This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Good day, ladies and gentlemen, and welcome to today's PIXUS International Physical Year 2023 Second Quarter Results Conference Call. After the speaker's remarks, there will be a question and answer session. You must be dialed into the conference call to ask a question. The webcast is audio only. If you would like to ask a question during the question and answer session, simply press star 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1 on your telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Thomas Gregera.
spk03: Mr. Gregera, you may begin.
spk00: Thank you, Abby. 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 change 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. 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.
spk01: Hello, everyone, and thank you for joining us this evening. Pleased with the results achieved during the first half of fiscal 2023, particularly our efforts to reduce supply chain complexities and increase operational efficiency. These efforts resulted in a more normalized shipment in certain markets compared to the prior year. During the quarter, we increased sales and other operating revenues by $114.1 million, and operating margin improved by $21.6 million, primarily due to increased demand and more normalized timing of shipments from Africa, Asia, and South America. This enabled the company to utilize cash generated from increased sales in the quarter to refinance the delayed draw term loan facility, repay a portion of the revolving loan facility, and fully fund the U.S.-defined benefit pension plan. As of September 30, 2022, our inventory increased $87.7 million compared to the prior year. This is primarily due to higher green tobacco prices and processing costs in Africa and South America and delayed shipments from North America. 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. The prevailing La Nina weather patterns continue to adversely affect the global supply of tobacco. However, through our efforts to accelerate buying activities in certain key markets, investments we have made across the business, and engaging customers in transparent dialogue regarding the impacts of La Nina and inflation on our business, we purchased sufficient volume to meet near-term customer demand and maintained our gross profit as a percentage of sales despite historic inflation. We continue to expect fiscal 23 sales to be between $1.75 and $1.95 billion and adjusted EBITDA to be between $130 and $160 million. We remain focused on driving stakeholder value as we accelerate our contributions towards a net zero future. And we're recently awarded a Golden Leaf Award in the best ESG program category for our efforts to promote sustainable fuel production, helping to mitigate deforestation. We receive positive feedback from customers on our environmental, social, and governance framework, specifically our strategic alignment with our customers' targets and look forward to increasing collaboration so that together we can grow a better world. With that, I'll turn it over to Flavia to provide a financial update. Flavia?
spk04: Thank you, Peter. With regards to our second quarter results, sales for the three months ended September 30, 2022, were $508.3 million, a 28.9% increase compared to the prior year. This increase was primarily due to a 17.5% increase in beef volume and a 13.3% increase in average price per kilo. The increase in beef volume was driven by increased demand and more normalized timing of shipments from Africa, Asia, and South America, and was partially offset by the timing of shipments from North America. The increase in average price per kilo was mainly due to higher tobacco prices. Cost of goods and service sold for the three months ended September 30th, 2022 was 441 million, a 28.9 increase compared to prior year. This increase was mainly due to the increase in sales. Average cost per kilo increased primarily due to higher tobacco prices. Gross profit increased 15.2 million, a 29.2% compared to the prior year. This increase was mainly due to the increase in sales. Gross profit as a percentage of sales was 13.2% for the three months ended September 30th, 2022 and 2021. Operating income for the three months ended September 30th, 2022 was 27.1 million, an increase of 21.6 million compared to the prior year. This increase was mainly due to the higher leaf sales from increased volumes and average price per kilo, lower restructuring and impairment charges, and a reduction in SG&A. Average gross profit per kilo for product revenue for the three months ended September 30, 2022, was $0.62, an increase of $0.09 per kilo, or 17%. This increase was primarily due to a favorable shift in customer and product mix. The impact of this increase was partially offset by lower gross profit from third-party processing and non-recurring eventuality write-downs in non-leaf business. 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. In line with our strategy, the decrease in green tobacco prices and processing costs in South America require additional working capital that was primarily sourced from increased seasonal lines and more efficient cash management. As of September 30, 2022, the company's available credit lines and cash totaled $329.2 million, including $165.9 million of available on the foreign seasonal lines of credit. We're excited about the future of our business, and on that, Abby, please open the line for questions.
spk02: At this time, I would like to remind everyone, you must be dialed in to the conference call to ask a question. The webcast is audio only. As another reminder, if you'd like to ask a question during this time, please select star one on your telephone keypad.
spk03: We'll pause for just a moment to compile the question and answer roster. Your first question comes from the line of Yasir Bari from Intermarket. Your line is open. Hi, guys. Hello, Yas.
spk05: Hey. So I don't know if my numbers are right, but I'm looking at your competitor, UVD, and I'm noticing that you have outperformed them on an operating income level on a year-over-year basis, which I think is impressive. How should we or how should I think about that? Is there something to read through into that in terms of you taking any market share or you managing your margins better? I don't know if you've had a chance to look at their numbers, but I'd love to hear your thoughts.
spk01: Yeah. Yes. I mean, obviously, we've had a really nice quarter. Volumes were up. Most of that is real business growth versus any catch-up in sales. in delayed shipments. So we've been really positive on what we've managed to achieve. And you're right, when you look at LEAF operating margin, I think that's an area where we really focus on in terms of continuing to improve that and being able to have something that's more comfortable. So when we look at that, we look at our reported operating income, eliminate the non-LEAF income or loss, eliminate any restructuring expense, and then look at the equity pickup. And when you look at those numbers, it's not a gap number that we report, but you can really see a positive improvement for the company, and we're very pleased with that. And we're looking forward to continue to push through for the remainder of the year.
spk04: And if I may add, just to give a little more color, we also had some specific growth on our value-added business. as well as the growth on our reversal of vertical integration strategy. So both also contributed to the increase both in volumes and in the margin per table.
spk05: Okay.
spk03: That's helpful. Thank you. You're welcome. Again, if you would like to ask a question, press star 1 on your telephone keypad There are no further questions at this time. Mr. Grieger, I turn the call back over to you.
spk00: Thank you. Thank you for joining our call this evening. The call will remain available for playback for any interested person Tuesday, November 15. Again, thank you for participating in our conference call.
spk02: This concludes today's call. You may now disconnect.
Disclaimer