Pyxus International, Inc. Reports Fiscal Year 2022 First Quarter Results

MORRISVILLE, N.C., Aug. 13, 2021 /PRNewswire/ -- Pyxus International, Inc. (OTC Pink: PYYX) ("Pyxus" or the "Company"), a global value-added agricultural company, today announced results for its fiscal quarter ended June 30, 2021.

Quarter Highlights:

• Sales and other operating revenues increased $70.5 million, or 26.8%, to $333.3 million for the three months ended June 30, 2021 from $262.8 million for the three months ended June 30, 2020.
• Gross profit as a percent of sales increased to 12.6% for the three months ended June 30, 2021 from 7.5% for three months ended June 30, 2020.
• Selling, general, and administrative ("SG&A") expenses decreased $27.0 million, or 44.4%, to $33.8 million for the three months ended June 30, 2021 from $60.8 million for the three months ended June 30, 2020.
• Net loss improved $80.7 million, or 87.5%, to $11.5 million for the three months ended June 30, 2021 from $92.2 million for the three months ended June 30, 2020.
• Adjusted EBITDA* increased $7.1 million, or 92.2%, to $14.8 million for the three months ended June 30, 2021 from $7.7 million for the three months ended June 30, 2020.

"Fiscal year 2022 is progressing nicely and is in line with our expectations thus far," said Pieter Sikkel, President and CEO of Pyxus. "In the first quarter we began to catch-up from prior-period shipping delays driven by the pandemic and customer shipping instructions. We are continuing to monitor the impact of COVID on our Company and our workforce, and we will adjust our operations as needed to protect the health and safety of our employees while maintaining business continuity. Proactive management of shipping logistics, including container availability and freight costs, remains a high priority as we adapt to the evolving global shipping conditions.

"In the leaf business, our inventory levels are consistent with our expectations and our uncommitted inventory decreased compared to the prior year. We continue to see customers look for ways to reduce complexity in their supply chains through partnerships with suppliers who support their environmental, social, and governance ("ESG") objectives. British American Tobacco's ("BAT") Indonesian subsidiary recently adopted a new leaf supply arrangement, which involves shifting contract volumes from its direct operations to one of our tobacco subsidiaries. Effective this crop season, we will begin processing the additional volume in our local facilities prior to its sale to BAT. This arrangement enhances the sustainability of not only our respective operations but also the Indonesian tobacco market, thus supporting our mutual goal to enhance farmer livelihoods. We are pleased with the expansion of our relationship with BAT, and we are well-positioned to capitalize on additional opportunities with our customers.

"With regards to e-liquids, we are encouraged that the Food and Drug Administration is continuing to take action against illegally marketed tobacco products, as evidenced by the most recent warning letters requesting certain companies remove their flavored disposable e-cigarettes and youth-appealing e-liquid products from the market because they do not have the required Premarket Tobacco Product Applications ("PMTA"). While the regulation and enforcement activities in the e-liquids industry are continuing to mature, we await our PMTA approval notifications and look forward to the post-PMTA market opportunities.

"Momentum is building across the business as we leverage the savings from fiscal 2021 restructuring initiatives. We continue to expect fiscal 2022 sales to be between $1.65 billion and $1.8 billion, SG&A expense to be between $140.0 million and $145.0 million (excluding non-recurring items and potential changes in foreign currency exchange rates), and adjusted EBITDA to be between $150.0 million and $170.0 million. Our global team is committed to the strengthening of our business while making positive contributions to a sustainable world."

Performance Summary for Three Months Ended June 30, 2021

Sales and other operating revenues increased $70.5 million, or 26.8%, to $333.3 million for the three months ended June 30, 2021 from $262.8 million for the three months ended June 30, 2020. This increase was due to an 8.6% increase in leaf volume and a 17.4% increase in leaf average sales price. The 8.6% increase in leaf volume was primarily due to $77.3 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from the fiscal year ended March 31, 2021 into the first quarter of the current fiscal year. This increase was partially offset by the deconsolidation of the subsidiaries of the Company that operated cannabis businesses in Canada (the "Canadian Cannabis Subsidiaries") in the fourth quarter of fiscal 2021 and lower leaf volume in Asia mainly due to shipments delayed by the COVID-19 pandemic and shipping container availability. The 17.4% increase in leaf average sales price was driven by product mix in Africa, Asia, Europe, and North America having a higher concentration of lamina. This increase was partially offset by product mix having a lower concentration of lamina in South America.

Cost of goods and services sold increased $48.0 million, or 19.7%, to $291.2 million for the three months ended June 30, 2021 from $243.2 million for the three months ended June 30, 2020. This increase was mainly due to the increase in sales and other operating revenues and was partially offset by a $15.1 million write-down of industrial hemp inventory in fiscal 2021 that was driven by a shift in expected future products mix in response to market supply conditions and continued market price compression.

Gross profit as a percent of sales increased to 12.6% for the three months ended June 30, 2021 from 7.5% for three months ended June 30, 2020. This increase was attributable to the fiscal 2021 write-down of industrial hemp inventory, as described above, and lower conversion costs in Africa and South America and product mix in Africa, Asia, and Europe having a higher concentration of lamina. This increase was partially offset by higher conversion costs in Asia, product mix having a lower concentration of lamina in South America, and foreign exchange rates in Asia and Europe.

Selling, general, and administrative ("SG&A") expenses decreased $27.0 million, or 44.4%, to $33.8 million for the three months ended June 30, 2021 from $60.8 million for the three months ended June 30, 2020 primarily due to expenses included in SG&A in fiscal 2021 for the Chapter 11 Cases  (defined below) that were incurred prior to the commencement of the Chapter 11 Cases, the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives. SG&A expenses as a percent of sales decreased to 10.1% for the three months ended June 30, 2021 from 23.1% for the three months ended June 30, 2020 driven by increased sales and other operating revenues and the aforementioned decrease in SG&A expenses.

Reorganization items of $26.9 million were incurred in the prior fiscal year as a result of the Chapter 11 Cases.

Liquidity and Capital Resources

The Company's liquidity requirements are affected by various factors including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size and quality, and legal and professional costs. As of June 30, 2021, the Company's available credit lines and cash totaled $314.4 million, including $224.5 million of availability under foreign seasonal lines of credit.

Financial Results Investor Call

The Company will hold a conference call to report financial results for the period ended June 30, 2021, on August 16, 2021 at 5:00 P.M. ET. The dial in number for the call is (334) 323-0501 or (800) 353-6461 and the conference ID is 3760398. Those seeking to listen to the call may access a live broadcast on the Pyxus International website. Please visit www.pyxus.com 15 minutes in advance to register.

For those who are unable to listen to the live event, a replay will be available for five days by dialing (719) 457-0820 or (888) 203-1112 and entering the access code 3760398. Any replay, rebroadcast, transcript or other reproduction of this conference call, other than the replay accessible by calling the number above, has not been authorized by Pyxus International and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents.

Fresh Start Reporting

On June 15, 2020, the Company's predecessor and certain of its domestic subsidiaries (the "Debtors") voluntarily commenced cases (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code to implement a prepackaged Chapter 11 plan of reorganization in order to effectuate a financial restructuring, which plan or reorganization, as amended (the "Plan"), became effective on August 24, 2020 (the "Effective Date"). Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under generally accepted accounting principles in the United States ("GAAP"), which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. The Company elected to apply fresh start reporting using a convenience date of August 31, 2020. Due to the application of fresh start reporting, the pre-emergence and post-emergence periods are not comparable. The lack of comparability is emphasized by the use of a "black line" to separate the Predecessor and Successor periods in the Company's condensed consolidated financial statements. References to "Successor" relate to the Company's financial position and results of operations after August 31, 2020. References to "Predecessor" relate to the financial position and results of operations on or before August 31, 2020.

Cautionary Statement Regarding Forward-Looking Statements

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 also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. Some of these risks and uncertainties include: 

• risks related to our indebtedness, including that the Company has substantial debt which may adversely affect it by limiting future sources of financing, interfering with its ability to pay interest, and principal on its indebtedness and subjecting it to additional risks, the Company requires a significant amount of cash to service indebtedness and its ability to generate cash depends on many factors beyond its control, the Company may not be able to refinance or renew its indebtedness, which may have a material adverse effect on its financial condition, the Company may not be able to satisfy the covenants included in its financing arrangements, which could result in the default of its outstanding debt obligations, and despite current indebtedness levels, the Company may still be able to incur substantially more debt, which could exacerbate further the risks associated with its significant leverage;
• risks and uncertainties relating to the Chapter 11 Cases and the Company's liquidity and business strategy, including but not limited to: whether the Company's leaf tobacco customers, farmers and other suppliers might lose confidence in Pyxus as a result of the Chapter 11 Cases and may seek to establish alternative commercial relationships, whether, as a result of the Chapter 11 Cases, foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level may lose confidence in Pyxus and cease to provide such funding, uncertainty and continuing risks associated with the Company's ability to achieve its goals and continue as a going concern, unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity; and the Company's Board of Directors, as reconstituted in connection with the Chapter 11 Cases, may implement changes in the Company's business strategy that could affect the scope of its operations, including the countries in which it continues to operate and the business lines that it continues to pursue, and may result in the recognition of restructuring or asset impairment charges;
• risk and uncertainties related to the Company's leaf tobacco operations, including changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of short-term seasonal financing, political instability, currency and interest rate fluctuations, shifts in the global supply and demand position for tobacco products, changes in tax laws and regulations or the interpretation of tax laws and regulations, resolution of tax matters, adverse weather conditions, the impact of disasters or other unusual events affecting international commerce, and changes in costs incurred in supplying products and related services;
• risks and uncertainties related to the COVID-19 pandemic, including possible delays in shipments of leaf tobacco, including from the closure or restricted activities at ports or other channels, disruptions to the Company's operations or the operations of suppliers and customers resulting from restrictions on the ability of employees and others in the supply chain to travel and work, border closures, determinations by Pyxus or shippers to temporarily suspend operations in affected areas, whether the Company's operations that have been classified as "essential" under various governmental orders restricting business activities will continue to be so classified or, even if so classified, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of the Company's facilities to be halted for some period of time, negative consumer purchasing behavior with respect to the Company's products or the products of its leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and the extent to which the impact of the COVID-19 pandemic on the Company's operations and the demand for its products may not coincide with impacts experienced in the United States due to the international scope of its operations, including in emerging and other markets in which the Company operates where the timing and severity of COVID-19 outbreaks and the pace of COVID-19 vaccinations may differ from those in the United States; and
• risks and uncertainties related to the Company's business lines in its Other Products and Services segment, including that e-liquids business has a limited operating history, is in a newly developed market, may not generate the results that the Company anticipates and has, and may continue to need, significant investment to fund continued operations and expansion, that its technologies, processes and formulations may become obsolete, the impact of increasing competition, uncertainties with respect to the development of the industry and market, including the level of consumer demand for such products, the potential for product liability claims, uncertainties with respect to the extent of consumer acceptance of the products offered by the e-liquids business, the impact of regulation associated with the e-liquids business, including the risk of obtaining anticipated regulatory approvals, and risks and uncertainties related to the proceeding initiated in January 2021 under Canada's Companies' Creditors Arrangement Act by the Canadian Cannabis Subsidiaries, including whether the remaining sale will be successfully completed within the anticipated time frame or at all and the extent of impairment that Pyxus may recognize with respect to its investments in these subsidiaries.

A further list and description of these risks, uncertainties, and other factors can be found in Part II, Item 1A "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2021 and in its other filings with the Securities and Exchange Commission. The Company does not undertake to update any forward-looking statements that it may make from time to time.

Non-GAAP Financial Information
This press release contains financial measures that have not been prepared in accordance GAAP. They include EBITDA, Adjusted EBITDA, and SG&A expense (excluding non-recurring items). Tables showing the reconciliation of historical non-GAAP financial measures are attached to this release. The range of Adjusted EBITDA anticipated for fiscal year ending March 31, 2022 is calculated in a manner consistent with the presentation of Adjusted EBITDA in the attached tables. Because of the forward-looking nature of the estimated range of Adjusted EBITDA and SG&A expense (excluding non-recurring items), it is impractical to present a quantitative reconciliation of each such measure to a comparable GAAP measure, and accordingly no such GAAP measure is being presented.

About Pyxus International, Inc.
Pyxus International, Inc. is a global agricultural company with more than 145 years' experience delivering value-added products and services to businesses and customers. Driven by a united purpose—to transform people's lives, so that together we can grow a better world—Pyxus International, its subsidiaries and affiliates, are trusted providers of responsibly sourced, independently verified, sustainable and traceable products and ingredients. For more information, visit www.pyxus.com.

RECONCILIATION OF ITEMS FOR THE COMBINED PERIODS

Pyxus International, Inc. (the "Company," "we" or "us") applied Financial Accounting Standards Board ("FASB") ASC Topic 852 – Reorganizations ("ASC 852") in preparing our condensed consolidated financial statements. For periods subsequent to the commencement of the Chapter 11 Cases on June 15, 2020, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the August 24, 2020 Effective Date of the Plan. The Company elected to apply fresh start reporting using a convenience date of August 31, 2020. The Company evaluated and concluded the events between August 24, 2020 and August 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis. Due to the application of fresh start reporting, the pre-emergence and post-emergence periods are not comparable. The lack of comparability is emphasized by the use of a "black line" to separate the Predecessor and Successor periods in the Company's condensed consolidated financial statements. References to "Successor" relate to the Company's financial position and results of operations after August 31, 2020. References to "Predecessor" relate to the financial position and results of operations on or before August 31, 2020.

We do not believe that reviewing the results for Predecessor and Successor periods in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance. Management believes that, for periods that span the Effective Date of the Plan, operating metrics for the Successor period when combined with the Predecessor period provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, the tables below present the combined results for the fiscal year ended March 31, 2021 and the last twelve months (LTM) ended June 30, 2021. The combined results (referenced as "Combined (Non-GAAP)") for the fiscal year ended March 31, 2021 represent the sum of the reported amounts for the Predecessor period from April 1, 2020 through August 31, 2020 combined with the Successor period from September 1, 2020 through March 31, 2021. These combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The combined operating results are presented for supplemental purposes only, may not reflect the actual results we would have achieved absent our emergence from bankruptcy, may not be indicative of future results and should not be viewed as a substitute for the financial results of the Predecessor period and Successor period presented in accordance with GAAP.

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SOURCE Pyxus International, Inc.