasonal in that there are just, you know, certain times of the year when you have more ships traveling, especially to China, When is the next time during the year that it's important that the shifts are moving? I guess ask another way. If I told you that COVID was behind us in December, would everything go according to plan?
spk03: No. Yes, I wish. Yeah, quarter four is always a big quarter for us. There's some big directional movements, particularly towards Asia, from several of our markets. So that January to March timeframe is very important for us. But, you know, these logistic issues are affecting the globe. It's not just going to Asia and back. Asia is obviously particularly problematic at the moment, but... You know, the number of... As these shipping lines have seen this heightened demand, they've been moving vessels to more profitable routes. So if you can get... $20,000 for a container going from China to Europe or the United States, why would you have that container attracting $3,000 going from Africa to Europe or from Argentina to Europe and so on? We've seen reduced sailings from other areas as well. We're managing through it, but it is extremely complex.
spk07: Is it fair to say that between now and Q4 that the global supply chain, logistics, container issues are not a huge problem given the seasonality of our business? Or is that not fair?
spk03: No, I mean, I think we look at this every single day and every single week. It's probably the number one risk that we face at the moment. The second one that I wake up about is whether a hurricane hits North Carolina in the next month and a half. But we are managing through it. I would actually say shipping conditions are worse this year than they were last year in terms of availability and cost. But I also can see solid progression from our teams in getting product out. One of the things we specifically did this year was open up all our facilities early in order to get the product purchased processed and ready for shipment so we could take advantage of any spare vessel and container that we could find. And we've had some success with that. But I don't see us not having this conversation regarding shipping for another 12 months or so. And as everyone in the United States, if you... If you want to order something for Christmas, you'd better have it ordered now because it won't arrive if you don't have it on the way. It's a global problem for multiple industries. Yeah, no, that's helpful.
spk07: I guess somewhat related, you mentioned earlier, Peter, that you could see some overhang in 2023 from 2022. Is that something you have visibility on already for some reason, or is that just you guessing based on the shipping situation in the world?
spk03: I think when we looked at this financial year and when we looked at where we thought we would be, and we looked at the COVID situation at that time and we gave our guidance, we assumed that global logistics would not return to normal in our fiscal 22. So we assumed, and I suspect it will potentially will happen that some of what in a normal year without COVID would go into quarter four may drop into quarter one next year. But that at the moment we have built into our forecast. Right.
spk07: That's normal course. That's normal course. Yes.
spk03: Right. But always when you have such a big quarter four, that is always a risk. Right. Okay. Just two more. Let me say that again. The business is strong. The orders are strong. The orders have high quality. We like where it's going.
spk07: Got it. Two more. One's probably fairly easy. We hear, you know, just from the news that there's a certain crop in Brazil that, you know, coffee, for example, is impacted by the freeze. The question is, is tobacco affected by any of this, any of these extreme weather conditions in Brazil?
spk03: Yeah, the coffee crop was actually hit two weeks before we had frost in the tobacco region. So actually, it was interesting. The northern part of Brazil was colder than the southern part. And we had time to prepare with the farmers for potential frost that actually did occur in the south, but we had the farmers protect their seedbeds and fields, and we stopped planting. And so we have no abnormal damage from frost in Brazil.
spk07: Got it. That's good to hear. And then the last question, I guess this is for Joel, and we can follow up offline on this too, but I'm trying to follow the – the cash from the delayed draw term loan and also kind of the leftover cash from the exit term loan and trying to figure out where it sits in the balance sheet obviously some of it some of it was burned because of the the uh the figure business um and the associated burn um maybe some related to you know bankruptcy fees etc but you know as i look at the balance sheet i would say okay Maybe there's a little bit sitting in inventory, but we talked about how inventory is not bloated and it's not that much bigger relative to similar periods in the last couple of years. Then I look at notes, payable, your foreign lines, less the cash that you have in your balance sheet. And those are down, but just not that much either over the years in a similar time period. I'm trying to, I mean, what am I missing in terms of where that were that working capital billed or were that cash that went into the business set?
spk02: Yeah, sure. So, again, if we're looking at trade receivables year over year, you've got about $38.8 million that receivables are up. If you're looking at your inventories, you're up about $21.8 million there. If you go down and look at your accounts payable, you're down probably $15 million there. And then, of course, you've got your notes payable to banks that are down as well year over year, same quarter end, about $120.5 million there. And so you've got, you know, all those pieces kind of moving at the same time. But when you look at the pieces that I've just laid out, that's really where the majority of the movements are, okay, versus the new debt and cash that we brought in.
spk07: Got it. Okay. And then just lastly, I think someone asked this question, but if you think about your inventory at 854 versus last year at 832, okay, Are you holding a lot more kilos in that? I know you feel happy about your inventory position. Obviously, some of that inventory is still the $100 million of revenue that's supposed to come in Q2, right? That's the deferred component. Despite that, I guess, are you holding more inventory such that your dollar inventory looks small, but you've actually got more kilos in there?
spk03: There are some more kilos in there, yes.
spk02: There were a number of currencies that were exposed to that appreciated year over year, and then the impact of that in inventory. As a result, we have more kilos.
spk07: Okay. All right. Thank you, guys.
spk09: That concludes today's question and answer session. Mr. Thomas, at this time, I will turn the conference back to you for any additional or closing remarks.
spk02: David, thank you. Thank you for joining our call this evening. The call will remain available for playback for any interested persons through 8 p.m. on Saturday, August 21st. Again, thank you for participating in our conference call.
spk09: This concludes today's call. Thank you for your participation. You may now disconnect. Thank you, guys. We're back in our post-conference.
spk02: Great. David, appreciate your help very much today. If you could just send through the Excel spreadsheet with the callers. Absolutely. That would be greatly appreciated.
spk09: Thank you so much. It was a pleasure working with you.
spk02: All right.
spk09: Have a good evening.
spk02: Take care.
spk09: Thank you.
spk02: You as well. Bye-bye. Bye-bye.
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