Good morning, and welcome to the Third Quarter 2024 Earnings Call for FMC Corporation. This event is being recorded. I would now like to turn the conference over to Mr. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Good morning, everyone. Welcome to FMC Corporation's Third Quarter Earnings Call. Joining me today are Pierre Brondeau, Chairman and Chief Executive Officer; Andrew Sandifer, Executive Vice President and Chief Financial Officer; and Ronaldo Pereira, President. Following our prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website, and the prepared remarks and 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 means adjusted earnings and EBITDA means 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. I'll now turn the call over to Pierre.

Thank you, Curt, and good morning, everyone. Before we get into the details of the third quarter and the forward guidance, I want to start by giving an overview of the company's performance and our view of the current market conditions. Overall, we reported a strong third quarter with growth at both the top and bottom lines. The quarter unfolded mostly as expected in Europe and Asia. However, we operated in a weaker-than-expected market landscape in Latin America, which was offset by a stronger-than-anticipated performance in North America. Latin America faced some unanticipated challenges this quarter, but we still delivered growth. Markets in Brazil and Argentina were more challenging than expected due to delayed rains and increased borrowing rates. The bankruptcy of a large customer in Brazil added specific challenges for FMC. Given that we believe we are only a couple of quarters away from a more normal market situation, we decided to take pricing actions to maintain our market position. In fact, about two-thirds of the total company price decline in the quarter came from Brazil and Argentina. The rest of the region performed at or above expectations. While conditions are improving, it is clear that Latin America has not yet emerged from the down cycle as distributors and growers continue to manage their inventories carefully. On the other hand, North America performance was stronger than expected. More than half of the regional sales growth was due to increased orders by diamide partners. I would add a note of clarification here. While the sales to these partners are recognized in North America, the final product is not always sold by the partner in that region. This creates the potential for North American sales to appear higher at the expense of other regions. The North America region also benefited from distributors shifting purchases from Q4 into Q3 in response to lower-than-expected inventory levels in the channel. On the product line front, sales appear robust as one of our two diamide products reported growth in every region and was the fastest-growing molecule with 58% higher sales than the prior year. Strong branded sales and increased orders from the partners led to the diamides outperforming the overall portfolio. As we mentioned on the Q2 earnings call, the performance of new products is critical to a second half growth expectation. These products include new formulations of diamides as well as two of the four new active ingredients we highlighted during our Q2 earnings call. Fluindapyr based fungicide and herbicide containing Isoflex active are already receiving strong interest and demonstrating their growth potential. We expect combined sales of fluindapyr and Isoflex based products to reach over $100 million in sales in the second half of the year. The launch of fluindapyr is especially important as fungicides are a product category in which FMC has historically been underrepresented. These products are opening up new markets for FMC. As I mentioned earlier, we saw more challenging markets than expected in Latin America, especially Brazil and Argentina. With expected channel inventory improvements on the horizon, we made the conscious decision to protect our market share in those countries even if it created price pressure beyond what was forecasted. This strategy is validated by North America, where price pressure was the lowest this quarter as its channel normalized. Looking ahead, our view on the timeline of channel inventory recoveries is relatively unchanged from what we communicated during our August earnings call. The U.S. and most countries in Europe are normalizing the fastest, and Latin America is expected to be much improved in the second quarter of 2025. Asia markets are still expected to be challenging in 2025, with no recovery expected until 2026 as India continues to work through excess channel inventory. On a cost basis, we are accelerating the delivery of savings and increasing our targets. We are now targeting cost benefits from restructuring of $125 million to $150 million to be reflected in the P&L in 2024 with greater than $225 million of gross run rate in 2025. To accomplish this, we're accelerating restructuring, taking new critical initiatives to realign our manufacturing footprint and using attrition as a key tool to drive further savings. We are confirming our full year guidance adjusted for the sale of the Global Specialty Solutions business, which we are now expecting to be sold in early November. This translates to fourth quarter sales growth of 19% at the guidance midpoint. Despite continued channel inventory issues in India and less than optimal early season conditions in Brazil and Argentina, we are confident in our ability to deliver on our guidance based on the strength of our new products as well as cost benefits from restructuring actions while market conditions improve. With that, let's review the company's third quarter performance in more detail.

Thanks, Pierre. I'll start this morning with a review of some key income statement items. FX was a 3% headwind to revenue growth in the third quarter, largely stemming from the Brazilian real. For the remainder of 2024, we anticipate continued low single-digit FX headwinds in revenue, again, driven primarily by the Brazilian real. Interest expense for the third quarter was $58.7 million, down nearly $6 million compared to the prior year period, driven by lower debt balances. For full year 2025, we continue to expect interest expense to be in the range of $235 million to $240 million, essentially flat year-on-year at the midpoint with the impact of higher rates on domestic debt offset by lower overall borrowings. We've lowered our outlook for effective tax rate on adjusted earnings for full year 2024 to a range of 13% to 15%, reflecting improved clarity on the impacts of recent tax law changes on FMC's 2024 tax rate. In light of this, our effective tax rate for the third quarter was 11.8%, bringing our year-to-date accrual for income taxes in line with the 14% midpoint of this range. Moving next to the balance sheet and leverage. Gross debt at September 30 was approximately $4.1 billion, down $110 million from the prior quarter. Cash on hand decreased $55 million to $417 million, resulting in net debt of approximately $3.7 billion. Gross debt to trailing 12-month EBITDA was 5.0x at quarter-end, while net debt to EBITDA was 4.5x. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.0x as compared to a covenant of 6.0x. As a reminder, our covenant leverage limit will step down to 5.0x at December 31, 2024. We expect covenant leverage to be approximately 4x by year-end, reflecting both year-on-year EBITDA growth in the second half as well as the receipt of proceeds from the sale of our Global Specialty Solutions business, which, as Pierre noted earlier, is expected to close in early November. We remain committed to returning our leverage to levels consistent with our targeted BBB/BAA2 long-term credit ratings. We will do this through EBITDA growth and disciplined cash management with all discretionary free cash flow directed towards debt reduction until we return to our targeted metrics. Moving on to free cash flow. Free cash flow in the third quarter was $132 million, an improvement of $100 million versus the prior year period. Improved cash from operations and lower capital additions more than offset somewhat higher legacy and transformation spending resulting from our ongoing restructuring program. Year-to-date free cash flow of $225 million is an increase of over $1 billion compared to the prior year period. Cash provided by improved accounts payable and inventory more than offset increased cash used by receivables, lower EBITDA, and restructuring spending. We continue to expect free cash flow of $400 million to $500 million for full year 2024, driven by significant cash release from rebuilding accounts payable and reducing inventory, partially offset by higher accounts receivable due to revenue growth in the second half of the year.

Thank you, Andrew. The crop protection industry is in the process of recovering, although at different paces depending upon the region. In this context, we delivered on our Q3 targets and maintain highly positive momentum heading into Q4. The growth embedded in the guidance we put forward for the fourth quarter is sizable, but it is centered largely around sales of new products and improved cost, both of which are entirely under our control. This should pave the way into 2025, where we continue to expect solid earnings growth driven by cost favorability along with moderate top-line growth as demand continues to recover. Before we open up for Q&A, I want to provide a brief look forward to our next earnings call, where I will cover two key areas. I mentioned on our August call that we are introducing four new active ingredients and developing a post-pattern defense strategy for diamides. On our next call, we will focus on these two pillars of growth and how they will contribute to the new three-year target, which will demonstrate the strong revenue and earnings growth potential for the company. With that, we are now ready to take your questions.

The first question comes from Joel Jackson with BMO Capital Markets.

Here, Andrew, you were very gracious a few months ago to give some building blocks for what the bridge for 2025 looks like. I was hoping if maybe you could give an update on that. So I think you talked about targeting 6% revenue growth next year, which would be volume growth with maybe some price contraction on flattish pricing. Talked about $150 million to $200 million of cost favorability, talked about $35 million of lower EBITDA, of course, from the sale of GSS. Are you able to update those numbers or reiterate today?

Thank you, Joel. Yes, we pretty much have the same view for 2025. But let me maybe give you some more detail around the latest thoughts. So yes, we believe in a growth of around 6% range next year. This being said, when we say 6%, we made no assumption on pricing, which was essentially flat and didn’t make any assumption on FX. At this stage, could we be facing more challenging pricing, it’s possible. But frankly, we do not know yet. We have not been able to go deeper into those considerations. On the other hand, on the positive front, I think with the progress we have made on the cost front, we are heading more to the higher end of the range we gave at the last earnings call, so closer to the $200 million than the lower end. So still in the 6% range, with an undefined pricing situation at this stage. We are not able to make assumptions. We need to see how Q4 is going to unfold and maybe stronger savings than we were expecting could lead us toward the higher end of the range.

Pierre, I mean, you stated that Latin America was worse than expected in Q3. Is it getting any better in the fourth quarter? And also, if you could just describe why Q3 was worse specifically, was it more weather issues? Was the drought in Brazil? Or was it just fundamentally the market is weak due to low crop prices?

Yes. I think Q3 was a bit more difficult than we were expecting for multiple reasons. First of all, I think that the weather did not help at the beginning of the quarter with delayed rain. The rain came in, and it’s actually right now in a pretty good situation, but in Q3 and at the beginning of the quarter, it was delayed. I think overall, the pricing situation remains challenging. The region is still with a channel inventory situation, which is a couple of quarters away from normal. I also think that it was a bit more difficult for FMC than some competitors for multiple reasons. Versus where I was when I gave the first call, just a couple of months coming back. I’m more convinced that FMC was later than some of the other competitors in adjusting pricing. So I believe we’ve lost market share to some of the peers like Bayer, BASF, or Syngenta. There is pressure from generics, but I don’t see a big change versus the past. But the lack of adjusting our pricing is forcing us to keep market share, and we’ve made the intentional decision to keep market share, so we had to accelerate our pricing adjustment. On top of that, we faced the challenge of losing a very large customer. You know about the bankruptcy of a large distributor. We were highly exposed to that distributor. We clearly did not want to lose that volume. So we had to go to find that volume elsewhere. And there is always a price to pay when you have to find new customers. So on and on, the situation was not helping with increased rates, weather issues, delayed rain, the loss of a large customer for us, and the deliberate decisions we made to keep our market share position, while trying to regain the market share we had pre-downturn.

Pierre, can you elaborate on the forward price trajectory? Maybe you could comment on your experience in diamides versus non-diamides. What is behind the competitive intensity that you alluded to? And what does the path to zero pricing look like in your crystal ball as we progress into 2025?

Certainly, yes. I think the pricing situation is the way we look at it. We believe that the number one correlation to pricing is the state of the channel. Certainly, farm income has an impact. But by far, when you are in a shrinking market and all suppliers are trying to retain market share, you create a competitive situation, which has a negative impact on pricing. So that's why we want to stay involved in Latin America because we believe that the strongest correlation is with the state of the market. And that's why we saw maybe the latest pressure on price in North America while Latin America and Asia were where we had the highest pressure. For diamides, there is no more pressure on pricing for diamides, except maybe in places like India and China where patent protection is not as strong. In other places, the pricing situation is not worse for diamides than it is for other products; it’s even better in countries with stronger respect for patent protection. But going back to zero, I think it will depend heavily on the recovery of the market.

With respect to your volume gain in North America, can you split that into three buckets? How much of that increase was to your diamide partners? And then for the balance that's targeting the North American market, what fraction do you sell to wholesalers versus retailers that sell directly to growers?

The growth to diamide partners is going to represent more than half of the growth of the diamides. In terms of selling, I would say 100% of the sales are going toward wholesalers. Then from this point, it goes through the channel toward the growers. But wholesalers represent our customer base.

Generally, my question is around R&D. And I think the cost reduction plan is about $50 million. I think this year that will come from lower R&D. I was wondering if you could talk about the approach that you're taking there, whether the reduction is temporary or whether you're actually being more selective in the areas where you're investing?

Yes. Thank you. I think it’s more of a sustainable cost savings. We might increase R&D spending at some point in the future for specific reasons. But let me talk to you about how and why we are reducing our R&D spending. First of all, just to clarify, there is absolutely no impact on the launch of the four new products, new molecules Ronaldo described at the last earnings call. A large part of the savings is coming from the discovery part of our process. We now have a process where we are much stricter on the decision to hold low probability products in the pipeline longer. We used to have a tendency to keep them longer, which came with significant expenses. Now, we have a process that allows us to make those decisions more rapidly. We also have developed better screening tools, which I believe were presented at our Investor Day, and those allow us to make faster and better decisions in early-stage research. The last point is we've changed the governance process for R&D. If you take the spending in R&D, about half goes to central R&D and half to regional R&D. We are increasing the coordination between the regional research centers and the central research center to minimize duplication and create synergies. So we are changing the way we work to achieve these savings without negatively impacting the quality of our innovation pipeline.

I wanted to ask a couple of things about volumes. So Q3 came in better than expected. You talked a little bit about pull forward, but your fourth volume guidance is still kind of the same ballpark, mid-20s-ish plus year-on-year growth. So one, what happened there? Is there any increased confidence, I guess, in the fourth quarter? And then related to that is with the diamide sell in North America. Is that a headwind we need to worry about next year? Or is that not at the magnitude where that's a risk?

I think regarding sales, we took our full year forecast from Q2 and removed the sales we knew were expected to be delivered in Q4. So we just took the overselling in North America and removed that from our full year target to stay at the same level we initially planned, of course, adding the correction for the GSS business. Regarding diamides in 2025, I must confess that we have not yet done a precise budget for 2025. We are in the process right now. It is complex because we have to look at all of the branded diamides and the sales with the partners; all those negotiations are taking place right now. I cannot answer specifically on the year-on-year growth of diamides in ‘25 versus ‘24. One certainty is that sales will do very well in 2025. It’s a good product with very strong demand, and there is very little competition. There are no generics, but it’s a bit early for me to comment until we are more advanced in terms of contracts with our partners.

Pierre, just thinking about things, I'm not going to ask you to forecast the weather for 2025. But at the same time, how should we be thinking about the new product introductions in terms of cadence in '25 as that relates to the growth rate you've already given as well as your own registration losses? And as just a real quick corollary of that second part, do you view your competitors' registration losses or likely registration losses over the next two years as more of a potential tailwind for your new products?

Well, I think those are two separate events. We have registration losses mostly happening in Europe, where we know it's been an issue for many years. So it's going to factor into the forecast next year. As for new products, we usually expect them to more than cover whatever registration loss we have. The new products we are introducing next year, especially fluindapyr and Isoflex, will be little impacted by the channel situation as they are new. We believe they will be well-received. Therefore, on balance, 2025 is likely to rely heavily on new products. We do not believe we can forecast the weather but we are certain that new products will be a stable part of our forecast. Registration losses will be anticipated and we plan for them, especially in Europe.

What I can share is that these products are expected to be sold in 2025. So registrations, as Pierre already mentioned, are important in Europe and that is already embedded in our plans. You asked, Chris, about whether we would benefit from those losses. The overall market in Europe has been flat despite the registration losses. So I think the short answer is yes for the products that remain in the market. There is an increased opportunity because of the lack of options driven by those registration losses across the entire industry; the same way that sometimes it impacts our products. We expect to continue growing in the next year, with the number one geography for that growth being Latin America, followed by the U.S. Most of that growth should come in the second half of the year due to seasonality in Latin America. The U.S. portion will likely come between the second and third quarter of 2025, and we also expect to launch the first introductions in Europe for Isoflex, but that will be more on the U.K. side; broader Europe registration is expected in a couple of years.

Maybe on the fourth quarter, I just want to dig into two things you mentioned before. First, on the incremental cost cuts that you announced, how much of that was already achieved in the third quarter? And how much of that can you account for in Q4? And then at the same time, you referenced Q4 being heavily influenced by new product introduction. What's your visibility on those sales? Are those orders confirmed? How much do you already have in hand versus how much are you still waiting to achieve?

Maybe I'll take the savings and Ronaldo you take the orders in hand. Off the top of my head, we said $50 million of savings in H2, so think about it that way: roughly $20 million in Q3 came from EBITDA, with the additional $10 million from higher-than-expected sales. We also faced about a $20 million decline in pricing, which leaves us expecting about $30 million in savings. So for Q4, we're expecting about $20 million. To summarize, we expect $30 million in Q3 and $20 million in Q4, which aligns with our target for the overall $50 million in additional savings. Ronaldo?

As for the orders, we track that more closely in Brazil as you know. In other countries, we tend to get the orders and start shipping right away. In Brazil, today we have about 40% of the orders that we forecast for the quarter. This is better than we had last year, and it’s lower than we had in the best years in the region. So it’s more or less in between, which aligns with our view that the market is still recovering.

We believe that the prices of technical grade CTPR active ingredient in diamides in China may have declined from approximately $350,000 a ton to $30,000 a ton over the past two years, and it's possible that new product registrations have tripled or quadrupled during this period. If you agree with this assessment, what do you perceive to be the analytical significance of such a sharp decline in CTPR prices in China? Additionally, could you provide an estimate of the size of your diamide business in China and describe its current status in terms of prices and volumes?

I'll let Ronaldo help with that question about the pricing. The size of the China market for us in terms of diamides is moderate; it is not a major market for us. But Ronaldo, do you want to make your comments?

We have seen different references for pricing with more variations than we have seen products flowing around the world. So it's still unclear in terms of capacity and how much of that product pricing is real or not. What we have seen in the two markets that we are commercializing, China and India, is that the prices have come down significantly. I'll just make a correction for the price that I mentioned. It's for the kilo of technical product, not for the ton of technical products. We do believe that some of the prices we have seen are lower than the production cost of even low-quality providers, which suggests more of a dumping of existing inventories in the market. We estimate that how low prices can go, and some of those products are being offered, not necessarily sold but offered at costs that are lower than the production cost. That gives you an idea of how we think about this going forward. We do not believe those are sustainable prices for diamides.

I want to emphasize that we are conducting a deep dive into our diamide strategy. We intend to be very open at our February call regarding the future we foresee for diamides. We're quite optimistic but will need to explain how we see a pathway to expand this market. I am not currently concerned about the pricing we see in India or China. As Ronaldo pointed out, a lot of inventory was built which could not be sold due to litigation in other countries, creating high inventory levels that people had to sell off at seemingly unsustainable prices. As part of the diamide strategy, we are working on a robust manufacturing cost roadmap that will allow us to compete effectively in the market. So all of this is being put together right now. We do have time because, aside from China and India, we do not have to worry about pricing issues that do not seem sustainable, and we will face when we are off-patent in the regions where we are competing.

Well, if I could follow up, just in terms of descriptively what's happening to your business in Asia, what's happening to your diamide volumes and prices quantitatively, roughly?

So right now, the situation with our diamide market is complex. We are combining a scenario where we have two countries allowing illegal sales of products below production cost in the midst of a downturn. So it’s not a very normal situation. Overall, diamide sales are growing in line with strong demand; when we take into account the two diamides, we have to separate them. One is growing significantly, while the other is experiencing a negative trend due to Asia. So overall, the diamide portfolio is around a 10% growth with one product, Rynaxypyr, down in the low single digits, driven by Asia's performance. This scenario answers your question.

Could you just characterize how your production capacity is positioned for the signals you're getting from the distribution channel? That is, do you have any product areas where capacity is down and you won't be able to ramp up fast enough to meet what distributors are saying they may need this winter? Or do you think you're appropriately positioned to get the full operating benefit and the leverage that would come with a restock cycle?

No, I think we’re good. We do have capacity. That being said, manufacturing is much busier than it was a year ago. Most of the lines are operating, but we do have capacity to meet the demand we are seeing and the increase we are facing. Therefore, we’re not concerned about capacity. From a raw material supply perspective, we are also in good shape. We are securing the products we need. As we said before, it’s going to be a tailwind going into next year. But this is not a concern at this stage.

And just on the pricing challenges in Latin America, how should we think about additional incremental incentives to gain or maintain share in the fourth quarter and perhaps any into 2025?

Yes. The forecast we've made for the fourth quarter includes a mid-single-digit price decrease year-on-year for Q4. We still believe we are in a challenging situation and expect there will be price pressure; I would estimate until the end of the second quarter of the season, which is the end of the first quarter of 2025. I believe the pricing pressure is going to start to relieve significantly as we enter 2025. As we mentioned earlier, pricing is closely tied to how competitive the situation is versus the market. Plus, there is an FMC-specific situation where we decided to reposition a market share lowered due to the downturn, requiring us to make choices to regain that market share. Ronaldo, do you have any further comments specific to pricing in Latin America?

Particularly in Brazil and Argentina, some products have remained stable in terms of market share, traditionally. I can talk about sulfentrazone and sugarcane, as well as cotton. These are products that are traditional in FMC's portfolio, priced to the point that growers can make a decision on replacement. So now we are fighting back for the share we had before the downturn on those products. Therefore, our pricing actions are specific to certain products. They primarily focus on very traditional products in our portfolio, and they aim to reclaim the share we used to hold before the industry downturn.

I will also add something I've said previously—there have been many comments about generics, but they are not the drivers of what we do. The generic pressure continues and has always been present, but it has not fundamentally changed over the past couple of quarters compared to where it was previously. The situation depends on our pricing position against our peers, some of whom have adopted a more aggressive pricing strategy, leading us to lose volume and necessitating a reset.

Thank you. This concludes the FMC Corporation conference call. Thank you all for attending, and you may now disconnect.