Patrick John Fitzgerald

Patrick Fitzgerald of Baird inquired about the reasoning for sales and EBITDA being weighted to the second half of fiscal 2026, the volume and pricing assumptions in the full-year guidance, and the outlook for free cash flow and net debt given low year-end inventory levels.

Answer

President & CEO J. Pieter Sikkel explained that the second-half weighting is due to replenishing very low inventories with larger, incoming crops, which will drive volume and EBITDA later in the year. He noted guidance reflects higher volumes, lower selling prices from larger crops, and improved gross margins. Interim CFO Dustin Styons added that the company expects a more normalized purchasing cycle and will maintain a disciplined working capital approach, highlighting that Pyxus was cash generative before working capital changes in FY2025.

Asked for clarification on why fiscal year 2026 sales and EBITDA are expected to be weighted towards the second half of the year, the assumptions for full-year volumes and pricing in the guidance, and the outlook on free cash flow and net debt considering the need to rebuild inventory.

Answer

The company explained that low year-end inventories will be replenished with larger crops in the first half, causing shipments, sales, and EBITDA to be weighted to the second half of the year. The guidance reflects increased volumes, lower selling prices due to larger crops, and consequently higher gross margins. Regarding cash flow, the company anticipates a more normalized purchasing cycle and continued disciplined working capital management, noting they were cash generative before working capital changes, which highlights improved operating performance.

Patrick Fitzgerald of Baird asked for the inventory volume change year-over-year, the expected impact of El Nino on worldwide tobacco volumes, a rule of thumb for cash taxes, and whether more below-market debt repurchases were being considered.

Answer

CFO Flavia Landsberg stated inventory volumes are similar to slightly lower than last year, with the value increase driven by price. CEO J. Sikkel added that uncommitted inventory is very low. He estimated El Nino reduced tobacco volumes by about 160,000 tonnes in their operating markets. For cash taxes, Landsberg pointed to the historical range of 21-25%. Regarding debt, she confirmed they always look for opportunities but have nothing to announce.

Asked about inventory volumes compared to last year, the expected impact of El Nino on worldwide tobacco volumes, a rule of thumb for cash taxes, and whether more below-market debt repurchases are being considered.

Answer

Inventory volumes are similar to or slightly lower than last year, but the value is higher due to increased prices; uncommitted inventory is very low. El Nino has caused a significant reduction in tobacco volumes (~160,000 tonnes) in their key operating markets. Historically, cash taxes have been in the 21-25% range. The company is always looking for opportunities for debt repurchases but has nothing to announce currently.

Patrick John Fitzgerald sought clarification on the expected borrowings on the revolver by year-end and the free cash flow outlook for 2025. He also asked about the financing for the proposed MRMC acquisition and how it would impact MMLP's debt structure and future cash distributions.

Answer

Executive Sharon Taylor estimated year-end revolver borrowings would be between $55 million and $60 million and confirmed that 2025 free cash flow should improve, projecting a figure around $30 million. She clarified that MMLP's capital structure will not change post-transaction, MMLP is not borrowing to finance the deal, and any future distributions would go to MRMC as the sole unitholder, subject to existing debt covenants.

Asked about the expected returns from the new fertilizer storage investment and for a detailed breakdown of the ELSA project's financial ramp-up, including future EBITDA, remaining CapEx, and cash contributions.

Answer

The fertilizer investment is expected to generate an additional $600k-$800k in EBITDA, starting in Q4. The ELSA project will generate revenue from three streams: a recurring ~$900k quarterly reservation fee starting in Q4, a processing fee that ramps with sales, and a share of venture profits ramping in H2 2025. The total investment is $26-27M, with ~$3M in CapEx remaining.