Edited Transcript of PYX earnings conference call or presentation 17-Jun-19 9:00pm GMT

Thomson Reuters StreetEvents - finance.yahoo.com Posted 3 months ago

Q4 2019 Pyxus International Inc Earnings Call

MORRISVILLE Jun 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Pyxus International Inc earnings conference call or presentation Monday, June 17, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* J. Pieter Sikkel

Pyxus International, Inc. - Chairman, President & CEO

* Joel L. Thomas

Pyxus International, Inc. - Executive VP & CFO

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Conference Call Participants

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* Bryan Cecil Hunt

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Hale Holden

Barclays Bank PLC, Research Division - MD

* Jacqueline Elizabeth Crawford

Jefferies LLC, Fixed Income Research - Analyst

* Mary Ross Gilbert

Imperial Capital, LLC, Research Division - MD of Institutional Research Group

* Rajay Bagaria

Wasserstein Debt Opportunities Fund, LP - President and CIO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to today's Pyxus' International Inc. Fiscal Year Fourth Quarter and Full Year 2019 Earnings Call. (Operator Instructions) As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference call, Joel Thomas, Chief Financial Officer. Mr. Thomas, you may now begin your conference.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [2]

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Thank you, Cody. With me this afternoon is Pieter Sikkel, our President, Chief Executive Officer and Chairman of the Board of Directors; and Michael Shannon, Vice President and Treasurer.

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 referenced in our safe harbor statement, included in our press release; and are described in more detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based.

Included in our call today may be a discussion of 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 disclosures regarding these non-GAAP financial measures is included with our earnings release issued on Friday, which is available on our website at www.pyxus.com.

Any replay, rebroadcast, transcript or other reproduction of this conference call, other than the replay as provided by Pyxus International, has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Pieter Sikkel.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [3]

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Story continues

Good evening, everyone, and thank you for joining us. Looking at the past fiscal year, our team has accomplished unprecedented change, successfully driving the launch of our new business ventures in legal Canadian cannabis, industrial hemp and the e-liquids lines, and strengthening our leaf business for the future. We remain pleased with the progress we have achieved on key initiatives undertaken in support of our transformation efforts and look forward to entering fiscal year 2020 with an evolved and innovative business model.

Turning now to performance. Throughout the year, we made significant investments in the development of our new business ventures and addressing challenging market conditions facing our leaf business with efficiency and agility, resulting in a strong performance in leaf and significant growth in our new business lines.

While the requirements of our new business ventures drove an increase in SG&A, those increases were partially offset by our cost-saving initiatives in the leaf business, and we are pleased that we finished the year above our anticipated adjusted EBITDA guidance range at $163.3 million. The reduction of long-term debt remains a top priority for our team and we continue to progress in reducing our second lien note. We continue to see the benefit in the implementation of strategic initiatives to enhance the leaf business. In fact, we had one of the best years in tobacco that we've had in quite some time.

Our team addressed challenging market conditions with an innovative mindset and a focus on quality, resulting in a 4.9% increase in full-service volumes to 400.5 million kilos for fiscal '19. Our year-end uncommitted inventory was the lowest as it's been since fiscal 2011, consistent with our working capital strategy. Cyclone Idai struck Mozambique, Zimbabwe and Malawi, we were able to mitigate the impact on our operation. And more importantly, successfully provide support to the individuals and communities impacted by the storm.

I'm very proud of the work our team has done and we look forward to continue building on this momentum in fiscal '20, as we continue to execute against our strategy of increasing volume by strengthening our market share.

Our new business ventures, in which we've invested substantial time and resource to build out, are experiencing tremendous growth.

Looking at projections, our legal Canadian cannabis industrial hemp and e-liquids businesses remain on track to deliver significant revenue and profit in 2020, which we are incredibly proud of and grateful for the dedication of our talented teams for their relentless efforts to accomplish our established objectives.

In line with our objective to deliver enhanced value to shareholders, we're evaluating the consolidation of Pyxus' ownership in its 2 majority-owned Canadian cannabis businesses, FIGR Norfolk and FIGR East, licensed as Canada's Island Garden with 2 of its minority owned United States hemp and e-liquids businesses, Criticality and Purilum, respectively, under the common control of a subsidiary separated from Pyxus, Pyxus' other operation, processing opportunities to monetize a portion of Pyxus' interest in this subsidiary in fiscal 2020.

On that note, let's turn to FIGR. FIGR continues to outperform and remains a leader in share in the Maritime. FIGR hold strong position across all categories. And since the legalization of recreational cannabis last fall, FIGR achieved number 2 share position in Prince Edward Island and Nova Scotia. Also in line with expansion objectives, FIGR announced its expansion into its third Canadian East Coast market, New Brunswick, last week. The introduction of FIGR products in New Brunswick grows FIGR's retail distribution as it continues to execute on its strategy to enter new provinces.

FIGR is also taking steps to enhance its position by delivering on its commitment to increase local capacity. FIGR Simcoe Ontario facility, FIGR Norfolk recently announced that the company have begun excavation and tree clearing on the 20-acre parcel of land slated for Phase II of its approximately 800,000 square-foot expansion project. Phase II will involve the construction of an approximately 200,000 square-foot state-of-the-art, modular, indoor concept cultivation facility, which we expect to be complete by the end of 2020.

Associated revenue and profitability is expected in early to mid-2021. The build out of FIGR East is also on track with phase I's completion targeted for the end of spring, and the completion of phase II expected by the end of the calendar year. Combined, we anticipate that this will increase FIGR's total annual capacity to more than 140,000 kg.

Looking at our unconsolidated industrial hemp joint venture, Criticality, we're excited that this quarter, we announced the opening of its 55,000 square-foot industrial hemp extraction and purification facility in Wilson, North Carolina. We are also very pleased with the development of Criticality's robust product pipeline and release of exciting new products. In May, Criticality announced release of its professional line of CBD products, Korent Select, available for sale to health care professionals. This follows the release of Criticality's Korent oil drop and e-liquid products in December 2018 and January 2019, respectively. Criticality expects to continue its momentum with new product launches planned for the second half of 2019.

Moving on to e-liquids, we are seeing impressive growth. This quarter, sales across our collection of brand exceeded sales in any other quarter. Also and some recently launched as rebranding and new packaging and sales are reflecting positive momentum.

As we manage our new business lines and our existing leaf business, we expect sales to be in the range of approximately $1.85 billion to $1.95 billion, an adjusted EBITDA in a range of approximately $160 million to $180 million for the fiscal year ending March 31, 2020.

For the performance of the leaf and our new business ventures, I want to take a moment to highlight SENTRI. This proprietary block chain type platform is truly a differentiator for Pyxus, as it provides critical visibility into a product source to market journey, from the seed to the shelf you can track our products. This quarter, we released SENTRI for Bantam and working to build SENTRI capabilities is for Korent and Purilum as well. We are committed to providing our partners and consumers with greater product transparency across all of our business lines.

We are also focused on the pursuit of opportunities in the advancement of our agronomy services, with focus on the development of value-added agricultural products. Our commitment to this space is a key component of our transformation and a continuation of our strategy to move into new areas of growth.

In May, we achieved a key milestone as our affiliate Pyxus Agriculture Limited Tanzania received the merger clearance certificate from the Tanzania Fair Competition Commission for the acquisition of an oil mill and refinery operation located in Dodoma. The oil mill and refinery operation provides Pyxus with the ability to extract and sell sustainably produced sunflower oil in various product formats for human consumption as well as seed cake for animal feed.

This acquisition demonstrates our ongoing efforts to evolve and diversify. We are expanding as a global agriculture company with strong CPG capabilities and this is another step in driving transformation. We have taken meaningful steps to transform our organization this past year.

Looking at the growth of our leaf business and the progress we have made in developing our new business ventures, we are confident in our strategy and look forward to delivering long-term growth for the benefit of all of our stakeholders. Joel?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [4]

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Thank you, Pieter. For the fourth quarter, full service volumes increased 4.3% to 131.9 million kilos in fiscal 2019. Sales and other operating revenues decreased $52.7 million or 8.2% from $643.9 million for the 3 months ended March 31, 2018, to $591.2 million for the 3 months ended March 31, 2019. This decrease was primarily due to a decrease in leaf volumes in North America attributable to Hurricane Florence, reducing U.S. crop size and foreign tariffs on U.S. tobacco. These decreases were partially offset by an increase in the leaf volume, mainly attributable to larger crops in Africa. The timing of weak shipments in South America, a decrease in average sales price of 12%, and the continued development of other products and services segment.

Cost of goods sold decreased $63.4 million or 11.1% from $569.1 million for the 3 months ended March 31, 2018, to $505.7 million for the 3 months ended March 31, 2019. This decrease was primarily due to the decrease in leaf volume.