Good morning. And welcome to the Fourth Quarter 2020 Earnings Call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. [Operator Instructions] After today’s prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to FMC Corporation’s fourth quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our fourth quarter and full year performance, and provide our outlook for 2021 and the first quarter. Andrew will provide an overview of select financial items. Following the prepared remarks, we will take questions. Our earnings release and today’s slide presentation are available on our website and the prepared remarks from today’s discussion will be made available after the call. Let me remind you that today’s presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our earnings release and in our filings with the SEC. Information presented represents our best judgment based on today’s understanding. Actual results may vary based upon these risks and uncertainties. Today’s discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth. All of which are non-GAAP financial measures. Please note that as used in today’s discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms, as well as other non-GAAP financial terms to which we may refer during today’s conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Michael, and good morning, everyone. Let me start by saying the fourth quarter was an unusually difficult one for our company and we are disappointed in our earnings results. We exceeded the midpoint of our guidance on EPS and EBITDA for a long stretch of quarters, principally because of the strength of our portfolio and our geographic balance, combined with strong execution in the face of extreme weather events and significant industry specific supply chain disruptions. This quarter was an anomaly and we will be as transparent as always to explain what happened. We experienced significant logistics and supply chain constraints in the U.S., reduced demand in the U.S. on some lower value herbicides, lower demand in Brazil and Argentina following the drought-related delay to the start of the season and products that were held up in Argentine customs. On the positive side, we saw strong growth in EMEA and once again broad growth in Asia. We had a very strong quarter from a cash flow perspective, which led to full year free cash flow of $544 million, an 80% increase over 2019. We also posted very solid 2020 overall results despite numerous challenges related to the COVID-19 pandemic and $280 million in revenue headwinds from foreign currencies. Our organic revenue growth was 7% and our 2% EBITDA growth shows how aggressively we manage costs and implemented price increases to offset as much of that FX headwind as possible. The guidance for Q1 reflects our view of the environment in Brazil, as well as continued logistics and supply chain disruptions occurring around the world. We believe these COVID impacts are perhaps as severe as at any point over the last year. In addition, our very strong Q1 2020 makes this quarter year-over-year comparison a particularly difficult one. All…

Thanks, Mark. Let me start this morning with a few highlights from the income statement. FX was a 5% headwind to revenue in the quarter, as expected, with the impact of higher than anticipated local currency denominated sales in Brazil offset in part by a modest tailwind in the Eurozone. For full year 2020, FX was a 6% headwind to revenue. The Brazilian real represented the vast majority of the FX headwinds in 2020, followed by the Indian rupee, Pakistani rupee and a broad number of non-euro currencies in EMEA. Pricing actions offset slightly half of the currency headwinds in the year. Looking ahead to 2021, we expect a more stable FX environment, with only a slight headwind of revenues. We will continue to take pricing actions in Brazil to recover the FX impacts from 2020. But overall pricing will be somewhat dampened by price volume choices being made in our Asia business to drive higher growth. Interest expense for the fourth quarter was $34.2 million, down $8.7 million from the prior year period, benefiting from lower debt balances and lower LIBOR rates. Interest expense for full year 2020 was down $7.3 million from the prior year, with the benefit of lower interest rates, partially offset by changes in debt outstanding. Our effective tax rate on adjusted earnings for 2020 was 13.7%, well within our expectations and up from the very low 2019 rate, due to shifts in the geographic mix of taxable earnings and interrelated impacts on the U.S. minimum tax from foreign earnings. The tax rate in the fourth quarter was 14.4% to true up with the full year actual rate. Tax was a headwind to earnings in the quarter due to the very low tax rate in the prior year period. We expect our effective tax rate…

Thank you, Andrew. We had a number of issues in late Q4 that we are having to address. We do not expect all of them to be resolved in Q1. We do, however, see these issues as transitory and are focused on ensuring we can mitigate supply chain risks and continue to expand our market growth opportunities. As you can see from our robust 2021 guidance, we are confident that 2021 will be another year of strong revenue and earnings growth for FMC. We continue to renew our portfolio, launching two new important products in Q1. We continue to invest in our R&D pipeline and we remain fully committed to bringing new sustainable technologies to our customers. Our overall agenda on sustainability continues to advance with the recent appointment of our first Chief Sustainability Officer and through new partnerships like the one recently announced with Novozymes. We plan to return about $700 million to shareholders this year through dividends and buybacks. And finally with our 2021 growth rates above the long range plan, we remain firmly on track to deliver our five-year plan commitments. Before I close, I’d like to highlight the press release issued yesterday regarding Pierre Brondeau’s retirement as Executive Chairman effective April 27. I very much appreciate his leadership and look forward to his continued involvement as Non-Executive Chairman. I will now turn the call back to the operator for questions.

Thank you. [Operator Instructions] And the first question will be from Chris Parkinson with Credit Suisse. Please go ahead.

Hey. Thank you. To start, many of us have interpreted as a fairly cautious 1Q guide. You are maintaining your organic revenue growth despite some challenges. You won’t provide -- you won’t prided yourself on geographic balance and crop diversity. So, can you sit on the two to three highlights with growth this year? It seems like you are construct -- basically constructed on H1 and still cautious optimistic on certain regions in emerging Europe. So, any color to help us bridge and help investors sense weaker than expected 1Q versus what should be characterized as still a fairly strong year? Thank you.

Yeah. Thanks, Chris. Listen, it’s fairly obvious when you look at the release that what we have. We have a weak Q1 yet a very strong full year. And certainly from our perspective, when we look at what is going on in Q1, it does bear some relationships to what is happening in the second half of the year. And I will give you some color on that. First of all, when we talk about some headwinds in the quarter, you look at what is happening in Europe. We have headwinds from loss of registrations. It happens all the time. It just so happens that about 50% of the total revenue that is lost in the whole year occurs in Q1 in Europe and that’s just purely down to the types of products that are sold in Q1 and the timing. So that’s one element that that’s somewhat unique. I think the second one is really all around Latin America. We highlighted in the script that we had a very strong cotton business last year and it really was strong and this year it is lower. The acreage is down. We do have some lingering effects from the drought and missed opportunities. But that all rolls together very importantly and it’s something we -- that we didn’t highlight in the script but something that operationally we are managing very carefully. We are watching and managing inventories in Brazil very carefully. There is no way you go through a fourth quarter like we did with 30 days delay. I mean, put that in perspective. Soybeans take 110 days to grow. We had a 30-day delay. Now that means that some sprays get missed. Those products were already in the marketplace. They didn’t get used. We have told you many times that…

No. That’s very fair. As always thank you for color, Mark.

Thank you. And the next question will be from Adam Samuelson with Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning.

Good morning.

Maybe following up on some of the color, Mark, you just gave in response to Chris, which is incredibly helpful. Just thinking about kind of how the fourth quarter played out. There was, I mean, you came short of kind of where the initial guide had been by about $55 million on EBITDA and I just want to clarify that the expectation is, given the timing you don’t necessarily get most of that back in 2021? And again -- and then maybe additional kind of, Mark, color that there was some dilution to distributors reducing inventory in North America and maybe just elaborate on that point a little bit would be helpful? Thank you.

Yeah. Thanks, Adam. Yeah. Listen, the first piece, I think, was saying, we are getting out of the materials that we had supply chain disruptions through. We are getting about half of that back in Q1. The reality is, listen, it’s a competitive world. Customers want to place orders. You deliver material. If you missed the delivery, some customers will wait, some won’t. And the reality is we did lose some sales. We consider that transitory. We don’t expect that to happen in Q4 next year. The team -- the commercial team will be working hard to recoup that position and we are very confident that the products that we have to deliver then will deliver. I think the comments on distributors and retailers in the U.S. We have watched this evolve over the last year or so. And as growers have faced lower income supply chains of being squeezed all, and I think, frankly, I think, many of us at our point in the value chain and distribution and retail are paying much closer attention to working capital. So the comments we are making are more broad based and it’s something we are aware of. We will work with our customers under these circumstances. It’s what we do, but we are highlighting it out there because we believe it’s a facet for the industry that needs to be highlighted, because everybody’s talking about strong commodity prices and how everything’s going to grow rapidly in the U.S. That may well be true in certain segments. But let’s not forget there is a value chain here that needs to make money and the balance sheets are important to many of our customers and that will get managed appropriately. So that’s why we made that comment, because we do see that trend of an increased focus on working capital and balance sheets.

Okay. That’s really helpful. If I could just sneak in a quick follow up. As we think about pricing over the course of the year, I guess, on one hand there’s some carryover pricing from the actions in Brazil and South America that you took in the second half. But it seems like the pricing side of things is going to be more back half weighted as well, I that perfect?

Yeah. I mean you think about we are entering once we hit Q3 we enter a whole new season in Latin America. That’s clearly where we are looking to recover most of the lag that we had in 2020. It’s normal. It happens from year-to-year. But we are very confident that we will get it. We do have pricing in the first half of the year. We have about a third of the total for the full year. It’s in the first half to the second half. But really it follows the seasons and Latin America is the big season. I like to some pricing in Europe as well, but mainly Latin America.

All right. That’s really helpful. I will pass it on. Thank you.

Thank you.

The next question will come from Stephen Byrne with Bank of America Securities. Please go ahead.

Yes. Good morning. So, Mark, you are 2021 outlook is at a low-single digits increase in most regions, your own organic revenue growth is near double-digit, high single-digit. I am curious to hear your view or on directionally how do you think about those estimates changed in the last six months. If we roll back six months, near month futures for corn, soybeans, wheat and cotton were all significantly lower. Corn may not be a big crop for you, but it’s nearly doubled in that much time. How would you say that is affecting the use of crop comps in 2021? Is this potentially increased application rates that would be driving that low single-digit market growth or is this potentially more tolerance to higher pricing that’s driving that, just curious to hear your views on the impact crop commodity prices?

Yeah. Thanks, Steve. I think our view over the last year has become more optimistic as we have gone along. We have been forecasting for the last few years sort of a flattish type market, and frankly, we have been pretty close to where the market has really finished up. You can tell by our organic growth rates and on revenue growth rates that we are above the top end of our five-year plan sort of numbers. So we do consider it a good year. Clearly, when you when you have strong commodity prices like we see, growers are going to spend money to protect the crops. They want the highest yields therefore they get the most value. So I think it’s going to be a combination of a couple of things. Price recovery in Latin America, as I said, is going to be important. The good news is Brazilian growers, Argentinean growers, the Mexican fruit and veg growers, they are all in much better shape than they were 12 months or 18 months ago. So they are feeling confident. We do expect to see acreage increase in Latin America on top of the good prices, so soy should be increased. We would expect cotton to bounce back quite considerably next year. So I think it’s going to be a more of a combination impact of price in Latin America and then really maximizing our customer’s ability to get the highest yields by using the better products. And frankly that’s why our diamides -- one of the reasons our diamides has been doing so well around the world is the fact that they do enhance yield and allow the growers to get that productivity. So bottomline for me, Steve, I think, we are more confident than we were 12 months ago. These growth rates are higher than we would have had 12 months ago for 2021 and we are confident that our grower’s customers are going to be looking for the best solutions to improve yield.

Thank you.

The next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. This is Steve Haynes on for Vincent. I just want to ask the question on some of the COVID-related costs that are coming back. Can you quantify how much is coming back and maybe what the risk might be in either direction to that number?

Yeah. When we look at where we are today and we think about that $19 million of cost that we have year-over-year, we think roughly about $25 million to $30 million is really what we would call COGS increases. I was very deliberate in my comments that we do see disruptions and logistics costs that are higher than they have been at any time. You can go and look at any of the data out there and look at shipping rates. Shanghai to Rotterdam a year ago was about $1,700 a container. It’s now $9,300 a container. That is a real increase that we simply don’t control. We can try and mitigate it as much as possible. But there are real logistics costs out there that are starting to flow through many industries and this is not peculiar to our industry or even FMC. We hear about it and see about it in many of the industries. I think the other piece is, we are starting to see some raw material and active ingredient increases coming out of China. It would appear that parts of China and particularly the north have had supply constraints due to pockets of COVID and those are starting to ripple through. So we have been very careful on raw material costs, but we do believe we will see higher raw material costs not across the Board, but in pockets through 2021. So that’s how we kind of get to that $25 million to $30 million increase. It’s not broad based. It is more pockets of activity. But I do think you are going to hear more about it as more people get into the year and talk about their cost structures.

And our next question will come from Mark Connelly with Stephens. Please go ahead.

Mark, I was hoping you could give us an update on your diamide licensing and partnership projects. You have a whole lot of those. And also on what your capacity expansion plans and maybe tell us how your diamide portfolio performed in 2020?

Yeah. Sure, Mark. So, on the first one with the diamide third-party relationships, they are continuing to evolve. I think the last time I gave you an update we said we had about 40 to 41 agreements around the world. That number is up to about 50 today, so commercial teams are continuing to develop those local relationships, as well as some of the global relationships that we have. Diamide has grown very strongly as you and everybody else knows. Last year, I think, we finished just north of $1.8 billion in revenue in size, up from an initial $1.1 billion when we acquired the business. We -- I think the business grew in the mid-to-high single digits last year, closer to the high-single digits. On an organic basis, it would be even higher than that. We just don’t track it at the product level. So very successful. The registration side of this, I have talked about in the past and it continues to evolve. When I think about 2020 between Cyazypyr and Rynaxypyr, we had over 70 brand new registrations in the year and that is essentially driving you into new geographies. I think there’s something like 21 brand new crops added with those registrations. So those are crops that we have never been on before. So you can see why we keep that registration portfolio very close to half, because that’s one of the key drivers, not only do we have to keep the market access going, but we also have to get those brand new registrations. So from our perspective, we track it very closely. I could give you -- I will throw you some numbers out that that you may find interesting. In 2018, we had 106 Cyazypyr registrations around the world. We are now at 173 and then when you look at Rynaxypyr, we had 170 in 2018. We are not 250. So people often ask why does that matter? It gets you new access. It gives the commercial groups new markets to go sell against older chemistries that are out there. So I expect that growth rate to continue as we have said for many years as we go forward. At some point this year, probably, in the August call or, yeah, probably, the August call we will give more details around the third-party relationships, where are they going, what do they encompass. I think we always ask to our investor community. We talked about it in sort of a high level term. I think it’s time now that we have over 50 of these in place that we have to start giving some more granularity here.

Super helpful. Thank you.

And the next question will be from Laurent Favre with Exane BNPP. Please go ahead.

Thank you. Good morning, all. Mark, I have got a question on the phase outs. I think, historically, you have talked about 1% to 2% impact for a full year. I was wondering if 2021 is expected to be much bigger than that. And also can you talk a little bit about, I guess, the product categories, is it all in Europe for instance and any color on that would be helpful?

Yeah. Thanks, Laurent. We are forecasting about 2% headwind due to registration losses. Interestingly enough this year, last year was heavily focused on Asia and parts of Latin America. This year it’s roughly split 50/50 between Europe and Latin America. It’s a combination of some older insecticides and some older fungicides/herbicides. Nothing that’s really big, not like when -- in 2019 when we removed carbofuran, which was the bulk of what we saw the impact last year. This is more a myriad of smaller products. Some is deliberate on our side, cleanup of the portfolio, reducing that portfolio impact. But frankly there’s no major one. It’s -- I would probably say, six or seven different compounds spread across that 2%. I think that’s a fair rate. We have talked about roughly on average about a 1.5% drag due to registration or deliberate actions by ourselves. The last couple of years are pretty close to that 2% range. We don’t have a good view yet of 2022. Our regulatory team will be telling us what that looks like. But I think for your modeling, you should plug in about 1.5% to 2% sort of drag going forward on a longer term basis.

Okay. So it’s almost 4% for Q1 then? I guess that fit you all [ph]…

Okay. Yeah.

… or anything else?

Yeah. It’s much higher in Q1, because about 50% of the European impacts, which is roughly half of the 2% is in Q1. So it’s a bit of a higher lumpiness in Q1 than it would be the rest of the year, Laurent.

Okay. Thank you.

The next question will be from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi. Good morning, everyone.

Good morning.

Just a couple of questions. So, Mark, you talked about the missed opportunity -- I think you talk what the missed opportunity to cotton in Brazil. Can you elaborate on that? Is that not just acreage shift, did you miss some business or some share on cotton in Brazil? And then also are you seeing more generics pressure or generic pressure, I guess, in North America, how is that playing into your forecast?

Yeah. You are right on cotton, Joel. Cotton is not necessarily missed opportunity. It is lower acreage. The missed opportunity I was referring to was more on the soy complex and some other crops because of the drought. Cotton is purely around just, you know, 15% acreage reduction is an enormous reduction in cotton in Brazil. So, hopefully, that clarifies that for you. On generics, yes, I have to say, I think, at the low end of our pre-emergent business, we are seeing more generic pressure and our North American team makes decisions on an annual basis that they want to compete in that low end or are they continuing to focus their marketing efforts on the high end. Obviously, this year, we decided we were not going to go take volume at low margin. It didn’t suit what we wanted the business to look like. It wouldn’t have helped our inventories. That’s for sure. So we decided to focus on the high end, Authority Supreme, Authority Maxx. And actual fact, it really suits where the market is going, because as weed resistance builds, it is the tougher to control weeds that the growers are willing to pay the high premiums for to allow you to get rid of those weeds. The older formulations, the more, how shall I say it, simpler less sophisticated more generic formulations are not actually performing in those fields. So, for us, it’s quite a natural lifecycle progression to move away from those generic products. Elsewhere in the portfolio, I would say, the generic pressure is probably as normal as it’s always been. Pre-emergent, we highlighted it because we felt it was a significant event in the quarter and it needed to be talked about. The positive to take from that is our formulation expertise moves us forward with new products that allow us to continue to take market share at the high end.

Thank you. The next question will come from Michael Sison with Wells Fargo. Please go ahead.

Hey, guys. Good morning.

Good morning.

Mark, you gave a -- you do a nice job giving us the adjusted EBITDA bridge for 2021. It looks like you will need about $180 million 2Q to 4Q. So when you think about that $180 million, how much of that is seemingly within your control? You have got some new products coming out. Maybe a good portion of that is the diamides? And then where do you think -- how much is at risk from sort of pest pressures and weather and stuff like that?

Yeah. Mike, listen, I mean, when we forecast forward, we tend to forecast what we call normal conditions, so that would be normal weather, normal pest pressures. I mean, obviously, the further out you forecast the more variance there could possibly be. But today I would say, there is obviously two pieces, volume and price. I would say right now, we are feeling very good about the price piece given what we are seeing in Latin America and the marketplace. From a volume perspective, also very confident given the fact that a lot of the growers are in much better position than they were 12 months ago and you shouldn’t underestimate the psychology of farmers. That is a very important aspect to how they think forward, how they will prepare for a strong season and what that means for us to feed that value chain as we get into the season. So obviously, listen, both price and volume, we don’t ultimately control. They are part of the marketplace. But I feel very confident that given where the business is positioning itself, the new product growth, the continued growth of diamides, our ability to move price, which we have shown as we went through last year we gathered each quarter, it was higher than the last and we eventually ended up in not a bad place at all especially in Latin America. So just think of it in terms of I would say normal risk, yes, weather will play a part as well a pest pressure, but we are forecasting it to be normal and pretty confident of that forecast.

And thank you. The next question will be from Michael Piken with Cleveland Research. Please go ahead.

Hi. Good morning. I just had a couple of questions in terms of just thinking broadly about kind of the trajectory of your EBITDA margins over the next several years. How much of the growth do you see coming from price mix improvements versus kind of the information of SAP and if in fact the cost increases from China or the costs of some of the raw materials increase. How confident are you in your ability to kind of hold or preserve margins in that type of environment for 2021? Thanks.

Yeah. Thanks, Mike. Listen, at the end of the day, when you think of our long range plan 5% to 7% topline, 7% to 9% bottomline, we actually do that on a non-adjusted FX basis, i.e., it’s essentially a volume plan and if FX goes against us, we will move price and that will adjust. I think the confidence you should have in 2021 relays itself, here we are three years into our plan and we are right in the ranges where we should be. Despite the fact that in 2019, we had something like $115 million of headwind on cost and in 2021 we had about $270 million, $280 million headway on FX, yet here we are still in the middle of our plan range. So, it’s very -- it should give you a lot of confidence that we know how to manage these. Yes, you can have dislocations in a quarter obviously. But if you think about ‘19, ‘20, ‘21, that’s a very strong track record of delivery with almost pretty close to, if not more than $400 million of headwind over this three-year period. Andrew, do you want to talk about costs.

Sure. Look, Mike, I think, there’s a -- as we have talked about for quite some time, it’s a combination of both the faster growth of higher value products, higher margin products, as well as SG&A leverage, both from SAP synergies and just also from other leverage and growing the business. And on that you have seen that trajectory. We were at a 25.9% EBITDA margin in 2018. Grew that -- expanded that by 60 basis points in 2019 expanded another 40 basis points in 2020 in the face of the cost and FX headwinds Mark described. And at the midpoint of our guidance this year we are expecting to expand margins another 50 basis points. So the next couple of years it is still that balanced story between SG&A leverage and mix improvement that will allow us to keep driving up that trajectory. Year three of the five-year plan we are 150 basis points of margin expansion against the goal of $250 million to $300 million. So particularly in light of the headwinds we faced we feel like we are exactly where we need to be on that trajectory and we feel very confident about continuing on it.

Thank you. And the final question will come from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Good morning, everyone. Mark, I was wondering if you might elaborate on two items that you called out. First, the Brexit related boost to sales in EMEA in the fourth quarter? And then second, the tolling issue that you cited in North America, can you talk a little bit about the nature of that tolling relationship? What the magnitude of the hit was and the extent to which it may or may not be extending into the first quarter, please?

Yeah. Sure, Kevin. So, yeah, Brexit, we have a strong business in the U.K. We sort of think about it in terms of a roughly a $15 million to $20 million a swing between Q4 and Q1 on a revenue basis. I have to say what when we put the plans in place with our customers, I was skeptical that it would be needed. But given what we have seen in the U.K. and Europe with regards to freight logistics, I am very pleased we actually did that. I know it makes Q1 look a little worse but the reality is I am glad we did it. On the second piece with the toll manufacturing relationship, it is a toll manufacturer that we have used for many years. They were in a particular hotspot related to COVID and simply could not get staff and could not make the products that we needed in the timeframe that we needed it. We are making some adjustments to our network to obviously help mitigate some of that. We are not seeing that reoccurring in Q1. Frankly, most of that business occurs in Q4 from a tolling perspective anyway, so you wouldn’t really expect it to see. I think what it highlights for us is, we do a very good job of mitigating raw material intermediate movements around the world where we might have issues. Of course, we do employ like many other companies many toll manufacturers and we really do have to -- we have to pay attention to every single one all the time. This one we did not have the right communication flow and obviously we paid a price for that. You can rest assure that we have learned the lesson there and it will not be happening again either there or anywhere else. And then -- and the second piece of that was, the logistics element, there was a lot of logistics issues in Q4 that we had to overcome. Some of it was related to lack of drivers in parts of the world, we have seen that in the U.S. and some of it was related to more warehousing. But the reality is the toll manufacturers was the big piece.

That is all the time that we have for the call today. Thank you and have a good day.

Ladies and gentlemen, this concludes the FMC Corporation conference call. We thank you for attending. You may now disconnect.