Pyxus International, Inc. (NYSE:PYX) Q4 2022 Earnings Conference Call June 14, 2022 11:00 AM ET
Company Participants
Tomas Grigera – VP Corporate Treasurer
Pieter Sikkel – President and Chief Executive Officer
Flavia Landsberg – Chief Financial Officer
Conference Call Participants
Chapin Mechem – Northeast Investors
Craig Carlozzi – Longfellow
Operator
Good day, ladies and gentlemen, and welcome to today’s Pyxus International Incorporated Fiscal Year 2022 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today’s conference call, Tomas Grigera, Treasurer. Mr. Grigera, you may begin your conference.
Tomas Grigera
Thank you, Lynn. With me today is Pieter Sikkel, 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-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any changes in management’s 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 measures is available on our website at www.pyxus.com.
In connection with the emergence from the Chapter 11 cases in August 2020, Pyxus qualified for fresh start reporting as detailed in our Form 10-Q and Form 10-K report 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 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.
Pieter Sikkel
Hello, everyone and thank you for joining us this evening. We are proud of the progress made by the business during fiscal year 2022. Our employees work diligently to increase volumes and revenue compared to the prior year. They achieved this while continuing to navigate global challenges that largely stem from the ongoing impacts of COVID-19 and the unfortunate events in Ukraine.
We continue to expand our business relationships as customer sort solutions to reduce supply chain complexities, and improve operational efficiencies. 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, reduce costs and increased potential borrowing availability. In addition, in June, 2022, we entered into an agreement to amend our delayed-draw term loan facility. This amendment provides the company with an extended maturity date, reduced costs and increased 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. That result our SG&A expense has 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 million and $160 million.
Maintaining pharma 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 input, 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?
Flavia Landsberg
Thank you, Pieter. With regards to our full year results sales and other operating revenues, for the year ended March 31st, 2022 were $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, an 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.
Cost of goods and service sold for the year ended March 31st, 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. 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 31st, 2022 compared to 12.1% in the prior year. This increase was mainly due to the deconsolidation 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 mix. Average gross profit per kilo increase primarily due to the customer mix.
SG&A 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 31st, 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 liquidities requirements are affected by various factors, including crop seasonality, foreign currency and interest rates and 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, cash equivalents and restricted cash were $200.9 million, $103.6 million increase compared to the prior year due to the higher net proceeds from short-term borings 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 31st, 2022, 91.2% of the company’s process 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 classification of the DDTL 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 Pieter for some closing remarks.
Pieter Sikkel
Thank you for that update Flavia. We’re excited about the progress in the future of our business. And on that note, operator, please open the line for questions.
Question-and-Answer Session
Operator
Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]
We will take our first question from Chapin Mechem from Northeast Investors. Please go ahead.
Chapin Mechem
Great. Hi. Thanks so much for taking the question. I just wondered if you could expand a little bit on the shipment — the shipping delays. I know we’ve been talking about it for the last year or two. But I just kind of wonder if you can give any more color on that.
Pieter Sikkel
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 similar volumes 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 — 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.
Chapin Mechem
Great. Thank you. And so do — so, I guess, for your guidance for EBITDA for 2023, is that — assuming that, that — I think it’s about $170 million makeup or do you — or is that not included in there?
Pieter Sikkel
We don’t have a full catch up as we’re looking forward. 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 performed 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 weather effects of the growing season. So, what we — we’re in a situation of strong demand and we are very much focused on acquiring the volumes that we need to, as best we can satisfy that demand.
Flavia Landsberg
If I may add on related to the guidance, the way the guidance we put together is a couple of important points. I think the first one is, the underperforming not lease business. We — 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.
Okay. Then, as Pieter said, the smaller crops in some regions like South America and Africa will be offset, but increasing purchases in other areas. Other piece that there increase including prices is expected to pass on. And 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. Hope that gives you a little more color into the guidance.
Chapin Mechem
Yes. That is wonderful. Thank you so much for that.
Operator
[Operator Instructions]
This concludes — we have a question from Craig Carlozzi from Longfellow. Please go ahead.
Craig Carlozzi
Yeah. Hi. Thanks for the time. Thanks for the question. Appreciate the 2023 guidance in particular, some of the back — 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? 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
You talk about cash flow, right?
Craig Carlozzi
Yeah. Yeah. Specifically the CFO minus –?
Flavia Landsberg
As you can see — yeah. That’s — we’re not going to — we’re not going to put anything forward related to that, but what you can see is that we added page eight of our press release. Okay. You can see that at the bottom, okay, we added some information on the cash flow 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, okay, and much stronger cash flow generation versus 2021 and versus 2020. So, we expect the trend to continue. And we — and that’s part of the transformation that we’re doing in the business to have — continue to have strong cash generation. And it’s — as you know, we are in a volume business, we are in a margin business and the idea is to continue to trend upwards.
Craig Carlozzi
Okay. What about — ask to different way directionally for net debt at year-end? I’m just — what I’m trying to understand is if there’s anything that is not — and I’m looking — I am looking at page eight and I do appreciate the different color. I did notice it. 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 3/31/22 to 3/31/23, is there any color guidance, even soft expectations up, down material, either direction, anything there?
Flavia Landsberg
Again, we — 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 debt has been going down, and we expect that to continue to happen, right? 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 it’s higher than interest rates to the future interest rates will go — depending what’s happening, our interest costs may go up, because of the raising interest costs, but we are 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 the coming fiscal year, what may need additional seasonal lines. And we did — we knew that the DDTL at lower cost.
Craig Carlozzi
What was the interest savings on that again? I know I looked at it. I just don’t call offhand.
Flavia Landsberg
Well, it’s a combination. We have the 8-K that you should refer back to.
Craig Carlozzi
Okay.
Flavia Landsberg
Okay.
Craig Carlozzi
All Right. Thank you.
Flavia Landsberg
Thank you.
Operator
We will take our next question from [indiscernible] from Wells Fargo.
Unidentified Analyst
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 geography? Thanks.
Pieter Sikkel
I’m sorry, what was the last couple of words there?
Unidentified Analyst
Just — what — just generally, what other growth you were seeing across the business?
Pieter Sikkel
Okay. Thank you. Well, I think, firstly, I mean, we had a very significant growth in volume in fiscal 2022 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 or 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. We’ll see steady opportunities of there.
We’ve seen strong progress in market share growth across several regions actually and 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 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 — well, as we get into 2023, 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, that we see as we go forward. And with that volume, we’ve got to keep focus 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.
Unidentified Analyst
Thank you.
Operator
[Operator Instructions]
This concludes today’s question-and-answer session. I would like to turn the call back over to Tomas Grigera.
Tomas Grigera
Thank you for joining our call today. The call will remain available for playback for any interesting person through 8:00 PM on Sunday, July 4th. 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, you may now disconnect.
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