What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-07 · 111 added, 54 removed, 184 unchanged (47% 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 and disruptions affecting Red Sea shipping;

risks and uncertainties related to geopolitical conflicts, including conflict in the Middle East and disruptions affecting Red Sea shipping;

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

28 unchanged sentences

Executive Summary

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.

Through the first six months of the fiscal year, sales and other operating revenues increased $99.8 million , or 9.1% , to $1,201.2 million for the six months ended September 30, 2024 compared to $1,101.4 million for the six months ended September 30, 2023 .

This increase was due to a 15.6% increase in average sales prices driven by higher tobacco prices, despite a 7.9% decrease in kilo volumes sold.

Gross profit as a percent of sales decreased from 14.7% for the six months ended September 30, 2023 to 13.3% for the six months ended September 30, 2024 due mainly to regional mix from the El Niño weather effects on Africa and South America.

The ongoing Red Sea conflict, Typhoon Yagi in Southeast Asia in September 2024, and monsoon rains in India and Bangladesh during August and September 2024 contributed to shipping constraints, including vessel and equipment availability, port congestion, and rising freight costs, and undersupply conditions throughout the first half of the fiscal year.

We completed our crop purchases in the southern hemisphere and commenced crop purchases in certain markets in the northern hemisphere during the second quarter.

We continued to experience elevated prices for green tobacco from continued undersupply conditions and inflation.

As of September 30, 2024 , our inventory was $974.6 million and our uncommitted inventory was $16.7 million.

Despite purchasing more expensive green tobacco, our disciplined focus on reducing long-term debt has resulted in a total reduction of $142.8 million of aggregate principal amount of long-term debt since March 2024.

Results of Operations

Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

Three Months Ended September 30, 2024 and 2023

Three Months Ended September 30,

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

11 unchanged sentences

Income tax expense 8.1 7.6 0.5 6.6

Income from unconsolidated affiliates, net (0.5) (2.1) 1.6 76.2

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

Net (loss) income attributable to Pyxus International, Inc.* $ (3.2) $ 8.1 (11.3) (139.5)

Product revenues $ 515.8 $ 585.8 (70.0) (11.9)

Tobacco costs 428.9 484.7 (55.8) (11.5)

Transportation, storage, and other period costs 18.0 22.2 (4.2) (18.9)

Total product cost of goods sold 446.9 506.9 (60.0) (11.8)

Product revenue gross profit 68.9 78.9 (10.0) (12.7)

Product revenue gross profit as a percent of sales 13.4 % 13.5 %

Kilos sold 86.0 111.7 (25.7) (23.0)

Average price per kilo $ 6.00 $ 5.24 0.76 14.5

Average cost per kilo 5.20 4.54 0.66 14.5

Average gross profit per kilo 0.80 0.70 0.10 14.3

Processing and other revenues $ 48.3 $ 37.3 11.0 29.5

Processing and other revenues costs of services sold 40.1 27.2 12.9 47.4

Processing and other gross profit 8.2 10.1 (1.9) (18.8)

Processing and other gross profit as a percent of sales 17.0 % 27.1 %

Sales and other operating revenues $ 2.2 $ 1.2 1.0 83.3

Cost of goods and services sold 3.9 1.4 2.5 178.6

Gross loss (1.7) (0.3) (1.4) (466.7)

Gross loss as a percent of sales (77.3) % (25.0) %

* Amounts may not equal column totals due to rounding.

Sales and other operating revenues were $624.3 million for the three months ended September 30, 2023 and $566.3 million for the three months ended September 30, 2024, a decrease of $58.0 million, or 9.3%.

This was due to a 23.0% decrease in kilo volumes sold primarily due to the accelerated timing of shipments from North America in the three months ended June 30, 2024 and delayed shipments from Africa in the three months ended September 30, 2024 compared to the prior-year period, partially offset by a 14.5% increase in average sales prices over this period, driven by higher tobacco prices.

Cost of goods and services sold were $535.5 million for the three months ended September 30, 2023 and $490.9 million for the three months ended September 30, 2024 , a decrease of $44.6 million, or 8.3%.

This was mainly due to the decrease in kilo volumes sold , partially offset by a 14.5% increase in average cost per kilo primarily due to undersupply conditions and inflation.

Gross profit as a percent of sales decreased from 14.2% for the three months ended September 30, 2023 to 13.3% for the three months ended September 30, 2024, due mainly to product and regional mix.

Average gross profit per kilo increased 14.3%, primarily due t o more favorable customer mix.

Gain on debt retirement of $6.9 million for the three months ended September 30, 2024 was due to the repurchase of $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par, during the current quarter.

See " Note 11.

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

Interest expense was $33.0 million for three months ended September 30, 2023 and $35.7 million for the three months ended September 30, 2024, an increase of $2.7 million, or 8.2%.

This increase was driven by higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from Africa , and increased variable interest rates.

This increase was partially offset by partial repurchases of the 2027 Notes in March, April, and August 2024, as well as the partial repurchase of the Pyxus Term Loans in May 2024.

Six Months Ended September 30, 2024 and 2023

Six Months Ended September 30,

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

Consolidated:

Sales and other operating revenues $ 1,201.2 $ 1,101.4 99.8 9.1

Cost of goods and services sold 1,041.9 939.5 102.4 10.9

Gross profit 159.3 161.8 (2.5) (1.5)

Gross profit as a percent of sales 13.3 % 14.7 %

Selling, general, and administrative expenses 79.5 74.1 5.4 7.3

Other expense, net 5.9 3.7 2.2 59.5

Restructuring and asset impairment charges 0.3 1.3 (1.0) (76.9)

Operating income* 73.5 82.7 (9.2) (11.1)

Gain on debt retirement 8.2 — 8.2 100.0

Interest expense, net 69.0 63.8 5.2 8.2

Income tax expense 14.2 10.2 4.0 39.2

(Income) loss from unconsolidated affiliates, net (3.1) 0.1 (3.2) (3,200.0)

1 unchanged sentence

Net income attributable to Pyxus International, Inc.* $ 1.4 $ 8.9 (7.5) (84.3)

Product revenues $ 589.2 $ 450.9 138.3 30.7

Product revenue $ 1,105.0 $ 1,036.8 68.2 6.6

Tobacco costs 912.9 847.7 65.2 7.7

Transportation, storage, and other period costs 42.8 42.8 — —

Total product cost of goods sold 508.8 383.7 125.1 32.6

Total cost of goods sold 955.7 890.5 65.2 7.3

Product revenue gross profit 149.3 146.2 3.1 2.1

10 unchanged sentences

Cost of goods and services sold 8.7 1.8 6.9 383.3

Gross income (loss) (0.9) 0.3 (1.2) (400.0)

Gross income (loss) as a percent of sales (23.1) % 42.9 %

Gross loss (2.6) — (2.6) (100.0)

Gross loss as a percent of sales (42.6) % — %

* Amounts may not equal column totals due to rounding.

** 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.

Sales and other operating revenues were $1,101.4 million for the six months ended September 30, 2023 and $1,201.2 million for the six months ended September 30, 2024, an increase of $99.8 million, or 9.1%.

This was due to a 15.6% increase in average sales prices over this period, driven by higher tobacco prices, partially offset by 7.9% decrease in kilo volumes sold.

Cost of goods and services sold were $939.5 million for the six months ended September 30, 2023 and $1,041.9 million for the six months ended September 30, 2024, an increase of $102.4 million, or 10.9%.

This was mainly due to a 16.4% increase in average cost per kilo, primarily due to undersupply conditions and inflation, partially offset by the decrease in kilo volumes sold .

Gross profit as a percent of sales decreased from 14.7% for the six months ended September 30, 2023 to 13.3% for the six months ended September 30, 2024, due mainly to regional mix.

Average gross profit per kilo increased 10.8%, primari ly due to a more favorable customer mix.

Selling, general, and administrative expenses were $74.1 million for the six months ended September 30, 2023 and $79.5 million for the six months ended September 30, 2024, an increase of $5.4 million, or 7.3%.

This increase wa s primarily due to the recognition of $3.6 million for equity-based compensation pursuant to the Amended and Restated 2020 Incentive Plan, and a higher accrual for bonus compensation.

See " Note 17.

Equity -Based Compensation " to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Gain on debt retirement of $8.2 million for the six months ended September 30, 2024 was due to the repurchase of $10.3 million of aggregate principal amount of the Pyxus Term Loans for $9.4 million, a 12.0% discount to par, and the repurchase of $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par.

See " Note 11.

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

Interest expense, net was $63.8 million for the six months ended September 30, 2023 and $69.0 million for the six months ended September 30, 2024, an increase of $5.2 million, or 8.2%.

This increase was due to higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa , and increased variable interest rates.

This increase was partially offset by partial repurchases of the 2027 Notes in March, April, and August 2024, as well as the partial repurchase of the Pyxus Term Loans in May 2024.

Income tax expense was $10.2 million for the six months ended September 30, 2023 and $14.2 million for the six months ended September 30, 2024, an increase of $4.0 million, or 39.2%.

This increase was primarily due to tax benefits in the prior period from foreign currency losses and foreign unremitted earnings, partially offset by improvements in the current period valuation allowances and uncertain tax benefits.

Liquidity and Capital Resources

14 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, 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

The following summarizes our total borrowing capacity at September 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:

September 30, 2024 September 30, 2023

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

6 unchanged sentences

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.

The amounts presented as available under the ABL Credit Facility are subject to further limitations from the borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves.

The total borrowing capacity of our foreign seasonal lines of credit increased $232.4 million when compared to the prior year and were primarily utilized to purchase green tobacco at higher prices.

The amounts presented as available for certain of the foreign seasonal lines of credit are subject to further limitations by receivables and inventories as collateral and restrictive covenants.

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) June 30, 2024 June 30, 2023 March 31, 2024

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

Notes payable $ 744.8 $ 570.0 $ 499.3

6 unchanged sentences

* Amounts may not equal column totals due to rounding

(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.

(1) Fluctuations in long-term debt include 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 were $37.3 million and $50.6 million for the three and six months ended September 30, 2024, respectively.

Net debt increased as of September 30, 2024 when compared to September 30, 2023 from higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa.

Working Capital

The following summarizes our working capital:

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

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

Cash, cash equivalents, and restricted cash $ 130.9 $ 117.7 $ 99.8

Trade and other receivables, net 237.5 261.3 187.5

Inventories and advances to tobacco suppliers 1,058.4 1,062.8 952.1

Inventories and advances to tobacco suppliers, net 1,052.6 944.8 952.1

Recoverable income taxes 3.0 5.1 4.5

12 unchanged sentences

* Amounts may not equal column totals due to rounding

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.

Working capital declined from September 30, 2023 to September 30, 2024 by $88.9 million, or 18.7%, due to higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa, and increased variable interest rates.

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

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

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

Committed $ 733.9 $ 622.1 $ 570.4

1 unchanged sentence

Total processed tobacco $ 750.6 $ 646.8 $ 585.3

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.

Total processed tobacco increased from September 30, 2023 to September 30, 2024 by $103.8 million, or 16.0%, due to the higher costs of procuring and processing tobacco, along with delayed shipments out of Africa.

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

Challenging weather events in multiple geographies and shipping constraints, such as container availability and longer transit routes, have contributed to the continued undersupply conditions.

See " Note 7.

5 unchanged sentences

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

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 businesses.

See " Note 11.

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, 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.

As of September 30, 2024, our cash, cash equivalents, and restricted cash was $130.9 million, of which approximately $76.5 million was held in non-U.S.

jurisdictions for non-U.S.

working capital needs, a majority of which is subject to exchange controls and certain of which is subject to tax consequences, which 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) 2024 2023

11 unchanged sentences

Repayment of long-term borrowings (55.8) —

Net proceeds of revolving loan facilities 44.0 25.0

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

Other (3.4) (3.9)

1 unchanged sentence

Effect of exchange rate changes on cash (2.1) (2.2)

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 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.

Increase (decrease) in cash, cash equivalents, and restricted cash $ 31.1 $ (21.2)

The change in cash, cash equivalents, and restricted cash for the six months ended September 30, 2024 compared to the six months ended September 30, 2023 increased by $52.3 million.

This increase was mainly driven by higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa, and the ABL Credit Facility, partially offset by the repayment of long-term debt.

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 $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.

We incurred approximately $9.8 million in capital expenditures for the six months ended September 30, 2024 , and are expecting to incur an additional $20.5 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:

Three Months Ended

Six Months Ended

September 30,

(in millions) 2024

1 unchanged sentence

Contributions expected for the remainder of the fiscal year 2.6

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

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

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