Q3 2020 Earnings Call
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Good day, ladies and gentlemen, and welcome to todays Pyxis International Inc. fiscal year, 2023rd quarter results call.
This time, all participants are in listen only mode.
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As a reminder, this call is being recorded I would now like to hand things over to Mr. Joel Thomas. Please go ahead Sir.
Thank you Im sure.
What do the she Danish Pieter Sikkel culture, that's true projected Wall Street Journal the board of directors for goodness stretching the natural judge.
I would like to cover a few points.
Yes. Your statements during the course sheepish coal exports you believe expectations pictures walls. There's no historical facts you Shouldnt you are forward looking and involve a number of course chinchillas. Each did they call. It's actually a bunch of adults to become a true when these forward looking statements you switched on children's you're welcome.
The truth published treatment. If he did you know partially destroyed in more detail along with other which I'm sure. There's no problems with the actually she is putting out much wishes form 10 gig.
Okay do you update these forward looking statements made on this conference call before we treat your managements expectations.
Changing assumptions for she'll come churches, how much do street that you're finished.
Included in our call today, maybe disruption, but non-GAAP financial measure much CPT earnings before interest taxes, depreciation and amortization fundamental so to what.
Adjusted EBITDA. It at all there are huge results of operations under generally accepted accounting principles and you're not each stage. It should not be construed as originally told me to do U.S. GAAP measurements.
Including a work and show you should note, but I'd be disclosures regarding these non-GAAP financial measures, which included would only Childers issue.
So today.
Which is available on our website at www dot fiction stopped home I mean, we bought the replay we bought Josh friendship, whether we production about this tropical visible we publish body parts that you should their national there's not been authorized it is strictly prohibited investors should be aware of it any unauthorized reproduction of this part.
This call may not be it accurately watching other salt tonnage.
Cool or would it be.
Good evening, everyone and thank you for joining us two years into a one Tamara initiative, we've made significant operational progress against our strategy to transform the business.
This nice dampening the products spanning more than five different categories fixes as well on its Paul it's become a pretty diversified agricultural technology and consumer products goods company.
Brookfield about business segments.
Strongly believed that our commitment to transparency sustainability quality and growth based on market demand will position us as a stronger company prepared to meet the requirements at the international market.
If you look towards our capital structure, we continue to evaluate and develop the plans for potential partial monetization of interests and subsidiaries in the other products and services segment and to address the company's long term debt maturing in patent that 20 to 21.
Our target is to achieve run rate positive adjusted EBITDA Guy across our global specialty products Division during fiscal 2021.
Well at least business continues to focus on enhancing efficiency and growing market share.
Well my volumes were down compared to the same culture. In 2019. These results were largely driven by timing in shipments and a delay in processing in Africa.
We are encouraged I signed agreements with customers in Argentina in Pennsylvania, which further position us a strategic partners on a global basis.
Additionally, we remain focused on reducing uncommitted inventory it doesn't have the upper end about stated range from 5200 $50 million.
North American region continues to be impacted by trade disputes what were pleased to tobacco is included on the list of agricultural products in phase one of the U.S., China trade agreement additional steps I needed to restart the textbooks from the United States to China. We're also closely monitoring development.
Aspect to the Corona virus.
Well I fourth fiscal quarter has historically being the strongest revenue pull through the fiscal years.
We anticipate that to be so again this fiscal year due to these another uncertainties that may impact results for the fourth quarter, we're not in a position to update our previously issued guidance for the current fiscal year and a with doing that guidance elsewhere.
Back to revenues and adjusted EBITDA.
Hey, Good brand think wholly owned in direct subsidiary so that it's strategic growth in terms of capacity expansion product innovation and geographic expansion during the quarter because it kind of kind of its market response to a slower than expected rollout of retail availability in Canada.
However, with leads the market is continuing to grow.
They just estimates from health, Canada showed the legal kinda bus market grew to approximately 135.75 million Canadian dollars.
In November 2019, bringing it to an annual run rate of over 1.6 billion Canadian saw those one yet into legalization.
I guess has continued to maintain strong market share in the provinces in which it up right I'll pick as market shares being impacted impacted by price compression in market due to its position as a premium brand it plans to maintain price discipline and growth rate by shifting product mix to higher margin products through innovation.
I got launched in the unfair market on December the fit.
I was oil and pre roles and released its THC bike products on January 17.
Following the initial pushing to Ontario, we ship like products to New Brunswick, and Nova Scotia, and then I lined up to Salt Lake products and old province, as it is legal.
We're excited that over the weekend, Alberta announced that it is now except things like products.
Well the rapidly expanding footprint of 341 stores.
That's a has the most extension retail footprint in the country recurrent you're going through the process of obtaining the necessary approvals to sell product that.
Across country expansion is supported by the growth of fixed operational footprint.
Hey, Good has recently increased its footprint to approximate 250000 square feet and print said would island and Ontario wouldn't potential capacity of up to 30000 kilograms per year.
In the near term and following the completion of its P.I. facility expansion and approvals from health, Canada. They got will operate approximately 350000 square feet across both locations that potential capacity of up to.
Up to me 45000 kilograms per year.
We're continuing to build a portfolio of CBD brands, each of which is being developed to meet the unique needs like distinct consumer segments.
But I predict can see joint venture released its first set of current combination packs. We were pleased to the current cooling lindemann, we see the Twentytwenty That's top Gold award from and business magazine on January Thirtyth.
Oh juice code is also developing its on seem to be line, which we expect to roll out to market in the first half of fiscal 21.
Actually find the receipt of its industrial have license from health, Canada. They got successfully contract isn't harvested industrial head and it's become extract think cannabinoid oil from the CRO.
It's kinda team continues to expand its extraction capacity to meet growing consumer demand for quality traceable seem to be product by the end of the first quarter fiscal plenty one can see expects to complete its parent expansion product.
Well object and triplets extraction capability.
Yes. It can see also expects to receive GMP kosher and organic certification by the end of the fiscal year.
Essential components of our commitment to quality products and international expansion efforts.
Throughout Pyxis Agriculture U.S. affiliate.
We have purchased approximately 760000 pounds of industrial had this fiscal year.
We believe Texas is well positioned in the evolving nicotine E liquid regulatory environment as we have been anticipating and planning for since the establishment of our first E liquid joint venture in 2014.
During the September 2019, vaping illness crisis, which we suspect that you took back market products. The industry was impacted by fast moving misinformation about the on the says.
Government restriction on access to products in general consumer confusion.
Yes, the guidance for at least in January was a positive step forward in addressing these issues, we hope future regulation will strengthen consumer confidence in the category.
In fact, following an additional Mitchell drop in sales in September 2019, internal projections for purely I'm humbled and Benson are anticipated to grow.
During the filing an acceptance that may 2020, premarket tobacco product application.
He M.T. a significant.
If the industry evolves, we will continue to hold ourselves to the highest and that and accountable to our maxing commitment that include specific measures to help ensure we I'm off saying two legal age consumers.
Our value added agricultural products Division is continuing to advance peptide sunflower and round out the initiatives and Opexas agriculture, Tanzania subsidiary is proceeding with plans to bring it consumer products market in fiscal 21.
Since the launch of I want Tomorrow strategy two years ago, we had benefited from the progress of our diversification strategy innovation efforts and global presence as we execute against that plan. We are committed to building a stronger fixes for our shareholders as well as employees contracts in pharma is and the communities and potentially up right.
With that let me hand back to John Thank you Peter.
Looking at the quarter ended December 31st 2019, chills, another property revenues decreased audit and $61.2 billion to $363.3 million.
Paired with the same quarter last year.
Chris was driven by a decrease in bonds with an average sales price.
Crystal ball game is attributable to flue cured oversupply conditions, the timing of shipments in the leaf other regions settlement in Africa, and Asia, We've talked of Hurricane Florence, reducing the part of your U.S. club size, it's impacted carrier for shipments as well as for charge offs and yes, tobacco, but do you believe North America segment.
Volumes.
Personnel that shells class, that's driven by believe other regions segment caught knows how big a lower concentration of long enough in South America.
Cost of goods sold decreased 31.5% $308.1 million for the quarter when compared to the same period last year. The decrease was mainly due to decreased the least north America elite other regions segments shales, but other operating revenues.
Verbal foreign currency exchange rate fluctuations in the leaf other regions segment, resulting in lower lease bomb material prices Africa in South America.
Gross profit as a percentage of sales improved the 15.2% this year compared to 14.2% wash year increase was driven by favorable foreign currency exchange rate fluctuations in the leave other region segment, resulting in lower lease raw material prices spit out bucket in South America.
This increase was partially offset by higher lease North America at least other region conversion costs due to lower volumes.
Selling general and administrative expense increased $4.2 billion to $45.9 million for the quarter.
<unk> superior last year. This increase was primarily related to branding marketing and advertising expense to support growth figure cannabinoid boy and costs incurred to evaluate developed plans for the central partial monetization.
Trust and subsidiaries and other products and services segment.
Increases were partially offset by current your savings due to restructuring initiatives and acted in the least North America segment in the per year.
Income tax expense decreased $18.3 billion to 900000 dollar benefit for the quarter when compared to the shape period last year. The decrease was mainly due to the change in the effective tax rate.
Well, it's a certain discrete items during the quarter for sure.
The company's liquidity requirements for affected by various factors, including cross seasonality for coach and interest rates, we alco process customer lunch crop size and quality branding marketing and advertising support new business lines increased legal and professional costs associated with developing plans for central partial monetization.
It should have interest in certain subsidiaries and extended the timing of facility expansions.
December 31st 2019 are available credit lunch and cash totaled $396.4 million. The company will continue to monitor what's available just funding choices as needed to enhancing drug various business opportunities.
Turning to flexibility.
Cost expectations.
We look forward to continues to execute a good sharply on building a stronger purchase we're focused on delivering enhanced value for our shareholders as well as our employees are contracted followers and the comedians which we all agree.
Operator, please open the loan for questions at this time.
Thank you, Sir ladies and gentlemen, if you'd have a question. Please press star one on your telephone keypad.
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All three chocolate.
Again, sorry, one for questions first up.
Wells Fargo Securities.
[noise], Thanks for your time and good afternoon.
Probably good afternoon.
I. My first question as you know you mentioned a couple of agreements. Yeah. You had an announcement to announcement last week, and then you're talking about the Argentina and cancer.
Any a agreements I was wondering if you could describe our or give us trying to deal with the economic impact is Argentina, Tanzania as was the announcements with smaller and a turning point in France.
Yeah show Us as we look at the tobacco related agreements what it does this continues the strategy.
That we've been talking about which is to look at opportunities in very short engines that will allow us to continue to grow market share take costs out of the supply chain enhance our ability to deliver the most effective solution for our customers and that's exactly what those do we haven't really put any dollars you already about that we put out publicly but know that anyway.
Yeah, we're hoping to provide long term viability.
But even those markets you can take costs out and pick up additional volumes. So it's going to do all the above.
As it relates to the called tranche.
Schools to do a smallish and back pretty boyfriends.
Those help to split the cost shot related to the PMP process.
And show the good news there is that you can tell from the agreements that have been reach that you know we have a market leaders that we're working with them, but theres commonality across PMT platform that allows us to work together and again gene pick those costs in great you would wish them Bush's anyone player.
Having to handle all the cost themselves.
Hi, I'm an extra overdose.
Oh I'm sorry go ahead.
Yeah, I think just add to that.
Just I can say I mean, I think we're really excited about that.
E liquid or pedigree and the regulation that's a.
Being put into place a you know combining our capabilities are extending a supply contracts, having additional distribution into the market and when you really think about what is guides that and see the despite the market post made itself next year I think we'll see a considerable contraction in the number of brand.
In the marketplace.
Which gets us obviously very significant opportunities.
To grow.
The brands that we already have out that and really <unk> expansion et cetera, right they growth and the profitability of that part of our of our of our business.
Great next you all talked about market share losses, I guess, what the price compression is taking place answers.
Considerable inventory available in certain markets.
You know can you talk about how your shares holding up another Scotia, New Brunswick P. Guy.
As well as Ontario, including the 2.0 products and in light of.
What's going on.
In terms of price compression.
I think over what we're seeing up that Brian that sat and says that the existing products and really think about one point other than a marketshare really vary from week to week.
It really depends according to when one LP or another LP is a essentially relieving themselves have a sudden inventory that haven't met for the Buffalo costs product into the marketplace. Then you had good that there are some instant consumer uptake we lose share that we.
And then the following week, we go back up again when when when they are the product is not available again on this on the shelves. Then if you really think about it that these stores.
And who are getting affects the pretty commissioner or add on top of the products is actually not particularly beneficial for the retail outlets or the other selling that.
But figure was always a grand a for the for the long, but it it's it set itself out and as a as a premium high quality product that's exactly what we've done in terms of the build out of the facilities and equipment and everything else and now with the expansion that we have we really.
<unk> starting to see acceleration in distribution across the country.
And then then talking about the to find out products launched in ER, and Ontario, obviously with delivered last week they'll say to.
You.
New Brunswick, Nova Scotia.
And initial reviews, a initial sell through its looking a very positive I would say that were not releasing a specific numbers I think pricing of the product looks good versus the competition.
Although it's a it's still a a nice high margin products in the marketplace.
And were really looking forward to acceleration that product went up the exciting things, particularly with the Ticketmaster right.
Yeah, It's a I think trigger is the the only company that launched its proprietary kind of razor blade model device others of working on on another platform without.
Attacks and Ah right now the reviews I think that this housing to sell through is looking very positive that.
And to and now with how better to just having announced a on Friday night Lastly that said they are now willing having studied the situation to ER launch baking products and that province as well.
We already are excited and looking forward to gang and gather getting products and retail lab and now that you're as well as well as a and then the in that in the near term when looking forward to launches a in British Columbia, So all in all.
With the products and that's it's and somebody loses a little bit of the the.
And said the we have waited where we're excited about launches were excited about the first harvests coming off the new facility. We're excited by the products we have in the marketplace as a very rapid expansion guy on up there and then yeah. It's just a question now how quickly.
Uh Huh, we can et cetera, right a themselves into volumes and the products that we have a out across the whole country.
That's a sea change on the pricing in the marketplace and how alters your outlook for profitability, our long term margin out of the figure.
<unk>.
What about a week, we always expected that they would be seven price compression and other price players in the marketplace.
We have now tell the killer product LPTA they'll pay.
And Ah and when really and tend to focus on on the premium.
Brand the premium products the premium qualities and then they add value added products that.
We believe that figure is uniquely positioned to put that in the marketplace. You may have seen many other companies delay their launches a figure is out in the marketplace on time and as excited to start.
Getting reorders, but also to AXT extended range as the figure family Vaping products it will be a rolling out across the <unk>.
All right and then my my My last question is when you look at the volume declines I was wondering if you could dig into it a little bit more have you all lost any share or with any your customers. You know is this a timing issue and then lastly can you describe how and overseas.
Plywood lead to a sales decline and the flue cured business.
But I mean, I think that the best way you can compare outperformance is to really look at a other players in the marketplace that also published results in terms of leaf tobacco are you looking across three quarters and you look at the decline across the Street Cortez. It's the I'd said I think so in summary.
Specs.
With that were slightly better off I think has the vast majority of risk as there is a is a is a timing issue and I think I also described in the into last call that we had that in Africa, because of the power cuts and because of the.
Or whether it was a late start in the late processing season.
In fact, we did complete a processing in time, but the whole market has to complete that.
So in some ways others have held us back in terms of shipping schedules for a full set in customer. So we see that at a moving over and that and shipments a you know it's not a very good comparison, obviously year on year, but at the same time, we just see those products moving up.
The quarter like to a then they did last year and deliberately and in South America I would say, we did make certain decisions in terms of purchasing the crop in comparison to the quality of the crop.
And we decided not to go a long and certain styles that we call. It would be slow moving out of the loss the Brazilian crop in particular, I think that turned out to be a good decision.
And that's giving us opportunities to sell a market product and from other.
Geographies that Oh, we'll also move a at the time, so absolutely not I wouldn't I would certainly not described that as a as a as a change in marketshare I strongly believe this that the announcements that we've had with grabbing market share I certainly in a in Argentina in Tanzania, but also in other geographies.
And.
Vast majority of what we're dealing with here is ER as time.
Right I mean, so maybe frame a vast majority or talk about 90% or closer to 100%.
Are we looking over a couple of quarters.
I will all be recouped and you'll get back to kind of a run rate you're at lasher.
Yeah. So.
That's part of what we've been trying to assess and right now it is timing, we just don't know exactly what the probably looks like and so that's the challenge we're pushing as hard as we can you know for this quarter, but no up for the fourth quarter, but well just stepper weve shown plays out I mean, the good news is the orders there we've got the tobacco and now it's just.
Debater matter of not you know I'm getting to sell team all the way through jump.
Great I'll hand, it off to somebody else. Thanks for your time and best of luck.
Our next question will come from Mary Gilbert Imperial capital.
Yes, a few questions here, so kind of following on Brian's question around the timing and that the vast majority is related to the timing and the delay in shipments coming out of Africa would you say that by the end of the first quarter. If we look at just the leaf tobacco segment could we get back to that sort of.
180 to 190.
LTM either today, you know maybe even at the lower end of the range 180, which is sort of what we are looking for could we get there by the end of March or by the end of June.
Oh, Yeah married we don't know exact timing right now and I think it's it's you know that Africa, and even as we talked about.
But I also think that North America plays in there we've got somebody pointed he's outside of North America as well, but that are that are going to Asia and no. So the the current challenges related to the CRADA virus and how that's affecting shipments into Asia as well shipments out of Asia on that.
That's one of the big drivers that we tried to.
Yes.
It was literally out our type assessment at this point, but we're pushing as hard as we can too. That's result, again to the full year and again, we just don't know the timing yet.
Got it so in other words, when we look at this fiscal year I get it that some of those shipments may push into the first quarter, but then the corona virus given that there are a number of shipments going into China.
Could impact.
Even the first quarter, just because we don't know what's going on with the crown. The virus is that fair to say.
I think that there are a lot of challenges in general no moving into Asia and out of Asia at this point and remember that there will be a catch up pipe effect that will be occurring globally. It won't be limited to just our industry and show there. There is a walk there are a lot.
Moving pieces no related to what will happen the trade flows globally and show that that's no I'm I think part of what we tried to evaluate and that considers we looked at and how we're going to talk about the later this year and going into next year.
Got it later.
When you really think about it we do whatever 100 hundreds stuff in China that role at home.
We initially expected them to come back to work, obviously, a week ago after Chinese new year have with delayed by the government for away.
And just on Friday was delayed by the government for another week.
And the people that we're dealing with it does to inspect and a.
Okay, and painted loaded and shipments moving out Oh, no pack away, so and we're hoping that takes place in the next week or so.
And then the same thing when you're when you're looking at having discussions and negotiations on on moving product and typically have from from the U.S. Its it it's really complex because we can't fly to China to have anything to make that isn't that make us final discussions events happen.
Oh, we get a current things on the way back will be in danger people in the country by having come up for make things that we've done on to do that so it's just a it's it it's very I've paid get them I know when things are we'll open up again and we can happens discussions to.
To get everything moving again and so the good good uses that we have lots of business backwards and forwards from a from from rest of world to Asia in from Asia into the rest of World. The Bad news is that we had lots of business because right now, it's just simply not very as exactly when that.
Product and.
Okay, and then can you give us an update or like a current metric in terms of cash and how much is outstanding in terms of notes payable see we're at 580 million at the end of the quarter and cash was at 72 million Hot and this is your biggest cash generating quarter can you give us.
An idea of what where that stands out as of today or Friday or whatever metric you have.
Yeah, So I think the but that's where to think about it is this is a big quarter for us and we have a lot of sales occurring and Asia is not the only part of the world that we have shows going into a coming out of a show I think generally speaking the quarters moving as we'd anticipated and yeah. We've got a lot of cash generation occurring.
Related to do those shell show things are moving very nicely, we actually were seeing shipments moving I'm going towards Asia. It's just a matter of what were they exactly look like what would the timing exactly be like and you know are there.
Certain words, you get held up you know for extended periods and so that's all part of <unk> no working through right now, but I think generally speaking rush the quarter on the shaping up pretty pretty nicely.
Okay, but you can't give us any specific metrics around those figures.
We haven't we haven't publish any other numbers, though.
Okay, and then Borderfree last quarter is going well orders going well and cash coming in from for the quarters. You know as expected a outside of these these pieces that are a little bit more difficult.
Uh huh.
Okay got it and then with regard to the oversupply conditions in few flue cured.
When will those be resolved and you know how will that continue to impact to going forward.
Not a couple more questions.
Okay, well I I think as we look forward, we're seeing smaller crop sizes coming up.
And South American Africa, but simply couldn't Burley.
And that's partly a weather related.
In a in Brazil, just one state we have ended the so in one area that that's causing a reduction but uh huh [laughter], obviously, we have for a better quality crop and the opportunity to make up on some of the Oh it seems that.
They're not available in the past yeah, but obviously also then you have.
The crops. We also have the opportunity to move product that's an inventory.
The customers as well.
So that there is already but we're seeing in terms of of volumes.
And the adjustment being made to and I I wouldn't even told US a dramatic oversupply in terms of flip chip product, it's more in certain styles than today's and in total.
Volume as a whole and market is changing a little bit.
I think the most important thing is to.
Grow and purchase Snow Lake.
And meet the a developing customer needs as as we got full with them and that has more of the what we do and that's what we what we had them and they are in and in this years, though.
Okay, and then I have a two or three pronged last question. One is with regard to figure and of course the metrics that you provided.
250000 capacity and a fit for 30000 Ram and so I wondered and of course, you talked about that you haven't really sold Hello, [laughter] I guess, a certain you know price per gram.
So in other words are you able to reach a one reach positive run rate EBITDA <unk> by the end of March which you previously guided to for figure.
And then number two within figure and we look at these metrics you provided.
Is that in for using more conservative, let's say four to $5 per gram. So not factoring in the benefit of the higher margin product that cannabis 2.0, but even that <unk> revenues.
Come in around let's say 100 million U.S. dollars I need to be like 28 million is that possible in fiscal 2001, not even factoring in the incremental 80000 square foot.
That is currently awaiting health, Canada approval, there's that and then also around the partial monetization.
We're where do we stand with regard to that process and how will the company addressed the upcoming maturities. Thank you.
Yeah, sure well Mary maybe to pick up the first part is.
That's a series of questions first show you know as we as we look at.
This is in Canada is progressing very nicely.
Peter talked some about sort of the challenges related to certain they'll piece to that no produced lower quality and have have higher levels of it.
Some of that the pressure that that's put on the market, but again. It comes in is it ebbs and flows and she'll each day, it very disciplined with more of a premium position and and so it's worked generally pretty well for us but people know products have been very well received and we'll continue to see expansion of those and those have a higher margin to show.
A shared with them.
Does the pretty well products in several of the oils as you move into a flower and there are different quality levels and in places like under more pressure. So we will start to talk more about short as a blended or selling price per gram and.
We will look as that business.
Continues to grow to provide some mobile guidance as to exactly where we think we're gonna be.
But I think right now the business is growing nicely. We've got the additional capacity that we needed. It we've got the rollout of the new products and no also working on our innovation pipeline right now related to that Shen products are and what will be 3.0 actually for us.
So or continuation of people that will show it anyway, we're doing all that right now and that will all get layered into the timing of when that business luge to you could be positive.
With the full broad Oh.
Gosh a sheet allocation.
Well from corporate as well and show a chilled anyway. We're we're in the middle of are important to do that now and what we have stated is that we believe this one but no we will.
Turning that corner the timing of that though at this point I think it's it's a little bit early for us to try to nail that down but.
The good news is that you know we should I think a lot of the March weighted build out the rollout into other provinces in Canada, we should be all the way across Canada by the end of March they'd be one province.
Descriptions of the April.
And again that last.
Just under 100000 square feet that we've completed construction on and we're just waiting for the license extension.
He wishes so they generally speaking in very good shape and they've executed pretty closely to what we laid out but we're going to do it there.
Okay, but can't confirm those those metrics.
Hundred million of revenues and EBITDA I, yeah, we've not given when you're not giving guidance related to 21 and again, we will you look in the provide guidance related to the tobacco business.
And and all other businesses as well when we announce or you're in members that we would do.
Okay, and then with regard to the partial monetization is that it ongoing this fight the deterioration that we've seen in enterprise values for cannabis companies.
And then yes.
It is and I think yes, we've talked about before some of the market pressures are these machines on the valuations of the public companies no relate to very heavy valuations that no. One place there called 912 months ago. The market has been adjusting.
You are looking more to no cash flow and then work Cashable will be on Submarket works out you know your from now I'd figure and a half from now and so that's where they're going to EBITDA positive yeah. There are appealing stoppage.
Kind of what I'd call second tier L. piece that are now you can be a positive on there are a bunch of the larger all pieces that are not even be positive and then you can see them aggressively cutting as she at age said basically but even on the cost have been sold side documentation in facilities are decommissioning facilities as they're trying.
They get their cost structure right.
No. The good news for US is that we have built oh footprint in Canada appropriately and the production that we have shipped porch. The sales rose expectations that we have a for the various you know provinces that we're currently in and the ones that were expanding into as well so we.
We are very well position based on the size of our operation.
And have not over though have not use capital in ways that Tom would be outside of what the market can support show I, we feel very good a dollar strategy plan that we just need to continue to execute on it and it should deliver nicely.
Okay. Thank you.
Martin Sen from Jefferies is up now.
Good afternoon.
I was just looking at the.
I think are for your business and I was wondering how how is that we are seeing the topline constrained.
Just the timing aspects.
Okay.
Certainly the potential there, but I'm just not seeing it translates into the numbers or is there a timing aspect that we just a hurdle that we need to get over here.
Yeah, It's it's definitely tiring crew show our first crop in the in the expanded the shorting MPCI is occurring right now.
It is a great looking crop.
And you know when you think about some of the the less than flattering stores that you've heard related to.
Other facility expansions in the Canadian market place.
Ours, just on and not come here to the table here has gone very well and I'm not facility. You know has been loading in over the last.
What the Hell and a it again, we have the beginning of the first of all the starting to occur and Acropolis <unk> looks fantastic show you're going to start the she the revenue from that additional space starts to come through as we look at the fourth quarter, which is what we laid out.
Earlier in the year.
And were largely on track to start to see that come through show up as a crop is being harvested at all.
Through the process that it needs to go through to handle the prime and packaged and Ah indoor into next Gen products and and then get those on the shelf and get them.
I was getting getting them told through I think the other timing issue or is that we were probably started off in Nova Scotia in print Shutterfly. When we were not able to your expanded it runs what's your recently and a and then Ontario is the market that we just said if you're a few weeks ago.
And on shouldn't really having no. She is the biggest market in Canada and central for startup startup door numbers that not only do we come in with the one Porto products in that market, but the 2.0 products were very well embraced by the consumer and that we should start to see that reported fourth quarter numbers and just to add to that.
I've got I guess, you're looking at the other products and services revenue for quarter three.
And obviously they figured numbers.
We then that so are we on the launch the a vacant products on January 17.
<unk>, but what what you do have the effect of for the for the three months. Obviously, we're up my 50% error on yeah in terms of of of revenues from it to the division quarter three you've seen some of the effect of the a volley vaping issue in the United States that effect temporary.
Affected sales of that as we are going through the crisis or that's what's taking that number down for the third quarter and as I mentioned earlier, <unk>, where they were saying and expecting a considerable progress in that segment as we got it through the P.M.T.A. process and I think we're we're already starting to see that as as as retailers.
Distributors are aware of become aware of.
Going through the P.M.P. a process that he's got the signs who's done the best group of companies working together to ensure that as I can get through that process do things right then and be on the market post made to talk next year, starting to see more exciting more and more excitement <unk> regarding.
Opera ends and we fully expect to see <unk> in those like the products are coming.
As we move forward.
Okay and so.
To boil that that we should see fourth quarter revenues up in that other products category correct.
Yeah.
Okay.
And there was I thought there was a a line there there was oh a little bit.
Confusing you just you would adjust funding sources as needed.
To ensure liquidity.
What does that translate into what you guys can actually do and giving your liquidity that you have today, you know where do you see your knee dee.
[noise], Yeah shall we have just under $400 million or the cash available credit launched all those fluctuating. She know we'd go you know <unk> very walk was there should remember in addition to that career, we have no. The securitization vehicles that were <unk> and show you know when you think about <unk> manage funding source.
Since you look to match off on your duration and at the same time try to minimize your costs, especially can so that's really what we're referring to you know when we when we talk about how we think proof are very supportive in shorts is a lot when you realize you one.
Okay, Lastly, I've done a great job for for many years getting your uncommitted inventories down to the bottom into the range you know, what's what's driving them back to two at the top and now and how quickly do you think you can get them back.
I I I actually think we've done pretty good job competitive marketplace in terms of those I think the biggest things. It's is related to the U.S., China trade deal and getting that.
Getting the final stages of that put into place and getting products moving in there and then yeah, you'll see let's see that.
Moving down rapidly so in general, we're actually pretty blase, where we are waiting stretch it out buying programs around the world.
Two and Chill, we went pulled up with with a significant inventory issue. So we see we we've got good nine aside and a into a when we're going with that and generally pretty positive that we'll we'll see that.
Moved down pretty rapidly.
Alright, thanks, very much guys appreciate it.
The next question will come from Hail Barclay.
Hi, Thanks for taking the call a a couple of <unk>.
What do possible for you to sort of segregate out how much is at risk.
The fourth core.
In terms of China sales [laughter] related to the ability to just move product can them out in a country I just don't have a good sense with seasonally how much of a fourth quarter that makes up or or or over the next six months.
So we can put a contacts around.
Yeah. So hell, we we we definitely spent a lot of time working at that and go to the extent that that that we could have been more precise <unk> definitely like to have been more precise but there are a lot of moving pieces you're right. It's it's not limited just to one country and you know related to the the challenges.
Why is just created and and show you know, we're we're having to I think the Istanbul as possible a lot of what we think we can do for the remainder we should again, we believe it or you know in timing issues. We've got to yours, we got the product product is needed.
And I'm sure. It just comes out of the timing and and try to put to try to quantify white males. Right. This ball. That's that's why we taking the position.
<unk>.
Sure I mean, you guys probably have stuff on boats to China now so I just it sits on the boat or in the port and told us cleared and sewn onto your customers in China and then it's the time you should come back to you or are they these posts being redirected elsewhere.
We have products on on boats to China, and then we're always happy when it gets on a boat.
So we expect the unloaded the other so.
The question comes I mean, we we are I think export it from China, and other Asian countries as well as excel up to them. So you know level need to try it moves both like and so what we what we what we got to see is a also the the export leaving.
And I think that's where you've also got to have a you know it's a good luck they can spend vessels needs China not loaded that means they don't go wherever there's estimation is which means that I'd pick up.
Going back and the other way again as well so there's a lot of on site and they you know whether we our company or any company has to 60, when you're moving log scale agricultural products around.
<unk>, where they where they will be whether that arrived.
In order to pick up nodes are not so that that is.
That is that that is why we all but but right now.
Yes, we we we we still see incident geography, you know products thing.
But questionnaires does the next year arrive and does it make ship arrive.
And it you know we live sat around and come back pick up another light or not and and and that as well yeah. We're on setting off at this point.
Got and then.
And the the application you made.
For each liquids in the U.S. for me.
Once you submit that in it gets approved by May have the following year, what can use only interim.
Business as usual sure continuing and not expands which you can do or how long.
As long as we have a a an approved and accepted P.M.T.A. on maybe <unk>.
And the products that we have in the market and continue in the market.
The flavor and <unk> and I that is exactly what we and and and the other companies are what I've working to achieve that isn't very good program in science based program around.
That they paid and eventually almost working on that since 2004 being when we got into this business and.
We do see at <unk> very significant change in in the marketplace post made itself because products that don't have an accepted P.M.C.A.
Will not be allowed to stay on the market place and products that have.
I have not submitted an application will not leave.
Saying they in the market likes and actually then me to go through a whole different never live authorization didn't notice to get into the market life. So I think that that that's a it's a very significant bait and on they're moving forwards and the menu.
I see it on we've always said regulation is a good thing and that's what we've been working too and they have we're excited about the opportunities that will will come out of it.
[noise] Great and then my last question is with the expansion of of your products for a 2.0 the other other provinces.
Yes, there unexpected S. increase machine I know Canada's fairly limited on what you can market, but should we also expect a trip putting marketing dollars behind those products that you get to new.
New regions.
There there will be marketing dollars related to you know entry into additional provinces remember <unk>, she kind of pointed out.
That that that it's very limited as to what you can do in in in these markets.
So.
No one of the good news is just no part of the news is that we've developed and strong team that is helping to manage the business in Canada, we're now going to be able to leverage those pitch cause further, but there will be sure nickel metal spending that won't be required as women do additional college.
But but it should be very measured with the revenue profitability increases and <unk> will be as baffles possible begrudge now and and each province is different you sells the boards, but then they they shops, a a private old government, depending on the province in which you're in so you have <unk>.
In the in the broken so they have more private retail, they're they're getting distribution from both or you'd that direct <unk>. Two then but so through the book.
And then it's a question of how many people a a fee you put on the ground to go and visit each still to ensure that yeah, well. This flight and so on so that really is a is a variable depending on how many shops, you're in and how much product you moving so I I I think it's very much too too too Bland then.
This one rather than than putting S.G.N., yeah free he getting product into the marketplace. This time, along with with saddles that deal making.
A lot of the spend on you know and corruption in installing merchandise from a lot of that you know.
She's universal get tree across the country show you know once you start the dollars and it's just a matter of the will show.
Oh God. Thank you so much.
Yeah.
Manage independent credit restarts.
Good afternoon, and thanks for taking my questions.
Just to.
<unk>, China have you been mostly affected by Youre limited ability to shoot products to China or from China.
Curious I'm not sure if I understand this.
Yeah, so as it relates to the fourth quarter. It. It is both we we are a a pretty good size fire of attorneys tobacco to be sold abroad. And then we have a number of origins that are selling tobacco destined for for China <unk> combination of both.
Well into the third quarter last year you assault.
106 million kulas, and the rest of the world, which was probably an aberration normalized level.
Four previous years has been like 86, 87, maybe I'm in the rest of the world.
So you know I think that's.
China has not been China was not in a sort of explanation for the third quarter volume decline obvious. So my question is I've always thought that sort of your customers have predetermined dimmock of tobacco Oh specific brands to be delivered at certain to certain places right.
And you know this amounts don't really depend on the U.R. on some crops condition and weather conditions.
See if a cure it because you can offset sound, whether sort of deficiencies by your inventory off which brand of tobacco right. That's yours for the volume.
And so you know I'm not sure if I understand why what a conditions have something to do with the volume so if tobacco to deliver.
Especially in the rest of the world, which is the largest.
Sort of size with fewer revenue.
Tobacco right, Yeah sure sure sure Sharon Sharon a couple things warn you remember that we can have the differences your rear related to any particular quarter.
When product ships from the shapes are about the market and show whether time and you know 10 affect the economy with one Acropolis made it do processing it can be inspected by anywhere from.
Three to six weeks 234, or five six weeks and show depending on where that that pining is related to a quarter and it can definitely affect you know a quarter also product makes if you have more lamina versus you know more byproduct supply products typically are going to have a a lower shells price.
Margins associated with them mugging percentage, but we've done much lower you know shells value.
<unk>, they're moving more women in one year versus more byproducts and another that also have an effect.
And show. These are all factors that you know, we try to outline and and and make sure that the leader of the financials. You know has a a good understanding of you know what's changed your ear on I think the last point that I would make is that.
You can look at an individual quarter of try compared to a par you're corridor, which you know we do.
But it it really comes down to you know if you look at any you know trailing pull my period of time you know how many you know you know kilos of your soul and you know generally speaking if we look across the last you know probably five years five six years, we've been you know somewhere between 370 million and.
400 million no kilos of full sort as volume and you know we over the last few years been able to grow that incrementally some and and show you know we're we've been very focused on continuing to try to do that and this year is no different show were working through the challenges that we described.
And and again, you know believe it's largely telling me.
Oh, that's very helpful. Actually I was mainly concerned about the fact that habit was the first quarter.
With a combination of declined both in being volumes and price per kilo.
First more than a long time, Simon I was curious whether you know that might be an indication of the down psycho in between the tobacco industry or.
Looks to me that this is.
More sort of a timing issue then then.
The reason why.
Described and that sort of lead out into my second question.
My second question is so you know if China is an issue in the forest quarter. Obviously, you will have some some issue generating cash from working capital in the forest quarter, you will have to more heavily and use your securitization facility and them by the end of the fiscal year. You know do think that you may have.
Some issues with your customers are benefiting because they won't be worrying about your credit for stuff.
Because the that phobic issue.
Yeah, I I you know what we are a high level company, we've done a high level company and and you know that that that's not change over time, I mean relative to what you know other than we continue no <unk> no work the the the <unk> no I have a focused plan to reduce our our long term that that is no more expensive.
And on that.
Over $100 million about more expensive long from that that you know we prepaid over the last couple of years and you know so that's that's the one component and I think we've now largely <unk> you know we let it out the you know the short term <unk> then you know typically have.
No cost versus our our longterm lunch now we use those you know for for working capital <unk> utilize our Securitizations and show you nothing's really changed related to sort of that strategy planning.
And you know we're going to continue to <unk> to you know consider you know what is the the the the best you know posh and then matching the ratio as well so none of that none of the actually change and I didn't know who undergo a customer based on what we've been able to this is I just mentioned a few minutes ago, we've been able to pick up incremental.
<unk> you know five years, you're you out and I think no we've had a a pretty good year. This year in the face you know some of these these various challenges related to timing and then you know now <unk> you know the corner of Irish and show well. We're we're I think in a very good position with a bit older brother, we have the tobacco.
And and then we got to do business, just growing you know nicely as well. So all of that comes together and we've just got a push as hard as we can be the fourth quarter and get the best results from game, where the fourth quarter or that we do have some volumes and sales it will push through the first quarter you know.
No. That's that's just the way it is and and we're you know I think it a position to just the one through that and and I'm sure. We'll just you know kind of have to see what happens over the next year, we cheer and how bad people get back in business, you know <unk> and.
You know look look for opportunities is is.
<unk>, there's we're moving an extra.
Underscore thank you very much.
Thank you.
Well not here.
<unk>.
Thank you good evening everybody.
Yeah and.
I wanted to continue on with the conversation about a month or nation and you think you're going to have to change how you structure that potential mind convention, maybe give up a greater percentage of the nontobacco businesses or change. He you do you work with maybe take from private equity or can you give us any other confidence as to how you can get that deal three.
You can end up with a low amount of money than anticipated given what happened with Canadian valuation.
For that put as different from I guess and at the level of confidence in getting that nonconventional completed the rubber incompetence of getting.
Refinanced <unk> bumping up on a deadline here and anything can help us.
Yeah. So yeah, there's we said before there's there's there's anything to talk with <unk> and we're going down sort of a multi channel process and that has not changed and and show off the way you know and she exactly what ultimately ends up looking like you know based off of market conditions.
And <unk> you know unfortunately, we're not a position to be able to roll back a whole lot more beyond what I've. Just described but you know we're we're obviously you know they're intended to what's going on the public markets and in particular in Canada today, and you know we're no values dawn in in in in where they are today.
Do it from.
And and show you know again, there's nothing off the table and you have a multi channel approach.
Okay, Okay, and then switching over to tobacco.
Stable environment can you still target that hundred and 50 to 170 million <unk> range for that for the tobacco business or is there a change.
Kind of the longer term.
Now for the tobacco doesn't that's kind of an a more stable.
Environment.
I think the the the tobacco a range and you know if you look where the numbers of them because we've got the tobacco business from the other segments and and you can see that is that at levels you know above that.
<unk>.
I think the you know we would anticipate that shame shorter of <unk> wasn't in the future.
And then if you look for this one that's not going business longer time, I guess I'm curious your your thoughts on and whether global and a three meeting with particularly lots of customer focused on non combustible offering for consumers like how're you conditioning business and do you need to to restructure further do you need to take out capacity.
He just comment kind of longer term deal on on the least disaster, several saying that combustible side of it happens.
The the beginning ages instead, if you look at a lot of the next Gen production you know that he's not going product for instance that are on the market various maybe doctors.
The good news is is that our Ah argh tobacco's, a ball material that goes into a lot of those products and a lot of those key products and then there are also other opportunities related to those products, where where all supplying and show at any rate you know if that segment continues to grow.
Provided opportunity because tracking Trish related to those products is is essential and you know we're one of a very small group.
<unk>, what's needed for those products, so she'd be great opportunities and look I mean, almost impossible saw there are markets that continue to grow like China and and so you know we stay focused on those markets, where there are no growth opportunities other to multiple sides and.
Closer with our customers to make sure they have what they need.
Right and then if you can just let me with the S.N.I.P.
As you look out the typical 21 <unk> should we keep it running at these these glamour will contain untypical 20.
And then we probably need an additional investment I can you help me think about the F.C.N.N. trams looking out 20 528 now.
Yeah, the machine, they should or should be coming in and and you know we've had a lot of different costa that is if.
You know as we've been you know upstanding relating to the new businesses and then also costs associated with impartial modernization a strategy and show a while they're all these certain proponents of of the new businesses, where will she you know some additional <unk> overall sort of illegal in professional another.
Things that we've had to spend money on Bush is starting to come in and show that the net impact you know loeffel that we're able to the windows machine. It costs since I was reading venture and we'll we'll provide again you know hopefully won't be the position to provide you know guidance as it relates to next year I, when we use an L.C. or in numbers.
<unk> Okay. Thank you. Thank you for your time I presented.
<unk>.
And every like Mad at all the time, we have for questions today on hand things back Tennessee.
So I clean your Mac.
Thank you for doing recall, but she made the call will mean available for play that.
Interested person through eight P.M. on Saturday February 15th.
For participating in a conference call.
Making some gentlemen that that's perfectly good news conference. Thank you off of your participation.
And.
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Yeah.
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Yeah.
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Oh.
Mm.
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