Good morning, everyone and welcome to the Fourth Quarter 2023 Earnings Call for FMC Corporation. This event is being recorded and all participants are in a listen-only mode. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, Bruno and good morning, everyone. Welcome to FMC Corporation's fourth quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our fourth quarter performance as well as provide an outlook for the first quarter and full year 2024. Andrew will then provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earnings and adjusted earnings and EBITDA mean adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Zach, and good morning, everyone. Details on our fourth quarter and full year 2023 results can be found on Slides 3 through 6. Market conditions and buyer behavior were pretty much as we had expected in the fourth quarter, with North America, EMEA, and Asia performing to our plan. The one exception was Latin America. In addition to the ongoing channel correction, our results were negatively impacted by drought conditions in Brazil. This was somewhat offset by stronger sales of our more differentiated products which are showing continued resilience despite market conditions. Branded diamide sales in the quarter were up 5% and with sales essentially flat or higher in all regions. Products launched in the last 5 years outperformed the overall portfolio and comprised 14% of our total revenue. The channel inventory correction is running its course at varying rates through the regions and we're expecting this to continue through the first half of 2024. However, the underlying fundamentals of our business in this industry remain solid. Based on input from third-party data and our own commercial teams, crop protection products continue to be applied at steady rates. Looking at fourth quarter sales on a regional level, North America revenue was down 37% versus the prior year due to lower volume as expected after a record Q4 in 2022. In Latin America, sales were down 38%, 41% excluding FX, due to lower volumes and a low double-digit pricing decline. Branded diamides were essentially flat to the prior year, aided by the successful launch of Premier Star in Brazil. We also had solid growth in Mexico supported by higher sales of new products. Fourth quarter sales in Asia were flat to the prior year period as both fungicides and biologicals effectively offset inventory destocking, particularly in India, where channel inventory remains elevated. Branded diamide sales in the region were in line with the prior year period. Revenue in EMEA was down 24% or 22% lower excluding FX, due to lower volume, mostly in herbicides. Price provided a low to mid-single-digit benefit as the region continued to effectively implement price initiatives. Branded diamide sales experienced strong growth of more than 20%, driven by the launches of Verimark in Spain and Presto Core in Turkey. Shifting to EBITDA; fourth quarter results were 41% lower than the prior year period due primarily to lower sales. Costs were a strong tailwind with contributions from lower input costs and diligent spending control in SG&A and R&D. Our full year 2023 results are listed on Slide 6. An EBITDA margin of nearly 22% was lower by approximately 240 basis points but remains at industry-leading levels. This was accomplished through effective spend management and by holding or raising price in many geographies, especially in EMEA which benefited from a price increase of low double digits for the year. We had substantial cost favorability for the year but that was more than offset by the decline in sales volume. Operating cost actions we took in the second half of 2023 in response to lower demand delivered spend reductions well in excess of our $60 million to $70 million target. Diamide sales for the full year were $1.8 billion, a decline of about 15%. However, sales of our branded diamides outperformed and were only down 7%. Across our portfolio, the new and more innovative products showed much greater resilience even in a weak demand environment. NPI sales were down only 2% and made up a little over 13% of our total revenue, a new annual record, up from 10% in 2022. New products that drove this performance include several products in Brazil, such as Premier Star insecticide for sugarcane and stone herbicides for sugarcane and soybean, and fungicide based on our new active ingredient, fluindapyr. We also benefited from Coragen Max insecticide for canola, and Overwatch herbicides for cereals. Before we move the discussion to 2024, I would like to highlight some of the actions we have taken to enhance visibility into channel inventory. In Europe, we have put surveys in place in nine of our most important countries, covering hundreds of distributors and growers to gain insight into their inventory and especially of our products. In Asia, the larger countries, including India, are utilizing proprietary digital platforms to track inventory movement in real time across the channel as it passes from distributor to retailer and then to grower. In Mexico, we're in the final stages of integrating our systems with those of our retailers which will also give us real-time visibility of inventory sellout. We are also piloting the same system and approach in Brazil. In Argentina, we have increased the frequency of data updates to our inventory tracking system. Finally, in the U.S., we are expanding our forecasting process beyond distributors to now include retailers. This expanded data set will then be incorporated into our demand forecasting processes. Moving to 2024 expectations; our full year guidance and commentary are provided on Slide 7 through 10. Having closed 2023 and established a starting point for 2024, we now expect revenue of $4.5 billion to $4.7 billion, an increase of 2.5% at the midpoint. We are anticipating the full year global market to be flat to down low single digits as a softer first half is expected to be followed by the resumption of historical low single-digit percent growth in the second half. The exception to this forecast is India, where we expect the market to be down for the full year, primarily due to channel inventory the entire industry is carrying as a result of multiple seasons of unfavorable monsoons. Revenue growth for FMC in 2024 centers on volume growth led by NPI which after posting sales of $590 million in 2023, we expect to grow by approximately $200 million in 2024. Almost half of the NPI growth is expected to come from products launched in 2024. Major products driving higher NPI sales include Coragen Evo insecticide in Argentina and the U.S., Premier Star insecticide in Brazil, Overwatch herbicide in Australia, and fluindapyr fungicide in Brazil and Argentina. We expect moderate pricing pressure in the year with the largest impact in the first half. FX is also expected to be a minor headwind for the year. EBITDA is expected to be between $900 million and $1.05 billion, flat to 2023 at the midpoint. Growth of new products and benefits from our restructuring are expected to be offset by higher inventory carrying costs from the prior year, lower fixed cost absorption, and modest pricing pressure. The updated sales range is $150 million lower at the midpoint than our preliminary outlook presented in November. This now reflects our actual 2023 results. The EBITDA range midpoint is $100 million lower than the preliminary outlook, mainly due to reduced revenue expectations for 2024 and minor additional headwinds to gross margin. Adjusted earnings per share is expected to be between $3.23 and $4.41 per share, an increase of 1% at the midpoint from lower interest expense and D&A. At our November Investor Day, we acknowledged that, although FMC had responded aggressively to market challenges in the second half of 2023, broader actions were needed to better align our business operations with the current realities in the marketplace. We are moving quickly on a global restructuring plan that will fundamentally transform our operating model, including how we're organized, where we operate, and the way we work. This is a multipronged approach focusing on shorter-term expenses and longer-term structural costs as we restructure the operating model. These structural changes will position us for success as we move beyond 2024 and towards our 2026 goals. Slide 9 provides additional details on the actions we're taking. The global restructuring program is currently underway and will largely be completed in Brazil by the end of Q1. We have also made strong progress through a voluntary separation program in the U.S. with preparations for additional workforce reductions company-wide. Combined, approximately 8% of our workforce will be impacted as we begin to consolidate roles and adjust team structures. Reducing indirect spend is another area where we've accelerated our actions on many critical areas, including nonessential spending and implementing a new strategic sourcing strategy. We already announced plans to sell our non-crop Global Specialty Solutions business. We have been preparing for this over the last two months and are now ready to begin marketing. Lastly, we are examining the company's global and regional footprint. Our location strategy is a critical pillar in FMC's overall transformation, and we've made good progress in our analysis so far. This includes examining office locations, manufacturing sites, and research centers. Although this is a longer-term work stream, there will be milestones that we will announce throughout this year. As a reminder, we expect this restructuring plan to result in $50 million to $75 million in cost savings in 2024. It's important to note that these savings are net of inflationary and other cost headwinds that we're forecasting for the year. We expect $150 million in run-rate savings by the end of 2025. We plan to complete this restructuring and deliver lower costs while continuing to prioritize investments in critical growth areas such as our plant health business, further engagement with growers, and R&D, including new product innovation. Slide 10 lists some factors that would lead to varying EBITDA outcomes in our guidance range. The pace of recovery in the market is still the largest determinant factor. Our base assumption is that by mid-year, every region will have had one full growing season to manage inventory to desired levels, aided by steady application rates by growers. Recovery may vary by region, but we expect to see overall market growth in the second half of the year. Slide 11 provides our outlook for the first quarter. Expected revenue of $925 million to $1.075 billion is lower than the prior year by 26% at the midpoint, which is consistent with the revenue declines of the last three quarters. Volume is expected to be the primary driver of lower sales with pricing pressure in Latin America and Asia as a smaller secondary headwind. EBITDA guidance for the quarter is between $135 million and $165 million, with the decline versus the prior year primarily driven by lower sales as well as higher inventory costs carried forward from 2023. Taking into account the first quarter guidance that is lower than the prior year period, Slide 12 provides a bridge for how we plan to achieve our full year guidance over the remaining quarters. The largest component of EBITDA growth over the second to fourth quarters is higher sales volume of new products. Not only do these products have a strong track record of delivering sales in difficult market conditions, but they also contribute higher margins which will positively impact the mix. We expect NPI sales to grow by over $200 million in 2024, with the majority of the growth occurring after Q1. Market recovery in the second half will also contribute to EBITDA growth, as will the benefits from our restructuring program which we'll build throughout the year as initiatives are implemented. As you can see, we have built a plan primarily based upon elements we control and are not reliant on an outsized market recovery to achieve our guidance. With that, I'll now turn the call over to Andrew.

Thanks, Mark. I'll start this morning with a review of some key income statement items. FX was a 1% tailwind to revenue growth in the fourth quarter with the strengthening of the Brazilian real, Mexican peso and euro, only partially offset by the weakening of the Turkish lira. For the full year 2023, FX was a 1% headwind overall, with the most significant headwinds coming from Asian and European currencies, partially offset by a strong Brazilian real and Mexican peso. Looking ahead to 2024, we see continued minor FX headwinds on the horizon. For the first quarter of 2024, these have been stemmed primarily from the Turkish lira and Pakistani rupee, offset in part by a strengthening Euro. Interest expense for the fourth quarter was $56.7 million, up $11.9 million versus the prior year period, driven by both higher interest rates and higher debt balances. Interest expense for the full year 2023 was $237.2 million, up $85.4 million versus the prior year. Substantially higher U.S. interest rates were by far the largest driver of higher interest expense for the year, with higher balance as a secondary factor. Looking ahead to 2024, we expect full year interest expense to be in the range of $225 million to $235 million, down slightly from the prior year, driven by both expected interest rate reductions and lower borrowings as we reduce leverage through the year. Our effective tax rate on adjusted earnings for the full year 2023 came in slightly better than anticipated at 14.5%. This was driven by a somewhat more favorable mix of earnings across principal operating companies than expected. The fourth quarter effective tax rate of 13.3% reflects the true-up to the full year rate relative to the 15% rate accrued through the third quarter. As you may have noted from our earnings release schedules, there were two extraordinary events that impacted our GAAP provision for income taxes in the fourth quarter. First, our Swiss subsidiaries were granted new OECD Pillar 2 compliant tax incentives. As a result, we recorded deferred tax benefit assets of approximately $830 million net of valuation allowances to reflect the estimated future reductions in tax associated with these incentives. These incentives will allow FMC to maintain our advantaged tax structure for at least 10 additional years despite the implementation of Pillar 2. Second, changes in Brazilian tax law allowed us to release a long-standing valuation allowance position in Brazil, generating a tax benefit of approximately $220 million. Along with other items, this resulted in a GAAP income tax benefit of roughly $1.2 billion. For 2024, we estimate that our tax rate should be in the range of 14% to 17% and up 1 percentage point versus the prior year at the midpoint. The increase in midpoint and broader guidance range reflect uncertainty associated with changes in tax loss related to the implementation of Pillar 2 and transitionary impacts related to the new Swiss tax incentives. Moving next to the balance sheet and leverage. Gross debt at year-end was approximately $4 billion, down $158 million from the prior quarter. Gross debt to trailing 12-month EBITDA was 4.0x at year-end, while net debt to EBITDA was 3.7x. On a full year average basis, gross debt-to-EBITDA was 3.6x, while net debt to EBITDA was 3.2x. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 4.17x as compared to a covenant of 6.5x. As a reminder, our covered leverage limit was raised temporarily to 6.5x through June 30. It will step down to 6.2x at September 30 and again to 5.0x at December 31. We expect to have ample headroom under these limits as we progress through the year, with improving leverage as we shift to positive year-on-year EBITDA comparisons midyear and as we reduce debt through free cash flow generation and through proceeds from the anticipated divestiture of our Global Specialty Solutions business. We expect covenant leverage to be below 3.5x by year-end. We remain committed to returning our leverage to levels consistent with our targeted BBB/BAA2 long-term credit ratings or better. As I discussed at our November Investor Day, our midterm leverage target is now approximately 2x net on a rolling four-quarter average basis. While we will still be meaningfully above this level at the end of 2024, we are confident that with EBITDA growth and disciplined cash management, we will reach our targeted leverage in 2025. Moving on to free cash flow, free cash flow was negative $524 million for 2023. Adjusted cash from operations was down $960 million compared to the prior year, driven by significantly lower payables and EBITDA, offset in part by lower cash used by receivables and inventory. Cash interest and taxes were also headwinds to cash from operations. Capital additions and other investing activities of $144 million were up $25 million compared with the prior year, with continued spending on capacity expansion to support new active ingredient introduction. Legacy and transformation spending was essentially flat for the third year in a row after excluding one-time proceeds from the divestiture of an inactive site in 2022. Compared to our November guidance midpoint, free cash flow improved by more than $225 million, with this improvement nearly entirely due to better-than-anticipated net receivables performance. Looking ahead now to free cash flow generation and deployment for 2024. We are forecasting free cash flow of $400 million to $600 million in 2024, which represents a swing of more than $1 billion from 2023 performance at the midpoint of this range. Underlying this forecast is our expectation of adjusted cash from operations of $670 million to $850 million, up over $1 billion at the midpoint, with the increase driven by a significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to revenue growth and with modest improvement on other items such as cash interest. Capital additions of $95 million to $105 million are down roughly $45 million at the midpoint as we tightly manage capital investment in light of our current leverage. That said, we continue to fund needed capacity expansion to support new active ingredients over the next several years. Legacy and transformation cash spending is expected to be between $155 million and $165 million, with underlying legacy spending generally in line with prior years and with spending of approximately $75 million for our restructuring program. With this guidance, we anticipate free cash flow conversion of 104% at the midpoint for 2024. In terms of cash deployment, we expect to pay $290 million in dividends at the current rate in 2024. The remainder of free cash flow, as well as any proceeds from divestments or disposals, will be used to pay down debt.

Thanks, Andrew. Our first quarter guidance reflects the trend of volume declines and related impacts to EBITDA that we've seen over the last three quarters. The destocking trend is expected to level off and start inflecting after the first quarter. Looking more broadly at 2024, we have a plan that is based largely on elements that we control. First, NPI sales are expected to drive revenue growth this year after already showing resilience in the prior years. We have demonstrated a history of growing this high-margin segment of our portfolio over the past several years. We are not counting solely on market growth in 2024. And second, the restructuring program we initiated last year is well underway, and this is another area in which FMC has demonstrated strong execution in the past. We're also taking actions to increase visibility into inventories in the channel as well as grower levels through a combination of system implementations and strengthening our relationship with the grower. This is going to be a transition year for the crop chemicals market, and we are taking the actions necessary to position ourselves to achieve our medium and longer-term goals. Despite the updated guidance for 2024, our outlook for 2026 has not changed. While it may take well into 2024 to start to rebound from the global channel inventory reset, the drivers for our industry and business remain strong, and many of the challenges we are facing this year, such as working through high-cost inventory, are temporary. With the anticipated return to more normal market conditions in '25 and '26, along with our portfolio and deep pipeline of innovative products, we see strong growth ahead. With that, we can now open the line for questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Aleksey Yefremov from KeyCorp.

Mark, could you discuss your diamides business? You're talking about healthy sales in branded diamides, can you also provide an update on non-branded? What is the situation there? And what is the outlook?

Yes, sure. I mean, listen, we do that deliberately because there are two very different businesses, obviously. And we've discussed this multiple times in the past. Our branded business continues in a very strong fashion as we talked about in November; we're launching new products on a constant basis, especially the latest one, which is Premier Star in Brazil, which has done extremely well in its first quarter of launch. Those are the products that are really expanding the diamide franchise. Our partners are doing exactly what we, and the rest of the industry, are doing which is drawing down their inventories. So they did this in '23 and their current forecasts show further declines as they draw their inventories down. At some point, that will come to an end and we'll move forward. But '24 from our view of where our partner revenues are look very similar to what happened in '23 which is basically just drawing down inventories.

And just a follow-up on that. Do you have visibility into consumption of your partners' versions of diamides? Is that healthy, and also about pricing of those partner sales?

Yes. Listen, it's impossible for us to talk about what they're doing with their revenue growth targets or where they're growing. We don't have insight into that. All we do is provide them either formulations in some cases or more importantly actual technical active ingredients. Don't forget, a lot of our partners use these products for seed treatment applications which is a very different market from us. So treat it as a separate market. We don't get involved in it; we provide the raw materials. That's how we think of it.

Our next question comes from Kevin McCarthy from VRP.

Mark, in your prepared remarks, I think you mentioned that you anticipate a moderate headwind from pricing in 2024. Can you kind of talk through your expectations in terms of where you're more optimistic, less optimistic on pricing by region? And with regard to the first quarter, in particular, do you think that price will be any better or worse than the minus 5% that you posted in the fourth quarter?

Yes, Kevin. This year’s dynamics will be quite different from last year, where we experienced significant pricing strength in the first half of 2023. As we progress through this year, we will begin to compare against those price increases, leading to some variations. We have identified EMEA as a strong performer in 2023, and we anticipate it will remain so in 2024. North America is also performing well in terms of price management. The area where we expect the most challenges will be Latin America, particularly in Q1. We believe this will improve as the year progresses due to the comparison with previous price levels. Brazil is the focal point for that concern. Regarding Q1, we mentioned a small pricing headwind, which I would say is less than the 5% you referred to. We are already observing this in Brazil, and it is reflected in our Q1 forecasts.

Okay. And then secondly, perhaps for Andrew, can you talk about the amount of working capital that you think you can extract in 2024, including inventory? And as you draw down inventory, what impact do you think that will have on your earnings, if any? I imagine it creates fixed cost absorption challenges. Is that true? And how would your guidance be different if you weren't drawing down inventory, if that makes sense?

Thank you, Kevin. As we look at free cash flow for 2024, accounts payable and, to a lesser extent, inventory will be the main factors driving cash release. We expect that during the year, we will begin to rebalance production and inventory. For the past two quarters and into Q1, we have significantly reduced manufacturing. We anticipate a gradual increase in manufacturing activity from Q2 to Q4, which will help raise accounts payable. Concurrently, we are working to reduce our current higher levels of inventory, which includes some expensive carryover from previous years. In terms of contributions, approximately two-thirds of our cash flow benefit will come from accounts payable and one-third from inventory. From a profitability perspective, Q1 is particularly affected by the carryover of high-cost inventory from last year. However, as the year progresses, our purchases will be at lower costs, allowing us to replace higher-cost inventory as we reduce it. We expect that as we ramp up production, it will operate at or below the current inventory costs. Consequently, we will have a more balanced relationship between inventory and payables by the end of the year. The inventory we maintain will reflect a more normalized cost aligned with current market values. This lack of a cost headwind heading into 2025 should provide a significant advantage for us moving forward.

Our next question comes from Joel Jackson from BMO Capital Markets.

I would like to get more details about the yearly cadence, particularly in relation to Q1 and the full year. Earlier, there was a mention that you anticipate EBITDA contraction to shift to growth by mid-year. To reach your $975 million midpoint, it appears that around 30% growth in EBITDA would be required over the last three quarters. I expect Q2 to be a pivotal quarter. When do you foresee this shift happening, and what will Q2 look like? Will it still be a contraction at the end of the quarter before growth starts? Any insights on how we transition from contraction to growth would be greatly appreciated.

Yes. Sure, Joel. Andrew, do you want to take that one?

Sure. I would put it this way. We've consistently mentioned that we believe it typically takes about a year for channel inventory corrections to reach a bottom in every market. We haven't reached that full year yet, as this issue began in the latter part of Q2 of 2023. Therefore, the drop in revenue for Q1 aligns with the trends we've seen over the previous three quarters related to channel destocking. Looking ahead to 2024, Q2 is where we expect a real transition. We anticipate a shift towards growth in Q2, which may not be substantial but still represents growth as we compare it to the initial decline that initiated this situation. As you noted, our guidance suggests around 15% top-line growth and approximately 30% to 32% bottom-line growth starting in Q2, with an inflection point that accelerates in the latter half of the year. As Mark mentioned in his comments, this growth is largely driven by new product introductions. I cannot stress enough that we expect 200 million dollars of year-on-year growth from new product introductions in a year where we're only projecting 115 million dollars in total revenue growth at the midpoint. This presents a significant mix benefit, heavily weighted towards the second half of the year. I understand this profile may appear back-end loaded, but there is a clear rationale behind it. In Q1, we are concluding the first year of the channel inventory correction and moving past its anniversary, still dealing with the impact of high-cost inventory from the previous year. In Q2, we anticipate a return to positive comparisons, followed by acceleration in the second half driven by new product introductions.

You had a really comprehensive Investor Day about two months ago. And you laid out the target of $1.2 billion to $1.5 billion EBITDA in 2026. I mean, you're obviously maintaining those targets right now. And I don't expect major changes three months later. If it's a marathon and you're now laying out there a third of the way, it's merited now at a slower pace than you would have thought. Can you talk about how you can catch up in '25 and '26 to hit the EBITDA targets you thought you would?

Yes. Joel, listen, I think for us, as I said, '24 is a bit of a transition year. Yes, we did lower the full year of '24 but that's fundamentally on one thing. We finished '23 lower than we expected. It is as simple as that. The numbers just flow from there. We were not going to hold a number that we thought was unrealistic just because we said it in November. We don't think that's the right way to run this business. Now when you look at '25 and '26, particularly '25, Andrew just commented on something that's very important and I mentioned it; we had a lot of headwinds that are temporary right now that are impacting us in 2024. They will go away. First of all, the high-cost inventory. The biggest impact of that is Q1, but it gets less in Q2. Then as we go into the second half, it dissipates. We also have the benefit of the mix impact from all the new products we're selling. The $200 million of NPI is at above-average margins for us. So that changes the mix as we go through the year. So you take those pieces and then you take the restructuring plan which is also now underway and building, we intend to have that at $150 million run rate by the end of '25. You take those pieces, they all build as we go through this year, that allows you to make that catch-up period as you go through '25 and '26. Then obviously, the market itself, the market has been unbelievably depressed over the last nine months and into the first part of this year. That will not stay like that. The market will come back. It will grow at its normal low single-digit growth rates. Once we get into that period, we have a great tailwind going into '25. So I think we catch up. That's why we haven't changed it. We have a view. We know what we're going to be launching; that's an important view for us. So think of it as those elements will make up the '25, '26 period.

Joe, it's Andrew, I'd just add one additional comment there. We set out those goals in November. We highlighted 6% to 9% revenue CAGR and a 9% to 14% EBITDA CAGR of the '26 horizon. With the adjustment with the lower results in 2023 and the slower start in 2024, you're really only talking about increasing that by 1 percentage point, right? As we've shown in the updated slides today, a 7% to 10% top line CAGR and a 10% to 15% bottom line CAGR. So it's not a fundamental shift by any means to the amount of growth we were targeting. The logic, as Mark has outlined here, of how we think we can deliver that.

Our next question comes from Vincent Andrews from Morgan Stanley.

There was one more piece to all that, I think, was just the fixed cost absorption, right? That's obviously hurting you now. When do you think you'll get your plant rates back up to a level where you'll get that better fixed cost absorption? And do you have a way of quantifying that for us?

Yes, I'll take it at the high level, Vince. Andrew, you can make a few comments. We have numerous manufacturing facilities that are built up of individual production lines or synthesis units. Those synthesis units are coming up and down constantly. I would say as we enter Q2, we start to see more of those lines coming back. We already have cases today where we're out of inventory. So we've been pushing inventory down dramatically over the last 6 to 7 months and you can see that in our inventory numbers. That will continue. You always have some dislocation between what sales is selling and what the demand forecast says. So we see that tension now. And that's a change for us. We haven't seen that in the last 6 to 7 months. So we're starting to see the signs of our inventory levels in certain key areas coming down to a point where we know we're going to have to fire up some of those units again. I expect that to happen in the Q2 period. Andrew, do you want to talk about what impact that has as we go forward?

Yes, I think, Vince, certainly when we think about the cost impact from last year, part of that is the carryover of bond variances of fixed cost absorption. That really hits most significantly in Q1 and to a lesser degree in Q2. As Mark described, as we start ramping up production more broadly through the first half of the year and definitely into the second half, we'll get past that unabsorbed fixed cost headwind. But it's certainly a contributing factor into why the EBITDA in Q1 is depressed more than the sales drop.

Okay. And then if I could just ask on the raw materials. It sounds like your comments for the year suggest that they're going to be flat, but that seems to be a function of carrying the higher-cost inventory. And I believe Andrew, you referenced that you're currently invoicing raw materials below what you're expensing them at. So I don't know how you want to quantify it or give us a sense of it. But if raw material prices where they are today stayed flat as we move through this year into next year, what type of deflation benefit might be available to you once things are kind of back to fully operational from a production perspective?

Like Vince, I think that trend is clear and real. I don't think we're prepared to quantify that today because, obviously, it's going to depend on how the rest of the year plays out. But you're absolutely correct. What we said and what we're seeing for the materials we are buying, we are buying them at or below cost of what we have in inventory. So it will be a tailwind as we go through the year and will improve as we get through the year. We'll have to see how the rest of the year plays out to see what the actual magnitude of that tailwind is going into '25.

Our next question comes from Mike Harrison from Seaport Research Partners. Mike, your line is now open.

I was hoping that maybe you could give a little bit more color on what you're seeing with new products. Maybe talk a little bit about the commercial traction that you're getting on some of the products that you introduced over the last couple of years? And maybe just remind us what new launches you're expecting in 2024.

Yes. Sure, Mike. We talk about this a lot because, obviously, it's a big driver of our growth and also from our profitability standpoint. I think what we've been doing over the last few years is really a mixture of what we call product extensions which you've seen in the diamides area. I mean, we keep talking about Premier Star. We need to put that in context I'm not going to give you the exact number because obviously, we have a lot of competitors listening to the call. But in Q4 alone, we had tens of millions of dollars of brand-new business. So that's extending the diamide franchise in key crops in Brazil like soy. Those are types of products that are really driving the growth. When you look at the roughly $200 million of new growth in 2024, about $100 million of that is products that are launched within the year. Now $100 million in reference is usually anywhere from $100 million to $150 million on an annual basis. That's what we've been tracking at. So our expectations for the brand new product launches are not out of line with what we've done historically, despite how difficult the marketplace is. We know we can sell those new technologies; we know growers are always looking for new alternatives to combat pests. It's split pretty much across all the regions, led by Asia, and then Latin America and Europe and North America are all pretty much similar. So the good news there is it's in different geographies on different crops. So we're not banking on the growth of the new products by one big hit with one molecule. That's the good news. And that's how we like to play this. The other one is really our new fungicide, fluindapyr. That is gaining traction. We launched in Brazil; we launched in Argentina. We expect that to grow considerably as we move through this year. This is our first real entry into a market that's called Asia soybean rust in Brazil. It's a $2 billion market, give or take, and we have very little revenue there today. So that's another example of us taking a brand-new product, driving it into a geography and market space.

All right, that's very helpful. And then maybe just a little bit more detail on what you're seeing with channel inventories in India. It sounds like that was an issue in the fourth quarter but also expected to kind of remain an issue as we go through 2024. Any more detail you can provide there?

Yes. Listen, channel inventories are high. We are carrying high channel inventories. We are not the only ones. Other people on earnings calls have highlighted India. You've had at least 3 years of bad monsoons as well as low pest pressure. There is a lot of inventory that needs to be worked through and that will take all of '24 and probably into '25 to work that down, depending on what the weather patterns look like. If you look good, then we may get some acceleration. If not, it's going to take a while. So you're probably going to hear us talk about India pretty much every quarter as we go through this year and certainly into early next year. I doubt we'll be the only ones talking about that either.

Our next question comes from Adam Samuelson from Goldman Sachs. Adam, your line is now open.

Yes, I would like some clarification regarding the full year assumptions for pricing, particularly by region, as the pricing competition seems to be more intense in Latin America and India. How should we assess the overall price-cost balance for this year? Additionally, as we look towards a potential improvement in profitability in 2025, how do you perceive the risks if the price-cost balance does not start to shift in a more favorable direction?

Yes, Adam, let me just start by giving you an overview of how we think about that price-volume mix around the world. And Andrew, then you can comment on the price-cost element. In these environments, one thing we are determined not to do is go and chase volume. You can see that in our margins. Our margins are roughly 22% as we finish the year. They're at industry-level highs. You can't see that for every company out there. The important thing is that we're managing price very carefully, not chasing volume where there is no volume and also managing the balance sheet. So you have to take all that into consideration about how you think about FMC's strategy on price. We do take price where we can and we've proven that in Europe and other parts of the world. There are other parts like Brazil, where it is a price-competitive market. Now remember, when we talk about our price reductions in Brazil, roughly half of that is activities we put in place to help our customers with their high-priced inventory. So all that price is not necessarily a price drop for the list sheets that you see. So please keep that in mind. When you think about FMC, you look at the volume, you look at the price, and you look at the margin. That's how we're managing the company. We think that will serve us well as we come through this period, especially into the second half of the year. As we accelerate through 2025, having a base for margins that are based around a solid price and then as volume comes back, our products will grow into that volume space. We believe that's the best strategy to tackle this. Andrew, do you want to comment on the cost-price piece for the year?

Sure. I think certainly, on the price dynamics, first quarter low to mid-single-digit price headwind, heavily anchored in Latin America, a little bit in Asia. For the remainder of the year, prices are actually pretty flat. We'll be anniversarying some price reductions in Q3 and Q4, as Mark described, much of that is rebated incentives, not necessarily list price changes. So it's the absence of headwinds as well in the second half of the year as we see stabilizing market conditions. So for the full year, you end up with a low single-digit price headwind. Certainly, relative to cost, cost is going to be a strong tailwind this year as we get through the full year in Q1, no, but as we get through the full year, input costs will start to turn to a tail as we get past the high-cost inventory. With all the restructuring actions that we're taking, that will help generate a further tailwind this year. So the net price/cost relationship for the year is positive.

Our next question comes from Steve Byrne from Bank of America.

This is Salvator Tiano filling in for Steve. Firstly, I wanted to touch base again on kind of the Q2 to Q4 assumptions. So as you said before, you're kind of assuming a 15% increase in revenue after Q1 year-on-year. Even if we think about the flattish price you've just mentioned, and most of the NPI benefits coming there, it still looks to me that you're assuming probably double-digit volume increase on the legacy business. Is that correct? Are there any components of leasing? What would drive such a strong growth versus, I guess, your expectations for the market being down a little bit overall? How would you outgrow the market, excluding the NPIs which I've taken out of the equation?

Andrew, do you want to take it?

Sure, I believe we are anticipating strong growth from new products in the second half, despite the first half being down overall. The growth from Q2 to Q4 is expected to be more robust than the full year growth. There is certainly growth in the core portfolio, although it may be in the high single digits rather than mid-teens, with stronger growth contributing from new products during that Q2 to Q4 period. We need to be cautious with percentages due to the significant market reset that occurred in 2023. As the channel stabilizes and normalizes inventory levels, the dollar amounts associated with incremental growth are not excessive, especially when considering the growth that our historically strong core portfolio has achieved. We believe that this is a reasonable outlook. The solid foundation and the push from new products will really drive the acceleration and positively impact the bottom line from Q2 through Q4.

Okay, perfect. And I wanted also to check on what you mentioned before about the non-branded diamides. I'm just wondering, so the idea of having partners was to kind of extend, you sign agreements, and you extend kind of your protection here as you will prevent them from competing with you directly at some point. But you mentioned that it's a separate business. You have no visibility into what they do. I'm not really sure why wouldn't you try to, from the start, have an idea of what is their sell-through or how much they sell in the market? Do you have any plans to start understanding better or request from them more information so you can figure out what kind of the overall diamide consumption in the channel?

Yes. I mean, listen, it's a very valid question. You've got to remember that they're selling products still into the marketplace from their inventory. We're not replenishing their inventory because they're not buying it. It's exactly what we're doing with our suppliers and what our customers are doing to us. A big piece of that market is seed treatment. Do not underestimate how much volume of the diamides goes into treating seeds around the world. It's a large volume. They also operate in markets that we don't necessarily have access to, whether it's on a geographic basis or a crop basis. So once again, this is a $70-plus billion market for pesticides that is highly fragmented. It is not unusual for us not to know where those products are going. However, what we do know is that when they see a utility for diamides, they're using FMC's technology, and that's what's important to us. So we think about it in that way. I think the other thing you've got to remember is we're talking about where the forecast currently sits. Forecasts can change and frequently do. They did last year. The forecasts that the partners put in place in January is very different from what it looked like in September. We could well see a difference in their September forecast or their August forecast than what it is today. So we'll see. For us, the partners are very valuable. They've worked extremely well since we bought the assets way back in 2017, and they will continue to work well. They are just going through the same phenomena that we are.

Our next question comes from Brian Wright from ROTH MKM.

Could you give us a little bit of an update on the plant health outlook as far as that reflects for 2024?

Yes, absolutely. Plant health was down in 2023, mainly because of the segments that we're in. We have a big exposure to one particular segment in Brazil that was down. We had growth in other parts of the world. We see plant health coming back to its more normal growth rates in 2024. And those growth rates are in the high teens, low 20s. With the biologicals component, somewhat higher than that. So you should expect to see the Plant Health business back to its normal cadence. We're also doing what we said we would do in our Investor Day. We're investing in new business models for this business. Despite all the changes we're making, we have carved out the ability to create a new business model in Brazil for the plant health business. We're going to be very interested in seeing how a purely dedicated plant health business starts to perform once it gets its breadth of portfolio, which is doing today. So I expect it to be very good growth in 2024 for plant health.

Our next question comes from Laurence Alexander from Jefferies.

Just given the controversy around diamides, can you characterize how diamide margins are performing compared to the overall business? And secondly, in the rebound in the back half of the year, do you expect the new products, including diamides, to rebound faster or slower than the average business? Lastly, I can't help it because you mentioned the seed treatment. How large is seed treatment roughly as a percentage of global diamide volume? Is it like 10% to 20%?

Yes. We don’t break out that last bit. I’m not sure what controversy you’re referring to regarding the diamides. We are very positive about the business. The margins have generally been higher than normal since we acquired it, and that trend has continued. The margin profile is very strong. Regarding your question about how the diamides will perform, we will have to see what impact the channel inventory work has on our business in India. That may present a challenge. We have already indicated that our partners will have lower performance. As for the rest of the branded products, we will see acceleration as the year progresses. We expect the new product introductions to experience faster growth than the rest of the business. Overall, we believe this is a strong franchise that has remained robust since our acquisition and continues to thrive.

Our next question comes from Arun Viswanathan from RBC Capital.

Apologies if I missed this, but I would like to ask about the longer-term outlook. You reiterated the rolling three-year forward view, so could you elaborate on your thoughts for 2025? Are you projecting EBITDA to be around $975 million for 2024, increasing to approximately $1.2 billion in 2025, which would lead to a midpoint of $1.4 billion in 2026? Is the growth in 2025 primarily driven by $150 million in run rate savings and perhaps transitioning to a more stable environment in Brazil by the end of the year? How do you perceive the medium- and long-term outlook at this stage?

Yes. Listen, I'm not going to guide '25 in February. I can tell you that the growth we see is related to new product introductions, more normal market growth at the top line. We will then see the benefit of our restructuring program hit the bottom line and the absence of all the headwinds that we're seeing today will reverse and will obviously contribute to the growth in EBITDA next year. Andrew, do you want to give any more color?

Yes. Look, I think Mark is right, it's a little early to guide '25 specifically. But in terms of the shape of the curve, we've always expected '25 was a big acceleration. You pointed to some of the factors that compound that in terms of the restructuring benefits as well as coming out from higher cost inventory that we have right now in our inventory. But with then still continued very strong growth in 2026. So that's how I describe the general shape of the curve at this point, a pretty big step-up in '25 and continued strong growth in '26.

Our next question comes from Andrew Keches from Barclays.

Andrew, can you just talk about the seasonality of cash flow, particularly in the early part of the year? Typically, that's a pretty large seasonal draw. So any high-level thoughts on the magnitude of that relative to historical patterns? And then the follow-up would just be, can you clarify, I think you said that the covenant leverage would end this year below 3.5 which stood out to me because covenant leverage is typically above the simple net debt to EBITDA. So does that include already the assumption about a divestiture of GSS?

Let me hit those questions. I think in terms of seasonality of cash flow this year, we expect a very different profile for cash flow seasonally this year. We would normally have a large working capital build in Q1 driven by inventory build. As you're painfully aware, we have plenty of inventory at the moment, so we would expect a much more limited working capital build in Q1. So a much more limited negative free cash flow in Q1, which is a big part of helping us move forward on deleveraging quickly. I think through the rest of the year, you're going to see a little more acceleration as we go through the year. We are typically free cash flow heavy in the second half, in Q4 in particular. But the historic large outflow in Q1 should not be repeated this year. In terms of your question on covenant leverage, yes, we are assuming the covenant leverage at less than 3.5x. That is assuming that we close a divestiture of the GSS business at some point in the second half. That process is just getting launched. As Mark noted, we finished preparations and are getting prepared to go to market formally with that property. We had a lot of expressions of interest in it. So we'll run through that process and continue to update as we move forward to get under the 3.5x covenant leverage; we do need to have proceeds from the GSS divestiture.

Our next question comes from Richard Garchitorena from Wells Fargo.

Great. Just wanted to touch on the new measures that you've implemented to increase visibility into the channel inventories. I was just wondering if you got some early lessons from that, so far. Are you seeing any change in how distributors manage their own inventories? And have you had any thoughts in terms of how you manage your own inventories and then your own supply chain going forward?

Yes. Thanks, Richard. Yes, we have seen already some insights into how distribution is thinking of managing its own supply chain. Clearly, distribution has lowered its inventory levels. You would expect that to happen. The good news is some of the insights we already have in certain parts of the world like the U.S., which we think are probably the furthest advanced at the grower level and the retailer level. inventory is probably at or even below normal levels. So it's going to be interesting as we roll into the U.S. season starting in a month or so, how that really unfolds. The rest of the pieces have been put in place. I do expect Europe to have a much better view. The survey we put in place is pretty comprehensive and we're really entering the European seasons; Q1 and Q2 are the big growth areas for Europe. So I'm very interested in what that survey will tell us when we get through to the end of Q2.

We currently have no further questions. And that concludes today's FMC Corporation conference call. Ladies and gentlemen, thank you for joining. You may now disconnect your lines. Thank you.