Pyxus International (NYSE: PYX) reported Q3 EPS of ($2.40), versus ($0.56) reported last year. Revenue for the quarter came in at $363.3 million, versus $524.49 million reported last year.

Quarter Highlights

• Sales and other operating revenues decreased 30.7% to $363.3 million when compared to last year, due to a decrease in volume and average sale prices. The volume decrease was driven by flue-cured oversupply conditions, shipment timing, and the impact of Hurricane Florence and foreign tariffs in the U.S. Average sale price decrease was driven by a lower concentration of lamina in South American leaf product mix.
• Gross profit as a percent of sales improved to 15.2% from 14.2% for the same period last year attributable to favorable foreign currency exchange rate fluctuations resulting in lower leaf green inventory prices in Africa and South America.
• Selling, general, and administrative expense ("SG&A") increased $4.2 million to $45.9 million when compared to last year mainly due to branding, marketing, and advertising expenses to support Figr cannabinoid brand growth and costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment.
• Net loss attributable to Pyxus International, Inc. for the three months ended December 31, 2019 was $22.0 million.
• Adjusted EBITDA* for the three months ended December 31, 2019 was $24.2 million.

Pieter Sikkel, Chairman, President and CEO said, "Two years into our One Tomorrow initiative, we have made significant operational progress against our strategy to transform the business and become a purpose-led company. With products spanning more than five different categories, Pyxus is well on its path to becoming a diversified agricultural technology and consumer products goods company. Across all of our business segments, we strongly believe that our commitment to transparency, sustainability, quality and growth based on market demand will position us as a stronger company prepared to meet the requirements of the international market.

"As we look toward our capital structure, we continue to evaluate and develop the plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment and to address the Company's long-term debt, maturing in calendar 2021. Our target is to achieve run rate positive Adjusted EBITDA across our Global Specialty Products division during fiscal 2021.

"Our leaf business continues to focus on enhancing efficiency and growing market share. Although volumes were down compared to the same quarter in 2019, these results were largely driven by timing in shipments and a delay in processing in Africa. We are encouraged by signed agreements with key customers in Argentina and Tanzania, which further position us as strategic partners on a global basis. Additionally, we remain focused on uncommitted inventory that is near the upper end of our stated range of $50 million to $150 million.

"The North American region continues to be impacted by trade disputes. While we are pleased that tobacco is included on the list of agricultural products in Phase 1 of the U.S.-China trade agreement, additional steps are needed to restart leaf exports from the United States to China. We are also closely monitoring developments with respect to the coronavirus. While our fourth fiscal quarter has historically been the strongest revenue quarter of the fiscal year, and we anticipate it to be so again this fiscal year, due to these and other uncertainties that may impact results for the fourth quarter, we are not in a position to update our previously issued guidance for the current fiscal year and are withdrawing that guidance, both with respect to revenues and adjusted EBITDA.

"Figr Brands, Inc., our wholly-owned indirect subsidiary, furthered its strategic growth in terms of capacity expansion, product innovation and geographic expansion during the quarter as the cannabis market responds to a slower than expected roll-out of retail availability in Canada. However, we are pleased that the market continued to grow. Latest estimates from Health Canada show the legal cannabis market grew to approximately CA$135.75 million in November 2019, bringing it to an annual run rate of over CA$1.6 billion one year into legalization.

"Figr has continued to maintain strong market share in the provinces in which it operates. While Figr's market share has been impacted by price compression in the market due to its position as a premium brand, it plans to maintain price discipline and growth rate by shifting product mix to higher margin products through innovation. Figr launched in the Ontario market on December 5 with flowers, oil and pre-rolls and released its THC vape products on January 17. We look forward to Figr's THC vape devices becoming available in New Brunswick and Nova Scotia, subject to local rules and regulations.

"Figr's entrance into the Ontario market marked a major milestone in the company's execution of its cross-country expansion strategy, with a goal of marketing products across all of Canada by the end of the first quarter of fiscal 2021. This expansion is supported by the growth of Figr's operational footprint. Figr is currently operating approximately 250,000 square feet in Prince Edward Island (PEI) and Ontario with a potential capacity of up to 30,000 kilograms per year. Following the completion of its PEI facility expansion and approvals from Health Canada, Figr will operate approximately 350,000 square feet across both locations with potential capacity of up to approximately 45,000 kilograms per year.

"We are continuing to build a portfolio of CBD brands, each of which is being developed to meet the unique needs of distinct consumer segments. In December, our Criticality joint venture released its first set of Korent combination packs and we were pleased that the Korent cooling liniment received the 2020 "best topical" award from Hemp Business Magazine on January 30. Humble Juice Co. is also developing its own CBD line, which we expect to roll out to the market in the first half of fiscal 2021. Additionally, following the receipt of its industrial hemp license from Health Canada, Figr successfully contracted and harvested industrial hemp and has begun extracting cannabinoid oil from the crop.

"Criticality continues to expand its extraction capacity to meet growing consumer demand for quality, traceable CBD products. By the end of the first quarter of fiscal 2021, Criticality expects to complete its current expansion project and triple its extraction capability. Criticality also expects to receive GMP, Kosher and Organic certifications by the end of the fiscal year - essential components of our commitment to quality products and international expansion efforts. Through our Pyxus Agriculture USA affiliate, we have purchased approximately 760,000 pounds of industrial hemp this fiscal year.

"We believe Pyxus is well-positioned in the evolving nicotine e-liquid regulatory environment as we have been anticipating and planning for since the establishment of our first e-liquid joint venture in 2014. Following the September 2019 vaping illness crisis, which we suspect is due to black market products, the industry was impacted by fast-moving misinformation about the illnesses, government restriction on access to products, and general consumer confusion. The FDA guidance released in January was a positive step forward in addressing these issues and we hope future regulation will strengthen consumer confidence in the category. In fact, following an initial drop in sales in September 2019, internal projections for Purilum, Humble and Bantam are anticipated to grow following the filing and acceptance of May 2020 Premarket Tobacco Product Application (PMTA) application submissions. As the industry evolves, we will continue to hold ourselves to a higher standard and accountable to our marketing commitment that includes specific measures to help ensure we are marketing to legal-age consumers.

"Our Value-Added Agricultural Products division is continuing to advance both its sunflower and groundnut initiatives, and our Pyxus Agriculture Tanzania subsidiary is proceeding with plans to bring a consumer product to market in fiscal 2021.

"Since the launch of our One Tomorrow strategy two years ago, we have benefited from the progress of our diversification strategy, innovation efforts and global presence. As we execute against our plan, we are committed to building a stronger Pyxus for our shareholders, as well as our employees, our contracted farmers and the communities in which we operate."

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