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spk01: Good day, ladies and gentlemen, and welcome to today's PICSIS International FIScaGara 2023 First Quarter Results Conference Call. As a reminder, this call is being recorded. If you would like to participate in today's question and answer session, you must dial into the audio portion of today's conference. You may not ask a question via the web. I would now like to introduce your host for today's conference, Mr. Tomas Gregera. Mr. Gregera, you may begin.
spk10: Thank you, Lisa. With me this evening are 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 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. A table including a reconciliation of and other disclosures regarding these non-GAAP financial measures is available on our website at www.PIXIS.com. 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. Now I'll hand the call over to Peter.
spk11: Hello, everyone, and thank you for joining us this evening. We have experienced strong demand thus far in fiscal 2023. Our first quarter revenue was consistent with the prior fiscal year, driven by increased demand and more normalized timing of shipments from Asia, partially offset by the timing of shipments from Africa and South America. In addition, adjusted EBITDA increased compared to the prior fiscal year. As of June 30, 2022, our inventory increased $126 million compared to the prior year. This was primarily due to higher new crop green tobacco prices and processing costs in South America and accelerated new crop buying activities in certain key markets. Additionally, our processed tobacco inventory continues to be more than 90% committed to specific customers. The overall increase in inventory and our committed inventory levels for processed tobacco position us to meet near-term demand, and we expect to see stronger shipments in subsequent quarters in fiscal 2023, consistent with historical trends. Despite higher green tobacco prices and processing costs in South America, we were able to effectively manage our working capital to meet our purchasing goals for the current crop cycle. Crop sizes in certain markets in Africa, Asia, and South America are below expectations, due to the adverse impact of prevailing La Nina weather patterns during the growing season, which has exacerbated supply shortages. We continue to engage with customers in transparent dialogue regarding the impacts of inflation and La Nina on our business. In response to these and other market dynamics, we accelerated purchasing in certain key markets and continue to invest in research trials, local programs, and additional training for our global agronomy team. These actions further support our efforts to maximize grower efficiencies and yield despite unpredictable weather patterns. We continue to expect fiscal 2023 sales to be between $1.75 and $1.95 billion and adjusted EBITDA to be between $130 and $160 million. As we work to deliver stakeholder value, we're committed to recovering crop sizes, aligning volumes in future years with customer expectations, and together growing a better world.
spk07: With that, I'll turn it over to Flavia to provide a financial update. Thank you, Peter.
spk05: With regards to our first quarter results, sales and other operating revenues for the three months ending June 30th, 2020, were 343.9 million, a 3.2% increase compared to the prior year. This change was primarily due to a 4.3% increase in leaf volume driven by greater demand and more normalized timing of shipments from Asia. The increase was partially offset by the timing of shipments from Africa and South America. The cost of goods and services sold for the three months ending June 30, 2022, was $303.2 million, a 4.1% increase compared to the prior year. This change was mainly due to the increase in sales and other operating revenues. Gross profit as a percent of sales decreased to 11.9% for the three months ended June 30, 2022, compared to 12.6% in the prior year. This change was driven by the delayed shipments from Africa and South America and was partially offset by accelerated shipments in Asia. The company's liquidity requirements are affected by various factors, including crop seasonality, foreign currency, interest rates, green tobacco prices, customer mix, crop size, and quality. In line with our strategy, The increase in green tobacco prices and processing costs in South America required additional working capital that was primarily sourced from increased seasonal lines and more efficient cash management. As of June 30, 2022, the company's available credit lines and cash totally total at $351.2 million, including $171.9 million of availability on the foreign seasonal lines of credit. We are excited about the future of our business and to that note, operator, please open the line for questions.
spk01: Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question via the phone lines today, you can press star 1 on your telephone keypad. Also, if you would like to participate in today's question and answer session, you must dial into the audio portion of today's conference. You may not ask a question via the web. Once again, everyone, that is star one to ask a question. We'll take our first question from Bruce Monrad with Northeast Investors.
spk03: Hi, guys. Thanks for having the call. Can you hear me? Yes, we can, Bruce. Okay, great.
spk02: I didn't think I saw much on FX. Was that an issue this quarter in any way?
spk05: No, it's not. It's not an issue at all. Actually, we have only about a little over $1 million in the P&L, and it's very little on the balance sheet, so it's not an issue.
spk02: Okay, great. And then a question I sort of asked on a prior call or calls. So shipments deferred, carryover shipments and the like, I'm curious about the trajectory. Is there ever a catch-up on those? What's going on with your customers inventories? Can they, you know, do they need to rebuild them at any point? You know, and maybe some sort of qualitative comments on shipping as the storm cloud, have the storm clouds parted a little bit on that? And what does that do for, you know, an extra shipment or two per, you know, per time period? Anything like that.
spk03: You can see where I'm going.
spk11: Yeah, yeah, it's a long and complex question there, but let me start maybe with the good news there. I would say that container availability, vessel availability, pricing of containers, I think we're seeing steady improvement in that really across all geographies, and that's very much reflected by the more normalization of our shipments out of the Asian region. within the quarter as we've been seeing those shipments go out on a more normalized schedule. We do still have some delays. Those are more procedural in nature to certain customers that are taking time to work their way out, but we expect to see those go out over the next couple of quarters. In terms of the The catch up, let's talk about that. I think there's two factors that are really occurring this year. We had strong demand coming up into this year that was really remaining from pent over demand from last year already. We're seeing crop sizes not reaching expectation in many geographies across the southern hemisphere in particular because of London year. We're expecting to have carried over demand still into next year related to that as customers are not able to fulfill their requirements. And as far as the end of this year goes, we're very focused on trying to bring our cycle forward along with the improvement in the availability of shipping. That's really what we're targeting and hoping to do, but it's not really reflected, I would say, so much in terms of our guidance at this point in time.
spk02: And if I can just press on maybe in a simple way. So, you know, you had COVID, you had Disney 20, 21, I'm talking like calendar now, you know, and you had, let's call it 11 months of sales in each of those two years. Would you say that LTM you've been doing 12 months worth of sales or, you know, what's normal here?
spk07: I don't think we're there yet. Okay. All right.
spk02: But presumably at some point your customers will order a normal, you know, 12 months worth of sales.
spk11: Yeah, I think they're trying to do that. I'm not sure the tobacco has been available to do a normal 12-month order.
spk07: Okay. All right. Thank you.
spk01: We'll take our next question from Craig Carlosi with Longfellow.
spk07: Yeah, hi.
spk12: Thanks for the time. A few questions. First, on the working capital front, what are your expectations for a full year, I guess your fiscal year 2023? Do you expect working capital to be a net source or a net use this year?
spk05: Well, it's a very good question. So let me tell a little bit about how if you compare with the working capital before, right? So if you look at versus, you know, the previous end of the year, the biggest difference on the working capital is mainly because, you know, the DTL was renewed and became from short-term to long-term. So that's one thing. But let's talk about how... I'm sorry, excluding...
spk12: I apologize, excluding the debt. If you strip out cash, you strip out debt. I'm talking more the operational part.
spk05: Let's talk about it. So what happened is, if you compare to last year in terms of working capital, our inventory is much higher, right? It's much higher specifically because of increased prices, okay? How we source that working capital was basically we sourced from two places. One is increasing our seasonal lines. This is part of our strategy, right, to increase our seasonal lines. So finance the inventory with seasonal lines that is much cheaper than our expensive long-term debt. And the second one is our cash cycle. We're a lot more efficient in our cash cycle. So we generate a lot more cash by shortening the cash cycle, specifically through our securitization programs, our terms in our securitization programs, as well as we did have an increase in our advance on customers. So with all that put us in a much better position to incorporate, you know, this increasing prices that it didn't, that it didn't, how do you say, wouldn't expect it, right? So that's one thing. So if you think about future, I think we're very well positioned on exactly the same thing. We are considering our DSO, for example, would decrease by over 25%. So our cash cycle is much shorter. So that put us in a much better position. We're going to continue to have advance from customers. And our seasonal lines will continue to increase. So related to all the purchases in the future, we're very well positioned to do that.
spk12: So perhaps if I ask this one slightly different. If you hit the lower end of your guidance, on a simple free cash flow basis, it would suggest cash flow neutral. However, cash flow from operations, really going back the last three or four years, has been materially negative. And there's a lot of, obviously, charges, you were in the cannabis segment and that incurred a lot of losses and one-time charges and restructuring charges, et cetera. But from a working capital, purely current assets minus current liabilities on the cash flow statement, would the impact in 2020, this year that we're in now, do you expect it to be neutral or do you expect it to be another material use of cash? That's really what I'm trying to get at.
spk05: Yeah. Okay. So you're touching a very good point. The first and foremost is delivering the results and we will, right? So that's the first thing, just first and foremost. Once we do that, yes, we won't be negative.
spk12: Okay. Okay. Second, your liquidity year over year has increased in the last two quarters on a year over year basis. Do you expect Q2 to 2023 to show an increase as well year over year?
spk05: Right. And that's based on increase. I mean, if you look at this increase, as I mentioned, a lot of the seasonal lines, a lot also that we've increased equity was with the ADL, right? So there's the two major sources of cash and we continue to work on liquidity to increase the seasonal lines as well as decrease the cost. Even under Our, you know, the interest rates environment being, you know, increasing overall. As you can see, if you compare, we actually borrow versus the previous year. We borrow about, in average, about $100 million more, but our interest costs decreased. And it's impacted about 1.3% less interest costs. So the answer is yes, we continue to work on and we have good perspectives of increasing the seasonal lines. And to actually... Does that answer your question?
spk12: Yeah, that's really what I was looking at. And the third question, it's a little bit more... It's a slightly weird question. It's not one that I've ever asked before. But if you... Could you help me reconcile a lot of your comments, a lot of the suggested direction of the business, the suggestion that liquidity is sufficient and the suggestion that working capital is not going to be another material use. EBITDA is projected to be higher than really any time since 2019. Can you help me reconcile that with a business that equity is trading as if it's literally hiring advisors and filing tomorrow. I'm having a hard time understanding that necessary difference. I've just never seen a business with $7 million equity market cap relative to the type of comments and the outlook that you're providing. What am I missing? And if it's easier to answer the question stepping back, if you were to design a path or an outline to have a sustainable cash flow or a sustainable capital structure and a free cash flow profile, what would need to happen, right? What are the steps? How do we get from here to there? And so instead of talking about stakeholders, you can talk about shareholders. I'm just curious what I'm missing here. Thank you.
spk11: I don't know the best way to answer that question, but the only way I can answer it from my perspective is
spk07: I have tried to purchase that equity. You can't. And I cannot. There's no float. There's no float.
spk12: I wouldn't consider that. Okay. So you've been in the market trying to buy?
spk11: I don't know a better way to answer the question. It's certainly not reflective of the performance or the trajectory of the business.
spk07: There's no float. There's no movement there. Okay. Okay. That's all I have. Thank you very much for the time. Our next question comes from Yasir Bari with Intermarket. Hi, guys. Hi, Yasir.
spk09: I have a couple of questions. Some were answered. Starting with shipping, it's encouraging that some of the shipping lanes are opening. It'd be helpful if you could expand on that, like what's moving? How does that change the timing? of the cash up, et cetera. And then I think part of the shipping problem was certain customers didn't want to take delivery or shipment of the product, probably because it was too expensive. And has that changed? Have they decided now to take delivery?
spk07: Let me address the first one first. I mean, I think
spk11: There were issues all over the globe in terms of availability of containers and vessels, particularly towards the second half of last year out of South America. That has generally cleaned up. The other big issue was getting container availability out of Asia, whether that was China, Thailand, India. It was all extremely expensive and extremely tight. That has definitely improved very significantly, and you can see that reflected in the numbers in the first quarter, which is heavily weighted on shipments out of Asia. And I think as we go forward, you'll see in quarter two and quarter three, we're obviously looking forward to taking those current crops and having the opportunity to ship those as quickly as we possibly can as those Those crops are ready for shipment, and I think as we move forward, we should be able to see that reflected as we go through the next few quarters. In terms of customers taking delivery, I think we're not talking here about expense of tobacco. There was maybe a question of expense of shipping. I think with the new budgetary year of most of our customers, that has been reflected and we're starting to see shipping rates come down as well. So I think in that we can see progress as well where actual cost on the ground is more reflective of what the customer is willing to pay for the shipping. In terms of tobacco itself, in terms of cost, you'll see that our inventory is carrying. We've got a significant increase in the dollar value of the inventory we have. Tobacco is certainly significantly more expensive this year, particularly from South America, but all around the globe. And we are converting that into customer pricing as we go, and you'll start to see that reflected in future quarters as well.
spk09: What about shipments into Asia? And can you remind me on that front, is that mostly out of Brazil or is it Brazil and Africa? And what's the status of that?
spk11: Yeah, we ship into certain markets out of South America, Africa, North America as well. There are still some procedural issues remaining with certain of the geographies that we're shipping into there. I think they're slowly getting cleared up. We're still delayed compared to a pre-COVID cycle, but hopefully as we progress through this year, we'll start to see some acceleration of that as well.
spk09: Okay. And then you touched upon this, but just to clarify, I guess what the narrative around the inventory dollar amounts going up is basically just it's more expensive, right? So we shouldn't assume that there's more volumes here necessarily it's just that the tobacco got more expensive and so you know just just yeah so confirming that and then um it sounded like you are talking to your customers about you know kind of maintaining your margins somehow such that they pay you more um how's that how are those conversations going how have you done that historically i mean is there has there been
spk11: um moments like this in the past and were you successful then in in you know maintaining your margins where the tobacco got expensive we have we've had moments like this where we've seen very dramatic inflation and we've been unsuccessful um i think the last time was probably 2016 um but uh As we're reaffirming our guidance today, obviously we do believe we've managed to convert those costs and margins over as they've accelerated this year.
spk07: Remember, Yasir, that demand, it's very strong. Right. Right. What helps a lot. Yeah.
spk09: And then I guess last, just to add, and you did touch on this as well, but just your conversations now with your foreign line lenders, are they still pretty supportive? I thought it was pretty encouraging before that they were okay lending to you over multiple crop cycles and looking at that credit separately. Is that still the case? Do you think you can actually get access to more lines going forward?
spk05: Yes, absolutely. We actually now back in terms of dollar lines, we're back to pre-bankruptcy level in terms of limits. We will continue to increase and we will continue to get the price down. because you talk about the spread, right? I'm not talking about the basic rate. I'm talking about the spread. We continue to put that down, and we'll continue to happen that. So we actually feel very good about the pillars for growth. It's there, right? But that's not the only strategy. Being more efficient in our cash cycle, it's a big part of it, and we're also getting some good success on that as well.
spk07: Okay. Thank you. Thank you. We'll move on to our next question from Patrick Fitzgerald with Baird.
spk08: Thanks for taking the question. In the last quarter, you talked about reverse vertical integration and how it's one of the factors leading to volume growth. Could you talk about what's happening in the industry there?
spk11: I don't think there's been any major progression in that over the last three to six months. I still think as we go forward those opportunities will be there, but no updates on that in the last three to six months at this point in time. You are seeing some of the previous reversals that we undertook coming through in the results and the volume growth, but at this point in time, no new announcements to make.
spk07: Okay. In terms of you provided the sales guidance, what What does that translate to in terms of volume? Yeah, we didn't give a volume guidance on that.
spk11: As we're saying, we're seeing very strong demand this year, offset to some extent by crop sizes in certain markets that are below our aspirations or the aspirations for the market that are weather-related. But we'll see how it goes for the rest of the year. We'll see how the shipping goes. And we've got to see the remaining purchasing program as we've still got the US, Canadian, Indian, Indonesian, and various other crops to go in terms of purchasing.
spk07: But we're doing everything we can in order to keep growing. OK.
spk08: And then it looks like you're price, you know, average per kilo price was down slightly this quarter. You know, and then the commentary on inventory, could you just kind of, and then, you know, there was also the commentary on you're going to see higher prices going forward, I think. So could you just kind of talk about, you know, how that all fits together?
spk11: Yeah, we had a higher percentage of Asian sales in the quarter, and Asian exports are generally a lower price compared to African and South America. Also, as you're looking at quarter one, quarter one, you're still really shipping crop year 21 tobaccos versus crop year 22 for the vast majority. So once you get into quarter two, three, four, you'll be seeing the 22 crop pricing coming through.
spk07: All right. And then just could you provide an update on the delayed draw term loan amendment and just kind of where that stands? Thank you.
spk05: Yes, the DTL, we call it the DTL, was already renewed. Renewed about, it's actually documentation. It's about $100 million in value. We have a coupon of seven and a half and a floor of 1%.
spk07: And this all is done and completed. Okay, thanks. That's it for me. You're welcome. All right, and we'll take our next question from Oren Shaked with BTIG.
spk04: Hey, good afternoon, everyone. So, Flavia, I just had a quick question for you on the seasonal lines. You made the comments already that you're expecting to continue to be able to reduce the pricing, and you obviously were able to reduce it somewhat. uh as you disclosed in july but i guess i i was a little surprised that you weren't able to reduce it more um you guys are obviously an improving credit and uh to your point that you've made multiple time demand is very strong you're you're clearly seeing some fairly good trends this year uh the the reduced crop size is notwithstanding so maybe can you help us understand a little bit you know what some of the pushback was to reducing the pricing more and what kind of a timeframe you would be looking at to get a more meaningful reduction on the seasonal lines going forward? Thank you.
spk05: There's no pushback. You remember how the seasonal lines work, right? We buy, the seasonal lines are there and we borrow and we purchase the crop. So all this is actually, so for example, let me give an example in Brazil, right? This was purchased, you know, in November, November, December, when we start purchasing, it doesn't get the line. We actually get a good benefit because a lot of this was borrowed before interest rates hike. So there's no pushback. It actually went down, and we continue to go down, but this is going down. It's once a year when we go through the crop. That's when we get the spreads down.
spk04: Okay, so do you have a sense, maybe, if we're at L plus 550 or 600 today on the seasonal line, any sense for where you think that could come down to over time?
spk05: Wish I can tell you, but that's part of our negotiation. I think it varies. But one thing that is important is that the number of lenders increase. In Brazil, increase the number of lenders. In Africa, increase. Overall, that's how we are. We create competition and have more availability, and that's how we're pushing the price down. That's the strategy.
spk07: Thank you very much. You're welcome.
spk01: We'll take our next question from Bruce Monrad with Northeast Investors.
spk02: Hi, just a follow-up. So on the receivables, is there any connection between getting improved terms on accounts receivable Is there a gross margin tie-in at all? Are you offering discounts at all, or are they completely independent?
spk05: No, they're independent. But the important thing on the AR is actually the key here is how we're managing this AR through the securitization programs. So we have decreased the cost of the securitization programs as well as we add some securitization programs. So that's the major piece on reducing the cash cycle here, right, as well as the terms. So for example, some programs that we had that used to hold back a percentage of the receivables, now there's no hold back. Okay, so just an example. That's how we make it more efficient.
spk02: Okay. And on the delayed draw, so what is the all-in interest rate including fees on that facility? How do you calculate that? Coupon and fees?
spk05: Yeah, as of currently about eight and a half. Okay, eight and a half. We do expect to go up a bit because the base rate is increased.
spk07: Okay, and fees and discounts? I'm sorry, do you understand what you're saying?
spk03: Are there fees and discounts or no?
spk07: It was about, yeah, OID was 3%. Okay. All right. Okay. Well, hope to see your cost of capital come down. Thank you.
spk01: You're welcome. As a reminder, everyone, that is Star 1 to ask a question. We'll take our next question from Stan Mnookian with Independent Credit Research.
spk06: Good afternoon, guys. Hello, Stan. Thanks for taking my calls. I was wondering if you can enlighten me a little bit more about the way your sort of cost structure works. I have always been under the impression that you grow your own tobacco mostly. And I was wondering what percentage of tobacco or sort of cost of good salt is deriving from completely independent third parties for you. So you are saying that the cost of raw materials from Asia has grown. So you don't have your own operations there. You buy it from like whatever, you know, a national tobacco company of China or something else. So can you help me to understand how does the inflation of cost of goods sold translate? How does it work? How did you guys have your own farmers? and you pay them like upfront, you subsidize them, you sort of deforestize them, you do a lot of different stuff. But at the end of the day, you buy sort of the, you buy these inventories from your own sort of vertical integration. And so what part of your cost of goods sold derives from non-vertically integrated facilities?
spk11: Well, we contract with independent farmers, Dan, so it's not, It's not vertically integrated, but we contract with hundreds of thousands of farmers around the globe. So Brazil, as an example, we have a very significant amount of farmers that we do contract with. But in local currency, I think the official price increases in the market were over 20% to 25% this year. Then we had the currency effects. Then the crop size in Brazil fell by 10% year-on-year, so the market was very strong. These farmers have the opportunity to sell to other purchasers in the marketplace and repay the advances that we've given them. So you can end up in a very competitive market situation, which creates inflation of cost. And all those three factors occurred in Brazil this year. and have considerably elevated the cost of tobacco, first in real terms and then in dollar terms for export. So, that's what creates significant inflationary increases in tobacco. On top of that, the input prices are increasing and have been increasing significantly, everything from fertilizer agrochemicals, transportation, electricity, everything else. So all of these factors are inflationary increases in cost of tobacco, and that's been very significant this year. In terms of where we purchase from third parties, in Asia we have joint ventures and we do source from third parties as well, but they also have cost increases. and the market is strong, demand is strong, and that's leading to increasing prices there. But the biggest increases this year really coming from the South American region, but there are significant price increases across the rest of the globe as well.
spk06: Well, we have not seen prices per kilo exceeding four and a half bucks since 2014, I think. And so my question is, and I probably made a mistake by saying your own operations. What I meant was third party with third party providers who have kind of really strong relationships with you because it's not like you're only buying from them. You help them with their own sort of, with their own harvest and stuff like this. And So my question is really when and how we're going to see pass through of this inflation into your contracts and how does it work? I mean, do you have the ability to pass through this inflation to your customers or your contracts are structured in a way that kind of exclude this volatility, inflation volatility directly? How does it work?
spk11: Well, Stan, firstly, I mean, quarter one, when you're talking about $4.50, yeah, we're still passing through. Most of the sales are 2021 crop, as I said earlier, and that's what's reflecting in that average pricing there. As we go forward through the year, I think you'll see increased average pricing coming through in the results, obviously depending on the mix. If we've got a quarter where we're shipping a lot more by-products, That will adjust a little bit, but you're going to see significant increases on average this year over that level.
spk06: First in, first out in terms of sort of passing through your inventory, first in, first out?
spk11: In terms of pricing, it really depends on the customer. Some are cost plus, some are annual negotiations. That's the job that we have to do on a yearly basis in various markets, and that's what we're focused on to make sure that we continue. We pass through the cost increases and obviously are focused on the margin levels that we achieve, and that is the target. And as I said earlier, that's also reflected in the maintenance of the guidance that we have for this year.
spk06: And so, well, speaking of this guidance, Just on the ballpark level, where do you see the annual price per kilo for this upcoming year?
spk11: That's too early to say, and there's a lot of negotiations to go. And it's also a little bit dependent on the mix that we ship out within the year. So we're better talking about that later on in the year.
spk06: But do you think it would be conceivable to assume that you would have the leverage to increase this average price like, I don't know, by 10%, at least given that in some products you have 25% inflation and volumes.
spk11: It's market by market, and some of the price increases are considerably higher than that 10% that you mentioned.
spk06: And then lastly, in terms of your financial performance, obviously your guidance is And Craig was asking this question, and Flavia, I apologize. I couldn't listen to your answer. So you intend to generate positive free cash flow this year, sort of given volatility of working capital, or you won't be able? I'm sorry, I missed this.
spk05: Yeah, we think the intention is to be cash neutral.
spk06: You have an intention to be cash flow neutral this year.
spk07: We have been negative in the past with performance of the business. We intend to be cash neutral. And that definitely sort of includes your prospects of working capital, right? Sorry, I couldn't understand what you're saying. Can you repeat it?
spk06: All I'm saying is that, look, $130 to $160 million of EBITDA plus, minus, minus 90 million of cash interest expense plus, I don't know, 20 million of, you know, capital expenditures, that implies that you should be cash flow negative on the working capital front, right? So to be kind of cash flow neutral. That's kind of, you know, so your cash flow from working capital should be negative for the entire year. Am I reading you right or not?
spk05: No, I don't think so. Remember, it all depends on the quarter that you're talking about, right? So quarter one... I'm talking about the year, all the little year. No, it shouldn't be. The intention, what I'm saying, is to generate enough cash to pay off all the interest, all the taxes, and be neutral.
spk06: Okay, and how does it work? I mean, if you generate, let's say, $150 million of cash of EBITDA, you pay $90 million of cash interest expense. You pay, let's say, $20 million in CAPEX and maybe another $20 million of taxes or plus minus. So that implies that your cash generation from working capital should be either breakeven or negative. Because otherwise, you won't be able to generate sort of zero overall cash flow from operations minus cash flow from investments.
spk05: That's right. It should be positive. I think your calculation, it's right. The main thing is performance of the business to be able to get to the 130 to 160, right?
spk00: Okay.
spk05: And overall, it should be cash positive.
spk07: if everything goes right.
spk06: But how will you sort of deliver the balance sheet if you generate break-even free cash flow?
spk05: So what we do leverage the balance sheet is, well, number one is performing. Number two is increasing the seasonal lines. That is much cheaper. Number three, decreasing the cost. Number four is relying on advance from customers, right, and paying off expensive debt.
spk06: But is it your intention to pay off your shareholders' credit facility, DDTL facility, this year, or you think that you won't be able to do this? Because if you are breakeven in terms of free cash flow, so you won't be able to pay it off this year. So that's what you're saying, right?
spk05: No, what I'm saying, yeah, what I'm saying is it all depends on the cadence of the shipments, right? So the cadence of the shipments will tell us how much cash we bring it in to be able to pay off some of the ZTL.
spk06: At some point, the cadence of shipments will normalize, right? At some point, it will normalize, right? All these sort of shenanigans about about shipping problems, yeah, we understand. That's tough. But at some point, it will normalize. Assuming it normalizes, assuming you get the normalized level of shipping operations, I mean, what do you think is the normalized level of your free cash flow generation? Because the history shows that it's all close to impossible to project your working capital volatility i've covered your company for 15 years and you know it's impossible to predict what is going to happen at the end of the first quarter of this year you can't really say what's going to happen through the rest of the year just because it's impossible from from my kind of point of view maybe i'm misunderstanding something no okay i think then uh
spk11: Obviously, I think we're steadily seeing improvements in the business. Clearly, we're focused on paying down the most expensive debt that we have, and we'll do that as early as we possibly can. I think you're right. We're at quarter one. We've had a decent start to the year, and obviously, another month and a half has passed since then, so we have a better idea of where we're sitting in various other markets. It is a little bit early to say what we'll do for the rest of the year, but I think we've had a good start and we're going to be focused on delivering the year and doing as well as we possibly can. As I said, the more expensive debt will always be the first focus in terms of reducing or eliminating that. I think the team from the finance side has done an excellent job in increasing the seasonal lines around the globe. That's a key focus of ours.
spk07: as we continue to work to grow the business going forward. Okay, Peter. All right. Good luck to you both. Thank you, Stan.
spk01: Thank you. And that concludes the question and answer session. I would now like to turn the call back over to Tomas Gregera for any additional or closing remarks.
spk10: If you're joining our call this evening, the call will remain available for playback for any interested person through Tuesday, August 16th. Again, thank you for participating in our conference.
spk01: And that does conclude today's presentation. Thank you for your participation. You may now disconnect.
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