Pyxus Intl Inc New

Good morning, ladies and gentlemen, and welcome to today's PIXA International Fiscal Year 2024 Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Tomas Gregera. Mr. Gregera, you may begin.

Thank you.

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 filing 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 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.PIXUS.com. Any replay, rebroadcast, transcript, or other reproduction of this conference call, other than the replay as provided by PIXUS 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.

Good morning to everyone, and thank you for joining our call today. We have concluded an exceptional year and are pleased to have delivered consistently strong financial and operational performance. This was achieved through increased profitability, the successful acceleration of shipments, improved operating cycle times, and working capital efficiency throughout the year. Our financial highlights illustrate our tremendous progress throughout fiscal year 2024. We grew full-year sales by 6.1% to $2 billion, leveraging our diverse global footprint to offset undersupply conditions. We increased our full-year gross profit margin to 15.4%, from 13.6% in fiscal 2023. Our operating income for the year was $137.2 million, a sizable increase of 46.3% over last year. Full-year adjusted EBITDA was $193.9 million, up 22.1% compared to the prior year. This was well above our initial guidance of $155 to $180 million, and at the high end of our most recent guidance. We also improved net income by $41.8 million, resulting in positive net income for the fiscal year. These results reflect the collective and coordinated efforts of our teams around the globe and demonstrate our ability to achieve short-term objectives while simultaneously progressing towards our long-term strategic goals. As you'll recall, we began fiscal 2024 with a plan to capture growth and margin opportunities. We implemented that plan and successfully shifted our volume mix to better use our global footprint, especially in Africa, which is increasingly important to the global market and where we saw improving results due to crop growth. In other cases, we satisfied customer needs by sourcing from a favorable mix of geographies and captured scale-related efficiency. We also shifted our mix to take strategic advantage of favorable pricing opportunities, which benefited our margins and created value for our customers. We continued our long-term focus on working capital and cash management throughout the year, improving our total available liquidity. As a result, in Brazil, we had ample liquidity to purchase early to acquire additional inventory necessary for an El Nino market environment, and still preserve availability and flexibility of our liquidity going into fiscal 2025. As the fiscal year was closing, we were pleased to reach an agreement to repurchase up to $122.5 million of debt for a total of $95.4 million, an average discount of 22.1%. This includes $112.1 million of our 8.5% senior subordinated notes and $10.3 million of our senior secured term loans. We also will retire another $20.4 million of long-term debt when our 10% senior secured notes reach maturity in August 2024. Once completed, these repurchase actions and retirements will eliminate $142.9 million of long-term debt. We believe the company's cost of capital does not yet reflect the improvements we have made both in our business and on our balance sheet. Now that we've reduced our fixed cost debt, we expect to utilize our improved credit profile to work towards a better interest rate spread on our variable rate debt. Over time, we believe there's a significant opportunity to lower our overall borrowing costs. In addition to improving the financial strength of our business, in fiscal 2024, we remained attentive to our environmental and social performance, which are tremendously important to our business. We have received clear recognition for our continued progress and our unified approach to sustainable and transparent action. In February, Pixis earned recognition from the CDP, the leading global authority for environmental disclosures. As one of 21,000 companies worldwide scored by CDP, we were pleased to be awarded leadership status, CDP's highest level of achievement in the climate change category, as well as in supplier engagement. It is difficult to overstate the importance of sustainability to our business, particularly as global regulatory and stakeholder requirements rapidly evolve. For example, the European Union recently adopted the Corporate Sustainability Due Diligence Directive, which directly impacts some of our customers and consequently how those customers will conduct business with suppliers like Pixis going forward. Our ability to manage the business effectively across a wide range of environmental and social priorities is a clear competitive advantage and is an important part of our operating culture. I would like to now turn the call over to Flavia Landsberg, our Chief Financial Officer.

Thank you, Peter. Good morning, everyone. I would like to cover a few important details of our strong financial performance in the fiscal year of 2024. Our four-year sales growth of 6.1% was driven by an increase in an average pricing of 10.5%, partially offset by lower volumes of 4.4%. Our gross margin improved to 15.4% from 13.6% due to the three main factors. First, an increase in the full-service crop volumes in Africa. Second, an increase in third-party processing volumes in certain markets. And third, the dilution of fixed costs with better footprint utilization and favorable shift in customer and regional mix in Africa and South America. Average gross profit per kilo for the year increased to 78 cents compared to 61 cents in fiscal 2023. We held SG&A expenses to $160.9 million for the year, an increase of 6.2%, mainly due to increased performance-based compensation. Our improved gross margin and expense efficiency enable a substantial 46.3% increase in our operating income, which was $137.2 million for the year. Adjusted EBITDA of $193.9 million was at the top end of our most recent guidance range and significantly above last year's $158.8 million. And as Peter mentioned, we are pleased to consistently outperform our plan over the course of the year. Our full-year net income of $2.7 million includes two discrete items that on a net basis provided $3.9 million of debt income. We recorded $15.9 million of non-recurring income in the fourth quarter related to our extinguishment of long-term debt, which more than offset the $12 million of pension expense we reported in the third quarter. In general, our success in fiscal 2024 is the result of our operational discipline, effective expense controls, capture of growth opportunities, better utilization of our global footprint, and our push to shorten our working capital cycle times. To update on a couple of key credit ratios, we are pleased with continued progress in both our total leverage ratio, which improved to 4.8 times, compared to 5.4 times at the year end last year, and also our interest coverage ratio, which improved to 1.5 times compared to with 1.3 times last year. We expect our fiscal year of 2025 results to reflect continued progress across the organization. We anticipated top line growth for full year with some margin pressure from El Nino later in the year. partially offset by benefits of additional business in Africa and Asia and increased volumes in certain value-added business. For the full year, our guidance for sales is in the range of $2.1 to $2.3 billion, and for adjusted EBITDA, in the range of $165 to $185 million. Thank you, and I will turn back to Peter for closing remarks.

Thank you, Flavia. Fiscal 2024 was a pivotal year for Pixis, and we expect to carry our momentum forward into fiscal 2025. We are confident in our ability to make continued progress and post-solid results, and we are well prepared to navigate the El Nino market environment. While El Nino presents challenges, it is a cyclical weather pattern that our teams have a deep level of experience handling and will navigate with confidence. We expect to make continued strategic progress across a number of areas, including the reduction of our buying costs, as well as a more balanced capital structure. As our results over the past several years show, and as our teams have demonstrated this past year, we can simultaneously achieve our short-term goals and move forward on initiatives that leave us increasingly well-positioned to deliver growth, profitability, and cash flow in the years ahead.

Thank you, and operator, I believe we're now ready to take questions.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment. We'll go first to Chris Reddy with BNP Paribas.

Good morning, everybody. Thanks for your time. Great quarter. Could you just give us a little bit of insight into the supply and demand equation that we have now and what you expect for the year going forward as well as the pricing dynamics that would imply?

Yes, I think, and we can definitely see, demand is definitely stronger than supply at this point in time in all varieties and pretty much all geographies in which we deal. We are facing some reduced crop sizes, particularly in South America this year. That's exacerbating the situation, and that's leading to pretty highly inflationary markets in terms of the purchasing of the product that we're acquiring for this year. So we are seeing pricing increases as we're going forward. Our levels of uncommitted are extraordinarily low, which really is a key factor to show you how strong that demand is. And we really see that demand factor continuing not only through fiscal year 25, but into fiscal year 26. when we're expecting to see some crop sizes recover.

Oh, great. Thank you very much. Appreciate it.

As a reminder, that is Star 1 if you have a question. We'll go next to Bruce Monrad with Northeast Investors.

Oh, hi, guys. Thanks for hosting the call. Can you hear me okay? Yes, Bruce. Hi, Bruce. Okay, great. A couple questions on the debt buyback. So let's see. Is there gains taxes to be paid on that and have been paid? Have I got that right?

Yes, the gain in taxes, it's calculated. It's pretty small, the taxes on the gains. Remember, we did a exchange and then elevate the base. So we expect very minimal taxes specifically to buy back the gains.

Right, so it's the OID or the market discount. And then does that – so can you put a number on it? So also from your reported interest expense, because of that, we would see the OID or the market accretion off of that discount go away from your reported interest expense. Is that right, too?

Yeah, so let me separate the two things, right? It's related to the long-term debt. And we'll have a savings when we finish up this whole thing that is going to be the leveraging on about $142 million. Then we have a tax savings of about $12.9 million. That's the savings related to the long-term debt. But the more important thing, Joyce, is it's going to be the leveraging the company almost 25% on the long-term debt. It's an incredible achievement.

Okay, and obviously you funded it by drawing on certain other lines though, right?

No, so that's one, we see this completely different thing. One thing is how we deal with the long-term debt. Related to the seasonal lines, what we do with seasonal lines is we use seasonal lines to basically by inventory, and if you look at our inventory levels, then we're up about $156 million in inventory, and you see the seasonal lines going up 112, and that's how the linkage is between the inventory and the seasonal lines.

Okay, okay. And what were the customer, you repeated it three times there in the press release, what are customary fees and expenses related to the purchase, and what was the order of magnitude?

Can you repeat the question? I should understand your question.

Well, associated with the debt buybacks, what were the customary fees and expenses that you referenced in the press release?

And what was the magnitude?

I'm not sure.

I have to get back to you on that.

Yes, I can see what you're talking about. Yes. The customary fees, they were relatively minimal in the transaction, just basic transaction costs and obviously paying the interest up to date up until the time of purchase. And no brokerage fee either. Yeah, no extraordinary fees. Okay, good.

Hey, Dancer, just one last one. If you could go back to the year over year, March over March inventory growth, can you just add color on that a little bit more?

Yes, I think it's a twin factor there. Firstly, with the lower crop size in Brazil, the market started early and tobacco was acquired earlier than in prior seasons at a higher cost. So that represents about half of the increase. And the other half is really committed inventory that... just missed the end of the quarter, actually, the vast majority of which has actually already been put on a boat and shipped to customers. And that's a positive as well. So really, that's really how those two, the two different items that compose that inventory increase.

Okay, great. That's it for me. Thank you.

As a reminder, that is star one to ask a question. We'll go next to Joseph Van Meister with Intermarket.

Hi, guys. Thanks for taking the call. My question is, have you engaged an investment banker to help you refine your capital structure?

Yeah, I think the board and the management team is very focused on the future. This is something that we're constantly discussing. And obviously, as we continue to improve our results and our capital structure, those opportunities open up for us. And clearly, we will engage the appropriate advisors at the right time in order to help us move forward.

But with less than five times leverage, your credit profile is sharply improved over the very high 800 basis points spread you're paying on several tranches of your debt. So it seems like that should be something that you could focus on and execute in the relatively near future.

Absolutely. I think our objective, it is to, you know, use the profile, the credit profile improved tremendously. And we see opportunities to lower our cost, not only on the long-term debt, but also on the seasonal lines. And that's, it is opportunities and options that we're looking for for the near future.

Great. Thank you very much and congratulations on a great job here.

Thank you. Thank you very much. As a reminder, that is star 1 if you have a question.

This does conclude the question and answer portion of today's call. I would like to turn the call back over to Peter Sickle for any closing remarks.

Yes, thank you everybody for joining us for this meeting this morning. Before we close, I really would like as well to acknowledge the impact that recent extreme weather has had on the people and communities of Rio Grande do Sul and southern Brazil, an area in which we obviously have significant operations. I really would like to commend our teams on the ground there for their extraordinary efforts to both maintain business continuity following the floods, but also simultaneously providing relief to our affected colleagues, contracted farmers, and local communities there. Our company will continue to prioritize the well-being of those impacted and remains committed to supporting the region as it transcends this devastating event. So thank you very much, everybody, and look forward to talking to you at our next learning school.

This does conclude today's call. Thank you for your participation. You may now disconnect.