Pyxus Intl Inc New

Please stand by, your conference is about to begin. Hello and welcome to our first quarter fiscal 2027 earnings conference call. Today's call is being recorded. After our prepared remarks, we'll open the call for questions. I'd now like to turn the call over to Tomas Grigera, VP Corporate Treasurer.

Tomas Grigera Thank you, operator. Joining me today are Peter Sikkel, our President and CEO, and Dustin Styons, 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 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 those 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 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 which these statements are based. Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation, and amortization commonly referred to as EBITDA and adjusted EBITDA, free cash flow adjusted for changes in working capital and adjusted free cash flow metrics, which 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. Reconciliations of and other disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which 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 Pieter.

Thank you, Tomas, and good morning, everyone. We delivered a strong start to fiscal year 2027, executing a disciplined purchasing approach in an abundant market, protecting margin performance, generating cash, and continuing to improve our balance sheet and credit metrics. Our first quarter results were consistent with expectations and support our full-year outlook. Market conditions are developing largely as anticipated with ample supply, steady customer demand, and a consistent quarterly shipping cadence compared to last year. As we indicated on our last call, this supply-demand dynamic was likely to drive lower crop prices in key sourcing markets, which positions us to purchase higher quality tobacco at a lower price. That adjustment in market pricing is now becoming evident. resulting in more selective, slower, and lower cost purchasing through the first quarter, largely in South America and Africa. Regardless of market dynamics, we align our crop purchases with demand, leveraging our strong visibility into customer requirements while maintaining disciplined working capital deployment. We are pleased with our first quarter performance, which was in line with our expectations with the first quarter typically representing the lowest sales period of the year. Margin per kilo remains strong, underscoring the effectiveness of our commercial model as we procure tobacco in a lower price, sufficient supply environment. We continue to expect shipment volumes to strengthen over the balance of the year, and our full year outlook remains unchanged. We remain focused on optimizing the timing and execution of shipments and expect a cadence consistent with last year while recognizing that quarterly variances may occur based on shipment timing, processing schedules, and regional and customer mix. We continue to invest in agricultural innovation that strengthens farmer outcomes and enhances the reliability of our supply chain. In Tanzania, we recently introduced proprietary tobacco seed varieties developed by our global research and development team. These varieties have produced significantly improved yields and crop resilience compared with traditional seeds. This work reflects how targeted investments in research and development and seed production and sales can enhance productivity, support farmer livelihoods, and reinforce the long-term sustainability of our sourcing operations. Together, these capabilities help strengthen customer engagement and farmer retention while supporting long-term margin performance and quality supply alignment. Importantly, we view global solutions as part of the broader strategic shift towards a more value-driven model, not simply a quarterly driver. With that, I'll turn the call over to Dustin to walk through the financial results in more detail. Thank you, Pieter, and good morning, everyone.

As Pieter said, the first quarter was a solid start to the year. The core drivers of the business remained strong in the quarter, with stable gross profit per kilo, positive year-over-year cash generation, enhanced liquidity, and continued balance sheet improvements. For the first quarter of fiscal 27, sales were $437.8 million, compared with $508.8 million in the prior year quarter. The decrease was primarily driven by lower average cost in sales prices in Africa and South America, as well as the timing of shipments from North America. Gross margin was $61.4 million, compared with $65.6 million last year. while gross margin percentage increased to 14% compared with 12.9% last year. The reduction in gross margin was mainly due to the timing of shipments in North America and customer mix in Africa. It's important to highlight that while average sales prices were down, gross profit per kilo was essentially in line with the prior year at 84 cents compared with 86 cents in last year's quarter. SG&A was $43.9 million compared with $40.4 million last year. The increase was primarily driven by higher personnel, legal, and professional fees. We continue to manage costs diligently while supporting the priorities of the business. Adjusted EBITDA was $27.7 million compared with $29.5 million last year. On a rolling 12-month basis, adjusted EBITDA improved to $225 million compared with $182.9 million last year, reflecting the stronger earnings profile we have built over the last year. Turning to working capital, our performance was strong during the quarter and supported improved cash generation. We remained focused on operating cycle efficiency Ending the quarter at 173 days, an increase of 13 days compared to the prior year period and in line with expectations. We strategically procured and processed tobacco during the quarter to support steady customer demand, preparing for shipments later in the fiscal year. As a result, inventory was $1.1 billion, down slightly from a year ago. Lower crop prices and a more measured purchasing pace reduced unprocessed tobacco inventories, while higher processed inventory levels reflected carryover volumes from the prior crop. Importantly, we funded this seasonal inventory investment while reducing notes payable by $52.4 million year over year, demonstrating continued balance sheet discipline and stronger cash generation. Adjusted pre-cash flow improved in the quarter, driven by disciplined execution of our commercial strategy, lower cost, and slower purchasing cadence, improved collections, and disciplined working capital management, even as we continued to make the seasonal investments and inventory needed to support full-year customer demand. On a rolling 12-month basis, adjusted pre-cash flow improved to $123.4 million and Free Cash Flow adjusted for changes in working capital improved to $28 million, reflecting meaningful progress in cash generation compared with the prior year period. While certain Free Cash Flow components reflect normal timing dynamics, the broader story is one of continued improvement as our disciplined execution drives stronger cash generation. From a liquidity perspective, we ended the quarter in a strong position. Cash was $175.9 million at quarter end, and we had no borrowings outstanding under the ABL facility. This gives us flexibility to support crop purchasing needs, manage normal seasonal working capital requirements, and continue executing against our fiscal year priorities. From a balance sheet and credit perspective, we also continued to make progress. Leverage improved to 4.9 turns, compared with 6.8 turns last year, reflecting both higher rolling 12-month adjusted EBITDA and lower net debt. Interest coverage improved to 1.6 turns compared with 1.4 turns, reflecting continued improvement in our credit metrics. We continue to actively pursue addressing the upcoming maturity of our long-term debt. and although we are not in a position to provide further details at this time, we look forward to sharing updates in the future. Overall, the first quarter was consistent with our plan. It reflected normal cadence and timing effects, but also demonstrated resilient gross profit per kilo, positive cash generation, disciplined working capital execution, strong liquidity and continued improvement in balance sheet metrics. Based on what we see today, we are reaffirming our guidance. With that, I'll turn the call back to Pieter.

Thank you, Dustin. Our first quarter results provide a solid foundation for strong performance as we advance through the remaining nine months of the fiscal year. We are focused on executing our strategy, operating with discipline, and creating long-term value for all stakeholders well into the future. Thank you for joining us today. We will now open the floor for questions.

Thank you, Pieter. Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question today, you must dial in through the phone line. To ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again that is star one to signal for a question and we'll pause briefly to assemble our queue. We will take our first question from Patrick Fitzgerald with Baird. Please go ahead.

All right. Thanks for taking the questions. So one question I have is why the higher cash balance? This is a higher cash balance than you've had, you know, looking back since 2022. Any reason for that? Good morning, Patrick.

This is Dustin. Yes, that's really just the timing of the customer receipts, particularly on the AR front at the end of the quarter. So it's just the timing element of the receipt of the cash.

Okay, thanks.

So you, you know, as you highlighted, which is really the correct way to look at it, you have like 130 million lower net debt than you had versus 630.25, which is a nice improvement. I mean, how much of that is just kind of a different market this year versus last year? Or how much of that is like sustainable such that you could get to You know, great question. I think we've been consistent when we look at the markets and our expectation of the markets especially

on the procurement front. As we've mentioned this year and in the quarter, we've had a slower cadence, but more importantly, we're seeing lower cost and the acquisition price of inventory. And as we look through the year based on their current crops and that view, we would continue to expect to see that impact directly on inventory. So I think that's exactly the trend that we're seeing and we'll continue to see that through this year.

Okay, thanks.

And just one more, in terms of market share, how do you guys think about how you're doing on that front? Is your goal to improve your market share, or are you focusing, given the refi, that you can't really be as aggressive as you might otherwise be in terms of buying inventory? How do you balance those factors?

I think, Patrick, we're focused on quality of earnings and quality of share. So you can see in the first quarter, obviously, with the stable margin per kilo, there's a lot of focus going into it. and many more. We're extremely focused on the balance sheet and balance sheet improvements as we're moving forward. It's not that we've completely swung from one side to the other, just from growth to balance sheet, but a blended approach that continues to improve all the metrics of the business I think is creating strong performance for us.

All right, thanks.

I'll jump back in queue. Thanks, Max.

Once again, if you'd like to signal for a question, please press star 1 at this time. We'll pause again briefly to allow for any further signals. At this time, we have no further signals. This concludes the Q&A portion of today's call. I'll now hand the call back to Mr. Grigera for any closing remarks.

Thank you, operator, and thank you to everyone on the line for your interest in PIXIS. We appreciate your time and engagement today, and we look forward to keeping you updated as we execute on our commitments through the remainder of the fiscal year. This concludes today's call.