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spk01: Good day, ladies and gentlemen, and welcome to today's Pixis International Inc. Fiscal Year 2022 conference call. 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 touchtone 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, Thomas Gregera, Treasurer.
spk09: Mr. Gregera, you may begin your conference.
spk06: Thank you, Elaine. With me today is Peter Sickle, our President and CEO, and Flavia Landsberg, our CFO. 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 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 change in management expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion on 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. A table including a reconciliation of and other disclosures regarding these non-GAAP financial measures is available on our website at www.PIXIS.com. Connection with the emergence from Chapter 11 cases in August 2020 PICS has qualified for fresh start reporting as detailed in our Form 10Q and Form 10K reports 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 PICS 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. Now I'll hand the call over to Peter.
spk07: Thank you, everyone, and thank you for joining us this morning. I'm proud of the progress made by the business during fiscal year 2022. Our employees worked diligently to increase volumes in revenue compared to the prior year. They achieved this while continuing to navigate global challenges that largely stem from the ongoing impacts of COVID-19 and the unfortunate events in Ukraine. We continue to expand our business relationships as customers sought solutions to reduce supply chain complexities and improve operational efficiency. Expansion of these relationships increased our market share in Africa, Asia, and South America and contributed to a 16.8% increase in kilo volume compared to last year. This growth is partially attributable to our environmental, social, and governance framework, which we publicly announced in December 2021. Our efforts to execute on our strategy to increase financing sources and working capital lines globally resulted in a new asset-based lending credit facility with PNC Bank executed in February 2022. This facility provides the company with an extended maturity date, reduced costs, and increased potential borrowing availability. In addition, in June 2022, we entered into an agreement to amend our delayed short-term loan facility. This amendment provides the company with an extended maturity date, reduced costs, and increased financial flexibility. In January 2022, we completed the exit of our cash flow negative can of anointment operations. Restructuring activities generated savings in SG&A, which contributed to a $55.9 million decrease in expense compared to last year. As a result, our SG&A expense has normalized and is consistent with levels prior to our investments to develop those businesses. For fiscal year 2023, we anticipate increased demand for our leaf products. The continuation of COVID-related logistical challenges and cost and price increases due to inflation. We expect fiscal 2023 sales to be between $1.75 billion and $1.95 billion and adjusted EVDA to be between $130 and $160 million. Maintaining farmer livelihoods and a supply chain of responsibly sourced sustainable and traceable products remains a top priority as we engage with customers about the impact of inflation on the cost and price of tobacco going forward. Additionally, we have taken proactive measures to secure inputs, such as fertilizer and fuel, for the next year, allowing us to remain focused on delivering stakeholder value as we work to grow a better world. With that, I'll turn it over to Flavia to provide a financial update. Flavia?
spk03: Thank you, Peter. With regards to our full-year results, sales and other operating revenues, for the year ended March 31st, 2022, were 1.64 billion, a 23.1% increase compared to the prior year. This increase was due to a 16.8% increase in kilo volume and a 7.5% increase in average price per kilo. A 16.8% increase in kilo volume was driven by a larger crop sizes, in Africa and increased market share in Africa, Asia, and South America, partially due to customers reversing their vertical integration in certain markets. In addition, 21.1 million kilos or $178.3 million of shipments were delayed by the COVID-19 pandemic and customer shipping instructions from prior year into the current year. and were offset by similar volume of shipments expected in the current year that has been delayed into the next year in Africa, North America, and South America. The 7.5% increase in average price per kilo was primarily due to product mix having a higher concentration of lamina in Asia, Africa, and Europe, as well as a customer and great mix in Africa and North America. Lots of goods and services sold for the year ended March 31, 2022 were $1.41 billion, a 20.7% increase compared to prior year. This increase was driven by the increase in sales and operating revenues. Average cost per kilo increased primarily due to the higher tobacco prices, gross profit as a percentage of sales increased to 13.8% for the year end March 31st, 2022, compared to 12.1% in the prior year. This increase was mainly due to the deconsolidation of the company's Canadian cannabis subsidiaries in the fourth quarter of fiscal 2021. The wind down of the industrial hemp and the CBD businesses and customer service. the customer mix. Average gross profit per kilo increased primarily due to the customer mix. G&A expenses were $142 million, a 28.2% decrease compared to the prior year. SG&A expenses as a percent of sales decreased to 8.7% for the year ended March 31, 2022, compared to 14.9% in the prior year. These decreases were related to increasing sales and other operating revenues, the deconsolidation of the Canadian cannabis subsidiaries in the fourth quarter of year ended March 31st, 2021, and savings from restructuring initiatives. The company's liquidity requirements are affected of various factors, including crop seasonality, foreign currency, and interest rates, green tobacco prices, customer mix, crop size and quality, and legal and professional costs. At the year end, the company's availability credit lines and cash totaled $500.9 million, including $287.2 million of availability on their foreign seasonal lines of credit. Cash, cash equivalents, and restricted cash were $200.9 million, $103.6 million increase, compared to the prior year due to the higher net proceeds from short-term borrowings and higher collections of beneficial interest on securitized trade receivables. Trade in other receivables net were $260.2 million, a $56.4 million increase compared to the prior year due to the primary from the increase in sales. Net inventories were $749.9 million, a $21.1 million increase compared to the prior year due to the higher green tobacco prices in South America and was partially offset by the restructuring of certain African operations in the prior year where the company no longer operates. As of March 31st, 2022, 91.2% of the company's processed tobacco inventory is committed to specific customers to meet near-come forecast demand. Advances from customers were $53 million, a $40.9 million increase compared to the prior year due to the increased prepayments from certain customers for inventory purchases to be made next year. Current portion of the long-term debt were $107.9 million, a $105.8 million increase compared to the prior year due to the reclassification of the DTTL facility from long-term debt to current portion of long-term debt during the year ended March 31, 2022. Now, I would like to turn the call back over to Peter for some closing remarks.
spk07: Thank you for that update, Flavia. We're excited about the progress and the future of our business. And on that note, operator, please open the line for questions.
spk09: Thank you. The question and answer session will be conducted electronically.
spk01: If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched 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. Once again, if you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone keypad. Please ensure that the mute button on your telephone is switched off to allow your signal to reach our equipment. We will take our first question from Chapman Mitchum from Northeast Investors.
spk02: Please go ahead. Great. Hi, thanks so much for taking the question. I just wondered if you could expand a little bit on the shipping delays. I know we've been talking about it for the last year or two, but I'm just kind of wondering if you can give any more color on that.
spk07: Yeah, I mean, I think that's a continual feature of the business, and I guess not just ours, but everybody's. Every company around the world, supply chain inefficiencies continue to occur. So we carried over similar volumes of shipments from this last fiscal into this fiscal, as we did the previous year into this year. And the majority of those came from South America, which has seen significant logistical challenges in terms of getting containers, and then from Africa and North America mainly into Asia, where we've seen various other procedural issues related to getting shipments done. But we did see some relief, some improvements as we reached the end of quarter four, certainly shipments coming out of Asia. We saw significant improvement as we went through the last quarter, and hopefully that will continue throughout the next fiscal year.
spk02: Great, thank you. And so I guess for your guidance for EBITDA for 23, is that assuming that I think it's about $170 million make up or is that not included in there?
spk08: We don't have a full catch up as we're looking forward.
spk07: We're expecting logistical challenges to continue for the coming year. I think we saw a strong year in terms of volume growth. I think our teams performed very well in terms of getting shipments out despite those challenges. That's what we're focusing on as we go forward. But of course there are a multitude of factors coming into the coming year. There's very strong demand for leaf tobacco. There is very high inflation in certain origins, so there's significant cost and pricing increases going to customers. And there's also a relatively small crop sizes, particularly across the southern hemisphere, related to the La Nina weather effects of the growing season. So we're in a situation of strong demand, and we're very much focused on acquiring the volumes that we need to, as best we can, satisfy that demand.
spk03: related to the guidance. The way the guidance was put together is a couple of important points. I think the first one is the underperforming non-leased business will either be restructured or sold. So that's one piece. The second thing is our SG&E expenses are expected to increase below inflation rates. Then, as Peter said, the smaller crops in some regions, like South America and Africa, will be offset by increasing purchases in other areas. Another piece that increased in green leaf prices is expected to pass on. And we are way advanced on purchasing, and we prepare, actually, with additional seasonal lines to absorb that price increase. It's an important piece. The growth will come from increase in vertical integration strategy and also the additional volumes of value-added products due to the additional capacity implemented last year. Hope that gives a little more color into the guidance.
spk02: Yes, that is wonderful.
spk08: Thank you so much for that. As a reminder,
spk09: To ask a question at this time, please press star 1.
spk08: This concludes.
spk01: We have a question from Craig from Longfellow. Please go ahead.
spk05: Yeah, hi. Thanks for the time. Thanks for the question. Appreciate it. the 2023 guidance in particular, some of the backdrop and underlying drivers. Given all the moving pieces of the business, would you be able to give us any directional color or expectations on what we should expect for CFO minus CFI? I know SG&A is back to what you claim to be a normalized level. Inventories are inflated. It sounds like there's going to be some improvement. But given that we're starting from a high working capital base, what are your expectations? Is it reasonable to believe that that number could be positive this year? It's been quite some time. Just curious what your thoughts are.
spk03: You're talking about cash flow, right?
spk05: Yeah, specifically the CFO.
spk03: As you can see, yeah, that's... We're not going to put anything forward related to that, but what you can see is that we added page eight of our press release. You can see that at the bottom, we added some information on the cash flow, and the trend will continue. As you can see, actually the cash flow generated in 2022 is about $99.5 million and much stronger cash flow generation versus 2021 and versus 2020. So we expect the trend to continue and that's part of the transformation that we're doing in the business to continue to have strong cash generation. And as you know, we are in a volume business. in the margin business, and the idea is to continue to trend upward.
spk05: Okay. What about asked a different way directionally for net debt at year end? What I'm trying to understand is if there's anything that is not – and I am looking at page eight, and I do appreciate the different color. I did notice it. And as always, I think everybody on the call appreciates the breakout. Is there anything else that we should be aware of? If we were to think about net debt year over year from 331.22 to 331.23, is there any color guidance, even soft expectations up, down, material either direction? Anything there?
spk03: Again, we're not going to really do any projections related to that. But that being said, as you can see in the trend, our debt, has been, the cost of our debt has been going down and we expect that to continue to happen, right? We have been both on seasonal lines and the ABL line, we're able to lower the cost over 100 basis points. And so one interesting piece is the raising interest expense. As of now, we had no impact on that in our numbers. and mainly because of the floor that is higher than interest rates. To the future, interest rates will go, depending what's happening, our interest costs may go up because of the interest costs, but we're also working very hard on actually increasing the value and the number of the seasonal lines and the cost. So we should expect that to happen. That being said, we are growing and we expect to purchase more in the coming fiscal year what may need additional seasonal lines. And we did renew the DDTL at lower cost.
spk05: What was the interest savings on that again? I know I looked at it. I just don't recall.
spk03: Well, it's a combination. We have the 8K that you should refer back to.
spk08: Okay.
spk03: Okay.
spk08: All right. Thank you.
spk09: Thank you. We will take our next question from Manish Garg from Wells Fargo.
spk04: Hi, guys. Thanks for the forward guidance. Very helpful. Can you talk a little bit about what growth opportunities you guys are seeing in the future here from either customers or from any of your geographies?
spk08: Thanks. Sorry, what was the last?
spk04: Just generally, what are the growth opportunities you are seeing across the business?
spk07: Okay. Thank you. Well, I think firstly, I mean, we had a very significant growth in volume in fiscal 22 compared to prior year, and really that reflects a lot of what we've been working on for many years. What we're going to start to see as we go into 23, we're going to see the full year effects of the various of the reversal of vertical integration opportunities that we managed to implement last year and coming into this year. I think that will steadily increase in volumes as crop sizes rebound. They're a little bit low this year, but we'll start to see improvements in that, and we'll see steady opportunities there. We've seen strong progress in market share growth across several regions, actually, and several geographies within those regions. So I really think customers are excited about what we provide and how we provide it. Our ESG programs all the way from the field through the farmer are extremely strong, and I think that's been acknowledged in what we do. And we see significant potential still in the various value-added businesses that we are involved in. We did increase capacity over the last year, and we're starting to see, as we get into 23, we'll see more of a full-year run rate on that increase in capacity as well. So there are significant opportunities in various areas of the LEAF business that we see as we go forward. And with that volume, we've got to keep focused as well on profitability. We're not quite at the profitability levels in every region that we would expect, and that's what we're going to continue to target as we go forward to improve on that.
spk08: Thank you. Once again, to ask a question, please press star one.
spk09: This concludes today's question and answer session. I would like to turn the call back over to Thomas Bergara.
spk06: Thank you for joining our call today. The call will remain available for playback for any interested person through 8 p.m. on Sunday, July 4th. Again, thank you for participating in our conference call.
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