Joel Jackson: Hi, good morning, everyone. I’m going to ask a few questions in one. Just you reset, I think, senior management in Brazil. Maybe you could first talk about what’s changed there, maybe what you’re seeing there, what you’ve learned with the new eyes looking at it. Second of all, just to reconcile a couple of things you said on this call this morning. So I think you said that you’re seeing customers now put out – giving you order visibility a bit later than they were when not hand to mouth, but I think you also said that customers are going to be running with lower inventories than they normally have. I may have got that wrong, but can you reconcile those two comments, if I got that right?
Mark Douglas: Yes. Thanks, Joel. Yes, new management in Brazil. It’s the first time that FMC in a very long time has brought somebody in to be the president of the region from outside the company. We have a very robust human capital process inside the company where we develop talent and move them around the world. We felt now was a good time to bring in talent from the outside, and we brought in a very experienced industry veteran, who has both crop protection background, but also retail and distribution background. So we’re getting the best of both wells there. What are we learning? We’re learning that we can expand our customer presence in the sense of where the market pockets are that we can go and expand into. So that’s a good sign of a market growth perspective.
Also bringing that retail and distribution mentality allows us to think about how we build our offers into that part of the channel to make FMC’s overall portfolio very attractive. I think from the order visibility and lower levels of inventory, Joel, I would say both are caring. The fact that people are holding lower levels of inventory is one thing. But it’s where it is in that chain that you have to think about. It may be the distribution wants to hold lower levels of inventory, but retail might not because they have to service the customer from what they have. So don’t think of the two pieces as being opposed to each other. They actually do work hand-in-hand.
Operator: The next question comes from Steve Byrne from Bank of America. Steve, your line is open. Please go ahead.
Steve Byrne: Yes. Thank you. When we look at your volume trends over the last 5 years, there is a fairly meaningful difference between first half and second half. And perhaps that’s a reflection of second half is nearly half driven by LATAM. But when we look at like your volumes in this first quarter, there they’re lower than the 2 to 5 years of volume growth. So something really led to sharp contraction in the first quarter in volume, but yet your second half volumes presumably that LATAM are – look like they’re going to get back to 2022 levels just reversing 2023. So I guess I’m trying to understand your – why the difference is between first and second half in your outlook? And is that second half potentially driven by just robust demand for insecticides. There are some additional insect pressures in South America these days.
Mark Douglas: Do you want to make some comments?
Andrew Sandifer: Yes. Hey Steve, it’s Andrew. Thanks for the question. First, just to put some of this in context, I think Q4 is the – Q1, excuse me, Q1 of ‘24 here is the last quarter where we are comparing to a pre-channel inventory disruption world, right. As Mark mentioned earlier, Q1 of ‘23 was a record quarter for us. Our North America region was up 41% in Q1 of 23% year-on-year to put it in perspective, right. So, we are dealing with a big swing from peak to more correction kind of zone. And the volume performance in Q1 of ‘24, very much in line with what we have seen with all four quarters of this channel correction. I mean Q2 of ‘23, we dropped 23 – excuse me, 31%. Q3 of ‘23, we dropped 27% volume. Q4, we dropped 25% volume.
This is – the Q1 performance, I would say, just put in context, is just a continuation of the channel correction that we have always said was going to take at least a year to clear out that you had to get through an anniversary this change before you would start seeing any kind of volume return. So, I would put Q1 in that context. But to the second part of your question, which I think is an interesting one in terms of the size, the growth in the second half. And look, if you look at percentages and the slide that’s in the presentation, 23% top line, 46% bottom line growth in the second half, thus feel like very large numbers, I get it. But when you look at our historical size of business, revenue dollars in the second half that we are implying are similar to what we did in 2021, well before the overbuying of 2022.
EBITDA dollars are actually lower than ‘21 sort of between our performance in the second half of 2020 and 2021. So, we are not counting on massive correction. We are not counting on recouping 2022 type positions, where we acknowledge there was overbuying, what we have here is a return to more normalcy. And given this LATAM in particular, if you think about what drives our second half, certainly, LATAM is a big chunk of it. And the U.S. market and pre-stocking in Q4, big chunks of it. Both of those businesses took big corrections in ‘23 and have taken big corrections through the remainder of the season. As Mark described, we finished – we are finishing up the current season in Latin America with much lower inventories, particularly at grower and retail level.
So, we are going into a market that is not normal, but improving. And I think that’s the key, the improving market condition. So net-net, we think that the size of the absolute dollar business we are forecasting doing in the second half is reasonable given that we are past the worst of these year-on-year comparisons, and we are growing from – certainly growing from a smaller base. So, again, just to be careful, don’t get overwhelmed by the percentage change here, the absolute dollar size of the business again compares pretty much to what we were doing in 2020 or 2021.
Operator: The next question comes from Andrew Keches from Barclays. Andrew, your line is open. Please go ahead.
Andrew Keches: Thanks. Good morning. Andrew, I have a question on the cash flow discussion that you hit on a couple of questions ago. So, you have said or at least you have indicated that cash flow will be more back half weighted in 2024. But I also heard Mark talk about starting to rebuild some of those payables already in Brazil. So, can you give us a sense just for the cadence of cash flow from here, the second quarter is typically a source on a free cash flow basis, but just any sort of relative sense and how back-end weighted should we expect it? And then if I can sneak in a tiny follow-up. You did mention continued deleveraging in 2025. This year appears to be mostly cash inflows and debt repayment driving that, is next year going to include debt repayment as well, or is that more about EBITDA growth? Thanks.
Andrew Sandifer: Certainly. Thanks Andrew, I appreciate the question. Look, I think on a dollars of cash flow basis, the free cash flow is very heavily weighted to the second half of this year. We were negative free cash flow in the first quarter as is normal, but significantly less so than the prior year quarter, right. And that’s a big inflection and marks the change in inventory levels for us, where we would traditionally have a working capital build in Q1 with growing inventory. Q2, I would expect still probably to be breakeven until the negative cash flow. And we don’t – we are not going to guide it precisely. There is too many moving variables. But I would tell you that all of – essentially all of the positive free cash flow for the year may come in the second half.
And again, the key drivers for the full year on free cash flow, it’s reduced inventory and it’s rebuilding of payables. And this dance, this balance that Mark and I have been talking about this morning, we are starting to spool up and restart manufacturing lines. That will pull through purchases, that will add to create some work in process and finished goods inventory that flows in the inventory and then we sell through. What we are carefully balancing is continuing to bring down our absolute level of inventory while selling through at the higher rate we are expecting to sell in the second half, new production. So, it will be a stagger step as we go through the rest of the year to bring payables back up to a more reasonable level and to get inventory, again, a couple of hundred million less than where we are today.
So, that will be the combination of those two, and it really will take through the full second half to get the cash benefit from those actions. As we think about the second part of your question and thinking about leverage, certainly, we have been very clear. The priority for all available cash after paying the dividend this year is paying down debt. So, proceeds from divestiture, from free cash flow, we generate organically. In 2025, we still have a significant way to go to get the leverage to the right place. We will continue to see leverage improvement, but it will be driven by two factors instead of just debt repayment. It will be driven by growth in EBITDA. We absolutely are expecting to have growth in EBITDA that will help us to bring leverage back to more of a normal level for this business and well within the kind of covenant range we should be at.
But we will also continue to prioritize free cash use for debt repayment until we get the balance sheet into the right place, right. So, I think it will be that combination of the two levers. It will be growth in EBITDA in 2025 as well as still a commitment to utilizing free cash flow to get leverage to the right place as we go through 2025 that gets us to that where we think we will be right about the targeted levels by the time that we get to the end of 2025.
Operator: The next question comes from Edlain Rodriguez from Mizuho. Edlain, your line is open. Please go ahead.
Edlain Rodriguez: Thank you. Good morning everyone. Just a quick follow-up on market normalizing, as inventory destocking comes to an end and as you get into 2025, like how do you see volume growth for the portfolio in 2025 and 2026?
Mark Douglas: Yes. Listen, as we go through ‘25, I think we have said that we expect what we would consider a more normal type of growth for the marketplace. Acres continue to grow in, certainly, in Latin America and Brazil, so we expect that to be a driver. And don’t forget, at that point, people will be then resetting from a lower level of inventory. So, you would expect more of a normal market growth. Typical market like this grows at anywhere from 2% to 3% per annum. And we generally speaking, with our differentiated portfolio outgrow the market in the long haul. So, I think it’s more about a normalized market demand on the ground. As we said, even in these conditions is very good, we expect that to continue. Test pressure continues to change, so we see that market piece as being pretty robust.
Obviously, our NPIs are growing rapidly, so we would expect ‘25 and ‘26 to be actually faster than the growth we see in ‘24. And then the other piece of – which is not really market driven, but just a view of ‘25, we have a lot of cost headwinds flowing against us right now that are obviously depressing our EBITDA and our EBITDA margin. Those turn into tailwinds as we go into next year. And I think it’s an important facet as we walk through the next couple of earnings calls as we build out the picture of what ‘25 is going to look like, you certainly have got a more stable, more robust external market, but we also have some pretty significant tailwinds in the sense of how we think about our P&L. Andrew, do you want to comment on that?
Andrew Sandifer: Yes. I think, Mark, as we look at ‘25, obviously, one of the headwinds we are dealing with this year is unabsorbed fixed costs from low manufacturing activity. That – as we go through this delicate dance we have been describing this morning and get back to more normal operating rates. By the time we get to the end of this year, we anticipate being past that to where the relatively significant headwinds we have had this year from unabsorbed fixed costs are no longer there. So, if you think about the absence of the headwind going into $25 million, itself being a bit of a tailwind or a stronger base for performance in ‘25. I think certainly, that will be a key element of our outlook. Now, we have got to see how the rest of the year develops, but I think based on how we see things today and the way we are planning to ramp up production, do expect that that volume variance piece that unabsorbed fixed costs to really ease by the time we get through the end of this year.
Operator: The next question comes from Mike Harrison at Seaport Research Partners. Mike, your line is open. Please go ahead.
Mike Harrison: Hi. Good morning. I was hoping that maybe you could give a little bit of additional color on the recent new product launches, and how they are performing relative to expectations. And then you mentioned just now that you would expect some acceleration in ‘25 and ‘26. Maybe help us understand how you see grower adoption evolve and those adoption rates change from the launch year into the second year and third year post launch for those new products?
