Earnings Call Transcript - PYYX Q4 FY2022

Operator

Good day, ladies and gentlemen, and welcome to today's Pixis International Inc. Fiscal Year 2022 conference call. At this time, all participants are in a listen-only mode. If anyone should require assistance during the conference, please press the star zero on your touchtone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Thomas Gregera, Treasurer.

Operator

Mr. Gregera, you may begin your conference.

Tomas Reguera, Analyst — Other

Thank you, Elaine. With me today is Peter Sickle, our President and CEO, and Flavia Landsberg, our CFO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express a belief, expectation, or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are described in detail along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10 . We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion on non-GAAP financial measurements, including earnings before interest, taxes, depreciation, and amortization, commonly referred to as EBITDA and adjusted EBITDA, that are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. A table including a reconciliation of and other disclosures regarding these non-GAAP financial measures is available on our website at www.pixis.com. In connection with the emergence from Chapter 11 cases in August 2020, PIXIS qualified for Fresh Start Reporting as detailed in our Form 10-Q and Form 10-K reports filed with the SEC, and due to the application of Fresh Start Reporting, the pre-emergence and post-emergence periods may not be comparable. Any replay, rebroadcast, transcript, or other reproduction of this conference call other than the replay as provided by Pixis International has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Peter.

Peter Sickle, CEO

Hello everyone, and thank you for joining us this morning. I'm proud of the progress made by the business during fiscal year 2022. Our employees worked diligently to increase volumes in revenue compared to the prior year. They achieved this while continuing to navigate global challenges that largely stemmed from the ongoing impacts of COVID-19 and the unfortunate events in Ukraine. We continue to expand our business relationships as customers sought solutions to reduce supply chain complexities and improve operational efficiency. Expansion of these relationships increased our market share in Africa, Asia, and South America and contributed to a 16.8% increase in kilo volume compared to last year. This growth is partially attributable to our environmental, social, and governance framework, which we publicly announced in December 2021. Reference to execute on our strategy to increase financing sources and working capital lines globally resulted in a new asset-based lending credit facility with pnc bank executed in february 2022 this facility provides the company with an extended maturity date reduced costs and increased potential borrowing availability in addition in june 2022 we entered into an agreement to amend our delayed term loan facility this amendment provides a company with an extended maturity date reduce costs, and increase financial flexibility. In January 2022, we completed the exit of our cash flow negative cannabinoid operations. Restructuring activities generated savings in SG&A, which contributed to a $55.9 million decrease in expense compared to last year. As a result, our SG&A expense is normalized and is consistent with levels prior to our investments to develop those businesses. For fiscal year 2023, we anticipate increased demand for our leaf products, the continuation of COVID-related logistical challenges, and cost and price increases due to inflation. We expect fiscal 2023 sales to be between $1.75 billion and $1.95 billion, and adjusted EBITDA to be between $130 and $160 million. Maintaining farmer livelihoods and a supply chain of responsibly sourced, sustainable and traceable products remains a top priority as we engage with customers about the impact of inflation on the cost and price of tobacco going forward. Additionally, we have taken proactive measures to secure inputs such as fertilizer and fuel for the next year, allowing us to remain focused on delivering stakeholder value as we work to grow a better world. With that, I'll turn it over to Flavia to provide a financial update.

Flavia Landsberg, CFO

Thank you, Peter. With regards to our full-year results, sales and other operating revenues, for the year ended March 31, 2022, was $1.64 billion, a 23.1% increase compared to the prior year. This increase was due to a 16.8% increase in kilo volume and a 7.5% increase in average price per kilo. A 16.8% increase in kilo volume was driven by a larger crop sizes in Africa and increased market share in Africa, Asia, and South America, partially due to customers reversing their vertical integration in certain markets. In addition, 21.1 million kilos or $178.3 million of shipments were delayed by the COVID-19 pandemic and customer shipping instructions from prior year into the current year and were offset by similar volume of shipments expected in the current year that has been delayed into the next year in Africa, North America, and South America. The 7.5% increase in average price per kilo was primarily due to product mix having a higher concentration of lamina in Asia, Africa, and Europe, as well as a customer and great mix in Africa and North America. Lots of goods and services sold for the year ended March 31, 2022 were $1.41 billion, a 20.7% increase compared to prior year. This increase was driven by the increase in sales and operating revenues. The average cost per kilo increased primarily due to the higher tobacco prices. Gross profit, as a percentage of sales, increased to 13.8% for the year-end March 31, 2022, compared to 12.1% in the prior year. This increase was mainly due to the deconsolization of the company's Canadian cannabis subsidiaries in the fourth quarter of fiscal 2021. The wind down of the industrial hemp and the CBD businesses and customer service and customer Average gross profit per kilo increase, primarily due to the customer mix. GNA expenses were $142 million, a 28.2% decrease compared to the prior year. SG&A expenses as a percent of sales decreased to 8.7% for the year ended March 31, 2022, compared to 14.9% in the prior year. These decreases were related to increasing sales and other operating revenues, the deconsolidation of the Canadian cannabis subsidiaries in the fourth quarter of year ended March 31st 2021 and savings from restructuring initiatives. The company's liquidity requirements are affected by various factors including prop seasonality, foreign currency, and interest rates, green tobacco prices, customer mix, crop size and quality, and legal and professional costs. At the year end, the company's availability credit lines in cash totaled $500.9 million, including $287.2 million of availability under foreign seasonal lines of credit. Cash equivalents and restricted cash were $200.9 million, a $103.6 million increase compared to the prior year due to the higher net proceeds from short-term borrowings and higher collections of beneficial interest on securitized trade receivables. Trade and other receivables net were $260.2 million, a $56.4 million increase compared to the prior year due to the primary from the increase in sales. Net inventories were $749.9 million, a $21.1 million increase compared to the prior year due to the higher green tobacco prices in South America and was partially offset by the restructuring of certain African operations in the prior year, where the company no longer operates. As of March 31, 2022, 91.2% of the company's processed tobacco inventory is committed to specific customers to meet near-term forecast demand. Advances from customers were 53 million, a 40.9 million increase compared to the prior year due to the increased prepayments from certain customers for inventory purchases to be made next year. Current portion of the long-term debt were 107.9 million, a 105.8 million increase compared to the prior year due to the reclassification of the DTTL facility from long-term debt to current portion of long-term debt during the year ended March 31st, 2022. Now, I would like to turn the call back over to Peter for some closing remarks.

Peter Sickle, CEO

Thank you for that update, Slavia. We're excited about the progress and the future of our business. And on that note, operator, please open the line for questions thank you the question and answer session will be conducted

Operator

electronically if you would like to ask a question at this time please press the star or asterisk key followed by the digit one on your telephone please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment again press star 1 to ask a question we'll pause for just a moment to allow everyone an opportunity to signal for questions once again if you would like to ask a question at this time please press the star or asterisk key followed by the digit 1 on your telephone keypad. Please ensure that the mute button on your telephone is switched off to allow your signal to reach our equipment. We will take our first question from Chaplain Mitchum from Northeast Investors. Please go ahead.

Chaplain Mitchum, Analyst — Northeast Investors

Great. Hi. Thanks so much for taking the question. I just wondered if you could expand a little bit on the shipping delays. I know we've been talking about it for the last year or two, but I'm just kind of wondering if you can give any more color on that.

Peter Sickle, CEO

Yeah, I mean, I think that's a continual feature of the business, and I guess not just ours, but everybody's. Every company around the world, supply chain inefficiencies continue to occur. So we carried over a similar volume of shipments from this last fiscal into this fiscal as we did the previous year into this year. And the majority of those came from South America, which has seen significant logistical challenges in terms of getting containers. And then from Africa and North America, mainly into Asia, where we've seen various other procedural issues related to getting shipments done. But we did see some relief, some improvements as we reached the end of quarter four. Certainly shipments coming out of Asia, we saw significant improvement as we went through the last quarter, and hopefully that will continue throughout the next fiscal year.

Chaplain Mitchum, Analyst — Northeast Investors

Great. And so I guess for your guidance for EBITDA for 23, is that assuming that I think it's about $170 million make-up, or is that not included in there?

Tomas Reguera, Analyst — Other

We don't have a full catch-up as we're looking forward.

Peter Sickle, CEO

We're expecting logistical challenges to continue for the coming year. I think we saw a strong year in terms of volume growth. I think our teams perform very well in terms of getting shipments out despite those challenges. That's what we're focusing on as we go forward. But, of course, there are a multitude of factors coming into the coming year. There's very strong demand for leaf tobacco. There is very high inflation in certain origins, So there's significant cost and pricing increases going to customers. And there's also a relatively small crop sizes, particularly across the Southern Hemisphere, related to the La Nina weather effects of the growing season. So we're in a situation of strong demand, and we're very much focused on acquiring the volumes that we need to, as best we can, satisfy that demand.

Flavia Landsberg, CFO

If I may add on related to the guidance, the way the guidance was put together is a couple of important points. I think the first one is the underperforming non-leaf business will either be restructured or sold. So that's one piece. The second thing is our SG&A expenses are expected to increase below inflation rates. Then, as Peter said, the smaller crops in some regions, like South America and Africa, will be offset by increasing purchases in other areas. The other piece is that an increase in green leaf prices is expected to pass on. We are way advanced on purchasing, and we prepare, actually, with additional seasonal lines to absorb that price increase. It's an important piece. The growth will come from increase in vertical integration strategy and also the additional volumes of value-added products due to the additional capacity implemented last year. I hope that gives you a little more color into the guidance.

Operator

Yes, that is wonderful. Thank you so much for that. As a reminder, to ask a question at this time, please press Star 1.

Operator

This concludes. We have a question from Craig Karlazodi from Longfellow. Please go ahead.

Craig Karlazodi, Analyst — Longfellow

Yeah, hi. Thanks for the time. Thanks for the question. Appreciate the 2023 guidance, in particular, some of the backdrop and underlying drivers. Given all the moving pieces of the business, would you be able to give us any directional color or expectations on what we should expect for CFO minus CFI? You know, I know SG&A is back to what you claim to be a normalized level. Inventories are inflated. It sounds like there's going to be some improvement. But given that we're starting from a high working capital base, what are your expectations? Is it reasonable to believe that that number could be positive this year? It's been quite some time. Just curious what your thoughts are.

Flavia Landsberg, CFO

You talk about cash flow, right?

Craig Karlazodi, Analyst — Longfellow

Yeah, yeah, specifically the CFO line.

Flavia Landsberg, CFO

As you can see, yeah, we're not going to put anything forward related to that. but what you can see is that we added on page 8 of our press release okay you can see that at the bottom okay we added some information on on the cash flow and and the trend will continue okay and you can as you can see actually the cash flow generated in 2022 is about 99.5 million dollars and a much stronger cash flow generation versus 2021 and versus 2020. So we expect the trend to continue, and that's part of the transformation that we're doing in the business to continue to have strong cash generation. And as you know, we are in a volume business. We are in a margin business, and the idea is to continue the trend upward.

Craig Karlazodi, Analyst — Longfellow

okay what about asked a different way directionally for net debt at year end you know i'm just what i'm trying to understand is if there's anything that is not and i'm looking i'm i am looking at page eight and i and i do appreciate the different color i i did notice it uh and and as always i think everybody on the call appreciates the breakout is there anything else that we should be aware of. If we were to think about net debt year over year, from 331-22 to 331-23, is there any color guidance, even soft expectations up, down, materially, the direction, anything

Flavia Landsberg, CFO

Again, we're not going to release any projections related to that. But that being said, as you can see in the trend, our debt has been – the cost of our that has been going down and we expect that to continue to happen. We have been both on seasonal lines and the ABL line, we're able to lower the cost over 100 basis points and so one interesting piece is the raising interest expense. As of now, we had no impact on that in our numbers and mainly because of the floor that is higher than the interest rates. to the future interest rates will go depending what's happening our interest cost may go up because of the regional interest cost but we're also working very hard on actually increasing the value and the number of the seasonal lines and the cost so we should expect that to happen that being said we are growing and we expect to purchase more in in the coming in the coming fiscal year, what may need additional seasonal lines, and we did renew the DDTL at lower cost.

Craig Karlazodi, Analyst — Longfellow

What was the interest savings on that again? I know I looked at it, I just don't recall.

Flavia Landsberg, CFO

Well, it's a combination, you know, we have the 8K that, you know, you should refer back to.

Tomas Reguera, Analyst — Other

Okay. All right, thank you.

Operator

We will take our next question from Manish Garg from Wells Fargo.

Manish Garg, Analyst — Wells Fargo

Hi, guys. Thanks for the forward guidance. Very helpful. Can you talk a little bit about what growth opportunities you guys are seeing in the future here from either customers or from any of your geographies? Thanks. I'm sorry. What was the last couple of words? Just generally, what other growth opportunities you are seeing across the business?

Peter Sickle, CEO

Okay. Thank you. Well, I think, firstly, I mean, we had a very significant growth in volume in fiscal 22 compared to prior year, and really that reflects a lot of what we've been working on for many years. What we're going to start to see as we go into 2023, we're going to see the full-year effects of the various of the reversal of vertical integration opportunities that we managed to implement last year and coming into this year. I think that will steadily increase in volumes as crop sizes rebound, they're a little bit low this year, but we'll start to see improvements in that and we'll see steady opportunities of that. We've seen strong progress in market share growth across several regions actually and several geographies within those regions. So I really think customers are excited about what we provide and how we provide it. Our ESG programs all the way from the field through the farmer are extremely strong and I think that's been acknowledged in what we do. And And we see significant potential still in the various value-added businesses that we are involved in. We did increase capacity over the last year, and we're starting to see, as we get into 23, we'll see more of a full-year run rate on that increase in capacity as well. So there are significant opportunities in various areas of the LEAF business that we see as we go forward. And with that volume, we've got to keep focused as well on profitability. We're not quite at the profitability levels in every region that we would expect, and that's what we're going to continue to target as we go forward to improve on that.

Tomas Reguera, Analyst — Other

Thank you.

Operator

Once again, to ask a question, please press star one.

Operator

This concludes today's question and answer session. I would like to turn the call back over to Thomas Gergera.

Tomas Reguera, Analyst — Other

Thank you for joining our call today.

Tomas Reguera, Analyst — Other

The call will remain available for playback for any interested person through 8 p.m. on Sunday, July 4th.

Tomas Reguera, Analyst — Other

Again, thank you for participating in our conference call.

Operator

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.