Q3 2023 American Vanguard Corp Earnings Call
Greetings and welcome to the American Vanguard Corporation third quarter 2023 financial results Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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As a reminder.
This conference is being recorded.
It is now my pleasure to introduce your host Bill cruiser Vice President of Investor Relations. Thank you Bill you made free game.
Well, thank you very much Alicia.
Welcome everyone to American Vanguard's third quarter, and nine month earnings review.
Also assisting in answering your questions Mr. Bob <unk>, the company's Chief operating officer.
Before beginning lets 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 Companys management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. So.
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 Companys 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 how's how's that of our competitors.
Yeah.
Accordingly as per slide number five I want to first talk about what we're doing to improve our short and long term profitability.
I believe that growing profitability and current market conditions or require us to take strong calculated measures.
We are preparing to take those measures, including cost margin improvement initiatives digital.
Fans formation and structural design review.
We are confident that we and our investors will be rewarded by them.
After a discussion of these measures I will give detail on the full year 'twenty two 'twenty three targets and our 24 outlook.
In short, we expect a rebound in Q4 and are optimistic about the upcoming here.
First however, let's get into what we're doing to improve profitability.
To start a bit of background as 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 U S corn markets.
Since then as you will see on slide number six.
And really 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 and to more than 50 countries with a broad balanced product portfolio led by fruits and vegetables.
Due to our rapid growth our next evolution Arris phase is to strengthen the support of our enterprise with fully integrated systems and optimal organizational design.
To that end second quarter, we reached out to one of our board members Mark Bassett, who has a strong history of improving profits and a number of businesses.
To take a look at our operations in consultation with our senior management team.
Accordingly over a 10 week period, Mark kind of open access to our day to day operations and met with the executive leaders and business process ours. That's.
As a conclusion mark provided the company with a comprehensive set of recommendations and senior management, along with another board member <unk> Gotcha.
After the transformation plan designed to drive growth, while improving operating leverage.
We're pleased to announce we have begun implementation of the plan are as follows.
Right.
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 driven each department of target that when achieved with collectively add $15 million to operating profit and interest savings to our 'twenty to 'twenty four internal budget.
It will make each manager responsible for these measures track.
Track down 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 reduce raws and freight and lower debt and interest expense.
Yeah.
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 the QAD 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 currently management to help us define and more streamlined and 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 currently in 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.
Online on improvement and product 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 and supply chains.
Climate and geopolitical shifts.
Yes.
Third turning to slide number nine we are launching an organizational transformation in which we evaluate closely the way we are structured how.
How we are set of eyes 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 and Sharon Kos Robbie our recently hired senior Vice President of Human resources is leading the search to hire an experienced chief transformation officer.
That person working with our internal team and external business consultants.
Uhm benchmark the capital requirements staffing and performance of our various businesses.
Our CTO will in turn recommend appropriate organizational changes and in collaboration with Sharon.
We'll define key performance indicators and alone functions and personnel to achieve business results through.
Through those efforts over the course of the next 12 months, we will transform our current structure.
More efficient engine for growth.
Next let's turn to David for his comments on our Q3 and year to date 2023 performance.
Thank you Eric before moving on and we will file our 10-Q.
This afternoon.
Okay.
Moving to slide 11.
With regard to our sales performance for the third quarter of 2023, the company's net sales decreased by 2% to $150 million as compared to $152 million last year.
Within that overall decline in sales our U S sales declined by 1%.
Compared to prior year to $87 million in our international sales decreased by 3% to $63 million.
International sales accounted for 42% of total which was in line with last year.
The decrease in sales can mainly be attributed to destocking by customers managing their working capital levels due to high interest rates. The unavailability of one of our premium herbicides and in our businesses and central and South America, the influence of low cost generic products.
<unk> to multiple markets from China based suppliers working within a strained economy.
Turning to slide 12 overall cost of sales, which include higher slightly higher manufacturing costs increased by 4% and was 71% of sales in 2023 as compared to 67% for the same period of 2022. This resulted in a 13% decrease in gross profit.
$243 million an.
And 84 in 2023 from $49 million 638000 in 2022, and the consequent gross margin declined to 29% of net sales in 2023 from 33% in the same period of last year.
The decline in gross profit for the three months ended September 30th is due to slightly lower sales as we manage through the global Visco de stocking process unavailability of dental for the U S crop business and pressure from low cost Chinese produced generic products in Brazil and Central America.
Onto slide 13, which shows operating expenses for the quarter that were in line with the same period of the prior year in the third quarter of 2023 as compared to the same period in the prior year, we experienced inflation related higher wages increased spending related to a simple system and expanded.
State product registrations in Brazil, offset by lower legal expenses reduced travel costs and incentive compensation expenses, reflecting our financial performance.
As you will see on slide 14, as a result of factors, Eric and I have discussed our Q3 2023 operating income amounted to $4 2 million as.
As compared to $11 2 million last year.
We recorded significantly higher interest expense as compared to last year due to both higher average debt and higher interest rates. The increase in debt level levels is primarily a result of customer decisions to slow down purchasing from.
From buying early to now buying as close to time abuse as possible effectively pushing working capital pressure.
Back to manufacturers such as ourselves as the market departing from the practice of holding greatest safety stocks formed during Covid key.
Key market participants such as big distributors and retailers and now vigorously resetting business practices, such as inventory management to get back to pre pandemic practices in the face of significant escalation in global interest rates.
As the company has pointed out this inflection point is driving market, we serve to extremely low levels of channel inventory that logically must soon start to refill in order to serve customer needs for the 2023 'twenty four season.
From a tax perspective, our effective tax rate increased to 158% from 31% last year.
The change is primarily primarily attributable to the low level of underlying profitability for the reasons just described and as a result of losses incurred certain entities, primarily in Brazil, which did not result in a benefit for income tax purposes. As these entities continue to Maine.
Maintain valuation allowances against the net deferred tax assets.
All these factors together resulted in a net loss of 325000 this quarter.
To net income of $6 $7 million last year.
On Slide 15, you can see that for the nine months of 2023, our sales are down 10% and gross profit decreased by 17%.
Our domestic sales suffered a decline in sales at 14%, but our international sales were down 3% as compared to the comparable period last year.
The reduction in gross profit for the nine months ended September 30, it is consistent with the three months and resulted from lower overall sales, reflecting global destocking.
The availability of our premium herbicide that til and the effect of Chinese produce low price generic products in our markets in central and South America.
Operating expenses during the nine months to September 30 of 2023 were flat as compared to the same period in 2022, we experienced an increase in wages due to inflation increased travel activities at the start of the year that have since reduced.
Higher R&D expenses associated with M field activities in support of our proprietary delivery systems.
And then international product defense and registration expenses supporting strong expectation.
Expectations for sales growth in 2024 and beyond.
These increases were offset by lower incentive compensation expenses related to our financial performance lower legal expenses as well as beneficial movements in foreign currencies in markets, we operate versus the U S dollar.
Yesterday to interest expense increased significantly to $8 3 million from $2 3 million.
Q2 average debt levels, which increased by 33% as a result of elevated working capitals.
And interest rates that were more than double last year's effective rates.
Our effective income tax rate increased to 79% from 30% last year, primarily due to low underlying profitability losses incurred certain engine entities, which did not result in a benefit for income tax purposes, as well as certain withholding taxes.
Overall net income amounted to 540000 compared to $23 5 million last year.
On Slide 16, you can see that at the end of September 2023, we reported inventories of $248 million as compared to $184 million last year inventory management is a significant focus but the unprecedented destocking of products in our.
In the street more than offset these efforts.
Furthermore, during the last four quarters. The company has suffered from some logistics challenges, resulting in the unavailability of two of our premium products.
As tech and dental.
Customers were unable to buy these products during this break in supply.
This year the company has dealt with those logistics and regulatory challenges and is in position to supply all market needs. So the 'twenty to 'twenty three 'twenty four season.
The graph shows inventory expressed as a percentage.
Of the trailing 12 month sales, we believe that we will be able to reduce inventory to more normal levels of sales demand normalizes.
I'd next like to tend to the subject of cash and liquidity as you're aware we have depicted on slide number 17 interest rates have risen sharply over the past two years as Eric has mentioned this is giving rise to global destocking activity.
In light of these higher rates adverse market conditions and supply chain disruption about 45 days ago, we approached us senior lenders led by BMO.
To negotiate and expansion of our financial Covenant covenants as in the past our lending group, which includes banks in film credits that are very familiar with the global agricultural industry was supportive in that team acted quickly to amend the senior credit facility to give us a secure runway through to September.
2024.
During this period interest cost will be half a percentage higher than normal. However, we will be able to revert to lower interest rates before the end of the period as our financial performance improves.
I will note that for the duration of the amendment period, we will not be repurchasing shares of common stock.
Once we revert to the lower interest schedule. However, we will be poised to execute the seven 5 million share repurchase plan that the board had authorized earlier this year, we think BMO and all lender group for their continued support.
With that I will hand back to Eric.
Thank you David.
As we mentioned in our earnings release and is reflected in slide number 18, we expect to see a rebound in the fourth quarter.
We are 70% complete on our production of Aztec, our leading corn soil insecticide and sales are strong for the quarter. Similarly, we expect to begin supplying doctor all to our customers. This week.
These will be our first act all shipments in over a year again these and other products are at historic lows with channel inventory.
In light of market conditions, and our sales trends, we are targeting full year 'twenty two 'twenty three revenue between 580 and $590 million gross margins of 30% to 31% operating expenses between 152, and 154 million and adjusted EBITDA between 55 and $59 million.
We will suspend judgement on net income for now and then further analysis of our full year global tax impact.
Yeah.
To put our performance into perspective.
Depicted on slide number 19.
We reviewed recent financial statements or a set of our publicly traded peers and found that with respect to Q3 of 'twenty three those peers average the decline in net sales of 21%, while we were down 2%.
With respect to net sales for year to date, those peers averaged a decline of about 13%, while we were down about 10%.
Extrapolating from our previous slide we expect to be down about 3% to 5% year over year.
Before turning to 'twenty four I wanted to give a few quick thoughts on the other growth initiatives.
As you may have noticed from our press release yesterday and appearing on slide number 20.
Our Green solutions business has announced an expansion of its partnership with newly some biotics by which we will be collaborating to bring innovative biological solutions to key markets in Argentina, Brazil, Ukraine in China.
New leaf brings us brings to us its proprietary microbial library.
Research and development capabilities and best in class product offering of naturally occurring microbes.
I also note that we expect that sales of our Green solutions business will increase by about 10%.
2023 as compared to 22.
Addition of new leaf products will bolster greener solutions growth in future years.
On the <unk> front as per slide number 21, we were delivering 18 units to Brazil, which will be used by several of the largest growers in the country and this upcoming December January planting.
Further dissipate that north of 250, some pass units will be utilized in the United States liver some fast applied solutions.
Uh huh.
Susan.
Let's close with my thoughts on the 24 outlets.
It's been within our industry there has been a great sense of optimism about 24.
That said I would note that some of our.
Peers have indicated continued channel inventory headwinds in certain geographical locations.
However, we are into a survey conducted by Umpqua Bank of 150 executives at small and middle market agricultural companies.
Over half of the respondents expect improvement and overall economic conditions.
Nearly 60% of that group expect increased revenues over 24.
And nearly 70% expect improve profitability during that same period.
Granted surveys or not the final word on how the future will unfold. However, there is good reason for sharing this optimism.
As we have in slide number 22.
First the farm economy is strong with relatively stable commodity prices second although the distribution channel has shifted as procurement patterns closer to time of views and they are more important growers need crop inputs to me.
The demand for food, which is unchanged.
Third as a result of the 23 destocking activity by our customers on the whole channel inventory of many of our products remains low.
Fourth while not immune to the pressure of generic products will feature a range of higher margin proprietary products that have kept their value and appeal and variable market conditions.
In short while there has been a recalibration of markets in certain regions and a shift in timing of sales order the market is sound.
Consequently, based upon recent sales activity preceding the twenty-four planting season and the factors that I've, just discussed targeting 8% to 12% growth in net sales and 25% to 35% growth in adjusted EBITDA for full year 'twenty four.
A closing note after measuring our performance initiatives in a more definitive sense of Q4 and refining our outlook on 24 and beyond.
Holding a call in January to provide a further update.
With that I'll turn the call over to our operator, Alicia for any questions you might have.
Thank you we will now be conducting a question and answer session.
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One moment please poll for questions.
Thank you. Our first question comes from the line of Brendan Rodgers with Roth Capital Partners. Please proceed with your question.
Hello. This is Brendan Rodgers on for Gerry Sweeney at Roth capital.
Questions around the Destocking progress do you have any visibility into how this is progressing.
And do you feel you are through a majority of it.
And what will it take to get inventories to expand again is it purely low interest rates or service requirements come into play.
Okay. Good question.
So with regard to.
Inventories and all I can start with.
With the U S. We have pretty good visibility.
What is in the channels.
Counter that.
Adi.
Of what actually went out to the.
To the retail level.
And use of our products were up in the 23 versus <unk> versus 'twenty two.
And as Brandon, maybe maybe might go on mute because we can hear you're typing.
Got you.
No problem.
And as such again, we know are our corn soil insecticides are extremely low, particularly our Aztec was down about seven 5%.
Normal.
Probably about 27% 28% range.
Our Doctor all we mentioned and Thats been a we haven't had product for sale for over a year or something less very low.
As we look across our cotton.
And products again.
Yes.
Introducing here.
We did not we do not have much left in the channels.
Our herbicide impact.
Impact I think we do have some inventory in the channel.
There that is we did have some purchases.
But.
I think yes.
Initial issues.
Where inventories were large globally I think herbicides were kind of up there along with with nutrition.
So we have a little little effect, there, but across the board.
Vast amount of our properties.
So again inventories are low as we go outside or let's just say in the U S with our non crop business.
Our distributors have.
Gone again as you mentioned from maybe 120 to 100.
80 de stocking down to 20 to 40 days. So their inventories are very low we're seeing lots of lots of orders coming in each day, but.
They add up to be a nice nice, but there are a lot of smaller orders seems similar in Brazil, what we might have but probably tripled the orders that we're seeing on a daily basis. So people are ordering.
Just what they need.
And and that's okay as long as the demand actually use us as normalize them.
It just means that we've got a lot more individual orders.
So I think I think.
Globally.
I've looked at some of the comments of our peers.
I think that there is still pressure probably in central and South America.
<unk> seen more challenge to our margin in Alaska.
And the last couple of cycles.
As.
Lower cost.
Woods or groups that are oversupplied moved through the channel.
So.
I answered.
Thank you for that color.
And then if I could just ask one more kind of going off that show the Aztec and basketball.
Low inventory impacted 2020 results.
You said that you have are in position to supply attacked all of Aztec for 2024 can.
Can you quantify the total impact for 2023 and do you believe this is recoverable in 2024.
Okay.
'twenty three on dock door was was in the.
Range.
A normal four.
For Aztec might be in the 45 to 50, maybe $50 million range.
And so we had zero backhaul available since.
Third quarter last year, we did have a pretty good third quarter last year, which definitely affected this year's profitability. If you look at the margins.
And then on an Aztec basically had nothing available in Q4.
And we've had.
Just under 30% of the market that we needed or the volume of service the 20th through Susan So.
So those are kind of the.
So the the sales numbers.
And the $20 million for <unk>.
<unk> is probably a little higher than norm, because remember, having a supply channel issue.
And so it might be more normalize into the 15 to 16 minutes rich, but but combined it.
It's a big number when you look at a company of our size.
Awesome. Thank you I'll hop back in the queue.
Okay.
Thank you.
Question comes from the line of Chris.
With.
Capital markets. Please proceed with your question.
Yes, good afternoon, so I got to keep them.
Okay. The questions I guess, but curious on.
On the gross margin degradation.
On a year over year basis, 33% to 29.
You have a sense for if this was mostly a function of.
So if you can parse it by the function of your volumes being lower.
Or was it a function of.
You know the competitive pressures from.
From you.
You know either the industry conditions or the aggressive exporting.
The Chinese generics and that having an effect on your prices in their core compression in gross margin.
Any way to parse that.
Just I'm curious more generally if you feel this pressure is purely you know.
Transient and cyclical and unique or is it something more structural in nature.
Okay. Thanks, Chris.
If you look at if you look at the.
The nine month to date, we're looking at about $25 million and margin differential.
About half of that.
It's strictly the $43 million in sales that we didn't have and driven by <unk>.
The two products that we talked about.
And then.
And then with those products and those are those are higher margin products.
As such without those in our mix.
The 60 plus percent range.
That definitely weighs down the average.
There were.
From the Chinese pressures that we saw we saw that certainly in Central America I mean, we've got a number of.
New products, but they're ours are more more generic products that they have they.
They have products that come from from China and Brazil.
We have we haven't kind of an oil product that is a pretty big volume but margins.
Margins on that work.
And then Oh.
Also we have copper products that come from Norway, and there was strong generic.
Copper that affected their margins down there so.
I would I would say no.
And looking at as we look around the greenhouse I think brought margins, where we're holding strong.
Australia was has had pressure as well they don't have a lot of generic pressure, but they do have they do have.
Generic.
Similar demonstrates the pressure on their margins also so.
Sure.
That being said I think it is a region by region recovery based upon.
What kind of channel inventories there are.
It does look like.
But the.
Cost of generic.
Products.
Products coming out of China seemed to stabilize so I would I would expect that we would see as inventory does clear the channel and again there are some pockets of inventory in various areas.
I think some certainly and Bob you might comment.
Danger or zero.
So that's baked in a degree.
A big area for us, but let's just say.
Yeah, Hi, Chris.
So you really you have to realize that over 50% of our businesses in the U S and we've got a pretty good view their transparent view on what the channel inventory as Eric has described it that's a real positive for us going into 2024, especially with the two products you described.
We have a very light footprint in Eurasia, where you have a lot of.
Two political disruption in some trade disruption. So we don't have any exposure there. So that's a positive for us a green solutions business as Eric has mentioned, we're launching new products.
We do deals more to come.
Here potentially in the next few weeks.
Our technology is expanding.
And the same pass area, you know, Brazil, I'm excited about Brazil.
Simply because that's a great market access tool for us and as the systems go down there we're going to see the yield results in the spring as there.
As you know they're in a different cycle than we are we expect good results.
So there'll be a lot of potential going into the end of 'twenty 'twenty four.
Brazil.
And then you know the market's down so if you really read some of the text of the market in general.
I think we're going to see good acquisition opportunities both on the business front, but also on the talent front because some people will be downsizing. So we can strengthen our team were unnecessary.
So lots of good things happening I think for us in that sense, we're cautiously.
Dymista.
Simply because there is.
Still a different buying behavior in the channel and the market has to reset with the higher inflation.
And.
We're in the process of doing that.
Oh, sorry can I hand back to you.
Hey, Chris.
Yeah. So.
So two questions.
Questions on.
Thanks for that color by the way.
But focused on sort of the progression in the fourth quarter and then into next year.
The.
Yeah.
The implied sales run rate is one that never been achieved before for the fourth quarter against the backdrop, where the buyer behavior. It's closer to time of abuse. So I wanted to reconcile that but then even if you do they have that strong fourth quarter.
And then your you've given preliminary.
Eliminate indication of EBITDA expectations or growth expectations for next year.
That.
That recovering EBITDA.
So I'm curious about the visibility around the fourth quarter, but then on 'twenty for you. If you if you take the midpoint of your.
Of your range on EBITDA growth for next year, 30% that would imply if you reach that call. It 57 million in EBITDA each year, you get to <unk>.
30% 70 for next year I'm curious, if that's a $17 million improvement Youre expecting 15, I think from the from the from.
From the from.
From the transformation plan and maybe that's not day, one January one peripheral run rate. So I'm just wondering if you could sort of parse these numbers how much of that.
You know the visibility and confidence around the fourth quarter run rate and what if you achieve that level, but just to often what needs to happen to meet that 30% EBITDA growth and how much of the expected savings from our transformation plan and feed into that.
So again fourth quarter again.
Not.
Our estimates.
For the last.
Four four periods.
Again.
We emphasize to our team.
Got to you got to put more focus into.
Understanding those numbers communicating more with our customers getting commitments.
During during supply plans.
And.
And in <unk>.
Obviously can't predict geopolitical problems that may occur.
I just.
Yeah.
Just just taking in the fact that we had no Aztec and.
In the fourth quarter at all and that's that's really.
Some of our biggest quarter for Aztec.
Having having <unk>.
For the last four quarters.
Those two alone.
Lead us to be very strong on on what we're going to see in Q4 I will say in October.
Sure.
And our OHP and R M Garden lines.
We saw we saw very strong quarters, we saw a good strong quarter in Latam in Mexico in October so.
Pretty good optimism of outlook for for Q4.
Going forward, yes, the $15 million.
There are some some some areas that we've identified that will will be in place by January one, but a number of them.
We will be implemented during the course of the year and phased in so that we would see kind of the full effect of that in the 25 year.
We also have a plan.
We are we have we're kind of really into our third year of trying to get our entire fleet onboard with the same <unk> system.
We're now focused more on.
Pushing forward at a faster rate on that in 24, so that by the time, we get to the 24, essentially where we want to be.
So yeah.
There is.
There are potential upsides in what we've mentioned if we're more attuned at at.
Implementing.
These cost saving measures.
As well as we will have a better outlook of of how will the 24 year is going to unfold, which is why rescheduling that call.
Probably the later half of <unk> of January.
January so that we can update on kind of the Kpis, we've put in place to measure how we're tracking versus that $15 million, what that outlook looks like for the balance of the year.
And then as well.
Our teams.
Forecast every business unit does the 10th of each month.
So with regards to our 'twenty.
24 outlook.
And then kind of budgets or redundant in July of the previous year, we've been we've been.
Tony that that budget based upon the measures that were taken but then as we get into January we'll know what happened.
In Q4 at least as far as revenue is concerned and have a much better view of how that 24 years going to shape up.
Okay.
That's helpful and I had also maybe just a quick one for David.
On the.
The.
The covenant amendments.
If you achieve that 74 I am assuming you are in full compliance with the pre amendment covenants is that accurate I'm just wondering like what.
The nature of the the.
<unk>.
The amendments were and what you see in terms of.
You know what needs to happen in order to get fully back in compliance and just if you could just.
Talk about what the cost is for these amendments.
That'd be your dog.
Just sort of clarify for David So.
So.
So.
Mandates are essentially giving us more leeway on the debt to EBITDA ratio.
I guess we.
Set this up purpose loose of that.
If our Q4 goes according to plan that we're in a position to pull ourselves out of that which would which would save us a half a percent.
So again kind of a function too of how much cash.
We collected at the year end will determine what our debt to EBITDA ratio is and then as far as the charge go ahead and so.
The cost was.
About 400000, and then a half a percent on the.
The interest rate.
For the duration of the amendment period, which as Eric just described could be as long as through.
September of 2020, full but we could exited early.
And if our forecast for Q4 and the start to 2020 full come through well.
And that 400, just I know, it's not it's not a hit in July.
It's amortized over the life of.
The remaining launches it takes us through 'twenty six.
Okay. Thank you.
Thank you.
Next question comes from Wayne Pinson with Gabrielle funds. Please proceed with your question.
Hi, Thanks for taking my question, Eric you touched on it a little bit there just curious on how.
How quickly will be achieving the $50 million of cost savings and you mentioned that you'll probably see the full amount in 2025, but just the cadence there how.
How much of it.
Could I saw in the press release, you mentioned it was operational but also interest savings. So what's the breakdown there and then have you identified.
Any onetime or ongoing costs with that program.
Yes.
There'll be some capitalization.
Certainly as we move asteroids.
On the QAD system.
That is capitalized and amortized over five year period.
If I.
I mean, if you look at the each one of those comes with a different a different piece as far as phase in them. So.
Let's just take raw materials. For example, we've identified some contracts that were going to have that would go in place in the first quarter.
And as those benefits occur.
Manufacturing, we actually will see that pick up and it would be a margin, but we would see that occur.
As as it gets sold and normally we kind of figure there's like a 90 day delay time from manufacturing to sale, but obviously it depends on on each SKU.
With regards to one time.
<unk>.
And we're looking at that at that now.
<unk>.
With our with our bank and our agreement.
The agreement with them.
We can do each year I think it's $5 million of one time charge, which does not affect our adjusted EBITDA.
With regards to the bank.
So I don't know if that gives you the color or whether you've got it.
Clarify one final question on that.
Yeah.
Yeah.
Yeah.
Okay. So that's kind of what we could expect you going at that five 5 million or under run rate in cost of debt going.
Going back to work.
Okay.
Thank you.
Thank you Adam.
Minder Press Star one to ask a question at this time.
Okay.
Okay.
Thank you.
Our next question is from Steve Hilton.
Investor. Please proceed with your question.
Hi, guys.
I just had a quick question with the recent kind of business agreement between Agco and Trimble.
Does this complicate your sales program with <unk>.
Some past equipment.
Good question.
Bob.
I've had discussions tobacco, but Bob has followed through.
And has probably better insight on that than I do but yes.
So three quick points, Steve we see that as a positive.
It expands our.
Distribution network.
<unk> has over 2000 distribution points.
Therefore, we see much more opportunities.
We don't have to wait until that deal goes through we have already started that process.
Two.
We see a lot of cross selling opportunities between precision planting.
And.
Our systems, we've been working with Agco for eight years. So there was already a relationship in place.
I will just reinforce that.
And then I think three.
There is an action list, we've already agreed with management.
To start in 2024 for the 2025 season.
So hope that gives you color if you have a follow up question.
Yes, no that helps a lot I was just kind of curious I didnt know if agco had exactly.
Something similar to the same paths equipment or if you guys might fit in well with them.
We are symbiotic.
Okay sounds good thanks for the info.
Thank you. Our next question comes from Chris Congrats.
Capital markets. Please proceed with your question.
Yes, I had a couple of follow ups just so.
As you look through the fourth quarter and next year.
Just curious as you if you achieve these levels like how much of your inventory you will you be able to sort of liquidate in and therefore working capital.
Can be turned to regenerate.
Sorry become a source of cash and what are the implications for your debt position either end of this year. If you have that strong fourth quarter worked through 'twenty four.
Okay.
Very good question I mean, I think I think where we're looking to reduce about.
39 in Q4.
So any more already five something like that okay and inventory in Q4.
I can tell you that part of the process that we're doing is understanding where we're deploying our working capital.
It's not that it's something we should have been.
<unk> focused on at all times, but it's.
Completely different picture when you are paying 7% interest versus two two and three quarter percent interest. So as such there has been a strong.
Yes.
Each each of our inventory items globally.
And targets that are set to bring those down dramatically from where they have been.
Of particular concern are products that we may be storing that are lower margin products and I think all along as we've acquired some of these distributions businesses. We've told them essentially really are not focused on top line or driving us is bottom line. So.
<unk> got low margin products.
Let somebody else sell them focus on building higher margin volume products.
And we need to we're going to need to improve working capital deployment and deployment across so we'll give a little more granular view on target specifically to each of the entities.
As we mentioned, we will hold them accountable to get to those numbers.
Yes.
Okay, sorry, just as a follow up to that and I don't know if thats.
Is there any part of the transformation plan that examines and looks at your.
Product skus that where there might be some that arent just simply arent profitable.
Profitable and therefore might be.
Candidates for rationalization or whereas the transformation plan really just focus more on operational measures.
We're focused on all aspects, including including margin.
Justification of.
Yes.
Our products.
We would have an inventory again.
Our customer a number of our customers kind of gone to stocking distributors too.
The billing side.
And so as such we've got to kind of reevaluate.
What.
What we're going to do with our products. We're not we're not a bank, we're not set up to be a bank.
And we made it to take to make sure that as we deploy capital we're getting the best return on our capital, but retail. So yes, we are examining all aspects.
Okay, and then one other question sort of.
<unk>.
Buyer Monsanto results I think it was this morning.
Uh huh.
It was interesting.
You know the seed and trait business up in healthy and positive pricing doesn't objected to this.
Down.
Downbeat sort of backdrop, and then obviously with for them pretty pronounced pressures I'm quite the state another crop crop chemistry.
But they so I'm curious is there any sort of bifurcation in Europe.
Portfolio, along those lines where.
Some of your products are more subject to those pressures than others. That's one question and then the second was they also mentioned that.
This is pretty well understood I guess, probably the broader market that given the.
Corn too.
Choi ratio that there will be a shift in acreage most likely from from corn to soy just wondering what the net implications of that if any on your.
Your portfolio in a normal year. Thank you.
Sure.
<unk>.
Okay.
So as far as kind of driver, but there is not a product that is more generic pressure then glyphosate I believe globally.
And thats not a product that we plan.
Yes.
They have Joe Plasm historic that's associated with that molecule.
And so I think I think from a seed standpoint, yes.
That remains healthy.
Tells you that.
Demand is still there for planting and crop inputs, but.
We do not have.
A great deal of exposure to generic we're not immune to it.
As I said, we're seeing Central America.
Maybe it is up to seven.
Pressure than some of our other areas.
But but with regard to.
The second part of your question.
I'm sorry, what was that was what was the second piece I missed it.
The acreage shift.
Alright.
Yes, I mean, we're.
We're effectively.
With with our our corn where effectively on.
Those are high high pressure areas, which.
Which typically tend to be corn on corn, they don't they don't shift.
Yes.
Like you would see in some of their areas, where where their acreage even let's say in the south that corn more corn soybean shift or even in the cloud.
We have we have a growing portfolio of products on on soybeans, and we have our <unk> or <unk> solutions products on soybeans as well.
So I think that was part of our strategy was to to add to our portfolio.
For some pass.
Soybean products as well as cotton products and peanut products. So that people are using our <unk> system could produce multi crops, but.
But yes I mean.
Going going from 90 million acres of corn to 88 million acres of corn.
The $2 5 million acres that we're involved in with our corn soil insecticide really doesn't doesn't have.
How much of a play and its more are ours is more more based upon corn root worm pressure.
And.
One of the things we're happy about this year launching.
Into.
And drew in two ways.
Are we getting off this year with our bio yes or no.
So a product that will that will.
Also before low corn root worm pressure.
And again this is our first.
Real commercialized over did a we did a trial launch last year and moved a fair amount of product in a very short window, but in addition to two corn and soybean specific we have Peter.
Peanut and cotton.
<unk> products, and our new product, which would be controlling.
Controlling.
In light.
Pressure areas.
Appreciate the color.
Thank you there are no further questions at this time I'd like to turn the floor back over to Eric Wintermute for closing comments.
Okay well.
I hope this is the last quarter for some time to come where we are do not meet expectations.
It's been in time.
Great.
Pressure that that is upon us.
The performance of our company, but we believe we've taken.
Very nice proactive approach for as we've headed into Q4 into the 2004 season.
And look forward to giving you an update report when we get together.
January so with that thank you very much for attending.
Bye Bye. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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