American Vanguard Corporation

Thank you, operator. Good afternoon and welcome to American Vanguard's third quarter 2024 earnings call. Our prepared remarks will be led by Tim Donnelly, Acting Chief Executive Officer, David Johnson, Chief Financial Officer, and Mark Bassett, board member and architect of our business transformation. Mason Bennett, Vice President North America Crop, is also available to answer agricultural related questions. We have prepared presentation slides, which we will reference during the call. These slides are posted on the investor relations section of the American Vanguard website. Let's begin this call with our forward-looking cautionary reminder. During this call, we may discuss forward-looking information. All forward-looking statements are estimates by the company's management and are subject to various risks and uncertainties that may cause actual results to differ. Such factors include weather conditions, changes in regulatory policy, and other risks, as detailed in the company's SEC reports and filings. All four looking statements represent the company's judgment as of the date of this release, and such information will not necessarily be updated by the company. It is now my pleasure to turn the call over to Acting CEO, Tim Donnelly.

Thanks Anthony. Hello everyone and welcome. Today we want to cover three things. First, our full year 2024 adjusted EBITDA target, which remains unchanged. Second, our Q3 financial performance, which, while below our expectations, should be trending upward in light of improving market conditions. And third, our business transformation, which we expect to generate an even higher Before we delve into our substantive comments and in light of the recent election, we would like to thank EPA Administrator Michael Reagan and his team with whom we have worked closely over the past four years. We look forward to working with President-elect Trump's transition team and the newly appointed administrator when they are approved by the US Senate. While the EPA is our primary regulator, we also view the agency as a trusted partner American Vanguard has worked well with the EPA through numerous administrations, and we look forward to continuing this relationship. Now, turning to our financial results and our business outlook, I'd like to start by stating that we are reiterating our 2024 adjusted EFTA target of $40 to $50 million, and our sales target of $565 to $580 million, excluding product recall charges. We remain focused on transforming our company into an efficient, reliable, and profitable supplier to the ag industry. Our mission, as always, begins with putting our customers first and focusing every day on how best to serve them. The important initiatives we are driving across this company start with the customer at the center of each effort and are designed to improve our internal capabilities, raise productivity and efficiency, and drive higher returns across our business all of which will position this company for future growth. Mark Bassett will provide further details on our business transformation later in the call. Let's take a moment to discuss the broader farm economy. The downturn in the agricultural economy over the past 18 months was driven by weaker commodity prices and the reverberations that this caused in commercial behavior across the ag sector, More recently, we have begun to see greater market normalization, with some emerging pockets of strength or green shoots beginning to emerge. This gives us a sense of optimism for the future. While the industry seems to have moved past the deep destocking phase, which impacted the previous 12 to 18 months, Some distribution partners continue to be conservative in accumulating inventory, preferring to make purchases closer to the planting time. We expect this cautious attitude to be in place as we move into 2025. Additionally, pressure from generics, particularly in connection with our cotton defoliant and within our LATAM and Brazil markets, continues to exert downward pressure on the market The industry will also need to work through existing channel inventories of agricultural commodities. This effort will be aided, however, by a strong harvest season. Despite an uneven market overall, the fourth quarter is typically a seasonally strong period for American Vanguard and the broader crop protection industry, which we expect to be the case again this year. Our products that are used earlier in the planting season typically see a heightened level of demand during this period as these buying patterns are less sensitive to cyclical or even commodity price driven factors, but are instead driven by the seasonal crop cycle each year of planting and harvesting periods. Products such as our granular soil insecticides, index insecticide, and impact herbicide should benefit from this normal non-cyclical behavior in the fourth quarter. Turning to a top-level view of our financial performance, during the third quarter of 2024, the company generated adjusted EBITDA of $2 million compared to $11 million in the year-ago period on sales of $130.7 million excluding non-recurring charges compared to $149.5 million in the year-ago period. All of the year-over-year decline in sales can be attributed to Aztec, a granular soil insecticide, and Folex, a cotton defoliant in the U.S. More specifically, over 90% of the year-over-year decline in total adjusted revenue was due to lower Aztec sales as the year-ago period saw atypical buying activity for this product in the quarter following a period of supply interruption. David will provide more detail on this comparison in a moment, but I think it's worth noting that when looking at year-over-year revenue excluding Aztec, revenue was essentially flat year-over-year. Finally, I would like to address our CEO search. The board of directors has been actively interviewing candidates and is focused on getting a new CEO up and running to build on the momentum created by our interim office of the CEO. And with that, I will turn the call over to David.

thanks tim overall revenue for the quarter adjusted for non-recurring charges associated with the company's voluntary cancellation and recall of our ductile product line from all our global markets was 130.7 million down 13 or 18.8 million versus the third quarter of 2023. iu's crop business faces the challenges tim previously mentioned and sales in this area were down 30 percent or 20 million dollars as compared to the third quarter of 2023 the drop in revenue was driven by significant declines in aztec and folex sales these declines were partially offset by increased revenues in fumigants insecticides and herbicides in the second half of 2023 customers bought essentially 18 months worth of our aztec product to meet their customer needs, as well as to rebuild safety stocks. This was driven by a previous extended supply shortage, which started in the second half of 2022 and extended into the first half of 2023. As a result, we had very few sales of Aztec in this quarter. We expect demand to return to a more normal pattern starting in 2025. And as Tim indicated, adjusting for the unusual restocking activity in the third quarter of 2023 for our Aztec product, revenue was basically flat year over year on a light for light basis. While we are not content or celebrating a flat year over year performance in sales, we are working aggressively across our commercial organization to drive growth. While the hurricane did affect Folex sales, the major impact was driven by a generic entrant that took both market share and depressed margins. We are working to retain volume and regain some of those lost earnings as we move forward. As we previously mentioned, our US non-crop business was an area of strength where sales were up 17% compared to last year. This growth was led by our OHP OHP sales were up 45% as compared to this time last year, and we are pleased with the increased market share the business has achieved. The growth here was driven by a new distribution agreement allowing OHP to expand the portfolio of products offered to its key greenhouse and nursery markets, including some new biologicals that are gaining traction. As a result, we expect continued growth in OHP and our overall non-crop business as we Another bright spot in our quarterly and year-to-date performance from a revenue standpoint, sales from our green solution product portfolio, including OHP, increased by 18% during the third quarter and have grown 20% year-to-date. Growth in our green solutions products spans through our crop, non-crop, and international businesses and is experiencing pronounced strength in LATAM, where growth is up 39% year-over-year. This portfolio of products is positioned to grow faster than the overall agricultural economy for many years to come, and we look forward to continuing our investment in this growth opportunity. Our international businesses saw sales decline by 3%, excluding non-recurring charges compared to the prior year. Generic pressure has broadly had a negative impact and in addition the agave market in Mexico was down and finally there have been drought conditions in Australia. These factors have been partially offset by the strong business in Ecuador that we acquired late last year. This business benefited from a strong banana season and a broadening of the product portfolio. Turning to margins, product mix was the reason our gross profit margin declined to 26%, excluding non-recurring items, as compared to 29% in the prior year. Significantly decreased Aztec sales accounted for approximately two-thirds of the decline in gross profit margin. In addition, the team made the decision to accelerate sales of slower moving inventory. That decision, along with the generic impact on Folex, accounted for the remaining one-third of the decline. Another area that management took action on was in cost control. Through these measures, we were able, on a like-for-like basis, to reduce operating costs by $3.5 million, as compared to the prior year. Looking at our balance sheet, I am pleased to report that we decreased our long-term debt by $32.5 million as compared to the second quarter of 2024. As we highlighted in our last call, improving our liquidity is a key consideration in our business transformation, and we are pleased with our improvement in this area. Inventory reduction also remains an area that we are focused on. We were able to decrease our inventory to 43% of sales