Pyxus International, Inc. (PYX) Q4 2019 Earnings Call Transcript

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 two majority-owned Canadian cannabis businesses, FIGR Norfolk and FIGR East, licensed as Canada's Island Garden with two 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 two 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 2 of its approximately 800,000-square-foot expansion project. Phase 2 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 1's completion targeted for the end of spring, and the completion of Phase 2 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 kgs. 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 healthcare 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?

Joel Thomas -- Chief Financial Officer

Thank you, Pieter. For the fourth quarter, full-service 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 three months ended March 31, 2018, to $591.2 million for the three 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 three months ended March 31, 2018, to $505.7 million for the three months ended March 31, 2019. This decrease was primarily due to the decrease in leaf volume. Gross profit as a percentage of sales increased from 11.6% for the three months ended March 31, 2018 to 14 and a half percent for the three months ended March 31, 2019. This increase was primarily due to lower leaf conversion cost in Africa from higher factory throughput driven by higher volumes and the favorable exchange impact on local currency costs, primarily in South America and in Europe, and the continued development of our other products and services segment.

These increases were partially offset by higher leaf conversion cost in the U.S. from lower factory throughput, driven by reduced volumes. SG&A increased to $8.1 million or 17.6% from $46 million for the three months ended March 31, 2018, to $54.1 million for the three months ended March 31, 2019. This increase was primarily due to start-up costs associated with the development of the cannabinoid manufacturing facilities in the provinces of Prince Edward Island and Ontario and marketing expense for the FIGR cannabinoid brand.