What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-02-14 · 56 added, 139 removed, 186 unchanged (51% of the section changed)

48 unchanged sentences

Executive Summary

During the nine months ended December 31, 2023, we successfully utilized our global footprint to navigate the current tobacco supply shortage to meet our buying targets for fiscal 2023 in most markets.

Combined with continuing normalization of shipping schedules in North and South America and increasing demand from Asia, the Company delivered an increase of more than 50% in sales and other operating revenues year-over-year in spite of a complicated crop year that was exacerbated by La Nina and inflationary pressures.

This increase in sales and other operating revenues and higher utilization of the Company’s

securitization programs resulted in increased cash flow from operations year-over-year.

Some of these funds were strategically utilized to fully repay the Company’s outstanding indebtedness under the ABL Credit Facility and provides the Company with increased financial flexibility as we approach the next buying cycle.

In February 2023, the Company successfully completed an exchange of its existing long-term debt with varying maturity dates for new long-term debt with maturity dates in 2027.

Our new capital structure addresses approaching maturity dates, provides the Company with increased financial flexibility, and relief from certain restrictive covenants.

Higher tobacco prices, accelerated timing of shipments, and a favorable shift in customer mix contributed to a 39% increase in revenue and improved profitability compared to the prior year.

In the first quarter of fiscal 2024, we believe we reached the peak of our fiscal 2024 tobacco purchases as we significantly accelerated our buying, using our geographic footprint to acquire tobacco inventory from multiple markets to meet higher current crop supply requirements and customer demand for fiscal 2024.

Customer shipments in fiscal 2024 will utilize a higher percentage of tobacco purchased during the current fiscal year to fulfill orders compared to the prior year given our uncommitted inventory continues to be historically low.

Our management of working capital provided sufficient liquidity through short-term borrowings under our foreign seasonal lines of credit, availability under the ABL Credit Facility, cash generated from operations, and cash collections from our securitized receivables to purchase larger volumes of more expensive tobacco compared to the prior year.

In the first quarter of fiscal 2024, we increased our purchases of inventory by more than $100 million compared to the prior year using $40 million of incremental foreign seasonal lines of credit and our improved cash conversion cycle.

The Company is a global agricultural company with 150 years of experience delivering value-added products and services to businesses and customers.

The Company is a trusted provider of responsibly sourced, independently verified, sustainable, and traceable products and ingredients.

Historically, the Company had nine operating segments that were organized by product category and geographic area and were aggregated into three reportable segments for financial reporting purposes:

Leaf - North America, Leaf - Other Regions, and Other Products and Services.

During year ended March 31, 2022, the Company reevaluated its operating and reportable segments under ASC Topic 280 - Segment Reporting .

As a result of this reevaluation, effective during the fourth quarter of the year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category that are aggregated into one reportable segment for financial reporting purposes:

An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results.

See " Note 1.

Basis of Presentation and Summary of Significant Accounting Policies " for additional information.

Results of Operations

Three Months Ended December 31, 2022 and 2021

Three Months Ended December 31,

Three Months Ended June 30, 2023 and 2022

Three Months Ended June 30,

(in millions, except per kilo amounts) 2023 2022 $ %

2 unchanged sentences

Gross profit 73.1 40.8 32.3 79.2

Gross profit as a percent of sales 13.4 % 15.2 %

Selling, general, and administrative expenses $ 34.1 $ 34.6 (0.5) (1.4)

1 unchanged sentence

Restructuring and asset impairment charges — 0.3 (0.3) (100.0)

Goodwill impairment — 0.4 (0.4) (100.0)

Operating income 36.4 7.0 29.4 420.0

1 unchanged sentence

Interest expense, net 30.8 25.5 5.3 20.8

Income tax expense 17.9 31.8 (13.9) (43.7)

Income from unconsolidated affiliates 5.4 6.1 (0.7) (11.5)

Income tax expense (benefit) 2.6 (0.9) 3.5 388.9

Loss (income) from unconsolidated affiliates 2.2 (3.7) 5.9 159.5

Net income attributable to noncontrolling interests — 0.2 (0.2) (100.0)

Net loss attributable to Pyxus International, Inc.

Net income (loss) attributable to Pyxus International, Inc.

$ 0.8 $ (14.7) 15.5 105.4

15 unchanged sentences

Cost of goods and services sold 0.4 4.0 (3.6) (90.0)

Gross loss (0.9) (1.8) 0.9 50.2

Gross loss as a percent of sales (27.4) % (64.4) %

Gross income (loss) 0.3 (0.7) 1.0 142.9

Gross income (loss) as a percent of sales 42.9 % (21.6) %

*Dollar and percentage changes may not calculate exactly due to rounding.

Sales and other operating revenues were $428.9 million for the three months ended December 31, 2021 and $655.6 million for the three months ended December 31, 2022, an increase of $226.7 million , or 52.9%.

This increase was primarily due t o a 21.9% increase in leaf volume and a 29.8% increase in average price per kilo.

The increase in leaf volume was driven by increased volume from Asia, more normalized timing of shipments from South America from the current crop, and the timing of shipments from North America that were delayed from the three months ended September 30, 2022 into the three months ended December 31, 2022.

Sales and other operating revenues were $343.9 million for the three months ended June 30, 2022 and $477.1 million for the three months ended June 30, 2023, an increase of $133.2 million , or 38.7%.

This increase was primarily due t o an 18.6% in leaf volume and a 17.6% increase in average price per kilo.

The increase in leaf volume was primarily due to the accelerated timing of shipments from Africa and South America.

The increase in average price per kilo was mainly due to higher tobacco prices.

Cost of goods and services sold were $363.7 million for the three months ended December 31, 2021 and $567.8 million for the three months ended December 31, 2022, an increase of $204.1 million, or 56.1%.

This increase was mainly due to the increase in sales and other operating revenues.

Average cost per kilo increased primarily due to higher tobacco prices.

Gross profit was $65.2 million for the three months ended December 31, 2021 and $87.8 million for the three months ended December 31, 2022, an increase of $22.6 million, or 34.7%.

Cost of goods and services sold were $303.2 million for the three months ended June 30, 2022 and $404.0 million for the three months ended June 30, 2023, an increase of $100.8 million, or 33.2%.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit as a percent of sales went from 15.2% for the three months ended December 31, 2021 to 13.4% for the three months ended December 31, 2022.

This decrease was primarily due to the impact of short-crops in certain markets in Africa and product mix in North America.

Average gross profit per kilo for product revenue was $0.55 for the three months ended December 31, 2021 and $0.64 for the three months ended December 31, 2022, an increase of $0.09 per kilo or 16.4%.

This increase was primarily due to customer mix in North and South America and product mix in Africa and Asia.

Other expense, net was $0.2 million of income f or the three months ended December 31, 2021 and $9.0 million of expense for the three months ended December 31, 2022, an increase of $9.2 million.

This increase was primarily due to higher utilization of securitization facilities.

Operating income was $30.2 million for the three months ended December 31, 2021 and $41.6 million for the three months ended December 31, 2022, an increase of $11.4 million, or 37.7%.

Average cost per kilo increased primarily due to undersupply conditions and inflation.

Gross profit as a percent of sales went from 11.9% for the three months ended June 30, 2022 to 15.3% for the three months ended June 30, 2023.

Average gross profit per kilo for product revenue was $0.50 for the three months ended June 30, 2022 and $0.78 for the three months ended June 30, 2023, an increase of $0.28 per kilo or 56.0%.

These increases were primarily due to customer mix in Africa, Asia, and Europe.

Operating income was $7.0 million for the three months ended June 30, 2022 and $36.4 million for the three months ended June 30, 2023, an increase of $29.4 million, or 420.0%.

This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo and was partially offset by higher other expense, net, which was primarily due to higher utilization of securitization facilities .

Income tax expense was $31.8 million for the three months ended December 31, 2021 and $17.9 million for the three months ended December 31, 2022, a decrease of $13.9 million, or 43.7%.

The decrease was driven by the Company utilizing a different method for estimating tax expense for the period ended December 31, 2022.

Using the discrete method for the period ended December 31, 2022, the Company determined current and deferred income tax expense as if the nine-month interim period of the current fiscal year were an annual period, which resulted in the recognition of the fiscal 2023 year-to-date expense in the quarter.

Refer to See " Note 5.

Income Taxes " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Nine Months Ended December 31, 2022 and 2021

Nine Months Ended December 31,

(in millions, except per kilo amounts) 2022 2021 $ %

Sales and other operating revenues $ 1,507.7 $ 1,156.4 351.3 30.4

Cost of goods and services sold 1,311.9 997.0 314.9 31.6

Gross profit 195.9 159.4 36.5 22.9

Gross profit as a percent of sales 13.0 % 13.8 %

Selling, general, and administrative expenses $ 106.7 $ 106.0 0.7 0.7

Other expense, net 9.1 1.5 7.6 506.7

Restructuring and asset impairment charges 4.4 7.7 (3.3) (42.9)

Goodwill impairment — 0.4 (0.4) (100.0)

Operating income 75.7 43.9 31.8 72.4

Loss on deconsolidation/disposition of subsidiaries 0.6 9.5 (8.9) (93.7)

Loss on pension settlement 2.6 — 2.6 100.0

Interest expense, net 85.6 82.8 2.8 3.4

Income tax expense 15.8 9.2 6.6 71.7

Income from unconsolidated affiliates 10.7 6.0 4.7 78.3

Net income (loss) attributable to noncontrolling interests 0.2 (0.4) 0.6 150.0

Net loss attributable to Pyxus International, Inc.

$ (18.5) $ (51.3) 32.8 63.9

Sales and other operating revenues $ 1,423.6 $ 1,064.3 359.3 33.8

Tobacco costs 1,164.8 858.3 306.5 35.7

Transportation, storage, and other period costs 77.8 63.5 14.4 22.6

Total cost of goods sold 1,242.7 921.8 320.9 34.8

Product revenue gross profit 181.0 142.5 38.4 27.0

Product revenue gross profit as a percent of sales 12.7 % 13.4 %

Kilos sold 302.9 261.6 41.3 15.8

Average price per kilo $ 4.70 $ 4.07 0.63 15.5

Average cost per kilo 4.10 3.52 0.58 16.5

Average gross profit per kilo 0.60 0.55 0.05 9.1

Processing and other revenues $ 75.2 $ 82.7 (7.4) (9.0)

Processing and other revenues costs of services sold 56.1 59.2 (3.2) (5.3)

Processing and other gross profit 19.1 23.4 (4.3) (18.3)

Processing and other gross profit as a percent of sales 25.4 % 28.4 %

Sales and other operating revenues $ 8.9 $ 9.5 (0.6) (6.1)

Cost of goods and services sold 13.1 16.1 (2.9) (18.2)

Gross loss (4.2) (6.6) 2.3 35.7

Gross loss as a percent of sales (47.3) % (69.0) %

dollar and percentage changes may not calculate exactly due to rounding

Sales and other operating revenues were $1,156.4 million for the nine months ended December 31, 2021 and $1,507.7 million for the nine months ended December 31, 2022, an increase of $351.3 million, or 30.4%.

This increase was primarily due t o a 15.8% increase in leaf volume and a 15.5% increase in average price per kilo.

The increase in leaf volume was driven by increased volume from Asia and North America, more normalized timing of shipments from South America, and the timing of shipments from Asia.

The increase in average price per kilo was mainly due to higher tobacco prices.

Cost of goods and services sold were $997.0 million for the nine months ended December 31, 2021 and $1,311.9 million for the nine months ended December 31, 2022, an increase of $314.9 million, or 31.6%.

This increase was mainly due to the increase in sales and other operating revenues.

Average cost per kilo increased primarily due to higher tobacco prices.

Gross profit was $159.4 million for the nine months ended December 31, 2021 and $195.9 million for the nine months ended December 31, 2022, an increase of $36.5 million, or 22.9%.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit as a percent of sales went from 13.8% for the nine months ended December 31, 2021 to 13.0% for the nine months ended December 31, 2022.

This decrease was primarily due to customer mix in South America and the impact of short-crops in certain markets in Africa.

Average gross profit per kilo for product revenue was $0.55 for the nine months ended December 31, 2021 and $0.60 for the nine months ended December 31, 2022, an increase of $0.05 per kilo or 9.1%.

This increase was primarily due to customer mix in North America and South America, product mix in Africa, and geographic mix in Asia.

Other expense, net was $1.5 million f or the nine months ended December 31, 2021 and $9.1 million for the nine months ended December 31, 2022, an increase of $7.6 million, or 506.7%.

This increase was primarily due to higher utilization of securitization facilities.

Operating income was $43.9 million for the nine months ended December 31, 2021 and $75.7 million for the nine months ended December 31, 2022, an increase of $31.8 million, or 72.4% .

This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo.

Income tax expense was $9.2 million for the nine months ended December 31, 2021 and $15.8 million for the nine months ended December 31, 2022, an in crease of $6.6 million , or 71.7% .

This increase was driven by the Company utilizing a different method for estimating tax expense for the period ended December 31, 2022.

Refer to See " Note 5.

Income Taxes " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Liquidity and Capital Resources

11 unchanged sentences

See " Note 9 .

Debt Arrangements " and " Note 21.

Subsequent Events " to the "Notes to Condensed Consolidated Financial Statements" for a summary of our short-term and long-term debt.

Debt Arrangements " to the "Notes to Condensed Consolidated Financial Statements" for a summary of our short-term and long-term debt.

We continuously monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities.

2 unchanged sentences

The amount of prepayments or the amount of debt that may be repurchased, refinanced, or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.

The following summarizes our total borrowing capacity at December 31, 2022 and 2021 under our short-term and long-term credit lines and letter of credit facilities and the remaining available amount after the reduction for outstanding borrowings and amounts reserved for outstanding letters of credit:

December 31, 2022

The following summarizes our total borrowing capacity at June 30, 2023 and 2022 under our short-term and long-term credit lines and letter of credit facilities and the remaining available amount after the reduction for outstanding borrowings and amounts reserved for outstanding letters of credit:

June 30, 2023

(in millions) Total Borrowing Capacity Remaining Amount Available

4 unchanged sentences

Total $ 812.8 $ 203.4

December 31, 2021

June 30, 2022

(in millions) Total Borrowing Capacity Remaining Amount Available

8 unchanged sentences

In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.

(in millions) December 31, 2022 December 31, 2021 March 31, 2022

Notes payable to banks (1)

(in millions) June 30, 2023 June 30, 2022 March 31, 2023

Notes payable (1)

$ 585.4 $ 545.2 $ 382.5

6 unchanged sentences

* Amounts may not equal column totals due to rounding

(1) The increase from December 31, 2021 to December 31, 2022 is due to higher borrowings under the Company's foreign seasonal lines of credit used to finance higher green tobacco prices and processing costs in Africa and South America as well as increased borrowing capacity in certain markets.

The increase from March 31, 2022 to December 31, 2022 is due to seasonality of the business, with higher working capital requirements in the first half of the fiscal year.

(2) The decrease in long-term debt from December 31, 2021 and March 31, 2022 is due to the full repayment of outstanding indebtedness under the ABL Credit Facility in December 2022.

Weighted average borrowings outstanding under the ABL Credit Facility during the three months ended December 31, 2022 was $71.6 million.

(1) The increase from June 30, 2022 to June 30, 2023 is due to higher borrowings under the Company's foreign seasonal lines of credit used to finance the purchase of greater volumes of more expensive green tobacco.

The increase from March 31, 2023 to June 30, 2023 is due to seasonality of the business, with higher working capital requirements in the first half of the fiscal year.

(2) The fluctuations in long-term debt from June 30, 2022 and March 31, 2023 are due to repayments and borrowings on the outstanding indebtedness under the ABL Credit Facility.

Weighted average borrowings outstanding under the ABL Credit Facility during the three months ended June 30, 2023 was $79.9 million.

Working Capital

The following summarizes our working capital:

(in millions except for current ratio) December 31, 2022 December 31, 2021 March 31, 2022

(in millions except for current ratio) June 30, 2023 June 30, 2022 March 31, 2023

Cash, cash equivalents, and restricted cash $ 105.5 $ 174.9 $ 138.9

8 unchanged sentences

Accrued expenses and other current liabilities 94.4 91.1 92.7

Income taxes payable 20.1 6.7 18.3

Operating leases payable 9.2 8.5 8.7

Current portion of long-term debt — 13.8 0.1

Other current liabilities 15.8 14.5 13.7

Total current liabilities $ 904.3 $ 856.3 $ 715.1

2 unchanged sentences

* Amounts may not equal column totals due to rounding

Working capital decreased from December 31, 2021 to December 31, 2022 by $67.4 million, or 14.3%, primarily due to increased foreign seasonal lines of credit used to finance higher green tobacco prices and processing costs in Africa and South America and increased borrowing capacity in certain markets as well as the utilization of cash from higher sales of tobacco inventories to repay the outstanding indebtedness under the ABL Credit Facility in December 2022, which was classified as long-term debt.

Working capital declined from June 30, 2022 to June 30, 2023 by $63.5 million, or 10.7% primarily due to lower cash on hand and higher outstanding amounts on foreign seasonal lines of credit.

Cash and the foreign seasonal lines of credit were utilized to finance the purchase of greater volumes of more expensive green tobacco compared to the prior year as the Company accelerated its crop buying activities in both Africa and South America compared to the prior year.

The costs to procure and process green tobacco in these regions increased from the prior year due to inflationary pressures, market competition, and product mix, which also contributed to the rise in inventories.

In addition, the Company utilized cash to partially repay indebtedness under the ABL Credit Facility.

The following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:

(in millions) December 31, 2022 December 31, 2021 March 31, 2022

(in millions) June 30, 2023 June 30, 2022 March 31, 2023

Committed $ 630.8 $ 617.6 $ 479.4

1 unchanged sentence

Total processed tobacco $ 642.8 $ 646.5 $ 498.4

Total processed tobacco decreased from December 31, 2021 to December 31, 2022 by $78.5 million, or 12.1%, primarily due to higher sales of inventories.

Total processed tobacco decreased from June 30, 2022 to June 30, 2023 by $3.7 million, or 0.6%, primarily due to higher sales of inventories.

Uncommitted levels of processed tobacco continue to remain low, as undersupply conditions persist in the global tobacco market.

See " Note 5 .

Basis of Presentation and Summary of Significant Accounting Policies " and " Note 7.

Inventories " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

5 unchanged sentences

These short-term foreign seasonal lines of credit are generally renewed at the outset of each tobacco season.

We maintain various other financing arrangements to meet the cash requirements of our businesses.

We maintain various other financing arrangements to meet the cash requirements of our

See " Note 9 .

2 unchanged sentences

In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.

As of December 31, 2022, our cash, cash equivalents, and restricted cash was $218.4 million of which approximately $95.8 million was held in foreign jurisdictions, certain of which are subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds.

As of June 30, 2023, our cash, cash equivalents, and restricted cash was $105.5 million of which approximately $58.2 million was held in foreign jurisdictions, certain of which are subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds.

Fluctuation of the U.S.

2 unchanged sentences

The following summarizes the sources and uses of our cash flows:

Nine Months Ended

Three Months Ended

(in millions) 2023 2022

4 unchanged sentences

Other 7.0 (7.9)

Net cash used by operating activities $ (110.6) $ (184.8)

Net cash used in operating activities $ (285.7) $ (242.5)

Collections from beneficial interests in securitized trade receivables 30.4 45.5

2 unchanged sentences

Net proceeds from short-term borrowings 205.9 170.4

Proceeds from DDTL facility — 117.6

Net repayment of revolving loan facilities (90.0) (15.0)

Net proceeds from revolving loan facilities 25.0 —

Other (3.5) (1.6)

1 unchanged sentence

Effect of exchange rate changes on cash (2.2) 0.3

Increase in cash, cash equivalents, and restricted cash* $ 17.1 $ 52.5

Decrease in cash, cash equivalents, and restricted cash* $ (33.4) $ (26.4)

* Amounts may not equal column totals due to rounding

The change in cash, cash equivalents, and restricted cash decreased by $35.4 million for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021.

The decrease was primarily due to the full repayment of the outstanding indebtedness under the ABL Credit Facility during the period ended December 31, 2022 and the issuance of the DDTL Facility during the period ended December 31, 2021.

These decreases were partially offset by higher sales and higher utilization of securitization facilities, which resulted in less cash used by operating activities.

The change in cash, cash equivalents, and restricted cash decreased by $7.0 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The decrease was primarily driven by purchases of greater volume of more expensive green tobacco, increased receivables from greater sales of processed tobacco near the end of the quarter, and reduced collections from beneficial interests in securitized trade receivables as the Company utilized securitization programs that do not result in retaining a beneficial interest.

These decreases were partially offset by an increase in cash provided by financing activities primarily due to higher borrowings on our seasonal foreign lines of credit and higher draws on the ABL Credit Facility to fund the purchase of greater volumes of more expensive green tobacco.

Planned Capital Expenditures

Capital investments in our leaf operations have been made primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency.

We have incurred approximately $9.9 million in capital expenditures for the nine months ended December 31, 2022 , and are expecting to incur an additional $11.1 million for the remainder of the fiscal year ending March 31, 2023.

Capital investments in our leaf operations were primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency.

We incurred approximately $3.7 million in capital expenditures for the three months ended June 30, 2023 , and are expecting to incur an additional $17.4 million for the remainder of the fiscal year ending March 31, 2024.

Pension and Postretirement Health and Life Insurance Benefits

The following summarizes cash contributions to pension and postretirement health and life insurance benefits:

Nine Months Ended

(in millions) December 31, 2022

Three Months Ended

(in millions) June 30, 2023

Contributions made during the period 1.2

Contributions expected for the remainder of the fiscal year 3.5

(1) Includes $5.3 million paid in the three months ended September 30, 2022 to fully fund the U.S.

Pension Plan's liabilities in preparation to purchase a group annuity contract to administer future payments to the remaining U.S.

Pension Plan participants.

No cash dividends were paid to shareholders during the nine months ended December 31, 2022.

As of December 31, 2022, the payment of dividends is restricted under the terms of the ABL Credit Agreement, the Exit Term Loan Credit Agreement, and the Existing Notes Indenture.

No cash dividends were paid to shareholders during the three months ended June 30, 2023.

As of June 30, 2023, the payment of dividends is restricted under the terms of our debt agreements.

Critical Accounting Policies and Estimates

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis