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spk04: We're about to begin. Good morning and welcome to the Texas International Incorporated Fiscal Year 2024 Second Quarter Earnings Call. Please note that this call is being recorded. All lines and links have been placed on a listen-only mode at this time. After the speaker's remarks, there will be a question and answer session. To ask a question on today's call, please press star 1. I would now like to turn today's call over to Tomas Gregera, Treasurer. You may begin.
spk08: Thank you.
spk10: Leading the call this morning is Peter Sickle, our President and Chief Executive Officer, and Flavia Landsberg, our Chief Financial Officer. Before we begin, I'd like to call your attention to our safe harbor disclosure. You may hear statements during the course of this call that express a belief, expectation, or intention as well as statements that are not historical facts and other statements which may constitute forward-looking statements as defined by the Securities Litigation Reform Act of 1994 as amended. Such statements involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. The risks and uncertainties associated with forward-looking statements and with our business are described in detail in our filings with the SEC, including our most recent Form 10-Q. 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 which these statements are based. Also included in our call today are references to certain financial measures that are not calculated in accordance with the generally accepted accounting principle. These non-GAAP financial measurements, including but not limited to measures such as EBITDA, adjusted EBITDA, and free cash flow, should not be considered as an alternative to U.S. GAAP measures that are provided as additional information that we believe may have analytical value. As required under the SEC's Regulation G, which governs the use of non-GAAP financial measures, we have provided a table in our earnings release and in the appendix to our earnings presentation which reconcile such measures to the most comparable GAAP measures, and which may contain other disclosures regarding our use of non-GAAP financial measures. Any replay, rebroadcast, transfer, or other reproduction of this conference call, other than the replay as provided by PIXAS 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 content.
spk08: Thank you, and it's my pleasure to now turn the call over to Peter.
spk02: Good morning, everyone, and thank you for joining our call. We had an excellent second quarter and built upon the success achieved in the first quarter, further accelerating our seasonal cycles during the quarter and capturing growth in key regional markets. Tobacco prices continued to be favorable, and we executed on healthy levels of customer demand. Our success is clearly reflected in our revenue growth for the quarter, as well as my continued improvement in our profitability. Flavia will detail our financial performance in a moment, but first I would like to begin with some highlights. We grew revenue in the second quarter to $624.3 million, an increase of 22.8% versus the second quarter of last year. For the first half, revenues were $1.1 billion, up $249.2 million, or 29.2% over last year. Our gross margin in the quarter was 14.2% of total revenues, up a full percentage point compared to the prior year. Adjusted EBITDA in the second quarter was $57.1 million, a growth of 33.1% compared to the second quarter of fiscal 2023. Our first half adjusted EBITDA was $100.6 million, up $41.7 million from last year, an increase of 70.8%. And we reported our second consecutive quarter positive net income with $8.1 million in the second quarter and $8.9 million in the first half. The strategy behind these results is designed to simultaneously maximize our fiscal 24 financial performance, return the business to a more normalized, more manageable, and more repeatable operating cycle, and to continue to capture incremental working capital efficiency. While the global market is complex, we have the necessary regional diversification, scale, and operating flexibility to strategically position our business, contributing to our successful identification of new opportunities and growth, despite the backdrop of modest pressure on global consumption. We have the expertise and insight, both in key positions around the world and at the corporate level, to design and execute a strategy that focuses our business on the right regions at the right time with the right mix of inventory. Those capabilities, which are evident in our improved financial performance, have long been recognized by the industry and give us the competitive advantage, particularly when it comes to smaller, less capable, or less diversified players. We are a value-added partner to our customers. While many of our customers maintain some level of vertical sourcing capability, they also rely on us to help navigate the market-specific crop seasons acquire the right quality and mix of inventory needed, manage a variety of risks, and provide innovative solutions that help to achieve their goals. We are proud to provide global services that help our customers operate with greater flexibility and a wider range of options than they otherwise could. Those same capabilities are what drive our own business's growth
spk08: helping capture returns and mitigate risk. Our second quarter and first half results demonstrate the power of executing a well-designed and well-timed strategy.
spk02: After two consecutive quarters of solid revenue performance, our uncommitted inventory remains at historic lows, and we have continued to improve our access to and management of working capital. As we proceed through the third and fourth quarters We believe that we can continue to build on the gains we've captured in the first half. We are confident that we understand the market and are properly positioned for continued execution. In general, over the past several years, a number of factors have distorted the cadence of our seasonal operating cycles. These have included the impact of COVID, related supply chain disruptions, and then our own working capital constraints. We've been methodically working to return the business's seasonality back where it belongs, as well as adjust to a more favorable mix of revenues by region and by customer. These efforts are enabling us to regain, and in some cases improve upon, our historical working capital efficiency. More recently, we've been able to utilize our working capital efficiency to capture organic growth that fosters a more favorable total mix and improves our average cycle times. We are confident in our ability to continuously improve the performance of our business as we work to identify and execute on additional opportunities, increase our historical presence in certain markets, and improve the performance of our business. The success reflected in our year-to-date results and our increased confidence in our ability to perform in the remainder of the year has resulted in an improvement of guidance for the full fiscal year. I'll reserve some additional comments for closing, but at this point, I'd like to turn the call over to Flavia Landsberg, our Chief Financial Officer.
spk05: Thank you, Peter, and good morning to everyone. I will start with our income statement. We increased revenues by 22.8% to $624.3 million, compared to the prior year's 508.3 million. The 160 million improvement was primary from strong execution in the market that remains under supply. Volume in the quarter increased by 10.2% compared to the same period last year. While there are seasonal shifts that affect volume growth, they occur in offsetting directions. with a net impact that slightly favors the current year's second quarter in the comparison. Favorable market prices also contributed to the growth in the quarter with some variability by region. Our average price per kilo increased by 11.7% compared to last year. We improved our gross margin in the quarter to 14.2% of revenues, up one full percentage point over last year. Our improved margin primarily reflects scale-related benefits over our fixed cost structure. To a lesser extent, the margin improvement was due to favorable shifts in the overall mix of revenues by region and by customer. Our second quarter margin per kilo improved $0.08 to $0.70 per kilo at an average price per kilo of $5.24. The incremental margin per kilo and low uncommitted inventory reflects our successful anticipation of the market and our inventory planning. During the first half of the year, we made strategic purchases of additional tobacco. As a result, we believe we have the right mix and total volume to meet our customers' near-term demand. We grew our adjusted EBITDA to $57.1 million in the second quarter. an increase of 33.1% compared to last year's 42.9 million. This reflects the powerful combination of growth in revenues and improved gross margin. Our adjusted EBITDA margin for the quarter rose to 9.1% compared to 8.4% in the same quarter last year. For similar reasons, we grew our second quarter operating income to $46.3 million compared to $27.1 million in the prior year. Our net income grew to $8.1 million, a significant improvement compared to a net loss of $1.5 million last year. As Peter touched on, better management of working capital has been critical to our improved results, enabling us to pursue a wider range of market opportunities and strategic growth, and our working capital continues to improve. Cash and cash equivalents were $112.1 million at the end of the second quarter, about flat to last year's $114.1 million. Our season lines outstanding were $570 million at the end of the second quarter compared to last year's $548.5 million. Our second quarter adjusted free cash flow improved $90.2 million compared to prior year. Our total free cash usage of $185.4 million in the first half is an improvement of $30.5 million compared to last year's cash usage of $215.9 million. But that $30.5 million improvement does not tell the whole story. Delivery is stronger sales with higher margin per kilo in the first half of the year with accelerated cash conversion allow for incremental inventory purchases of $169.5 million. We ended the second quarter with $21.5 million of additional seasonal debt compared to last year. Turning to our credit profile and debt levels, we are pleased to have solid growth in revenues, adjusted EBITDA, and improved working capital. All of those things contributed to our strengthened credit profile. Our net debt to adjusted EBITDA ratio on trailing 12 months basis was 5.3 at the end of the second quarter compared to 7.5 a year ago. Our interest coverage ratio was 1.6 compared to 1.3 at the same point last year. The total debt improved at September 30th by $30.5 million to $1.16 billion compared to September 30th last year. Our ABL credit facility was on draw compared to $55 million draw September 30th last year. In October, we are pleased to add an incremental $20 million of availability under our ABL credit facility for a total capacity of $120 million. This is an important component of how we finance our liquidity needs. Now, turning to guidance. As a result of our strong first half financial performance, we are increasing the lower end of our range. Our guidance for fiscal year 24 revenues is now a range of $2 billion to $2.1 billion, an increase of $100 million to the bottom end of our prior range. Our guidance for fiscal year 24 EBITDA is now a range of 170 to 180 million, an increase of 15 million to the bottom end of our prior range. These guidance represent a solid improvement compared to fiscal year 23 results of 1.9 billion in revenue and 158.8 million in adjusted EBITDA. As we discussed, We accelerate business in order to compress our operating cycle, which we'll continue to pursue when possible. Other seasonal shifts are simply the result of year-over-year changes in our mix of geographies and customer concentration. Thank you. And now I will turn the call back over to Peter for his concluding remarks.
spk08: Thank you, Flavien. The tangible improvement in our business, our strong results,
spk02: and confidence in our near-term outlook as our teams across the business energized and enthusiastic. I'm pleased to note that in addition to the strategic progress we've made toward improved seasonality and operating cycle times, we've also remained focused on several important projects tied to our global environmental, social, and governance framework. These efforts mitigate risk, improve operational efficiencies, elevate our corporate reputation, and reinforce our position as a forward-thinking company. The second quarter is a strong example of the strategic integration of ESG within our business operations. In September, we announced the partnership between our subsidiary, Pixis Agriculture Malawi, and the U.S. Agency for International Development. We received a $14.6 million grant from USAID which complements our investment today in sustainable agriculture developments in Malawi and offsets certain company expenditures going forward. We look forward to working with USAID to increase the availability of high-quality, climate-smart groundnut seed varieties, boost groundnut production and processing, and more generally, to support improved farmer livelihood and counteract pressures that lead to Malawi's high rate of deforestation. It is satisfying to fulfill our mission to grow a better world while at the same time we grow a better company. Operator, I think we're now ready to take questions.
spk04: Thank you. If you'd 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 go first to Rosemary Sison with Odeon.
spk00: Good morning, everyone. Thank you for taking the call. I wanted to just talk a little bit about the seasonality that you see changing. I think you mentioned Flavia, in your comments that some of your, because of your mix change, some of that seasonality is shifting. You know, if you look at the LPM EBITDA number, for instance, of 200, and your guidance is 170 to 180, you're clearly looking at a little bit less pickup in the second half. Can you describe a little bit of what's going on there in terms of the change?
spk09: Hello, Rosemary. Nice to hear from you again.
spk02: I think obviously we're very pleased and excited about the results that we've published today and our ability to raise our guidance for the remainder of the year and for the remainder of the year. I think obviously what we've been able to do is by raising that guidance is we're lifting the revenue range by $150 million over last year. at the midpoint, and $16 million of EBITDA over at the midpoint over last year. So obviously we're foreseeing a strong year and strong year-on-year growth. More than 50% of that guidance has been achieved in the first half of the year, and that has been a key focus of ours in terms of trying to improve working capital, which we've detailed very heavily reducing interest expense and continue to improve our business and our company what we've done is really de-risked the second half of the year I think we will continue to look for opportunities to further improve as we go along but we'd like to see how shipments progress through quarter three and we'll see when we announce quarter three how things look for the remainder of the year
spk00: Okay, thank you, Peter. I apologize for my voice. It sounds like a frog today. In terms of the weather that you see and any other issues regionally, is there anything coming up that concerns you or does it look pretty normal from an expectation standpoint?
spk02: I think affecting this fiscal year, no issues. As we move into next year, I think it's well published that we're seeing El Nino effects and a strong El Nino effect on a global basis. So what we are seeing is we've had almost double the amount of rain in southern Brazil as the 10-year average in October and very few sunny days to allow for the crop to fill out. So, we are reducing a little bit the expectations that we have for the Brazilian crop size next year. It was a larger planted crop that is reducing in yield, and we'll see how that ends up as we go into next calendar year and start purchasing the crop. El Niño has different impacts around the globe, so it can have a tendency to have dry weather in India, which we're seeing at the moment that's affecting a little bit the planting. and in Africa can be dry in Southern Africa as well. The good news there is that the rain has come and the farmers are busy planting in Southern Africa, so hopefully that continues. It's a little bit early to tell for next year, and our focus will always be on using our strong global footprint in order to mitigate supply shortages in one region and replace those with tobaccos from other regions in order to fulfill our customer needs. But again, in February, when we talk about quarter three, we'll be able to get a better update on that.
spk00: Okay. Thank you, Peter. I have just one question about your capital structure. You've done a lot to improve that capital structure, and I think there's more to come there. What would be your optimal sort of view of the capital structure as you look out maybe a year? You'll be generating some free cash flow this year, but it doesn't look like a lot. How do you see that working out over the course of the next year, too?
spk05: Well, I'll take that, Rosemary. you know that we're working very hard to leverage the company. And you can see in our numbers that we have been quite successful, right? For this, we're doing mainly two things, continue to perform strong performance and also accelerating shipments so we can compress the operating cycle. And with that, you know, we're able to unveil some opportunities So the idea is that with this kind of results, what we'll be able to do is, at some point, we'll be able to create opportunities here to improve our capital structure. You know, we're making really good progress. You can go through our cash generation. as well as what the guidance said in terms of future. And that's our objective, to actually create flexibility, optionality by the end of the year and able to come back with a plan or continue to leverage the company.
spk00: Okay, great.
spk07: Well, thank you very much. Both of you appreciate it. Very nice quarter.
spk09: Thank you.
spk04: We'll go next to Oren Shakid with BTIG.
spk01: Hi. Good morning, everyone. I just wanted to ask, Flavia, on the gross profit per kilo, obviously now multiple quarters in a row of improvement there. How should we think about your ability to continue to drive that going forward?
spk05: Great question. Thank you. Listen, even though we don't give guidance on a quarter-by-quarter basis, what you can say is we have a very, very, very strong quarter. We have a very strong first half of the year, right? And you know that our guidance implied additional $900 million to a billion dollars in sales, also implied $70 to $80 million in EBITDA. Obviously, there's still a lot of things that play out until the end of the year, and we're going to grab any opportunity we have to continue to accelerate the shipments, right? And more important than anything, if you look at the overall year, you know, last year EBITDA was about 158.8 million. And this year, we talked about 170 to 180. So it's a strong, you know, strong result. And we're very confident that we can do that. When we get closer to the end of the year, we'll see if the additional opportunities will make us lift the range or not. But we still have some things to play out. to accomplish that by the end of the year.
spk01: Okay, understood. And then on the working capital front, clearly a strong quarter there as well. Should we assume that that may be borrowed a little bit from your traditional performance in the fiscal third quarter, or should we presume that it's just, you know, better performance and that that can sustain into the second half as well?
spk05: You know, even though we don't give guidance on the cash flow, let me try to help you a little bit here, right? So, you know, the working capital, if you look at our operating cycle, we've been compressing tremendously. If you think about, you know, this year, and it's in our presentation, you know, operating cycle is about 164 days versus, you know, the same time last year at 199. And if you look at a quarter-by-quarter basis, it continues going down. Where that's coming from? It's coming from inventory dates, and that's what we talk about, you know, compress, continue to compress the operating cycle in terms of shipment. We're also being very successful in the receivable dates, and it's also going down. And mainly it's how we manage our receivables, how we use our securitization lines, and all that goes back to, you know, being more efficient with that. If I can ask you what are that we think that can be even better? I think inventory days, we're trying everything that we can to continue to compress that. So it could be that we have a little bit of expectations here to be able to continue to compress a little bit. And that gives a big effect on our cash positions. So I think we still have a little more to go. Depends when things are going to happen. But so far, it's been an absolutely great improvement in terms of the days on the operating cycle.
spk09: Got it. Thank you very much. You're welcome.
spk04: And as a reminder to ask a question on today's call, that is star 1 on your telephone keypad. We'll go next to Chris Reddy with Cow Winning Company.
spk03: Yeah, good morning, everybody. Great earnings. I'm actually at BNP now, but Peter Flavia, thanks for hosting the call. So you're basically executing everything you told us you would for the last year and a half. What are your new areas of focus to drive the business forward?
spk09: Hi, Chris, and congratulations on joining BMP.
spk02: Thank you. Yes, I mean, I think we're very excited. Obviously, we've been very focused on the footprint over several years and where we are. We think we're very well positioned with that right now, and our effort is now to increase the size of those individual footprints across the geographies where we are. We're focused on specific customer needs, and those are changing as products and geographical mix of supply is changing, and we're very focused on meeting those individual requirements of those customers. We continue to be focused on growing our value-added tobacco business that we're seeing strong potential with. We're excited about the partnership that we have with USAID, which is a combination of improving farmer incomes and reforestation in Malawi, but also developing growth in sales and exports of a new crop from Malawi. And we see actually really across the business as our customers are changing the way they look at things. that we see significant opportunities in many geographies around the world, and we're excited to be working on those.
spk03: Fantastic. And then with this growth plan, you know, you had hinted around, or Flavia did rather, about the cap stack. You have a lot of sort of various line items in that. Are you focused on obviously pushing out maturities is something that everybody's going to look to see. but would you also be considering trying to reduce the line items?
spk09: Chris, I think it's a great question.
spk05: As I mentioned, we are trying, and we're actually succeeding in the leveraging the company, right? So the leveraging the company, you can see now the leverage ratio is being going down significantly over time. And we did push the maturity of some of the debt to December 2027, as you know. So, again, the strategy is, too, is continue to perform. And every single efficiency that we gain is cash, right? So that's number one. The second one is working capital. I mean, as I said, we decreased tremendously our operating cycle days. And when we do that, it's also extremely positive to our cash flows. So that would create opportunities for us to progress further in the leveraging. And we'll come to a plan when the time is proper.
spk03: Great. Thank you so much for your time. And congratulations again on a fantastic quarter.
spk09: Thank you. Thank you. And at this time, there are no further questions. I will now turn the call back to the speakers for any additional or closing comments. Okay. Thank you, everybody, for joining our call today, and we look forward to talking to you again after we publish our quarter three results. This does conclude today's conference. We thank you for your participation.
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