PYXUS INTERNATIONAL, INC.

Previous wording

Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as "guidance", "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended March 31, 2024 and in our other filings with the Securities and Exchange Commission. These risks and uncertainties include: our reliance on a small number of significant customers; continued vertical integration by our customers; global shifts in sourcing customer requirements; shifts in the global supply and demand position for tobacco products; variation in our financial results due to growing conditions, customer indications and other factors; loss of confidence in us by our customers, farmers and other suppliers; migration of suppliers who have historically grown tobacco and from whom we have purchased tobacco toward growing other crops; risks related to our advancement of inputs to tobacco suppliers to be settled upon the suppliers delivering us unprocessed tobacco at the end of the growing season; risks that the tobacco we purchase directly from suppliers will not meet our customers’ quality and quantity requirements; weather and other environmental conditions that can affect the marketability of our inventory; international business risks, including unsettled political conditions, uncertainty in the enforcement of legal obligations, including the collection of accounts receivable, fraud risks, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries; many of our operations are located in jurisdictions that pose a high risk of potential violations of the Foreign Corrupt Practices Act; risks and uncertainties related to geopolitical conflicts, including conflict in the Middle East and disruptions affecting Red Sea shipping; impacts of international sanctions on our ability to sell or source tobacco in certain regions; exposure to foreign tax regimes in which the rules are not clear, are not consistently applied and are subject to s…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as "guidance", "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended March 31, 2024 and in our other filings with the Securities and Exchange Commission. These risks and uncertainties include: our reliance on a small number of significant customers; continued vertical integration by our customers; global shifts in sourcing customer requirements, the imposition of tariffs and other changes in international trade policies; shifts in the global supply and demand position for tobacco products; variation in our financial results due to growing conditions, customer indications and other factors; loss of confidence in us by our customers, farmers and other suppliers; migration of suppliers who have historically grown tobacco and from whom we have purchased tobacco toward growing other crops; risks related to our advancement of inputs to tobacco suppliers to be settled upon the suppliers delivering us unprocessed tobacco at the end of the growing season; risks that the tobacco we purchase directly from suppliers will not meet our customers’ quality and quantity requirements; weather and other environmental conditions that can affect the quantity and marketability of our inventory; international business risks, including unsettled political conditions, uncertainty in the enforcement of legal obligations, including the collection of accounts receivable, fraud risks, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries; many of our operations are located in jurisdictions that pose a high risk of potential violations of the Foreign Corrupt Practices Act; risks and uncertainties related to geopolitical conflicts, including the conflicts in the Middle East and disruptions affecting Red Sea shipping; impacts of international sanctions on our ability to sell or source tobacco in certain regions; exposure to foreign …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We completed our crop purchases in the southern hemisphere and commenced crop purchases in certain markets in the northern hemisphere during the second quarter. We continued to experience elevated prices for green tobacco from continued undersupply conditions and inflation. As of September 30, 2024, our inventory was $974.6 million and our uncommitted inventory was $16.7 million. Despite purchasing more expensive green tobacco, our disciplined focus on reducing long-term debt has resulted in a total reduction of $142.8 million of aggregate principal amount of long-term debt since March 2024.

Current wording

We are slightly ahead of schedule for crop purchases in the Northern hemisphere compared to the prior year, which resulted in an increase in unprocessed tobacco to $151.9 million as of December 31, 2024 from $78.0 million as of December 31, 2023. Despite purchasing more expensive green tobacco, our disciplined focus on reducing long-term debt resulted in a total reduction of $142.8 million of aggregate principal amount of long-term debt since March 2024.

Previous wording

Sales and other operating revenues were $624.3 million for the three months ended September 30, 2023 and $566.3 million for the three months ended September 30, 2024, a decrease of $58.0 million, or 9.3%. This was due to a 23.0% decrease in kilo volumes sold primarily due to the accelerated timing of shipments from North America in the three months ended June 30, 2024 and delayed shipments from Africa in thethree months ended September 30, 2024 compared to the prior-year period, partially offset by a 14.5% increase in average sales prices over this period, driven by higher tobacco prices.

Current wording

Sales and other operating revenues were $529.8 million for the three months ended December 31, 2023 and $778.3 million for the three months ended December 31, 2024, an increase of $248.5 million, or 46.9%. This was due to a 20.2% increase in average sales prices over this period, driven by higher tobacco prices, and a 23.5% increase in kilo volumes sold primarily due the stabilization of shipping logistics that resulted in beneficial shifts in the timing of shipments (in particular, both delayed shipments out of the three months ended September 30, 2024 into the current quarter and accelerated shipments from Europe and South America in the three months ended December 31, 2024 of the type that occurred in the prior year in the three months ended March 31, 2024).

Previous wording

Cost of goods and services sold were $535.5 million for the three months ended September 30, 2023 and $490.9 million for the three months ended September 30, 2024, a decrease of $44.6 million, or 8.3%. This was mainly due to the decreasein kilo volumes sold, partially offset by a 14.5% increase in average cost per kilo primarily due to undersupply conditions and inflation.

Current wording

Cost of goods and services sold were $437.3 million for the three months ended December 31, 2023 and $661.9 million for the three months ended December 31, 2024, an increase of $224.6 million, or 51.4%. This was mainly due to the 22.2% increase in average cost per kilo primarily due to undersupply conditions, inflation, and the increase in kilo volumes sold.

Previous wording

Gross profit as a percent of sales decreased from 14.2% for the three months ended September 30, 2023 to 13.3% for the three months ended September 30, 2024, due mainly to product and regional mix. Average gross profit per kilo increased 14.3%, primarily due to more favorable customer mix.

Current wording

Gross profit as a percent of sales decreased from 17.5% for the three months ended December 31, 2023 to 15.0% for the three months ended December 31, 2024, mainly due to regional mix and the adverse weather effects of El Niño in South America. Average gross profit per kilo increased 9.6%, primarily attributable to more favorable customer mix.

Previous wording

Cost of goods and services sold were $939.5 million for the six months ended September 30, 2023 and $1,041.9 million for the six months ended September 30, 2024, an increase of $102.4 million, or 10.9%. Thiswas mainly due to a 16.4% increase in average cost per kilo, primarily due to undersupply conditions and inflation, partially offset by the decreasein kilo volumes sold.

Current wording

Cost of goods and services sold were $1,376.8 million for the nine months ended December 31, 2023 and $1,703.8 million for the nine months ended December 31, 2024, an increase of $327.0 million, or 23.8%. This was mainly due to a 18.2% increase in average cost per kilo, primarily due to undersupply conditions and inflation.

Previous wording

Gross profit as a percent of sales decreased from 14.7% for the six months ended September 30, 2023 to 13.3% for the six months ended September 30, 2024, due mainly to regional mix. Average gross profit per kilo increased 10.8%, primarily due to a more favorable customer mix.

Current wording

Gross profit as a percent of sales decreased from 15.6% for the nine months ended December 31, 2023 to 13.9% for the nine months ended December 31, 2024, mainly due to regional mix and the adverse weather effects of El Niño in South America. Average gross profit per kilo increased 10.4%, primarily attributable to a more favorable customer and product mix.

Previous wording

Selling, general, and administrative expenses were $74.1 million for the six months ended September 30, 2023 and $79.5 million for the six months ended September 30, 2024, an increase of $5.4 million, or 7.3%. This increase was primarily due to the recognition of$3.6 million for equity-based compensation pursuant to the Amended and Restated 2020 Incentive Plan, and a higher accrual for bonus compensation. See "Note 17. Equity-Based Compensation" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Current wording

Selling, general, and administrative expenses were $116.5 million for the nine months ended December 31, 2023 and $126.0 million for the nine months ended December 31, 2024, an increase of $9.5 million, or 8.2%. This increase was primarily due to higher personnel costs, which includes the recognition of $3.9 million for equity-based compensation pursuant to the Amended and Restated 2020 Incentive Plan, and a higher accrual for variable bonus compensation. See "Note 18. Equity-Based Compensation" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Previous wording

Gain on debt retirement of $8.2 million for the six months ended September 30, 2024 was due to the repurchase of $10.3 million of aggregate principal amount of the Pyxus Term Loans for $9.4 million, a 12.0% discount to par, and the repurchase of $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par. See "Note 11. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Current wording

Gain on debt retirement of $8.2 million for the nine months ended December 31, 2024 was due to the repurchase of $10.3 million of aggregate principal amount of the Pyxus Term Loans for $9.4 million, a 12.0% discount to par, and the repurchase of $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par. See "Note 11. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Previous wording

Interest expense, net was $63.8 million for the six months ended September 30, 2023 and $69.0 million for the six months ended September 30, 2024, an increase of $5.2 million, or 8.2%. This increase was due tohigher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa, and increased variable interest rates. This increase was partially offset by partial repurchases ofthe 2027 Notes in March, April, and August 2024, as well as the partial repurchase of the Pyxus Term Loans in May 2024.

Current wording

Interest expense, net was $95.8 million for the nine months ended December 31, 2023 and $101.9 million for the nine months ended December 31, 2024, an increase of $6.1 million, or 6.4%. This increase was due to higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from Africa and South America, and increased variable interest rates. This increase was partially offset by partial repurchases of the 2027 Notes in March, April, and August 2024, as well as the partial repurchase of the Pyxus Term Loans in May 2024.

Previous wording

Income tax expense was $10.2 million for the six months ended September 30, 2023 and $14.2 million for the six months ended September 30, 2024, anincrease of $4.0 million, or 39.2%. This increasewas primarily due to tax benefits in the prior period from foreign currency losses and foreign unremitted earnings, partially offset by improvements in the current period valuation allowances and uncertain tax benefits.

Current wording

Income tax expense was $16.4 million for the nine months ended December 31, 2023 and $32.3 million for the nine months ended December 31, 2024, an increase of $15.9 million, or 97.0%. This increase was primarily due to tax expense related to foreign currency gains in Africa and South America recognized in the current period and an increase in income before income taxes, partially offset by reductions in the current period valuation allowances.

Previous wording

The total borrowing capacity of our foreign seasonal lines of credit increased $232.4 million when compared to the prior year and were primarily utilized to purchase green tobacco at higher prices. The amounts presented as available for certain of the foreign seasonal lines of credit are subject to further limitations by receivables and inventories as collateral and restrictive covenants.

Current wording

The amounts presented as available under the ABL Credit Facility are subject to further limitations from the borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves. The total borrowing capacity of our foreign seasonal lines of credit increased $179.3 million when compared to the prior year and were primarily utilized to purchase green tobacco at higher prices. The amounts presented as the remaining amount available for borrowing under the foreign seasonal lines of credit are subject to limitations based on the level of receivables and inventories as collateral and by certain restrictive covenants.

Previous wording

Working capital declined from September 30, 2023 to September 30, 2024 by $88.9 million, or 18.7%, due to higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from South America and Africa, and increased variable interest rates.

Current wording

Working capital declined from December 31, 2023 to December 31, 2024 by $108.2 million, or 21.9%, driven by higher borrowings on our foreign seasonal lines of credit that were primarily used to purchase more expensive green tobacco, particularly from Africa and South America.

Previous wording

Total processed tobacco increased from September 30, 2023 to September 30, 2024 by $103.8 million, or 16.0%, due to the higher costs of procuring and processing tobacco, along with delayed shipments out of Africa. Uncommitted levels of processed tobacco remain low as undersupply conditions persist in the global tobacco market. Challenging weather events in multiple geographies and shipping constraints, such as container availability and longer transit routes, have contributed to the continued undersupply conditions. See "Note 7. Inventories, Net" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Current wording

Total processed tobacco decreased from December 31, 2023 to December 31, 2024 by $55.7 million, or 8.5%, primarily due to the weather effects of El Niño resulting in shorter crops in South America and certain markets in Africa, partially offset by higher costs of procuring and processing tobacco and accelerated shipments from Europe and South America in the three months ended December 31, 2024 that had been expected to occur in the three months ending March 31, 2025. Uncommitted levels of processed tobacco remain low as undersupply conditions persist in the global tobacco market. See "Note 7. Inventories, Net" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Previous wording

As of September 30, 2024, our cash, cash equivalents, and restricted cash was $130.9 million, of which approximately $76.5 million was held in non-U.S. jurisdictions for non-U.S. working capital needs, a majority of which is subject to exchange controls and certain of which is subject to tax consequences, which could limit our ability to fully repatriate these funds. Fluctuation of the U.S. dollar versus many of the currencies in which we have costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.

Current wording

As of December 31, 2024, our cash, cash equivalents, and restricted cash was $109.7 million, of which approximately $74.1 million was held in non-U.S. jurisdictions for non-U.S. working capital needs, a majority of which is subject to exchange controls and a portion of which is subject to tax consequences upon repatriation, which could limit our ability to fully repatriate these funds. Fluctuation of the U.S. dollar versus many of the currencies in which we have costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.

Previous wording

Capital investments in our leaf operations were primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency. We incurred approximately $9.8 million in capital expenditures for thesix months ended September 30, 2024, and are expecting to incur an additional $20.5 million for the remainder of the fiscal year ending March 31, 2025, which includes expenditures expected to be funded through government assistance.

Current wording

Capital investments in our leaf operations were primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency. We incurred approximately $15.1 million in capital expenditures for the nine months ended December 31, 2024, and are expecting to incur an additional $11.3 million for the remainder of the fiscal year ending March 31, 2025, which includes expenditures expected to be funded through government assistance.

Previous wording

As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Current wording

As of the date of this report, there are no material changes to the critical accounting estimates previously disclosed in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024.