Pyxus International, Inc. (PYYX) Earnings Call Transcript

Please stand by. Your conference is about to begin. Hello and welcome to our first quarter fiscal 2027 earnings conference call. call is being recorded. After our prepared remarks, we'll open the call for questions. I'd now like to turn the call over to Tomás Greguera, VP Corporate Treasurer.

Thank you, operator. Joining me today are Peter Sickle, our president and CEO, and Dustin Steins, 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 belief, expectation, or intention, as well as those that are not historical fact. These statements are forward-looking. of a number of risks and uncertainties that may cause actual events and results to differ materially from those forward-looking statements. These These risks and uncertainties are described in detail along with other risks and uncertainties in our filings with the SEC, including our most recent 10-K. 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 which these statements are based. Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation, and amortization, commonly referred to as EBITDA and adjusted EBITDA, free cash flow adjusted for changes in working capital, and adjusted free cash flow metrics. which 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. Reconciliations of and other disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which is available on our website at www.PIXIS.com. 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. Thank you.

Good morning, everyone. We delivered a strong start to fiscal year 2027, executing a disciplined purchasing approach in an abundant market, protecting margin performance, generating cash, and continuing to improve our balance sheet and credit metrics. Our first quarter results were consistent with expectations and support our four-year outlook. Market conditions are developing largely as anticipated with ample supply, steady customer demand, and a consistent quarterly shipping cadence compared to last year. As we indicated on our last call, this supply-demand dynamic was likely to drive lower crop prices in key sourcing markets, which positions us to purchase higher quality tobacco at a lower price. That adjustment in market pricing is now becoming evident, resulting in more selective, slower, and lower cost purchasing through the first quarter, largely in South America and Africa. Regardless of market dynamics, we align our crop purchases with demand, leveraging our strong visibility into customer requirements while maintaining disciplined working capital deployment. We are pleased with our first quarter performance, which was in line with our expectations, with the first quarter typically representing the lowest sales period of the year. Margin per kilo remained strong, underscoring the effectiveness of our commercial model as we procured tobacco in a lower price, sufficient supply environment. We continue to expect shipment volumes to strengthen over the balance of the year and full-year outlook remains unchanged we remain focused on optimizing the timing and execution of shipments and expect a cadence consistent with last year while recognizing that quarterly variances may occur based on shipment timing processing schedules and regional and customer mix We continue to invest in agricultural innovation that strengthens farmer outcomes and enhances the reliability of our supply chain. In Tanzania, we recently introduced proprietary tobacco seed varieties developed by our global research and development team. These varieties have produced significantly improved yields and crop resilience compared with traditional seeds. This work reflects how targeted investments in research and development and seed production and sales can enhance productivity, support farmer livelihoods, and reinforce the long-term sustainability of our sourcing operations. Together, these capabilities help strengthen customer engagement and pharma retention, while supporting long-term margin performance and quality supply alignment. Importantly, we view global solutions as part of the broader strategic shift towards a more value-driven model, not simply a quarterly driver. With that, I'll turn the call over to Dustin to walk through the financial results in more detail.

Thank you, Peter, and good morning, everyone. As Peter said, the first quarter was a solid start to the year. The core drivers of the business remain strong in the quarter, with stable gross profit per kilo, positive year-over-year cash generation, enhanced liquidity, and continued balance sheet improvement. For the first quarter of fiscal 27, sales were $437.8 million, compared with $508.8 million in the prior year quarter. The decrease was primarily driven by lower average cost in sales prices in Africa and South America. as well as the timing of shipments from North America. Gross margin was $61.4 million compared with $65.6 million last year, while gross margin percentage increased to 14% compared with 12.9% last year. The reduction in gross margin was mainly due to the timing of shipments in North America and customer mix in Africa. It's important to highlight that while average sales prices were down, gross profit per kilo was essentially in line with the prior year at 84 cents, compared with 86 cents in last year's quarter. SG&A was $43.9 million compared with $40.4 million last year. The increase was primarily driven by higher personnel, legal, and professional fees. We continue to manage costs diligently while supporting the priorities of the business. Adjusted EBITDA was $27.7 million compared with $29.5 million last year. On a rolling 12-month basis, adjusted EBITDA improved to $225 million compared with $182.9 million last year, reflecting the stronger earnings profile we have built over the last year. Turning to working capital, our performance was strong during the quarter and supported improved cash generation. We remained focused on operating cycle efficiency, ending the quarter at 173 days, an increase of 13 days compared to the prior year period and in line with expectations. We strategically procured and processed tobacco during the quarter to support steady customer demand preparing for shipments later in the fiscal year. As a result, inventory was $1.1 billion, down slightly from a year ago. Lower crop prices and a more measured purchasing pace reduced unprocessed tobacco inventories, while higher processed inventory levels reflected carryover volumes from the prior crop. Importantly, we funded this seasonal inventory investment while reducing notes payable by $52.4 million year-over-year, demonstrating continued balance sheet discipline and stronger cash generation. Adjusted free cash flow improved in the quarter, driven by disciplined execution of our commercial strategy, lower cost, and slower purchasing cadence, improved collections, and disciplined working capital management, even as we continued to make the seasonal investments and inventory needed to support full-year customer demand. On a rolling 12-month basis, adjusted free cash flow improved to $123.4 million, and free cash flow adjusted for changes in working capital improved to $28 million, reflecting meaningful progress in cash generation compared with the prior year period. While certain free cash flow components reflect normal timing dynamics, the broader story is one of continued improvement as our disciplined execution drives stronger cash generation. From a liquidity perspective, we ended the quarter in a strong position. Cash was $175.9 million at quarter end, and we had no borrowings outstanding under the ABL facility. This gives us flexibility to support crop purchasing needs, manage normal seasonal working capital requirements, and continue executing against our fiscal year priorities. From a balance sheet and credit perspective, we also continued to make progress. Leverage improved to 4.9 turns compared with 6.8 turns last year, reflecting both higher rolling 12-month adjusted EBITDA and lower net debt. Interest coverage improved to 1.6 turns compared with 1.4 turns, reflecting continued improvement in our credit metrics. We continue to actively pursue addressing the upcoming maturity of our long-term debt. And although we are not in a position to provide further details at this time, we look forward to sharing updates in the future. Overall, the first quarter was consistent with our plan. It reflected normal cadence and timing effects, but also demonstrated resilient gross profit per kilo, positive cash generation, disciplined working capital execution, strong liquidity, and continued improvement in balance sheet. sheet metrics. Based on what we see today, we are reaffirming our guidance. With that, I'll turn the call back to Peter. Thank you, Dustin.

Our first quarter results provide a solid foundation for strong performance as we advance through the remaining nine months of the fiscal year. We are focused on executing our strategy, operating with discipline, and creating long-term value for all stakeholders well into the future. Thank you for joining us today. We will now open the floor for questions.

Thank you, Peter. Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question today, you must dial in through the phone line. ask a question, please signal by pressing star 1 on your telephone keypad. If you're If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question, and we'll pause briefly to assemble our queue. We will take our first question from Patrick Fitzgerald with Baird. Go ahead. All right, thanks for taking the questions.

So one question I had is why the higher cash balance? This is a higher cash balance than you had. You know, looking back since 2022. Any reason for that?.