What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-02-14 · 66 added, 128 removed, 172 unchanged (53% of the section changed)

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Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995.

These statements, which are based on current expectations of future events, may be identified by the use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning.

These statements, which are based on current expectations of future events, may be identified by the use of words such as "guidance", "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning.

These statements also may be identified by the fact that they do not relate strictly to historical or current facts.

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continued high inflation;

we have identified material weaknesses related to our internal controls in certain prior years, and there can be no assurance that material weaknesses will not be identified in the future;

regulations regarding environmental matters;

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the risk that, because our ability to generate cash depends on many factors beyond our control, we may be unable to generate the significant amount of cash required to service our indebtedness;

our ability to refinance our current credit facilities at the same availability or at similar interest rates;

our ability to refinance our current credit facilities at the same availability or at similar or reduced interest rates;

failure to achieve our stated goals, which may adversely affect our liquidity;

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government actions that significantly affect the sourcing of tobacco, including governmental actions to identify and assess crop diversification initiatives and alternatives to leaf tobacco growing in countries whose economies depend upon tobacco production;

governmental investigations into, and litigation concerning, leaf tobacco industry buying and other payment practices;

governmental investigations into the Company's business activities, including but not limited to, leaf tobacco industry buying and other payment practices;

and impact of potential regulations to prohibit the sale of cigarettes in the United States other than low-nicotine cigarettes.

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 over 150 years of experience delivering value-added products and services to businesses and customers.

We do not undertake to update any forward-looking statements that we may make from time to time except to the extent required by law.

Pyxus is a global agricultural company with businesses having more than 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

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.

The positive momentum from fiscal year 2024 carried into the Company's first quarter of fiscal year 2025 as sales growth remained strong year-over-year.

Customer demand remains steady as undersupply conditions persist due to short crops in South America and in certain geographies in Africa.

We were successful in adapting to market conditions by leveraging our global geographic footprint to meet the needs of our customers and grow our business.

We also continued to take advantage of opportunities to reduce long-term debt by purchasing $10.3 million of aggregate principal amount of the Pyxus Term Loans for $9.4 million in May 2024 and on August 2, 2024, the Company purchased $34.2 million of the 8.5% Senior Secured Notes for $26.7 million.

Our disciplined focus on reducing long-term debt, optimizing working capital, and improving access to liquidity remain paramount to our strategy to enhance stakeholder value.

Our employees kept their focus on operational effectiveness and demonstrated resiliency in the face of external challenges, especially in Southern Brazil where El Niño weather effects dealt this region unprecedented amounts of rainfall in April and May, leading to widespread catastrophic flooding.

While the Company was spared from significant damage, our teams provided relief to affected colleagues, contracted farmers, and the local communities, while at the same time working to ensure the safety of our operations and the continuity of our business during the busy crop buying season.

Results of Operations

Three Months Ended December 31, 2023 and 2022

Three Months Ended December 31,

Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

(in millions, except per kilo amounts) 2024 2023 $ %

Consolidated:

Sales and other operating revenues $ 634.9 $ 477.1 157.8 33.1

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Gross profit 83.9 73.1 10.8 14.8

Gross profit as a percent of sales 13.2 % 15.3 %

Selling, general, and administrative expenses $ 40.7 $ 34.1 6.6 19.4

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Operating income 40.5 36.4 4.1 11.3

Loss on pension settlement 12.0 — 12.0 100.0

Gain on debt retirement 1.3 — 1.3 **

Interest expense, net 33.3 30.8 2.5 8.1

Income tax expense 6.1 2.6 3.5 134.6

Income from unconsolidated affiliates 6.6 5.4 1.2 22.2

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

(Income) loss from unconsolidated affiliates, net (2.6) 2.2 (4.8) (218.2)

Net income (loss) attributable to noncontrolling interests 0.3 — 0.3 **

Net income attributable to Pyxus International, Inc.* $ 4.6 $ 0.8 3.8 475.0

Product revenues $ 589.2 $ 450.9 138.3 30.7

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Transportation, storage, and other period costs 24.8 20.7 4.1 19.8

Total cost of goods sold 417.8 543.0 (125.2) (23.1)

Total product cost of goods sold 508.8 383.7 125.1 32.6

Product revenue gross profit 80.4 67.2 13.2 19.6

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* Amounts may not equal column totals due to rounding.

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 $ %

Sales and other operating revenues $ 1,631.2 $ 1,507.7 123.5 8.2

Cost of goods and services sold 1,376.8 1,311.9 64.9 4.9

Gross profit 254.4 195.9 58.5 29.9

Selling, general, and administrative expenses 116.5 106.7 9.8 9.2

Other expense, net 6.0 9.1 (3.1) (34.1)

Restructuring and asset impairment charges 1.4 4.4 (3.0) (68.2)

Operating income 130.5 75.7 54.8 72.4

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

Loss on pension settlement 12.0 2.6 9.4 361.5

Interest expense, net 95.8 85.6 10.2 11.9

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

Tobacco costs 1,242.4 1,164.8 77.6 6.7

Transportation, storage, and other period costs 66.0 77.8 (11.8) (15.2)

Total cost of goods sold 1,308.4 1,242.7 65.7 5.3

Product revenue gross profit 228.9 181.0 47.9 26.5

Product revenue gross profit as a percent of sales 14.9 % 12.7 %

Kilos sold 297.2 302.9 (5.7) (1.9)

Average price per kilo $ 5.17 $ 4.70 0.47 10.0

Average cost per kilo 4.40 4.10 0.30 7.3

Average gross profit per kilo 0.77 0.60 0.17 28.3

Processing and other revenues $ 91.4 $ 75.2 16.2 21.5

Processing and other revenues costs of services sold 66.5 56.1 10.4 18.5

Processing and other gross profit 24.9 19.1 5.8 30.4

Processing and other gross profit as a percent of sales 27.2 % 25.4 %

Sales and other operating revenues $ 2.5 $ 8.9 (6.4) (71.9)

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

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 $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.

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 $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.

** Not meaningful for comparison purposes.

Sales and other operating revenues were $477.1 million for the three months ended June 30, 2023 and $634.9 million for the three months ended June 30, 2024, an increase of $157.8 million, or 33.1%.

This increase was due to a 16.9% increase in average price per kilo driven by higher tobacco prices and a 11.9% increase in volume primarily due to accelerated timing of shipments in North America compared to the prior year.

Cost of goods and services sold were $404.0 million for the three months ended June 30, 2023 and $551.0 million for the three months ended June 30, 2024, an increase of $147.0 million, or 36.4%.

This increase was mainly due to the 18.5% increase in average cost per kilo primarily due to undersupply conditions and inflation.

Gross profit as a percent of sales decreased from 15.3% for the three months ended June 30, 2023 to 13.2% for the three months ended June 30, 2024 mainly due to a shift in product mix in Africa and regional mix.

Average gross profit per kilo increased 7.7% primarily due to more favorable customer and regional mix.

Selling, general, and administrative expenses were $34.1 million for the three months ended June 30, 2023 and $40.7 million for the three months ended June 30, 2024, an increase of $6.6 million, or 19.4%.

This increase was primarily due to the recognition of $3.0 million of equity-based compensation in the current quarter for modified awards, pursuant to the Amended and Restated 2020 Incentive Plan, and earlier recognition of accrued bonus compensation.

Income tax expense was $2.6 million for the three months ended June 30, 2023 and $6.1 million for the three months ended June 30, 2024, an increase of $3.5 million, or 134.6%.

This increase was primarily due to higher income during the period, net foreign currency impact, and additional uncertain tax benefits reserves, partially offset by changes in the valuation allowance.

Liquidity and Capital Resources

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The first three quarters of our fiscal year generally represent the peak of our working capital requirements.

We believe our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months.

During such time our liquidity needs for operations may approach the levels of our anticipated available cash and permitted borrowings under our credit facilities.

Although we believe that our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months, we anticipate periods during which our liquidity needs for operations will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities.

Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in a deficiency in liquidity.

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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, 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

ABL Credit Facility $ 120.0 $ 120.0

Foreign seasonal lines of credit 692.2 250.2

Other long-term debt 0.4 0.2

Letters of credit 8.1 3.4

Total $ 820.7 $ 373.8

December 31, 2022

(in millions) Total Borrowing Capacity Remaining Amount Available

The following summarizes our total borrowing capacity at June 30, 2024 and 2023 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, 2024 June 30, 2023

(in millions) Total Borrowing Capacity Remaining Amount Available Total Borrowing Capacity Remaining Amount Available

Senior Secured Credit Facilities:

ABL Credit Facility $ 120.0 $ 76.0 $ 100.0 $ 50.0

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Total $ 946.6 $ 248.9 $ 812.8 $ 203.4

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.

The total borrowing capacity 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.

The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves.

Foreign seasonal lines of credit increased $113.5 million when compared to the prior year and were utilized to purchase green tobacco at higher prices.

Many of the foreign seasonal lines of credit are secured by trade receivables and inventories as collateral and are subject to restrictive covenants.

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

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The following summarizes the computation of net debt:

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

(in millions) June 30, 2024 June 30, 2023 March 31, 2024

Notes payable $ 679.4 $ 585.4 $ 499.3

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* Amounts may not equal column totals due to rounding

(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.

(1) Fluctuations in long-term debt are due to borrowings and repayments on the outstanding indebtedness under the ABL Credit Facility, along with repurchases of certain long-term debt.

Weighted average borrowings outstanding under the ABL Credit Facility during the three months ended June 30, 2024 was $64.0 million.

Net debt increased as of June 30, 2024 when compared to June 30, 2023 as a result of lower cash and cash equivalents on hand, which is driven by higher cash spend on purchases of more expensive green tobacco.

Working Capital

The following summarizes our working capital:

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

(in millions except for current ratio) June 30, 2024 June 30, 2023 March 31, 2024

Cash, cash equivalents, and restricted cash $ 89.1 $ 105.5 $ 99.8

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* Amounts may not equal column totals due to rounding

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.

Working capital declined from June 30, 2023 to June 30, 2024 by $91.6 million, or 17.2%, primarily due to the increase in outstanding short-term lines of credit used to purchase green tobacco at higher prices, as well as the impact of the 10% Notes due August 24, 2024 being classified as current.

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

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

(in millions) June 30, 2024 June 30, 2023 March 31, 2024

Committed $ 590.8 $ 630.8 $ 570.4

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Total processed tobacco $ 605.5 $ 642.8 $ 585.3

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.

Total processed tobacco decreased from June 30, 2023 to June 30, 2024 by $37.3 million, or 5.8%, primarily due to accelerated timing of shipments from North America and smaller crop sizes from certain markets in Africa.

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

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We typically finance our non-U.S.

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.

tobacco operations with uncommitted 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 businesses.

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

See " Note 11.

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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, 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.

As of June 30, 2024, our cash, cash equivalents, and restricted cash was $89.1 million of which approximately $63.4 million was held in non-U.S.

jurisdictions, which $44.6 million was subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds.

Fluctuation of the U.S.

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

Nine Months Ended

Three Months Ended

(in millions) 2024 2023

Net income (loss) $ 12.8 $ (18.3)

Net income $ 5.0 $ 0.8

Trade and other receivables (72.4) (33.1)

Inventories and advances to tobacco suppliers (108.0) (245.9)

Payables and accrued expenses (64.8) (32.5)

Advances from customers (18.6) 18.8

Other 6.6 6.2

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Net proceeds from short-term borrowings 182.0 205.9

Net repayment of revolving loan facilities (25.0) (90.0)

Repayment of long-term borrowings (9.1) —

Net proceeds of revolving loan facilities 44.0 25.0

Other (2.6) (3.5)

1 unchanged sentence

Effect of exchange rate changes on cash (0.8) (2.2)

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

Decrease in cash, cash equivalents, and restricted cash* $ (10.7) $ (33.4)

* Amounts may not equal column totals due to rounding

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.

The change in cash, cash equivalents, and restricted cash for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 increased by $22.7 million.

This increase was mainly driven by the change in inventory, primarily the timing of purchases in Africa and South America compared to the prior year, partially offset by accelerated timing of shipments in North America.

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 $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.

We incurred approximately $5.1 million in capital expenditures for the three months ended June 30, 2024 , and are expecting to incur an additional $25.2 million for the remainder of the fiscal year ending March 31, 2025, which includes expenditures expected to be funded through government assistance.

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

Three Months Ended

(in millions) 2024

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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.

were paid to shareholders during the three months ended June 30, 2024.

As of June 30, 2024, the payment of such dividends is restricted under the terms of our debt agreements.

Critical Accounting Policies and Estimates

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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