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spk08: Good morning, ladies and gentlemen, and welcome to today's PICSIS International Fiscal Year 2025 First Quarter Conference Call. At the end of the presentation, there will be a Q&A session. If you would like to ask a question, please dial in and press star 1 to enter the queue. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Thomas Grigara. Mr. Grigara, you may begin.
spk12: Thank you, operator. With
spk05: 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'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 .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.
spk04: Good morning, everyone, and thank you for joining our call today. We are pleased with our strong first quarter results, which are underscored by gains in revenue and profitability, as well as the significant growth of shipments for the period. Earlier leave purchasing compared to the prior year remained a theme in the first quarter, particularly in South America and Africa. This trend was driven by a highly competitive market environment, which was influenced by reduced crop sizes due to El Nino and sustained strong demand. Here are a few highlights from our first quarter financial performance. We grew sales by 33.1%, reaching $634.9 million, an increase of $157.8 million over last year's with both higher prices and increased volumes contributing to our performance. We generated an additional $10.8 million of gross profit in the first quarter compared to the prior year, with a full service gross profit increase from $0.78 to $0.84 per kilo. We increased our first quarter operating profit by .3% to $40.5 million, an improvement of $4.1 million over the same period last year. And our first quarter adjusted EBITDA was $55 million, up 26% compared to the same quarter last year. Our crop purchases in South America were completed early in the quarter, and we are nearing completion of our buying activities across Africa. We're pleased with our team's ability to navigate the highly competitive market to successfully secure leaf volumes on an expedited crop purchasing schedule. As mentioned last quarter, we do expect some margin pressure in coming quarters, particularly related to shipments out of South America. This is mainly due to impacts on this crop from El Nino on volume and margin, as well as shipping container shortages, primarily from Asia. One of our key strategic objectives remains the reduction of our borrowing costs, both related to our capital structure and financing our seasonal needs for working capital. Since the announcement of the repurchase agreement in March 2024, the company has repurchased $122.5 million of long-term debt for a total cost of $95.4 million. As anticipated, we will retire the remaining $20.4 million of our 10% senior secured notes at maturity later this month. These combined actions will reduce our long-term debt by a total of $142.9 million, strengthening our balance sheet and positioning the business to drive future profitability. We are also working closely with our board of directors and strategic advisors to evaluate a range of options to further improve our capital structure. Turning to our sustainability goals, we achieved a significant milestone this quarter related to our environmental efforts. Following an in-depth review and approval process, the Science-Based Targets Initiative validated our company's near-term emissions reduction targets and confirmed their alignment with the most ambitious goal of the Paris Agreement. We're proud to be one of only 5,800 companies worldwide to receive this prestigious third-party endorsement, further confirming our commitment to and the effectiveness of our greenhouse gas reduction strategy. I'll reserve a few comments for closing, but I would now like to turn the call over to Flavia Landsberg, our Chief Financial
spk12: Officer.
spk11: Flavia Landsberg Thank you, Peter, and good morning,
spk07: everyone. As anticipated, we had a strong first quarter and we are reaffirming our guidance for the year. We continue to estimate revenue will be between $2.1 to $2.3 billion in a full year adjusted to be between $165 to $185 million. I would like to provide you with a few important details from the quarter. The .1% sales growth we achieved in the first quarter was the result of increased average price per kilo and shipping volume. The average price per kilo for our full service business increased .9% to $6.16. This was up from $5.27 per kilo in the first quarter last year. Our strong inventory position heading into the quarter enabled us to deliver a -over-year shipment volume increase of 11.9%. Our gross profit per kilo increased to 84 cents from 78 cents in the first quarter of last year. This expansion was driven primarily by a more favorable mix by customer and geography. In the quarter, SG&A spending was $40.7 million. This included $6 million of non-cash compensation items which were not included in the first quarter last year. Our volume and gross profit per kilo improvements fueled an increase in our first quarter operating income to $40.5 million compared to $36.4 million last year. A cleaner measure of our performance is the -over-year comparison for adjusted EBITDA which was $55 million compared to $43.7 million last year, an increase of 26%. Our first quarter results are a solid start for the full year. As you can see from the adjusted EBITDA already captured, we expect to experience some El Nino related impacts, primarily on margins from South America, as reflected in our fiscal year 2025 guidance. Our reiteration of guidance reflects our understanding of timing and magnitude of these factors as well as our ability to achieve partial offsets. We maintained our operational discipline throughout the quarter and effectively converted our investment in inventory to drive sales and profitability growth. We captured available benefits of scale and continued to leverage our global footprint effectively. These successes contributed to our continued net income improvement which reached $4.6 million for the quarter compared to $0.8 million last year. Now, I would like to update you on a few key credit ratios. Our total leverage ratio has improved to 5.6 times compared to 6.1 times in the prior year. Our interest coverage ratio also improved slightly versus prior year and was 1.53 times at the end of the quarter compared to 1.51 times last year. We believe our growing track record of solid working capital management, many consecutive quarters of improving financial results, and improvements on our credit profile, including the elimination of nearly a quarter of our long-term debt, will continue to open doors to negotiate rate reductions with our lenders. While it remains too early to forecast specific savings, we would expect to see benefits from a narrower spread in fiscal 2026. Thank you and I will return back to call to Peter for closing remarks.
spk04: Thank you, Flavia. We have carried our momentum from fiscal 2024 into the first quarter of fiscal 2025 and remain committed to delivering growth, maximizing profitability, driving positive cash flow, and increasing shareholder value as we position the company for the future. Thank you again for joining today's
spk12: call. Operator, I believe we are now ready to take questions.
spk11: Thank you. If you would like
spk08: to ask a question, please dial in and press and signal by pressing star one 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 one to ask a question and we will pause for just a moment. Our first question is going to come from Rosemary Susson from Odean Capital. Please go ahead.
spk06: Yes, good morning everyone and thank you for having the call. Nice quarter in what was obviously a difficult time for El Nino and the issues with getting enough product. One of the things I had a question about was that the inventory level is clearly high relative to history and whatnot. I realize a part of that is valuation. But also your borrowings on the notes payable to banks is relatively high as well. How do you view that going forward as you go forward in the year and you start to pull that down? How do you, how will you manage, Flavia, the cost of that debt to come down at some point? I know that you've been thinking about working with rating agencies and whatnot to get to the point where that rate starts to come down. It still looks very high relative to the quality of the collateral behind it. So if you could just speak to that, I would appreciate it.
spk11: Okay. Hello,
spk07: Rosemary. So our seasonal lines are 100% used to finance our inventory. We have an idea today it's around about 70% of our inventory is being financed by the seasonal lines. That's very typical for quarter one. As we ship and continues to ship as throughout the year, automatically will go down and then goes back up specifically on quarter four when we start purchasing the new crop. So it's a very typical seasonal pattern in our cycle.
spk06: And how will you, do you view the rate on that debt? Is that something that you're working to lower going forward?
spk07: That's a very good question. So, you know, as you guys know, we've been deleveraging the company. We actually, you know, by the end of August, we're going to be deleveraging the company about 24% on long-term debt. This will continue to work on the spread. So what we do expect is that to have an effect on the rates on the seasonal lines. Now, because the seasonal lines are reset every year because it's paid off every year and then we borrow every year related to that, we will see some of this effect in fiscal year 2026 because for this current crop, it's already set. So that's what we intend just to continue to work on and see this in the next fiscal year.
spk06: Okay, great. Thank you. And then just on the gross profit per kilo, I noticed that on a, certainly on an absolute dollar basis, it's up year over year and even versus the last quarter, but it is down on a margin basis. Can you comment on that?
spk04: Hi, Rosemary. Nice to talk to you again. Yes, I think first quarter, obviously, we are very pleased with the result of the first quarter, particularly working this year in an El Nino environment. And I think we've created a very good foundation to achieve our targets for the year. But specifically, when you're comparing gross gross profit dollars versus gross profit percentage, I think the key factors in the quarter were really the geographical mix of the sales. We managed to accelerate some shipments from certain areas that are really higher priced and higher margin, but slightly less in percentage than we did in the prior year. And that's what lowered the percentage. So it's really a blend of the customer and the regional mix in the quarter compared to prior year that created that comparison.
spk06: Thank you, Peter. And then you mentioned that the environment is highly competitive for the product for a variety of reasons. Could you talk a little bit more about how that differs, how that is different from what you've experienced in the last year or so?
spk04: Well, I think we've seen strong inflationary, strong demand and strong inflationary pressure on tobacco costs. And as you may know, 70 plus percent of our cost is the purchase price from farmers, but particularly this year because the crop sizes in major markets really fell below last year and in certain cases below expectations. There's very high competitiveness for acquiring the product from farmers. So what that does is is is concertina or compress the gap between the high price, high quality tobacco and the low quality tobacco. So what that does then with a combination of reduced volumes is to reduce margins, particularly on on lower and medium quality tobacco as they sell through. So that's been the environment and particularly strongly felt this year. And as we go into next and come out of this El Nino impact, we'll see larger crop sizes and should see a better spread on the purchasing that should help to improve the situation as we work into fiscal 26.
spk06: Thank you for that. And then just one last question I had on taxes. Is there have you been doing work on trying to reduce your cash tax expense?
spk07: Yes, we have. As we have is continues to do that. Just an observation in the PNL, it's what we have in the PNL. There is some non-cash, non-recurring items on the cash in the PNL, but the cash taxes that we pay this year is about two point five million so far. And and if you look at historically, it shouldn't be much different. And we actually making more money. So we continue to work on cash, cash taxes planning.
spk11: OK, great. Well, thank you very much. I appreciate it. Thank you.
spk08: And our next question is going to come from Orange Shake from BTIG. Please go ahead.
spk01: Hey, good morning, everyone. So, Peter, just expanding on those comments on coming out of the El Nino. So historically, has the company been able to recapture all of the margin that was lost during the El Nino period? And maybe if you could give us a sense for the timing of recapturing whatever portion of of the margin you would expect to get back.
spk04: Well, I mean, I think for everybody, when we're looking at an El Nino event, it approximately occurs once every seven years. It's something that we have faced in the past and hopefully something that we won't face again until twenty thirty one. But but yes, what you tend to see, you've got unsatisfied demand from this year. You've obviously got very strong pricing. You have reduced volumes. And what tends to happen in following years as costs of product come down, demand remains strong to fulfill the unfulfilled demand from the prior year. You would tend to see stronger results coming in in the following year post an El Nino crop year.
spk01: Yes. OK, that's helpful. And then you did reference evaluating a range of options on the capital structure. You know, it sounds like that's more than just trying to reduce the rate on the on the seasonal line. So any flavor you could provide just directionally on sort of how you're thinking about what this capital structure would look like optimally when those range of options have been explored?
spk04: Well, I mean, I think we have to look at every element of the capital structure. Clearly, we've addressed very significantly the long term debt piece this year over the last six months. We've basically repurchased or will have done by August twenty fourth a quarter of our long term debt. Obviously, that sets us up in a strong position to both look at the at the at the long term debt and the and the shorter term working capital lines for the future. And we certainly believe without without performance with the track record that we've had over the past few years, the continuous quarters of improvement in our operations and operating cycle and working capital cycle and profitability that we deserve a lower rate. And there are several options on the table that we're looking at and we'll announce those as we proceed with those opportunities.
spk01: OK. And then just lastly, you know, the comment on the shipping containers, can you just expand a little bit on what you guys are seeing there?
spk04: Yes, we already actually saw it in quarter one. What's really occurring? And particularly in quarter one, you've you've seen container costs mostly out of Asia, but in other regions of the world increase significantly. And that's really caused by the events in the Middle East that are reducing shipping through the through the Suez Canal and low water levels in the Panama Canal. So what that does, we don't generally pay for shipping containers, but our major customers have global rates and the spot rates when when the spot rates are higher than the global negotiated rates, we tend to get less container allocation for our shipment. So we did see some impact of that in quarter one, particularly from Asia. We managed to overcome a lot of that against our plan by some accelerated shipping from other regions, but we expect that to continue throughout the year. Container costs are definitely elevated. Vessel movements are more hub to hub and then a lot of feeder vessels. So it is delaying shipment timing to some extent.
spk12: Understood. Thanks so much.
spk11: And our next question is going to come
spk08: from Chris Reddy from BMP Bear Bus. Please go ahead.
spk09: Good morning. Thanks for the time. Quick question. You had cited increased demand earlier in the presentation. What's the basis for that or what's driving that?
spk12: Well, I think I think Chris,
spk04: we sell product all over the globe. So if you are purely looking at the US cigarette market, you're sitting here wondering what are they doing? Why? Why? Why are sales going volumes going up? But obviously we sell into many markets where demand continues to increase. At the same time, we believe we're doing a good job of making us an attractive company to purchase product from. And with our track and trace and sustainability, I think we're in a good position to supply customers the tobacco they require in their regulatory environment of the future. So I think it's a combination of everything that we have going on. There's still significant unsatisfied demand out there. There have been relatively shorter crops for the last few years. And while we expected demand this year to come a little bit more into balance because of those El Nino impacted crops, that hasn't really happened yet. So we still see strong demand out there.
spk09: And with that demand, is it that demand is just overall rising so it's all boats are being lifted or is it you're also taking some market share?
spk12: Not every market is increasing. I do
spk04: believe that in certain markets we are increasing market share as well. But I think it's a combination of factors that is helping us continue to improve.
spk09: Right. And then I guess you guys have done a great job of stabilizing the business over the last two years now. We're at this sustainable EBITDA number, just sub 200 million. What's the plan going forward with the business? Is it growth or is it efficiency or a combination of the two or something totally different?
spk04: I think it's both. And we've stated that before. We can do more than one thing at a time. And that's what we're focused on. But also as the market continues to change, there are opportunities both in the combustible and the non-combustible supply of product. And there remain opportunities in terms of reversal of vertical integration and various other factors. And so I really can see it on both sides of the business. How we continue to improve our capital structure, reduce cost and at the same time take opportunities to grow businesses where they are. I think that makes sense.
spk12: Great. All right. Perfect. Thank you so much for your time. Appreciate it.
spk11: And once again,
spk08: if you'd like to ask a question, you need to dial in and press star 1 to enter our question queue. Our next question is going to come from Joseph von Meister from Inner Market. Please go ahead.
spk02: Hi, guys. Thanks for taking the questions. So I noticed this year there's a stock-based comp item in your financial statements.
spk12: Is that something new?
spk07: Yes, I can. I can tip on it. The stock-based comp is not new, but the accrual of this is a non-cash. Okay. The accrual of the program. That's something new. And that's related to the program and the likelihood. So that's why it's been accrued about three million dollars
spk11: of
spk07: that. That was
spk11: accrued this quarter.
spk12: And okay. Well, I'm
spk02: glad they're giving you a piece of the action after all the improvements that have been made to the business. I don't know if I'm interpreting
spk12: that correctly or not. Can you comment?
spk11: Our
spk07: equity-based compensation is to reward the management on future results and actions. So.
spk04: And we do publish that in the proxy as well. So you have to see the details of that. Okay.
spk02: So have you guys hired a banker to help you with the refi?
spk07: We are in the process to evaluating that and make sure that we work with the board of directors generally to do that. So when we do, you will make sure that is communicated.
spk02: Okay. Great job, guys. Thank you so much.
spk11: Thank you.
spk08: And our next question is going to come from Bruce from Northeast investors. Please go ahead.
spk03: Hi, everybody. Just a couple of follow ups. So I follow up to Joe's question. Is there a stock price that your compensation
spk12: is based on? Yes. And I do not remember. I do
spk04: not remember if that's in the proxy or not. But if it's there, it's there. If it's not, then I can't really reveal that. I'm pretty sure it's in the proxy.
spk03: Okay. Okay. And then going back to one or following up on Rosemary's type of questions. So I know we have a lot of moving parts, but can you put out a number on pro forma cash interest expense? So we have a run rate going ahead, given all the buybacks and the like, and if there's market discount that we need to take out. What's a number for a pro forma annual cash interest expense?
spk07: We don't give guidance on pro forma, especially because there's a lot of questions, including the base rate, right? Because it's being changed as we speak. But what I can tell you is from what we did leverage the company, the effect of that is around $12.9 million on savings and interest related to the base rate. With the leverage in the company.
spk03: Okay. Okay. And help me on the comparison. Do we have a lot of do end of quarter balances? I'm comparing your book, inviting you to comment on your book interest expense of $130 million and your, I know it's just one quarter, but you know, debt, I think of a billion, something like that. So I'm inviting you to comment on what, how does infra quarter vary if at all with end of quarter?
spk07: You're talking about within the quarter. Yeah, it's yeah, within the quarter doesn't vary much now related to every quarter. It would depend on the average borrowing, specifically on the seasonal lines, because as I mentioned a quarter one, it's a, it's usually what is the highest then start going down as we ship. And then we start borrowing again on the seasonal lines to purchase the new crop. It goes up again. So it's a 100% aligned in terms of the interest on the seasonal lines related to. The inventory perspective. So you can, you know, but it is it is seasonal. And it also has an inclusion of the long term that that we will see a decrease because of the leverage in the company.
spk03: Okay. And then if the if the slow down that you're sort of gearing, gearing for occurs, how will that change your year over year working capital as the as the rest of the year on spools? And and and if you're if you're you'll indulge me, you know, would you take a stab at where fiscal year or maybe a target lots of moving parts, but target for fiscal year net debt? But again, maybe qual qualitatively, you know, how how does the how does how will working capital change if the slowdown manifests itself?
spk12: Hey, you mean the slowdown in shipping? Yeah.
spk03: Well, sales and the and even.
spk04: I look, I think where we are planning the year, we are very focused on shipping out the product that we both had at the end of quarter four last year. And you saw we made a very significant movement to that in quarter one. But at the same time, product that we purchased this year, we tend to maximize the shipments of that within the fiscal year. If if anything, our target is to have reduced inventory at the end subject to purchasing programs in the fourth quarter. But that that is one of the factors that we're still looking at. See, you know, where's the end? But we we do have an aggressive target in terms of shipments and shipping out inventory before the year end. And by the way, I just want to come back to your question on the equity price. The equity targets that we have are significantly higher than the equity price today. And both management and the board feel that we are significantly undervalued. So that is that is our focus. That is our target. That's another piece of our strategy as we are. And obviously, management gets compensated for significant improvements in that as we go forward.
spk03: OK, all right. Thank you. Thank you.
spk08: And our next question is going to come from Patrick Fitzgerald from BART. Please go ahead.
spk10: Thank you for taking the questions. Flavia, any sense of what your volumes are in inventory versus last year?
spk11: Can you repeat it again?
spk10: Yeah, well, I see your inventory balance 1.014 billion versus 1.006 billion last year. But I'm just wondering, you know, prices are higher. Like, what what type of volume do you have in inventory versus last year?
spk07: Yeah, we do have this specified in our queue on on the inventory. So it's mostly price. It's mostly price volumes or volumes are similar to a little lower, but the price is increased on the total inventory. And and that's related to all the effects that we have. And you can take pricing specifically, I think South America and Africa are higher than last year.
spk04: Yeah, just to add to that, I would say uncommitted inventory levels are extraordinarily low and the majority of that, the remaining inventory is either committed or green. And we did purchase earlier in the year African volumes as well. So we've got quite a bit of processing and shipping to do there. So we feel in a good place with the inventory
spk12: that we do have. Okay,
spk10: any sense of how the El Nino weather pattern is expected to impact worldwide tobacco volumes?
spk12: Well, when we look at the the markets in which
spk04: we operate, we see volumes of fluke tobacco in particular have declined by about one hundred and sixty thousand tons year on year. And that's if I added to that the expectation of the crop size, I'd probably say that was close to two hundred and fifty thousand tons. So but in major markets, this is where the key is. If you think about Brazil, you think about Zimbabwe, you know, major flavor markets in the world, we've kind of got a 20 percent reduction year on year impacted by El Nino. And then in other markets where we were probably expecting more growth in volumes like Tanzania and so on, those were also impacted by the weather. So we didn't get the growth that we had anticipated in those markets as well. So it's a it's a very considerable volume and percentage, particularly in key markets. But we're doing our best to and so far, I think you're with a combination of a strong foundation in the first quarter and and what we've been able to do operational to offset that in various other regions. I think we're doing a good job managing through
spk12: this situation. OK, is there any good rule of
spk10: thumb on cash taxes?
spk07: Well, again, we we we don't provide any guys in cash sectors, but historically, if you look at it, it's between twenty
spk11: one and twenty five.
spk10: OK, and then just wondering, are you working on I know you're working on, like, you know, comprehensive reply, but any additional, like, below market debt purchase transactions that you would pursue in the interim here, are you basically done on that front?
spk11: We always
spk07: look for opportunities,
spk11: but nothing to announce at this point.
spk12: All right, thanks a lot.
spk11: Thank you. And
spk08: there are no further questions at this time. I'd like to turn the conference back over to Thomas. Please go ahead.
spk05: Thank you for joining our first quarter fiscal year, twenty, twenty five financial results earnings call. The call will remain available for playback for any interested person through August 12th, twenty, twenty four. Again, thank you for participating in our call.
spk08: And this will conclude today's call. We appreciate your participation. You may now disconnect.
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