American Vanguard Corporation

Greetings. Welcome to the American Vanguard Corporation's second quarter 2022 financial results conference call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Thank you very much, Alex, and welcome everyone to American Vanguard's second quarter and mid-year 2022 earnings review. Our speakers today will be Mr. Eric Wintermute, Chairman and CEO of American Vanguard, Mr. David Johnson, the company's Chief Financial Officer, and also assisting in answering your questions, Mr. Bob Tregell, the company's Chief Operating Officer. Before beginning, let's take a moment for our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Those factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as of the date of this call, and such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Thank you, Bill. Moving on to slide three on the agenda, but before we begin, I wanted to address our 10Q filing, which we did yesterday afternoon, last evening, and then we did our earnings release this morning. We have in the past been asked to file our 10Q and give people a chance to read it before the conference call so that they could have more deep, in-depth questions And we also had in the past filed our earnings release prior to the market opening and doing our call after the market. And we had advice, particularly in times when we had unusual earnings, that we should do them simultaneous after the market closed. And so this year we met, this quarter we met expectations or exceeded expectations. We had our queue ready yesterday. Today is our last day to file the queue timely and we have had some glitches in the past with getting the filing through the system. So obviously we did not expect the kind of reaction that's happened today. We apologize. In hindsight, it's definitely a mistake. We will not pre-do our 10Q in the future unless we have some other reason, and we'll advise people of that. So with that said, I'm going to make a few comments, turn it over to Bill. I'll touch base on our growth initiatives, and then we'll open up for questions. So Moving on to slide four, the revenue growth, these are just reiterating the targets that we've stated back in March. Revenue growth in that 8% to 11%, gross profit margin 38% to 40%, operating expenses in that 31% to 33%, interest expense similar to 21%, tax in the mid-20s, debt to EBITDA ratio, without acquisitions at year-end and below one, but with acquisitions could be up as high as two and a half. Net income, we said target would be in that 60 to 70% increase. What we have gone ahead and done here on EBITDA is translated that 60 to 70% increase into an EBITDA percentage growth, and that would be 24 to 28%. For real numbers, that would come into 79 to 81, which coincidentally, 79 was our top EBITDA of all time, and that was in 2012. So just where are we at at the halfway point? Our revenue growth obviously going faster than we had given initial target for. Gross profit margins are up above the profit margin range that we gave. Operating expenses are right in line with target. Interest expense down 40%, and at this point, I think unless we had some rather high acquisitions before the balance of the year, we expect to be below our 21%. Tax rate, we're at 30%. I think now we're expecting to be kind of at the higher of the mid-range, right around 27% is what we're expecting for a full year. Debt to EBITDA, currently at 1.33. We would expect to be below that one, again, without acquisitions. Net income for the halfway point, we're up 104%, which exceeds our target. EBITDA, right now we're up 40%, which again is ahead of our target. Moving on to slide five, just a couple of highlights to talk about. Again, revenues up $47 million. People have asked, okay, how does that relate to price increases versus volume? Of that $47 million, 45% or $21 million is related to price increases. and 55% or 26 million is a result of volume increases. Our gross margins, as mentioned, is up from 39 to 41, a 2% increase. The key driver for that is factory performance, which is about 1.5% of that 2% gross margin increase. So factories are running well. It is that I'll talk about a little bit later, but we're doing well at this point. Moving on to slide six. So we've talked about supply chain challenges in each of the past calls because it continues to be something top of mind. We talked about the availability of even finding the resources, the cost of those resources if you can find them, and then the actual logistics of trying to get them delivered to the plant on time for manufacturing or for the entity for actual sales. So one of the things that we did and we have schedules that we've laid out and we have schedules for production that are laid out in advance of the year. We're working on the 23 schedule right now. And in that process we basically kind of know generally when we're going to be manufacturing certain different products. But as we went through, when I listened to peers having all kinds of problems, packaging, bottles, caps, pallets, all the inerts, some of the solvents, and the intermediates. And again, any one of those issues, any one of those inputs that you don't have can cause delays and missing actual demand. So what we stated is we were going to place orders for all of the raw materials we needed for the balance of the year, and albeit give different delivery dates that were out, just the concept of we're just not going to do kind of a just-in-time. We're going to purchase and bring in advance. And so our raw material inventory has actually doubled from where we were in 21. and a lot of that is packaging and some alerts. The intermediates, we've laid out a schedule for everything through the balance of the year and tend to take those as needed. So I mentioned before about forecasting cost and timely price increases. I think we've done very well at that, particularly as you look at what our our cost increases have been for this first half of the year. And in addition, those increases have been in advance and therefore our margins are being maintained well. With a number of oddities, a lot more air freight, ocean freight being 10x the cost, And just calculating all of that by SKU, building that into the cost of, and again, this is inbound freight. We're not typically doing deliveries by air freight, but the inbound freight, getting that built in so that we understand what our true cost of goods, and that filters down to the marketing people, and they're able to figure out how they're going to recruit the increased costs. And then, you know, in-season factory production adjustments. Again, I think I mentioned before, we're having calls basically on a weekly basis, looking at the schedules. I look at them every day, and we try to make sure that we stay ahead of use, not necessarily ahead of demand because people are pushing for products sooner than they actually need it just because of scarcity. but making sure that we're sticking with the demand. Moving on to slide seven, I've got this in there just to kind of show kind of the effect. As we entered the 22 season, which really kind of kicks off in September, October of 21, We had very high demand from our customer base in the United States domestically. People looking to get ahead of materials. And as such, we carried quite a backlog going into Q1 of this year. So I think we did a very good job at, I'll say, managing the products that we had to our customer base, making sure that no one customer over-purchased what their needs were and therefore put a situation where we couldn't deliver to other customers. So we managed that well. Our customers in the U.S. were extremely happy. We have been told by several customers that we have done the best job of all the suppliers in the U.S., so we're very proud of what we accomplished there. Q2, subsequently, domestic was flat with the previous year. But then you see international kicking in in Q2 as we're seeing kind of the, I don't call it people trying to buy ahead, but a little bit of making sure that they've got product inside and meeting the demands that they have. So moving on to slide eight, kind of looking out as kind of our core products and where we are. This is kind of targets, I think, for where we believe we'll end up at the end of this year. Herbicides, which is the number one crop input, had been a weakness area for us, very strong in insecticides, so fumigants, like with regulators, kind of biologicals. But our herbicide market was kind of more to the corn market with our impact product line. But we made a concerted effort to expand that base. And as such, over the last four years, we've added 10 new products, largely through acquisition. But we've expanded outside of corn to cotton, rice, sugarcane, soybean, and canola. We're up quite a bit in the first half and expect year-end to be up about 40%. So kind of growth in our core segment. Our soil insecticides, I would expect about 17%. It could be bigger, except we've had to push our factory in Alabama to produce our cotton to foliant, Folex, for an additional four weeks of production to meet a kind of excess demand from what we originally thought market would do so we have that ability to shift and so doing we're pushing back Aztec from a November start date to a December start date and so we will we will position the Aztec that we have produced in December but we're going to go into 23 with pretty significant back orders on our on our on our soil insecticides cotton I mentioned the Folex also Byron very strong And so we're looking this year to be up about 29% there. So that's kind of the highlights. One of the things that we wanted to make sure of and let you know was with all the sales that we've done, what kind of in-channel inventories we're looking at. And so we have, and we won't know for sure until we get first, second week of September, But we did go out, we know basically what's sitting at the distributor level that we've got track of, but the key retailers, we went out and physically spoke with them and talked through theirs. There are some retailers that have more inventory that they say they're going to keep that they do not want to return it. They're happy to have the inventory going in, but therefore that's not going back to distribution. So we do the overall calculation. Our best guess is that inventories in channel will be less going into 23 than they were going into 22. And obviously, that overall inventory being down signals a strong 23 season. Okay, so with that, David, I'm going to move on to you for your comments about our finances.