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Edited Transcript of PYX earnings conference call or presentation 11-Feb-19 10:30pm GMT

Q3 2019 Pyxus International Inc Earnings Call

MORRISVILLE Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Pyxus International Inc earnings conference call or presentation Monday, February 11, 2019 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* J. Pieter Sikkel

Pyxus International, Inc. - Chairman, President & CEO

* Joel L. Thomas

Pyxus International, Inc. - Executive VP & CFO

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Conference Call Participants

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* Ann Holden Gurkin

Davenport & Company LLC, Research Division - Research Analyst

* Bryan Cecil Hunt

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Karru Martinson

Jefferies LLC, Research Division - Analyst

* Mary Ross Gilbert

Imperial Capital, LLC, Research Division - MD of Institutional Research Group

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to today's Pyxus International Fiscal Year 2019 Third Quarter Results. (Operator Instructions). As a reminder, this call is being recorded. I would now like introduce your host for today's conference call, Joel Thomas, Chief Financial Officer. Mr. Thomas, you may begin your conference.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [2]

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Thank you, Stephanie. With me this evening is Pieter Sikkel, our President, Chief Executive Officer and Chairman of the Board of Directors; and Michael Shannon, Vice President and Treasurer.

Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement, included in our press release; and are described in more detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based.

Included in our call today may be discussion of non-GAAP financial measurements, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA, that are not measures of results of operations under Generally Accepted Accounting Principles in the United States, and should not be considered as an alternative to U.S. GAAP measurements. A table, including a reconciliation of and other disclosures regarding these non-GAAP financial measures is included with our earnings release issued today, which is available on our website at www.pyxusintl.com.

Any replay, rebroadcast, transcript or other reproduction of this conference call, other than the replay as provided by Pyxus International, has not been authorized 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. Now I'll hand the call over to Pieter Sikkel.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [3]

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Good evening, everyone, and thank you for joining us. Almost 1 year ago today, we revealed our One Tomorrow transformation plan and our renewed focus on innovating for the future, while honoring our strong heritage. Since that time, we have reshaped our brand, enhanced the leaf business and broadened our exposure to adjacent categories poised for tremendous growth. We've made significant strides in the buildup and development of our legal Canadian cannabis, industrial hemp and e-liquid lines, and we are continuing to invest the time and resources necessary to position them for growth in the coming years.

We believe the investments we're making now will further accelerate the growth rate across our higher-margin pedigrees and ultimately, provide long-term benefits for our customers, our employees and our shareholders. We're proud of where we've come from and we're confident in where we are going.

As we continue to drive progress against our strategic goals, providing greater transparency to our stakeholders is a top priority. Therefore, we have realigned the reporting segments to better reflect the new model, under which the business is being managed. Reportable segments now separate leaf and other products and services. We believe that this change in reporting structure enables greater insight into the advancements we are making across all of our businesses and we want to clearly convey our progress from quarter-to-quarter.

Turning now to performance. We closed out the third quarter with solid results. In fact, it was the strongest third quarter sales we've had in the last 4 fiscal years. Despite challenges we faced in the North American market, including Hurricane Florence and foreign tariffs on U.S. tobacco, the cultural and operational changes we're implementing in our leaf businesses are driving positive results. This quarter was also impacted by the restructuring and asset impairment charges related to the consolidation of our U.S. green tobacco processing operations as announced in November as well as an increase in SG&A, primarily attributable to investments in our start-up new business lines. Continued investment in talent, such as the hiring of FIGR Inc.'s new President, Harvey Carroll, and enhanced capabilities for these businesses will prove to be a significant driver of growth and a key factor in our ability to compete and grow market share.

As a result of the impact of Hurricane Florence, foreign tariffs on U.S. tobacco, increased export tax in Argentina and SG&A costs associated with our new start-up business lines, we now expect revenue to be in a range of approximately $1.8 billion to $1.9 billion, with adjusted EBITDA in a range of approximately $150 million to $160 million. However, as indicated in our guidance, we anticipate continued momentum in the fourth quarter, and we remain dedicated to delivering on our long-term financial commitments.

To that end, this was a monumental quarter for our Global Specialty Products lines. Starting with legal Canadian cannabis FIGR, our wholly-owned, indirect Canadian subsidiary, continues to capitalize on opportunities in the Canadian market, following the legalization of recreational cannabis on October 17, 2018.

At the end of December, FIGR had a combined share position of 13.3% in flowers, pre-rolls and oils and continues to execute its plans to expand market share beyond Prince Edward Island and Nova Scotia. First harvest at FIGR's Simcoe, Ontario facility, FIGR Norfolk, took place on February 4, 2019. And the facility's 800,000 square-foot expansion project is anticipated to begin this spring. FIGR East's expedited expansion is progressing in line with expectations as a new 165,000 square-foot greenhouse, and a 60,000 square-foot processing warehouse are expected to be completed in the spring, with Phase 2 of FIGR East's build-out, which will add an additional 88,000 square feet of greenhouse space expected to be fully functional in November. The expansion of both entities is targeted to bring FIGR's total annual production capacity to more than 100,000 kilograms. And we'll continue to focus on increasing yield and productivity going forward.

As we pursue opportunities to expand operations and gain market share throughout Canada and beyond, where legally permissible, we are deeply encouraged by FIGR's performance since October 17, and remain laser focused on its ongoing success.

Industrial hemp also had an impressive quarter with the Criticality's launch of Korent's new line of CBD oil and e-liquid products. The flavors for the current product lines were custom-designed in partnership with Purilum, LLC, a leading flavor manufacturer and Pyxus-affiliated company. Purilum products are available through e-commerce and a number of specialty channels and are quickly starting to gain distribution. With the passage of the 2018 Farm Bill and a robust pipeline of products, there is significant opportunity to accelerate Korent's momentum.

Our e-liquids category is also growing rapidly, which is indicated by double-digit year-on-year top line growth. Nicotine River and Humble Juice are continuing to reap the benefits from distributions and service levels as a result of moving into the new expanded facility, and Bantam will launch 72 new SKUs in the coming months, a testament to its brand innovation and ongoing potential.

Across all business lines, SENTRI remains a differentiator. We believe the consumers are going to, and should have high expectations of the quality of the products they purchase, where they come from and how sustainably they are grown. That's the kind of insight that SENTRI provides. SENTRI is available across many of our affiliates' product lines, including FIGR, Korent and Bantam. We're committed to providing the same level of visibility to all of our brands in the future.

Reflecting on the past year, we're proud of the progress we have made in delivering against our One Tomorrow strategic initiatives. We will continue to update you on our evolution as we work to transform people's lives so that together, we can grow a better world.

Now I'll ask Joel to speak to our performance for the third quarter of fiscal 2019. Joel?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [4]

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Thank you, Pieter. For the third quarter, total sales and other operating revenues increased 9.8% to $524.5 million versus last year's same quarter. This increase is primarily due to a 14.2% increase in volume attributable to larger crop sizes in Africa, partially offsetting this increase were delayed tobacco shipments from South America, lower volume in North America, attributable to Hurricane Florence, foreign tariffs on U.S. tobacco and a decrease in average sales price.

Cost of goods sold increased 11.3%, versus last year's third quarter to $449.8 million, mainly due to increased volumes. Gross profit as a percentage of sales decreased from 15.4% for the quarter last year to 14.2% this year. This decrease is primarily due to unfavorable changes in product mix in North America and South America, higher conversion cost in North America, due to Hurricane Florence and higher conversion cost in South America, attributable to crop size normalization.

SG&A for the third quarter increased $7.4 million to $41.7 million versus the same quarter last year. Our SG&A as a percentage of sales increased from 7.2% last year to 8% this year. These increases were primarily driven by the inclusion of new start-up business ventures in the current year, the increased cost associated with developing and supporting them.

The other products and services segment had SG&A cost of $9.6 million. Other income increased $7 million to $8 million for the 3 months ended December 31, 2018. Receipt of insurance proceeds from the fiscal 2016 fire in Zimbabwe drove this increase.

Restructuring and asset impairment charges of $1.7 million for the quarter were primarily related to a cost-saving and restructuring initiative to consolidate the company's U.S. green tobacco processing operations in Farmville, North Carolina, into the Wilson, North Carolina facility, and repurpose the Farmville facility for storage and special projects.

Additionally, we purchased $9.4 million of our existing senior secured second lien notes, due 2021, at a discount, resulting in debt retirement income of $1.3 million and a remaining face amount of $635.7 million.

For the 9 months ended December 31, 2018, when compared with the same period last year, total sales and other operating revenues increased 0.7% to $1,210.4 million. This increase was primarily due to a 5% increase in volume, attributable to larger crop sizes in Africa. Delayed tobacco shipments in South America, lower volume in North America, attributable to Hurricane Florence and foreign tariffs on U.S. tobacco and a decrease in average sales price partially offset this increase.

Cost of goods sold increased 1.4% from last year to $1,045 million for the 9 months ended December 31, 2018. This increase was primarily due to the increase in volume. Gross profit as a percentage of sales decreased from 14.3% last year to 13.7% this year. This decrease was primarily due to higher conversion costs in North America due to Hurricane Florence, unfavorable changes in product mix in South America and the exchange impact on local currency denominated costs, primarily in Europe.

SG&A, when compared to the same 9 months last year, increased 16.2% to $118.8 million. SG&A as a percentage of sales increased from 8.5% last year to 9.8% this year. These increases were primarily due to the inclusion of new start-up business ventures in the current year and increased costs associated with developing and supporting them. The other products and services segment had SG&A costs of $23.9 million.

Other income increased 36.4% from the same period last year to $13.5 million for the 9 months ended December 31, 2018. The receipt of final insurance proceeds from the fiscal 2016 fire in Zimbabwe drove this increase.

Restructuring and asset impairment charges of $3.5 million for the 9 months ended December 31, 2018, were primarily related to the restructuring initiative in North Carolina. Additionally, we purchased $27.3 million of existing senior secured second lien notes at a discount, resulting in debt retirement income of $1.8 million and a remaining face amount of $635.7 million.

Looking to the end of fiscal 2019 and beyond, we remain committed to improving profitability and efficiency and driving unprecedented growth across our operations. Now I'd like to turn the call back over to Pieter for some closing remarks.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [5]

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Thank you, Joel. As we look to close out fiscal 2019 with strong results and set ourselves up for a tremendous fiscal '20, we're encouraged by the opportunities available and our team's ability to execute. Building up this quarter's momentum in the leaf business and the continued progress we are seeing in each of the start-up new business lines, we expect a strong fourth quarter.

As we move forward, we are driven by our purpose of transforming lives so that we can grow a better world and we continue to explore additional value-added products that allow farmers to expand and diversify their income. We know that as we push Pyxus International to its fullest potential, we will drive value for our shareholders and continue to be a company we can all be proud to be a part of.

On that note, operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Mary Gilbert with Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [2]

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I had a couple of questions. One, with regard to the leaf business and the impact on the SG&A line associated with the startup, it sort of infers that in looking at the guidance of $150 million to $160 million that there is $36 million of SG&A expenses associated with the new businesses where we're not getting that revenue generation. So it infers that leaf EBITDA, if we didn't have the new businesses, but which we're very happy you do, would really be like $186 million to $196 million? Am I correct in thinking that? And then I just had a follow-up with regard to the disclosure that you provided regarding the new businesses, particular FIGR and the fact that you expect 100,000k -- or 100,000 grams of production and does that infer $500 million to well over $600 million in revenues once your, both FIGR East and Norfolk, are 100% up and running?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [3]

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Yes. I think on the first part of your question related to the impact that the SG&A costs are having from the new business versus the timing of the revenue and the profitability, you're exactly right. This is something that we talked about before but now that we've broken apart the pieces of business, you can see it more clearly. And I think this is one of the areas that we heard loud and clear from folks. And as these businesses now are starting to build very quickly, albeit, still in start-up phase, we've broken them apart and now you can start to see it a little bit better. So hopefully, that's going to be helpful. And then as it relates to where the Canadian business is going, our interstate right now at 1 million and 1 of square feet, with roughly a third of that being completed sometime this fall will -- with 2/3 still to come in Simcoe, once we get to the interstate about 18 to 24 months from now, will put us in a position to have 100,000 kilograms and where prices will be -- we'll kind of have to wait and see, but it looks very promising.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [4]

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Yes. So we're not crazy in thinking even -- again, depending on pricing, that maybe you can lower pricing, even though pricing is higher right now, you could get up to 500 million. And then finally, just on the leaf business, are there any concerns in terms of deliveries in Q4 coming out of Brazil, like Universal highlighted? Or that could move into Q1 of 2020? Or do you feel very good about the deliveries for Q4? And then I'll pass it on.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [5]

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I think, really, in this guidance, we've really extracted the multitude of the risks that we have in Q4. And other than unexpected storms, I really don't see an issue in the deliveries out of this quarter. Really, non-calling of vessels would be the biggest event, but we haven't really seen issues in terms of containers that we had last year and so forth. So at the moment, we're looking in good shape.

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Operator [6]

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Up next is Karru Martinson with Jefferies.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [7]

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Just looking at your EBITDA where we stand today, is it right to think about the upcoming quarter that you have the visibility in strength in tobacco business and the drag really is pretty much the other operations that are continuing to lose money near-term here?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [8]

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I think you better look at it -- we're, obviously, now reporting 3 segments, so we've got North America, we've got the rest of the world and then other products, so if you break apart those, you can clearly see the drag that North America is creating, both from the hurricane and the tariffs. We were hoping that we'd start to see certain export volumes move out as trade issues got resolved. But at this point in time, we don't think that those will happen in time for those shipments to take place. So those are really removed from this guidance. But you can really see the drag that North America's had on the globe. The Other Regions segment really is having a very good year. You can see very considerable growth in terms of sales, and we expect that to continue throughout the year. That's significantly driven by Africa, but in general, all regions are doing pretty well, including South America. And then yes, the other products and services, clearly, we're building those businesses, we're investing significantly behind it, both in terms of capital and branding and marketing, building the right team to take us into the future. And I think that's incredibly important for us to have the right talent behind those businesses and we believe we've achieved that. So our holdup is product and as we see these build-outs come online and, hopefully, Health Canada, in particular, will expedite the licensing of those build-outs, then very rapidly we see growth in product availability and we can build on the market share we've already gained in the limited areas that we're distributing product and brand at this stage and build those out into other areas. And just the initial capacity coming online is 15, 16 fold increase in terms of production. That's very significant and you can really see how you can rapidly build-out the revenue and the sales and start to match it up better with the SG&A support and the marketing support that we're putting behind the businesses. Also, here in the U.S. with Farmville and with Criticality, we've just received the certificate of occupancy in our new facility there, a few more tests to do in the borders and everything else, but we'll be in production very soon. And we've got a very nice pipeline of products lined up to launch throughout the year, and we're looking forward to seeing how Korent, in particular, does in the marketplace as the U.S. consumer increasingly has access to CBD products of different variants as we move forward. So we're excited by that as well.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [9]

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Okay. And you guys now bought back a little over 9 million of bonds in the quarter, but traditionally, fourth quarter is your cash-generative quarter, should we expect additional buybacks as we finish off the year?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [10]

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Karru, we'll have to take a look but, I think, at this point, we're pretty focused on everything we've got to get done for the fourth quarter. So we'll have to wait and see what materializes.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [11]

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Okay. And then lastly, I was not on the third quarter call -- I'm sorry, second quarter call last quarter, but I think there was talk of doing a refinancing in 2019, and given the changes in guidance and all the moving parts, how do you guys approach that now?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [12]

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Well, Karru, I think that part of the discussion that's already occurring in the marketplace is related to really 2 distinct different components to the business. And of those 2, 1 is separated between North America and the rest of the world, related to Leaf, those 2 segments and then we have our third segment, which is our other businesses. And so at any rate, as you kind of think about the way that, I think, the marketplace is looking, both at value as well as financing those businesses, there's clearly sort of a separation as you're looking at it, both related to valuation and the requirements going forward. So I think that's where a lot of the discussions are. And I think as we go into thinking more about the refinancing between now and when we need to do it out in 2021, it's going to be front and center in the conversation.

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Operator [13]

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Next, we have Bryan Hunt with Wells Fargo.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [14]

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My first question is on the Leaf business. The U.S., given their current tariff regime, it becomes a relatively smaller supplier to the rest of the world and you move leaf production around the world. I saw today in a story that grower registrations in Zimbabwe are up more than 45%. So I was wondering when you look at the changing landscape for leaf sourcing, 1, are you involved in moving leaf, such to Zimbabwe and Brazil aggressively for next year? And 2, does this new footprint change your long-term outlook for leaf profitability relative to what you outlined at your Analyst Day?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [15]

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I still feel that there's significant opportunities as we outlined at Analyst Day, but I think we're starting to get the indications in for the coming crop for outside of North America, thus it's generally looking pretty positive and we're pretty happy with what we're seeing coming in. But at the same time, we remain focused on the U.S. market. Now we've done the restructuring, clearly that creates significant efficiencies going forward, and we remain very focused on the U.S. farmer and the U.S. product and there are -- we still believe there are opportunities there and when these trade issues get resolved then there will be demand for that product as well. So with the restructured operation here, with things normalizing in terms of tariffs, we still see U.S. opportunities and, actually, improved profitability coming from those operations with the restructuring that's taken place. This morning, I was -- we were actually talking to Secretary Perdue of the Agricultural Department, to discuss how quickly we can get these issues resolved and obviously, I think we're all working together to try and get that done, which will allow contracting in the U.S. to take place to more normalized levels and give the farmer a crop to grow and a market to access. But the issues aren't just with China, also, we're looking in Europe, so there's a balance in there. But in general, with the restructuring, with where we believe things will turn out, I think we still see a good opportunity for a nicely profitable North American operation as well.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [16]

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With potentially a slow resolution to the trade issues, what type of overhang on inventory is created by rolling this U.S. inventory that has been limited because of trade issues into the next fiscal year? Are we talking about inventory -- excess inventory carried that's 100 million plus? How do we measure it?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [17]

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I don't think we've got anything of that scale. The uncommitted inventory for the quarter is down about 20% year-on-year, so we're in a pretty good position there. So it's still slightly above mid-range -- midpoint of our range but definitely reduced year-on-year pretty significantly. In terms of U.S.-based inventory that was intended for customers that were tariff-affected, between the hurricane and us having the opportunity to be able to adjust our purchasing program, the effect is not as big as you might expect. We've got some carryover but nowhere as big as you're suggesting in those numbers.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [18]

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Great. And my last question is about the other businesses. When you look at the $36 million run rate, it's obviously sizable in penalizing you this year and I think we all expected that, but can you designate, of that $36 million, what might be ongoing versus a start-up inefficiency? Given the margin that's generated in the current period in that level of, perhaps, fixed ongoing operating expenses, it would take $100-plus million of run rate revenue to overcome $36 million. So again, maybe you can line item a little bit how much of that $36 million might be recurring versus start-up inefficiencies?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [19]

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And Bryan, as we said before, these businesses are all start-up businesses. And so you kind of get into the scenario where you've got to deal with timing issues around branding, marketing, advertising, new people coming on, SG&A in the businesses that you've acquired. And so all these pieces kind of get layered in. And we're probably a little bit ahead of, maybe, where we plan to be, related to some of these costs and the way that they would layer in, but I think that, as we execute on our sales plan related to each one of the units that the goal here is to catch up as quickly as we can. Now if you compare us to some of our competitors, for instance, in the Canadian cannabis space, our spend, as a percentage of revenue and where revenue is going to be is de minimis in comparison. So I think what we have done is taken a very measured approach related to our spending. We are probably, again, a little bit ahead of where we thought we would be right now, at this point, with 3 months left in the fiscal year but we're largely on track and what we should continue to see is the layering in of increasing revenue levels as our Simcoe location, its product starts to come to market. And then, of course, the expansion in Prince Edward Island, where we've got an additional 306,000 square feet coming on across -- that will be done -- being built about 2/3 of it by, call it, June time frame and the remaining 1/3 by sometime in the fall. And then we've got the additional 800,000 square feet that's getting layered on pretty quickly. We'll, hopefully, be breaking ground sometime this spring as to early summer. So -- but in order to support the brands and there's marketing, advertising, third-party costs, all of this is part of the plan. So as you kind of look at that 36, there are some costs that are more related to, kind of, getting the businesses up and running, and anything that we can capitalize, we will. But generally speaking, those costs are coming through in the current period, and it's what you would see with a typical start-up.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [20]

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Do you believe -- with your additional capacities and the demand in the marketplace, we have heard of shortages, so your strategy of releasing products in a more measured manner, seems like the exact way to go. But do you believe that you'll have demand for everything you're bringing online? And if so, does this put you on track to get closer to breakeven next year, at least, on a run-rate basis, given the cost burden that we see today?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [21]

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I think we feel pretty positive about what we've done when we looked at the provinces that we're in. We've been able to support those products pretty much ensure across the range that we have no stock-outs, although we were short of packaging for a period of time. And we feel confident that as we can scale out and bring that product to other provinces that there will a good demand for that product. We have excellent reviews from consumers, they like the traceability and transparency that we've put into the product, and we'll also be able to bring some additional varieties into the market as well. So I think, all in all, we feel pretty good about where we're going. Also, looking at the next-generation products, that's really a lot of our focus at the moment, right now. In Canada, we can only sell bud, pre-rolls and oils, essentially, but really a lot of what we're doing, the work with our group companies, is to develop the next-generation products that, hopefully, will be allowed to be released into the marketplace in October, although we hear there may be some delays on some of the edibles, in particular. But really, part of that is playing to a lot of the skills that we have within Pyxus itself and it's actually on the vaping side of the business. If you look in the U.S., and not that we're involved in the U.S., but when you study markets, you can see this quick transition to different forms and more advanced forms of delivery and that starts to fall in the skill set that we've already built within the group. And obviously, those also potential -- represent a higher margin and higher revenue potential as those come online as well. So we're excited about that as we go forward. And that might allow us to transition to additional provinces as we go forward. But if you think about where we are, with a single brand in 2 provinces. And we've probably got the largest single brand in those provinces. The only company that's bigger than us is doing that with 5 different brands. So that's pretty good performance with the way we've assessed it, looked at it, supported it and rolled out products behind it. So we're excited.

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Operator [22]

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Up next is Ann Gurkin from Davenport.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [23]

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I wanted to start with -- if you give us any more details as we think about 2020, like how we should think about -- you've touched on this a little bit but like capital spending -- I'm sorry, not capital spending, SG&A spending, revenues, when can you start recognizing revenues from these other businesses? Can you just give me any kind of framework as we think about 2020?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [24]

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So, Ann, we're going to give a better view as we get to our year-end, and we'll try to give the best view possible, related to where we think the consolidated results will play out and then, hopefully, some additional detail related to, both, Leaf and our other businesses as well. So we'll be working hard to give you as much color and insight as we can. It's a little early right now. We've got a lot of moving pieces as we've talked about already with the increases in square footage and the timing of when that will come on. So we're still working through that. But hopefully as we get year-end numbers out, we'll be able to have a better understanding of how that will impact 2020. And as it relates to revenues and associated profitability, hopefully, what we're going to be seeing here is, as we go out quarter in, quarter out, is improvement in the top line related to the new businesses. There are pockets of opportunity in leaf as well and we're looking for stability in the leaf business as we kind of move out. And I think, right now, if we look at our volumes on the leaf side, full-service volumes, we've seen pretty good stability there. Obviously, we've highlighted the challenges that we've had this year and some of the challenges that we brought out last quarter, the total about $25 million or something like that, we've been able to pull that back to about $14.6 million. So we've, I think in a pretty short period of time, closed that $25 million down to a much smaller number. Again, the SG&A costs on the new business are up a little bit, but that was as expected with the start-up businesses.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [25]

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Did I hear correctly, you'll start recognizing revenues from these new businesses as early as 2020?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [26]

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Well, you've got revenue coming in right now and we've got the breakout in the 10-Q, it's de minimis, obviously, as they're startups...

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [27]

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Small, right now...

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [28]

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Yes.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [29]

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Okay, great. And then what kind of opportunities do you have out there as you look to expand these other businesses or need to raise capital to invest further in these other businesses, to partner with or get an investment from a consumer products company? Or to sell a portion of that other businesses to raise capital to reduce leverage? What are your -- are you in discussions with consumer companies or potential investment groups, as you look to further build out and develop these other businesses?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [30]

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Well, Ann, as it relates to our new businesses, we're in a very exciting space and there's a lot going on today. And as Pieter highlighted a moment ago, as a result of the investments that we have made, we are very well positioned related to the next-generation products, and we're seeing all of our various business units grow very quickly, within our other product segments. So as we think about where we're going with that, we think we've got a really good game plan, and it's really about executing on our strategy and plan. But as we do that, what we believe is going to happen is that it's going to build value for our shareholders and the importance of our businesses, and that's where we're focused. But you're right, it's very exciting times in the industry right now and each one of the segments where these units are competing, and we're very excited about it.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [31]

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Do you think there are opportunities out there to have -- to partner with or get investments from consumer products companies?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [32]

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I think when we look at the products that we've brought to market already and the adoption by consumers, it's really, again, about continuing to execute on our plan. So we take it 1 day at a time and there are a lot of really interesting companies out there and very interesting products coming to market and we'll have to wait and see what happens with these next-gen products, there's just some really neat stuff that's coming up, so.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [33]

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Okay. And then on Investor Day, I think, you had targeted doubling EBITDA by 2023, is that still a fair target?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [34]

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We're pushing full steam ahead and believe that we can get there.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [35]

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I have 1 more question. CapEx looks like it came down just a little bit, should I read anything into that? Or is that more timing of projects?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [36]

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It's probably more timing than anything. We'll see what rolls into next year. But yes, it's probably timing more so than anything.

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Operator [37]

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(Operator Instructions) We'll move on to Mary Gilbert from Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [38]

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Yes. I just wanted to follow up. It's my impression that as fast as the FIGR businesses are ramping up, that we should have, potentially, EBITDA contribution in fiscal '20? Number 1, do you see that? And then number 2, if you could talk about the 13.3% market share, and I think you said it was the largest single share, how does that compare to a major competitor that if you take all their brands combined within the markets that you operate in, how that compares? And then what's holding you back in terms of being able to expand beyond Prince Edward Island?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [39]

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Yes. So Mary, as we mentioned a little bit ago, we're going to give a better view of what we think 2020 can look like, both for Leaf and for the other products, and that will be coming out when we put our year-end numbers out there. As it relates to the way that the FIGR brand has been received by consumers, both Prince Edward Island and Nova Scotia, it has been very well received, as Pieter mentioned. And when you look at our various SKUs and various levels of product that are being brought to the market, consumers seem to enjoy the products very much. They have reflected on the quality being very good and then, of course, the SENTRI capability that allows consumers to see testing results to see mother plant, when it was planted, when it was harvested, THC levels, CBD levels, terpene profiles, all those component pieces, it's a very unique part of what FIGR brings to the marketplace. And again, this is considerable investment that's been made over the last 10 years, it gives us this capability. So at any rate, as we start to think about further expansion in the maritime, that is, we're going to see ourselves going into other markets, probably, within the next 90 days in the maritime. And then, of course, with product now coming out from the first harvest that we just had in Simcoe, we'll be looking at other markets as well, including Ontario, so.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [40]

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Okay, great. That's very helpful. And then what about -- Can we talk about Criticality? And how you think about what's going on with that business and the opportunity? And also, in fiscal '20, I think you'll increase your position there to over 50%, right? It seems like the market potential for hemp, and thus, for Korent, as a brand. And then I wondered, you mentioned, you may be launching a host of other products, would it all be under the Korent brand. And would it just be new flavors or also other iterations, including edibles, et cetera?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [41]

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I think we've got a -- we're certainly not just looking at vape, we're looking at multiple different products and different categories and also different outlets for those products that really involve looking at wellness as well as everything else we're doing. So we got a nice product lineup, and we'll see many different formats that are more suited to different kinds of outlets than we're in today. And I think we're very excited about bringing those to market and having the full traceability of those products from farmer all the way through processing, to the final product formats. And I think we've certainly got the opportunity to bring something different and unique to the marketplace that should help drive the Korent brand. We're not announcing any launches amongst our other brands, including CBD but, obviously, we continue to evaluate the opportunities that we have because each one of the brands that we're involved in from Humble to Bantam to whatever else, really, is looking at a different segment of the population with different needs. And we'll constantly evaluate that to see what product extensions might work well for that particular marketplace. And the nice thing we've got now, we got a variety of brands with a multitude of products and we can co-sell those products through different channels, and there's a big exhibition going on in Vegas early this week. We've got a big presence there with the various brands. And if you've got anybody there, I would encourage you to come and see the stand there that really shows the breadth of what we're putting into the marketplace.

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Operator [42]

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And this concludes our question-and-answer session. I'd like to turn the call back over to Mr. Joel Thomas.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [43]

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Thank you for joining our call this evening. The call will remain available for playback from 8:30 p.m. Eastern Time today to 8:30 p.m. Eastern Time, Saturday, February 16. Our financial results and Form 10-Q as well as other information, can be accessed on our website, www.pyxus.com (sic) [www.pyxusintl.com] Additionally, I'm available by phone, should anyone have further questions. Again, thank you for participating in our conference call this evening.

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Operator [44]

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And this concludes today's call. Thank you for your participation. You may now disconnect.