What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-10 · 119 added, 63 removed, 179 unchanged (50% of the section changed)

19 unchanged sentences

many of our operations are located in jurisdictions that pose a high risk of potential violations of the Foreign Corrupt Practices Act;

risks and uncertainties related to geopolitical conflicts, including the armed conflict between Israel and Hamas;

impacts of international sanctions on our ability to sell or source tobacco in certain regions;

2 unchanged sentences

competition with the other primary global independent leaf tobacco merchant and independent leaf merchants;

disruption, failure or security breaches of our information technology systems;

disruption, failure or security breaches of our information technology systems and other cybersecurity risks;

continued high inflation;

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reductions in demand for consumer tobacco products;

risks and uncertainties related to the COVID-19 pandemic and its related shipping constraints, labor shortages and supply-chain impacts;

risks and uncertainties related to pandemics or other widespread health crises and any related shipping constraints, labor shortages and supply-chain impacts;

legislative and regulatory initiatives that may reduce consumption of consumer tobacco products and demand for our services and increase regulatory burdens on us or our customers;

3 unchanged sentences

We do not undertake to update any forward-looking statements that we may make from time to time.

Executive Summary

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.

Executive Summary

The momentum from first quarter continued through the second quarter.

We delivered solid revenue improvement and increased profitability by exercising operating discipline, efficient management of working capital, and leveraging our geographic diversification.

Undersupply conditions continue to support our strategy to drive operational improvements by compressing our operating cycles.

Results of Operations

Three Months Ended June 30, 2023 and 2022

Three Months Ended June 30,

Three Months Ended September 30, 2023 and 2022

Three Months Ended September 30,

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

3 unchanged sentences

Selling, general, and administrative expenses 40.0 35.0 5.0 14.3

Other expense (income), net 2.6 (1.1) 3.7 336.4

Other expense, net 1.1 1.2 (0.1) (8.3)

Restructuring and asset impairment charges 1.3 4.0 (2.7) (67.5)

Operating income 46.3 27.1 19.2 70.8

Loss on pension settlement — 2.6 (2.6) (100.0)

Interest expense, net 33.0 28.8 4.2 14.6

Income tax expense (benefit) 7.6 (1.2) 8.8 733.3

Income from unconsolidated affiliates 2.1 1.6 0.5 31.3

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

Net income (loss) attributable to Pyxus International, Inc.* $ 8.1 $ (1.5) 9.6 640.0

Product revenue $ 585.8 $ 475.6 110.2 23.2

Tobacco costs 484.7 388.7 96.0 24.7

Transportation, storage, and other period costs 22.2 23.9 (1.7) (7.1)

Total cost of goods sold 506.9 412.5 94.4 22.9

Product revenue gross profit 78.9 63.1 15.8 25.0

Product revenue gross profit as a percent of sales 13.5 % 13.3 %

Kilos sold 111.7 101.4 10.3 10.2

Average price per kilo $ 5.24 $ 4.69 0.55 11.7

Average cost per kilo 4.54 4.07 0.47 11.5

Average gross profit per kilo 0.70 0.62 0.08 12.9

Processing and other revenues $ 37.3 $ 30.3 7.0 23.1

Processing and other revenues costs of services sold 27.2 23.0 4.2 18.3

Processing and other gross profit 10.1 7.3 2.8 38.4

Processing and other gross profit as a percent of sales 27.1 % 24.2 %

Sales and other operating revenues $ 1.2 $ 2.3 (1.1) (47.8)

Cost of goods and services sold 1.4 5.4 (4.0) (74.1)

Gross loss* (0.3) (3.1) 2.8 90.3

Gross loss as a percent of sales (25.0) % (132.5) %

* Amounts may not equal column totals due to rounding.

Sales and other operating revenues were $508.3 million for the three months ended September 30, 2022 and $624.3 million for the three months ended September 30, 2023, an increase of $116.0 million, or 22.8%.

This increase was primarily due to a 10.2% increase in leaf volume and a 11.7% increase in average price per kilo.

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

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

Cost of goods and services sold were $441.0 million for the three months ended September 30, 2022 and $535.5 million for the three months ended September 30, 2023, an increase of $94.5 million, or 21.4%.

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

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

Gross profit as a percent of sales increased from 13.2% for the three months ended September 30, 2022 to 14.2% for the three months ended September 30, 2023.

Average gross profit per kilo for product revenue was $0.62 for the three months ended September 30, 2022 and $0.70 for the three months ended September 30, 2023, an increase of $0.08 per kilo, or 12.9%.

These increases were primaril y due to product mix in South America and customer mix in Africa and Europe.

Selling, general, and administrative expenses were $35.0 million f or the three months ended September 30, 2022 and $40.0 million for the three months ended September 30, 2023 , an increase of $5.0 million, or 14.3%.

This increase was primarily due to increased accrued bonus compensation and professional fees.

Income tax (benefit) expense was $(1.2) million for the three months ended September 30, 2022 and $7.6 million for the three months ended September 30, 2023 , an increase of $8.8 million, or 733.3%.

This increase was driven by an increase in the Company's liability for unrecognized tax benefits in Africa, the impact of changes in valuation allowance for non-deductible interest, U.S.

taxation of foreign earnings, and variations in the jurisdictional mix of earnings.

Six Months Ended September 30, 2023 and 2022

Six Months Ended September 30,

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

Sales and other operating revenues $ 1,101.4 $ 852.2 249.2 29.2

Cost of goods and services sold 939.5 744.1 195.4 26.3

Gross profit* 161.8 108.1 53.7 49.7

Selling, general, and administrative expenses 74.1 69.6 4.5 6.5

Other expense, net 3.7 0.1 3.6 3,600.0

Restructuring and asset impairment charges 1.3 4.3 (3.0) (69.8)

Operating income 82.7 34.1 48.6 142.5

Loss on deconsolidation/disposition of subsidiaries — 0.6 (0.6) (100.0)

Loss on pension settlement — 2.6 (2.6) (100.0)

Interest expense, net 63.8 54.3 9.5 17.5

1 unchanged sentence

(Loss) income from unconsolidated affiliates (0.1) 5.3 (5.4) (101.9)

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

Net (loss) income attributable to noncontrolling interests (0.2) 0.1 (0.3) (300.0)

Net income (loss) attributable to Pyxus International, Inc.* $ 8.9 $ (16.2) 25.1 154.9

$ 0.8 $ (14.7) 15.5 105.4

Sales and other operating revenues $ 450.9 $ 322.9 128.0 39.6

Product revenue $ 1,036.8 $ 798.5 238.3 29.8

Tobacco costs 847.7 654.6 193.1 29.5

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Cost of goods and services sold 1.8 9.4 (7.6) (80.9)

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 $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.

Gross loss — (3.8) 3.8 100.0

Gross loss as a percent of sales — % (67.8) %

* Amounts may not equal column totals due to rounding.

Sales and other operating revenues were $852.2 million for the six months ended September 30, 2022 and $1,101.4 million for th e six months ended September 30, 2023, an increase of $249.2 million, or 29.2%.

This increase was primarily due to a 13.7% increase in leaf volume and a 14.3% increase in average price per kilo.

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

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

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%.

Cost of goods and services sold were $744.1 million for the six months ended September 30, 2022 and $939.5 million for the six months ended September 30, 2023, an increase of $195.4 million, or 26.3%.

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

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 .

Av erage cost per kilo increased primari ly due to undersupply conditions and inflation.

Gross profit as a percent of sales increased from 12.7% for the six months ended September 30, 2022 to 14.7% for the six months ended September 30, 2023.

Average gross profit per kilo for product revenue was $0.57 for the six months ended September 30, 2022 and $0.74 for the six months ended September 30, 2023, an increase of $0.17 per kilo, or 29.8%.

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

Selling, general, and administrative expenses were $69.6 million f or the six months ended September 30, 2022 and $74.1 million for the six months ended September 30, 2023 , an increase of $4.5 million, or 6.5%.

This increase was primarily due to increased accrued bonus compensation and professional fees.

Interest expense, net was $54.3 million f or the six months ended September 30, 2022 and $63.8 million for the six months ended September 30, 2023 , an increase of $9.5 million, or 17.5%.

This increase was due to higher average outstanding balances on seasonal credit lines from financing the purchase of greater volumes of more expensive green tobacco compared to the prior year, primarily in Africa and South America, and increased variable interest rates on foreign seasonal lines of credit.

Income tax (benefit) expense was $(2.1) million for the six months ended September 30, 2022 and $10.2 million for the six months ended September 30, 2023 , an increase of $12.3 million , or 585.7% .

This increase was driven by an increase in the Company's liability for unrecognized tax benefits in Africa, the U.S.

taxation of foreign earnings, and variations in the jurisdictional mix of earnings.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations, short-term borrowings under our foreign seasonal lines of credit, availability under ABL Credit Facility, and cash collections from our securitized receivables.

Our primary sources of liquidity are cash generated from operations, short-term borrowings under our foreign seasonal lines of credit, availability under our ABL Credit Facility, and cash collections from our securitized receivables.

Our liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size, and quality.

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To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow.

It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.

Debt Financing

1 unchanged sentence

See " Note 10 .

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

Debt Arrangements " and " Note 18.

Subsequent Events " 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 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

The following summarizes our total borrowing capacity at September 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:

September 30, 2023

(in millions) Total Borrowing Capacity Remaining Amount Available

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Total $ 763.9 $ 234.1

June 30, 2022

September 30, 2022

(in millions) Total Borrowing Capacity Remaining Amount Available

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

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

The following summarizes the computation of net debt:

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

Notes payable $ 570.0 $ 548.5 $ 382.5

$ 585.4 $ 545.2 $ 382.5

Current portion of long-term debt 20.2 0.1 0.1

5 unchanged sentences

* Amounts may not equal column totals due to rounding

(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.

(1) The fluctuation in long-term debt from September 30, 2022 and March 31, 2023 is due principally to the reclassification of the 10.0% Notes due August 24, 2024 from long-term debt to current portion of long-term debt in the current quarter.

In addition, there have been net repayments on the outstanding indebtedness under the ABL Credit Facility for each of these periods.

Weighted average borrowings outstanding under the ABL Credit Facility were $27.3 million and $53.5 million for the three and six months ended September 30, 2023, respectively.

For the six months ended September 30, 2023, the Company accelerated the purchase of higher volumes of tobacco against the rising costs of green tobacco through more efficient use of foreign seasonal credit lines.

In addition, the Company expanded the number of securitization programs and increased the utilization of existing securitization facilities to collect cash from tobacco sales more quickly.

This resulted in higher available amounts for use under foreign seasonal credit lines, and the ability to generate excess cash to fully repay indebtedness under the ABL Credit Facility as of September 30, 2023.

Working Capital

The following summarizes our working capital:

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

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

Cash, cash equivalents, and restricted cash $ 117.7 $ 115.8 $ 138.9

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Total current assets* $ 1,380.9 $ 1,338.1 $ 1,220.6

Notes payable to banks $ 585.4 $ 545.2 $ 382.5

Notes payable $ 570.0 $ 548.5 $ 382.5

Accounts payable 153.2 103.5 170.3

8 unchanged sentences

* Amounts may not equal column totals due to rounding

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.

Working capital declined from September 30, 2022 to September 30, 2023 by $75.8 million, or 13.7%, primarily due to higher outstanding amounts on foreign seasonal lines of credit in Africa and increased accounts payable balances in Asia and South America from financing the purchase of greater volumes of more expensive green tobacco compared to the prior year, as well as the reclassification of the remaining 10.0% Notes outstanding after the February 6, 2023 exchange due August 24, 2024 from long-term debt to current portion of long-term debt during the current-year quarter.

The Company also utilized cash to fully repay indebtedness under the ABL Credit Facility, which is recorded within long-term debt in the condensed consolidated balance sheets.

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

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

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

Committed $ 622.1 $ 677.9 $ 479.4

1 unchanged sentence

Total processed tobacco $ 646.8 $ 712.1 $ 498.4

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.

Total processed tobacco decreased from September 30, 2022 to September 30, 2023 by $65.3 million, or 9.2%, 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 6 .

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

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

Sources and Uses of Cash

We typically finance our non-U.S.

tobacco operations with short-term foreign seasonal lines of credit.

These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 365 days, corresponding to the tobacco crop cycle in that market.

tobacco operations with short-term foreign seasonal lines of credit, normally extending for a term of 180 to 365 days, corresponding to the tobacco crop cycle in that market.

These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans.

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

We maintain various

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

See " Note 10 .

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 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.

As of September 30, 2023, our cash, cash equivalents, and restricted cash was $117.7 million of which approximately $72.8 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.

Fluctuation of the U.S.

2 unchanged sentences

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

Three Months Ended

Six Months Ended

September 30,

(in millions) 2023 2022

Net income (loss) $ 8.7 $ (16.1)

Trade and other receivables (143.2) (48.4)

8 unchanged sentences

Net proceeds from short-term borrowings 192.2 176.3

Net proceeds from revolving loan facilities 25.0 —

Net repayment of revolving loan facilities (25.0) (35.0)

Other (3.9) (19.5)

3 unchanged sentences

* Amounts may not equal column totals due to rounding

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.

The decrease in cash, cash equivalents, and restricted cash for the six months ended September 30, 2023 compared to the six months ended September 30, 2022 improved by $64.3 million.

This improvement was driven by increased sales volumes, which contributed to higher inventory turnover, as well as increased foreign seasonal lines of credit in Africa and South America and increased accounts payable balances in Asia and South America from financing the purchase of greater volumes of more expensive green tobacco compared to the prior year.

In addition, costs incurred to refinance and partially pay down the DDTL Facility did not reoccur in the current period.

Planned Capital Expenditures

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.

We incurred approximately $9.2 million in capital expenditures for the six months ended September 30, 2023 , and are expecting to incur an additional $11.9 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:

Three Months Ended

(in millions) June 30, 2023

Six Months Ended

(in millions) September 30, 2023

Contributions made during the period $ 2.2

Contributions expected for the remainder of the fiscal year 2.5

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.

No cash dividends were paid to shareholders during the six months ended September 30, 2023.

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

Critical Accounting Policies and Estimates

As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part I, Item 7 "Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Quantitative and Qualitative Disclosures About Market Risk

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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