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Edited Transcript of PYX earnings conference call or presentation 8-Aug-19 9:30pm GMT

Q1 2020 Pyxus International Inc Earnings Call

MORRISVILLE Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Pyxus International Inc earnings conference call or presentation Thursday, August 8, 2019 at 9:30:00pm 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

* Michael Shannon

Pyxus International, Inc. - VP & Treasurer

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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

* Hale Holden

Barclays Bank PLC, Research Division - MD

* Jacqueline Elizabeth Crawford

Jefferies LLC, Fixed Income Research - 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 the Pyxus International, Inc. Fiscal Year 2020 First Quarter Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to 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, Justin. 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 changes in management's expectations or any change in assumptions or circumstances on which these statements are based.

Included in our call today may be a 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.pyxus.com.

Any replay, rebroadcast, transcript or other reproduction of this conference call, other than replays 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, our CEO, President and Chairman of the Board. Pieter?

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

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Thanks, Joel. Good evening, everyone, and thank you for joining us. As we head into the second quarter of fiscal 2020, we continue to make exciting progress in our transformation. Our leaf business is performing well, and customers are responding positively to the changes we are making to the business. Our legal Canadian cannabis, industrial hemp and e-liquids businesses are demonstrating strong growth and continue to advance. And in Africa, we're making positive progress in the development of our value-added agricultural products division.

We're continuing to evaluate the consolidation of Pyxus' ownership in 2 of our majority-owned Canadian cannabis businesses with 2 of our minority-owned U.S. hemp and e-liquids businesses under the common control of a subsidiary separate from Pyxus' other operations, and we are assessing related opportunities to monetize a portion of our interest in this subsidiary in fiscal 2020.

As we head into the next chapter of our One Tomorrow transformation journey, we remain focused on optimizing our business and balance sheet management, reinforcing our commitment to drive enhanced value for shareholders. The Alliance One leaf team is doing an excellent job in terms of implementing operational improvement initiatives and strengthening relationships with customers who continue to recognize our efforts to drive positive change. Through our relationships and international footprint, we're making progress on our strategy to improve global market share. Our agronomy, sustainability and traceability programs remain critical to the success of Alliance One, and we're proud of the leadership role our dedicated and talented employees play in these areas.

Based on previous performance and expected full year results, we anticipate sales will be more heavily weighted towards the back half of the year. This quarter was particularly exciting for FIGR as the company continued to execute against its growth strategy, maintaining strong market share this quarter and making progress against its commitment to increase local capacity. Following its entrance into New Brunswick earlier this summer, the company quickly established itself as a leader in the market and achieved a 7% share of sales in the first few weeks after its launch. New Brunswick marks the third province in which FIGR products are now available for sale, and FIGR has more than doubled its retail footprint while maintaining its commitment to building strong retail relationships and working to enhance yields and product mix while meeting consumer demand.

With regards to the expansion of its Prince Edward Island and Ontario facilities, the expansion of FIGR East, licensed as Canada's Island Garden, is substantially complete. And the license amendment was submitted as planned. We expect the new square footage to be operational by the end of the calendar year. FIGR Norfolk is also progressing in its expansion plans and has acquired all necessary properties and is in discussion with municipalities for zoning for Phase 2 of its project. The target completion date for Phase 2 of the FIGR Norfolk buildout is the end of calendar 2020.

We continue to make progress in the industrial hemp and e-liquids categories as well. Criticality, LLC, our unconsolidated industrial hemp joint venture, recently announced that its launching its line of roll-on liniments, the latest CBD product format under its Korent cannabidiol brand. Looking at the e-liquids business, Bantam continues to take market share and sales are continuing to grow as expected, keeping pace with the success we've seen in previous quarters. Likewise, Purilum sales are strong, and we continue to see growth in line with projections for the year.

The farmer remains at the heart of everything we do, and our expansion into value-added agricultural products is a key area of focus as we work to help diversify farmer incomes. The refurbishment and expansion work being done to the oil mill and refinery operation in Dodoma, Tanzania is moving forward as planned, and we expect to go into commercial production for sunflower oil extraction in late 2019. Our strong relationships with farmers will be a substantial differentiator as we work to develop high quality, traceable, sustainable sunflower oil in various product formats.

We are maintaining our previously provided full fiscal year 2020 revenue guidance and modifying our adjusted EBITDA range to $150 million to $170 million as a result of a contemplated third-party cannabis supply arrangement that did not occur. Our team in Canada will continue to work to secure additional supply on similar terms and conditions. Also included in our guidance is $9.3 million of adjusted EBITDA that may be adversely impacted by trade issues related to continuing and new tariffs in a number of jurisdictions that may not be favorably resolved.

Moving forward, in fiscal year 2020, we are committed to the ongoing execution of our strategy as part of the next chapter of our transformation, working together to achieve our shared purpose to transform people's lives so that we can grow a better world. Our team remains focused on pursuing growth opportunities, enhancing the balance sheet and unlocking value for the benefit of our shareholders, customers, affiliates and employees.

Joel?

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

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Thank you, Pieter.

Now for our results. For the first quarter ended June 30, 2019, sales and other operating revenues decreased $14.3 million or 4.9% to $276.7 million when compared to the same period last year. This decrease was primarily due to an 11.5% decrease in leaf volumes attributable to Hurricane Florence reducing the U.S. crop size and foreign tariffs on U.S. tobacco as well as timing of shipments from Africa. This decrease was partially offset by the continued development of the Other Products and Services segment and a 7.2% increase in average sales price due to favorable leaf product mix.

Cost of goods sold decreased $12.6 million or 5% to $237 million. This change was primarily due to the decrease in leaf volume in North America.

Gross profit as a percentage of sales increased to 14.3% for the 3 months ended June 30, 2019, from 14.2% for the same quarter last year. This increase was primarily due to the increased sales in the Other Products and Services segment and favorable leaf product mix.

Selling, general and administrative expense increased $11.3 million or 29.7% to $49.4 million for the 3 months ended June 30, 2019, when compared to the same quarter last year. These increases were primarily due to start-up costs associated with branding, marketing and advertising expense for the FIGR cannabinoid and Humble Juice e-liquids brands as well as the evaluation of a partial monetization of a portion of the Other Products & Services segment.

Restructuring and asset impairment charges decreased $1.3 million to $200,000 for the 3 months ended June 30, 2019, when compared to the same quarter last year. The main driver of the difference was cost savings and restructuring associated with the closure of a processing facility in the Leaf - Other Regions segment in 2018.

For the quarter, cash taxes paid decreased $4.2 million to $5.2 million this year, while income tax expense increased to $23.5 million for the 3 months ended June 30, 2019, from a benefit of $25.3 million for last year's first quarter. This increase was primarily due to the change in the effective tax rate and the occurrence of certain discrete items during the 3 months ended June 30, 2019.

As we look ahead to the remainder of fiscal year '20, we are committed to the pursuit of value-enhancing opportunities and driving efficiencies across our operations. We are also confident that our One Tomorrow transformation will deliver improved results and allow us to continue to capitalize on the momentum we have generated thus far. We are excited by the prospects for the future and what the remainder of this year will bring.

Operator, at this time, we'd like to open the line up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Karru Martinson with Jefferies.

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Jacqueline Elizabeth Crawford, Jefferies LLC, Fixed Income Research - Analyst [2]

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This is actually Jacqueline Crawford on for Karru. I was just hoping if you could clarify what's included in your updated guidance. Is the $10 million revision downward due entirely to the cannabis supply agreement? Or is that also inclusive of the $9.3 million of potential negative exposure from trade there? Kind of trying to brush it out.

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

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Yes. So it does not include the $9.3 million. We just called that out so that folks are aware. But we believe that there are a lot of opportunities around that $9.3 million, whether they be onshore or offshore. So sort of [generic], but we wanted to make sure that you're aware of that. At the same time, the supply contract that we described, we don't have a replacement right now, but we've entered into other supply contracts on favorable terms and conditions, and we're working hard to fill that change. But at any rate, we've called those out and have moved our guidance accordingly.

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Jacqueline Elizabeth Crawford, Jefferies LLC, Fixed Income Research - Analyst [4]

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Okay. And then could you just give a little bit more information may be on what those trade disruptions are and whether or not that's related to Chinese restrictions on U.S. tobacco? Or is -- what the other regions are that are associated with that? And then in terms of the supply contract, you've previously guided to your new businesses becoming profitable by the end of the year. Does this impact your view of that?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [5]

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Yes. We're still working on the new businesses to become, on a run rate basis, positive towards the end of the year. So that is still part of what we're working towards. The change in the supply agreement arrangement and not achieving this particular supply agreement does make it more challenging, but we are again working on backfilling that. And we'll have to kind of wait and see where that plays out.

As it relates to the tariff situation, there are a number of different countries where the tariff regime in the U.S. and then reaction by other countries has created challenges. And we've talked about this before and it's sort of been an ongoing evolving process. And so we're working through those challenges, just as many other companies that sell around the world or having to deal with the same kind of situation.

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Jacqueline Elizabeth Crawford, Jefferies LLC, Fixed Income Research - Analyst [6]

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Okay. And then just lastly, is there any more of an update on the monetization process?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [7]

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We continue to move forward on it, and as there's more information, we will have that out there.

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Operator [8]

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And next will be Mary Gilbert with Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [9]

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Yes. What are the revenues associated with the supply agreement that didn't come through? And also, what is the status of the Canada health (sic) [Health Canada] approval on the expanded phase of FIGR East? And is that on track aside from the supply agreement issue?

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

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Yes. So maybe the deal -- the last part of that first. Yes, we're on track related to the Health Canada license extension process. And so everything is on track related to that at this time, and we're looking forward to having the new additional square footage online as soon as possible. But the team there is ready to go, and it's quite exciting.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [11]

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Okay. And no update on timing on that? Sorry, go ahead.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [12]

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I think that's in the hands of Health Canada rather than ourselves. I mean we're very optimistic. I think the team has done a fantastic job. The evidence package and everything else was submitted on a timely basis. I just got back from the facility actually this morning. It looks fantastic, and we can't wait to get it running with several football fields' worth of industrial-scale cannabis production. And I think it will be one of the most efficient factories or cannabis production facilities up in Canada. It really looks fantastic. We'd be excited to show everyone around it.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [13]

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Excellent. Okay. And then, I'm sorry, were you also going to give me an idea of the revenue associated with that supply agreement that didn't come through?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [14]

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Yes. We really haven't put anything out there related to that. But that is included in our revenue guidance that we've held.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [15]

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Okay. Yes, which -- you maintained that guidance. Also, it looks like the -- if we look at the core tobacco business, it really reflects the comparison to last year, right, in the sense that you had -- didn't you have shipments that benefited last year that went from Q4 into Q1? And then because we had the effect in Q2 associated with the hurricane and the tariffs, that's sort of the ongoing impact out of North America. And then it also reflects that we haven't yet got the Africa shipments. Is that what you were sort of saying in terms of -- just sort of the timing between Q1 and Q2, looking at just core tobacco?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [16]

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Yes. No, I mean, I think we're pretty pleased actually with the performance of our tobacco division in the quarter. It was pretty much to plan, probably slightly lower in terms of revenue than we'd planned for and a little bit higher in terms of margin from the various origins around the world, which obviously reflects the efficiency improvements that we've continued to try to put in place.

We didn't -- because of the hurricane, of course, we didn't have the -- as much in the way of carryover shipments in North America as we might have had in previous years. So that would have a touch of an effect. But other than that, it was a pretty normal quarter 1 for the rest of the globe. I think we're on a pretty normal schedule from South America. Africa is slightly delayed between just the lateness of the crop in Malawi and Zimbabwe, and then there were some power shortages in Zimbabwe as well. So we're working to overcome those and try and get our shipments out before the end of the year.

And then for the rest of the global, I'd say we're looking well on track. And I think there are several opportunities with some larger crops around the globe that we're looking to take up and see if we can't improve on those numbers as we go through the year.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [17]

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Okay. And then one sort of last question, twofold. One is just kind of following up on that, if you could just give us an update on the supply/demand within the industry, just looking at how the industry is balanced with that; and then number two, on the new businesses you talked about, strong growth in Purilum and Bantam. So I wondered if you could talk about what those growth rates are what you're seeing there? And what is the status of gaining distribution with Korent and the opportunities for gaining some real distribution within Korent? Like, for example, do we get on to Amazon? And what about additional, let's say, bricks-and-mortar type distribution within the U.S.?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [18]

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So that's a whole conference call worth of questions there. But sorry, what was the first one?

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [19]

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The first one was on the supply and demand. Yes, sorry, go ahead.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [20]

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Oh, supply and demand. Sorry, I was -- I didn't write that one down. So supply and demand, I think we're actually fairly balanced around the globe in all types, flue, burley and Oriental. There's a slide in flue-cured itself just because of the weather conditions and the way the crops have come out and the alkaloid levels. We got shortages in certain parts of the qualities and the types, and we got -- on the total global supply basis, we got some oversupply of certain other styles from the plant. I mean, I think every player would look at that in a slightly different way because it depends what varieties you plant and what your agronomy techniques are, how you purchase it and so on and so forth. But in general, I would describe it as a fairly balanced situation. You've always got to manage through these. I think what's good for us is that uncommitted inventory came down again on a year-on-year basis, on a quarter-to-quarter basis. So we're sitting around the midpoint of our range. So really, the whole situation is to make it about controlling what you do, and I think we feel like we've got pretty good control of where we are. And that's obviously despite recent discussions around declining rates of consumption, particularly here in the United States and so on. But at the end of the day, I think there's a situation that the team is doing a pretty good job of managing through.

In terms of Purilum and Bantam, I think what we always said was -- when we even started that business back in 2014, that we would do things the right way. We would do toxicological tests on all the ingredients that we utilize to manufacture our e-liquids. We would do -- manufacture those in high-quality facilities. We would do everything in the correct way. And with increased focus on regulation, we are seeing a considerable amount of customers' businesses looking to Purilum to ensure that they have products that meet the standards of the present and the future versus just having an opportunistic sales model. And I think that's really benefiting the business there, and that certainly -- we obviously don't give out those numbers at this point in time, exactly what the growth rates are, but they're certainly well in the double digits. So I would certainly say that.

Bantam, we relaunched with different -- some different packaging in a whole and additional flavors. And I think we've seen very good uptake on that. That's been limited a little bit as we've been building up inventory, but we've seen a lot of excitement and we're really starting to push through orders that we had parked at the moment. So we're really looking forward to seeing what that can do in quarter 2 and on for the rest of the year, not only here in the United States but internationally as well. And certainly, we feel that's gaining share as, in fact, some of our Humble e-liquids are as well.

And in terms of Korent, I think, obviously, we are very excited to not only see the Korent Select, which I think is starting to gain some good traction. And certainly, the additional sales teams that we put into place are getting a lot of inquiries around that product, and we're building up inventory there as well.

The liniment line will be out in the next couple of weeks. It was -- we pushed out an announcement a few days early that it was coming online. But it will surely, in the next 2 weeks or so, be available. And I think that's a very interesting product. I can certainly vouch for how well it works. And I think it's the next development.

And we've got a really nice pipeline of products that will be coming out across the CBD lines. And actually, next generation will figure up in Canada as we get to Canada Cannabis 2.0 coming in October -- after October 17.

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Michael Shannon, Pyxus International, Inc. - VP & Treasurer [21]

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Probably in the middle of December by the time you actually distribute that.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [22]

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That's right. And we're feeling good about the products that we've got coming. We're building different methods of distribution. There'll be some more announcements in the quarter about some other things that we're doing and -- probably in September. So there's a lot of things that we're working on right now. The team has been preparing for a long time. And I think you'll see faster movement as we go forward.

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Operator [23]

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And moving on to Bryan Hunt with Wells Fargo Securities.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [24]

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I was wondering if you could delve into the other businesses which you are going to consolidate under an individual unit. Considering maybe the challenges that you're having by having to take EBITDA down by $10 million in your guidance, that business would likely be valued off of revenues. Can you give us an idea of what the total top line revenues were for those combined businesses for Q1 and/or what they contribute to your total guidance for the year?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [25]

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Yes. We've -- Bryan, we've not broken any of that out yet. There will be more information coming as those businesses get a little bit bigger. They're -- when our Q comes out, likely tomorrow, you'll be able to see the breakout of the other segment. And so you can look at what's going with -- going across those new businesses related to the top line and the cost. It's still very early days, but they're growing very quickly.

And I think, really, the question is going to be when we get out to the fourth quarter, demonstrating that we've been able to execute on our plan and hit our marks out there because that helps to set us up for where we want to be next year and the year after that. So -- but things are moving very quickly, very positively. And we've got a really good team that we've built both through acquisition as well as new hires. So a real strong CPG capability to drive that business.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [26]

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And when you talk about monetization, can you tell us exactly what the use of proceeds will be? What do you plan on using those funds for?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [27]

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Well, I think, obviously, first and foremost, to fund the opportunities associated with those businesses and the requirements that they have. But then there are also other opportunities to have capital come back to the shareholders. And so in the case of Pyxus, it will provide opportunities for additional debt reduction.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [28]

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Okay. Very good. When you -- can you discuss for me, in your sales guidance, what does that imply for tobacco leaf volumes? Are you looking at volumes to grow again in this fiscal year?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [29]

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We haven't directly projected volumes, but I would say we're tracking to our plan. And as I mentioned earlier, we've got certain opportunities with various crops around the globe. So I could just say we're feeling in a pretty good position. But obviously, it's very early in the year. And we've got to get the packing done, the shipping done and everything else. So it's a little bit early to give a very solid reply around those numbers. But so far, we seem to be tracking to where we would expect.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [30]

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And then my last question is what -- a lot of your large customers have made investments in other cannabis companies as well as CBD. What are the opportunities for you all to potentially cross-sell some of your new capabilities to your traditional customer base? And are you doing any of that today?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [31]

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Well, we would announce that if there was a specific agreement. But at the same time, obviously, we're working with our entire customer base, both in old and new categories where appropriate. And there are -- obviously, we continue to investigate opportunities as they do. And yes, I mean, at the end of the day, you could see that we're in similar business lines. They're exploring the future much as we're already in the future in many ways. I think we're ahead. And that creates opportunities for actually all of us who have win-win solutions in these various businesses.

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Bryan Cecil Hunt, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [32]

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All right. And then my last question is if I look at New Brunswick, New Brunswick is bigger in terms of total doors versus what you had in PEI and -- forgive me, I'm blanking right now. But given the fact that you grew your share so rapidly, and it's not too dissimilar to what it is in your other 2 markets, is it fair to think that your cannabis business came close to doubling on a sequential basis?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [33]

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It's growing very rapidly. We haven't given anything there, but it's substantial. And the rollout, initially PEI, the Nova Scotia and now New Brunswick, and we're gearing up for the next provinces that we'll be announcing here in the near future. So very rapid expansion and generally in line with our expectations. And of course, with the pretty substantial increase in square footage that we've got coming on in PEI here in -- over the next couple of months, we're very excited about that and is in line with our plan. So very exciting times.

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Operator [34]

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And the next question will come from Hale Holden with Barclays.

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Hale Holden, Barclays Bank PLC, Research Division - MD [35]

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I just had 3 quick ones. Joel, you had talked last quarter about potentially putting in a receivables-type facility to make the new ventures self-funding. Is that still on the table or part of the expectation?

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

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Yes. Hale, I don't know that it's a focus so much on the new facilities -- or the new businesses related to our AR programs. We do have AR programs in place today. It was more related to some of the expansion on -- some of the real estate requirements. And so there are both on-balance sheet and off-balance sheet opportunities available to us, some that result in debt, others that utilize more lease-type structures. And so as we think about structured finance opportunities, that's really what we were focusing on, not so much on AR facilities.

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Hale Holden, Barclays Bank PLC, Research Division - MD [37]

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Got it. My second question is just sort of on the path to a partial monetization. I was wondering if the gating factor was more around putting this new holdco together and getting all those financials and all your ducks in a row. Or was it more a desire in your part to kind of show stronger growth and get past ahead of the launch in December and early next year?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [38]

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Well, I think, first off, all the components of making sure that you have a clear understanding of all your businesses and that we maintain our books and records related to those, that put us in a very good position to be able to think about how those businesses can work together. And then in addition to that, we do have very rapidly growing businesses, and that is obviously a big part of what is the current plan and I think what probably a lot of folks find interesting.

One of the challenges has been because we have our own line -- our old line business, which is performing very well when we talk about the new businesses, it's more difficult to see the growth and the changes. And so now that they are growing more rapidly -- and as a result of that, we've had the change in the reportable segments. And in the future, as they continue to grow, we'll have to continue to analyze and provide additional disclosure related to how we talk about those businesses. And so the question is, are we really seeing the value that's being created related to those new businesses in our share price today? And we think that it will help investors to better understand what's being created as we go -- moving into the future with the structure that we've talked about. So that's probably one of the bigger drivers.

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Hale Holden, Barclays Bank PLC, Research Division - MD [39]

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Yes. And just sort of related to the share price comment you made, just secondly, it was in the low 80s. I was wondering if there was an opportunity maybe to do an exchange to capture a discount there? Or if the intention was still probably to pay this off at par closer to maturity?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [40]

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Yes. No, look, I think that we've got a consistent track record now if you look over the last decade and a half related to how we've approached the capital structure. And we'll continue to approach it in the same fashion. So we've got, I think, good support from the capital markets and a really good set of banks around the globe that we work with. So -- and we see that being in place as we move out into the future.

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Operator [41]

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And next is Ann Gurkin with Davenport.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [42]

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Starting with the debt conversation. You had targeted reducing debt $25 million to $50 million kind of year by year. Is there any update to that expectation?

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

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Yes. I think, generally speaking, we're still focusing on debt reduction and executing on our plan. And we'll have the full balance sheet out with the Q likely tomorrow. And you can see we have some disclosure related to our debt numbers in our press release that went out earlier today, and that is down year-over-year again. But there are lot of different factors that help related to that. So...

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [44]

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Okay. Great. And then returning to your conversation about the hemp market. What -- how do you define -- or what is the size of the hemp market in the U.S.? Do you have an estimated size and estimated growth rate for that market for sales in the U.S.?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [45]

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So it's growing very quickly. That's the one thing we know for sure. And we have a number of different states that we are sourcing out of this year. And we have, I think, some very attractive varieties that we work with our farmers related to their -- higher in CBD content, which -- versus the types of strain that you have for fiber. So we think we're well positioned.

I think trying to get actual numbers though related to U.S. production of hemp is difficult because you have to get into whether or not it's hemp for CBD or hemp for fiber. And remember, hemp for fiber can have CBD, by dry weight, below 1%; whereas hemp for CBD can have CBD-levels dry weight in the field of north of 10%. So -- of course, all of that being with THC levels below the federally mandated 0.3% level. So it gets very difficult to really get your arms around the size of the crop in the U.S and then to further stratify with the 2 broad categories that I just kind of laid out.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [46]

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Okay. Are you having conversations with CPG companies? Anything you can share with us? Any progress on that front?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [47]

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Yes. There are always ongoing conversations with potential partners. But I think a lot of our focus today is on their own CPG capability and consumer adoption of our product sets. And so these businesses again are growing very rapidly, and it's very exciting times. Our team, both internally, which has been growing quickly on the CPG side as well as our third-party advisers, are really helping to propel our own CPG capability very quickly. We're excited about it.

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [48]

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And Ann, if you really think about it, I mean, we kind of looked at in the way -- if you take the various predictions for the global market between e-liquids, CBD and cannabinoids in general, and obviously, THC products, I mean, you're looking at somewhere between $150 billion and $200 billion opportunity over the next 4 to 5 years.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [49]

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[Growing, yes.]

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [50]

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Yes. I mean, growing to that. And you just think about our company. We decided to go all the way up to the top of the value chain because, I mean, we've been a 145-year single-product commodity supplier. We don't want to be in that position in the future in the new businesses. So we went all the way to the consumer. And if you just think about our business. So if we can get 1% of that opportunity, we'll double our revenue and quadruple our EBITDA, at least. And that's what we're targeting. So it's -- and I think that's everything we're doing, is to target at least that as we go forward. And we're putting in place the structures, the facilities, everything else to be able to use our global footprint, use those skillsets, bring skillsets into the company, particularly on the CPG side, make sure we're selling premium products and extracting obviously the maximum profitability from those products as well. So that's where we're heading, and that's where the opportunity is. Just staying at the growing level is not where we want to be.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [51]

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Okay. That leads into my next question, perfect segue. You had put out at your Investor Day an EBITDA target by 2023 of $330 million to $340 million. Is that still a realistic target by 2023?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [52]

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Yes. So Ann, what we put out was what we were able to achieve in fiscal 2018. And yes, we believe that we can very aggressively grow from the level that we were at, at the end of fiscal -- or for fiscal 2018, where tobacco, we think, has the ability to stay fairly stable related to what it's able to do. And recently, we've been able to grow our overall market share and total number of kilos that we've been selling through. If we go back 5 years ago, we were just under 380 million kilos of full-service volume. And for fiscal '19, we just finished over 400 million kilos of full-service volume. So it's been very positive, and we believe that we will continue to be able to produce in those ranges with good stability related to that business. And then on the other side, significant growth related to all the new businesses, as was shown in that deck, and is consistent with our expectations and beliefs around where we believe -- where we can drive the business. So...

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [53]

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Great. And congratulations on end of quarter on the gross margin. Nice number to see. Given that number and given SG&A -- the increase in SG&A in the quarter, how should I think about those 2 metrics as the year unfolds, gross margin and SG&A?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [54]

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So gross margins, we have a very good opportunity to see margins similar to last year. And depending on how a few things play out, we could be a little bit better, but we'll just have to kind of wait and see where some of these markets play out. It's still early. But generally, it should be very similar to the prior year.

And then as we think about the SG&A, we indicated that SG&A would be going up related to the new businesses. And so you're seeing the impact of the businesses that we have acquired a greater than 50% stake in and that are consolidated as well as some of the new folks that we have coming into the company related to the new businesses. And then, of course, the marketing, branding, advertising expenses, and then we also have expenses associated with the new businesses and the monetization strategy.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [55]

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And those costs associated with the monetization strategy, do those continue for the full year? Is that how we should think about those costs?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [56]

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Likely not.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [57]

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Okay. And then can you help me with tax rate for the year? Given the number of discrete items in this quarter, kind of how do I think about the full year?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [58]

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Yes. I think when we talk about taxes, Ann, and we've talked about this one before, we've generally kind of been in the, call it, $10 million to $25 million of cash taxes paid. And if we look at where we were for the first quarter, we were slightly over $5 million. And so if we kind of look at where we're going to be this year, we're probably somewhere between a hair under $20 million to just over $20 million. That's probably more in line with where we'll likely be. But that's, I think, where a lot of the focus is on what will cash taxes be. So...

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [59]

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Fantastic. And then one more question. Just can you comment on tobacco customer demand? Are you seeing any changes in the level of demand or purchase orders by your customers as they look out the next 12 to 18 months, please?

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J. Pieter Sikkel, Pyxus International, Inc. - Chairman, President & CEO [60]

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I mean, I think it shifts up and down between customers and geographies as we go forward. So yes, of course, for certain markets, less volume is required. I mean, here in the U.S., it's very obvious seeing the declines in the domestic market with the gas prices, with everything else. I mean, right now, we're seeing a drop in demand here. At the same time, there are other opportunities in other markets around the world that we supply into where we're seeing growing demand and change in inventories and other opportunities to increase sales there. So there will be shifts across the platform. And I think we've talked about this many times before. And as we see consolidation of geographies where customers purchase products, as we see consolidation of suppliers or reduction in the amount of suppliers that these customers are purchasing from, as they increase their standards in terms of sustainable and traceable production, these are the opportunities for us to continue to grow. And by growing in smaller industry or geographies, obviously, that creates efficiencies. That improves margins as well.

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Operator [61]

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And the next question comes from Mary Gilbert with Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [62]

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Yes. I just wanted to follow up on the timing because it was a little unclear in one of the other questions. I mean it sounds like -- I thought that maybe this "partial" monetization opportunity could occur sooner rather than later. But then I wasn't sure as you talked about showing or demonstrating the volumes, and I think this was something Hale was trying to bring up earlier, that do you need to show that you've got the growth rates before you can come to market? Or is it just a matter of getting the numbers and everything in order to come to market because you have a story to tell and that will sort of incorporate some of this data that we're looking for and so that this could be a sooner event? And then, thus, do you anticipate refinancing the cap back this calendar year?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [63]

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Yes. So Mary, the first part of that. The new businesses are growing very, very rapidly, okay? Remember that these are essentially all start-ups, right? And yes, there're at different levels of start-ups. Some started a year sooner, some started 6 months later, but they're all essentially start-ups and the growth curve is substantial. In the case of the cannabis business -- legal cannabis business in Canada, part of that business is further along the growth horizon. The consumer product offering in the 3 provinces that we're in today, the consumer has adopted our products across each one of the categories where we're competing, which is -- we're in each of the 3 big categories. And so we've had very good adoption related to the brand. And we're now expanding into other provinces. So I think that, that growth plan and the consumer product strategy is sound and is being well received by the consumer and is a very good story to talk with folks about, just like we're doing now.

And as we look at what we're doing with industrial hemp in the U.S. and CBD, if you recall, a little over a year ago, we were talking about when our factory would open. Now our factory is open and we're producing very high-quality, full spectrum oil today that's going into now a variety of products. And very exciting. And those products, through the various channels that we're going after, are picking up market share, albeit from a starting point of these products didn't exist a year ago. So at any rate, it's very exciting, and I think a very good story.

And then as we look at Purilum, it's a more developed business. It's an EBITDA positive business. And again, it's growing very quickly because of the position that we took 4 years ago and what we believe we're going to be the hallmarks of a strong flavor and e-liquids business. And so these are all big positives.

And when we think about where the consumer is going to go and the kind of products that they're going to want in the future, it is about next-generation products. And that's where these businesses coming together create, we believe, real value and real opportunity. And so this is what we are highlighting and stressing as we talk about these businesses. And we believe that it's a real opportunity. So at any rate, we're going to continue to push along those lines, and we'll see where we are as we look at various opportunities. And we're looking at those right now. So it's very exciting times.

As it relates to refinancing, we will be looking at refinancing here over probably the next 12 months. We're in the middle of that process right now. We've had tremendous reverse inquiry already from folks that have been with us across the last 3 or 4 refinancings. And we're excited about that as well. So all the pieces will come together as we look across this fiscal year, and we'll be talking with the markets as we typically do as we work through these opportunities.

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Operator [64]

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And our next question come from Ann Gurkin with Davenport.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [65]

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Sorry. I have one more question. In the guidance you gave for the year, adjusted EBITDA in the range of $150 million to $170 million, does that include a fairly stable outlook for tobacco? And then does it include contribution from these new businesses? I'm confused a lot. I'm sorry.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [66]

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Yes. It's -- Tobacco should be fairly stable, Ann, that's what we're looking for and what we believe we're capable of this year. And there are a lot of moving pieces related to the new businesses as well as some of the costs that are associated with these new businesses as we're building them up. And so there are a lot of moving pieces right now, but all of that is included in development of the guidance.

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Ann Holden Gurkin, Davenport & Company LLC, Research Division - Research Analyst [67]

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So breakeven at best for the new businesses?

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [68]

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It's still very early in the year, and we'll provide additional information as we can. But as we said before, I mean, part of what you're seeing in the segment breakout that we have now for the other segment, as you can see, the SG&A costs. And I think we've been clear that we got to make sure that we've got the right teams, that we're investing in the brands properly related to branding, advertising, marketing. And then you got to have, again, the right team, especially as you're going after these various CPG segments. So -- but we believe we've got the right path, we've got the right team, a proven track record related to our CPG team. So we're real excited about where they're driving things. And we understand there are costs, and those are built into the plan.

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Operator [69]

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And that does conclude the question-and-answer session. I'll now turn the conference back over to Mr. Joel Thomas for any closing or additional remarks.

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Joel L. Thomas, Pyxus International, Inc. - Executive VP & CFO [70]

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Thank you for joining our call today. The call will remain available for playback for any interested persons through 8:30 p.m. on Tuesday, August 13. Again, thank you for participating in our conference call this evening.

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Operator [71]

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Well, thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.