What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-14 compared with 2023-11-14 · 82 added, 80 removed, 218 unchanged (43% 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;

risks and uncertainties related to geopolitical conflicts, including the armed conflict between Israel and Hamas and disruptions affecting Red Sea shipping;

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

26 unchanged sentences

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

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 global agricultural company with over 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.

Through the nine months ended December 31, 2023, the Company continued to deliver revenue growth and improved profitability.

Our operating discipline, improved working capital efficiency, and geographic diversification contributed to an increase in total processed tobacco compared to the prior year.

Our uncommitted levels of processed tobacco remain low, as undersupply conditions persist in the global tobacco market.

Results of Operations

Three Months Ended September 30, 2023 and 2022

Three Months Ended September 30,

Three Months Ended December 31, 2023 and 2022

Three Months Ended December 31,

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

8 unchanged sentences

Interest expense, net 32.0 31.4 0.6 1.9

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

Income tax expense 6.2 17.9 (11.7) (65.4)

Income from unconsolidated affiliates 6.6 5.4 1.2 22.2

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

Net income attributable to noncontrolling interests 0.3 0.1 0.2 200.0

Net income (loss) attributable to Pyxus International, Inc.* $ 3.8 $ (2.3) 6.1 265.2

Product revenue $ 585.8 $ 475.6 110.2 23.2

Product revenues $ 500.5 $ 625.1 (124.6) (19.9)

Tobacco costs 394.6 510.2 (115.6) (22.7)

13 unchanged sentences

Cost of goods and services sold 0.1 4.2 (4.1) (97.6)

Gross loss* (0.3) (3.1) 2.8 90.3

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

Gross income (loss) 0.6 (0.9) 1.5 166.7

Gross income (loss) as a percent of sales 85.7 % (27.4) %

* 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,

Sales and other operating revenues were $655.6 million for the three months ended December 31, 2022 and $529.8 million for the three months ended December 31, 2023, a decrease of $125.8 million, or 19.2%.

This decrease was primarily due to a 22.7% decrease in leaf volume, partially offset by a 3.7% increase in average price per kilo.

The decrease in leaf volume was primarily due to accelerated North America shipments from the current quarter into the first half of the fiscal year and delayed shipments from South America.

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

Cost of goods and services sold were $567.8 million for the three months ended December 31, 2022 and $437.3 million for the three months ended December 31, 2023, a decrease of $130.5 million, or 23.0%.

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

Gross profit as a percent of sales increased from 13.4% for the three months ended December 31, 2022 to 17.5% for the three months ended December 31, 2023.

Average gross profit per kilo for product revenue was $0.64 for the three months ended December 31, 2022 and $0.83 for the three months ended December 31, 2023, an increase of $0.19 per kilo, or 29.7%.

These increases were primarily due to a more favorable customer mix.

Selling, general, and administrative expenses were $37.1 million for the three months ended December 31, 2022 and $42.4 million for the three months ended December 31, 2023 , an increase of $5.3 million, or 14.3%.

This increase was primarily due to increased accrued bonus compensation.

Other expense, net was $9.0 million for the three months ended December 31, 2022 and $2.3 million for the three months ended December 31, 2023, a decrease of $6.7 million , or 74.4% .

This decrease was mainly due to lower utilization of the Company's securitization programs.

Loss on pension settlement of $12.0 million for the three months ended December 31, 2023 was due to the termination of an over-funded defined benefit pension plan in the U.K.

See " Note 16.

Pension and Other Postretirement Benefits " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Income tax expense was $17.9 million for the three months ended December 31, 2022 and $6.2 million for the three months ended December 31, 2023, a decrease of $11.7 million , or 65.4% .

This decrease was primarily du e to deferred tax valuations allowances, the favorable net foreign exchange effect, and variations in the jurisdictional mix of earnings.

Nine Months Ended December 31, 2023 and 2022

Nine Months Ended December 31,

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

9 unchanged sentences

Interest expense, net 95.8 85.6 10.2 11.9

Income tax expense (benefit) 10.2 (2.1) 12.3 585.7

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

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

Income tax expense 16.4 15.8 0.6 3.8

Income from unconsolidated affiliates 6.5 10.7 (4.2) (39.3)

Net income attributable to noncontrolling interests 0.1 0.2 (0.1) (50.0)

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

$ 12.7 $ (18.5) 31.2 168.6

Product revenue $ 1,537.3 $ 1,423.6 113.7 8.0

14 unchanged sentences

Cost of goods and services sold 1.9 13.1 (11.2) (85.5)

Gross loss — (3.8) 3.8 100.0

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

Gross profit (loss) 0.6 (4.2) 4.8 114.3

Gross profit (loss) as a percent of sales 24.0 % (47.3) %

* 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 $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%.

Sales and other operating revenues were $1,507.7 million for the nine months ended December 31, 2022 and $1,631.2 million for the nine months ended December 31, 2023, an increase of $123.5 million, or 8.2%.

This increase was due to larger crop volumes in Africa and the timing of shipments in South America.

Average price per kilo increased by 10.0% mainly due to higher tobacco prices.

Cost of goods and services sold were $1,311.9 million for the nine months ended December 31, 2022 and $1,376.8 million for the nine months ended December 31, 2023, an increase of $64.9 million, or 4.9%.

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

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%.

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

Gross profit as a percent of sales increased from 13.0% for the nine months ended December 31, 2022 to 15.6% for the nine months ended December 31, 2023.

Average gross profit per kilo for product revenue was $0.60 for the nine months ended December 31, 2022 and $0.77 for the nine months ended December 31, 2023, an increase of $0.17 per kilo, or 28.3%.

These increases were primarily due to a more favorable customer and regional mix.

Selling, general, and administrative expenses were $106.7 million for the nine months ended December 31, 2022 and $116.5 million for the nine months ended December 31, 2023 , an increase of $9.8 million , or 9.2% .

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.

Interest expense, net was $85.6 million for the nine months ended December 31, 2022 and $95.8 million for the nine months ended December 31, 2023, an increase of $10.2 million, or 11.9%.

This increase was due to higher variable interest rates.

Loss on pension settlement of $2.6 million for the nine months ended December 31, 2022 was attributable to the termination of a U.S.

defined benefit pension plan in the period, while the loss on pension settlement of $12.0 million for the nine months ended December 31, 2023 was due to the termination of an over-funded defined benefit pension plan in the U.K.

See " Note 16.

Pension and Other Postretirement Benefits " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Liquidity and Capital Resources

10 unchanged sentences

See " Note 1 1 .

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.

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 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

The following summarizes our total borrowing capacity at December 31, 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:

December 31, 2023

(in millions) Total Borrowing Capacity Remaining Amount Available

4 unchanged sentences

Total $ 820.7 $ 373.8

September 30, 2022

December 31, 2022

(in millions) Total Borrowing Capacity Remaining Amount Available

4 unchanged sentences

Total $ 830.2 $ 323.1

The remaining amount available under the ABL Credit Facility increased $20.0 million when compared to the prior period as a result of the Company entering into the Third Amendment to the ABL Credit Agreement on October 24, 2023, which among other things, increased the aggregate amount of revolving loan commitments from $100.0 million to $120.0 million.

See " Note 11.

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

We refer to "Net debt," a non-GAAP measure, as total debt liabilities less cash and cash equivalents.

3 unchanged sentences

The following summarizes the computation of net debt:

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

(in millions) December 31, 2023 December 31, 2022 March 31, 2023

Notes payable $ 473.0 $ 492.3 $ 382.5

6 unchanged sentences

* Amounts may not equal column totals due to rounding

(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.

(1) Includes amounts outstanding under the ABL Credit Facility.

Weighted average borrowings outstanding under the ABL Credit Facility were $51.0 million and $52.6 million for the three and nine months ended December 31, 2023, respectively.

For the nine months ended December 31, 2023, the Company accelerated the purchase of higher volumes of inventory against the rising costs of green tobacco through more efficient use of foreign seasonal credit lines and the ABL Credit Facility.

Increased sales and other operating revenues for the nine months ended December 31, 2023 contributed to faster repayments on outstanding foreign seasonal lines when compared to the prior nine-month period, resulting in higher available amounts for use under foreign seasonal credit lines, and the ability to fully reduce indebtedness under the ABL Credit Facility as of December 31, 2023.

Working Capital

The following summarizes our working capital:

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

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

Cash, cash equivalents, and restricted cash $ 94.7 $ 218.4 $ 138.9

15 unchanged sentences

* Amounts may not equal column totals due to rounding

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.

Working capital improved from December 31, 2022 to December 31, 2023 by $89.0 million, or 22.0%, primarily due to the reduction in the current portion of long-term debt from the February 6, 2023 debt exchange that extended maturities for most of the Company's term loans and senior secured notes.

The Company also utilized cash in the current year for the purchase of more expensive green tobacco and faster repayments on outstanding foreign seasonal lines.

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

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

(in millions) December 31, 2023 December 31, 2022 March 31, 2023

Committed $ 626.7 $ 543.2 $ 479.4

1 unchanged sentence

Total processed tobacco $ 659.0 $ 571.9 $ 498.4

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.

Total processed tobacco increased from December 31, 2022 to December 31, 2023 by $87.1 million, or 15.2%, primarily due to larger crop sizes in Africa.

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

12 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 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.

As of December 31, 2023, our cash, cash equivalents, and restricted cash was $94.7 million of which approximately $61.8 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:

Six Months Ended

September 30,

Nine Months Ended

(in millions) 2023 2022

2 unchanged sentences

Inventories and advances to tobacco suppliers (50.3) 18.5

Payables and accrued expenses (10.3) (76.6)

Advances from customers 3.6 (9.2)

Other (9.2) (19.6)

8 unchanged sentences

Effect of exchange rate changes on cash (6.8) 3.8

Decrease in cash, cash equivalents, and restricted cash* $ (21.2) $ (85.5)

(Decrease) increase in cash, cash equivalents, and restricted cash* $ (44.2) $ 17.1

* Amounts may not equal column totals due to rounding

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.

The change in cash, cash equivalents, and restricted cash for the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022 decreased by $61.3 million.

This decrease was driven by increased receivables from greater sales of processed tobacco near the end of the quarter, resulting in lower utilization of securitization programs, purchases of greater volume of more expensive green tobacco, and faster repayments on outstanding foreign seasonal lines.

These decreases were partially offset by improved profitability and lower net repayments on the ABL Credit Facility.

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 $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.

We incurred approximately $14.4 million in capital expenditures for the nine months ended December 31, 2023 , and are expecting to incur an additional $6.7 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:

Six Months Ended

(in millions) September 30, 2023

Nine Months Ended

(in millions) 2023

Contributions made during the period $ 3.3

Contributions expected for the remainder of the fiscal year 1.4

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.

No cash dividends on shares of common stock of Pyxus International, Inc.

were paid to shareholders during the nine months ended December 31, 2023.

As of December 31, 2023, the payment of such 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