Conference Transcript - FMC 2026-02-25

Speaker 5

Welcome back everybody. As we kind of move into the afternoon, I'm pleased to be welcome Pierre Bondot, CEO and president of FMC and Andrew Sandefur who's EVP and CFO. You know FMC been a long-standing participant in the conference and obviously a very fundamentally important player to the agriculture market so thank you for coming and joining us. There's been a lot obviously with with the business both fundamentally and strategically and i guess if we kind of just go through it and kick off i wanted to ask you a little bit on on the strategic side because the company kind of said we're taking various paths we potentially for sale we're looking at licensing agreements asset sales so can you help frame and structure what's currently at process as it relates to this?

Pierre Brondeau, CEO

Yes. Thank you. I think it's the most important question because there is some confusion around what are options, strategic options, and what is in the 2026 operational plan. There is two paths. Plan A, Plan B. Plan A is the 2026 operational plan. for which decisions have been made and are being executed. There is multiple pillars to this plan A. Number one, devastating assets to pay down debts for about a billion dollars. Number two, reshaping a manufacturing footprint to bring back to competitivity. our core product number number three implementation of the runex appear post patent strategy and number four the growth of the four new active ingredients those are the fourth peers of our 2026 strategy plan in the one billion dollar divestiture of assets the number one is selling our business in India this is proceeding very well we are expecting binding offers in the next two weeks that's first step and fundamental step to the to the process number two is licensing of one of our advanced molecules with an upfront, significant upfront payment allowing us to pay on debts. We are currently in negotiation with different parties. I would say very close to a decision. So that part number two which is licensing one of the molecule with upfront payment and the upfront payment is just not a few dollars it's a it's a meaningful part of the billion dollar is very close to happening hopefully q1 beginning of q2 okay then there is a series of other activities which we are undertaking we cannot be more precise because they are less advanced but they are in the process of due diligence for some companies which are interested in those in those assets so I would say that part of the that peer of the four peers is progressing very well as expected with the top two being very well advanced plan a plan b when we presented plan a to the board they approved the plan and their view was it's a very solid plan but like any plan there is risks if if something goes wrong in this plan what are the alternatives could you explore strategic options for the company beside this plan which could be selling the company merging the company or any other option now plan a is the priority but we are running plan B fully you do not look at plan b by just waiting for a couple of phone calls no we are running it like a divestiture process we've hired two banks bank of america and goldman sachs we're running the process we do have a legal advisor we have prepared the management presentation in the data and we have actually already given management presentation to parties which are interested in the acquisition potential of the FMC. So this process is fully in motion. Despite the fact that my priority as a CEO is plan A and delivering a new operating plan, the other process is being fully run and completely in motion currently.

Speaker 5

So is it fair to assume that a lot of the companies that are looking at plan A are also in plan B as it relates to licensing and some of these opportunity sets, or do you find them to be separate considerations?

Pierre Brondeau, CEO

You could add companies which are on both sides.

Speaker 5

And so if I think about a normal licensing deal, at least the way that we kind of see them historically, it's a partnership, and say, for example, Fluinda Peer with Corteva, right? You have the sales, and incrementally you collect the license or the the value stream as the sales progress so when you go forward with something like a lump sum up front is there like what kind of haircut do you think you're at risk of taking by moving everything forward or it feels like there's more risk to the buyer conceptually right so how does that conversation evolve and if if i look at your four actives and it's two billion of peak sales by 2035 ish maybe 2.5 okay well that that's important for me to know so what's like a realistic sum that you

Pierre Brondeau, CEO

could get in a licensing agreement really today for some of this stuff so we we cannot divulge of course the prepayments of course we do not take we do not take a haircut it's there is very different type of licensing agreements when you license fluent appear and fluent appear is not the molecule we are talking about licensing today fluent appear is a molecule which has been registered in most of the large market so usually those license are done pretty quickly with the licensing agreement and payment by the licensee as we go here we are talking about more advanced molecule very often which do not have registration or all of the registration it's a longer process which require more due diligence to understand the molecule its capacity the priority will be registered all of this is behind us has been done but you're acquiring a molecule much earlier in the process okay so you don't take a haircut but it's different type of licensing Also, this type of licensing very often comes with an exclusivity on some territories and some crops, which you would not have in a simple licensing agreement for somebody to sell a molecule. So those are deeper, broader licensing agreements. Why are they beneficial to us? it's because and we would do this type of licensing agreement regardless of not of the situation we are in we when you have a molecule of quality you want to be able to reach the largest possible market the ag industry is a very very fragmented market we are one of the largest crop chemical company in the world and we have seven percent market share if you want to reach a broader market with this molecule you need to find partners which have complementary crop profile and complementary geographical profile because then you reach a bigger market then you give to these companies a commercial license what does it mean you sell them you manufacture we keep the manufacturing of the molecule we sell them the molecule at a cost plus then they pay royalty and then they create mixtures for the crop they want to treat so that's that's the way it works very different table for us the benefit is reaching a larger market but it's also financially if you think about it by selling the molecule at a cost plus plus royalty knowing that we do not have the selling text service expense from a dbdab margin, you might have a lower gross margin, but you will have an equivalent dbdab margin on the A net present value of a molecule which is licensed to the right partner is higher than the same molecule you try to keep for yourself.

Speaker 5

Would something like Dodelex be open for this or is it even further out?

Pierre Brondeau, CEO

It will be one of the three molecules, Dodilex, Remisoxafen, or Isoflex. Obviously, when you talk about this kind of molecule, what I've said, you tend to think more Dodilex and Remisoxafen, which have less registration and are a bit further away from commercialization.

Speaker 5

Because if I think about product efficacy and breadth, it felt like to us, Dodilex probably has a huge, you know, when I look at applicable market, that's one where I feel like it could actually go really broad.

Pierre Brondeau, CEO

I think the two molecules, if I look at the four molecules we are putting on the market today, the two molecules which have the most unique technical capabilities and market breadth are Dodio-X and Remus-Ox7. Two molecules with a new mode of action, each of them, and remiss for exception with a dual mode of action.

Speaker 5

Along the same lines, and maybe a little bit different, but would you look to sell any product lines now? Like, would you just sell the entire... I'll go to Isoflex, right? Would you sell the whole Isoflex suite, AI production, active ingredient production to sales and just divest that AI segment to somebody? Or cyazepier, could you carve out cyazepier, the footprint up and down the scale and say, this is yours now?

Pierre Brondeau, CEO

Very different question about cyazepier and one of the new molecules. Cyazepier, I'm not even giving any thought about potentially selling cyazepier. Selling one of the new molecules, there would be two reasons for which we would do it one would be an absolutely insane price or us being completely desperate i don't think we're going to be facing any of those two situations so today selling one of the molecule is not in the card we would rather sign good licensing agreements. Think about FMC. 26 is a difficult year. We know it. The operating plan is not a walk in the park. But if we get successfully through 2026, 2027 is looking really good.

Speaker 5

Yeah.

Pierre Brondeau, CEO

Our core business will be in great shape and we'll have four more taking off with very fast growth, reaching $1 billion very quickly, $2.5 billion in potential and very unique molecule and rebalancing a portfolio from an insecticide company to much more balance between herbicide, fungicide, biological and insecticide.

Speaker 5

No, this is all very helpful context because I think when we, in the days following, we had a lot of conversations like, well, if they're just going to sell or remove the economics of the primary growth engines, what's left? And so it sounds like that's not really on the table, which I think is helpful as it relates to creating a story that's ownable and capitalizable beyond just this is what the cycle is going to do.

Pierre Brondeau, CEO

You're absolutely right. I mean, for us, priority number one is plan A, which include retaining the four new molecules.

Speaker 5

And so, look, I think FMC, over time, has always had a successful platform, in part just because of breadth of products and applications, right? It's not just row crops. You have a pretty broad spectrum of markets. but it feels like pressure at the same time is pretty uniform across this core portfolio and maybe that's not the case. Are there specific portions that are just being hit particularly hard that you can address or is this that core business is all kind of unilaterally under pressure across all of their modes of action and products?

Pierre Brondeau, CEO

The latter. I think what's been happening is over the last three years because of the prolonged downturn the low demand price have been going down constantly generics have been very active in pushing price down and i must admit something i realized maybe a few quarters too late that our portfolio a core portfolio was getting uncompetitive from a price standpoint because our cost was too high half of it is produced in high cost plant and even the one we are producing we are producing or procuring in low cost region could be done at lower cost so we have redefined a process to relook at our footprint and and bring back a manufacturing cost in a place where with the straight molecule or with formulation we can compete with any generics around the world now there is locations where those products are being more impacted that's the place where the generic some more active Latin America and especially Brazil being one Asia being another one after that North America and last would be Europe which is the most stable market we have but overall it's a it's an issue of a manufacturing cost of a core molecule that we need to fix So you kind of touched on two things that I want to parlay into.

Speaker 5

First is, as you look at where you're priced, have you basically priced back on top of market? So if I were to see, if we were to diligence and commodity crop chemical prices rise 5%, will your core portfolio also be up 5% now? Are you kind of on top of market prices and competing where the market is now?

Pierre Brondeau, CEO

We try to be where the market is. The problem is in the deflationary market when price is going down, if you look at our results over the last few quarters, what we have lost is volume because there were cases where price were going down to a place where it didn't make sense for us to stay with the market price. So most of the time when you look at volume loss at FMC, it's on core product. And if you look in 2026, that is the number one driver of a lower EB versus 2025, it's same thing. We're not gonna be able to go after all of the business on the core because of a manufacturing cost.

Speaker 5

But so if volumes, because I think, It feels like the next two, three years does set up more favorably for crop protection, right? Farmer profitability maybe aside, the business feels like we're putting in a bit of a floor. Volumetrically, I think we should grow. I had Chuck up here earlier, and I think he would articulate a similar expectation around volumes can grow from here. so then re-entering some of these markets as demand came back and then volume growth if we saw prices higher like how should I ever see you contribute then or play as the cycle recovers so we've not moved away from any market we just lost business and specific customers that that's more the situation where a customer would be able to get a price from a generic and we could not follow.

Pierre Brondeau, CEO

That's why we lost volume but we moved away from no market. The way we look at it and we tend to agree with Chuck that we should see volume growth 26, 27, 28. Our view is if we put ourselves in a place where we are competitive at the bottom of the cycle we'll be even more competitive when the market grows and will be capable of taking full advantage of that of that growth so the last thing we want to do is wait for the market to grow for us to be back to competitiveness we just want to lower a price to be able to be competitive regardless of where we are in the cycle we have not moved away from any market we are still with the same molecule but we've lost business that specific customers where we couldn't follow competition.

Speaker 5

And so you talked about operating costs associated with a billion dollars in revenue being down 35%, I think is the target. How do you get there? So what actions are you taking? And I mean, is this like 300 million in savings? Is that kind of the rough number we're looking at?

Pierre Brondeau, CEO

Not exactly. It's saving 35% of the manufacturing cost billion there is a selling price so if manufacturing cost is 50% it's 35% okay so 150 million there's 117 million there but there is two aspect to it one of the cost reduction is going to be made by moving out of manufacturing of active ingredients in europe and north america and move all of this to lower cost country india and china either in our india and china plant or with our tall manufacturing partners very often exclusive or through contract supplies with generics who are working with us so that's that's we were going to do it so we're going to limit our operations in in Europe to two more formulations than manufacturing of active ingredients and we focus all over manufacturing to India and China do you have to be a manufacturer of active ingredients though can you just because it feels like the capital investment and requirement for active ingredient manufacturing might not be worth it anymore if you can just be a formulator right it's it's it's not very high those are not big plans i mean our capital spending every year is 100 million dollars yeah so it's not a it's not a very very high capital capital spent plus a plant could be expanded without building new plants plus there is something which is fundamental for us we have the four new active ingredients i've talked to you about we have two new fungicide coming out of the development in research we want to be able to manufacture those products most product needs to be manufactured in-house we're a manufacturing company so we're not moving out manufacturing and how do you choose I mean India and China under a traditional sense obviously

Speaker 5

makes a lot of sense how do you navigate just tariff tariff uncertainty considering the ebb and flow of headlines, the risks around U.S.-China trade tensions? Is there just no ability to put this in somewhere like Vietnam? What is ultimately the draw that gets you back to China and India?

Pierre Brondeau, CEO

Well, China and India, first of all, are the place where we have already facilities, where there is most of the raw materials coming from, where there is the people, the knowledge. Second of all, I think people have to remember that for a company like FMC, the U.S. is not the world. The U.S. is only 20% of the market. Manufacturing in India and China put us in a very beneficial position for 80% of our business. So yes, we have an issue with tariffs, but it's for North America. It's for the U.S., not even North America. It's U.S. Canada is pretty big for us. It's for the U.S. And the U.S. is not even 20% of the world market. Second of all, there is such a difference in manufacturing cost than manufacturing in India or China plus the tariff is lower than manufacturing in one of our plants in Europe or in North America.

Speaker 5

Andrew to bring you in on this so the restructuring work this year is consuming cash next year if we return to growth can you know typically that's a working capital headwind how do we how do we chart if the company is going to grow 15% in 26 and 15% in 27, how do we chart the cash flow progress from here?

Andrew Sandifer, CFO

Yeah, that's an excellent question, Mac. I think if you look, starting at 26, you know, we've guided to a midpoint of essentially break-even free cash flow. Now, embedded in that is about $130 million of cash restructuring spend for both the manufacturing footprint changes Pierre was talking about, as well as for some final costs that go over the next couple of years from a large take or pay supply agreement in our Renacier business that we walked away from two years ago. So that is one of the big headwinds on pre-cash on 26. It will be a step down in restructuring spending from 26 to 27, but it's still pretty meaningful. It'll take through the first quarter of 27 to make all the manufacturing changes we're talking about, and we still have another year of material take-or-pay payments from the old Renax Peer supply contract that comes in that needs to be paid in 2027. So what I think you'll see is you'll start seeing pretty healthy EBITDA growth after the repositioning in 26. You know, we said openly, you know, mid-teens, 15% type of range in 26, 26 into 27, and 27 into 28. As you get that higher level of EBITDA more of that will flow down to free cash flow by 28 certainly there's a much less drag from restructuring expenses there'll be a pretty significant step down from 27 to 28 with restructuring expenses but we do have you know we do have some legacy expenses and some other semi fixed expenses and we pay about 135 million a year in cash for legacy environmental costs that are both in our mixture of discontinued ops continuing operations obviously interest expense taxes, those kinds of things. So getting that top part of the EBITDA free cash flow back to a higher number leads to a lot more drop-through. Then the last piece I'd put, you know, Pierre pointed to this point before, you know, we spend about $100 million a year on CapEx. We're not particularly fixed asset intensive, but with growth, there is working capital growth. We are doing, you know, a lot of things to both improve efficiency on all dimensions of working capital. We're working on ways to bring that cash conversion cycle back to more historical norms. It's been stretched over the past three years as we've been in recovery mode coming out of the big post-COVID correction. And as we've had some pretty big shifts and mix in our business. Less B2B business on shorter terms, more business in long-term markets like Brazil and Turkey. So I think you will see an improvement in working capital productivity as we go in through 26, 27, 28 as well. that will reduce the amount of working capital dollar growth that's needed to support that top-line growth.

Speaker 5

I appreciate that. I wanted to talk a little bit, you know, we've been layering in a discussion on AI. It's hard for us from the outside to gauge progress in some of the companies. You know, by and large, we've spoken about seed and crop chems and ag in general has been kind of an early adopter here. But as you look at improvements and iterations of AI, how are you thinking about deployment as the CEO of FMC? Is it R&D? Is it broad? We've heard Chuck talk about regulatory paperwork, filing. What's your top-down view on this? And how pervasive and transformational or not could it be for FMC?

Pierre Brondeau, CEO

I think we're at the very early stage, at least at FMC, we just actually had a, brought all of our leadership team to spend a day looking at AI options and every function is trying to develop a plan for how AI could help. Certainly for R&D, it's definitely a place. R&D and regulatory is definitely a place where it will have a build impact. But think there is multiple places where i would say it's it's it's a very broad approach right now yeah we've not been limited to any sector we believe from a cost standpoint from an efficacy standpoint it's going to be important um to tell you that today we do have a definitive plan on how to do it and how it will help we we don't maybe you want to say a word andrew yeah i think certainly any place that's that's document intensive whether that's regulatory R&D legal there's lots of opportunity for very simple approaches I think our approach at this point is pretty conservative it's go for long hanging fruit there's a lot of base hits that can be made here with some simple

Andrew Sandifer, CFO

automation and enabled by AI whether that's in back office processing whether that's in handling large volumes of written information right so I think we will be a company that takes it one step at a time I think there's some interesting things on the research side that are beyond my capabilities but certainly from a business process side there's a tremendous opportunity it doesn't need to be moon shots they can be low-hanging fruit on very simple automation and use of an algorithms and an artificial intelligence to help improve efficiency and I think it should be the approach for a thing as a company which is broad but low hanging foot there is plenty we can do documentation is one

Speaker 5

where there is easy things to do but which could be very beneficial to go one step beyond we're not there yet no that's fair enough i appreciate the honesty and so much as not trying to do too much or be too much right now so i get that um i would like to open it um with the you know a few minutes If there are any questions, I know sometimes people get shy, but perhaps there's – okay. I think there was one question. Oh, Sal, sure.

Speaker 1

Yeah. So I was just wondering, you know, being at the end of February, just what you're seeing so far, you know, in the season, and also some that did come up last night, you know, in the guidance, I guess you're talking a lot about the value-add formulation. and the significant growth there. So how are things faring so much or how do we expect things to trend during the year on the value-add formulations of Rinaxapir? The combo product.

Speaker 5

So just how are things progressing? I mean, we are two-thirds away through the quarter, I guess, was kind of an update on anything there. And then as it relates to some of the value-add, are you talking about on Rinaxapir, sir? Yeah.

Pierre Brondeau, CEO

So the market itself, there is nothing special. I think North America, we know we've seen what's happening in the Northeast, it's cold. So it's a bit delayed, but nothing major. I don't think there is anything. There is place, I know Australia was very dry. So there is specific weather events, but there is nothing fundamental in terms of demand, which would be negative or positive. So pretty much normal season. For us, Renex APR and deployment of the strategy, as we discussed, the first quarter is very much of a Europe quarter where there is less generic and less of a need to implement the Renex APR strategy. So maybe less of the way to test the strategy. I believe what we are seeing already is a movement of our share or advance for an accept your technology growing versus the straight molecule so I believe we'll have a portfolio which will be richer and bigger on the most advanced size or except here then we will have on we will have on a single molecule that being said now that we have a manufacturing cost which is significantly below where it used to be we should be able to compete in the lower end market against generic with quality product and the brand which has a value at a premium on the low end market but but we'll see a shift and we're all already seeing it to high concentration product to Bifenthrin for the Realux APR blend. We are expecting blends like blends with endoxicab to some resistance. So all of those are coming. We're getting the registration. That's going to be an important part of the strategy. And it's already happening.

Speaker 5

So the premium blend is an interesting thing, right? So you mentioned Bifenthrin. And so if I were to think about Ranaxapir being incredibly effective at Caterpillars and Syazapir being very good at everything else, are you implicitly creating a competitor to Syazapir? So if I mix Ranaxapir plus Bifenthrin, am I introducing a competitive product to Syazapir in that regard? And do you have to be careful with how you price these? Because if Ranaxapir plus Bifenthrin is too low, does that cannibalize Syazapir? How does that interchange work? Or maybe I'm just wrong.

Pierre Brondeau, CEO

No, no. It's a valid question. What we do is we develop formulation, which do not compete with Syazapir. If silo-zapyr does the job we want to do, that's enough. But it's, for example, to target some specific spectrum for which silo-zapyr would be too broad and not deep enough. That's where we develop a specific formulation. Or we could develop a formulation, for example, which would be, we've talked about ronoxapyr and endoxycarb. That is to make Ronex appear much higher efficacy and avoid addressing resistance issues. So it depends what you want to do with the product. You have a variety of performance you can reach, but we're not going to try to make Ronex appear what Siosapir is.

Speaker 5

That's helpful. Is there a defense that you can have? Because Bifenthrin is an off-patent product, right? And so if I'm looking at Ranaxapir plus Bifenthrin creating a new solution or a better solution for my buyers, how much shelter do you think will be there if somebody else can make a similar product, right? If it's UPL or whoever and they can make Bifenthrin plus Ranaxapir now. Is that brand? Because the FMC brand still carries a lot of weight in markets. Is there brand power there? Is there market access because UPL maybe can't compete in various markets that you can? So how do you protect that?

Pierre Brondeau, CEO

Mostly two things, brand, but it's also patent. Okay. Depending upon the time when you did it, when you get the data, when you get the registration, and your ability to patent, you can patent formulation. It doesn't have to be two new active ingredients to create a patent. We have plenty of formulations which are patented, which are made in a core business, which are made with core molecules. So patent and brand are the two ways to protect.

Speaker 5

So what you're going to do is move quickly to patent and protect the formulations?

Pierre Brondeau, CEO

Every time we can. Every time we can, yeah.

Speaker 5

That would make sense. Good idea. Okay, perfect.

Speaker 4

Thanks, guys. This is specifically for Andrew, I guess.

Andrew Sandifer, CFO

So just anything you could talk about the balance sheet. i know there was some buzz about potentially doing a high yield deal and then you know you secured the revolver so just any commentary you could talk about you know maybe why you decided to not come to market and piggyback on that uh with upcoming maturity sure plan to use intended process some quick updates on the balance sheet i think as you heard pierre describe the operational priorities for 2026 you know it all starts with with paying down debt you know we have an imbalance between current earnings and our debt levels right so first step is to reduce that debt load by a billion dollars through asset disposals through this year we also we have a maturity in October 500 million notes are due we have adequate liquidity to deal with that in a couple different ways our preferred way is to go to market and do a do a financing here in the first half just the timing of things is such that the window to go to market with a bond offering is pretty narrow in the first quarter we can't go until after our K is filed later this week and then the window will close on the 15th of March so not sure that that window will work but you know we are looking at doing a high-yield bond likely secured we are continuing to look at the way our revolver and credit facility which is an investment grade facility we are no longer investment grade rated may evolve over time when the most recent amendment has some springing security involved in it but you know there's some further flexibility that might be desirable if we went to a more traditional secured borrowing kind of approach so that's more TBD at this point I would say you know in the worst case we have adequate liquidity to be able to handle the maturity of the October bonds no matter what but our preferred our preferred path would be to go to market here sometime in the first half I might end it there I think we're basically out of time anyway so thank you please everyone join me in and thank you