Good morning and welcome to the Second Quarter 2024 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. Curt Brooks, Director of Investor Relations for FMC Corporation. Please go ahead.

Good morning, everyone and welcome to FMC Corporation's second quarter earnings call. Joining me today are Pierre Brondeau, Chairman and the Chief Executive Officer, Andrew Sandifer, Executive Vice President and Chief Financial Officer, and Ronaldo Pereira, President. Following our prepared remarks we will take questions. Our earnings released in 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 Securities and Exchange Commission. 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'll now turn the call over to Pierre.

Thank you, Curt. And good morning, everyone. Since resuming the CEO role, I have taken an in-depth look at the company and the crop protection market which has led to revise full year outlook. To share my views, today's call will be more wide-ranging than a typical earnings call. We delivered a solid Q2 helped by a successful execution of a restructuring program. We expect continued growth in Q3 and Q4 from demand recovery led by the Americas where we expect channel inventory to approach normal levels by year-end. Q2 through Q4 also show higher revenue driven by volume with the rate of growth accelerating in Q4 as we shift into the next crop season. The markets have begun to recover as channel inventories are starting to normalize, even if not as fast as we had previously expected. We plan for FMC's pace of revenue and earnings growth to accelerate through the rest of 2024 and throughout 2025. We continue to firmly believe in the strength of the Diamides portfolio, new product recently introduced, and the technology pipeline. Later in the call, our newly appointed president, Ronaldo Pereira, will provide our views on the strength of the portfolio and how this positions us to take a full advantage of the demand recovery. Full year revenue EBITDA guidance has been reduced to a slower demand recovery than we originally anticipated. To help mitigate the slower recovery in the second half, we have increased our cost saving target and speed of execution. The lower guidance is more of a timing impact and is not a fundamental issue with the market or with FMC. We'll address the Q3 and Q4 profiles in more detail, but I want to quickly touch on two key points. First, the EBITDA margin gathered for Q3 is not…

Thanks, Pierre. I will start this morning with a review of some key income statement items. FX was a 2% headwind to revenue growth in the second quarter with the most significant headwinds coming from the Indian rupee, Brazilian real and Turkish lira. For the remainder of 2024, we anticipate continued low single digit FX headwinds driven primarily by the Brazilian real. Interest expense for the second quarter was $63.6 million, down slightly versus the prior year period. But lower foreign interest expense offsetting higher domestic interest expense. For full year 2024, we expect interest expense to be in the range of $235 million to $240 million, essentially flat year-on-year at the midpoint. With the impact of higher rates on domestic debt offset by lower foreign borrowings. Our effective tax rate on adjusted earnings for the second quarter was 15.5%, in line with the midpoint of our continued expectation for a full year tax rate of 14% to 17%. Our GAAP provision for income taxes in the second quarter benefited from the transfer of intangible assets to our Swiss subsidiaries, where we recently were awarded OECD Pillar 2 Compliant Tax Incentives. This asset transfer will allow us to take further advantage of these new incentives and will help ensure FMC maintains a structurally advantaged tax rate for at least the next decade. Moving next to the balance sheet and leverage. Gross debt at June 30th was approximately $4.2 billion, down $157 million from the prior quarter. Cash on hand increased $54 million to $472 million, resulting in net debt of approximately $3.7 billion. Gross debt to trailing 12-month EBITDA was 5.3 times at quarter end, while net debt to EBITDA was 4.7 times. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and…

Thank you, Andrew. Before I begin, I want to take a moment to describe the four components that drive our portfolio's growth. The first is innovative formulations of our non-diamide products, some of which are patented. The second is our diamide franchise. Growth of the diamides is supported by existing IP protection and our actions to transition to unique patented formulations. This is enabled by our extensive knowledge of the diamides and their target insect populations. Third is bringing to market four new active ingredients, with two having a new mode of action and a new family of products, the pheromones. Finally, our expanding platform of biological products. Today, I'll focus my discussion on diamides and the new active ingredients and what gives us confidence in our ability to keep growing. Diamides have been a core part of our business since we launched at FMC as a pure play agricultural sciences company in 2018. In these almost seven years, we have grown our partner base and expanded our geographic footprint. Through new product registrations, we have introduced brand new patented formulations that allow us to enter new market and crop segments. From the time we purchased the diamides, there have been concerns regarding a perceived cliff on revenue. This is absolutely not how we see it. Rather, we expect the diamides to be a growth platform for FMC well into the future. Discussions about the strength and resilience of our diamides usually start with the composition of matter patents for the active ingredients. These have largely expired for Rynaxypyr and Cyazypyr active ingredients. But there are many other factors that support the strength of our diamides. One such factor is other patents, which includes manufacturing processes and specific intermediates. These patents provide protection that continues through mid-2026, varying byproduct and…

Thank you, Ronaldo. Before we move to Q&A, I want to make a few high-level comments on 2025. It is too early for any formalized guidance, but I will share some factors that we believe could influence our results. We are expecting demand in the market to continue to accelerate from where we end 2024. That would lead to a volume growth for FMC, especially in the first half of the year, where prior comps will be weaker. We also expect continued strong growth over new products. Pricing is uncertain, as in the case during any period of demand recovery. The pricing actions we have taken this year should position us well in 2025. Overall, we expect 2025 revenue growth at around 6%, excluding the GSS business. On the cost side, there is about $150 million to $200 million in expected favorability. That's coming from lower raw materials, the absence of an absorbed fixed-cost headwinds that is forecasted in 2024, and a full year of restructuring benefits. There is some uncertainty, depending upon how raw materials move, but overall, the 2025 cost story is shaping up to be positive. The cost favorability will be partially offset by the loss of about $30 million to $35 million of EBITDA from the sale of the GSS business. That gives us growth at the top and bottom line in 2025, with further growth coming in four years as the new products in the pipeline that Ronaldo spoke about are launched and or expand into new countries and markets. With that, we are now ready to take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chris Parkinson from Wolfe. Your line is now open.

Thank you so much for taking my question. So, Pierre, as much as I'd really love to focus on some of the intermediate and longer-term factors which you've been highlighting on a preliminary basis, I'd love to just dig in a little on the second half and just the cadence between the third and the fourth quarter. I mean, the ag markets are still pretty difficult. There's still some uncertainty in Brazil, but just any color you could offer to give investors a little bit more comfort on the split there and kind of the puts and takes that you outlined on slides 8 and 9 would be especially helpful. Thank you so much.

All right. Thank you, Chris. I'm going to try to be concise on answers, but I might be a bit longer on this one because I think it's the right question. The sequence is important. Q4 is an important quarter. First, I'm going to make an answer which is not a business answer. I'm just back. I do not need to take a risk as a CEO just back to miss my first two quarters. I could have gathered a different level. Nobody would have been surprised with a full year guidance at 890 or 900. So, if I gathered where I did for the fourth quarter, it's because I did a very strong due diligence and it's a true bottom-up process. We went through to define sales and earnings. For Q4, we have a much-improved visibility today in Latin America and mostly Brazil, in North America and in EMEA. As an example for Brazil, we believe that the orders we already have in hand and the Q2 action to prepare for the season put us in an excellent position to meet the Q3, Q4 target. North America, I'd say the visibility is good for the short term. It's an easier market to forecast short term in a sense that we have fewer customers. They are mostly large distributors. So, it's a much easier place to define your short-term potential sales. I would say that the least comfortable in terms of visibility for us would be Asia, driven by the channel situation in India. And I can tell you that that has been reflected in the way we have been forecasting the quarter, the fourth quarter. Third point I would make is the channel is getting closer to normal and demand is picking up. Additionally, we know and we've seen and we've talked to our customers and we know some of the customers have pushed Q3 demand into Q4. They're buying as late as they can so that is inflating the Q4 sales number. On the price, we do not see risk. We have taken very strategic decisions, bringing a price down in the second quarter. We have repositioned pricing. That's being proven by the volume we're able to reach in Q2. So, we believe Q3, Q4, we should see price quite slight versus Q2 and we do not see many risks, especially in Latin America. Finally, and most importantly, in the second half, 60% of the growth in the second half is new product introduction. This is actually quite in line with what we saw in Q2. The demand for those products, some of them which were introduced and market tested in 2023, is very strong. Importantly, it gives us access to market we did not have access to. So that is a very large component over H2 and Q4 growth. And maybe, Ronaldo, you want to say a couple of words about the new product we're introducing to give some confidence about Q4 forecast?

Sure, Pierre. I would highlight too, in the U.S., we're talking about these enhanced formulations of the diamides, as well as some herbicide platforms that continue to grow for FMC. We just launched an industrial fungicide in North America and that is gaining a lot of steam and speed. And in South America particularly, we're very excited with the introduction of the Fluindapyr-based Onsuva, a fungicide that puts us to play in the soybean rust segment. And also, we don't talk much about that, but there are two new formulations of our Sulfentrazone franchise that are also growing fast in Latin America, particularly in Brazil. One for sugarcane, [ph] Borolfo, and the other one more on the control-to-control resistant weeds on soybean in Brazil. That is a storm, as Pierre mentioned.

So, in a few words, I'm going to say it again. Trust me, I don't want to miss neither Q3 or Q4, so there is a very solid due diligence behind those numbers and strong confidence.

Excellent, color. Thank you so much.

Thanks, Chris.

Thank you. The next question comes from Josh Spector from UBS. Your line is now open.

Hi. Good morning. I was wondering if you could talk a little bit on the cost side of things a little bit more. So, you talked about a headwind in 3Q from some higher product costs due to the downtime you took later last year. When do you roll through that? So, is that a tailwind into fourth quarter, or is that more of a tailwind into next year? And I guess any other weird cost movements we should be thinking about between 3Q or 4Q that maybe drives some higher confidence in that 4Q pickup?

Hey, Josh. It's Andrew. I'll take this one. I think certainly Q3 has been an aberration, just the lumpiness of how some of this cost is flowing through. Just a reminder, everybody, we do have raw material cost benefit throughout the year for newly purchased materials. We've had headwinds that offset that in different ways throughout the different quarters. As we look to the third quarter, the big issue is a big slug of unobserved fixed costs that are now flowing through our P&L from downtime we took in manufacturing facilities in the last year. That is really the big offset to raw material cost favorability. We do also have a little bit higher distribution and freight costs because we're doing higher volumes, but it's really that flow through of the unfavorable variances. In Q4, we still have a little bit of those volume variances flowing through that unabsorbed fixed cost flowing through. We do have higher distribution costs, but we still have raw material cost favorability from the prior year. So, that gross margin costs become much more of a flattish issue in Q4. Some of the additional benefits on total costs, you'll see a modest tailwind on overall costs in Q4 with restructuring benefits and a lack of a headwind on COGS. So, Q3, really it's the carryover of unobserved fixed costs from last year. It's lumpy, it's flowing through, and this is the last big slug. But unfortunately, it's large enough to where it offsets any of the restructuring benefits year-on-year in Q3. Q4, we get out from under the biggest pieces of that, and the COGS headwind gets to be pretty flat.

Got it. Thank you. Thank you.

The next question comes from Vincent Andrews from Morgan Stanley. Vincent, your line is now open.

Thank you. Andrew, maybe I'll just follow up on that. On the foreign exchange impact on the back half of the year, if I read this right, Q3 has a revenue hit from foreign exchange, but there's a tailwind to EBITDA, and then Q4 also has a hit on the revenue line, but it seems to be neutral on EBITDA. Can you just update us on how that flow through works, or is there something sort of specific to the second half and some of the issues that you mentioned in terms of timing of raw and inventory flow through that's maybe impacting this as well?

Yeah, thanks, Vincent. No, it's really more of an issue in SG&A and RD, quite honestly, the currencies that are just the most in play in those quarters. And it's a basket of currencies, but in Q4 in particular, it's the REI. And while we have a revenue headwind, it's an SG&A benefit. So, net-net, we end up with a - it's a minor tailwind to EBITDA in the fourth quarter, but we wanted to highlight that because it might not - given that it's a modest, low-single-digit FX headwind at revenue, we didn't want to mis-signal people that it would actually go the other way in Q4. Q3, you see more alignment where you have the revenue and EBITDA headwinds, both minor, low-single-digit revenue for FX. So that's really the difference in Q4. Its which currencies are hitting and the fact that there are benefits in SG&A from those currency changes that offset what happens at revenue.

Thank you.

Thank you. The next question comes from Arun Viswanathan from RBC Capital. Your line is now open.

Thanks for taking my question. Good to speak with you guys, and good to hear you again, Pierre. So, I guess my question is really around some of the learnings that you've unearthed and maybe some of the topics you've touched on earlier as far as due diligence. Were there any personnel changes other than yourself, and do you think that's necessary? And then maybe you can also highlight the go-to-market strategy in some of these areas. I mean, obviously, the credit issues were a factor in South America last year that potentially exacerbated some of the destocking that you've seen. Yeah, maybe you can address those issues. Thanks.

Sure. In terms of personnel issues, I think the team is in place. We're well-organized. We do due diligence. I think what I've been looking deep into is the forecasting process, selling process, and execution. I think it's pretty clear that we've missed quite a few quarters where we've missed our own selling target, and I think that's a place where we need to be highly vigilant. And Ronaldo and myself, we're looking deep into that. And I can tell you that I've spent a long, long time with each of the four regional presidents to validate the forecast for Q3 and Q4. Another topic where I see change, I would like is regarding Diamides. I think Diamides franchise is good. I think we have very interesting solo and mutual formulation. We need a more aggressive Diamides global and regional marketing strategy. We also need to accelerate new product invention for Diamides. So that is also a place where I'm going to be looking into very carefully, and we have started to do some work. I'd say point number three, I am, of course, pleased with the results of the restructuring program. I still believe we are operating at a cost which is too high. The corporation is back to sales number of 2018-2019, but we have a cost structure which is more of a 2022 cost structure, 2023 cost structure. So, no need to implement a new restructuring program, but I can tell you there is attrition, which if it's used strategically, can truly lower your cost of operation and very quickly at no cost. So that's going to be a part we are looking into right now to lower our cost. Maybe last, I'm quite pleased with the R&D organization, I would put, but I still want to have maybe a stronger coordination between the work which is done in the regions and at the global level to have an even more efficient R&D organization. So, some of the places where I'm focusing my attention right now, the strategy of the company is in place, is solid. I'm not planning major change, but execution and short-term marketing strategy is important. I don't know, Andrew, you want to address the question on Brazil?

Yeah, look, Arun, I'd say simply this. Certainly, the availability of credit to our customers did impact perhaps some buying last year, but I would emphasize the quality of credit in our own receivables is very high. Our past dues are down. Our collections have been ahead of our own internal forecast. So, while that availability of credit may be a rate-limiting step on purchases, particularly last year when there was such the heat of the correction, we don't believe that that's either a risk to our revenue or a risk to our balance sheet at this point.

Great, thanks a lot.

Thank you. The next question comes from Frank Mitsch from Fermium Research. Your line is now open.

Yes, good morning, and yes Pierre, good to hear from you again. And I really appreciate the answer to the first question, given that there was some sense perhaps that the 4Q guide was more on the aspirational side, and clearly you don't believe that to be the case. You indicated that one of the things that gives you confidence is that in Brazil, a third of the order book is already booked as opposed to last year where it was zero. I'm curious as to what that typically is, because obviously last year was an anomaly. So, what is more normal? So, we have a kind of a benchmark there. And then also, obviously on the cost side, you're doing a lot of work, and I noticed SG&A was particularly light in the second quarter. If you could give us some color as to your expectations on the SG&A side as we progress through the year and into 2025? Thank you.

Sure, thanks, Frank. The first one -

The normal pace.

Oh, yeah, normal pace. Yes, sorry. Yeah, we have about 30, probably 35% of orders. Last year was zero. I would say that in period of high demand, when your markets are growing at a strong pace, a 45% up to 50% of orders in hand would be a normal ratio you could expect. I'm talking when you have a very healthy market with low inventories in the channel. I think the numbers you've seen are not much different from what we said in the script. I think we're increasing north of $75 million, the target, with the last part coming from SG&A. I do believe that we're going to reach the $150 million by the end of 2025 in run rate, in overall cost saving, with a significant part coming from SG&A. But once again, I want to emphasize, as much as $150 million, whether it's on the COGS side or the S&R side, is a good number. We're going to need to do better. We're going to need to do better. We're going to need to operate at a lower cost. And we have in place a strategy program around attrition, because that's an opportunity for us. We have tools which allow us to work differently, and I think we have to use them.

Thank you so much.

Thank you. The next question comes from Richard Garchitorena from Wells Fargo. Your line is now open.

Great, thanks. And welcome back, Pierre. My question basically is a bigger picture in terms of, Pierre, you're coming back to the industry and looking at where the industry has gone. You know, we saw peak earnings in 2022. Obviously, you've done some restructuring and some divestitures. I was just wondering what your thoughts are in terms of where we are in the cycle, given where crop prices have been moving weaker through 2024. And then I know you gave some high-level comments around 2025, but I'm just curious in terms of when you think we see an inflection point in terms of pricing getting better. And do you really think we are at the trough here in the second half of 2024? Thank you.

Yeah, I think we've, you know, the cycle, we've seen them, we've seen them before. There is always the seven, eight years of growth, followed by a one to two year down cycle. Every indication we had, and we try to be very scientific and maybe more than usual in analyzing the market, we believe we reached the bottom in Q2 2024. That being said, we do not see getting back to a more normal business activity and a more normal channel until the first quarter of 2025 for LATAM, Europe, and North America. I think for Asia and mostly driven by India we're going to have to wait well into 2025 to have more normal activity. I believe by the end of 2025 we are off the downturn. Mostly, mostly, the recovery is going to be mostly driven by non-Asia regions in the first quarter of 2025.

Thank you. We have our next question, comes from Edlain Rodriguez from Mizuho. Your line is now open.

Thank you. Good morning, everyone. Pierre, so one quick question. I mean, I think in terms of pricing, I think you mentioned in the opening remark about like the strategic intent to lower prices to regain the less differentiated products. That was a key driver of the lower prices. The question that I have is, why the shift in strategy there? And also, how is that going to improve margins? I mean, are you chasing volume at the expense of profitability? If you could address that a little bit, please.

Absolutely. I think we acknowledge that we were aggressive on pricing to recover raw material cost increase. This period of inflation in cost is now mostly behind us. But we intentionally kept prices at a very high level across the board because we saw a market where demand was poor. There was no real demand. So, fighting with price in time when there is no demand, we felt was not the smartest thing. But we also have to face that now we have more than recovered cost through the period of raw material inflation. And we do have a tool to take back position we should have and get back to market share we had in places where we've been artificially keeping price high even if there was no differentiation. So, it is not a change of strategy. We're not going to become a company which is going to be chasing volume at any cost. I think we used Q2 to reposition our prices in order for us to be able to grow and benefit from the growth of the market. But this is it. You will not see us continuing this in Q3 or Q4. But I have the feeling that we needed that repositioning of our pricing after quarters of aggressive price increase. But absolutely no change in the strategy. No chasing of volume at any cost and we’re not going to pay less attention to the margins of the gross margin or EBITDA margin of the company.

Okay. Thank you.

Thank you. Our last question comes from Benjamin Theurer from Barclays. Benjamin your line is now open.

Good morning and thanks for squeezing me in at the end. I just wanted to follow up real-quick on some of the promotional activity that you've mentioned what’s happening in India and how that's impacting. Anything you can share on how consumers or farmers are reacting to that and if there's any risk of overstock in the future given those discounts that you're putting in? Thank you very much.

If I understand well the question, you're asking about the one-time incentive we gave to our customers and in Brazil to some extent in North America. We're holding high-cost products and those products were stocked in the channel. We needed to see those products move through the channel to go to the end customers. And we had discussion with them. They needed help. We helped them and that allowed us to free space with a product going on the ground and moving through the channel. So, it was very clear with them. It's a one-time incentive which is done toward the end of a down cycle. Customers need help. We were there for them. It helped us too for the following of the year and it's cleaning up the channel. I think everybody's clear on the market on why we do it. I don't think there is any risk of channel stocking because our prices right now are where they should be and are not lower than what the market is commending.

Thank you very much.

Thank you. This concludes the FMC Corporation conference call. Thank you for attending. You may now disconnect.