Operator:

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.

Pierre Brondeau :

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 representative of the current company performance and operations. There is an expected COGS headwind in that quarter of about $40 million, mainly due to an absorbed fixed cost in relation to a reduced manufacturing activity in the second half of 2023 that are now flowing throughout P&L. Second, the strength of Q4 compared to Q3 is an exaggeration of the typically stronger sales report in the fourth quarter. Historically, Q4 has always been stronger than Q3, but it's magnified this year by the shape of the demand recovery. Our intent for the call is to share information that will demonstrate a confidence in the Q4 forecast. Overall, I am feeling positive about the company. Having said that, I see a number of areas where we can improve on our execution, and we are already implementing changes. I will share more detail in future conversations. I hope this helps position my views of the company and market and provide context for the rest of the call. Slide 3 through 5 provide an overview of our second quarter results. Revenue increased by a modest 2% with volume growth of 14%. In part, the stronger than initially planned volume growth was enabled by strategic pricing actions made during the call. The 10% price decline was mainly driven by three things. One is competitive pressure, which is a normal market dynamic when demand starts to return. Two is a strategic intent to take back market positions in less differentiated products that we intentionally left to competitors by holding to a high-priced strategy when demand was low. And third is one-time incentives to address high-cost inventory in the channel. We began making these one-off adjustments as a way to speed up de-stocking ahead of the next crop season, which will begin in September. With demand returning, we do not plan to make these kinds of one-off adjustments going forward. It is important to recognize that from Q4 2021 to Q2 2023, we raised price every quarter. Even considering the recent price adjustment, we are still substantially ahead in pricing. And now that demand is returning, we can take strategic action in pricing as a lever for sales growth in certain markets. With one full year of de-stocking completed, we saw a return to volume growth in many countries, particularly in the U.S., Brazil, and Germany. As expected, we saw many more small orders to fill immediate needs as customers continue to actively manage inventory. There are a few original sales highlights I want to call out. North America sales were up 24%, mainly from volume in the U.S. with strong growth in herbicides. We are seeing customers waiting to order insecticides and fungicides until they observe pests in the field. In Latin America, sales were up 14%, mainly from volume growth in Brazil. The region also showed strong gains in new products, including Coragen eVo and Premio Star diamide insecticide, Burrow Food, and Stone Herbicide and Onsuva, a newly launched fluindapyr based fungicide. Lower price was driven by three factors I mentioned earlier, competition in the market, strategic pricing on less differential products, and one-time price adjustment. Asia sales were down 28%, and that was largely driven by volume in India. Channel volume in India remains high, especially in insecticide, which has built up over successive aforementioned seasons. Sales of generic Rynaxypyr are acting as smaller secondary headwinds while we pursue litigation for process patent infringement. Ronaldo will speak more to the diamides in a few minutes. We do not see the India channel inventory resolving until at least 2025. In other areas of Asia, Asian countries reported the strongest growth while China declined. Sales in the EMEA were down 3%. Excluding sales to a diamide powder, the region reported overall sales growth in the low 10% driven by volume. The region delivered strong growth in branded diamides and fungicides. Looking at the EBITDA Bridge on slide five, we delivered EBITDA of $202 million, which is at the highest end of our guidance range. The increase of 8% versus the prior year was due to volume growth, cost benefits from the restructuring actions, and FX tailwinds. These three factors more than offset lower pricing and COGS headwinds related to the self-rule of higher cost inventory. Slide six provides an update on the progress in our restructuring actions. We are making excellent progress and have already realized considerable cost benefits through June. We now expect between $75 million to $100 million of cost benefits in 2024, net of inflation, and are on pace to achieve over $150 million of gross run rate savings by 2025. On July 11th, we announced that we entered into an agreement to sell a global specialty solution business for $350 million to Envu. We're expecting the transaction to be completed by the end of the year. We will continue to include the results of this business in our reported figures until the deal has closed, as it does not meet the criteria to be moved into discontinued operations. Our guidance for the second half includes earnings and cash flow from this business. Looking ahead to the rest of the year, we have updated our full year revenue guidance to a range of $4.3 billion to $4.5 billion, which is 2% lower than prior year at the midpoint. This is $200 million reduction between the midpoint of our new and prior guidance, and about half of that attributed to lower first-hand sales that we do not expect to make up this year. The remaining reduction is mostly the result of a slower than expected demand recovery. Although demand recovery is slower than originally anticipated, we do not see improvement in most geographies - sorry, we do see improvement in most geographies, with the exception of India. A revised EBITDA guidance of $880 million to $940 million reflect the lower revenue outlook, and is a 7% reduction at the midpoint against prior guidance and prior year. We expect third quarter revenue to be between $1 billion and $1.09 billion, which is 6% higher at the midpoint versus prior year. Volume is the key driver, with pricing expected to be down low single digits. Year-over-year pricing headwinds are lower compared to the second quarter, as we do not plan to continue one-time incentives now that much of the high-cost inventory in the channel has been reduced. Overall, pricing levels in the third quarter are expected to be similar to the second quarter. Third quarter EBITDA is expected to be between $165 million and $195 million, representing 3% growth at the midpoint. EBITDA margin midpoint of 17% reflects the outsized impact of a $40 million COGS headwind we expect during the quarter. The headwind is mostly attributed to unabsorbed fixed costs related to reduced manufacturing during the second half of 2023. Absence of this headwind would put our implied third quarter midpoint EBITDA margin in line with the historical Q3 average. Fourth quarter revenue is expected to be between $1.34 billion and $1.45 billion, which is 22% higher at the midpoint. Volume is expected to be the key driver of sales supported by new products, improving demand, and growing market share. Price and effects are both expected to be low single-digit headwinds. Fourth quarter EBITDA is expected to be between $353 million and $383 million, up 45% at the midpoint, almost entirely attributed to higher sales. Costs are expected to be favorable from restructuring benefits. The quality pace of results this year is forecasted to be different from what we reported in the past. Typically, the third quarter is the lowest revenue quarter in the year. This year, it is expected to be higher than the first and second quarters due to the timing of the demand recovery. Our second half revenue split between Q3 and Q4 has historically been about 46% third quarter and 54% fourth quarter. This year, we are getting to a quarterly revenue split in the second half of 43% third quarter and 57% fourth quarter. The higher than usual sales in Q4 are due to the shape of the demand recovery. To achieve the midpoint of our full year guidance, we expect to grow in the second half by 15% revenue and 28% in EBITDA with a strong fourth quarter. There are four reasons we are highly confident in those numbers. One, there are signs that demand is recovering. Our second quarter volume is evidence of that. What we're seeing in our second half order books also reflect that improvement. For example, in Brazil, we have about a third of the orders in a book that we'll need to reach that country's second half targets. At this time last year, it was almost zero. Early indications after one month of second half operation show that the regions are on track to reach that target. Two, a large portion of the sales growth we expect in the second half is coming from products launched in the last five years. We see solid demand for these products due to their differentiation from other technologies. Some examples include Onsuva fungicide and Coragen eVo insecticide in Latin America. Overwatch herbicide in Asia based on the new active ingredient Isoflex and new diamides formulation in North America like Elevest and Vantacor Evo. Three, improved orders from diamide partners. Similar to FMC, our partners have been attempting to work down high level of inventories. Levels are now reaching a point that are supporting higher purchases. And four, cost management. We have shown the ability to effectively control cost and deliver on a restructuring savings commitment. That will continue in the second half. I will now hand the call over to Andrew to cover some financial items including our cash performance and outlook.

Ronaldo Pereira:

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 geography. In countries like India and China, these patents have been harder to enforce, which is not the case in most other geographies. This is evidenced by recent legal victories and the lack of generic players attempting to sell in these other geographies. Another factor is data protection. Providing studies for necessary registration can be time-consuming and costly for competitors. If a generic player wants to reference our proprietary data to save cost and time in registering their own products, they will need to wait until the data is no longer protected, which can be as long as 10 years from the original registration. We sell our diamides in nearly 100 countries. Each country has its own regulatory agencies, and the time to register a generic can vary from one year in some countries to more than five years in others. As such, in many countries, competing companies are prevented from registering a generic version of our Cyazypyr actives because FMC's data protection has not expired. After all compositions of matter, process, and intermediate patents and data protection expire, we know that generics will come to the market, most with solo-diamide products that mimic our original products. What they will find is that FMC has not been standing still. We have been actively working to advance our diamides technologies through new formulations. First, through the development of new and, in many cases, patented solo-enhanced formulations. Solo formulations are Rynaxypyr or Cyazypyr molecules formulated to be convenient to farmers, more sustainable, and more cost-effective, allowing FMC diamide products to be more competitive while remaining highly profitable. These new enhanced solo-formulations that we are now introducing in the market are often patented and include high concentration and solid formulations, such as the large effervescent granule product we showcased at our November Investor Day. The second and most important advancement stems from our innovation in developing mixture formulations, which combine diamides with complementary active ingredients. These mixture formulations not only mark a substantial leap forward in performance for growers, but also play a crucial role in preemptively addressing potential insect resistance. At FMC, our proactive approach involves extensive monitoring of insect populations through molecular biology, allowing us to anticipate and mitigate resistance issues. Our expertise in this domain informs the development of superior products tailored to meet the specific needs of each key market. Because we own these products, we have more knowledge about the diamides than any other company, and we are using this knowledge to create superior products. This work is highly tailored to each key country, which, again, significantly diminishes the likelihood of any sudden widespread impact on sales. Simply put, we are confident that there is no impending revenue cliff for these key assets. There are layers of protection for both Rynaxypyr and Cyazypyr-based products, making them an important growth platform for FMC for years to come. We have talked about the diamides many times over the last year. To recap the key points, our current patent state is strong and will remain in place for some time. We are successfully defending our patents and will continue to enforce our IP. We are extending and further protecting the lifecycle of diamides through new formulations to ensure our portfolio remains convenient to growers, highly cost competitive, and performance differentiated. Today, we're developing and launching products that will be needed to help fight insect resistance now and in the future. FMC is best positioned to do that because we have consistently used advanced techniques to monitor insect populations for years. These are the reasons why we believe that diamides will continue to be a meaningful contributor to FMC's growth throughout this decade and beyond. In addition to the diamides, the continued introduction of new molecules and new formulations will support our long-term growth. This includes the launch of four new active ingredients, which we spoke about during our 2023 Investor Day. Fluindapyr, a patented fungicide that we have recently launched in the U.S., Paraguay, Argentina, and Brazil with future registrations expected for Mexico and India. This product gives us access to the large corn and soybean fungicide segments where we played only marginally until recently. Isoflex, the herbicide we launched in Australia and Argentina. Isoflex will also be launched in Brazil later this year and continue to expand into other crops throughout 2025. In India, we just received product registration this week and plan to launch soon. In Great Britain, we have received the active registration and anticipate product registration shortly. Dodhylex, a patented rice herbicide and the first herbicide with a new mode of action in over 30 years. We have submitted regulatory registration in seven countries in which these make up close to 30% of the global rice market. Commercial launches are expected in 2026. Dodhylex is a big innovation in rice and as we advance its development, we continue to find new opportunities on additional crops. Rimisoxafen is still in its earlier stages. Rimisoxafen is an exciting herbicide effective against resistant weeds like Palmer amaranth, in corn and soybean markets. It's another unique product with a new dual mode of action. Finally, pheromones, a platform of products that can potentially change the way growers manage and protect their crops from insects. We have already applied to register the first pheromone product for row crops in Brazil, Mexico, U.S. and Philippines. We estimate this product platform will contribute about $1 billion in revenue by 2033. Years from now, when solo diamide products are fully exposed to the market, in the market, we expect that FMC will be well beyond those original products with patented new formulations and innovative diamide mixtures. Regarding the five new products I have just mentioned, two have launched. Two are awaiting registration and one is pending regulatory submission. Combined, these products will give us access to segments we do not play in today, significantly expanding our addressable market in the future. Our growth story is one of innovation. It is strongly rooted in the strength of our current portfolio and the significant growth we anticipate from our new products. These are sales that will be in addition to our legacy portfolio, including the diamides. I will now turn it back over to Pierre.

Operator:

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.

Pierre Brondeau :

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?

Pierre Brondeau :

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.

Pierre Brondeau :

Thanks, Chris.

Josh Spector:

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?

Josh Spector:

Got it. Thank you. Thank you.

Vincent Andrews:

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?

Vincent Andrews:

Thank you.

Arun Viswanathan:

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.

Andrew Sandifer:

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.

Operator:

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

Pierre Brondeau :

Sure, thanks, Frank. The first one -

Pierre Brondeau :

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.

Operator:

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

Pierre Brondeau :

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.

Edlain Rodriguez:

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.

Edlain Rodriguez:

Okay. Thank you.

Benjamin Theurer :

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.

Benjamin Theurer :

Thank you very much.

Operator:

Good morning, and welcome to the First Quarter 2024 Earnings Call for FMC Corporation. This event is being recorded. [Operator Instructions]

Curt Brooks:

Thanks. Good morning, everyone, and welcome to FMC Corporation's first quarter earnings call.

Mark Douglas:

Thank you, Curt. Good morning, everyone. Our Q1 results are detailed on Slides 3, 4 and 5. We delivered a solid first quarter with EBITDA at the higher end of our guidance range and excellent improvement in cash generation. First quarter revenue declined 32% versus the prior year period. Volume declined by 27%, in line with the magnitude we've observed in the prior 3 quarters. The volume reduction was driven by continued channel destocking and is consistent with the change in grower behavior to delay purchases until closer to the timing of application. Market conditions were largely as we anticipated. And if not for some negotiated returns in Argentina, first quarter sales would have been in the lower end of our guidance range. We delivered EBITDA in the high end of our guidance range and earnings per share above the midpoint of guidance. In addition, we reported a very significant improvement in free cash flow versus the prior year period. Our earnings benefited from restructuring actions, and we still expect to deliver the targeted savings net of inflation of $50 million to $75 million this year.

Andrew Sandifer:

Thanks, Mark. I'll start this morning with a review of some key income statement items. FX was a minor, less than 1% headwind to revenue growth in the first quarter, with the most significant headwind coming from the Turkish lira offset in part by a stronger Brazilian real, Mexican peso and euro.

Mark Douglas:

Thank you, Andrew. We started 2024 as we planned, serving customers with innovative technologies, improving our cost structure to deliver on our restructuring targets as well as delivering much improved cash flow. The crop protection market has started to turn to more normal buying behavior, and we believe market conditions will continue to improve as we move through the rest of the year and into 2025. Growers are constantly looking for new technologies to combat pest resistance and FMC is delivering these innovative new products. We expect approximately 17% of our revenue this year will come from products introduced in the last 5 years, a record for our company, up from 10% in 2021. This growth is despite the challenges the industry has faced over the last year and shows the value growers place on new technologies. With that, we are now ready to take your questions.

Vincent Andrews:

Wondering if you can give a bit more color on the first quarter sales. You referenced Argentina issue that, that would have gotten you to the low end of your sales guidance. Could you just tell us a little bit more about that, and then help us understand what could have happened that might have gotten you to the midpoint of 1Q? It also sounds like you're expecting volume growth in 2Q to largely come from your new product initiatives. So what does the base business need to do in 2Q in order to hit your guide?

Ryan Weis:

This is Ryan on for Aleksey. Just a quick one for me. Can you guys talk about the level of pricing for your brand in diamides versus the rest of the portfolio? Just any color there would be helpful.

Operator:

The next question comes from Christopher Parkinson of Wolfe Research.

Mark Douglas:

No. When we look at the portfolio, I think one of the facets that's kind of getting missed in FMC's North American business is just the sheer mix change that's going on there, something like 25% of our revenue has come from products launched in the last 5 years. That's probably the highest of any region we have in the world. The North American team has done a great job in introducing new insecticides based on the diamides, introducing brand-new fungicides, such as the one I mentioned, Xyway and Adastrio. This is new market opportunities for us. Generally speaking, when we introduced those new products, they are at a higher price point and a higher profitability point, they're bringing new attributes to growers. So when we change that mix, obviously, we see the business starts to change.

Operator:

The next question comes from Josh Spector from UBS.

Mark Douglas:

Andrew, do you want to make a comment?

Operator:

The next question comes from Adam Samuelson from Goldman Sachs.

Mark Douglas:

Yes. Thanks, Adam. Yes, India is -- it's a very important market for us and one that is facing its own individual challenges, not necessarily related to the same reasons as the rest of the world is facing, the channel inventories. I would say India is almost unique in the sense of the channel inventory pressure that we face there is purely due to weather and dislocated monsoons over the last few years. We're not the only market participant to comment on this. Others have also commented on it. It's an industry-wide phenomenon. And it's just time that takes us to get through that. The monsoon in the last season was not great. We're hoping for better weather conditions as we continue through the rest of the year.

Operator:

The next question comes from Kevin McCarthy of Vertical Research Partners.

Mark Douglas:

Yes, absolutely, Kevin. Thanks for the question. I'll make an overarching comment and then Andrew, if you want to jump in with some different views. Yes, we peaked inventory basically around about August last year internally. And we've been obviously on a track since we first came into this channel destocking to really remove inventory as fast as we could. We're getting close to the point. We're not quite there yet. We're getting close to the point where at the macro level for our inventory, we're going to be pretty much where we want to be. We do have pockets, however, where our inventory levels are lower than they should be. And hence, we're now bringing back up manufacturing.

Andrew Sandifer:

Yes, certainly, Kevin. I think we're certainly mid-innings in the journey and getting our own inventory in the right place. As Mark pointed to, we -- our reported inventory at June 30 was about $2.1 billion. We're down to just under $1.6 billion this quarter. We have another couple of hundred million to go. It won't be a one big step. It will be very -- it will be bit by bit because I think there's a very delicate balancing of ramping up production, as Mark mentioned, particularly for products where we are already in short supply and balancing it with the inventory we have on hand and its sell-through. This is a part of the algorithm for generating free cash flow this year as we ramp up that production, build up our payables back to more historically normal levels, but maintain inventories that are more in line with our current sales level. So there will be -- it won't be one big step, but through the rest of the year, you should expect another couple of hundred million of inventory to come out of our balance sheet and that will translate to a contribution to free cash flow generation for the year.

Joel Jackson:

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 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 2 comments, if I got that right?

Steve Byrne:

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 Lat Am. But when we look at like your volumes in this first quarter, 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 Lat Am are -- looks 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 your? And is that second half potentially driven by just robust demand for insecticides? There are some additional insect pressures in South America these days.

Andrew Sandifer:

Yes, 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're 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're 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've seen with all 4 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've 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.

Andrew Keches:

Andrew, I have a question on the cash flow discussion that you hit on a couple of questions ago. So you've said or at least you've 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?

Operator:

The next question comes from Edlain Rodriguez from Mizuho.

Mark Douglas:

Yes. Listen, as we go through '25, I think we've 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.

Operator:

The next question comes from Mike Harrison at Seaport Research Partners.

Mark Douglas:

Yes. Thanks, Mike. If you look at what we've been talking about today in terms of how we think about what we call NPI products launched in the last 5 years, we've gone from back in 2020, 2021, about 10% of our portfolio from those new NPIs. In '23, it was about 13%. We expect it to be about 17% this year. You can see that it takes a number of years for those numbers to start to creep up. And the reason is, you never get to peak sales in year 1. I mean it's impossible in this market. Peak sales going to be anything from 5 years through 10 years. I mean we still have some active ingredients that are 10-plus years old that continue to grow as we find new applications for them.

Operator:

The next question comes from Arun Viswanathan from RBC Capital.

Andrew Sandifer:

Yes. I think certainly, look, always cautious in trying to annualize a very seasonal business, right? And obviously different dynamics in each quarter with regional mix and product mix, et cetera. But I think your bigger point, right, return to sales levels that not necessarily 2022 by any means, but the sales and EBITDA levels that look more like where the business was a few years ago, not an unreasonable assumption going into 2025. It's too early to get too granular here. But I do think a combination from top line, we're in a situation right now where inventories downstream are really getting more and more light. People are targeting levels of inventory that we would argue are not sustainable over a multiyear period, downstream of those.

Operator:

Our final question today comes from Laurence Alexander from Jefferies.

Andrew Sandifer:

Sure. Thanks for the question. I think -- yes, I think we're comfortable with receivables. There's always opportunities to continue to be more efficient. This is a working capital-intensive business. We get it. There will be some use of cash in the second half as we return to growth and that naturally brings some growth in receivables. But we have been managing very carefully our balance sheet. And I think if you look at our -- how we've chosen to manage through this correction period as opposed to some of our peers, we have been disciplined about pricing and about not chasing volume that wasn't there. So it's not to build up receivables and longer-term collection risk.

Operator:

We've now concluded our Q&A session. So I'll hand the call back to Curt Brooks.

Operator:

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

Operator:

Good morning, everyone and welcome to the Fourth Quarter 2023 Earnings Call for FMC Corporation. This event is being recorded and all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zach and good morning, everyone. Details on our fourth quarter and full year 2023 results can be found on Slides 3 through 6. Market conditions and buyer behavior were pretty much as we had expected in the fourth quarter. with North America, EMEA and Asia performing to our plan. The one exception was Latin America. In addition to the ongoing channel correction, our results were negatively impacted by drought conditions in Brazil. This was somewhat offset by stronger sales of our more differentiated products which are showing continued resilience despite market conditions. Branded diamide sales in the quarter were up 5% and with sales essentially flat or higher in all regions. While products launched in the last 5 years outperformed the overall portfolio and comprised 14% of our total revenue. The channel inventory correction is running its course at varying rates through the regions and we're expecting this to continue through the first half of 2024. However, the underlying fundamentals of our business in this industry remains solid. Based on input from third-party data and our own commercial teams, crop protection products continue to be applied at steady rates. Looking at fourth quarter sales on a regional level, North America revenue was down 37% versus prior year from lower volume as expected after a record Q4 in 2022. In Latin America, sales were down 38%, 41% excluding FX, due to lower volumes and low double-digit pricing decline. Branded diamides were essentially flat to the prior year, aided by the successful launch of Premier Star in Brazil. In addition, we had solid growth in Mexico supported by higher sales of new products. Fourth quarter sales in Asia were flat to prior year period as both in fungicides and biologicals effectively offset inventory destocking, particularly in India, where channel inventory remains elevated. Branded diamides [ph] sales in the region were in line with the prior year period. Revenue in EMEA was down 24% or 22% lower excluding FX, due to lower volume, mostly in herbicides. Price was a low to mid-single-digit benefit as the region continued to effectively implement price initiatives. Branded diamide sales experienced strong growth of more than 20%, driven by the launches of Verimark in Spain and Presto Core [ph] in Turkey. Shifting to EBITDA; fourth quarter results were 41% lower than the prior year period due primarily to lower sales. Costs were a strong tailwind with contributions from lower input costs and diligent spending controlled in SG&A and R&D. Our full year 2023 results are listed on Slide 6. EBITDA margin of nearly 22% was lower by approximately 240 basis points but remains at industry-leading levels. This was accomplished through effective spend management and by holding or raising price in many geographies, especially in EMEA which benefited from a price increase of low double digits for the year. We had substantial cost favorability for the year that was more than offset by the decline in sales volume. Operating cost actions we took in the second half of 2023 in response to lower demand, delivered spend reductions well in excess of our $60 million to $70 million target. Diamide sales for the full year were $1.8 billion, a decline of about 15%. However, sales of our branded diamides outperformed and were only down 7%. Across our portfolio, the new and more innovative products showed much greater resilience even in a weak demand environment. NPI sales were down only 2% and made up a little over 13% of our total revenue. a new annual record, up from 10% in 2022. New products that drove this performance include a number of products in Brazil, such as Premier Star insecticide for [indiscernible] and stone herbicides for sugarcane and soy and on fungicide [ph] for soy, based on our new active ingredient, fluindapyr. We also benefited themselves of Coragen Max insecticide for canola [indiscernible] insecticide for fruits and vegetables and overwatch herbicides for cereals. Before we move the discussion to 2024, I would like to highlight some of the actions we have taken to enhance visibility into channel inventory. In Europe, we have put surveys in place in 9 of our most important countries and covering hundreds of distributors and growers to gain insight into their inventory and especially of our products. In Asia, the larger countries, including India, are utilizing proprietary digital platforms to track inventory movement in real time across the channel as it passes from distributor to retailer and then to grower. In Mexico, we're in the final stages of integrating our systems with those of our retailers which will also give us real-time visibility of inventory sellout. We are also piloting the same system and approach in Brazil. In Argentina, we have increased the frequency of data updates to our inventory tracking system. And finally, in the U.S., we are expanding our forecasting process beyond distributors to now include retailers. This expanded data set will then be incorporated into our demand forecasting processes. Moving to 2024 expectations; our full year guidance and commentary being provided on Slide 7 through 10. Having closed 2023 and established a starting point for 2024, we now expect revenue of $4.5 billion to $4.7 billion, an increase of 2.5% at the midpoint. We are anticipating the full year global market to be flat to down low single digits as a softer first half is expected to be followed by the resumption of historical low single-digit percent growth in the second half. The exception to this forecast is India, where we expect the market to be down for the full year, primarily due to channel inventory that the entire industry is carrying as a result of multiple seasons of unfavorable monsoons. Revenue growth for FMC in 2024 centers on volume growth led by NPI which after posting sales of $590 million in 2023, we expect to grow by approximately $200 million in 2024. Almost half of the NPI growth is expected to come from products launched in 2024. Major products driving higher NPI sales include Coragen Evo insecticide in Argentina and the U.S. Premier Star insecticide in Brazil, Overwatch herbicide in Australia as well as on suva [ph] fungicide in Brazil and Argentina. We expect moderate pricing pressure in the year with the largest impact in the first half. FX is also expected to be a minor headwind for the year. EBITDA is expected to be between $900 million and $1.05 billion, flat to 2023 at the midpoint. Growth of new products and benefits from our restructuring are expected to be offset by higher cost of inventory carried forward from the prior year, lower fixed cost absorption and modest pricing pressure. The updated sales range is $150 million lower at the midpoint than our preliminary outlook presented in November. This range now reflects our actual 2023 results. The EBITDA range midpoint is $100 million lower than the preliminary outlook, mainly due to reduced revenue expectation for 2024 and minor additional headwinds to gross margin. Adjusted earnings per share is expected to be between $3.23 and $4.41 per share, an increase of 1% at the midpoint from low interest expense and D&A. At our November Investor Day, we acknowledge that, although FMC had responded aggressively to market challenges in the second half of 2023. Broader actions were needed to better align our business operations with the current realities in the marketplace. We are moving quickly on a global restructuring plan that will fundamentally transform our operating model, including how we're organized, where we operate and the way we work. This is a multipronged approach that focuses on shorter-term expenses and longer-term structural costs as we restructure the operating model. These structural changes will position for success as we move beyond 2024 and towards our 2026 goals. Slide 9 provides some additional detail on the actions we're taking. The global restructuring program is currently underway and will largely be completed in Brazil by the end of Q1. We have also made strong progress through a voluntary separation program in the U.S. with preparations for additional workforce reductions company-wide. Combined, approximately 8% of our workforce will be impacted as we begin to consolidate roles and adjust team structures. Reducing indirect spend is another place where we've accelerated our actions on many critical areas, including nonessential spend and implementing a new strategic sourcing strategy. We already announced plans to sell our noncrop Global Specialty Solutions business. We will be preparing for this over the last 2 months and we are now ready to begin marketing. And lastly, we are examining the company's global and regional footprint. Our location strategy is a critical pillar in FMC's overall transformation and we've made good progress in our analysis so far. This includes examining office locations, manufacturing sites and research centers. Although this is a longer-term work stream, there will be milestones that we will announce throughout this year. As a reminder, we expect this restructuring plan to result in $50 million to $75 million of cost savings in 2024. It's important to note that these savings are net of inflationary and other cost headwinds that we're forecasting for the year. We expect $150 million of run rate savings by the end of 2025. We plan to complete this restructuring and deliver lower costs while continuing to prioritize investments in critical growth areas such as our plant health business, further engagement with growers and R&D, including new product innovation. Slide 10 lists some of the factors that would lead to varying EBITDA outcomes in our guidance range. The pace of recovery in the market is still the largest determinant factor. Our base assumption is that by midyear, every region will have had one full growing season to manage inventory to desired levels, aided by steady application rates by growers. Recovery may vary by region but we expect to see overall market growth in the second half of the year. Slide 11 provides our outlook for the first quarter. Expected revenue of $925 million to $1.075 billion is lower than the prior year by 26% at the midpoint which is consistent with the revenue declines of the last 3 quarters. Volume is expected to be the primary driver of lower sales with pricing pressure in Latin America and Asia, a smaller secondary headwind. EBITDA guidance for the quarter is between $135 million and $165 million with the decline versus prior year primarily driven by lower sales as well as higher cost inventory carried forward from 2023. Taking into account the first quarter guidance that is lower than the prior year period, Slide 12 provides a bridge for how we plan to achieve our full year guidance over the remaining quarters. The largest component of EBITDA growth over the second to fourth quarter period is higher sales volume of new products. Not only do these products have a strong track record of delivering sales in difficult market conditions but they also contribute higher margins which will positively impact mix. We expect NPI sales to grow by over $200 million in 2024 with the majority of the growth occurring after Q1. Market recovery in the second half will also contribute to EBITDA growth. as well benefits from our restructuring program which we'll build through the year as initiatives are implemented. As you can see, we have built a plan primarily based upon elements we control and are not reliant on an outsized market recovery. to achieve our guidance. With that, I'll now turn the call over to Andrew.

Mark Douglas:

Thanks, Andrew. Our first quarter guidance reflects the trend of volume declines and related impacts to EBITDA that we've seen over the last 3 quarters. The destocking trend is expected to level off and start inflecting after the first quarter. Looking more broadly at 2024, we have a plan that is based largely on elements that we control. First, NPI sales are expected to drive revenue growth this year after already showing resilience in the prior years. We have demonstrated a history of growing this high-margin segment of our portfolio over the past several years. We are not counting solely on market growth in 2024. And second, the restructuring program we initiated last year is well underway and this is another area in which FMC has demonstrated strong execution in the past. We're also taking actions to increase visibility into inventories in the channel as well as grower levels through a combination of system implementations and strengthening our relationship with the grower. This is going to be a transition year for the crop chemicals market and we are taking the actions necessary to position ourselves to achieve our medium and longer-term goals. Despite the updated guidance for 2024, our outlook for 2026 has not changed. While it may take well into 2024 to start to rebound from the global channel inventory reset, the drivers for our industry and business remains strong. and many of the challenges we are facing this year, such as working through high-cost inventory are temporary. With the anticipated return to more normal market conditions in '25 and '26 along with our portfolio and deep pipeline of innovative products, we see strong growth ahead. With that, we can now open the line for questions.

Aleksey Yefremov:

Mark, could you discuss your diamides business? You're talking about healthy sales in branded diamides, can you also provide an update on non-branded? What is the situation there? And what is the outlook?

Aleksey Yefremov:

And just a follow-up on that. Do you have visibility into consumption of your partners versions of diamides, is that healthy and also about pricing of those partner sales?

Operator:

Our next question comes from Kevin McCarthy from VRP.

Mark Douglas:

Yes, certainly, Kevin. I mean, first of all, the dynamic this year is going to be pretty much the reverse of last year, where we had very, very strong pricing as we went through the first half of 2023. Obviously, as we go through this year, we're going to start to lap those price increases, so the difference gets a little different. I would say, obviously, we've highlighted EMEA a highlight for us, it was in '23, continues to be that way in 2024. North America is looking good as well in terms of managing price I would say the place where we expect the most headwind is no surprise to anybody will be Latin America and that's mainly in Q1. We expect that to abate as we go through the year, mainly because of that lapping of price as I just talked about. So think of it as Latin America with really Brazil has been the main area there. With regards to Q1, we talked about a pricing headwind. It is a small number in terms of percent. So I would suggest less than the 5% that you just mentioned. We already see that in Brazil. So that's part of what we have forecast for Q1.

Andrew Sandifer:

Yes. Thanks, Kevin. Sure. I think certainly, as we're looking to free cash flow for '24, working capital, particularly accounts payable and to a lesser degree, inventory are really the big drivers of cash release in 2024. And that's in part because of an expectation as we go through the year, then we start rebalancing and production and inventory. We have been intentionally throttling back pretty severely manufacturing over the past two quarters and well into Q1. We would expect to see some ramping back up in manufacturing activity as we go through Q2 through Q4. That will help with bringing up accounts payable. At the same time, we're selling down from the higher levels of inventory we have right now which includes some higher-cost carryover inventory from prior years. So if you look at the big contributors, it's about 2/3 accounts payable, 1/3 inventory that is a benefit from a cash flow perspective. From a P&L perspective, Q1 in particular, is impacted by the carryover of higher cost inventory from last year. As we get further into the year, we have been buying at lower cost. There are lower cost materials and inventory that we'll get to as we work it down. And then as we rebuild production, we expect that to be at or better cost than what we have in inventory right now. So this is a part of that, unfortunately, the pronounced quarterly cadence this quarter as well. As we -- and I think certainly finished the year, we'll have re-established a balance and a more normal balance between inventory and payables and the inventory we will have will be at a more normalized cost base to current market costs. So that absence of that headwind going into 2025 should be a powerful tailwind as we look ahead.

Joel Jackson:

I want to asked a little more about the cadence of the year given Q1, given the full year. There was a comment earlier on this call that you expect EBITDA contraction to turn to growth midyear. If we just take -- it would seem like you would need about 30% plus growth in the last three quarters EBITDA growth to get to your $975 midpoint. I assume Q2 is going to be interesting quarter. when do you exactly expect -- what does Q2 look like? Still contraction end of the quarter starting getting growth? Like anything you could help to help us bridge how we go from contraction back to growth would be really helpful.

Andrew Sandifer:

Sure. Look, I would put it this way. We've long said that we think that this channel inventory correction takes a full year in every market to reach sort of a bottom. We have not gotten to that full year yet. This phenomenon really started in the latter part of Q2 of 2023. Thus, the Q1 revenue drop pretty much in line with the previous three quarters where we've been going through this channel destocking trends. So I think as we think about trajectory for 2024, Q2 is the real transition. We expect a shift to growth in Q2. It may not be significant growth but we do expect to grow as we anniversary the initial drop that started this phenomenon. And as you pointed out, I mean, certainly in that last Q2 through Q4, where our guidance implies about 16% top line growth -- or excuse me, 15% top line growth and about 30%, 32% bottom line growth. That starts in Q2 where you have this inflection and then accelerates in the second half. And as Mark commented on in his prepared comments, it's really driven by new product introduction, right? And I can't emphasize enough when $200 million of year-on-year growth of new product introduction in a year where we're only forecasting $115 million is total revenue growth at the midpoint. It's a significant mix benefit and it's very much tilted in the second half. So I do understand it's a bit of a very back-end loaded profile. But I think there is a clear logic to it. Q1, we're finishing out the first year of this channel inventory correction getting past the anniversarying of it. We have this hangover from high-cost inventory from the prior year. Q2, we see a transition back to positive comparisons and then an acceleration in the second half driven by new product introduction.

Mark Douglas:

Yes. Joel, listen, I mean, I think for us, as I said, '24 is a bit of a transition year. Yes, we did lower the full year of '24 but that's fundamentally on one thing. We finished '23 lower than we expected. It is as simple as that. The numbers just flow from there. We were not going to hold a number that we thought was unrealistic just because we said it in November. We don't think that's the right way to run this business. Now when you look at '25 and '26, particularly '25 Andrew just commented on something that's very important and I mentioned it, we had a lot of headwinds that are temporary right now that are impacting us in 2024. They will go away. First of all, the high-cost inventory. The biggest impact of that is Q1 gets less in Q2. And then as we go into the second half, it dissipates. We also have the benefit of the mix impact from all the new products we're selling. The $200 million of NPI is at above average margins for us. So that changes mix as we go through the year. So you take those pieces and then you take the restructuring plan which is also now underway in building, we intend to have that at $150 million run rate by the end of '25. So you take those pieces they all build as we go through this year, that allows you to make that catch-up period as you go through '25 and '26. And then obviously, the market itself, market has been unbelievably depressed over the last 9 months and going into the first part of this year. That will not stay like that. The market will come back. It will grow at its normal low single-digit growth rates. Once we get into that period, we have a great tailwind going into '25. So I think we catch up. That's why we haven't changed it. We have a view. We know what we're going to be launching; that's an important view for us. So think of it as those elements will make up the '25, '26 period.

Operator:

Our next question comes from Vincent Andrews from Morgan Stanley.

Mark Douglas:

Yes, I'll take it at the high level, Vince and then Andrew, you can make a few comments. We have numerous manufacturing facilities that are built up of individual production lines or synthesis units. Those synthesis units are coming up and down constantly. I would say as we enter Q2, we start to see more of those lines coming back. We already have cases today where we're out of inventory. So we've been pushing inventory down dramatically over the last 6 to 7 months and you can see that in our inventory numbers. That will continue. You always have some dislocation between what sales is selling and what the demand forecast says. So we see that tension now. And that's a change for us. We haven't seen that in the last 6 to 7 months. So we're starting to see the signs of our inventory levels in certain key areas coming down to a point where we know we're going to have to fire up some of those units again. I expect that to happen in the Q2 period. So Andrew, do you want to talk about what impact that has as we go forward?

Vincent Andrews:

Okay. And then if I could just ask on the raw materials. It sounds like your comments for the year that they're going to be flat but that seems to be a function of carrying the higher cost inventory. And I believe Andrew, you referenced that you currently invoicing raw materials below what you're expensing them at. So I don't know how you want to quantify it or give us a sense of it. But if raw material prices where they are today, stayed flat as we move through this year into next year. What type of deflation benefit might be available to you once things are kind of back to fully upending from a production perspective?

Operator:

Our next question comes from Mike Harrison from Seaport Research Partners. Mike, your line is now open.

Mark Douglas:

Yes. Sure, Mike. We talk about this a lot because obviously it's a big driver of our growth and also from our profitability standpoint. I think what we've been doing over the last few years is really a mixture of what we call product extensions which you've seen in the diamides area. I mean, we keep talking about Premier star. We need to put that in context I'm not going to give you the exact number because obviously, we have a lot of competitors listening in on the call. But in Q4 alone, we had tens of millions of dollars of brand-new business. So that's extending the diamide franchise in key crops in Brazil like soy. So those are types of products that are really driving the growth. When you look at the roughly $200 million of new growth in 2024. About $100 million of that is products that are launched within the year. Now $100 million in reference it's usually anywhere from $100 million to $150 million on an annual basis. That's what we've been tracking at. So our expectations for the brand new product launches are not out of line with what we've done historically despite how difficult the market place is. So we know we can sell those new technologies. We know growers are always looking for new alternatives to combat pests. It's split pretty much across all the regions, led by Asia and then Latin America and Europe and North America are all pretty much similar. So the good news there is it's in different geographies on different crops. So we're not banking on the growth of the new products by one big hit with one molecule. That's the good news. And that's how we like to play this. The other one is really our new fungicide, fluindapyr. That is gaining traction. We launched in Brazil. We launched in Argentina. We expect that to grow considerably as we grow through this year. This is our first real entree into a market that's called Asia soybean rust in Brazil. It's a $2 billion market, give or take and we have very little revenue there today. So that's another example of us taking a brand-new product, driving it into a geography and market space.

Mark Douglas:

Yes. Listen, channel inventories are high. We are carrying high channel inventories. We are not the only ones. Other people on earnings calls have highlighted India. You've had at least 3 years of bad monsoons as well as low pest pressure. So there is a lot of inventory that needs to be worked through that. We'll take all of '24 and probably into '25 to work that down, depending on what the weather patterns look like. If you look good, then we may get some acceleration. If not, it's going to take a while. So you're probably going to hear us talk about India pretty much every quarter as we go through this year and certainly into early next year. I doubt we'll be the only ones talking about that either.

Adam Samuelson:

Yes. Maybe just a bit of a clarification just on the assumptions for the full year on price and maybe distinguish a little bit by region because it seems like the pricing competition. It's more severe in Latin America and maybe in India. Just how do we think about the total price cost balance for this year in aggregate. And as we think about that inflection in profitability into '25, kind of how would you frame the risk if pricing doesn't start to probably that price cost balance doesn't start to flip more favorably again?

Andrew Sandifer:

Sure. I think certainly, on the price dynamics, first quarter low to mid-single-digit price headwind, heavily anchored in Lat-Am, a little bit in Asia. For the remainder of the year, prices are actually pretty flat. We'll be anniversarying some price reduction in Q3 and Q4, as Mark described, much of that is rebated incentives, not necessarily list price changes. So it's the absence of headwinds as well in the second half of the year as we see stabilizing market conditions. So for the full year, you end up with a low single-digit price headwind. Certainly, relative to cost, cost is going to be a strong tailwind this year as we get through the full year in Q1, no but as we get through the full year, input costs will start to turn to a tail as we get past the high cost of inventory. And then certainly, with all the restructuring actions that we're taking, that will help generate a further tailwind this year. So the net price/cost relationship for the year is positive.

Salvator Tiano:

This Salvator Tiano filling in for Steve. So firstly, I wanted to touch base again on kind of the Q2 to Q4 assumptions. So as you said before, you're kind of assuming a 15% increase in revenue after Q1 year-on-year. And even if we think about the flattish price you've just mentioned and most of the NPI benefits coming there, it still looks to me that you're assuming probably double-digit volume increase on the legacy business. Is that correct? Are there any components of leasing? And what would drive such a strong growth versus, I guess, your expectations for the market being down a little bit overall, how would you outgrow the market, excluding the NPIs which I took out of the equation?

Andrew Sandifer:

Sure. Look, I think we're -- as sales we've talked about, we're expecting pretty strong growth from new products in the second half. The first half is down across the board. So that growth from Q2 to Q4 is stronger than the full year growth. So there is growth in the core portfolio, absolutely. Probably more like high single digits rather than mid-teens, a little stronger growth from new products in that Q2 to Q4 time horizon. I think we have to be a little bit careful with percentages here. We've had a major market reset in 2023 and as the channel starts to settle out, normalize on inventory, the dollar amounts we're talking about in terms of incremental growth are not egregious by any means when you think about the dollar growth that, that would imply for our core portfolio and a core portfolio that's performed pretty strongly historically. So I think we think that's a pretty reasonable balance. But again, that strong base and that strong driving on the new products is what really helps reinforce the acceleration and the leverage to the bottom line in Q2 through Q4.

Mark Douglas:

Yes. I mean, listen, it's a very valid question. You've got to remember that they're selling products still into the marketplace from their inventory. We're not replenishing their inventory because they're not buying it. It's exactly what we're doing with our suppliers and what our customers are doing to us. A big piece of that market is seed treatment. Do not underestimate how much volume of the diamides goes into treating seeds around the world. It's a large volume. They also operate in markets that we don't necessarily have access, whether it's on a geographic basis or a crop basis. So once again, this is a $70-plus billion market for pesticides that is highly fragmented. It is not unusual for us not to know where those products are going. However, what we do know is that when they see a utility for diamides, they're using FMC's technology and that's what's important to us. So we think about it in that way. I think the other thing you've got to remember is we're talking about where the forecast currently sit. Forecast can change and frequently do. They did last year. The forecasts that the partners put in place in January is very different to what it looked like in September. We could well see a difference in their September forecast or their August forecast than what it is today. So we'll see. For us, the partners are very valuable. They've worked extremely well since we bought the assets way back in 2017 and they will continue to work well. They are just going through the same phenomena that we are.

Brian Wright:

Could you give us a little bit of an update on the plant health outlook and as far as that reflects for 2024?

Operator:

Our next question comes from Laurence Alexander from Jefferies.

Mark Douglas:

Yes. We don't -- that last bit, we don't break out, Laurence. I don't know what controversy you're talking about, about the diamides. We love the business. Higher margins than normal in general, have been since we bought the business, continue to be so. Margin, profile, very strong. I would expect -- I think it was the middle part of your question that as the diamides continue, we'll see what happens with our India business as we go through all the channel inventory work. That may be a drag. Partners, we've already said, is going to be lower. The rest of the branded will see as we accelerate through the year. The new product introductions will definitely be faster growth than the rest. That's how we see the business. It's a strong franchise has been since we owned it and it continues to be.

Arun Viswanathan:

Apologies if I missed this but maybe I'll just ask a question on the longer-term outlook. So you did reiterate the rolling 3-year forward view which maybe you can just kind of flesh out how you're thinking about '25 the well. So is it kind of $975 or so for '24 growing to about $1.2 billion of EBITDA in '25 and then that gets you to the $1.4 billion midpoint in '26. And is that '25 growth really that $150 million of run rate savings and then maybe exiting the year in a more normal environment in Brazil. How are you thinking about kind of that longer -- medium- and longer-term outlook at this point?

Andrew Sandifer:

Yes. Look, I think Mark is right, it's a little early to guide '25 specifically. But in terms of shape of the curve, we've always expected '25 was a big acceleration. You pointed to some of the factors that compound that in terms of the restructuring benefits as well as coming out from higher cost inventory that we have right now in our inventory. But with then still continued very strong growth in 2026. So that's how I described the general shape of the curve at this point, a pretty big step-up in '25 and continued strong growth in '26.

Andrew Keches:

Andrew, can you just talk about the seasonality of cash flow, particularly in the early part of the year. Typically, that's a pretty large seasonal draw. So any high-level thoughts on the magnitude of that relative to historical patterns? And then the follow-up would just be, can you clarify, I think you said that the covenant leverage would end this year below 3.5 which stood out to me because covenant leverage is typically above the simple net debt to EBITDA. So does that include already the assumption about a divestiture of GSS?

Operator:

Our next question comes from Richard Garchitorena from Wells Fargo.

Mark Douglas:

Yes. Thanks, Richard. Yes, we have seen already some insights into how distribution is thinking of managing its own supply chain. And clearly, distribution is lower its inventory levels. you would expect that to happen. The good news is some of the insights we already have in certain parts of the world like the U.S. which we think is probably the furthest advanced at the grower level and at the retailer level. inventory is probably at or maybe even below normal levels. So it's going to be interesting as we really roll into the U.S. season starting in a month or so time [ph], how that really unfolds. The rest of the pieces have been put in place. I do expect Europe to have a much better view. The survey we've put in place is pretty comprehensive. And we're really entering the European seasons Q1 and Q2 are the big growth areas for Europe. So I'm very interested once we get through to the end of Q2, what does that survey tell us when we get to the end of the season. As I said, it's very comprehensive. It's hundreds of different retailers and more importantly, growers throughout Europe. So we'll get a good view there.

Operator:

Good morning, and welcome to the Third Quarter 2023 Earnings Call for the FMC Corporation. This event is being recorded and all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zack. And good morning, everyone. During Q3, we observed a continuation of industrywide destocking activity as the value chain resets inventory levels in response to increased security and supply and high interest rates. This led to significantly lower volumes versus the prior year and in the case of Latin America, the decline was much more severe than we had estimated at our last earnings call. As a reminder, due to the timing of its growing season Latin America is typically the strongest contributor to our Q3 results which amplifies the region’s impact on our overall Q3 numbers. We had assumed that the destocking we observed in Latin America during Q2 would be sufficient to allow for our normal order patterns to resume. As Latin America entered its main growing season in September, it became clear that we underestimated the debt and duration of the destocking to come. It is our view that when the global destocking ends and channel inventories have been reset, there will not be a snapback restocking period. Rather, we expect the crop protection market will grow from that reset inventory base at a more historical growth rate. As a result, and as we noted in our pre-release, we are taking significant actions with regards to our company's cost structure, with an announced restructuring of our Brazilian operations, as well as a review and adjustment of our total company cost base. We are right-sizing our cost base to better reflect market conditions, protect our margins, and position us for future success. We will provide more details about our restructuring programs at our Investor Day. Our Q3 results are detailed on slides 3, 4 and 5. Q3 revenue was 29% lower than the prior year, both including and excluding FX, driven primarily by lower volumes from channel destocking and, to a lesser extent, dry weather conditions in some countries. We had price increases in North America, EMEA, and Asia, which were more than offset by price decreases in Latin America. While our sales were down significantly versus prior year, we need to be clear that the grower application of crop protection products has been steady, and even trend in higher than the prior year in some key countries such as Brazil and the US. In addition, sales of our newer and more differentiated products, including Branded Diamides and Plant Health, outperformed the overall portfolio. Products launched in the last five years grew 4% and represented 10% of total sales in the quarter, demonstrating robustness in the current environment. New product launches accounted for more than 4% of total company sales in the quarter. Looking at our revenue by region, North America sales were lower than the prior year by 34% as anticipated destocking activity was the main driver of lower volumes. Dry weather in Canada was a smaller volume headwind. Sales in EMEA were relatively flat with a revenue decline of only 1% and 4% excluding FX. We encountered volume pressure from channel destocking as expected particularly in Germany. This was mostly offset by a combination of higher prices, strong diamide sales that outperformed the overall portfolio and a modest FX tailwind. In Latin America sales were down 33%, 36% excluding FX due to lower volumes and to a lesser degree pricing pressure. Destocking particularly in Brazil and Argentina was the driver of the results in the region. At the same time, we had a very successful launch of our patent pending diamide insecticide Premio Star in Brazil. The strength of that launch was one reason branded diamide strongly outperformed the rest of the region's portfolio. Shifting to Asia, sales were down 28% and 23% organically. As expected, from like the other regions, volumes were negatively impacted by destocking behavior, particularly in India, where elevated channel inventory continues to be actively managed. Pricing was up slightly with an FX headwind. Products launched in the last five years showed greater resilience than the rest of the portfolio and grew 16% versus the prior year, driven by sales of Isoflex herbicide. The outperformance of new products in most regions demonstrates how our technology differentiates FMC in the marketplace and why our new product pipeline is a key contributor to our growth at consistently superior margins. We reported EBITDA of $175 million in the quarter, down 33% compared to the prior year period, due to the volume decline along with a smaller pricing headwind partially offset by lower costs. Sales of new products included launches and sales of differentiated products such as our branded diamide and biologicals positively impacted mix. Costs were $137 million tailwind, with contribution from inputs and to a lesser degree operating costs. Input cost benefits were especially pronounced compared to the prior year period that represented the peak of inflationary headwinds. Combined SG&A and R&D costs were favorable to prior year, and we are on track to deliver our commitment of $60 million to $70 million cost control in the second half, keeping those operating costs in line with the prior year. Shifting to our outlook, slide 6 shows our latest expectations for Q4 and full year. We are expecting revenue in Q4 to be 22% lower than the prior year, driven by a high teens percentage volume decline, as destocking continues. Similar to Q3, we expect a low to mid-single-digit pricing headwind in Q4, driven by Latin America. FX impact is forecasted to be minimal. Adjusted EBITDA in Q4 is expected to be between $246 million and $306 million, which is a 36% year-over-year decline at the midpoint, primarily due to lower volumes. We expect positive mix impact as sales of new products, including launches, continue to show growth. Operating costs are expected to be in line with the prior year as cost controls remain in place. I'll now turn the call over to Andrew, who will cover cash flow and other financial topics.

Mark Douglas:

Thanks, Andrew. I mentioned earlier that our more differentiated products were showing resilience in the current market environment. This includes the Diamides, a very successful product franchise, which has received renewed attention over the last couple of months. Today, I'll give you an update on the progress of our Diamides growth strategy. This will be supplemented by our forward-looking view of the robust growth plans we have for the Diamides at our Investor Day. We have owned the Diamides for the past six years. Over this timeframe, we have delivered on every target we've set, including growing the size of the business, expanding our partner base, accelerating registrations, expanding our geographic footprint, and finally, introducing brand new patented formulations that allow us to explore and expand the new market segments. All of these results should provide confidence that we can continue to profitably grow the franchise into the future. Turning to slide 9 for some basic data on the insecticides market, which was valued at over $20 billion in 2022. Insecticides have grown at roughly 5% per year over the current time frame. FMC's Diamides, Rynaxypyr and Cyazypyr, make up more than 80% of the entire Diamides class, which includes a few other smaller active ingredients. FMC's Diamides have grown at about 12% of the total insecticide market. And as you can see, Diamides outperformed every other leading chemistry class in the insecticide market by growing at 11% compound annual growth rate and gained 5% market share as a result. High value technologies such as the Diamides continue to take share from older insecticides, some of them being phased out by regulators. Turning to slide 10, we showed a breakdown of our $2.1 billion of Diamides sales in 2022. Cyazypyr has grown more rapidly than Rynaxypyr since our acquisition of the assets and made up more than 20% of total sales. This year, we estimate that this trend will continue, with Cyazypyr making up roughly 22% of total Diamides sales. Partner sales are a key element of our lifecycle management strategy. FMC sells either technical active ingredient or formulated products to our partners under these arrangements. We have long-term supply agreements with five key global companies and over 60 local agreements in various countries with the potential to add more partners in the future. Many of these agreements go through the end of the decade. The partnership model has helped to expand the market for our Diamides since our partners have access to customers, crops and segments that we do not currently serve. Moreover, partner sales are not margin dilutive and these sales made up roughly one-third of our Diamides revenue in 2022. While the remaining two-thirds came from our own commercial activities, which we refer to as branded sales. In 2023, we've seen our partners actively manage their inventories, resulting in lower sales. Branded sales have continued to outperform the overall company. We've also shown the geographic breakdown of our branded sales as of 2022. Asia made up more than 40% of our branded sales, followed by Latin America at 28%, EMEA at 17%, and North America at 12%. This year, we expect branded sales to outperform total sales in Latin America, driven by new products' introductions. Branded Diamides in the other regions are expected to perform in line with, or better than, respective regional sales. On the right to the crop breakdown of our overall Diamides revenue, which includes branded and partner sales. The diversity of crops reflects the broad market potential, as well as market access required to sell these products. This is an important fact to note, as we have numerous products selling in more than 90 countries across dozens of crops. Our Diamides are not a single monolithic product, and as such are defendable through various mechanisms, including, most importantly, newly patented formulations, branding, value selling, agronomic support, and grower education. Our precision ag offering, Arc farm intelligence, now helps support and defend over $700 million of revenue from our branded Diamides, a unique and powerful tool in our Diamides growth strategy. Turning to Slide 11, you can see that managing the Diamides life cycle has multiple strategic components. We will provide more color on these pillars at Investor Day in November, but I wanted to start framing the innovation and IP pillars today. Turning to slide 12, FMC has continued to significantly grow the Diamides to innovation, since acquiring them in late 2017. At acquisition, sales were already segmented across dozens of formulations and brands, spread across more than 80 countries. Since acquisition, FMC has increased the segmentation by developing new partner sales, launching new patented formulations and brands, obtaining new registrations and expanding existing labels which have resulted in a diverse portfolio. This diversity minimized reliance on any single formulation and instead relies on innovation to drive future growth. We have already started to see the benefits of recent innovation in Diamides. This is evident from the increase in total sales of Branded Diamides from ‘21 to ‘22, even though some of the core Rynaxypyr products decline modestly in the same time frame. Coragen MaX insecticide powered by Rynaxypyr is one example of innovation that did not exist when we acquired the Diamides. Coragen MaX is a patent pending higher concentration formulation of Coragen that provides targeted insect control in canola, pulses and cereals. Premio Star is another example of new technology that was developed primarily for applications on Brazilian soy, corn and citrus crops and receive priority approval from Brazilian authorities. The patent-pending combination of Rynaxypyr and bifenthrin provides a differentiated formulation with extremely high performance for chewing and sucking insects. Premio Star has a dual mode of action, its broad spectrum, with both immediate and extended control. FMC has developed and launched four new patented or patent-pending formulations across 10 countries in the past few years. These new technologies are expected to make up 17% of branded Diamides sales in 2023. Contributions from new products will further accelerate over the next few years, removing FMC's portfolio away from older and less differentiated products. Slides 13 and 14 show an updated view of our patent and regulatory timelines. FMC has a patented state of over 1,000 granted and pending patents filed in over 75 countries for the Diamides. While we have not changed our overall outlook, we have included additional commentary to reflect developments since we last shared these timelines. One addition from our last version of this slide is the inclusion of patented mixtures and patent-pending formulations that can extend patent coverage once granted to 2040 and beyond in some cases. Patents are regulated by different government entities than the ones that issue crop protection registrations. Approvals of registrations does not have any bearing on patent validity. Generally speaking, legal actions must be initiated by the patent holder and can only start after registration is received and a generic product enters into commercialization. Moreover, patent judgments in one country do not change FMC's patent rights in other countries. Nor do these judgments give companies the freedom to operate in other countries with valid patents in place. FMC will continue to enforce our patents and we view any infringing parties as a seller of illegal product. In addition to our legal strategy, we also have a regulatory advocacy strategy that includes the enforcement of our data protection rights and notifying regulators about companies that do not have permission to produce or have unknown or different impurities in their products, or otherwise do not comply with applicable regulatory law. This has been and continues to be a successful strategy. Numerous regulatory authorities have declined to approve registrations from such companies. In other instances, companies have voluntarily cancelled or withdrawn applications as a result of our efforts. Hopefully this overview has provided a more comprehensive understanding of the current state of FMC's Diamides. At or Investor Day, we will provide a view of the next phase of growth for this franchise, driven by innovation and other strategic levers. Finally, let me wrap up by saying that 2023 has clearly not turned out how we or the broader industry thought it would. However, we firmly believe the current channel destocking will run its course, and I believe we have taken the right actions to reflect what is happening from a channel demand standpoint. Our new products, Plant Health products, and Branded Diamides all continue to outperform the rest of the portfolio, which shows the benefit of our technology investments. We look forward to seeing many of you at our Investor Day where we will lay out our new strategic plan and provide an outlook for FMC's growth over both a near and long term. We can now open the line for questions.

Joel Jackson:

Hey, good morning, everyone. There are a lot of questions in FMC, obviously, the last weeks, last months on the near term outlook and then, of course, the midterm outlook with the diamides and other products. Maybe we could start with next year. I realize it's early, but it's a key question. We had a lot of volatility around the different numbers. When you think about 2024, can you help anchor us on what it might look like? I don't know if you want to use your 7% to 9% EBITDA placeholder target as a starting point and as granular as possible around volumes, costs, price, where do you think earnings growth can shake out next year? What do you have to do to get the inventory out of the system? Do you have to lower prices? Whatever you can do to help us, get an early look on 2024. Be appreciative.

Andrew Sandifer:

Yes, just echo comments you made, Mark, I think, as we look forward to input cost for next year. The cost of what limited buying we're doing right now, but the cost of things that we're buying are in a positive comparison to prior year. We do expect that input cost will be a modest tailwind next year. The challenge is, unfortunately, that carried forward of unabsorbed fixed costs from reduced production and then the latter part of this year and into early next year. So at gross margin, we're not expecting a lot of help either way at the gross margin line from input cost. Being offset again by unabsorbed fixed costs. It really would be the impact of the cost savings programs we're in the process of launching that will impact every line of the P&L from COGS to SG&A and R&D. We'll detail this more, additional detail at our Investor Day in a few weeks, but that will be a big part of driving profit growth next year.

Joel Jackson:

Great. That's helpful. And then you reiterated a lot of your plan to defend the Diamides across the decade. As you've started doing some of these moves, can you talk about what's going well, what's not going as well as you've thought in some of these strategies and how you're thinking about changing them? And if you can be as granular as possible, what's working and not working in the different countries like India, Brazil, wherever else it'd be helpful.

Operator:

Our next question today comes from Laurent Favre of BNP Paribas.

Mark Douglas:

Yes, Laurent. I'll let Andrew give you some details on the working capital side. My view is when we think about restructuring the company, we're not only talking about our cost base but we're absolutely talking about the other metrics that we look at the performance of the company. Working capital be one of them. The different elements of working capital move at different speeds. Obviously, payables are a lot lower than it should be given the fact that we're not manufacturing a lot right now so therefore we're not buying a lot. That will change inventory. We are working our way through inventory right now. Obviously, selling out of inventory reduces inventory and then we'll collect the receivables at the normal rate. I expect the metrics to get back in line through ‘24 and ‘25 in terms of as a percent of revenue, how much working capital do we carry. But Andrew, if you want to give any more details on that.

Laurent Favre:

Thank you. And the second question, having seen sharp normalization of pricing in LATAM, what makes you think that prices are not going to be sharply down in the northern hemisphere when you start the ‘24 season?

Operator:

Our next question today comes from Aleksey Yefremov of KeyBanc.

Andrew Sandifer:

Sure. Hey, I'll take, this as Andrew. Look, I think the traditional working capital build you see in Q1 should be significantly lower. From an inventory perspective, we're already sitting on a substantial inventory, so our traditional end of year, beginning of year inventory builds in advance of the Northern Hemisphere seasons will be much less subdued, if at all. I think from a receivables perspective because we do have significant advance payments in Q4 against sales in Q1. You don't see as much relief on the receivable side in Q1. And then the question mark is going to be how rapidly we start ramping back up production. We significantly reduced production levels, step down in Q3 and further step down in Q4. So our payables are quite depressed. How quickly we rebuild those payables in the first half of next year will have a lot of impact on it. But certainly I would say the biggest factor that should limit the traditional big working capital pump in Q1 is there is no need to build up a significant pool of inventory going into the new year.

Mark Douglas:

Yes, Alek, let me just make a comment up front and then Andrew can give you some other details. You've got to think carefully about how the inventory is and where it is. We have a lot of work in progress. From the moment we place an order with either outdoor manufacturers or our own facilities, it can take six months for those products to hit the warehouses to sell to customers. So once you start slowing that engine down, it takes a while for that to actually stop dead. We're out of that period now. So we do expect that inventories in Q4 will come down considerably. But Andrew, do you want to make any comments?

Operator:

Our next question comes from Kevin McCarthy of Vertical Research Partners.

Andrew Sandifer:

Thanks, Kevin. Look, I think the covenant discussions are well underway, going very positively. We'd expect to have something more concrete to disclose next week. So, some more to come there. Our most recent covenant amendment we did with 100% support of the bank group and at no cost. This covenant amendment may cost us a little bit, but it won't be a material expense. So I’ll reserve comment until we have completed the discussions, but discussions are well advanced. We have gotten very positive feedback from the bank group. And just to reiterate, they see the need for us to adjust and go through this period of resetting our size of our business with this industrywide channel reset really is a transitory business condition. So the banks have been very supportive of the company. We will, again, adjust the covenant to give ourselves room as we're both reducing debt and allowing the trailing 12-month EBITDA to recover. So as Mark pointed to, certainly Q4, the guidance we have today is challenging, Q1 not likely to improve, and in Q2 we would expect to see an inflection point and start to see trailing 12-month EBITDA begin to recover. That will help with leverage. And then certainly any of the cash that we generate beyond paying the dividend at its current level, all of that cash flow will go to reducing debt. And including, I want to be very clear because there have been some questions about this. We have $400 million in senior notes that are due in February of 2024. We will be redeeming those notes this quarter. So, we'll have no near-term maturities to address. And that's a part of the whole conversation with the bank group on the covenant. So, we'll have some further information for you in the next week on the covenant. In terms of longer-term financial policy, I'm going to reserve comment there to our Investor Day. I will state that 2.5 target leverage on average has been our long-standing policy. We've run north of that on average for the past several years. So that's something that we've had some very active discussions Mark and myself along with the board. So we'll bring some further comments in that in two weeks in the Investor Day.

Mark Douglas:

A little early to tell, Kevin. We really not thinking through the volume price mix just yet. Generally speaking, price tends to be sticky for FMC over the years. We've seen that. We do tend to raise prices every year, even if it's only 1% to cover some form of inflation in different parts of the world. So a little early to say I'll give you more details on November the 16th when we talk about 2024. But volume, sorry Kevin just to finish that conversation, I would say just our new product introductions come through on volume for us not price. So that growth in new products would show up in volume expansion.

Laurence Alexander:

Good morning. Just two questions about framing. One is if you think about the loss sales this year, can you give us rough split between how much you think is order timing moved into the first half of next year? How much is permanently lost and how much you think you would recover by I don't know ’25 -‘26?

Laurence Alexander:

Okay. And secondly on Diamides just for context, can you give a sense for how many reformulations you're introducing? I don't know either annually or over the next three, five years and how that compares with the cadence across the rest of your portfolio. And then also just for context, there have been other large chemistry classes that have gone off patent. What has been the typical growth trajectory for those over 5, 10 years after they went off patent?

Laurence Alexander:

So your bias is they're in line or better than average as opposed to worse than average?

Laurence Alexander:

Yes, in terms of what happens, in terms of that sort of typical trajectory. For historical example, do you think they're kind of at least in line with the average?

Operator:

Our next question today comes from Mike Harrison with Seaport Research Partners.

Mark Douglas:

Yes, I mean, this is -- that will obviously happen as patents roll off and jurisdictions change, generic products will come. I mean, that's normal in this industry, we see it every molecule that has ever existed. What we're doing about that, changing the formulations, bringing new technologies into the Diamides as we just talked about, expanding that geographic base, those are the things that we're doing. The branding of our products, we have extremely strong branding around the world. The brands that we sell are some of the best known brands in the pesticide industry. That is a very powerful tool in places like India, in places like Brazil. Brand matters, quality, assurance of performance. So all you bring all those things together, and we'll talk about that on the 16th, those are the types of activities that allow you to continue to grow your market share in an expanding market.

Mark Douglas:

Yes, it's not great right now, Mike. It's very difficult to walk around the world. You could tell by the types of results that FMC is putting out there, as well as our competitors, that everybody is having the same issues in judging where the market is. I think the focus is on Latin America, because Latin America is now at the beginning of its season, where we've had time in the Northern Hemisphere to work through some of this in US, Canada, obviously Europe. So I think Latin America has all the focus now, just because it's late to the game in terms of where its season is. That does not mean to say that there is not channel inventory elsewhere in the world. Hence my comments, I see this working through Q1, possibly into Q2, and then off we go. So I think that first half is where we're really focused on to make sure that we understand, as we come out of that period, exactly where are we and how is volume flowing.

Vincent Andrews:

Thank you. Good morning, everyone. Mark, I wanted to try to square some of your preliminary comments on 2024. I recognize they're at a high level. I understand raw material costs can be down next year. I understand that you're going to have some restructuring cost savings, and that's going to help EBITDA grow year-over-year, where I would appreciate some more color. It's just on the top line. I think you said you expected FMC to have sales growth next year. And I'm just thinking through, like, if 1Q has to lap, what we've seen in 2Q through 4Q ‘23, which is kind of like a mid to high 20s sales decline. And I think you only had volume down about 3%, yes, 3% in 1Q ‘23. In my model, I just sort of assumed that the headwind from lapping things in 1Q ‘23 on the top line was kind of too much to overcome in the balance of the year to get growth. So, particularly if we assume that once the destocking is over, it's just sort of a reset of sales levels and we go back to the industry growing 3% and perhaps you guys doing a bit better than that. So is there something I'm not thinking about right that helps you get to the idea that you can overcome the 1Q and potentially even a little bit of a 2Q top line headwind to get full year sales growth next year?

Vincent Andrews:

Okay. Well, I look forward to the detail on that in a couple of weeks, and maybe just as a follow-up, just trying to understand the inventory drawdown that we're seeing through the supply chain. Obviously, the numbers are quite incredible. Where would you have guessed a year ago or so that those levels were, and is it really just a function of sort of twin effect of, they overstocked a bit during the supply chain challenges, and then we've gotten the interest rate shock, which has sort of swung the pendulum 100% in the other direction. I'm just trying to understand how the channel was managing to hold, what incentivized them to hold all this inventory this whole time?

Operator:

Our next question comes from Arun Viswanathan of RBC.

Mark Douglas:

Yes, absolutely. We don't see that at all. November the 16th, I'm going to paint the picture for you as how we grow over the next 36 months and what we look like 10 years out. You'll see that there are a number of components that aid that growth. We are absolutely committed to continue to grow the value of the diamonds in terms of its contribution to the company. Now you will see there are other parts that we're introducing that are growing much faster than the Diamides. So don't think of FMC as being a Diamides story. Yes, the Diamides are incredibly important to us. It's a fantastic franchise. Anybody would give their right arm to have this franchise. What we're telling you is we have other things that are actually growing faster and will become more important to the company over the next 3 to 10 years. So I think that's the story that people are missing. You're assuming we're going to drop EBITDA in Diamides. That is not the case. EBITDA is going to grow with the Diamides. You also have the additive of all the new products and the new platforms that we're building. That's the total story and I think that's getting missed today.

Mark Douglas:

Yes, listen, it's a very, very fragmented structure in this industry. It is very difficult at the grower level to understand what people are holding when you have millions of farmers around the world. We obviously talk to our big distributors and partners around the world and they were caught out by this. So I think the industry has a lot to learn in terms of how much inventory is set out there. We are going to be doing some things internally ourselves. I don't want to say what they are, to try and aid our demand forecast accuracy and understanding what inventory is out there. But I think we have to recognize it's never going to be 100% accurate. It is just too fragmented. But there are things that we've learned over the last 12 months that we can apply to our thinking, especially as we're planning our supply chain activities. So yes, there are learnings, some of them I want to keep for ourselves. But generally speaking, I think the industry does have to do a better job of. communicating where inventory sits at any point of that value chain.

Adam Samuelson:

Yes, thank you. Good morning, everyone. It's a lot of ground cover today. I know that there's going to be a lot more detail on some of these topics at the Investor Day. But let's hope and maybe just step back and I understand there's a lot of channel intelligence. Refresh, it's going to happen on your end as well. As you're thinking about 2024, do you think it's 2020, 2021 kind of shipments that are a more appropriate baseline for future growth or kind of cumulatively where do you think the inventory build both in your distribution channel and at your -- at the farm customers actually built up so that we can think about a proper base off which to grow longer term.

Zack Zaki:

Yes. All right. I'm sorry we don't have time for a follow up. I do appreciate the questions. Thank you. That's all the time we have for the call.

Operator:

Good morning, and welcome to the Second Quarter 2023 Earnings Call for the FMC Corporation. This event is being recorded and all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zack, and good morning, everyone. Our second quarter results are detailed on slides 3, 4 and 5. Sales in the quarter were significantly impacted by a substantial decline in volumes across all four regions. During our first quarter earnings call, we already had reduced our outlook for the crop protection market and thought that it would decline by low single digits this year. We now believe this is no longer a valid assumption. Considering the abrupt and intense destocking by growers in the distribution channel in the second quarter, we now expect the global crop protection market to contract by high single digits to low double digits. Even as on-the-ground consumption by growers remains at levels similar to last year and planted acres continue to grow in key geographies. Channel feedback indicates the destocking actions are a result of three factors

Mark Douglas:

Thank you, Andrew. Before we open it up to Q&A, I want to remind everyone that we will be holding our Investor Day at our headquarters here in Philadelphia on Thursday, November the 16th. In addition to interacting with our executive team and leaders, attendees will be updated on our new strategy going forward. To close, it is very clear that the market is performing in a fundamentally different way than we had forecasted at the beginning of the year. We are adapting to control tightly what is critical at this time, namely lowering our inventories of raw materials and finished goods to match the short-term demand, managing our internal costs, while at the same time, investing in our R&D pipeline for the future and finally, focusing on selling our newly launched products, which add real value to our overall profitability, as well as new products we have coming in Q4, especially in Latin America for soy applications. While we have not seen this magnitude of volume change across multiple regions at the same time before, we have successfully managed through demand shocks in the past and have always emerged a stronger, more profitable business. I am confident this will happen again, especially as we have the benefit of good grow demand for our products around the world. I'll now turn the call back to the operator for questions.

Laurent Favre:

I'd like to go back to what changed since the May outlook and you -- Mark, you mentioned the volumes seen at low single digits and now up to low double digits and yet with consumption being broadly flat. I was wondering, has it changed your assessment of how much went into the ground last year, or do you think that channel inventories will end up abnormally low this year. And I guess it's a way of asking if there are reasons to hope for a big volumes reversal into 2024? Thank you.

Laurent Favre:

Thank you. And you also mentioned the price declines in fertilizers and nonselectives as the reason, I guess, for growers to change behavior. In that context, what gives you confidence that you can avoid price cuts into the second half and into next year, in particular, given the context of variable cost deflation? I'm not aware of such a strong pricing discipline in the industry, but maybe especially for diamides, it might be a different story.

Operator:

We have our next question comes from Christopher Parkinson from Mizuho.

Mark Douglas:

Yes. Chris, listen, I think you're going to see pockets of people overshooting on inventory reduction. It's such a big industry. There are many different nodes to these channels. You could tell that the industry's ability to forecast what was coming, as we went down this curve, it's probably the same as we come out of this curve. So I do expect to see places where inventory has been run down too much and will come back at a faster pace. There are other places where inventory was high and is being drawn down to what we would call more normal levels. So, it's going to be a combination of the two. It's -- as I said, it's such a large industry and complex supply chains that it would not surprise me to see that. I think you'll see it in North America just as much as you'll see it in anywhere else. I don't think North America is in any particularly different shape. I would say, Latin America, we expect to see the same phenomenon and certainly in Europe as well. We have seen public comments by major distributors in the U.S. about how they see their inventory levels reducing and how they expect to see that come back as we go through the next season. So overall, I think you're going to see probably both impacts. Some people will overshoot and some people won't.

Andrew Sandifer:

Sure. Hey. It's Andrew, Chris. Thanks. Look, I think that the story for free cash flow in 2023 is actually relatively simple. However, challenging and disappointing it might be in the immediate term. We have a substantial drop in the EBITDA guidance for the year that flows directly through cash flow. The sales growth is in the second half, and the balance of our sales is more second half weighted as you know well, given the regions in which those sales are made, we won't collect on those sales in the year, so collections are lower. But building on comments Mark made in our prepared remarks, we are adjusting production levels across our operating lines right now. That means we're not buying anything as we're not manufacturing a lot of -- we have ample inventory at the moment. So, we're not manufacturing a lot of new material. So, we're not buying anything. So, we're looking at somewhere north of a $400 million drop in accounts payable at year-end. I mean simply $180 million drop in the EBITDA guidance and a $400 million drop in accounts payable basically wipes out the free cash flow we had guided for this year. Now as you pointed to, free cash flow is pretty lumpy. And as you cross, time periods can swing pretty rapidly. We do expect that as we move into more normalized conditions in '24, that we would see a rebound in free cash flow. We’d see a rebuilding of payables. We’d see a reduction in inventory, and we get back to a more normal collection cycle, more balance between the halves of the year. So we have nothing that makes us feel any different about our long-term goal and expectation that we should operate this business at a 70% plus rolling average free cash flow generation. It's just these -- the rapidity of these adjustments in this channel inventory reset this year is just too much to overcome unfortunately, in the six-month period. So that's the reality of free cash flow. But again, I think we feel very confident about the cash-generating capability of this business over the long term, and you will see that rebound as the situation normalizes.

Salvator Tiano:

So the first thing I want to understand is, you mentioned how farmer applications seem to be flat year-on-year holding up. Can you talk a little bit about your -- how you go in trying to understand what farmers are doing and what confidence level you have here? Because obviously, what farmers ultimately do is the critical point in understanding how much of this volume decline is true demand decline versus actual destocking.

Salvator Tiano:

Great. Thank you. And my follow-up is a little bit on trying to understand a little bit what's happening with your diamide partners. So firstly, you're talking about the destocking. So essentially, in your view and your understanding is that diamide demand, whether it's branded products or from your partners, is holding up, but your partners like UPL are going above and beyond to lower their AI purchases firstly. And secondly, I think UPL specifically entered the U.S. market with its Shenzi product a few months ago. What is the impact for this to your own branded business in the U.S.?

Operator:

We have our next question comes from Vincent Andrews from Morgan Stanley.

Mark Douglas:

Yes, Vincent, good question. And let me just start it off and then Andrew, if you want to talk a little more granularity on the cost side. Certainly, we've been anticipating and we expected lower costs as we go through the second half of the year. We started to see that in Q2, and we've talked about an order of magnitude difference in Q3, which we know is there. I would say generally in the industry, prices have come down, continue to come down. I think we're looking at perhaps a little better scenario than we thought at the beginning of the year. A lot depends on what China does. We're seeing a lot of shutdowns in China after they've been selling products, what we believe has been below costs. Obviously, you can't keep that going for very long. So, it'll be interesting to see what happens to many of the Chinese producers that are probably in some significant financial issues right now. We expect that -- we expect some of those smaller companies to disappear. Our view is that we'll expect to see the current level of lower raw materials and intermediate costs roll through into 2024. But Andrew, do you want to just comment on that further?

Vincent Andrews:

Okay. And as a follow-up, I know with the reduced guidance when you pre-announced, it came with some incremental cost out efforts that you were going to do. And I just would like to get a better sense of what it is that you're doing and how you're sort of balancing the desire to sort of improve your near-term earnings situation through this challenge and then obviously look for cash flow versus the last year or two, we've been talking about the very successful investments you've made and opening up new markets and doing things like that. So, how are you trying to sort of balance? It's obviously a very challenging period of time right now with sort of making sure that you're continuing to do the right things to invest in the growth of the business over the medium to long term.

Andrew Sandifer:

Yes. I just would emphasize that we are controlling spend. We are still going to be spending more dollars in R&D this year than we did last year. We're just not growing quite as fast. Similarly with SG&A. And as Mark pointed to, we're not making any compromises on investing in the commercial operations of the Company and that expanding market access and building that closer intimacy with the customer. We are being very careful in metering our spending in other areas. And I think this is something that we've demonstrated over a number of different disruptions that have occurred in the past 12, 15 years that we can do, particularly in the last 5. So, we will be spending well below what we started the year planning to spend, but we'll continue to make investments that are going to drive the long-term future of the Company. And nothing that we're doing has any structural impact to the Company's ability to grow.

Lucas Beaumont:

This is Lucas Beaumont on Josh. So I just wanted to get back to the volumes, if we could. So if sort of I understood your comments earlier correctly and a chunk of the volume growth over the last two years was more driven by sort of customers that are ordering and it's basically going into inventory versus the underlying demand. So, I mean, if we kind of look then at sort of your trends for this year in the last two, over a kind of three-year period, you're basically in line with that sort of long-term low single-digit kind of volume growth rate. So I guess that as we think about the setup for next year, does that mean that we should basically going to just return to trend growth from this like lower level and not really expect more of a rebound, or how should we kind of think about that? Thanks.

Lucas Beaumont:

Great. Thanks. And then just on the fourth quarter specifically, could you walk us through your margin assumptions that are getting to your 4Q guide? So how much of that is kind of from volume catch-up versus more normal trends? And how much do you expect raw materials to help there in the fourth quarter? Thanks.

Operator:

We have our next question comes from Laurence Alexander from Jefferies.

Mark Douglas:

Yes. 2015, you've got to remember back to 2015, it seems a long time ago now, but that was a particular event in Brazil. It was both inventory, it's currency impact and it was, again, that scarcity of products leading into that. I think this is different in the sense of it's broader and it's happening much faster. In other words, the decreases we're seeing on a quarterly basis right now, they're much more extreme than they were before. I think the other thing for us, in particular, although there was a lot of people impacted by the Brazilian event, there was a new seed trait that was introduced into Brazil for soybeans, which impacted insecticides within a reasonably short time frame. That was a factor that it's certainly not at play today in any way, shape or form. So, I don't necessarily look back on Brazil as a proxy for what is happening today.

Andrew Sandifer:

Yes. We have not yet quantified that in part because it's a moving target. We do anticipate based on what our operating levels are right now that there will be some modest fixed cost absorption headwinds in Q4. That's built into our guidance, be very clear. It mitigates -- it offsets a small amount of the input cost benefits we have in Q4. But in terms of how that might bleed over into next year, it's too early to know because it's going to depend on how we operate through the rest of the year. I think we're being very thoughtful about managing our inventories, trying to bring them down in line with current demand, but also leave ourselves in a position to be able to capitalize on the eventual recovery of market. So, it is a bit of a moving target. But I think key message, both our Q3 and Q4 guidance reflect our expectations for any impact of unabsorbed fixed costs in these periods. And as we look forward to the next year, it's really going to depend how the rest of the year plays out.

Adam Samuelson:

I was hoping to maybe draw a little bit closer distinction in the terms of the second quarter sales decline and the trends you're seeing between orders from your customers for -- where you're a supplier of the diamides to other crop chem manufacturers to sales into the channel? And is there actually any distinction in terms of sales trends and magnitude of decline to glean from those just as we think about kind of where the change in activity levels have occurred, and I mean, again, it's been global, it's a magnitude that's really not with recent precedent, but I'm just trying to distinguish where you're now a bigger supplier to other manufacturers than you were historically. Kind of how that has -- if there was any meaningful change in distinction between those two sales trends?

Adam Samuelson:

Okay. And then, if I just think about the fourth quarter and the cadence of revenues for the balance of the year where you have volumes improving in 4Q. Can you talk about just the magnitude that the expected contribution from some of those new product introductions and kind of where not really firm orders per se, but where -- just help us that meeting a discrete building block to return to growth in 4Q versus kind of what is just an assumption of a return to more normal buying patterns from your channel partners, presumably in South America, most notably?

Operator:

Our next question comes from Aleksey Yefremov from KeyCorp.

Mark Douglas:

Yes. Listen, I just made a comment earlier about weather. I mean, we've had in the first half of the year, obviously, very difficult conditions in the south of Brazil and Argentina through drought. We're seeing dry conditions in the Midwest of the U.S., very dry conditions in the South of Europe as you go through Spain, France, Italy, Greece, Turkey. We also have seen flooding in China, flooding in the north of India, dryness in the south of India, dryness in Australia. I mean the list goes on and on. We're dealing with more weather volatility than we ever have over the last year. So those are the types of things that mother nature throws at us. And of course, mother nature doesn't care about the financial quarters that we have to deal with but that's something that we all have to manage as we play in the agricultural field. But it's certainly real. And in some countries, it's very, very impactful.

Mark Douglas:

I guess, you mean from a generic standpoint, from a -- what you mean from a -- could you just elaborate a little bit more what you're looking for?

Mark Douglas:

Listen, generics play a major role in the marketplace. They have been around and they are around. We don't necessarily play in a lot of those markets. It's not to say that the markets they play in are not valuable, they are. But we don't have a lot of generic pressure in a lot of our product lines, mainly because of how we differentiate through either new active ingredients or new formulations that we bring to market. So, I expect the generic market to get more competitive, but we don't play in that space.

Richard Garchitorena:

Great. Thanks. My question, just from a bigger picture, you mentioned that the macro environment has changed the way that your customers have been managing inventories. Is there any change in terms of what you think about in terms of what the mid-cycle sort of earnings generation of the business is? Should we look at $1.4 billion sort of like as a good base to move from going forward?

Richard Garchitorena:

Okay, great. And just as a follow-up, how has the biological business impacted at all the change in the market environment? Do you still see 7% to 8% CAGR growth for the next few years? I know we get an update in November but any thoughts on that right now would be great. Thank you.

Operator:

We have our last question comes from Joel Jackson from BMO.

Mark Douglas:

Good question. Listen, there is always a commercial package to be put together. And rebates in some parts of the world are a meaningful way that we go to market, like everybody else, the U.S. being one of those markets, but rebates are not used all over the world. So, we consider all the tools we have to make sure that we're delivering value to the growers and that we're getting the appropriate value to FMC. So, if there are rebate changes to be made, they'll be made, but it will be done in the context of the value we're bringing.

Mark Douglas:

Andrew, do you want to…

Mark Douglas:

Yes. I mean, listen, price and volume will be, as we've said, it will be within the quarter or very close to the quarter. A little early to say at this point, but as we get there, we'll know exactly how we're playing and how the market is moving. Our expectation, as I've said numerous times, is we expect orders to be coming very close to the planting season, and that's what we're gearing up for.

Zack Zaki:

All right. No, that's it. Glenn, thank you very much. That's all the time that we have for the call today. Thank you, and have a good day.

Operator:

Good morning, and welcome to the First Quarter 2023 Earnings Call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. [Operator Instructions]. I would now like to turn the conference over to Mr. Zack Zaki, Director, Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zack, and good morning, everyone. Our Q1 results are detailed on Slides 3, 4 and 5. In Q1, FMC delivered solid results with strong pricing actions, accelerated growth of new products, increased market access and cost discipline, driving margin expansion of over 60 basis points versus the prior year period. We reported $1.34 billion in first quarter revenue, which is flat on a reported basis and up 4% organically. Revenue was flat due to FX headwinds and lower volumes. Adjusted EBITDA was $362 million, an increase of 2% compared to the prior year period and $7 million above the midpoint of our guidance range. EBITDA margins were 26.9%, an increase of over 60 basis points compared to the prior year period. This margin expansion was driven by pricing gains, strong mix and cost discipline. Adjusted earnings were $1.77 per diluted share in the quarter, a decrease of 6% versus Q1 2022 but $0.04 above the midpoint of our guidance range. North America had a record quarter with sales growth of 28% or 30% excluding FX versus the first quarter of 2022. You will recall, we built inventory for the region at the end of last year in anticipation of another strong quarter and aided by our investments to increase market access. We were able to take advantage of the available supply to gain market share, especially in Canada. Canada achieved record first quarter revenue and effectively doubled in sales compared to the prior year period due to high customer demand particularly for insecticides such as the recently launched Coragen MaX, low channel inventory for FMC products, price increases and product mix were also drivers for the strong performance in Canada. Product mix across North America also benefited from higher sales of new products with 29% of branded revenue derived from products launched within the last 5 years, including a significant contribution from the successful launch of a new patented diamide formulation Altacor eVo for use on tree nuts and other crops. Branded diamides grew more than 20% in the quarter. Sales in EMEA declined 4% year-over-year and were up 2%, excluding FX. Robust pricing actions offset lower volumes of herbicides in core EU countries, anticipated registration losses and the impact of discontinued sales in Russia. FX continued to be a headwind in the region. Branded diamides grew mid-single digits in the quarter versus the prior year period. Switzerland, Turkey, Hungary, Romania and the Ukraine all grew double digits compared to the prior year period. Moving now to Latin America, where revenue declined 12% versus the prior year period. As expected, drought conditions and missed applications in Southern Brazil and Argentina led to lower volumes in the quarter. Demand in Mexico and the Andean region remain stable. In Asia, sales decreased 22% and were down 15% organically. Australia experienced a dry start to the growing season impacting sales in the area. In addition, we continue to actively manage India's elevated channel inventories to bring them down. Fungicides grew more than 20% in the quarter driven by Japan. And finally, new products contributed to 17% of the region's branded sales in the quarter. Overall, adjusted EBITDA for the first quarter was up 2% year-over-year driven by pricing gains, partially offset by lower volumes, inflationary impacts on costs and FX headwinds. Price was up $96 million in the quarter. FX was a $32 million headwind. And once we saw volume slowing mid-quarter, we took deliberate action to control costs, especially in SG&A. Hence, the overall cost headwind was limited to $27 million for the quarter, driven by higher input costs. Before I review FMC's full year 2023 and Q2 earnings outlook, let me share our updated view of the overall market conditions. Crop commodity prices remain elevated, and growers continue to rely on advanced technologies to maximize yields. This was reflected in the success of our new products in the first quarter and the continued momentum is anticipated for our innovative technologies for the rest of the year. However, the price normalization that we highlighted last quarter in nonselective herbicides, a segment in which FMC does not participate has accelerated, especially in Latin America. Droughts have impacted key geographies such as Brazil, Argentina and now Australia. We have seen a trend where some distributors are delaying purchases to manage their working capital. We see this as a result of the higher interest rate environment. Taking these new factors into account, we are revising our view of the overall crop protection market and now expect the global market to be down low single digits versus our prior forecast of up low single digits. Breaking this down by region, we now expect Latin America to be down high single digits. EMEA is now projected to be up mid-single digits. North America is still expected to be up low single digits, and Asia is now expected to be down low single digits. FX is still projected to be a headwind to market growth on a U.S. dollar basis. To be clear, the key driver to the changing market outlook is nonselective herbicides. And let me reiterate, this is a segment in which FMC does not participate. Excluding nonselective herbicides, we expect the global crop protection market to be flat versus the prior year. We still expect to deliver revenue growth in this environment driven by pricing gains as well as volume growth through new products and expanded market access. Slide 6, 7 and 8 cover FMC's Q2 full year first and second half earnings outlook. We anticipate revenue in the second quarter to be flat compared to the prior year, with further price increases, particularly in EMEA, growth of new products as well as market access gains to be offset by lower overall volumes and FX headwinds. North America purchase patterns are expected to return to normal levels after 2 consecutive quarters of very strong demand. Channel inventory -- Channel inventory is anticipated to remain a focus in India as it will for the rest of this year. Our diamides partners are lowering their inventory levels in light of working capital concerns impacting volumes in Q2 and the rest of the year. EBITDA guidance is flat compared to the prior year of $360 million, and EPS is expected to decline by 9% year-over-year, primarily due to higher interest rates. FMC's full year 2023 revenue forecast is unchanged in the range of $6.08 billion to $6.22 billion, representing an increase of 6% at the midpoint versus 2022. Driven by pricing gains as well as volume benefits from higher new product sales and increasing market access. Our forecast for contributions from these new products has increased from approximately $720 million in our previous guidance to over $800 million now. FX will continue to be a headwind to revenue. We are raising guidance for full year adjusted EBITDA by $10 million based on the first quarter outperformance, continued pricing gains, positive mix and projected cost tailwinds. We now expect full year EBITDA to be in the range of $1.5 billion to $1.56 billion, representing 9% year-over-year growth at the midpoint. 2023 adjusted earnings per share is raised by $0.04 at the midpoint and is now expected to be in the range of $7.34 to $7.94 per diluted share. Representing an increase of 3% year-over-year at the midpoint, reflecting higher EBITDA, the benefit of share repurchases completed in Q1 as well as somewhat higher interest expense. Consistent with past practice, we do not factor in any benefit from potential future share repurchases into our EPS guidance. Looking at the implied guidance by halves, first half '23 revenue is expected to be flat versus the first half of '22 and second half '23 revenue is expected to increase by 12% compared to the prior year period. While drought conditions are expected to impact sales in the first half, revenue in the second half is anticipated to benefit from continued growth of higher-margin in new products and especially in North America and Latin America as well as pricing gains and expanded market access. EBITDA guidance for the first half of '23 indicates a 1% growth over the prior year period, driven by pricing actions. Full year guidance implies a 17% year-over-year EBITDA growth in the second half of the year. Compared to last year, our EBITDA growth outlook is second half weighted with significant year-over-year gains projected in Q3 due to input cost tailwinds. Turning to Slide 9 and the updated range of 2023 EBITDA outcomes. The global crop protection market is now expected to be down low single digits versus the prior year, primarily driven by normalizing prices of nonselective herbicides. Input costs continue to decelerate and there is a lower likelihood of major supply disruptions. New products are growing at a faster pace than previously anticipated, resulting in better mix as well as significant share gains in selective markets. We continue to have strong pricing and FX is still expected to be a minor headwind to full year EBITDA. Despite our tight internal cost controls, we are continuing to invest in commercial and agronomic resources to grow our market access. We've seen the very positive results from these investments in the U.S., Canada and Brazil, and we are now expanding the program to the Middle East, Africa and parts of Asia. As a result of all the factors I've mentioned, we have narrowed our guidance range and raised the low end of the guidance by $20 million. I'll now turn the call over to Andrew to cover details on cash flow and other items.

Mark Douglas:

Thank you, Andrew. Before I make my closing comments, I'd like to invite you to FMC's Investor Day on November 16 at our headquarters here in Philadelphia. Our agenda promises to be robust with dynamic showcases multiple speakers from commercial and functional areas and a chance to interact with FMC's executive leadership team. We will share more about our short- and long-term strategies, outline long-range financial goals and provide an early look at 2024 expectations. Please visit our website to register your interest in attending. I'm also pleased to announce a new collaboration with the Halo Trust, a humanitarian nongovernmental organization that restores livelihoods of people affected by conflict through demining activities. As you may recall, FMC was the first crop protection company to exit Russia 1 year ago, and we continue to support Ukraine and its farmers through various initiatives. As part of the collaboration with the Halo Trust, FMC is donating 3% of its 2023 sales revenue in the Ukraine to support expansion of its demining efforts. With this funding, the Halo Trust will be able to significantly increase its capacity to remove land mines from Ukrainian farms. This project not only ensures Ukrainian farmers can safely return to their fields for planting and harvest but it also contributes to improving food security around the globe. Finally, I'm proud to share that FMC is among just 6 companies in the world and the first crop protection company globally to have its net 0 target by 2035, verified by the science-based targets initiative organization. FMC has made substantial progress in recent years on its sustainability and net 0 goals. The company reduced Scope 1 and 2 greenhouse gas emissions at its operating sites by at least 2% in the last year, while at the same time, delivering record growth and increased revenue -- increased volume. In closing, FMC continues to perform strongly in a volatile market. Our performance is a result of our innovative portfolio of products that address a variety of grower needs across diverse crops, applications and geographies. It is also a reflection of the power of our product pipeline, which continues to provide us with exciting new synthetic and biological technologies. We have taken strong pricing actions to help recover from 24 months of unprecedented cost inflation and improved our product mix at the same time. Market access investments made over the past couple of years provide growth opportunities, especially for our new products. Input costs are receding, and we have good visibility into the year-over-year tailwinds in the second half of the year. But finally, other costs will be managed prudently while maintaining investments in R&D and expanding market access. These factors give us confidence in our raised guidance and position us to deliver another year of earnings growth and increased cash flow. I will now turn the call back to the operator for questions.

Christopher Parkinson:

Just given how well it appears price cost is trending at least to begin the year given your 1Q margin result. Can you just speak to the confidence that you have for your volume growth outlook for the balance of the year. And for those who may be skeptical on it, what would you say to them inclusive of where you think your progress on reducing inventories in key regions?

Christopher Parkinson:

That's helpful. And just as a -- to quick -- actually -- true follow-up to that question. Mark, you've spoken about and then you just hit on some of that with the NPIs, the non-diamide portfolio growing a little bit faster than the diamides when the original assumption was mid-single digits. If you could give us a quick update there as well as your biological assumption, correct me if I'm wrong, I think you were speaking about something about 230 to 300 plus there in terms of volumetric growth contribution. It seems like you're well on track as of the first quarter based on your PowerPoint commentary. If you could just hit on this other 2 further dynamics to go down one further level, that would be very helpful.

Operator:

The next question comes from Vincent Andrews from Morgan Stanley.

Mark Douglas:

Yes. Thanks, Vincent. I'll give you some high-level comments on how I see the overall cost picture playing out through the year. And then Andrew, if you want to dig into a couple of the details that Vincent raised. Certainly, from a cost -- let's put it, cost input in terms of raw materials, logistics, all other supplies, et cetera. We do have a very good view now of certainly Q3 and pretty close to finally in Q4. If you remember the way costs flow through our P&L, we have about a 6-month hang-up as inventory gets pushed through to revenue. So what do we see today? We know Q3 already. And the reason we're saying that the second half of the year is more front-end loaded into Q3 is that last year, Q3 was an extremely high impact from raw material inputs, in fact, the highest we've ever seen. We see that reversing now and most of our costs are locked in for Q3. So we know we have a significant uptick in Q3. So don't think of the second half has been back-end loaded into Q4. It's not. It doesn't mean to say that Q4 won't be good, but Q3 will be the area where we see the biggest EBITDA improvement because of costs. On SG&A, we continue to manage that well. FMC has done that well for the last 2 to 3 years. We're very flexible in how we move our SG&A around and where we need to save, we can, and we exhibited that in Q1. But Andrew, if you want to talk a little bit more about some of the flows of the cost go ahead.

Vincent Andrews:

Okay. And if I could just ask a quick follow-up. Slide 10 on the cash deployment. You do talk about the potential for inorganic growth through M&A this year. I would assume that's going to be on the sort of smaller side of the equation, if anything comes to fruition? Or is that not correct?

Operator:

Our next question comes from Tony Jones from Redburn.

Mark Douglas:

Yes. Tony, I'll certainly talk from an FMC perspective. We -- as I said, I think it was on the last call, we're not a commodity chemical company. Our prices don't shoot up overnight and they don't come down overnight. And I think that's an important facet that people have to remember. We have spent the last couple of years absorbing a tremendous amount of inflation of input costs and early in '21, we started to move price and we built as we went through the year and then we gained price last year. And obviously, we're still moving price today. That will not slow down. We intend to recover all of the input costs that we've seen in terms of inflation. So while we were a bit of a shock absorber for our customers as we went up this curve, we intend to keep that as we go to the other side of the curve. So we're very confident of our ability to hold price. You saw that in Q1 that will continue in Q2 through the rest of this year and as you rightly say, into '24 as well.

Mark Douglas:

Yes. I'll just give you my view and then Andrew, please jump in on some of those CapEx numbers. We do plan forward. Obviously, it takes us 3, 4, 5 years to get new facilities up and running from the initial stages of planning. We're already well into that curve. We have a very robust pipeline of new active ingredients, and that planning is folded into our near-term view of CapEx. When we get together in November, we'll give you the longer-term view of what CapEx investment will be. CapEx tends to be more modest for a company like ours, even when we're investing in the real active ingredient synthesis. So we're not like a major petrochemical company. So our forecasts include what we need today. But Andrew, do you want to make a comment?

Operator:

Next question comes from Stephen Byrne from Bank of America.

Mark Douglas:

Yes, I think a couple of things. Steve. On the growth side, I don't see this as being -- I don't see it as being an exceptionally accelerated rate right now. It's pretty normal for products to grow at this sort of rate. I think what is unique for us is the number that we're introducing. Our number of introductions, whether it be from our discovery and development pipeline of new active ingredients, or whether it's local formulation work in our research laboratories that are based in region, I think the number is increasing. Therefore, you're seeing the gross number get bigger every year just because every year, we're not slowing down. I can think of some of the insecticides that we have that are 20, 30, 40 years old, they're still growing and they're still viable and still developing new formulations. So I would say, a number of products is key. So the productivity of our R&D organization is high. And then I think the second piece is what we've been investing in over the last couple of years, which is real resources on the ground to support growth. So when we talk about market access, we're not just talking about sales people, i.e., commercial people. We're talking about agronomists. We're talking about tech service people. We're talking about marketing people who can launch products in a region. It's that type of background activity that you have to invest in from an SG&A perspective to make sure that the products you're launching are getting the traction it needs. So it's that more holistic approach to new products that I think is bearing fruit from us. And when I look at the pipeline, not just of active ingredients themselves, but of the product development work in the regions, it continues to accelerate. I mean, think about it. We got 2% of our revenue this year is coming from products launched this year. That's a very high number, and we've been hitting that number for the last couple of years, and we expect to see that to continue. So it's not one thing. It's holistically how we built the engine that delivers the new products to market.

Mark Douglas:

Yes. I think I'll just explain why we feel the nonselectives are driving the overall market. I think it's going to be a combination, depending on region of price and volume. I don't think there's any one that I would say it's all volume or oil price. I mean we do see growth in North America and Europe and the Middle East and Africa. So those markets will continue. That will be a combination of price and volume. Latin America, we're talking about a down market. We see that mainly driven as price. Volume is pretty good. As I said, we expect an acreage increase as we go through this year into the next season in Brazil. So volumes will be good. It's mainly price that we see from an overall perspective in Latin America. And then Asia is down low single digits. Again, more likely to be priced than it is volume. Although India, as we've talked about, we have higher channel inventories. We know the market has higher channel inventories there may be some volume impacts in places like India as well.

Richard Garchitorena:

Just wanted to ask about the Plant Health business. It looks like it grew 30% in the EMEA, 10% LatAm, Oh God, only 8% organically. So you talked about North America sort of what you're seeing there and sort of how that should play out through the rest of the year given your overall expectations for growth, 20% overall.

Richard Garchitorena:

Great. And just a follow-up in terms of new product sales. North America saw a big uptick in the first quarter at 29% versus 19% in the fourth. So is it fair to say, as you move through the year, that's going to continue to add cumulatively. So how big could it get by the time you get to the fourth quarter, that's definitely going to be helping margins as well, I would assume.

Operator:

We have our next question. And it comes from Josh Spector from UBS.

Mark Douglas:

Yes. I think on the channel inventories, we'll see how we go through the second quarter. The markets are moving. You know what, if the market doesn't change much, yes, there will be some channel inventory hangover as we go into the next season. That occasionally happens. As the weather patterns improve as we go through the second quarter, we should be eating away at some of that inventory. So we'll see where the market gets to. Our expectation, as we're forecasting is for a more normal season as we enter Q4 and Q1 into next year in Latin America. On the diamides, what we're telling you in our guidance now is that the partners that are reducing inventories, that's not just an event now that continues through the rest of the year. So that's already built into our forward-looking guidance.

Aleksey Yefremov:

On India inventory adjustment, Mark, is there -- could you just describe the progress that has happened so far and how much longer this could take?

Aleksey Yefremov:

And just because Asia was the largest drag on sales this quarter, you also mentioned dry conditions in Australia and they come as a first bullet in your Asia comments. Was this a larger negative than India? And do you have any broader comments about Asia, whether this will continue to be sort of the most negative region for you this year?

Operator:

Our next question comes from Adam Samuelson from Goldman Sachs.

Andrew Sandifer:

Sure, glad to. Look, I think for us, seasonally, Q1 is always profoundly negative free cash flow. Both from the timing of sales and where we're growing in the world geographically. But also -- and I don't forget we've taken very substantial prepayments from customers in North America in the fourth quarter. So we're shipping a lot of product in Q1 that's essentially already been collected. So the size of this year the negative free cash flow of 915, up about $250 million versus the prior year. That just reflects the size of the growth of the business. I mean, we grew the business over $800 million last year. The amount of price and cost inflation that's flowing through receivables and inventory in particular to support that. Quite honestly, the $900 million, roughly $900 million negative free cash flow that we turned in this quarter was actually slightly better than our internal forecast. So we were pleased with that. Some good discipline around collections and actually in terms of what was expected to be collected in the quarter. We actually performed slightly better than what we were forecasting at the beginning of the quarter. The really big driver year-on-year are receivables and inventory. And that really -- again, it's the flow-through of inflation through working capital. So I think the pattern of our working capital and our cash flow for this year is very similar to what you've seen in the last 4 years, strongly negative in Q1, will be modestly positive in Q2, and then you see significant positive cash flows in Q3 and Q4. On a cumulative free cash flow basis, we don't turn cash flow positive until some point in the third quarter. This also impacts our cash deployment that we tend to do. If we're going to do share repurchases, it tends to be back half weighted because it's more in line of when we are generating positive free cash flow. So I would just say, in summary, we were -- we are actually pleased with our free cash flow performance in the first quarter. We recognize it's a big number, but that's just the realities of the seasonality of our working capital, again, was slightly better than what we were anticipating and we expect a normal pattern as we go through the rest of the year.

Andrew Sandifer:

Yes. We can give you some rough thoughts here because it's very easy to be falsely precise with a 9-month outlook here. I think our general expectation is SG&A is probably growing in line with sales for the full year. We could adjust that depending on market conditions, and we have some ability to both from timing of spend and choices when we make some investments, we could slow that down in a given period. But I think assuming that SG&A growth generally in line with sales growth this year is not a bad assumption. R&D, I would expect to grow substantially above the growth of sales this year. We are investing very heavily in our new product pipeline and the continued development of differentiated formulations. And we do have a step-up this year in the acquired Fairmont business where we are investing a nontrivial amount of incremental R&D versus what we had in 2022 results and continue to drive forward the Fairmont product line to start bring products to market here shortly. So something north of the sales growth level for R&D growth would be what I would expect.

Joel Jackson:

Could you maybe elaborate a little bit on what products or types of products would likely or see more stickier pricing than others?

Joel Jackson:

And then just on your Slide 9, you give your drivers for upside EBITDA guidance range drivers. Better anticipated mix, which is a general statement, but maybe you can give 1 or 2 most likely examples where you could get better than anticipated mix to hit the upside?

Operator:

The last question comes from Mike Harrison from Seaport Research Partners.

Mark Douglas:

Yes, Mike, I think the way I would describe it is, cereals market, core countries in Europe, so France, Germany, Northern Europe, U.K., growers and distribution, in particular, really taking notice of their working capital in this area. Cereals spot prices in Europe are lower than other parts of the world. I think it's just a prudent approach from the chain, the value chain in Europe on cereals right now. They will be using products. The question is how much do they replenish their inventory as we go through the rest of the season. So it's more of an industry dynamic than it is a peculiar FMC dynamic at this point.

Mark Douglas:

Yes, you will lap Russia now Q2. So that won't be a factor we'll be talking about anymore. We will still have registration losses in Europe. I think this year, we're talking about just north of 1%, something like that in terms of revenue. So it's a pretty -- what I would call a normal number. Europe does tend to be the area where we have more of these given the regulatory regime that's in Europe, but nothing out of the ordinary for the rest of the year, I would say. So as we wrap up here, I'd just like to make 1 comment. The questions have been very good. I mean, ranging from everything in the P&L to the balance sheet. I think you can hear from the term that we're talking about in terms of the second half of the year we're feeling very good about the second half of the year. We have very, very good insight into where our cost structure is and the ability to manage our costs from an SG&A and R&D perspective as we go through the year. I think the growth on NPI is very exciting for a company like FMC. When you're having $800-plus million of your revenue coming from products launched in the last 5 years, and $120 million of products launched within the year. That tells you that the R&D and the innovation machine and the marketing machine is working very well together. That is a confidence booster for us in terms of how we think about new volume for the rest of the year. Thank you.

Operator:

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

Operator:

Good morning, and welcome to the Fourth Quarter 2022 Earnings Call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. [Operator Instructions]. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas :

Thank you, Zack, and good morning, everyone. FMC delivered record performance in the quarter, driven by a combination of robust volume growth and strong pricing actions. Sales of new products continue to accelerate nearly doubling year-over-year and representing 11% of the total sales in the quarter. We continue to make investments in expanding our market access in key geographies, including the U.S. and Brazil. Pricing actions in the quarter more than offset headwinds from both cost and FX, resulting in EBITDA margin expansion in excess of 40 basis points. This positive gap between price gains and headwinds from cost and FX and is expected to continue as we move forward through 2023. Agricultural markets remain robust with high commodity prices, increasing acreage for crops and positive grower sentiment, providing a solid backdrop for FMC. Our Q4 results are detailed on Slides 3, 4 and 5. Revenue was up 17% organically, EBITDA up 17% and EPS up 12%. The U. S. and Brazil were major contributors to the quarter's results, with volume and price driving the U.S. business, while price and FX drove Brazil's results. Adjusted earnings were $2.37 per diluted share in the quarter, $0. 07 above the midpoint of our guidance range. With this outperformance driven by higher EBITDA and lower-than-anticipated taxes. In North America, sales increased 35% year-over-year, driven by strong sentiment among growers and our distribution partners in the U.S. for the upcoming season. Selected herbicides for soybeans and other crops as well as fungicides for corn grew rapidly in the quarter. We have made great progress in revitalizing our North American product portfolio with almost 20% of the quarter's branded sales coming from products launched in the last 5 years. We have also invested in more sales and tech service resources, enabling us to reach more retailers to promote our newest technologies and expand our market access. In Latin America, sales increased 13% year-over-year and 9% organically, led by Brazil. Pricing actions, demand for our fungicides and selective herbicides as well as our investments in market access drove results for the region. Our market access investments contributed to about 50% of the region's growth in the quarter. FX was also a benefit in the quarter, driven by the strong BRL. However, dry weather negatively impacted corn and soy in Southern Brazil and Argentina. Asia was flat versus the fourth quarter last year and up 12% organically. Insecticides and selective herbicides led the growth in the region. Overwatch herbicide, which is based on Isoflex, the first active from our pipeline, continues to gain share on cereals in Australia. Almost 20% of branded sales in Asia came from products launched in the last 5 years. FX was a significant headwind in the quarter, offsetting the double-digit organic growth. EMEA was up 7% versus prior year and up 20% organically. In addition to strong pricing, results were driven by broad-based demand, especially for cereal herbicides. 13% of branded sales in the quarter came from products launched in the last 5 years and sales of [indiscernible] formulations almost doubled in the quarter. In our Plant Health business, Biologicals grew double digits in the quarter, reflecting the strength of our portfolio. Overall, adjusted EBITDA for the fourth quarter was $432 million, an increase of 17% compared to the prior year period, resulting in EBITDA margin expansion in excess of 40 basis points. Average price increases of 8% contributed $109 million in the quarter and more than offset the cost and FX headwinds. Moving to Slide 6 in FMC's full year 2022 results. We reported record $5.8 billion in revenue which reflects a 15% increase on a reported basis and 18% organic growth. This is despite exiting our Russian business earlier in the year. More than $600 million in sales came from products launched in the last 5 years, growth of 50% over the previous year and about $100 million came from products launched in 2022, continuing the multiyear trend of strong growth from new technologies. Diamides grew in the mid- to high single-digit range for the year. Adjusted EBITDA was $1.407 billion, an increase of 7% compared to 2021, despite $463 million in cost headwinds and $74 million in FX headwinds. Exiting Russia negatively impacted our EBITDA by approximately $25 million. The benefit from pricing actions in the year was $372 million. This was necessary to overcome the most significant input cost headwinds we have ever experienced. We believe input cost headwinds peaked in the third quarter and expect them to ease going forward. 2022 adjusted earnings were $7.41 per diluted share, an increase of 8% versus 2021. This increase was driven primarily by the EBITDA increase and lower share count, offset partially by higher interest expenses and taxes. In addition to these financial results, we also had other significant achievements in the year as detailed on Slides 7 and 8. FMC continues to make substantial progress on our sustainability and net zero goals. For example, we reduced Scope 1 and 2 greenhouse gas emissions at our operating sites by at least 2% in the last year, while at the same time, delivering record growth. The consistent progress we have made on various ESG metrics was recognized by several raters that moved us up on their rankings in 2022. FMC now stands at or above industry average across these raters. In our Plant Health business, we launched 17 new biological products spread across all 4 regions as well as 2 new micronutrient products. We also acquired BioPhero in 2022. As we've said before, BioPhero is a pioneer in biologically produced pheromone technology with a patented fermentation platform that enables significantly lower cost production compared to current standards. In Precision Ag, we continue to advance our Arc Farm Intelligence platform, FMC's proprietary mobile solution that helps farmers manage pest pressure through predictive modeling. Arc is now deployed across 20 million acres spanning over 20 countries, and we have found the growers who use Arc are tending to buy a broader range of products from FMC. Finally, our venture capital arm, FMC Ventures continued to build its portfolio in 2022 with new collaborations and strategic investments in start-ups and early-stage companies, working on new or disruptive technologies. These engagements, which support or augment our internal capabilities span several technology segments, including robotics, drone technology, ag fintech, pathology detection, soil health, peptides and pheromone. As an example, in 2022, FMC Ventures increased its investment in Micropep, the start of developing short natural peptide molecules that target and regulate plant genes and proteins. In addition to our equity investment, we entered into a strategic collaboration with Micropep late last year to develop solutions to control herbicide-resistant weeds. FMC Ventures also invested in Traive, an ag fintech startup, addressing working capital needs of growers in Brazil. Turning to Slide 9, which provides the key market and cost dynamics underpinning our 2023 outlook. We expect crop commodity prices to remain robust and that growers around the world will continue to rely on our advanced technologies to deliver high yields while they combat erratic weather patterns. We expect the North American market to grow in the low single-digit range with an assumption of normal weather conditions. The Latin American market is believed to have grown significantly in 2022 primarily due to rapidly price increases in nonselective herbicides, a product segment in which FMC does not participate. In 2023, we expect the Latin American market to contract by mid-single digits as some of those gains in nonselective herbicides reverse. Asian markets are expected to be flat to last year. And EMEA is expected to be up high single digits with improvements driven by increasing acres for cereals. Taking into account these regional market projections and in light of the very strong market growth in 2022, we expect the overall crop protection market will grow this year in the low single-digit range on a U.S. dollar basis. FMC's continued pricing actions, strong demand for our product portfolio, particularly our newest technologies as well as further market access gains are expected to provide solid support for FMC's top line to grow above the market rates. Costs are anticipated to remain a year-over-year headwind throughout the year. However, we aren't seeing deceleration of input cost inflation and these costs are expected to become a year-over-year tailwind in the second half. We will continue to invest in R&D and SG&A to expand market access, grow our Plant Health business, deploy new technologies through Precision Ag and develop new synthetic and biological products. Overall, we expect price increases to more than offset cost and FX headwinds, resulting in margin expansion in the second half of the year. Turning to Slide 10 for our full year 2023 outlook. We expect the full year revenue in the range of $6.08 billion to $6.22 billion representing a 6% growth at the midpoint compared to 2022. New launches and market access initiatives will drive volume growth with mid-single-digit pricing expected for the full year. FX is expected to be a moderate headwind to top line results. Adjusted EBITDA is forecasted to be in the range of $1. 48 billion to $1.56 billion, reflecting 8% year-over-year growth at the midpoint. Price is anticipated to be the primary driver of EBITDA growth in the year, with cost headwinds expected to be significantly lower than those experienced last year. Increases in the input cost portion of cost headwinds are anticipated to decelerate as the year progresses and become a year-over-year tailwind in the second half. We expect adjusted earnings of $7.20 to $8 per diluted share, representing a 3% increase at the midpoint, with EPS growth limited by higher interest and tax rates. This assumes a share count of approximately 126.5 million and does not factor in the benefit of any potential share repurchases in the year. Looking at the first quarter outlook on Slide 10, we forecast revenue to be in the range of $1.41 billion to $1.45 billion, representing 6% growth at the midpoint compared to the first quarter of 2022. We are targeting mid- to high single-digit price increases of which much has already been implemented. Price is expected to be the primary driver of revenue growth in the quarter. FX is anticipated to be a headwind in the quarter. Adjusted EBITDA is forecasted to be in the range of $345 million to $365 million, flat versus the prior year period at the midpoint, mainly due to pricing gains being offset by expected cost headwinds. Volume gains are expected to be offset by FX-related headwinds. We expect adjusted earnings per diluted share to be in the range of $1.63 to $1.83, representing a decrease of 8% at the midpoint due to higher interest rates and taxes. This assumes a share count of approximately 126.5 million. Moving now to Slide 12. I want to highlight some of the potential factors that could drive our results to either end of the guidance range. For the midpoint of our adjusted EBITDA guidance, we are assuming market growth in the low single-digit range and FMC achieving mid-single-digit price increases. Input cost headwinds are expected to continue decelerating and become a tailwind as the year progresses, while FX is expected to be a headwind throughout the year. With the resilience we've built into our supply chain, our base case assumes any minor disruptions are mitigated. Alternatively, if cost headwinds ease more rapidly, if the market grows at a higher rate than forecasted and if we are able to realize high single-digit prices or FX has a lower impact, we could deliver results at the high end of our guidance range. Major supply disruptions of critical inputs or services are examples of factors that would drive results below the midpoint of the guidance range. With that, I'll now turn the call over to Andrew.

Mark Douglas :

Thank you, Andrew. FMC delivered a record performance in 2022 despite facing the largest input cost inflation headwinds in the company's history. Robust volumes driven by our market access initiatives and the continued accelerated growth of new products as well as strong pricing gains helped to overcome significant cost, supply and FX challenges in the year. We expect the broader economy to be volatile in 2023. However, agricultural market fundamentals are expected to remain solid. FMC's pricing momentum continues, and we should benefit from the potential deflation in the broader industrial supply chains. We continue to invest in our technology portfolio of synthetics, biologicals, precision ag and FMC Ventures. Our expanding market access initiatives are resulting in increased profitable growth, and we intend to continue the pace of these investments across more countries. Overall, there are fewer disruptive factors that we see today compared to the same time period last year, and this strengthens our confidence in the narrow guidance range we have provided. We expect to deliver another year of strong and profitable growth in 2023. Finally, as we are now in the final year of our current strategic plan, we are planning to host an Investor Day at our global headquarters in Philadelphia this November. At that time, we will share details of our new strategic plan and we look forward to seeing you here in person. We will, of course, announce the date for this Investor Day event soon.

Operator:

[Operator Instructions] Our first question comes from Christopher Parkinson with Mizuho.

Mark Douglas:

Yes. Thanks, Chris. So let me take a step back on that one and just talk a little bit about -- I mentioned in the script where we were last year versus where we are this year. Last year at this time, we had a wave coming at as of inflationary costs. And truly, we did not understand the order of magnitude. We ended up with what -- $463 million of costs at the beginning of the year, our forecast had nothing like that number. I would say this year, we're in exactly the reverse position. We see cost receding, we just don't know exactly how much that will be. We know it will impact us in the second half of the year. And we have built what I would call a modest amount of cost reduction into the midpoint of our guidance. But what I really see is a time line here that gets us through the end of this year and into early 2024, where costs do become a meaningful tailwind for us. We do expect to see margin expansion as we go through the second half of the year. We did talk about the fact that we will continue to invest in SG&A and R&D, and I'll have Andrew add a couple of comments here at the end on details here. We are investing in those areas because frankly, we are seeing profitable growth from those investments, whether I think about the growth in Brazil or I think about the growth in the U.S. or other parts of Asia, those investments are paying off very quickly in terms of how we gather new sales from new customers and new parts of the value chain. R&D is growing very simply because we're investing not only in our synthetic pipeline. And this year, we moved another molecule from discovery into development, and we'll talk more about that in Investor Day. But we've also got a full year run rate of our BioPhero investment in R&D, and we continue to invest in Plant Health and Precision Ag. So if you think about a growth rate of roughly 6% for the top line, you should expect SG&A to be growing pretty close to the 6%. And then R&D, a little bit above that. That's how it will flow through the year. The input costs are higher in the first half. And you can see what we said about in Q1, we still have high input costs. They were a legacy of what we bought in the second half of last year. Those will abate as we go through the half, and then in the second half, we'll get that margin expansion. So I've seen some of the flash reports last night at the -- are we being conservative? I think we've been prudent. The world is still somewhat volatile. We all know that. But we are confident enough to say that we're already seeing the trend lines, same as we saw last year, the trend lines are there. We just don't quite know where we'll be. So when I talked about on the script, could we see areas where we'll have improvement? Yes, absolutely. So we'll see as we go forward. The make call will be an important call for us because we'll have a much better view on where we are with raw materials. Our pricing actions, we probably have about 50% of our price target for this year is simply a rollover from last year, just pure timing of when pricing was implemented. So we feel good about the pricing side. We're less sure about the cost side, but the trend line is there for it to get better as we go through the year. Andrew, do you want add anything there?

Mark Douglas:

Very good. Thanks, Andrew.

Vincent Andrews:

I just want to touch on the pricing environment a little bit. I think I heard you say, Mark, that you've already got 50% in place just sort of from a rollover of last year. Of the other 50%, how much have you already gone out with for the first half versus, I assume there's a fair amount that you need to go out with for the back half of the year. And just want to understand sort of what you're hearing from your channel partners in terms of continued receptivity for pricing at this point? Just thinking atmospherically, a lot of headlines about we're all entering into a deflationary environment. We're seeing fertilizer prices come down and glyphosate prices come down. I know those are very different products versus what you sell, but just we are sort of pivoting out of the inflationary or price increase environment. So what, if any, change in feedback are you getting from the channel partners?

Vincent Andrews:

Okay. And just as a follow-up, Mark, did I hear you say -- I believe last quarter, you thought the market overall would grow low to mid-single digits. I believe now you're thinking low single digits for this year. Is that just a function of last year for the market coming in better than you thought. So just a harder compare? Or is there anything at all different about sort of what you expect for this year globally?

Operator:

The next question comes from Adam Samuelson with Goldman Sachs. Adam Samuelson with Goldman Sachs, your line is open. If you'd like to please proceed with your question. Unfortunately, we're not receiving any audio from Adam's line, so we'll move on to our next question, which comes from Aleksey Yefremov with KeyBanc Capital Markets.

Mark Douglas:

Yes, Aleksey, I'll just give you a quick high-level view and then Andrew, please give some color commentary here. Very different markets in the sense of where you're selling into. Latin America, Brazil, Argentina, huge markets in Q4, still important in Q1 but to a lesser degree. And then obviously, in Q1, the European business is starting to kick in, which is very different. So you have a very different geographic mix across the world for how we see. And it's why we never ever talk about sequential quarters. It's almost impossible to look at the business on that light. But Andrew, if you want to make some comments on the revenue side and the cost side.

Adam Samuelson:

And as a follow-up, you mentioned diamide, mid-single-digit to high single-digit growth, sort of -- they -- did diamides dip to mid-single-digit territory going forward over the next 2, 3 years. Is this the level of growth that you see as fairly normal? Or could it be a little higher or lower?

Operator:

The next question comes from Josh Spector with UBS.

Mark Douglas:

Yes. Listen, it's exactly what I talked about. I think as we go through the second quarter, we're going to have a much better view of, a, what have we bought and what are we buying in the second quarter, which will inform our raw material view in the second half. So I think at the May call, we'll be giving a lot more detail in that area. China has not impacted us at all through this latest round of COVID. We did have closures of some supply. But over the last 3 to 4 years, we've built up a really robust process and network of how to manage disruptions. So we didn't see any significant disruptions through the Chinese New Year and through the COVID wave that they had to deal with. China opening up is it's positive for us in the sense that, obviously, we get raw materials from China. It's not a huge market for us from a sales perspective. It's a nice market, but it's not one of our leading growth markets. So for us, it's a bit of a neutral event, China opening up. We've managed raw material as well out of China. We've been distributing our manufacturing network over the last 5 years to other countries. That continues at a pace. So overall, I think we feel pretty good from a supply position standpoint right now.

Mark Douglas:

Well, I think on the negative side, I highlighted supply disruptions, which is the obvious one. Weather disruptions would be the next one, I would say. Outside of that, it would be a lack of pricing or something in the world that creates an inflationary environment for raw materials. We don't see that today. As I said, you look at the script, we mentioned 3 or 4 items that could move us from the midpoint to the upper end of the range. We mentioned basically one that would come the other way. So you can read into that what you will.

Stephen Byrne:

The EPA recently came out with a draft risk assessment on Cyazypyr and they concluded this -- the terminology likely to adversely affect. Is this meaningful in your view? Could there be impacts from this on how Cyazypyr appear is used? And how would you compare this to other insecticides? Is this fairly normal? Or is this a concern?

Stephen Byrne:

Okay. And I wanted to just drill into your outlook on the biologicals. It's clearly an area that you're devoting a lot of focus on. Do you find that it has the potential to be, say, synergistic with your synthetics or is used in combination? I think that was view that Kathy Shelton had in prior years. Is that still the view that there's a synergy between the biologicals and synthetic chemistries.

Operator:

The next question comes from Kevin McCarthy with Vertical Research Partners.

Mark Douglas:

Yes. I think -- so from a North American perspective, U.S. in particular, I think channel inventories are a little bit elevated right now, but that's normal. I would say, as you enter the season, most of retail and distribution is stocked up for a very good year. When I think of inventory levels for FMC compared to our sales on a percent basis, we're about the same place we were the year before. So I think it's pretty normal. Brazil and Argentina, a different story. Forget the nonselective that we just talked about. I think because of the conditions that we saw in the south of Brazil and in Argentina, it was very dry in the fourth quarter. I have no doubt that there is elevated channel inventories in that area, would not be a surprise at all. If I run around the rest of the world, Europe, South of Europe is high again because of hangover from the last season. Northern Europe is pretty much okay, I think. In Asia, we've talked about India in the past. The weather didn't help again in 2022. So we see high channel inventories in India, which we'll be working through. Parts of Indonesia are similar, somewhat high. Rest of Asia is good. So overall, it's pretty much what you would expect. And don't forget, people are focused on what happened in Brazil in terms of growth. The vast majority of the growth in Brazil was price, it wasn't volume and that's important to recognize. So I think out of the weather patterns that we saw in the South and in Argentina, I think other parts of the country are fine.

Mark Douglas:

Yes. Thank you. Great question. We're very happy with the acquisition we made. In fact, I would say, when I think of the key metrics that we're looking at when we acquired the product, we had 5 new pheromones in the R&D pipeline. Today, that number is 9. So the accelerated rate of discovery and application of new pheromones is growing. We have made our first batches of products and move them into the marketplace. So that was a major milestone. The company that we acquired, BioPhero had not -- I was just at the very beginning of making commercial scale quantities. We've now got past that. We are looking to invest in our own manufacturing. We do use some toll manufacturers today, but we're looking at balancing that out across the world. And I would say the trial work, we have substantial trial work around the world on the pheromones that we already have in place. And those trial works are going very well. So from my perspective, the integration has gone very well. But more importantly, I see an accelerated rate of discovery and development coming out of that pipeline, which is very encouraging.

Richard Garchitorena:

First question on CapEx. It looks like for '23, a bit of a step up $140 million to $180 million versus 2022. Can you talk about where you're going to be adding capacity. What new products plan to increase? And where your operating rates are currently?

Andrew Sandifer :

Yes. So we spent about just under $120 million in CapEx in 2022. We're stepping up at the midpoint to about $160 million. So about a good-sized increment in CapEx. A lot of that additional CapEx is to support manufacturing capacity for our new active ingredients. So we're expanding production of Isoflex which is our serial [Averside] we introduced in Australia several a couple of years ago and are rolling out now more broadly around the world. We're expanding capacity for Fluindapyr, the fungicide that we've introduced in a couple of key countries and starts becoming much more material as we get into the next several years. That CapEx, I think, building on comments earlier, that CapEx is largely directed in places outside of China. We're expanding capacity in Europe. We're expanding capacity in other parts of Asia to complement the sourcing that we have today and the strong sourcing position that we have in China, helping just sort of balance that mix of sources that we have. And Mark, if you want to add anything to that?

Richard Garchitorena:

Okay. Great. And as a follow-up, in the slides you provided some details on your Precision Ag business, the Arc mobile solution. Maybe can you talk about how you're going to plan on monetizing this potentially in the future? What your expectations are for growth of that platform. And also, what would you say to folks who -- there's a thought out there that Precision Ag could be a negative to volumes longer term, given it could make farmers more efficient and they may be applying less volume of product. Maybe if you could touch on those.

Operator:

The final question comes from Arun Viswanathan with RBC.

Mark Douglas:

Yes. Thanks for the question. As I just said in the script, we are going to have an Investor Day at the end of this year. We’ll give the dates coming. I don’t want to re-empt that because there’s a lot of work to do between now and then but we will be giving a view of the future, both, I would say, within the near-term few years and then a longer-term aspirational goal for the company. It is important that we feel that we have that longer-term view as we drive the company forward. We’ve been very good in managing the company through the last 5-year cycle, as Andrew has talked about before, we’re pretty much right now above our metric for revenue. But right on the bottom line of EBITDA despite well in excess of $1 billion so far of costs. So I would say you just have to hold that question until we get to the end of the year.

Operator:

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

Operator:

Good morning, and welcome to the Third Quarter 2022 Earnings Call for FMC Corporation. This event is being recorded, and all participants are in a listen-mode only. [Operator Instructions]. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations with FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zack, and good morning, everyone. FMC's strong growth continued in the third quarter with a robust start to the Latin American season as well as solid pricing actions across all regions driving our results. New products gained momentum in the quarter, growing 26% year-over-year. As expected, Q3 saw highest year-over-year cost inflation for 2022. Looking to Q4, we are seeing sequentially lower inflation across the supply chain. With this in mind, we expect a strong finish to the year and remain confident in our ability to deliver our fourth quarter and full year forecast. Our Q3 results are detailed on Slides 3, 4 and 5. Revenue was up 19% organically, EBITDA down 11% and EPS down 14%. As expected, these declines in the quarter were driven by the highest cost inflation this year, which more than offset the good start to the Latin American season and average global price increases of 7%. Adjusted earnings were $1.23 per diluted share in the quarter, $0.13 above the midpoint of our guidance range, with the vast majority of the outperformance driven by higher EBITDA. We delivered double-digit year-over-year growth across the portfolio, including 23% growth in herbicides, 19% in fungicides and 10% in insecticides. Third quarter sales were $1.38 billion, led by volume growth in Latin America and North America as well as price increases across all regions. In North America, sales increased 21% year-over-year. Fungicides grew rapidly in the quarter, especially on corn in the Midwest. Overall performance in the Midwest across corn, soybeans and other crops more than offset lower diamide sales in the West due to drought conditions. In Latin America, sales increased 35% year-over-year, led by Brazil and Argentina. With the backdrop of strong commodity prices and increasing acres, grower confidence in the region is high. Our results were driven by a robust start to the new season, with strong selective herbicide and insecticide sales, price increases and expanding market access. FMC has been investing in expanding market access by adding commercial resources and developing new broader relationships with large cooperatives and distributors. These investments are focused on key row crops, such as soybean and corn and we are starting to realize the results benefit from these increased sales. As an example, byfenterin-based insecticides, including those used to control sting boats in soybeans with the largest growth driver in the region for the quarter. We also successfully launched on Suva, our Fluindapyr-based fungicide for soybeans and peanuts in Argentina and Paraguay during the quarter. This is the second new molecule from FMC's pipeline following the successful introduction of Isoflex herbicide in Australia last year. Turning to EMEA. Third quarter sales were down 12% versus prior year, and we're up 1% organically. In addition to strong pricing, results were driven by increased demand for diamides on fruit and vegetables and herbicides on cereals and oilseed. FX was a significant headwind in the quarter. FMC's decision to exit the Russian market, the first major crop protection companies to do so earlier this year had an approximately $8 million negative impact on EBITDA in the quarter. And finally, Asia was down 6% versus the third quarter last year and up 2% organically. Pricing gains were more than offset by FX headwinds. Floods in Pakistan and erratic weather in India and other countries impacted performance in the quarter. However, demand remains strong for new products based on diamides and other chemistries, and FMC continues to make significant progress in improving our market access in geographies where we are underrepresented, such as Indonesia, Vietnam and Thailand. Investments to expand market access have not been limited to Latin America and Asia. We have also invested in market expansions in the US, Turkey and several other countries. This is an important element of our growth strategy and includes scaling up of FMC's technical service organization, expanding our sales force, pursuing new collaborations with distribution partners and other steps that are beginning to deliver market share gains. These initiatives become even more important as we continue to introduce novel technologies that require close engagement with growers. Overall, adjusted EBITDA for the third quarter was $261 million, a decrease of 11% compared to the prior year period, but $6 million above the high end of our guidance range, primarily due to somewhat lower cost inflation than we previously anticipated. As forecasted, cost and FX headwinds more than offset price increases and volume gains. Average price increases of 7% contributed $85 million in the quarter. We are seeing initial signs of decelerating inflation, and we are confident that cost headwinds in '22 have peaked in the third quarter. FX was a $25 million EBITDA headwind in the quarter due to weakening of several currencies around the world. Moving to Slide 6 and FMC's full year 2022 and fourth quarter earnings outlook. With continued strength in market demand and the success of pricing actions to help offset cost increases and FX headwinds, we are raising full year 2022 revenue to a range of $5.6 billion to $5.8 billion, representing an increase of 13% at the midpoint versus 2021. Sales growth was driven by volume and price in all regions, partially offset by foreign currency impacts. We are narrowing the full year adjusted EBITDA range to $1.37 billion to $1.43 billion, representing 7% year-over-year growth at the midpoint and reflecting the confidence in our order book and supply availability. The range for 2022 adjusted earnings per share is narrowed as well and is now expected to be $7.10 to $7.60 per diluted share, representing an increase of 7% year-over-year at the midpoint. Consistent with past practice, we do not factor in any benefit from potential share repurchases in our EPS guidance. Guidance for Q4 implies year-over-year sales growth of 8% at the midpoint compared to the prior year period. Pricing momentum and volume growth are expected to more than offset FX headwinds in the quarter. We have good visibility into demand for the quarter with strong order books for both the Brazilian and US markets. Cost increases are forecasted to be lower in Q4 compared to Q3. The combination of sales growth and lower cost headwinds is anticipated to result in EBITDA growth of 15% at the midpoint with EPS up 9% at the midpoint year-over-year. Moving now to the updated drivers of 2022 EBITDA outcomes on Slide 7. Market growth is expected to remain in the mid- to high single-digit range, and we are seeing cost inflation beginning to decelerate. We are successfully mitigating the impact of lost sales from our decision to exit Russia and have good visibility into supply to fulfill fourth quarter demand. Full year price increases of mid- to high single digit and strong volume growth are expected to more than offset cost and FX headwinds, keeping the midpoint of our guidance unchanged at $1.4 billion. I'll now turn the call over to Andrew.

Mark Douglas:

Thank you, Andrew. Turning to Slides 9 and 10. I want to provide an early look at the key market and cost dynamics underpinning our emerging view of next year. Soft commodity prices remain robust and stock-to-use ratios for key crops remained below the average for the past decade, growers around the world will continue to rely on our advanced technologies to deliver high yields while they combat erratic weather and persistent drought conditions. As a result, we expect the overall crop protection market will grow in the low to mid-single-digit range next year on a US dollar basis. This favorable backdrop, combined with our continued pricing actions, strong demand for our newest technologies and further market access gains will provide solid support for profitable growth in 2023. There have been significant cumulative cost and FX headwinds to EBITDA over the past couple of years, which we intend to recoup through pricing and lower costs going forward. Clearly, all the recovery will not take place within a single year, but we expect to shift to improving margins in the second half of 2023. Headwinds to the top line will come from FX volatility as well as a normal range of registration losses, potential factors that could drive 2023 revenue higher include stronger market growth, better pricing or product mix and a reduction in FX volatility. On the supply front, we expect greater stability as we continue diversifying our raw material sources and experience fewer disruptions. Input cost inflation is expected to decelerate, and hence, input costs are expected to become a year-over-year tailwind in the second half of the year. In fact, we are already seeing improvements in the availability and cost of logistics. Regarding internal costs, SG&A and R&D expenses will grow at or below the rate of sales growth. Investments will be focused on commercializing new products, expanding market access and developing new chemical and biological solutions. Potential factors that could drive 2023 EBITDA higher include faster-than-expected easing of input costs and the potential for improved SG&A leverage. Taking all of this into consideration, we expect FMC's growth momentum will continue throughout next year with margin expansion in the second half of 2023. To conclude, the second half of 2022 is playing out is largely as forecasted. We delivered solid results in the third quarter, despite peak cost headwinds. For full year 2022, we expect to deliver another record performance. FMC has thrived in a year of unprecedented challenges. Our team successfully navigated logistics bottlenecks around the world. We have made steady progress derisking our global supply base, which we will continue to do next year. We have maintained disciplined controls on discretionary spending, and at the same time, we continue to invest in the future with the acquisition of BioPhero which enhances our biologicals platform as well as increased investments in R&D. Finally, our continued investments to expand FMC's market access in key regions and countries are producing strong results and market share gains. Looking to 2023, we are optimistic based on what we see at this point. Crop Protection fundamentals appear to be positive for next year, which bodes well for market demand across our existing portfolio. New product introductions based on our latest technologies as well as new biological solutions are doing extremely well and they will drive mix improvement. We are seeing signs of raw materials, logistics and supply challenges will continue to ease next year, providing a positive tailwind to margins in the second half of 2023. Once again, when we look at the full picture for 2023, we remain upbeat on market fundamentals and the performance we expect to deliver. I'll now turn the call back to the operator for questions

Laurent Favre:

Good morning. Thanks for taking my question. Mark, my question is regarding the cost inflation you're talking about for H1 and you're starting to have visibility on this. I was wondering if you could talk about the magnitude of this inflation, which it seems to me that it's so much that you're not confident to grow the margins for the full year. I think the choice of what is interesting, you're talking about margin expansion in H2, not for the full year. So, I was wondering if you could talk a little bit about this? Thank you.

Laurent Favre:

Thanks, Mark. And as a follow-up regarding more Q4 and a wide range. I was wondering if the uncertainty there is more about how much of an early season you get into 2023 in the northern hemisphere or to what extent in the southern hemisphere? You have had an incredible Q3, and inventories might be a bit high. And so therefore, Q4 volumes might be maybe a little bit, I guess, at risk.

Laurent Favre:

Okay. Thank you, Mark.

Christopher Parkinson:

[Technical Difficulty] Top-down perspective on the growth rates for the diamides, plant health, on new products, including Cyazypyr [ph]. And just -- I think you said registration losses would be more or less in line with historical averages. Just any preliminary thoughts on how we should be thinking about that throughout the balance of 2023. Thank you very much.

Christopher Parkinson:

Oh, I'm sorry. No, I was just asking you to potentially parse out your preliminary thoughts on growth rates for the diamides, your plant and health portfolio and new products just broad-based thinking of how you're assessing that. Thank you.

Christopher Parkinson:

That's very helpful. And just as a quick follow-up, if we aggregate the quarterly cost headwinds, so the recent $169 million in Q3, you got plus or minus 3.79% year-to-date. A part of that is raw materials part of that, I believe, transportation logistics. And part of that is also, correct me if I'm wrong, operating on getting – procuring certain raw materials that are off contract. In addition to this, let's say, standardized the potential for raws to roll over, how should we think about the other parts of that, so in terms of optimizing procurement from your core suppliers and then also transportation in terms of freight costs and everything else. Just if you have any other details on that, that would also be incredibly helpful? Thank you.

Andrew Sandifer:

Yes. I think we've talked in the past about the makeup of our cost headwinds. The largest piece being active ingredients or the intermediate used to produce them. Those are very specific to FMC into our product mix. So, while certainly, I think people are seeing some cost turning in certain commodity chemical categories, for example, given the nature that most of our cost headwind has really been around the supply/demand dynamics and disruption of availability for these very specialized intermediates and active ingredients that we purchased. That decrease in disruption that Mark referenced is starting to give that benefit of allowing us to reconcentrate purchases back on strategic suppliers. And that's where we're expecting to see the turn. That is our biggest cost bucket these raw materials that for active ingredients and the intermediates. It's also the slowest to flow through our P&L. So that's why it takes the longest time to react to changes. But we do see some good reasons to be optimistic there. Packaging is our second largest -- much smaller, but second largest cost bucket. It's still very mixed, where we've seen some reduction in input raw material costs in certain parts of the world, but still some disruptions in availability. It's still a mixed area for us and an area where we are optimistic to see improvement going into 2023. And then as Mark commented, certainly on logistics, which is the smallest of the three buckets, but the one that flows through our PL most quickly, we are seeing some signs of improvement both in ocean and air as well as in rail in terms of availability and cost.

Mark Douglas:

Thanks, Chris.

Vincent Andrews:

Thank you. Good morning, everyone. I wanted to follow up on the price comments for 2023. If I've got my math right, you guys have been achieving high single-digit pricing year-to-date, very strong. It seems like you've got a good uptake from your customers. So if you're talking about low single-digit into next year, I assume that that's a new round of pricing that you're anticipating introducing. And I'm just wondering because it's only early November, and you don't have your plan yet. Is that just sort of a placeholder and you haven't decided exactly how much price it takes for next year, or just sort of what is the pricing philosophy for next year? And does it vary by region?

Vincent Andrews:

Okay. And then just on the new market initiatives, obviously, I know this has been a important initiative, and now you're starting to see the results. And I'm just wondering, as you see those results, is it sort of creating new opportunities or new lines of sight on other things you can do within those markets with other molecules, just is the opportunity set broadening, I guess, is my question.

Vincent Andrews:

Sounds great. Thank you very much.

Operator:

Our next question comes from Kevin McCarthy with VRP. Your line is now open.

Mark Douglas:

Yes. Thanks, Kevin. It's hard to believe that we've owned the business for three or four months, there's been a lot of progress. First of all, on integration. Integration has gone very smoothly. The good news is that our biologicals platform and plant health platform is based in Copenhagen, which is where BioPhero are based, and we're only about kilometers apart from each other. So that's working really well. There's been very good dialogue there. I think the most important thing that I can tell you is that we made our first commercial sales in the last three to four months. We made our first commercial batches of one product, and we've actually scaled up a second product. So the timing was very good for us. It allowed us to integrate and get the first commercial sales, that's an important step to prove that the technology works and customers are willing to buy that technology is very important. The pipeline is pretty much as what we said it was. We have five products in research today and then moving through at the rate that we would expect. I think the most important other aspect is manufacturing strategy. This is fermentation and it is new technology to FMC. Our manufacturing groups are hiring people right now with fermentation capabilities to augment what BioPhero have and we're making great progress on our strategy for where are we going to manufacture? Are we going to do it ourselves or we doing it with third parties? Is it a combination? So all of that is going very well. Second part of your question, Kevin, regarding the inorganic opportunities for M&A. We do have a number of targets that we're looking at today from a plant health perspective. They are based around the biologicals platform. I'm not going to say any more than that, except that this is, and I've said it in numerous times, this is an area of focus for FMC, not only from an M&A perspective, but from our ventures group as well. I think many of you know that we set up a ventures group about 2.5 years ago. Actually, BioPhero was one of the first companies that we ever invested in. We do have other investments in peptides that are going very well. These are new areas for biologicals to be used as pesticides. So I expect to see more from us on that M&A front.

A – Mark Douglas:

Well, I think generally speaking, overall, we would say we're happy where inventory levels are in the marketplace. There are pockets of higher inventories. We talked about India before. The last few years, with the weather monsoons played out and rice acreage reductions, have not been great. So we're working through inventory there. I would say in the US, things are fine. Europe is pretty okay for us. one or two pockets in the South because of the dry weather that we had last year. I would say in Latin America, there are parts of Brazilian market where they had a drought last year that you can imagine inventories are high. Inventories are high right now in Brazil because we're in the planting season. But we're happy with where our inventories are right now.

Operator:

Our next question comes from Joel Jackson with BMO. Your line is now open.

A – Mark Douglas:

Yes. I think maybe you misunderstood, Joel. I said that next year, we would have in the range of 5% to 7%, 7% to 9%. When you look at the five-year average, we're at about 6.5% revenue growth, and we're slightly below the EBITDA number for the last four years. I think we're about -- we're at 1.4%. And I think our forecast for 2022 in the long-range plan was 1.45%. But if you back out Russia, we're up 1. 425 billion, so we're $25 million below on $1.45 billion. That's not a lot. So when you think about the significant costs we've had -- and I think through the planning period, we're over $1 billion of cost in FX, Andrew, is that correct?

Joel Jackson:

Okay. And then my follow-up would be, I guess, a little bit small two-parter. So I think CapEx went down $25 million this year. Would that mean we're going to have more CapEx next year? And then if you've got inflation hurting net working capital this year that's brought down your free cash flow, are you expecting next year to have some very positive tailwinds on net working capital and free cash flow?

Operator:

Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.

A – Mark Douglas:

Yes. Well, I think we've been pretty explicit that I would say we're starting to see some of that in Q4, and we'll see more of it as we start to go through next year. But I think where you see the real turn is the second half of the year because at that point, we will be continuing to benefit from the price increases. And at that point, if everything goes as we think it should go, then prices will actually be coming down in the second half of the year for raw materials, logistics, et cetera. So that's when we should start to see that acceleration of margin, and you will see that continuing through 2024. So it's really 6 months out from now, although we're starting to see the first signs of it now. Andrew, would you want to add anything?

Adam Samuelson:

Got it. And I appreciate you don't have a full budget, so this will be something that will get much closer scrutiny kind of through the next few months and the year outlook in February. But on the SG& A and R&D side and looking at the way you find the cost dynamics, you talk about labor cost inflation, which is evident, but continued investments across kind of all your key kind of investment areas. Is there any notable or sizable step-up on the SG&A and R&D side that in excess of some of the broader inflation that we're seeing that we should be contemplating?

Andrew Sandifer:

No. I think at this point, I've just guided that we would expect SG&A and R& D to grow no faster than sales. That would allow plenty of room to continue funding the investments Mark has described to deal with inflation. And then on the SG&A side, in particular, we're continuing to drive leverage out of our back office. We are making investments in customer-facing market access areas of SG&A, but in more of the back office business process part of SG&A, we're working very hard to continue to drive efficiencies out of the business. So that kind of leverage on sort of back office SG&A you should also expect to continue.

Mark Douglas:

Thank you.

Stephen Byrne:

Andrew, just a couple of minutes ago, you made a comment about expecting further cost inflation in the first half of next year. Is that just a year-over-year comment, or do you expect inflation sequentially from here? I raised that as we've heard about some actives being sourced from China that have already deflated significantly. So can you comment on where are your raws inflation in the third quarter year-over-year? And are you seeing a difference between whether you're sourcing those raws and actives from China versus other parts of the world?

Stephen Byrne:

It does. So what were raws inflation year-over-year in the third quarter? And maybe more broadly, what limits you from being able to push price not more than 7% to close that gap? Are you seeing any erosion and discipline from competitors, or is it certain regions of the world or certain ag economies that really represent the challenge on pushing price more than that?

Andrew Sandifer:

And I think, Steve, just one last comment there. You have to think about maintaining that, if we continue to have effective full year price increase next year and the second half where costs are declining, you get that -- you're starting to get real margin recovery. So raising prices into that are -- we're basically trying to set the price where we can hold it and hold that margin as costs begin to decelerate and recoup the margin with decelerating costs and the stickiness of those price increases. As Mark mentioned, that's very much the hallmark of a specialty business as opposed to a commodity business.

Operator:

Our next question comes from Artem Chubarov [ph] with Redburn. Your line is now open.

A – Mark Douglas:

Yes, I think I said it earlier at the beginning, when we think about next year, pricing in that low to mid-single-digit range, volume in the low to mid-single-digit range is appropriate for how we're thinking our early thinking for next year. So if you're specifically focused on price, I would think in that low to mid range.

A – Mark Douglas:

Thank you.

Josh Spector:

Yes. Hey, guys. Good morning. Two quick ones, if I may. Just when you talked about diamides gaining momentum in Asia, is there a way to think about the penetration of those products in that market versus the rest of the world and the runway there? And when you talk about increased market access in Latin America, have those people and costs have been put in place and now you're going to reap the benefit of that, or is that something where costs are still ramping? Thanks.

Josh Spector:

Okay. Thank you.

Operator:

That was our last question. So I'll pass the call back over to the management team for closing remarks.

Zack Zaki:

Yes, there are no more closing remarks. That is all the time that we have for the call today. Thank you, and have a good day.

Operator:

Good morning, and welcome to the Second Quarter 2022 Earnings Call for FMC Corporation. This event is being recorded, and all participants are in a 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. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you, Zack, and good morning, everyone. FMC delivered another quarter of strong growth in a dynamic global environment, while offsetting high input costs with our ability to price for the value we offer to growers. Overall, first half performance was primarily driven by significant price increases and volume gains. This growth reflects robust market demand globally, despite cost inflation and FX headwinds. We continue to expect a strong second half of the year, driven again by price increases and volume growth in a supportive market environment. Turning to Slide 3. Before we review details of our quarterly results and full year outlook, I'd like to offer a few comments on our recently completed acquisition of BioPhero, a Denmark-based insect control company that has pioneered a bioprocessing technology used to manufacture pheromone crop protection products. As you may know, pheromones are naturally produced by insects to trigger a social response in members of the same species. Pheromones are used in a variety of ways to protect crops by disrupting the insect mating process, and hence significantly lowering subsequent generations of target insect larva, which would otherwise damage crops. There are several methods to manufacture pheromones, but BioPhero's proprietary fermentation route is a game changer, enabling high volume production of pheromones at significantly lower costs than other production routes. The acquisition, which closed on July 19, significantly expands our rapidly growing biologicals portfolio within FMC's plant health business. It provides a platform for large-scale production of pheromones and pheromone-based crop protection products, which are expected to generate approximately $1 billion in revenue at above-average EBITDA margins by 2030. We have been expanding our plant health technology base, and this acquisition is another great opportunity to continue bringing biological products to growers around the world. Our Q2 results are detailed on slides 4, 5 and 6. Revenue was up 21% organically, EBITDA up 3% and EPS up 7%, driven by strong market demand for our innovative portfolio and an average price increase of 7%. Adjusted earnings were $1.93 per diluted share in the quarter, $0.08 above the midpoint of our guidance range. The year-over-year EPS increase was primarily driven by an increase in EBITDA and lower share count. GAAP results reflect the impact of our exit from Russia in April this year. We had double-digit growth across several product categories, with insecticide showing the greatest increase at over 20% year-over-year. Our herbicide portfolio also had a strong quarter, with 15% growth led by North America and EMEA. Sales from products launched in the past five years grew more than 35% compared to the same period last year. And these products made up 10% of our total sales in the quarter. The global plant health business grew 20% year-over-year, led by a 35% growth in our biologicals portfolio. The momentum of this business reflects our customers' demand for new sustainable solutions. We reported $1.45 billion in second quarter sales, led by price and volume growth in Latin America and North America. In North America, sales increased 26% year-over-year. Demand for both herbicides and insecticides grew double digits. In Canada, high pest pressure supported the successful launch of Coragen MaX, an insecticide powered by Rynaxypyr, targeting a broad spectrum of pests such as grasshoppers in cereals and other crops. Diamides sales were impacted in California and Texas due to dry conditions, but this was offset by growth in the Midwest in soy and corn. In Latin America, sales increased 44% year-over-year, led by Brazil, Mexico and Argentina. Results were driven by the full range of our insecticide portfolio for soy, corn and cotton. Sales in EMEA grew 3% versus the prior year, and we're up 15% organically. Aside from strong pricing, results were driven by increased demand for herbicides. And finally, Asia was down 1% versus the second quarter last year, and up 4% organically. Pricing gains were offset by FX headwinds. Demand for Cyazypyr grew in India for applications on fruits and vegetables. In Australia, Overwatch Herbicide continued to outperform competing products in cereals. Overall, adjusted EBITDA was $360 million, an increase of 3% compared to the prior year period, and $10 million above the midpoint of our guidance range. Volume gains and price increases more than offset cost inflation and FX headwinds. Average price increases of 7% contributed $84 million in the quarter. As we expected, cost headwinds more than doubled from the first quarter as inflation continued to challenge our supply chains. FX was a $23 million headwind in the quarter, due to the weakening of European and Asian currencies against the U.S. dollar. Before we review FMC's full year 2022 and second half earnings outlook, let me update you on our views regarding the overall market conditions. We now expect the global crop protection market will be up mid to high single digits on a U.S. dollar basis versus our earlier expectation of low to mid single digit growth. Latin America is now expected to be up double digits, primarily driven by pricing of non-selective herbicides. We still expect North America to be up mid single digits, while Asia is now expected to grow low single digits. EMEA is still expected to be down low single digits, including the impact of FX. Excluding currency impact, EMEA is expected to grow low single digits. While commodity prices have come down somewhat from their highs earlier in the year, they remain elevated versus historical averages. This bodes well for the demand of our crop protection products through the end of this year and well into 2023. Moving to Slide 7. We have seen pronounced shifts in demand and cost between individual quarters this year. Therefore, looking at the business in halves gives a better understanding of the underlying performance. For the first half, performance was very strong as a result of price increases and volume growth, which contributed $178 million and $132 million to EBITDA, respectively. These drivers more than offset significant cost and FX headwinds of almost $250 million, resulting in 9% EBITDA growth over the prior year period. In the context of our full year guidance, first half EBITDA growth represents more than three quarters of the increase required to achieve the midpoint of our full year guidance. When we consider the drivers for the second half of the year, price is again expected to contribute more to EBITDA than volume. Cost increases are expected to have the biggest impact in the third quarter, with continued but lower cost inflation forecast in the fourth quarter. There are two primary reasons for the expected cost increases. The first reason is the cost inflation related to sourcing from secondary and tertiary suppliers due to lack of availability from our preferred suppliers. The second reason is the lag of six months between procuring high cost material and its impact on our P&L, since FMC typically turns inventory twice a year. Latin America and North America are our biggest drivers of revenue in the second half. And we have already captured roughly 70% of the orders needed in Brazil to deliver our second half guidance. For reference, this is normally around 50% at this time of the year. The increase in orders is due to the higher than average customer demand driven by favorable commodity prices. In the U.S., Q4 order discussions are taking place as we speak, which is much earlier than in previous years, making us confident in our forecast. Overall, we expect the second half of the year to contribute 2% in EBITDA growth following a very strong second half of 2021. Turning to Slide 8 and the review of FMC's full year 2022 earnings outlook. After a strong first half of the year, we are raising full year 2022 revenue to a range of $5.5 billion to $5.7 billion, representing an increase of 11% at the midpoint versus 2021. Sales growth will be driven by volume and price growth in all regions, partially offset by foreign currency impact in EMEA and Asia. We are narrowing the full year adjusted EBITDA range to 1.36 billion to 1.44 billion, representing a 6% year-over-year growth at the midpoint. The range for 2022 adjusted earnings per share is narrowed as well, and is now expected to be in the $7.00 to $7.70 per diluted share, representing an increase of 6% year-over-year at the midpoint. Consistent with past practice, we do not factor in any benefit from potential future share repurchases in our EPS guidance. Q3 and Q4 outlook is provided on Slide 9. Midpoint of our third quarter guidance implies year-over-year sales growth of 13%. Q3 EBITDA and EPS growth are expected to be limited by the highest cost increases of the year, despite the targeted mid to high single digit price increases. FX volatility in the absence of sales in Russia will also be headwinds to earnings in the quarter. Guidance for Q4 implies year-over-year sales growth of 2% at the midpoint compared to the exceptionally strong growth in the prior year period. Cost increases are forecasted to be lower in Q4 compared to Q3, while price increases are expected to continue. This is anticipated to result in an EBITDA growth of 17% at the midpoint with EPS up 13% at the midpoint year-over-year. Moving now to the updated drivers of 2022 EBITDA outcomes on Slide 10. While the market growth assumptions have improved, costs remain elevated, though we are beginning to see the signs of cost inflation flattening. Price in the mid to high single digit and strong volume growth are expected to offset cost and FX headwinds keeping the midpoint of our guidance unchanged. While we expect the highest cost increases of the year in Q3, we do not expect material benefits from easing inflation to be realized until 2023. With that, I'll now turn the call over to Andrew.

Mark Douglas:

Thank you, Andrew. FMC delivered solid financial performance in the second quarter, despite a challenging macro environment. Price increases across all regions and strong volume growth continue to deliver strong EBITDA growth in an inflationary period. At the same time, the broader agricultural market remains positive, which we expect to continue throughout 2023. FMC remains well positioned to outperform the industry in this environment, with the focus on crop protection chemicals and biological products working to our advantage. The year is turning out largely as we expected, with a strong first half followed by a second half that is constrained by costs, especially in Q3, delivering an overall strong 2022. I'll now turn the call back to the operator for questions.

Christopher Parkinson:

Great. Good morning. Mark, I want to ask what's on everybody's mind. Can you just give as much color as humanly possible on the divergence between the third and the fourth quarter? Obviously, you hit on this a little. I imagine they're things in Brazil, North America and India that are considerations. But if you could also hit on the cost aspects on a sequential basis, 3Q versus 4Q, and your confidence that 3Q would be peak, and anything else that you believe The Street should be paying attention to? Thank you so much.

Christopher Parkinson:

That's very helpful color. And just as a secondary note, on Slide 10, which is very helpful, you do have a few more checks than the top end of the box, the 1.44. Can you perhaps dive in a little bit more in terms of what you're purchasing right here right now in terms of the cost inflation? Perhaps it doesn't give you the material benefit that we all want in 2022. But what is your confidence as we head into 2023? And what does that actual dynamic look like on a sequential basis? And if you just want to stack [ph] that as what you're competent in, in terms of entering the year, that would still be very helpful? Thank you.

Christopher Parkinson:

Thank you for the color.

Operator:

Thank you. The next question comes from the line of Joel Jackson with BMO Capital Markets. You may proceed.

Mark Douglas:

I'm glad you know asking about the guidance, Joel. It is a little early.

Mark Douglas:

Yes, I hear you. Listen, I think from a margin perspective, what you're seeing in Q3 and Q4 are pretty extremes around a midpoint. Obviously, we've got a lot of cost in Q3. And then we have the advantages of a lot of price allied to a good P&L. I do think you'll see more normalized margins for us as we go into the first half of next year. So if you look at our margins over the last, I would say, 12 months in that sort of 25% plus range, I think that's what we would expect. So I wouldn't go any further than that at this point, because frankly I don't have the numbers going into early next year. We're right in the middle of our budget process now. So kind of expect average margins as we go into the first half of next year.

Mark Douglas:

Yes. I think when you look at BioPhero, we're acquiring about 30 people with the acquisition. All those people are essentially in R&D. There are one or two that are in manufacturing and supply chain. I do think that the expense for that, if you took a base level, something around $10 million additive to where FMC is today on an R&D expenses. Not a bad number. It's rough at this point, but that's what I would be thinking, Joel.

Mark Douglas:

Thanks.

Laurence Alexander:

Good morning. I have two questions. Can you give a bit more detail on inventory levels regionally that you're seeing heading into the back half of the year? And then as you think about sort of the Latin American growth rate, sort of what you will be lapping going into next year given the very strong growth you've seen this year and sort of how tough will it be to lap that?

Laurence Alexander:

Can you give a sense for how long you think this period of sort of reestablishing a new equilibrium will take, or how long you can have this sort of be growing well above trend before you get to sort of more stable market shares?

Laurence Alexander:

Thank you.

Laurent Favre:

Hi. Good morning. I've got a question, three again, on the cost side. And here I want to dig into the comment you made, Mark, around having to source from secondary or tertiary suppliers. I was wondering if you could give us some kind of idea of how big that was in the first half, for instance.

Laurent Favre:

Thank you. And then the second one is on herbicide pricing and what you're factoring in, especially as we started to see [indiscernible] prices coming down. So it's both I guess for your non-selective side, but also the selective side of the herbicide business. Do you think that price is -- are you factoring in pricing normalizing through the end of this year and into next year?

Laurent Favre:

Okay. Thank you.

Operator:

Thank you. The next question comes from the line of Adam Samuelson with Goldman Sachs. You may proceed.

Mark Douglas:

Good morning.

Mark Douglas:

Yes, sure. India is the main factor for us, as I said, that working through that channel inventory due to rice. I would say the ASEAN countries are continuing to grow for us, especially on rice. And fruit and vegetables are two big segments for us in those countries. Australia on cereals with the launch of the new herbicide last year is doing very, very well. We don't mention China, because it's not one of our biggest countries. Certainly, it's a sourcing point for us. But from a revenue perspective, it's north of $100 million. It's a highly competitive market. It's not a market that we consider one of our top strategic markets. We'll grow there, we'll introduce technologies, but it's not something that is driving the region. The region is really been driven by ASEAN and all the countries in ASEAN; India, Pakistan and Australia. Those are the key drivers. Now interestingly enough from a plant health perspective and a biological perspective, South Korea and Japan are very important markets, especially South Korea, as they have quite a flourishing biological industry there and a lot of very high quality fruit and vegetables which can use the biologicals. So Asia is becoming very interesting from that plant health perspective for us.

Mark Douglas:

Yes. So from an energy perspective or use of energy in our manufacturing facilities, all our manufacturing facilities, and especially our major one in Romlund [ph], we can use flex fuel to run the facilities. So in Romlund, we traditionally run on natural gas. Obviously, that's been curtailed, given Russian activities. We can also run on diesel fuel in Romlund and have been doing for some time. There are cost inflation elements there that are built into our overall cost structure. We have a pretty good view on what we think costs will be going forward longer term for those facilities. From a raw material perspective, I think we procure something like $200 million of raw materials out of our $2.7 billion purchases come from Germany, and we have dual sources for all those materials in other parts of the world. So from a supply perspective, we have that one pretty secured.

Mark Douglas:

Thank you.

Vincent Andrew:

Thank you. Good morning. Just, Mark, you mentioned in the fourth quarter you'll have some new launches. And obviously, they'll have a positive impact to revenue. Maybe just want to talk a little bit about those. And then I'm also within that wondering whether 3Q is also incurring some launch costs associated with those new products that you're not going to obviously see the revenue until 4Q?

Vincent Andrew:

Okay. Thank you. And Andrew, maybe on the cash flow from operations, I'm sure it will all look a lot clearer once we see the Q. But could you just talk a little bit about sort of how the working capital played out in the first half versus how it's going to trend in the second half to get you to that 67% conversion that you're still targeting?

Vincent Andrew:

Thank you very much.

Operator:

Thank you. The next question comes from the line of Steve Byrne with Bank of America. You may proceed.

Mark Douglas:

No, not really. When we kind of plan for what we call a normal season, that means in Brazil, planting starts sort of mid September to the end of September. That can shift around given weather patterns. So Q4 is obviously a big quarter for us in Latin America, not just Brazil, but Argentina. We've kind of factored that into how we look at Q3, Q4. I don't think there's anything meaningful there. Obviously, it will depend on how the weather plays out. But I think we have most of that factored into Q4 as we normally do.

Mark Douglas:

Yes. So when you look at where we are today, we're in the range of about -- it's kind of like 60/40; 60% FMC branded products into the marketplace, about 40% through our third partners. That has obviously been growing as we've added more partners. I think it's fair to say, though, we pegged our growth rate for the diamides in sort of the high single digits. In Q2, we grew sort of mid teens, and it's pretty evenly split between both sources of income. On the price side, we don't talk about the specifics of the individual contracts that we have, obviously. But generally speaking, the EBITDA impact for us on a percent basis is neutral. So we manage it that way. So the growth for us is equally as valuable from an EBITDA perspective from either FMC or from our partners. So I would expect to see that 60/40. I would expect the 40 to continue to grow because we've got more partners on board now. They are obviously now gearing up and selling into the marketplace. I think the most important takeaway that you should take away from this conversation is the 40%, as it grows, does not detract from the 60% as we grow. It's an expansion of the market pool for the diamides. And as I alluded to earlier on one of the other questions, we see the diamides taking share from a number of older chemistries, whether they be neonicotinoids, some of the pyrethroids, and certainly some of the carbamates around the world.

Mark Douglas:

Thank you.

Aleksey Yefremov:

Thanks. Good morning, everyone. Mark, you were talking about costs for fourth quarter and your six months kind of lag. Do you have any visibility on the first quarter? Do you expect costs to decline further from Q4 level in the first quarter of 2023?

Andrew Sandifer:

Yes, Aleksey, I think as Mark described, since we turn inventory about twice a year, things that we buy today start flowing through our P&L two quarters out. So things that we're starting to buy now, certainly we're getting a little bit of visibility into Q1 of '23. But it's not a complete picture yet. We've not gotten through that far of the buying and some of that buying is tilted in different parts of the quarter. I do want to be very careful with the phrasing of the question and that our expectation is that costs do continue to increase, particularly in the first half of '23. They just do so at a much lower level. And what we're seeing from Q4, Q4 is the largest cost -- excuse me, Q3 of '22 this quarter, coming quarter, is the largest cost increase we've seen and the largest cost increases we expect for the year. We expect the rate of cost increase to drop down in Q4. But there still is year-on-year inflation in Q4. So at this point, what we're seeing is a flattening off in the inflation, but not necessarily yet an absolute drop off in costs. So I think for Q1, we'll continue to see our purchasing go through the rest of this quarter to see what the outlook for Q1 is, but I think at this point we still anticipate some cost headwinds in Q1 and likely into Q2, and then with the opportunities that we start seeing the swing in the second half of '23.

Mark Douglas:

Yes. Listen, I think clearly you can look at our price increases and we're targeting that high single digit price increase, and we're moving in that direction. For a company like FMC, those are unheard of price increases. Normally, we price kind of in the very low single digits to offset inflation on a general basis. I think when we're looking at the marketplace, we sell products in some of our categories that are extremely high margin products. You all know the success of the diamides, for instance. Taking volume from older chemistries with the newer chemistries adds tremendous value to the bottom line, whether you increase price or not with those products. Sometimes we do, sometimes we don't. It's a mix of decisions that are made at the local level with the overall mantra that price increases will offset cost. And that's how we've been working this year. So for us, it's somewhat of a complicated discussion inside the company. Except I would say over the last year or so, it's changed to be much more aggressive on price. We have driven price in every region of the world, more so than we ever have before.

Operator:

Thank you. The next question comes from the line of Michael Sison with Wells Fargo. You may proceed.

Mark Douglas:

Yes, Mike, thanks for the comment on the quarter. Listen, I do think that most of that cost is variable in the sense of its raw materials, its packaging, its logistics that will obviously ebb and flow. And we expect them to obviously decrease over time. I would say the only structural cost that's been embedded is as we're investing in SG&A resources and R&D projects that are more longer term, those are driven around the growth of the company, the market access that I talked about in places like Brazil, Argentina, India, parts of the ASEAN region, and the U.S. as well. Those are structural costs, because they're headcount, they're investments. The other investments around precision agriculture as we're growing out our precision ag apps, such as farm Ark intelligence, those are structural costs. But the vast majority is what I would call more transient.

Mark Douglas:

Well, I think from a revenue perspective, obviously, it would be what does pest pressure look like in some parts of the world? We just talked about the success we had in our North American business. As pressure in Canada was much higher than we normally forecast, that drives demand that gets used immediately. So if you have those series of events around the world that can drive you to the upper end of the range. Also, as we look to expand our market access and the success and the speed of that success, that can drive us to the upper end in terms of more market share, newer products being sold to new customers, that would drive you the same way.

Mark Douglas:

Thanks, Mike.

Josh Spector:

Yes. Hi, guys. Thanks for taking my questions. I guess just to follow up on the second quarter and the volume outperformance, I guess optically the volumes did a lot better. The drop through was essentially pretty minimal given the cost side. I'm not really sure how much of that is higher spend on the incremental volumes or the higher costs for the base. But I'd be curious if you were to have a repeat, 3Q, 4Q volumes a lot better, should we expect a similar result in terms of the drop through, or should we expect that to be different, much better or worse, any thoughts appreciated? Thanks.

Andrew Sandifer:

Yes. Josh, I think, look, that can be a big variation and that the drop through, the contribution to EBITDA from volume relative to the contribution to revenue growth from volume. On a trailing four quarters basis, that was about 58% in Q2. The quarter itself was about 57%. So it's right in line with what we expect. Our long-term average is about 60%, which reflects the high value, the mix component of our volume growth. A reminder to everyone that in our bridges mix [ph] is in volume. You can see significant swings in that because there is lumpiness in costs increase. It's not perfect -- it's not a perfect indicator. But I think you should continue to expect that on a rolling basis that volume drop through to EBITDA should be in that 55% to 60% range for the next several quarters and beyond.

Andrew Sandifer:

Yes. Josh, I think certainly the stronger volume growth can have that pretty healthy drop through that will help offset further cost increases. I think what we've been trying to do is pace the price increases to where price increases cover as much as possible increasing COGS. And then we make up any investments in SG&A and R&D as well as FX headwinds with volume. But certainly, when you look at the second half together where we're looking at very substantial volume growth, there will be a piece of that that will help bridge the difference between the cost headwinds and what we're able to cover in price.

Operator:

Thank you. The next question comes from the line of P.J. Juvekar with Citi. You may proceed.

Mark Douglas:

Yes. P.J., thanks for the question. We don't normally break down those types of costs. But I would tell you that the vast majority is the active ingredients, intermediates that we buy, followed by logistics and then packaging. But by far, the biggest chunk is the whole raw material spectrum that we buy. Do you want to say anything, Andrew.

P.J. Juvekar:

Okay. Thank you. And my second question is on your plant health and biologicals, you acquired BioPhero, what are the areas of biologicals that you believe that you have some holes so you would like to make some acquisitions? And what are the multiples that these biologicals are being bought at these days? Thank you.

Andrew Sandifer:

Yes, P.J., just a few thoughts on multiples. A lot of the kinds of acquisition targets we are looking at in the biological space are more early stage. BioPhero, for example, were small amounts of commercial revenue, but not large scale sales yet. So multiples really not meaningful when considering the value of the acquisition. It really is a case where NPV and IRR really come into play. And certainly as we looked at the acquisition economics for BioPhero, the IRR on that transaction was multiples of our cost to capital. So even on a risk adjusted basis, very, very attractive. So we think about the types of targets that are out there that tend to be smaller companies, more early stage. So traditional EBITDA multiples are less relevant in terms of thinking about valuation.

Andrew Sandifer:

Yes, absolutely.

Operator:

Thank you. The final question comes from the line of Tony Jones with Redburn. You may proceed.

Mark Douglas:

Thanks, Tony. No real what I would call mismatches, although we are and we have said that we will have a much more balanced supply chain and operations structure as we go forward. When you look at our investments for the molecules that are coming in, putting feed in the ground, we're active in India, we're active in Europe. We're looking at potential toll manufacturers in -- more toll manufacturers in the Americas. So overall, I wouldn't say we have a mismatch. But certainly as the industry grows, the need for formulating capacity is something that we're investing in quite heavily, especially in the U.S. to feed our U.S. business. So I think that that notion of getting your formulating capacity as very local as you can and as close to the customer base as you can is something that's driving our strategic thinking around manufacturing and operations. Andrew, do you want to --?

Andrew Sandifer:

Tony, I'll just add to that. When you think -- I think the second part of your question there on the CapEx piece related to this, our capital plan had envisioned building out supply chain that was more geographically diverse, and that very much a part of our thinking in terms of having multiple source points and balancing out points of supply. So that has been factored into the way we've been thinking about the CapEx stepping up over the past couple of years, including our CapEx guidance for this year. And I would just also comment when we start talking about formulation plans, that those tend to be very low capital. This is not heavy equipment. This is not chemical synthesis. It's not trivial, but they're not significant capital investments as compared to a new AI plan, for example.

Mark Douglas:

Thanks very much.

Operator:

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

Operator:

Good morning and welcome to the first quarter 2022 earnings call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s prepared remarks, there will be an opportunity to ask questions. To be placed in the Q&A queue, please press the star key then one at any time. If you are using a speakerphone, please pick up your handset before pressing these keys. I would now like to turn the conference over to Mr. Zack Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Mark Douglas:

Thank you Zack, and good morning everyone. Before I move into details on our results, I’d like to take a moment to provide an update on FMC’s position related to the war in Ukraine. In mid-April, we announced the decision to discontinue our operations in Russia and exit the country completely, making FMC the first crop input provider to exit Russia. We could not ignore increasing reports of potential war crimes, human rights abuses and other atrocities committed in Ukraine. Our values as a company do not allow FMC to operate and grow our business in Russia. Furthermore, as the war continued and new sanctions and counter-sanctions were levied, FMC’s ability to conduct business in Russia had become unsustainable. Our cross-functional team continues to navigate the extraordinary logistics and supply chain challenges in Ukraine and other parts of Eastern Europe. FMC and our employees raised nearly $300,000 for charities supporting the Ukrainian people and families in need. Our hearts and thoughts remain will all Ukrainians and especially our FMC colleagues and their families. Turning to FMC’s performance in Q1, we delivered strong results driven by robust volumes and solid pricing actions across all regions. We grew our revenue by 16% organically, EBITDA by 16%, EPS by 23%, and importantly expanded our EBITDA margins by approximately 60 basis points while confronting a variety of supply and cost challenges as well as increasing currency headwinds. With disruptions impacting several agricultural inputs, we believe some of our Q1 sales were accelerated from Q2 as customers looked to secure supply in advance. Given this context, our guidance for Q2 combined with Q1 actuals implies 11% revenue growth and 8% EBITDA growth for the first half of the year compared to the first half of 2021, which is much more front-loaded than prior years. Latin America and North America contributed greatly to our success in the quarter, supported by elevated commodity prices, acreage increases, and historically low stock-to-use ratios for several crops. Sales from products launched in the past five years increased by more than 50% in the quarter compared to the same period last year, demonstrating the strength of our technology pipeline and product portfolio. The global plant health business also continued its growth trajectory with biologicals growing 15% year-over-year. Last year, we announced our goal to achieve net zero greenhouse gas emissions by 2035. We recently achieved the first milestone towards that goal by submitting 2030 emissions reductions targets to the Science Based Targets Initiative. These targets include 42% absolute reduction in direct emission from FMC’s own sources and indirect emissions from purchased electricity, steam, heating and cooling, also known as Scopes 1 and 2, as well as a 25% absolute reduction in all indirect emissions that occur in the value chain, otherwise known as Scope 3 emissions. An incredible amount of rigor went into developing these targets with our sustainability team conducting an exhaustive review of all factors contributing to FMC’s greenhouse gas emissions and quantifying those emissions across the entire value chain. We will publish our 11th annual sustainability report in the coming weeks, and we look forward to speaking more on this topic in upcoming calls. Turning to Slide 3 for our Q1 results and keeping in mind my earlier comment about shifts within in the first half, we reported $1.35 billion in first quarter revenue, which reflects a 13% increase on a reported basis and 16% organic growth. We had double-digit growth in all product categories with fungicide showing the greatest growth year-over-year at 20%. Biologicals grew 15%, continuing the momentum of our plant health business. Regional growth was driven by strong volume gains in North America and Latin America as well as high single digit price increases in all four regions. FX was a headwind to top line growth in EMEA. Adjusted EBITDA was $355 million, an increase of 16% compared to the prior year period and $30 million above the midpoint of our guidance range. EBITDA margins were 26.3%, an increase of 60 basis points compared to the prior year period. Cost inflation continued to be a challenge and at a higher rate than anticipated, so we moved price more aggressively in all regions to offset these increasing headwinds. We have also been active in managing our SG&A costs, some of which shifted from Q1 into Q2. FX was a headwind to EBITDA. Adjusted earnings were $1.88 per diluted share, an increase of 23% versus Q1 2021 and $0.18 above the midpoint of our guidance range. The year-over-year increase was primarily driven by an increase in EBITDA with the benefit from lower share counts and lower interest expenses largely offset by higher minority interest and taxes. Moving now to Slide 4, Q1 revenue increased by 13% versus prior year, driven by an 8% volume increase and an 8% pricing gain. Foreign currencies were a headwind of 3% in the quarter on the top line. In North America, strong commodity prices supported robust demand for inputs. Sales increased 30% year-over-year with broad-based growth across all indications and for a variety of crops, such as tree fruits, nuts, vines, corn and soy. In the U.S., we grew with Rynaxypyr brands such as Vantacor and Altacor in fruits and vegetables. Xyway, our unique in-furrow fungicide continues to gain significant momentum while providing season-long protection for corn from foliar diseases. Sales of biologicals almost doubled in the U.S. led by Ethos XB for corn and soybeans. Ethos XB is a unique combination of a synthetic insecticide for seedling insect protection with biological microorganisms that have fungicidal properties. Our Canadian business had a record quarter driven by lower channel inventory of insecticides and strength in cereal herbicides. We also successfully launched Coragen MaX, which is the new higher concentration formulation of Rynaxypyr active, targeting pests on corn, dry beans and several other crops. Other 30% of FMC’s branded sales in North America this quarter came from products which were launched in the last five years. Moving now to Latin America, sales increased 31% year-over-year led by Brazil and Argentina, driven by volume and price increases as well as a 6% FX tailwind driven by the Brazilian real. Colombia, Peru and Ecuador also grew double digits in the quarter. In Brazil, we grew our herbicide brands, Aurora and Gamit on soy, corn, sugarcane and coffee. We also grew our insecticide brands, Talisman, Hero and Coragen on soy, corn and cotton. FMC continues to reap the benefits of a strategy to improve market access and increase penetration of our technologies in the Brazilian soybean market. Sales in EMEA grew 11% versus prior year, excluding currency headwinds. Results were driven by strong price increases across the region as well as demand for Rynaxypyr-based brands, Coragen and Altacor for corn, and herbicide brands, Express and Pointer for sunflowers. Registration losses and product rationalizations were largely offset by new product launches in the quarter. Over 10% of branded sales in the quarter came from products launched in the last five years. FX was a significant headwind in the quarter, resulting in flat year-over-year revenue growth. Sales in Asia were up 2% versus first quarter last year and up 5% organically. The increase was driven by pricing actions and strong performance in Australia and ASEAN countries, offset mainly by a reduction in Indian rice acres. Approximately 15% of branded sales in the quarter came from products launched in the last five years. Turning now to first quarter EBITDA on Slide 5, EBITDA was up 16% year-over-year driven by pricing and volume gains which were partially offset by cost and FX headwinds. Price was up $94 million in the quarter with high single digit increases implemented in all four regions. It is important to note that our pricing actions were taken to offset the sustained cost inflation we’re experiencing across our supply chain. Raw material, energy, logistics, packaging and labor costs remained elevated and contributed to the $62 million cost headwind in the quarter. FX was a $16 million headwind in the quarter with weakening European currencies. Overall, EBITDA margins expanded 60 basis points in the quarter. Before I review FMC’s full year 2022 and Q2 earnings outlook, let me share our view of the overall market conditions. We continue to expect the global crop protection market will be up low to mid single digit percent on a U.S. dollar basis. Breaking this down by region, we expect Latin America, North America and Asia to be up mid single digits while EMEA is now expected to be down low single digits. The war in Ukraine may further reduce market growth in the EMEA region. Commodity prices for many of the major crops remain elevated and stock-to-use ratios are near historic lows, creating a favorable backdrop for crop protection products. FX is projected to be a headwind for EMEA and Asia markets on a U.S. dollar basis. Turning to Slide 6 and the review of FMC’s full year 2022 and Q2 earnings outlook, despite the volatile supply and geopolitical environment, we remain confident in our ability to deliver solid growth in 2022. FMC’s full year revenue is forecasted to be in the range of $5.25 billion to $5.55 billion, representing an increase of 7% at the midpoint versus 2021 driven by volume and price growth in all regions, partially offset by currency headwinds. Full year adjusted EBITDA is expected to be in the range of $1.32 billion to $1.48 billion, representing 6% year-over-year growth at the midpoint. This will be achieved through pricing actions and strong volumes; however, rising costs and supply disruptions will continue to be significant headwinds to EBITDA. 2022 adjusted earnings per share are expected to be in the range of $6.70 to $8 per diluted share, representing an increase of 6% year-over-year at the midpoint. Consistent with past practice, we do not factor in any benefit from future share repurchases in our EPS guidance. Discontinuing our Russia business does not change our full year earnings expectation at this time and it will take some time for us to assess the full financial implications for our exit. For reference, however, our Russian operations made up approximately 1.5% of global sales in 2021. Guidance for Q2 takes into account the shift of some sales from Q2 into Q1 as customers across many countries placed orders in advance to secure supplies during these uncertain times. Given the current industry dynamics, it is possible we will see the same phenomena occur with future orders moving into Q2. Q2 guidance implies sales growth of 9% at the midpoint, EBITDA growth of 1% at the midpoint, and EPS growth of 2% at the midpoint year-over-year. Turning to Slide 7 and the updated range of 2022 EBITDA outcomes, the market backdrop is supportive with FX limiting crop protection growth to low to mid single digits. Pricing actions and strong market demand have offset quickly rising costs so far; however, volatility persists due to renewed COVID related shutdowns in China, energy cost inflation in Europe, and ongoing disruption of global supply chains and logistics. FMC continues to deliver products to our customers in a timely manner despite these disruptions, but reliable supply is coming at an increased cost. We do not expect to see any cost relief through the remainder of 2022. EMEA and Asia have experienced FX headwinds only partially offset by the positive currency impact in Brazil. In addition, our decision to exit the Russian market and the impact of the war in Ukraine are new considerations. Turning to Slide 8 and full year revenue and EBITDA drivers, strong volume expansion and price increases across all regions will drive revenue growth. FX volatility is expected to be a negative factor on our full year revenue outlook. In terms of crop mix, we expect roughly half our sales to come from specialty crops such as fruits and vegetables, sugar, rice and cotton. Almost 40% of our sales are expected to come from corn, soy and cereals such as wheat. FMC’s crop diversity is a long term competitive advantage since we’re not over-indexed to any single commodity. Our EBITDA guidance reflects strong demand for our existing portfolio and new products as well as mid single digit price increases. These benefits to EBITDA are partially offset by substantial cost headwinds as well as investments in SG&A and R&D. Moving to Slide 9 and Q2 drivers, on the revenue line volume growth is expected to continue along with price increases in all regions that will start to lap some of the increases taken last year. We are anticipating FX headwinds to continue principally from European and Asian currencies. We also expect to see impacts from our decision to exit Russia beginning in the second quarter. For EBITDA, positive drivers include volume, especially for new products and pricing actions. The benefit from these drivers will be largely offset by elevated raw material, packaging and logistics costs, as well as some SG&A costs that shifted from Q1 into Q2. FX-related headwinds are also expected to persist, especially in EMEA. Turning to Slide 10, with the guidance for Q2 and the full year on record, we would like to also show the implied forecast for the two halves. Revenue forecast for the first half of 2022 indicates 11% growth over the first half of ’21. Implied revenue forecast for the second half of 2022 indicates 4% growth over the prior year period. This is consistent with the stronger pricing actions and significant volume gains achieved in the second half of last year, especially in the fourth quarter of 2021. EBITDA forecast for the first half of 2022 indicates 8% growth over prior year period, driven by strong demand and pricing actions, offset by cost and FX headwinds. Our guidance also implies 4% year-over-year EBITDA growth in the second half of the year. This results in a more front-weighted outlook for EBITDA growth compared to last year. I’ll now turn the call over to Andrew.

Mark Douglas:

Thank you Andrew. Our first quarter performance in combination with the guidance to Q2 reflects FMC’s ability to mitigate cost increases through pricing actions and to fulfill robust demand and the challenging supply conditions. Our new product introductions continue to gain momentum with over 30% of expected full year revenue growth coming from products introduced in the last five years. Our global plant health business continue its impressive growth trajectory led by biologicals. 2022 is proving to be one of the most challenging years, even considering all we’ve had to manage since 2019. Our continued success stems from our strong customer focus, the way FMC’s cross-functional teams are overcoming headwinds, and finally the strength of our robust technology and new product pipeline. All these attributes will serve us well through the remainder of the year. I’ll now turn the call back to the operator for questions.

Vincent Andrews:

Thank you very much. Mark and Andrew, the 8% pricing in the quarter in all regions was extremely strong - it was almost twice what we’d been anticipating, and I think it compares versus 4% in the fourth quarter. What did you do differently in this quarter, if anything, to get that strong pricing achievement so quickly, and if you could also comment whether there’s any mix in that 8% number or just what mix would be in general.

Vincent Andrews:

Thank you so much.

Laurent Favre:

Hi, good morning, and thanks for taking my question. Mark, it’s really related to your market assessment, and I was wondering if you could talk a little bit about, I guess, volumes including mix, so really intensity of use. Are there reasons why you would not expect a higher intensity of use, more spraying, but also can you talk maybe about the risk of down trading with farmers being so squeezed on all sorts of input costs, including fertilizers. Thank you.

Laurent Favre:

Thank you. As a follow-up on pricing, you mentioned you’re lapping some increases from last year in the quarter, but last year in Q2 I think your pricing at group level was flat as it was in Q1 last year, so I was wondering maybe could you talk about specific areas, either geographically or in terms of product categories, where we should expect this slowdown in pricing into Q2?

Laurent Favre:

Thank you.

Josh Spector:

Yes, thanks for taking my question. Just on the comments about China and the logistics and supply risk, wondering how you’re thinking about the potential risk this time versus a couple of years ago and perhaps what’s changed to maybe limit the volume impact on your side or mitigate some of the cost pressure.

Josh Spector:

Okay, thank you.

Patrick:

Hi, this is Patrick coming on for PJ, thanks for taking my question. Just a question on diamides--

Patrick:

Hello, can you hear me?

Joel Jackson:

Hi, good morning. Mark, I don’t want to put words in your mouth, but last quarter we talked about Slide 7, which is your upside and downside scenarios and would you think that you’re leaning more to the upside or the downside. I think you said leaning more to the upside. What I see now on the upside is to get to the upside scenario at $1.4 billion, you need to have higher price increases than what you would have thought a few months ago. Can you maybe talk about that a little bit?

Joel Jackson:

Okay, and then secondly here, when I look at your margin guidance, you had a bit of margin expansion in Q1 and then you’re modeling--then your [indiscernible] guiding to some pretty tough margin contraction in Q2, some of the lowest margins you’ve had in a long time. Then Q3 and Q4--for Q2, sorry. Then for Q3 and Q4, you’re guiding to maybe modest margin contraction. Can you sort of help bridge that a bit - expansion in Q1 year-over-year, then pretty sizeable contraction in Q2 and kind of modest contraction for the second half of the year?

Joel Jackson:

Thank you.

Christopher Parkinson:

Great, thank you so much. When investors take the time to actually parse out the growth rate for the diamides and biologicals perhaps at a lower base, and then subtract just the annual registration losses, what’s your current assessment of the remainder of the portfolio, so kind of the other core products as well as some new launch products, and what are you most excited about for 2024? Perhaps an alternative way of asking that is just how do you generally characterize your aggregate growth contribution from more environmentally CPC formulations versus the past few years? Thank you.

Christopher Parkinson:

Got it, and just a very quick follow-up. Mark, before everything that’s happening with the war, the EU was actually evaluating a host of chemistries, and there were one or two of them that are in terms of environmentally, let’s say friendliness or lack thereof, and two of them and one in a particular is a direct competitor of the DiaMark portfolio. How is your team assessing the potential opportunity for the diamides based on the potential for further regulatory actions? It seems like it’s already benefited, it has been benefiting you over the last several years and potentially will benefit you, but what are you updated thoughts on that and how that could potentially further contribute to that portfolio’s growth? Thank you.

Christopher Parkinson:

Great, thanks for the color.

Tony Jones:

Thanks everybody, thanks for taking my question. You talked about cost inflation should be peaking and reversing at some point, but when we look at the industry, in the past we’ve seen some companies give back prize. What’s your expectation from an FMC perspective, because the portfolio today is very different than last time we were in a period of cost inflation, so any thoughts on that would be really helpful. Thank you.

Tony Jones:

Thank you, that’s really helpful. Just a really quick follow-up, can you indicate the rough additional SG&A costs, maybe absolute terms moving from Q1 to Q2, just so we can make it accurate in the model? Thanks.

Andrew Sandifer:

We don’t. Look Tony, I would say that I think our SG&A as a percentage of sales was probably a bit light in Q1 relative to what you should expect in Q2.

Operator:

Our next question comes from Michael Piken from Cleveland Research. Michael, please go ahead.

Operator:

Michael, we’re unable to hear you. Can you please check your line’s not on mute?

Operator:

Unfortunately we can’t hear anything from Michael’s line, so we’ll move onto the next question. Your next question is from Arun Viswanathan from RBC Capital Markets. Arun, please go ahead.

Operator:

Arun, your line is now open for your question, please proceed.

Operator:

Yes, we can hear now. Please go ahead.

Mark Douglas:

Yes, thanks Arun. Listen, next year is the last year of our five-year plan. We’re tracking well on revenue, right in the middle of the range. We are slightly below on EBITDA, but as Andrew and I were discussing the other day, since ’18 through ’21, we’ve had over $600 million of costs and FX headwinds and we’re only just slightly below the lower end of the range. Look, I’m not going to guide ’23 - it is way too early to guide ’23, but there’s no reason to believe that if the situation starts to normalize, that we wouldn’t be in that 7% to 9% range. We’re obviously not going to cover the gap that we’ve had over the last couple of years, so we will likely end up somewhere at the low end of that range at the end of the five-year plan - commendable results, to say the least, given everything that we’ve had, and frankly this year’s cost and FX is higher than we’ve seen at any point of the last five year in terms of this plan, so we’re swimming against a very strong tide and right at the edge of our range. We do feel that the company has performed well since 2018 on both metrics. After 2023, we are going to be putting together a new long range plan. Whatever timeline that takes, we will make that decision. We would expect to come out with a new long range plan towards the end of 2023, where we’ll be public with where the company is going over what time frame, but for now we’re just sticking with where we are and obviously that 7% to 9% EBITDA range is what we’d be aiming for for next year.