Good morning, and welcome to the Third Quarter 2024 Earnings Call for FMC Corporation. This event is being recorded [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. Welcome to FMC Corporation's Third Quarter Earnings Call. Joining me today are Pierre Brondeau, Chairman and 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 release and today's slide presentation are available on our website, and the prepared remarks and 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. I'll now turn the call over to Pierre.

Thank you, Curt, and good morning, everyone. Before we get into the details of the third quarter and the forward guidance, I want to start by giving an overview of the company's performance and our view of the current market conditions. Overall, we reported a strong third quarter with growth at the top and bottom line. The quarter unfolded mostly as expected in Europe and Asia. However, we operated in a weaker-than-expected market landscape in Latin America, which was offset by a stronger-than-anticipated performance in North America. Latin America faced some unanticipated challenges this quarter, but we still delivered growth. Markets in Brazil and Argentina were more challenging than expected due to the delayed rains and increased borrowing rates. The bankruptcy of a large customer in Brazil added specific challenges for FMC. Given that we believe we are only a couple of quarters away from a more normal market situation, we decided to take pricing actions to maintain our market position. In fact, about 2/3 of the total company price decline in the quarter came from Brazil and Argentina. The rest of the region performed at or above expectations. While conditions are improving, it is clear that Latin America has not yet emerged from the down cycle as distributors and growers continue to manage their inventories carefully. On the other hand, North America performance was stronger than expected. More than half of the regional sales growth was due to increased order by diamide partners. I would add a note of clarification here. While the sales to these partners are recognized in North America, the final product is not always sold by the partner in that region. This creates the potential for North America sales to appear higher at the expense of other regions. The North America region also benefited from…

Thanks, Pierre. I'll start this morning with a review of some key income statement items. FX was a 3% headwind to revenue growth in the third quarter, largely stemming from the Brazilian real. For the remainder of 2024, we anticipate continued low single-digit FX headwinds in revenue, again, driven primarily by the Brazilian real. Interest expense for the third quarter was $58.7 million, down nearly $6 million compared to the prior year period, driven by lower debt balances. For full year 2025, we continue to 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 overall borrowings. We've lowered our outlook for effective tax rate on adjusted earnings for full year 2024 to a range of 13% to 15%, reflecting improved clarity on the impacts of recent tax law changes on FMC's 2024 tax rate. In light of this, our effective tax rate for the third quarter was 11.8%, bringing our year-to-date accrual for income taxes in line with the 14% midpoint of this range. Moving next to the balance sheet and leverage. Gross debt at September 30 was approximately $4.1 billion, down $110 million from the prior quarter. Cash on hand decreased $55 million to $417 million, resulting in net debt of approximately $3.7 billion. Gross debt to trailing 12-month EBITDA was 5.0x at quarter end, while net debt to EBITDA was 4.5x. Relative to our covenant, which measures leverage with a number of adjustments to both the numerator and denominator, leverage was 5.0x as compared to a covenant of 6.0x. As a reminder, our covenant leverage limit will step down to 5.0x at December 31, 2024. We expect covenant leverage to be approximately 4x by year-end,…

Thank you, Andrew. The crop protection industry is in the process of recovering although at different paces depending upon the region. In this context, we delivered on our Q3 targets and a highly positive momentum heading into Q4. The growth embedded in the guidance we put forward for the fourth quarter is sizable, but it is centered largely around sales of new products and improved cost, both of which are real under our control. This should pave the way into 2025, where we continue to expect solid earnings growth driven by cost favorability along with moderate top line growth as demand continues to recover. Before we open up for Q&A, I want to provide a brief look forward to our earnings call and 2 key areas will cover. I mentioned on our August call that we are introducing 4 new active ingredients and developing a post pattern defense strategy for diamides. On our next call, we will focus on these 2 pillars of growth and how they will contribute to the new 3-year target, which will demonstrate the strong revenue and earnings growth potential for the company. With that, we are now ready to take your questions.

[Operator Instructions] The first question comes from Joel Jackson with BMO Capital Markets.

Here, Andrew, you were very gracious a few months ago to give some building blocks for what the bridge for '25 look like. I was hoping if maybe you could give an update on that. So I think you talked about targeting 6% revenue growth next year, which would be volume growth with maybe some price contraction on flattish pricing. Talked about $150 million to $200 million of cost favorability, talked about $35 million of lower EBITDA, of course, from the sale of GSS. Are you able to update those numbers or reiterate today?

Thank you, Joel. Yes, we pretty much have the same – same view for 2025. But let me maybe give you some more detail around the latest thoughts. So yes, we are – we believe in a growth of around 6%, 6% range next year. This being said, when we say 6%, we made no assumption on pricing, which was pretty much pricing flat and didn’t make any assumption on FX. At this stage, could we be facing more challenging pricing, possible. But frankly, we do not know yet. We have not been able to go deeper into those considerations. On the other hand, on the positive front, I think with the progress we have made on the cost front, we are heading more to the higher end of the range we gave at the last earnings call, so closer to the $200 million than the lower end. So still 6% range, undefined pricing situation at this stage, we are not able to make assumptions. We need to see how Q4 is going to be unfolding and maybe stronger savings than we were expecting and toward the higher end of the range.

The next question is from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Pierre, I mean, you stated that Latin America was worse than expected in Q3. Is it getting any better in the fourth quarter? And also, if you could just describe why Q3 was worse specifically, was it more weather issues? Was the drought in Brazil? Or was it just fundamentally the market is weak due to low crop prices?

Yes. I think Q3 was a bit more difficult than we were expecting for multiple reasons. First of all, I think that the weather did not help at the beginning of the quarter with delayed rain. Rain came in, and it’s actually right now in a pretty good situation, but in Q3 and beginning of the quarter, it was delayed. I think overall, the pricing situation remains challenging. The region is still with a – channel inventory situation, which is a couple of quarters before going to normal. I also think that it was a bit more difficult for FMC than some of the competitors for multiple reasons. Versus where I was when I gave the first call, just a couple of months coming back. I’m more and more convinced that FMC was later than some of the other competitors in adjusting pricing. So I believe we’ve lost market share, more toward some of the peers like the Bayer, BSF or Syngenta of this world. There is pressure from generics, but I don’t see a big change versus the past. But the lack of adjusting our pricing is forcing us to keep market share, and we’re making the intentional decision to keep market share, we had to accelerate pricing adjustment. On top of that, we had to do it in the face of losing a very large customer. You know about the bankruptcy of a large distributor. We were highly exposed to that distributor. And we’re clearly not wanted to lose that volume. So we had to go get that volume elsewhere. And there is always a price to pay when you have to go to find two customers, what [indiscernible]. So on in on, the situation was not helping with increased rates, weather, delayed rain, the loss of a large customer for us, and the deliberate decisions we have made to stay where – to keep our market share position and maybe get back more to all the market share we have pre-downturn than where we are today.

The next question is from the line of Kevin McCarthy from VRP.

Pierre, can you elaborate on the forward price trajectory. Maybe you could comment on your experience in diamides versus non-diamides. What is behind the competitive intensity that you alluded to? And what does the path to 0 price look like in your crystal ball as we progress into 2025?

Certainly, yes. I think the pricing situation is -- the way we look at it, we believe that the #1 correlation to pricing is the state of the channel. Certainly, farm income has an impact. But by far, when you are in a shrinking market and all of us -- suppliers of products, trying to retain market share, you create a competitive situation, which has a negative impact on pricing. So that's why we want to stay underground in Latin America because we do believe that pressing the strongest correlation is with the state of the market. And that's why we saw maybe the latest pressure on price in North America while Latin America and Asia were the place where we had the highest pressure. Diamides, there is no more pressure on pricing in diamides, except maybe in places where we are -- in countries where there is not the same consideration for patent protection. And I'm mostly talking about India -- India and in China. In other places, the pricing situation is not worse for diamides than it is for other products, it's even better when the -- in the countries where there is a stronger respect for patent protection. But going back to 0, I think it's going to highly depend upon the recovery of the market. Operator The next question is from the line of Stephen Byrne with Bank of America Merrill Lynch.

With respect to your volume gain in North America, can you split that into 3 buckets -- how much of that increase was to your diamide partners? And then for the balance that's targeting the North American market, what fraction do you sell to wholesalers versus retailers that sell directly to growers?

The growth to diamide’s partners, I think is – as a percentage of diamide growth, it’s going to be more than half of the growth of the diamides. In terms of the selling, I would say 100% of the sales are going toward the wholesalers. Then from this point, it goes into the channel toward the growers. But wholesellers represent our customer base.

The next question is from the line of Laurent Favre with BNP Paribas.

Generally, my question is around R&D. And I think on the cost reduction plan is about $50 million. I think this year that will come from lower R&D. I was wondering if you could talk about the approach that you're taking there, whether the reduction is temporary or whether you're actually structurally being more selective in the areas where you're investing?

Yes. Thank you. I think it’s more of a sustainable cost savings. We might be sell at some point in the future to increase because of specific reasons. But – let me talk to you about how and why we are reducing our R&D spending. First of all, just to make sure we’re very clear on this one, there is absolutely no impact on the launch of the four products, new molecules Ronaldo described at the last earnings call. Some of all, a large part of the saving is coming from the discovery part of our process. We have now a process where we are much more strict on the decision to hold in the pipeline in discovery, low probability products. We had a tendency maybe to keep them longer – and usually, it comes with significant expenses. And we have a process, which allow us to grow faster in making those decisions. We also have developed better screening tools. And I think I wasn’t there, but I think they were presented at the Investor Day, but those are also allowing us to make faster and better decisions in early-stage research. The last point is we’ve changed the governance process for R&D. You know that about – if you take the spending in R&D, about half goes to central R&D and half spending goes to regional R&D. We are increasing the coordination between the original research center and the Central Research Center, in order to make sure we do not have duplication and we create synergies. So we are just changing the way we work to make those savings not negatively impacting the quality of our innovation pipeline, but at the same time, reducing our cost.

The next question is from the line of Josh Spector with UBS.

I wanted to ask a couple of things about volumes. So 3Q came in better than expected. You talked a little bit about pull forward, but your fourth volume guidance is still kind of the same ballpark, mid-20s-ish plus year-on-year growth. So one, what happened there? Is there any increased confidence, I guess, in fourth quarter? And then related to that is with the diamide sell in North America. Is that a headwind we need to worry about next year? Or is that not at the magnitude where that's a risk?

I think regarding sales, we pretty much took our full year forecast we gave in Q2 and removed the sales, which we knew were expected to be delivered in Q4. So we just took the overselling in North America and remove that from a full year target in order to stay at the same level we were initially planning, of course, adding the correction for the GSS business. Regarding diamide in 2025, I must confess that we have not yet done a 2025 precise budget. We are in this process right now. We are going through it. It’s complex because we have to look at all of the branded diamides and the sales with the partners, all of those negotiations are taking place right now. I cannot answer specifically on the year-on-year growth of diamides in ‘25 versus ‘24 at this stage. I almost have one certainty is that sales at here will be doing very well in 2025. It’s a product – it’s a good product. We have a very, very strong demand. There is very little competition. There is no generic, but the overall diamide, [indiscernible] it’s a bit early for me to comment until we move – we’re more advanced in terms of a contract with our partners.

The next question is from the line of Chris Parkinson with Wolfe Research.

Pierre, just thinking about things, I'm not going to ask you to forecast the weather for 2025. But at the same token you know how should we be thinking about the new product introductions in terms of the cadence in the '25 as that relates to the growth rate you've already given as well as your own registration losses. And as just a real quick corollary of that second part, do you view your competitors' registration losses or likely registration losses over the next two years as more of a -- as a potential tailwind for your new products?

Well, I think those are two separate events. We have the registration lots, which are mostly happening in Europe, where we know it's been there for many years. And -- so it's going to be part of the forecast going into next year, and then there is the new products. New products are usually more than cover on a global basis, whatever registration loss we have. The new product also we are introducing next year and especially fluindapyr and Isoflex, those 2 molecules will be a little impacted by the channel situation. Those products are not in the channel. They are new. So pretty much we believe will be required, will be solved. So on balance, 2025 is going to realize the growth is going to rely a lot only product. We do not believe -- it's hard for us to think about taking into account potential whether it's how to do, but that's one of the parts, which will be the most certain part of our forecast will be the new product. Registration loss, we usually know them pretty well in advance, especially for Europe. So we're expecting the balance of the 2 to be a significant positive. The more question we have looking to next year is how fast the channel we recover and the overall growth of the portfolio. As I said, we are not excluding a big bump in H2 2025. We just can't predict it. Overall do you have any comments around new products and the restriction side?

What I can share is where these products are expected to be sold in 2025. So registrations, Pierre already mentioned, the importance of Europe. That is already embedded in our plans. You asked, Chris about whether or not we benefit from those. The overall market in Europe has been flat despite of the registration. So I think the short answer is yes for the products that remain in the market. There is an increased opportunity because of the lack of options driven by those registration losses across the entire industry, the same way that -- sometimes it hits our products. It also benefits us throughout the quarters. We -- for next year, we expect though in the period to continue to grow, and I think the #1 geography for that product will continue to be LatAm followed by U.S. That means that most of that growth should come in the second half of the year just because of seasonality in LatAm. The U.S. portion of that will come probably between the second and third quarter of 2025 in the U.S. We also expect to launch the first launches in Europe for Isoflex, but that is more on the U.K. side, the broader Europe registration, we expect in a couple of years. So not 2025, but for the near-term future.

The next question is from the line of Vincent Andrews with Morgan Stanley.

Maybe on the fourth quarter, I just want to dig into two things you mentioned before. First, on the incremental cost out that you announced -- how much of that was already achieved in the third quarter? And how much of that can you account on for 4Q? And then at the same time, you referenced 4Q being heavily a function of new product introduction. What's your visibility on those sales are those orders? How much do you already have in hand versus how much are you still waiting to achieve?

Maybe I'll take the savings and Ronaldo you take the orders in hand. I'm going to do -- all right, I'm going to do a high-level math under the control of my CFO here, so you correct me, Andrew, if I'm not -- if I'm not correct. So off the top of my head, we said $50 million of savings in H2. So think about it that way roughly will be to Q3 by $20 million EBITDA $10 million came from sales, which were higher than expected. And we also faced about a $20 million price decline. That leaves you -- lead to about a $30 million savings. So your $20 million bid is plus sales 10, plus 30 in savings, minus 20 in price. So which means that for the remainder of the year for Q4, we're expecting about $20 million. So the $30 million in Q3, $20 million in Q4 is about the break that we see for the overall $50 million additional savings. Andrew is not reacting, so it must about right?

It’s about right here. So as for the orders, we track that more closely in Brazil, as you know, the other countries, we tend to get the orders and start shipping right away. And Brazil, today, we have about 40% of the orders that we forecast for the quarter. This is better than we had last year, and it’s lower than we had in the best years in the region. So it’s more or less in between, which is in line with our view that, that market is still recovering.

The next question is from the line of Jeff Zekauskas with JPMorgan.

We think that prices -- or it may be the case that prices of technical grade, CTPR active ingredient in your diamides in China have fallen from maybe I don't know, $350,000 a ton to $30,000 a ton over the past 2 years, and it may be that new product registrations have, I don't know, tripled or quadrupled over that time. What do you see -- if you think that's true, what do you see as the analytical significance of CTPR prices coming down so sharply in China. And if you can remind us, how big is your diamide business in China roughly, and what's happening to it in terms of prices and volumes?

I'll let Ronaldo helping with that question around the pricing. The size of the China market for us in terms of diamides is more. It is not a major, major market for us, but Ronaldo around the pricing, you want to make your comments.

We have seen different references for pricing. Way more references that we have seen products flowing around the world. So it's still unclear in terms of capacity and how much of that -- those prices are real or not. What we have seen is in the two markets that they are commercializing China and India, as you pointed out, the prices have come down. I'll just make a correction for the price that I mentioned. It's for the kilo of technical product, not for the ton of technical products. We do believe, though, that some of the prices that we have seen in reference are lower than the production cost of even the low-quality providers, which would suggest more of a dumping of existing inventories in the market. We calculate how low it can be and some of those products are being offered, not necessarily sold but offered at costs that are lower -- prices that are lower than the production cost. So I think that gives you a sense of how we think about this going forward. We do not believe those are the stable prices of the diamide.

I think I want to -- and I hate to do that. But -- we are truly doing a deep dive in our diamide strategy. We intend to be very open at our February call on what future we see for diamide. We're actually pretty optimistic, but we're going to have to explain how we see a way to expand this market. I am not right now too much concerned by the kind of pricing we see in India or China. As Ronaldo said, a lot of inventory was built which could not be sold because we want multiple litigation in other countries, creating very, very high inventory people had to get rid of at price, which seem to be incredibly low versus even a low manufacturing cost. As part of the diamide strategy, we do have a -- we are working on a very aggressive manufacturing cost road map, allowing us to compete in a different way. So all of that is being put in place right now. We do have time because besides China and India, we do not have to worry about this kind of pricing, which do not seem to be sustainable and be the pricing will be facing when we are off patent in the future -- in the regions where we are competing. So hand to that to you. I think it's a very valid question, but I want to come with a more complete and [indiscernible] call.

Well, if I could follow up, just in terms of descriptively what's happening to your business -- in Asia, what's happening to your diamide volumes and prices quantitatively, roughly?

So right now, what is happening to a market – to a diamide market right now, okay? And it’s difficult because we are combining a situation where we have 2 countries which are accepting illegal sales of products below production cost in the middle of the downturn. So it’s not a very normal situation. But today, overall, diamide are growing, driven by very strong demand of sales at the -- I think when we talk diamides, we have to separate [indiscernible] is growing very fast. Rynaxypyr is – because – and mostly because of Asia has a negative growth in the low single digits globally, driven by Asia. So I think about it overall, growing positively. But at the same time, I think our overall market for diamides global is up 10%. It’s driven by sales [indiscernible] being up in the 50% to 60% and Rynaxypyr down mid-single digits driven by Asia. That’s what is happening today to the overall diamide portfolio. This answers your question.

The next question is from the line of Laurence Alexander with Jefferies.

Could you just characterize how your production capacity is positioned for the signals you're getting from the distribution channel. That is, do you have any product areas where capacity is down and you won't be able to ramp up fast enough to meet what distributors are saying they may need this winter? Or do you think you're appropriately positioned to get the full operating benefit and the leverage that would come with a restock cycle?

No, I think we’re good. We do have capacity that being said. We are much more I would say, manufacturing is much busier than it was a year ago. Most of the lines are actually operating, but we do have capacity to face the demand to come and the increase we are facing. So we’re not concerned about capacity. From a raw material supply, we are also in a good shape. We are securing the product we need. As we said before, it’s going to be a tailwind going into next year. But this is not a concern at this stage.

The final question comes from Patrick Cunningham with Citigroup.

And just on the pricing challenges in Latin America, how should we think about additional incremental incentives to gain or maintain share in the fourth quarter and perhaps any into 2025?

Yes. So the forecast we've made for this -- the fourth quarter includes a mid-single-digit price decrease year-on-year for the fourth quarter. We still believe we are in a challenging situation. We still believe there are going to be price pressure. I would say until the end of the second quarter of the season, which is the end of the first quarter in 2025. I believe the pricing pressure is going to start to relieve significantly when we -- as we move into 2025. As we say, the pricing is linked to how competitive the situation is versus the market. Plus, as I said before, it is very much also an FMC situation where we decided to reposition a market share where it was pre-downturn, and we had to do what we had to do to get to this position. So Ronaldo, maybe you want to comment on anything else specific on pricing in Latin America?

Particularly in Brazil and Argentina. What I can share is there are some products that we have been very stable in terms of market share traditionally. I can talk about sulfentrazone and sugarcane, [indiscernible] and cotton. Those are products that are very traditional products from FMC. And those are the products that we priced at a point that we allowed growers to make a decision on replacement. And we are now fighting back for share -- getting back to the share that we had before the downturn on those products. So there specifics -- that our pricing actions are specific to some products. They are primarily very traditional products in our portfolio. And it takes us back, those actions take us back to the share that we used it to hold before the downturn of the industry.

And I will just add something I’ve already said and it’s been – because there has been many comments, generics are not the drivers of what we do. Generic pressure is here. It’s always here, but there is nothing which has fundamentally changed the last couple of quarters versus where it was before. It is truly positioning of pricing against our peers, competitors also technology-based where we think we’ve lost ground from a volume standpoint because of a more aggressive pricing strategy, we need to reset.

Thank you. This concludes the FMC Corporation conference call. Thank you all for attending, and you may now disconnect.