American Vanguard Corporation

At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Kuser, Vice President of Investor Relations. Thank you, Bill. You may begin.

Well, thank you very much, Alicia. Welcome, everyone, to American Vanguard's third quarter and nine-month earnings review. Our speakers today will be Mr. Eric Wintermute, the chairman and CEO of American Vanguard, Mr. David Johnson, the company's chief financial officer, 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. Such factors could include weather conditions, changes in regulatory policy, competitive pressures, and a variety of 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 this date. Such information will not necessarily be updated by the company. With that said, we turn the call over to Eric. Thank you, Bill.

Hello, everyone. Thank you for joining our call today. This is a challenging time for American Vanguard and for our entire sector. Our stock price has been under heavy pressure, as has that of our competitors. Accordingly, as per slide number five, I want to first talk about what we are doing to improve our short and long-term profitability. I believe that growing profitability in current market conditions will require us to take strong calculated measures. We are preparing to take those measures, including cost margin improvement initiatives, digital transformation, and structural design review. We are confident that we and our investors will be rewarded by them. After discussion of these measures, I will give detail on the full year 2023 targets and our 2024 outlook. In short, we expect a rebound in Q4 and are optimistic about the upcoming year. First, however, let's get into what we are doing to improve profitability. To start, a bit of background is necessary. Over the past 13 years, we have grown both in size and complexity. 13 years ago, we were essentially a domestic business that was largely dependent on the US corn market. Since then, as you will see on slide number six, predominantly through acquisitions, our operations have grown into 21 countries, including six manufacturing facilities and three R&D centers. We have developed or acquired over 500 pending or issued patents. and have increased our market access into more than 50 countries with a broad, balanced product portfolio led by fruits and vegetables. Due to our rapid growth, our next evolutionary phase is to strengthen the support of our enterprise with fully integrated systems and optimal organizational design. To that end, in the second quarter, we reached out to one of our board members, Mark Bassett, who has a strong history of improving profits in a number of businesses, to take a look at our operations and consultation with our senior management team. Accordingly, over a 10-week period, Mark had open access to our day-to-day operations and met with executive leaders and business process owners. At the conclusion, Mark provided the company with a comprehensive set of recommendations, and senior management, along with another board member, Pat Gottschalk, crafted a transformation plan designed to drive growth while improving operating leverage. We're pleased to announce we've begun implementation of the plan as follows. First, as per slide seven, we have reviewed the sales plan and operating expenses on a line item level with each of our department heads. We have focused on driving improvements in gross margin and achieving greater operational efficiency. Further, I have given each department a target that, when achieved, would collectively add $15 million to operating profit and interest savings to our 2024 internal budget. We will make each manager responsible for these measures, track them over the course of the next year, and assess his or her performance based upon achieving these targets. These measures include a variety of parameters, such as working capital management, greater factory efficiency, operating expense control, reduced RAS and freight, and lower debt and interest expense. Second, as you will see on slide number eight, We are implementing a complete digital transformation across all business centers and processes. At present, we have 33 business centers throughout the world. It is imperative that these centers work seamlessly to provide real-time data based on universal standards. To that end, we have chosen QAD's adaptive ERP as our system of choice to drive end-to-end scalability, standardization, and integration across the globe. Further, we have retained global business consultant Kearney Management to help us define and more streamline an efficient future state for our process owners throughout the business. They will be asking, what do you need to do your job more effectively? To that end, Kearney and QAD are meeting with leaders of our major business processes, including sales and marketing, factory operation, finance, and human resources to establish a business vision, align on improvement and priorities, and to define the needs and identify the tools and processes that will enable us to meet our growth and business ambitions. This in turn will enable us to react faster and make better forecasts in the face of volatile markets, supply chains, climate, and geopolitical shifts. Third, turning to slide number nine, we are launching an organizational transformation in which we evaluate closely the way we are structured, how we are incentivized to operate, and how best to gain greatest efficiencies and operating leverage. We will need dedicated resources to lead a structural transformation process. To that end, Shirin Khosravi, Our recently hired Senior Vice President of Human Resources is leading research to hire an experienced Chief Transformation Officer. That person, working with our internal team and external business consultants, will evaluate and benchmark the capital requirements, staffing, and performance of our various businesses. The CTO will, in turn, recommend appropriate organizational changes, and in collaboration with Sharin, We'll define key performance indicators and align functions and personnel to achieve business results. Through those efforts, over the course of the next 12 months, we will transform our current structure into a more efficient engine for growth. Next, let's turn to David for his comments on our Q3 and year-to-date 2023 performance.