FMC Corporation ($FMC)

Good morning, everyone. This is Mike Sison, Wells Fargo. I cover the ever-exciting chemical industry, which actually has outperformed over the last year-to-date, about 14%. S&P was up about 8%. FMC stock has struggled a little bit, down 15% year-to-date and well off its decade high of over $100. Today, we have Andrew Sander, CFO of FMC. He's here to tell us the company's turnaround story, how do we get that stock back on the right track. It's got to be more exciting than some story, right? That's going public at the end of the week. But thank you for spending some time.

Thank you. So I appreciate you having us here.

I guess the first question is the strategic review -- you're in progress of doing one. I recall, the board at your last public meeting or had some offers on the table or something like that. I'm sure you can't get into the specifics, but -- any sort of color of what you think the Board and you guys are looking for a deal or a transaction that would create value for shareholders or versus staying a stand-alone company?

Yes. So maybe I'll start off with that part first and build there. I think as we've described it, there's really 2 things we're working on is Plan A, the operational priorities we've set for the company in 2026 to really get it back on a more strong footing and prepare for a return to profitable growth. And then in parallel, that Plan B, which is a broader strategic [indiscernible]. Plan A is really driven by 4 key initiatives, aggressively paying down debt, primarily through asset sales and licensing arrangements and other things we've talked it that as its interest to people, doing the right things to change the cost position for our core portfolio, doing some pretty significant cost restructuring to restore competitiveness for that part of our business. implementing and executing our Rynaxypyr strategy for the patent. And then finally, really, the crux of the future for the company, which is really delivering on the potential new active ingredients that we're in the process of introducing Right. But to your point, back in February, conversation I started a little bit earlier than that, but at the earnings call, we disclosed that our Board had asked management to work with the Board on an expiration of strategic options. And we're very careful with the language and strategic options up to and including the company -- and over the past several months, a small group of us and the executive team working with the Board and with outside advisers have worked on a number of different options been a lot of discussions and a couple of different opportunities and a couple of different propositions that were interesting enough to really take to the board. That dialogue and that process is still ongoing. So there's only so much I can say other than it's still very active. It's the full range of things that we could be thinking about, whether that's an outright change in control transaction or a merger or a strategic collaboration. All of the above are being have been considered continue to be considered. There are some active discussions and while we can't be certain about time line. There are some practical realities -- discussions have been going on for a bit and there is only so long you can run an organization with all of your employees under a cloud of uncertainty about what the future look like. So I would expect that sometime between now here early mid-June and in our Q2 call at the end of July, we'll have some more clarity than we'll be able to share. There's not a specific data I can point to at this point. Like I said, it's an active set of discussions and evaluation with the Board. But I do think we would like to come to a more formal conclusion the direct here before too long. But these kinds of discussions and dialogues with the Board take time. But again, I would expect some time here before in the earnings call at the end of July.

Well we have 25 minutes left, just in case...

Phone buzzes in the interim.

And -- so let's walk through the turnaround potential for FMC a little bit. You talked about the 4 ingredients. As I recall, is expected to have sales between $300 million to $400 million and $26 million, $800 million by 2027, $1 billion by 2030 and then potentially $2 billion by 2035. Yes. So I'm going to botch this. But the first one was Dodhylex herbicide. It got registered in 2025. Just for investors thought, why is this herbicide more effective than what's on the market now? How do you see that ramping in '26? And then in '26 -- and then what do you think -- could this be -- and I'm going to ask all 4, but could this be a [indiscernible]? Or could this -- which 1 could be a big one? And what's kind of the base case for this longer term? .

So Dodhylex which is close no worries. It's a lot easier to say than Tet flu prior role, which is the chemical name of the molecule. Look, at herbicide, it's a herbicide that is selective to Rice -- and that's the leading application for it is in rice crops. It is a herbicide that kills grassy weeds and a crop at itself as a grass. So it's a very rare thought that you can if that it's something that differentially impacts plants that are like price, but not rice itself. Has applications broader than rice some very interesting potential for that molecule beyond that. But all of the initial registrations are really focused on rice. Obviously, Asia being a key area of focus as a key rigornegion, but the U.S. parts of Latin America, all a part of that program. The first registrations, we actually do have a few small countries with temporary registrations right now, but nothing material. We'll start seeing real revenue in assuming we get the registrations that are expected in the 26 and 27 for that. And then a nice ramp through 27 through the early 2030s. We think that could be $400 million to $600 million. To get to the higher end, you need to broaden beyond rice we do -- again, we do think there are some significant opportunities there. And one of the things that's really exciting about that molecule, it is one of the first, if not the first, herbicides with a new fundamentally new mode of action, meaning a biological pathway that attacks in the plant to kill the weed, introduced in 30 years. So it is truly novel brand-new technology and a crop that desperately needs new tools to control weeds. So super, super exciting. I think very high confidence that as we get the registrations that ramp becomes a very interesting out -- it's not a recipe, it will never peak out $1.6 million, at least not anytime soon . Let's say how inflation plays a compound long enough. But it is a big meaningful contributor to the growth. .

Great. And then can you just remind us just because it's -- we're going to talk about the diamide at some point. How does patents work for these? How long do they last? So .

Patents, there are multiple types of patents. The primary ones are composition of matter patents, which deal with a specific molecule itself. -- there's some strategy involving the timing in which you apply for those at -- so we identify an early-stage discovery R&D compounds that have particular biological activity against passive interest. . So in this case, against grassy wheats, and you test and get more comfortable that, that molecule may have some interesting commercial viability. And at some point, you apply for a patent. Depending on the country, it's probably a 15-, 17-year patent life. -- but it takes another 7 to 10 years from whenever you've patented to get that product to market. So you're probably in a 10-plus year window that you're selling under complete patent protection matter. Now there are additional things you can do as you're finishing the development of that product. You can patent manufacturing methods. You can patent formulations in the way that, that product is with other ingredients, whether there are other active ingredients or nonactive ingredients to help make it a better performing product. You can also look to ways of novel delivery methods that can add patent protection. So from a patent protection for space, by the time you introduce, you're usually a decade or more protection. You also, in our industry because you have to provide a tremendous amount of toxilogical and biological activity data to get the product registered -- many countries also provide protections to you as the initial holder of that data to go beyond the life of the patent. This is particularly in the EU, where you will get data exclusivity that extends the life of your protection as the innovator long beyond patent time. So that's a quick synopsis of the path.

Okay. And then, I guess, the second one, I think I could pronounce this one. Isoflex. I herbicide. That's an easier one, yes. easier one. Got EU approval in February 26, mortar registration is expected in -- so I guess similar to Dodhylex. I just want to be able to pronounce it. What makes this herbicide special potential for growth and longer term?

So Isoflex is another herbicide particularly useful in cereal crops, but not exclusively. There are some other noncereal applications as well. It was first introduced in Australia, also introduced in certain Latin American countries, certain countries, but the significant market is Europe, right? -- biggest producer of cereals in the world. We entered -- the active ingredient and formulated products were registered late in 2025 in the U.K. So we'll have -- and we missed a good piece of that selling season, unfortunately, in 2025, but we'll have a full year of selling season in the U.K. for this year's winter cereal season. The active ingredient Isoflex, as you noted in February was registered in the EU. We now have to get product formulated product level registrations at the country level. That's what it will take through why we won't get formal introduction until 2027 across the EU. What's particularly interesting about this product in the EU, in particular, the number of tools that growers are growing cereals and Europe have to control weeds is becoming more limited. So this is the first new product in a long time for cereal growers to help control the weeds in their fields. And if you get -- look at some pictures of what a typical cereals field looks like in Europe, it's hard to see the cereals for the weeds. So it's a tremendous opportunity for yield improvement for over orders in Europe. So much that while we have no control over this, and I want to be very clear about -- we do have -- in certain European Union countries right now, there are farmers petitioning for emergency use exemptions that would allow them to utilize Isoflex based products before the products are formally -- that would be upside for us in 2016, if that were to occur. We don't control that. We don't influence that. But we are ready, if there is an opportunity there, we would be glad to help growers out and giving them a better tool and a new tool to help control weeds in cereals.

Great. And then the third overside, Rimisoxafen. First registration 28. Again, what's the excitement about that one?

So my colleague, Curt, who's with us today, who knows that I have probably irrational excitement about this one. But Rimisoxafen is it's a really unique herbicide. New to the world when we talk about modes of action in terms of the way the Herbicide attacks a weed in terms of biologic processes, it is not only a new mode of action, it's actually 2 new of action that attacks 2 different biological pathways in the plant that have never been seen in the world before. And anybody who pays attention at all to the herbicide space knows that there's growing challenges with resistance builds up in plants from having been exposed year after year after year to herbicides like glyphosate or 24 or dicamba. And what remasoxintin will do is give growers a new tool to control really difficult that aren't easily controlled by most of the available technology on the market today. And it's particularly useful with some resistant weeds like palmer amaranth, which is a highly, very fast reproducing that can really damage crops very rapidly. And the number of tools on the marketplace that are out there that can help control that is getting really, really small. So this is a big one for corn and soy in the Americas. This is 1 we're super, super excited about, and it is because of the degree of novelty and technical innovation that's involved in this product. This one is a big one. Again, it won't be Rynaxypyr, but all 4 of these products, we think, are kind of range for peak sales. This is 1 that could be at the higher end of that.

Okay. And then the last 1 is the fungicide flu and the peer. You've had launches in the U.S., Brazil and Argentina. Any more launches coming and what do you think makes that 1 special.

So fluindapyr is a fungicide. It's good for a number of crops, but particularly soybeans, does -- it's 1 of many products that can help control agents rebut also works in corn on some -- particularly in some diseases that are becoming very relevant in the U.S. and in the Central U.S., in particular, Tarspot and Southern Rest there are very limited tools to control. And certainly, there are diseases that you don't want to get into your field as a preventative value to this as well. Fluindapyr, as you know, it's been registered in a number of countries. We've got most of the registration not all that we're going to go after -- we're really in the ramp-up phase. And that's a product where we are seeing very substantial year-on-year growth. And it's a great part example of where we're using partnerships to help accelerate that growth. Last year, we entered into a partnership with Corteva, where we provide a formulated product to them that they market directly to their customers. It's allowing us to more rapidly gain adoption in the United States. So a win-win for both companies. And we are seeing very, very good growth there. So fluindapyr, I'd say, is furthest along in its commercialization, but a lot more room to continue growing. .

Okay. And then just maybe your quick thoughts on how the ramp-up is for these 4 in '26? And then the goal for 2030 I would assume that's heavily Dole, Helix, whatever, I'm sorry. Dex and then Isoflex -- or is it .

Yes. So I think to build this way. Right now, Fluindapyr largely registered Isoflex still gaining momentum and getting key European registrations to come in 2027. The really big introduction. Dodhylex just starts getting commercially introduced in '27 emesoxaban the first registrations in 2028. So they build in that order. We did about $200 million in sales across the 2 that are currently commercial, Isoflex influent last year. We expect those 2 to represent between $300 million and $400 million sales this year, building to $828 million. And then as you noted, by mid-2030s, up to $2 billion of peak sales here. The gating condition really is getting the registry -- and there's always a little bit of timing risk there, but we feel pretty good about our line of sight on registrations. So we think there's a pretty good trajectory here to see that really strong accelerating growth from these new active agreements.

Great. Sort of the second area of the turnarounds to balance sheet. You recently said that there is licensing potential. I wasn't -- I don't remember if this of 1 of these 4 or on your other molecules. But can you walk through some of that license potential as part of the $1 billion debt paydown potential. And I think you recently said you've chosen a partner for that and that you will have an update today not in -- but at some point...

Yes. Yes. So 1 of our 4 big priorities for this year is really so the balance sheet. And we've set a goal to pay down $1 billion of debt. In our last call, we sketched out where we have and currently acted negotiations, about $700 million transactions -- that included the India transaction, which has been signed for $250 million for the sale of our India business. That will close sometime before end of year -- but that's a piece of it. The next largest and the topic that you're raising here is around active ingredient licensing. Active ingredient licensing is something that is very common in our industry. Again, the idea being that none of us are big enough on our own necessarily to maximize the penetration of a product as rapidly as possible on our own. And particularly, FMC is the smallest of the 5 innovative innovation-led crop protection chemical businesses. There's a significant benefit from us from gaining route to market through our peer companies. We also have some very special molecules in our active ingredient pipeline. And certainly, before we just talked through, the active -- the discussion that is very close to completion is about 1 of those molecules. And it is an opportunity to work with a partner whose route to markets are very complementary to ours and will allow us to, quite honestly, expand and accelerate the value of that molecule. -- such that there is upside beyond what we just talked about in terms of peak market value potential for that by having that additional route to market. That deal is imminent. I would say one word to you in terms of the process lawyers -- no, all joking aside, these are complicated transactions. When we say licensing, we're understating what the actual transaction is it's a commercial agreement where we will supply active ingredient to the partner, and they will formulate and market products based on that active ingredient. To be able to do so, they need a license to our intellectual property because it's patented active ingredient to be able to legally sell that. They'll also need access to our registration data. So those have significant value. And while we do these kinds of partnerships in normal mentioned earlier, the partnership that we have with Corteva in the U.S. for Fluindapyr, right? This is a very normal part of what we do. What is different about this one is that it also will come with a substantial upfront payment -- and that's in part because of the nature of the supply that's involved and because of how special and differentiated this technology really is. So we're very excited about the prospects. I regret that I'm not able to be more specific today I would just repeat the word imminent, and we look forward to being able to share more details in the near future.

Got it. Great. Just a reminder for the folks on the webcast, I have on Bloomberg, if anybody wants to ask a question, let me say in the field here. In terms of the $1 billion, so you got $255 million for India. I thought you had other stuff to get you to $25 million. That's already done.

Yes. So let's separate the 2 pieces -- so India, we carry on our balance sheet as a held-for-sale asset -- that represents both the sale price for the transaction. 55. And the cash that we expect that business to generate while we continue to operate it until it -- so that cash will flow through free cash flow and is embedded in our free cash flow guidance. So relative to the debt paydown target, it's $252 million, $255 million that is going.

And then to get to $700 million, it's the combination of the licensing and real estate deals.

Licensing real estate and a collection of a number of smaller .

Smaller things. Okay. Okay. Great. Why don't we move to the die lines they're off patent. Maybe just frame up where are we now in sales in 2 -- and what's sort of the plan to...

Yes. So let's separate the 2 because I think we've long sort of oversimplified by referring to the diamides. It's really 2 different molecules or appearance Rynaxypyr, the final patents expired on our Rynaxypyr at the end of 2025 as well as the remaining data protection. [indiscernible] is still under significant data protection in most of its key markets through much of the rest of the decade. So we still consider and report the size per as a part of the growth portfolio because there's still more growth to come from there, and it's still protected, although not necessarily by composition of matter patents, but by other protections. Let's look a little more on Rynaxypyr really all of those protections have fallen away in the last year. That business is stabilizing. It's down this year again primarily because of a reduction in our partner sales. So not dissimilar to what we're doing now with other new active ingredients when Rynaxypyr was introduced to the market, the innovator, the company we bought that molecule from entered into some licensing agreements and partnership agreement with a couple of other major partners. We took on those agreements when we bought that business and continue to operate that. That business, over time, it became a cost-plus contract structure. And as we prepared for the post patent transition, it became clear to us that the supply chain we had in place was not going to be competitive in costs with generic entrants. So we took some very significant write-downs in 2024 and '25, to change that manufacturing supply chain and radically reduce the cost of manufacturing at -- the good news is that prepares us very well for protecting and growing the profitability and sales of our branded menace business as we go through this transition. But for the partner business, it created significant headwind right, because they benefited from those changes directly. So I would say the silver lining in what has been multiyears of headwind and particularly the last 2 years, where we've talked a lot about the drag from decline year-on-year in the partner Rynaxypyr businesses. It's becoming a small enough business now. We'll do something on the order of $100 million in sales to partners of Rynaxypyr this year that even if it drops another meaningful chunk next year, it's no longer as material to our results. So it's really going to become -- I don't -- I wouldn't expect that next year we're going to be talking a lot about partner Rynaxypyr. The branded Rynaxypyr piece is where there's more interesting stuff going on, right? The partner business sort of fades away into obsolescence as we move in the post-patent period. branded business, there's a tremendous opportunity for us to maintain value in the branded business. We have a cost position that is comparable to quality generics. So at the low end and less differentiated simple formulations of Rynaxypyr, we can be cost competitive we still command a brand -- a premium for branding, quality and service. But we have to be conscious and reflective of what competitive pricing is. But we're increasingly shifting our mix for a to value-added formulations, either mixtures with other active ingredients that give you improved pest coverage or help address resistance issues on a eater or a long time A lot of bugs have been exposed to Rynaxypyr over time. and have evolved to develop some resistance to the molecule. So one of the best effective techniques has been to pair it up with another molecule to help make sure you maintain control with tests. We have the deepest knowledge of anyone in the world on how to do that because we've been managing that molecule for its life cycle. So we are seeing, and a big part of our strategy is to shift our mix increasingly to differentiated mixtures to higher concentration formulations to differentiated novel delivery methods, but at the same time, having a cost position that allows us to compete with lower value, less differentiated form generic for -- we think what that results in is the flattish profit dollars for Rynaxypyr. Our contribution, I think, is the best way to think about it, really do a profit at the product level with growing sales coming out of 26 to 27 because we see higher volume growth despite lower pricing as Rynaxypyr-based products become more accessible. -- limitation even though we're in Experis a massive molecule, 1 of the top 5 all-time molecules in the ag industry. it never got as big as it could because it was too expensive to use in a lot of lower-value crop applications. So at a different cost point, you can see significant elasticity in -- and we have seen this in countries like China and in Turkey, where in the years after patent expiration, the volume in markets of cortical gene generic form of Rynaxypyr tripled as it -- the price point shifted and you can move into new applications. So our strategy is to take advantage of both that volume growth with a very different cost position that's competitive with quality generics. And at the same time, shift the mix to where we are emphasizing more value-added differentiated mixtures that allow us to earn a higher return, higher margin than just competing on a cost base.

Split. Right. Great. Shifting gears real quick. You're guiding to EBITDA $670 million, $730 million for the year. Sales 3,638. Maybe just kind of your thoughts on the crop protection market overall. The Iman bar clearly has created soringfertilizer costs. This is not good for farmers. I think most of your orders are set for crop protection this for the quarter and maybe a little bit needs to be added to your order book for Brazil. But how do you think the more the increase of fertilizers, but they can't skip per se, is it going to affect your industry? .

Look, I think it's -- this has been a challenging couple of years to the crop protection industry in general. -- lots of impacts, pretty aggressive generic competition, particularly coming out of China, following a restart of the industry after it was shut down for a couple of years during Co. The Iran war has a bunch of tentacles to it. right? The immediate symptom they are in seeing is around fertilizers. And yes, fertilizer price inflation does put pressure on farmer economics. That doesn't help in terms of where we are with the crop protection business -- the longer this situation goes on in Iran, the more inflationary effects, I think, are going to be felt over a broader set of inputs to where we're -- crop protection chemical intermediates used to make them are far enough downstream from oil that we're not seeing it just yet, but it's coming. And the longer this disruption goes on, this conflict goes on, you're going to start seeing inflation and inputs for crop -- and we have seen this movie before. In '21 and '22, when we had massive supply disruptions principally in China because of COVID controls, we saw significant cost inflation. 2022 FMC had over of cost inflation in our P&L in 1 year, right? What happened, and we raised prices. So while that's not a great thing particularly since there's pressure on farmer profitability right now. I do think there are pretty well observed interplays between energy prices and crop prices over time, not on a daily basis, but the sustained higher oil price I would expect to see corn and soybeans straight up. Higher revenues for growers help solve a lot of problems, but it doesn't relieve all pressure, but will help. But as -- if these pressures continue to build and show up in cost increases that hit the inputs that are direct into crop protection chemistry, I would expect you're going to see price movement. And that, I think, can help break some of both the actual reality in the industry and some of the sentiment around the industry. Right. Sentiment around the industry, I think it's very negative right now because of pricing trends and generic pressures. You're seeing a wave of new innovation coming. I think we're the leading edge of that with the new active ingredient just talked about. Some of our peer companies have some interesting technology coming in a little later, but coming here as well. I think that's a part of the shift that will come in terms of sentiment around the industry. And I think moving away from this deflationary environment even though I have no wish to see conflict further extended, the damage is already done. There is going to be inflation. It is going to come through. I think that will help shift the pricing dynamic. It may not lead to restoring prices to where they were, but it may turn the tide from talking about continued easing and erosion of pricing to -- back to prices moving back up a little bit. So that can help change, I think, both sentiment and change the tone and discussions. It's all going to be prefaced on crop prices moving up so that allows room in the farmers P&L to allow them to make a profit and to be able to support it. But I think there's a pretty good logical.

A quick follow-up from some folks on the webcast asking on the pricing. How do you sort of manage that with the potential for more generics that might be used as farmers are a little bit Yes.

Look, it's a double-edged sword. A lot of generics live on very Razeen margins. And both -- it's not just pricing, it's availability. And we are already seeing some reports of easing of pricing and reduced availability from the lowest of low end generics? -- anecdotal, not really hard data yet, but we are seeing some decent data -- it's a decent anecdotal evidence of this. I think that's really how this starts to switch is that it's going to start taking the folks who are really living on the nice edge and pushing them over. And then people who have enough margin to buffer and be able to continue operating are going to have to raise price Offset that cost over time.

Okay. And then just on Brazil, I think you've recently said that the order book looks good or maybe even better. Any thoughts on Brazil because that's a big chunk of your outlook for this year .

Yes. Look, certainly, we have a very heavily back-end weighted, second half-weighted outlook for the year, right? And as you described, the $700 million in EBITDA in the midpoint, $480 million of that and the guidance midpoint is coming in the second half -- and certainly, Brazil is a key contributor to that. For us, Brazil is really driven by growth in the new active ingredients and repositioning of our core portfolio of products. And it's enabled by a shift in go-to-market to more emphasis the direct sales to large growers channel and complementing going through co-ops and through distribution and retail. So we've made some public comments recently both on the earnings call and another conference reason around the order book. And specifically, the order book for sales to these direct customers in Brazil, where we've been -- we started a new -- that route to market last year, and we're ramping up this year, we've got a has been in the field of the full year. And we are seeing significantly higher orders more than 50% of the orders that we need to hit our plan for the year for direct customers we already haven't had there's orders that will be fulfilled in Q3 and Q4, but they're being negotiated now. And that number is continue to climb. We'll update that number more precisely at the July call, but we're above 50% and continue to build there. And that helps increase our confidence in the ability to deliver heavily out of Brazil in the second half.

Got it. Yes, 2 follow-up questions and 2 minutes. So wrap or quickly. question is like it sounds like your inflation is coming. Are you going to get pricing out to offset that for you? Or how do you see that?

Zack, I think we're going to be -- as we did the last time, we're going to be very thoughtful about how we approach pricing, but as inflation starts in our P&L. And remember, we turn inventory about twice a year. So it's not a quick hit. It will take time before that starts showing up. We'll start having conversations with customers start moving prices .

Then the last question was you build us up to 700, how do we get to $1 billion in terms of debt reduction? And then any conversations with the rating agency how they think about your liquidity that you have. So you have some refinancing. .

Yes. So very quickly, we get from $700 to $1 billion by selling additional product line in buses -- we have prioritized things that had limited to no near-term EBIT impact. So India wasn't making any money for us. So we get proceeds with no diminishment of our future earnings ability. Licensing actually grows our future earnings. -- capability to pull some of it forward -- the real estate transactions, such that we may actually get an operating benefit when we we'll see. The things that would next need to be done start to have more difficult trade-offs where you are giving up some of your near-term EBITDA for debt reduction. And that's the reason we see listed this way. to work it. We feel very good about liquidity. We had a very well-received bond offering 2 weeks ago, raised $1.2 billion. We went out initially for $750 million. We'll be using that to pay off in October as well as to bring down particularly revolver barns at this point. But we feel very comfortable about liquidity, very favorable response from the ratings agencies there. And from a credit perspective, the next real maturity we have -- so we feel very good about the -- from a debt perspective. We would prefer to be an investment-grade metrics. That's going to take a few years to get back. That's the destination -- but from where we are today, with the debt reduction that we're going to do this year and the work that we've done to improve liquidity and with the offering and the work we did with the revolver earlier this year. We feel comfortable where we are with the balance sheet for right now.

And just 1 last quick one, maybe yes or do, but 2027, you talked about double-digit growth, feeling better about that potential?

Yes. I think we are feeling better about that potential I think the momentum for the new products in particular. And look, we need to finish the restructuring of our manufacturing footprint. We know how to do that. We're good at that. So we feel very confident get some of those benefits in '27 bigger in '28, but we will get some benefit in 27. We know how to do that. We'll get it executed. .

Great. Thank you, Andrew. Appreciate it.

Thanks, Mike.