Good afternoon. My name is Grace, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Candace Formacek, Vice President and Treasurer. You may begin.

Thank you, Grace, and thank you all for joining us. George Freeman, our Chairman, President and CEO; Airton Hentschke, our Chief Operating Officer; and Johan Kroner, our Chief Financial Officer are here with me today and will join me in answering questions after these brief remarks. This call is being webcast live and will be available on our website and on telephone taped replay. It will remain on our website through November 7, 2019. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission. Before I begin to discuss our results, I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future and are representative as of today only. Actual results could differ materially from projected or estimated results, and we assume no obligation to update any forward-looking statements. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year ended March 31, 2019 and the Form 10-Q for the most recently ended fiscal quarter. Such risks and uncertainties include, but are not limited to, customer-mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution and changes in market structures or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current…

[Operator Instructions] Your first question comes from the line of Ann Gurkin from Davenport. Your line is now open.

Hello to everybody.

Hey, Ann, how are you doing.

Hello.

I wanted to start on North America. And can you comment on expectations to recoup some of that volume that shifted in Q1? And then can you also give any comments on the likelihood of making a low-to-mid single-digit margin in North America for the full-year? Can you comment at all on that?

I’ll start out, I don’t know if you guys can jump in. We wouldn’t really talk about our expected margins for the full-year. The first quarter is always a seasonally weak quarter. And I think, in particular, this time, we had unusually high carryover volumes that happened last year because of transportation issues. So that was fairly different time that’s not likely to recur this year. Also, I think what we tried to point out was that the level of our volumes was comparable to volumes in prior first quarters, when we didn’t have those types of carryover, which can happen from time-to-time in the North America situation.

All right. But in more normalized years, you were able to deliver that low-to-mid single-digit margin level in North America. But given a softer demand and pricing comments, how should I think about expectation?

I do think – we wanted to make sure that we’re clear there are challenges in the North American market, but at the same time, it’s still very early in the year. So I think it’s much too early for us to try to predict a margin level for you.

Okay. Okay. And then the Other Tobacco segment, how should I think about the full-year for dark tobacco and Oriental? Really, you delivered what I was almost expecting for the full-year on the first quarter. So I’m not sure how to think about the rest of the quarter – rest of the year for that segment?

Well, it’s a little bit hard to say, Ann. Again, we do have different timings that happens in different areas of this. We have had and have reported on good results with higher wrapper sales. And so I think that we do have a lot of currency movement that can happen in our Oriental business as well. So that’s part of what we’re seeing in that quarter in that segment for this quarter. But a little difficult to kind of predict. We don’t see. We’re not predicting any particular issues in those crops that might change what we’re seeing there for this year.

Any significant change and timing for that segment? Anything that’s moved around a lot that benefited the quarter?

I don’t believe so. No. I don’t think that…

Okay.

...in these numbers right here. For us, timing can hit us in any quarter in the future.

Sure. Okay.

…but I think we’re normal here.

All right. And then I wanted to ask about SG&A, the decline in the first quarter. How should I think about the full-year? Any kind of guidance you can give me there?

Well, I mean, I think if you look at the percentage, it was still – it was fairly flat. And in the first quarter, it’s a little bit difficult to extrapolate that to the full-year, because you don’t have quite the same base. Some of those costs are a bit more allocated. So I would not take anything away except that you already have one quarter that with an explanation of some significant benefits on currency. And other than that, those are the main things that, that do impact us.

Okay, great. And then in terms of an update regarding progress versus additional opportunities for investment for the company, anything else you can share, particularly related to hemp? And I guess two items, Zimbabwe looks like they have changed your law to allow farmers to grow industrial hemp. And does that open any opportunities for Universal? And then number two, in the U.S., Altria through Cronos. Cronos has signed a letter of intent to acquire Redwood Holding, the hemp products here in the U.S. So with those two movements, I guess, just any other comments you can give on opportunities to, towards that, towards investing in hemp, or towards other opportunities, or any timing of when we might get an update, anything you can share, that would be helpful?

No, there’s really – I just really not at liberty to discuss specific items we may be looking. But we do have a robust pipeline and we are evaluating opportunities.

Okay. Closer than we were last quarter to maybe something, or can you give any kind of indication?

All right. I can’t do this. Sorry.

Okay, fair enough. And then, George, I’d be curious your view on the opportunity for low nicotine cigarettes in the U.S. How do you see that, that segment evolving? Is there a segment other opportunities for you to participate with farmers and growing low nicotine, tobacco leaf, I don’t know anything you can share on that?

Ann, what – the – I mean, granted. We always take the view that the regulation short of prohibition are played to our strong agronomy teams all over the world. So that’s my comment.

Yes. I mean, we certainly have mentioned before that we are experts in leafs and these are things we can support with. But I think, as with many of these changing and adapting markets, it’s very difficult to tell what that might look like and whether or how that would be an influence on our results.

Okay. And then last – sorry, go ahead. [Multiple Speakers]

Well, we just don’t know what the – what there – what they mean by regulating nicotine. I mean, you could argue that Europe really had just been regulating nicotine in their cigarettes for the last 20 years.

All right. Okay. And can you see the worldwide uncommitted lease number, and where’s universal uncommitted? I’m sorry, if I missed that.

It’s in the Q [Multiple Speakers]…

Okay, I look it up, sorry.

We’re definitely in the range. It’s a little bit…

Okay.

…higher, I would say, than it was last year.

…but still within our range.

…but still within our range. And my number I just had it here for you is – thank you, sorry, 125 million kilos at the end of June, which is up $17 million from the March number.

Okay. And then you did comment a little bit about trade with China and implications there. With the latest announced potential tariff, is there anything else we should read into that regarding Universal and trading lease?

No.

No.

Okay. That’s it from me. Thank you all for your time. I appreciate it.

Thank you, Ann.

Have a nice day. See you.

The next question comes from the line of Steve Marascia from Capitol Securities Management. Your line is now open.

Good afternoon, folks. How are you?

Great. How are you?

Good afternoon.

Good. Just I think a line item question for you. I came in just a few minutes late in the call. I noticed that in terms of interest income like doubled from 500,000 to over $1 million. What was the reason for that?

I don’t have a specific mention on that. We have varying amounts of cash and cash flows are – our working capital is quite large. And so there can be times when certain amounts end up in investments, also, interest rates are higher this year in the first quarter. So the first quarter is the quarter where we see more of a return of our working capital. Our cash balances are higher than that begins to move out into the crop seasons in the following months, as it has been doing now. So as I recall, looking at that earlier, I think a good chunk of that had to do really with just our interest rates for invested funds during that relatively short period of the year.

Okay. And sort of follow-up to Ann’s question about other opportunities. Theoretically, if a new country comes into the marijuana production market? How – in theory, if you guys went after – went to negotiate with this new country, would it be very hard to get a contract with them, or is that depend upon the politics, currency and the whole nine yards?

Well, let me just note that to date, most cannabis is being produced in sort of high-intensive greenhouses versus sort of one on agricultural – traditional large agricultural scale. So…

Since we’re not in that market, I think, it’s pretty difficult to make any comment on that.

No, I was thinking more line just to say a South American country decided to move strongly into that growth area, where they’re not going to be using hot houses. Would that be something that might open up the door for you guys?

We will – we evaluate lots of opportunities. We would have to – we wouldn’t have to look at it.

Okay. Thank you very much.

Thank you.

[Operator Instructions] There are no further questions at this time. Please proceed.

Thank you much, Grace, and thank you all for joining us on the call today.

Now this concludes today’s conference call. Thank you all for joining. You may now all disconnect.