Q2 2024 American Vanguard Corp Earnings Call

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Operator: Greetings and welcome to the American Vanguard Q2 2024 conference call and webcast. 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, Anthony Young, Director of Investor Relations. Thank you, Anthony. You may begin.

Speaker Change: Greetings and welcome to the American Vanguard Q2 2024 conference call and webcast.

Speaker Change: At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Ballrough: 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, Anthony Young, Director of Investor Relations. Thank you, Anthony. You may begin.

Anthony Young: Good afternoon, and welcome to American Vanguard's second quarter 2024 earnings review. Our prepared remarks will be led by Tim Donnelly, Acting Chief Executive Officer, Mark Bassett, Board Member and Architect of our Business Transformation Strategy, and David Johnson, Chief Financial Officer.

Anthony Young: Thank you, Alicia. Good afternoon and welcome to American Vanguard's second quarter 2024 earnings review.

Speaker Change: Our prepared remarks will be led by Tim Donnelly, Acting Chief Executive Officer, Mark Bassett, Board Member and Architect of our Business Transformation Strategy, and David Johnson, Chief Financial Officer.

Anthony Young: Mason Bennett, Vice President, North American Crop, is also in attendance and available to answer agricultural economy-related questions. Before beginning the presentation, let's take a moment for a cautionary reminder. During this call, you 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, transformation, organization, and liquidity initiatives, as detailed in the company's SEC reports and filings. All forward-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.

Speaker Change: Mason Bennett, Vice President, North American Crop, is also in attendance and available to answer agricultural economy related questions.

Speaker Change: Before beginning the presentation, let's take a moment for a cautionary reminder.

Speaker Change: During this call, you may discuss forward-looking information,

Speaker Change: 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.

Speaker Change: Such factors include weather conditions, changes in regulatory policy, transformation, organization, and liquidity initiatives, and other risks.

Speaker Change: as detailed in the company's SEC reports and filings. All forward-looking statements represent the company's judgment as of...

Speaker Change: The date of this release and such information will not necessarily be updated by the company.

Anthony Young: It's now my pleasure to turn the call over to Tim.

Tim Donnelly: Thanks, Anthony. Hello, everyone.

Speaker Change: It is now my pleasure to turn the call over to Tim.

Tim: Thanks, Anthony. Hello, everyone, and thank you for joining American Vanguard's second quarter 2024 earnings call.

Tim Donnelly: And thank you for joining American Vanguard's second quarter 2024 earnings call. Before we discuss the second quarter and first half, I would like to comment on the current management team and then discuss the company's direction to expedite change. In light of industry conditions and our recent financial performance, the Board of Directors has taken bold and decisive action to guide the company on a new course. Following the departure of the previous CEO on July 12, the company formed an Office of the CEO to accelerate both short-term initiatives, such as margin improvement and cash management.

Tim: Before we discuss the second quarter and first half, I would like to comment on the current management team and then cover the company's direction to expedite change.

Speaker Change: In light of industry conditions and our recent financial performance, the Board of Directors has taken bold and decisive action to guide the company on a new course.

Tim Donnelly: Capital Allocation and Cost Savings, as well as business transformation during the dependency of the search for a new CEO. The board and management team are committed to moving forward with a sense of urgency and making necessary changes immediately while we look to fill the top position. As you will see on slide five, the OCEO is comprised of four senior executives who bring all the skills and experience necessary both to manage day-to-day operations and to accelerate our transformation. They are David Johnson, CFO, with 17 years at the company. Senior Vice President of Human Resources, Sharon Kuseravi, with more than 25 years in both management and design, board member Mark Bassett, Ph.

Speaker Change: Following the departure of the previous CEO on July 12th,

Speaker Change: The company formed an office of the CEO to accelerate both short-term initiatives, such as margin improvement, cash management, capital allocation, and cost savings.

Tim: as well as business transformation during dependency of the search for a new CEO.

Speaker Change: The board and management team are committed to moving forward with a sense of urgency and making necessary changes immediately while we look to fill the top position.

Speaker Change: [inaudible]

Speaker Change: As you will see on slide 5, the OCEO is comprised of four senior executives who bring all the skills and experience necessary both to manage day-to-day operations and to accelerate our transformation.

Speaker Change: They are David Johnson, CFO , with 17 years at the company.

Speaker Change: Senior Vice President of Human Resources, Sharon Kuseravi, with more than 25 years in each our management and design.

Tim Donnelly: D., who has run multiple large global businesses and is the architect of our transformation plan, and myself, Tim Doddley, Acting CEO, who has been with the company for 19 years. In short, the office of the CEO has a clear mandate to improve short-term financial performance and accelerate the transformation process, which will turn American Vanguard into the business that our investors, customers, and employees deserve, and we all know it can be. We will use the following framework for our discussion during this call, as per slide 6.

Tim Donnelly: Board Member Mark Bassett, Ph.D., who has run multiple large global businesses and is the architect of our Transformation Plan, and myself, Tim Donnelly, Acting CEO , with 19 years at the company.

Speaker Change: In the short, the office of the CEO has a clear mandate.

Speaker Change: To improve short-term financial performance and to accelerate the transformation process which will turn American Vanguard into the business that our investors, customers, and employees deserve, and we all know it can be.

Speaker Change: We will use the following framework for our discussion during this call as per slide 6.

Tim Donnelly: I will provide a high-level overview of the second quarter and first half 2024 financial performance and make mention of a recent development with EPA on our product Daxol. Then Mark will provide an update on the progress we have made with our liquidity initiatives and business transformation. Then David will report on our amended credit agreement and provide a detailed review of the just completed quarter's financial performance. Finally, I will return to provide an update on our full-year financial projections and discuss our search for a new CEO.

Speaker Change: I will provide a high-level overview of second quarter and first half 2024 financial performance and make mention of a recent development with EPA on our product, Daxol.

Speaker Change: Then, Mark will provide an update on the progress we have made with our liquidity initiatives and business transformation.

Speaker Change: Then, David will report on our amended credit agreement and provide a detailed review of the just-completed quarter's financial performance.

Speaker Change: Finally, I will return to provide an update on our full year financial projections and discuss our search for a new CEO .

Tim Donnelly: American Vanguard has a resilient business, and we think this is highlighted by the company's sales in spite of weakness in the farm economy, which is due to persistently low commodity prices, the cost of crop inputs, and elevated interest rates, which have culminated in a just-in-time procurement approach within our distribution channel. I haveten to add that most of our competitors have been similarly impacted. Turning to slide 8.

Speaker Change: American Vanguard has a resilient business, and we think this is highlighted by the company's sales in spite of weakness in the farm economy.

Speaker Change: which is due to persistently low commodity prices, the cost of crop inputs and elevated interest rates which have culminated in a just-in-time procurement approach within our distribution channel.

Speaker Change: I hasten to add that most of our competitors have been similarly impacted.

Tim Donnelly: During the second quarter, net sales decreased slightly to $128.2 million, compared to $132.8 million in the year-ago period, and our adjusted EBITDA margin declined to 4.8% during the quarter, well below that which we would view as our long-term potential and lower than the 8.2% adjusted EBITDA margin in the year-ago period. This decrease in adjusted EBITDA margin comes largely from reduced sales of higher-margin products Along with a comparative increase in sales of lower margin, non-crop products. During the quarter, we did record double-digit increases in both non-crop and green solutions products. Net Sales for the first half of 2024 were up under consolidated bases by 2% with both non-crop of 20%.

Speaker Change: Turning to slide 8.

Speaker Change: During the second quarter, net sales decreased slightly to $128.2 million, compared to $132.8 million in the year-ago period, and our adjusted EBITDA margin declined to 4.8% during the quarter.

Speaker Change: Well below that, which we would view as our long-term potential, and lower than the 8.2% adjusted EBITDA margin in the year-ago period.

Speaker Change: This in decrease in adjusted EBITDA margin comes largely from reduced sales of higher margin products, with U.S. crop sales down, along with a comparative increase in sales of lower margin non crop products.

Speaker Change: During the quarter, we did record double digit increases in both non-crop and green solutions products.

Speaker Change: Net sales for the first half of 2024 were up on a consolidated basis by 2 percent.

Speaker Change: with both non-crop, up 20%, and domestic total sales, up 5%, outperforming the first half of 2023. In addition, we recorded double-digit sales increases within our green solutions portfolio.

Speaker Change: led by strong demand in Central America. Further, and as David will report while down in the second quarter, growth profit for the first half of the year was about equal with that of 2023.

Speaker Change: That said, the current management team and the board view are over all results as unacceptable.

Tim Donnelly: In our years of experience with the company, we believe that the primary impediment to this business has not been in generating sales but rather has been in managing our cost structure. Thus, it is incumbent upon us to take decisive action to reduce costs. Improve liquidity and accelerate our business transformation. Before turning to Mark on our multiple initiatives to affect this change, let me first touch upon the subject of the DAXVOL, as you may have read in the press earlier this week.

Speaker Change: In our years of experience with the company, we believe that the primary impediment of this business has not been in generating sales, but, rather, has been in managing our cost structure. Thus, it is incumbent upon us to take decisive action to reduce costs.

Speaker Change: Improve liquidity and accelerate our business transformation.

Speaker Change: Before turning to Mark on our multiple initiatives to effect this change, let me first touch upon the subject of DACSOL.

Tim Donnelly: The EPA just issued an emergency suspension of that product, which prevents its sale, distribution, and use. As you may recall, we voluntarily suspended sales of Daxol last April and had submitted a much reduced label in an effort to meet the agency's concerns. In addition, at that time, we had removed all sales of DAX from our 2024 forecast assumption.

Mark: As you may have read in the press earlier this week, the EPA just issued an emergency suspension of that product, which prevents its failed distribution and use.

Speaker Change: As you may recall, we voluntarily suspended sales a Dexal last April and had submitted a much reduced label in an effort to meet the agency's concerns.

Speaker Change: In addition, at that time, we had removed DACFOL sales from our 2024 forecast assumptions.

Speaker Change: We are, of course, working in good faith with both EPA and our stakeholders to ensure compliance with the suspension.

Tim Donnelly: We are, of course, working in good faith with both EPA and our stakeholders to ensure compliance with the suspension. With that, let me turn to Mark Bassett on our multiple initiatives to improve operating leverage and efficiency, both in the short term and permanently. Mark.

Mark Bassett: With that, let me turn to Mark Bassett on our multiple initiatives to improve operating leverage and efficiency both in the short term and permanently Mark.

Mark Bassett: Thanks Tim. Before I get into the details, I'd like to quickly introduce myself as Personality Limit.

Mark Bassett: Thanks, Tim. Before I get into the details, I'd like to quickly introduce myself as per slide 11.

Mark Bassett: First, I'm a shareholder of American Vanguard. I invested in the company before I joined the board, a little more than two years ago. Prior to that, I spent almost six years as chairman and CEO of Hemlock Semiconductor. During that time, we were able to significantly increase the valuation of the company by reducing the total cost by about 30% while creating a substantial new revenue stream to drive rapid growth. Prior to that, I ran several large global businesses at Dow, and early in my career, I worked in finance and technology. I invested in American Vanguard because I believed in the company's potential, and I still do.

Mark Bassett: First, I'm a shareholder of American Vanguard. I invested in the company before I joined the board a little more than two years ago.

Mark Bassett: Prior to that, I spent almost six years as chairman and CEO of Hemlock Semiconductor.

Speaker Change: During that time, we were able to significantly increase the valuation of the company by reducing the total cost by about 30% while creating a substantial new revenue stream to drive rapid growth.

Speaker Change: Prior to that, Iran's several large global businesses that doubt, and early in my career, I work in finance and technology.

Speaker Change: I invested in American Vanguard because I believed in the company's potential.

Mark Bassett: After joining the board, I spent two and a half months inside the company last year, developing the foundation of what became the transformation. The carney is helping us implement, and I've spent the last two months in the company focused on accelerating the transformation and helping improve the liquidity in the second half. After my time here, there's no doubt in my mind that this is a solid company capable of delivering a 15% EBITDA margin performance.

Speaker Change: And I still do. After joining the board, I spent two and a half months inside the company last year developing the foundation of what became the transformation that Carney is helping us implement.

Carney: And I've spent the last two months in the company focused on accelerating the transformation and helping improve liquidity in the second half.

Speaker Change: After my time here, there is no doubt in my mind that this is a solid company capable of delivering a 15% EBITDA margin performance.

Mark Bassett: So with that as a preface, let's turn to slide 12 and then get into some of the details of what we've recently accomplished. First, we thought it was critical to get alignment throughout the company and how we went to work and the priorities for the remainder of the year. Our mantra for it is teamwork. Focus, Performance, Energy.

Speaker Change: So with that as a preference, let's turn to slide 12 and get into some of the details of what we've recently accomplished.

Speaker Change: First, we felt it was critical to get alignment throughout the company and how we want to work and the priorities for the remainder of the year.

Speaker Change: Our mantra is teamwork.

Mark Bassett: This mantra may sound simple, but it's a key driver for success. I can tell you that there is a lot of excitement throughout the company, and leadership is committed to realizing the company's full potential. For the remainder of the year, there are four key priorities.

Speaker Change: Focus, Performance, and Urgency.

Speaker Change: This mantra may sound simple, but it's a key driver for success.

Speaker Change: I can tell you that there is a lot of excitement throughout the company and leadership is committed to realizing the company's full potential.

Mark Bassett: Cultivate our people to improve liquidity, accelerate the transformation, and for, operate the company across all functions excellently, day in and day out. To that end, we've created a one-page blueprint with all key initiatives and key performance indicators with clear targets that we are tracking, acting on, and communicating globally so we know how we're doing.

Speaker Change: For the remainder of the year there are four key priorities. One, cultivate our people.

Speaker Change: 2. Improve liquidity 3. Accelerate the transformation 4. Operate the company across all functions Excellently, day in and day out

Speaker Change: To that end, we've created a one-page blueprint with all key initiatives and key performance indicators with clear targets that we are tracking, acting on, and communicating globally so we know how we're doing.

Mark Bassett: This was recently rolled out to the entire company, and we've instituted a monthly run-to-business meeting to drive a more urgent and proactive response to changing conditions. We believe this clarity and focus will allow us to better meet our commitment. The objective of these initiatives is to increase cash flow and create a consistently higher operating margin. Turning to Liquidity and Inventory Management on slide 13, first, we'd like to discuss Sympath.

Speaker Change: This was recently rolled out to the entire company and we've instituted a monthly run the business meeting to drive a more urgent and proactive response to changing conditions.

Speaker Change: We believe this clarity and focus will allow us to better meet our commitments.

Speaker Change: The objective of these initiatives is to increase cash flow and create a consistently higher operating margin.

Speaker Change: Turning to liquidity and inventory management on slide 13.

Mark Bassett: The company has spent many years developing this groundbreaking technology. At this point, we believe that we've proven the concept of a multiproduct prescribed application. However, at this stage of commercialization, we believe that the most prudent course with CEMPAS is to maintain the benefits of the technology internally and to find a partner within the precision application space to help advance broader commercialization and market acceptance. This would enable us to significantly curtail spending on the technology and could lead to savings of approximately $6 million a year.

Speaker Change: First, we'd like to discuss CEMPAS.

Speaker Change: The company has spent many years developing this groundbreaking technology. At this point, we believe that we've proven the concept of a multi-product prescribed application.

Speaker Change: However, at this stage of commercialization, we believe that the most prudent course with Sympath is to maintain the benefits of the technology internally and to find a partner within the precision application space to help advance broader commercialization and market acceptance.

Speaker Change: This would enable us to significantly curtail spending on the technology and could lead to savings of approximately $6 million a year.

Mark Bassett: In addition, we've taken delivery actions to reduce inventory. To that end, we've recently updated our forecasting methodology and implemented a new standard SNOP process, involving a cross-functional team from the supply chain, manufacturing, and commercial organizations. This initiative will allow us to better serve our customers and lower our working capital. Lastly, we've implemented stricter cost controls. These include limiting spending with outside vendors, reducing travel and entertainment, and limiting the use of contractors.

Speaker Change: In addition, we've taken deliberate actions to reduce inventory.

Speaker Change: To that end, we've recently updated our forecasting methodology and have implemented a new standard S&OP process, involving a cross-functional team from the supply chain, manufacturing and commercial organizations.

Speaker Change: This initiative will allow us to better serve our customers and lower our working capital.

Speaker Change: Lastly, we've implemented stricter cost controls. These include limiting spending with outside vendors, reducing travel and entertainment, and limiting the use of contractors.

Mark Bassett: In addition to our liquidity improvement targets, we've been working diligently to accelerate our business transformation as per slide 14. After conducting a thorough analysis, we decided to implement a new simpler customer-centric organization. We will have two global businesses, Crop and iCrop. The centralized functions that are leveraged into the businesses, allowing them to be run with multifunctional businesses.

Speaker Change: In addition to our liquidity improvement targets, we've been working diligently to accelerate our business transformation as per slide 14.

Speaker Change: After conducting a thorough analysis, we've decided to implement a new, simpler, customer-centric organization.

Speaker Change: We'll have two global businesses, Crop and Non-Crop, with centralized functions that are leveraged into the businesses, allowing them to be run with multifunctional business teams.

Mark Bassett: We expect to have this new structure in place early in 2025, and we believe this will allow us to have clear and more consistent strategies across the world, enabling us to more effectively deploy our resources and drive growth and improve profitability. Working on this new organizational design has already enabled us to identify redundant roles, allowing us to trim about 4% of our global workforce. This will yield annualized savings of approximately $3 million.

Speaker Change: We expect to have this new structure in place early in 2025, and we believe this will allow us to have clearer and more consistent strategies across the world, enabling us to more effectively deploy our resources and drive growth and improve profitability.

Speaker Change: Working on this new organizational design has already enabled us to identify redundant roles, allowing us to trim about 4% of our global workforce.

Mark Bassett: As part of this effort, we're also taking the opportunity to clearly define roles and responsibilities as well as move decision authority through the organization to empower our employees to operate the company with greater agility and a greater sense of urgency. Secondly, we finished or are wrapping up several cost savings initiatives to cut across raw material and logistics purchasing, manufacturing efficiency, and skew rationalization. We believe that those efforts will yield annualized savings in excess of $5 million.

Speaker Change: This will yield annualized savings of approximately $3 million.

Speaker Change: As part of this effort, we are also taking the opportunity to clearly define roles and responsibilities as well as moving decision authority through the organization to empower our employees to operate the company with greater agility and a greater sense of urgency.

Speaker Change: Secondly, we finished or are wrapping up several cost savings initiatives to cut across raw material and logistics purchasing, manufacturing efficiency, and SKU rationalization.

Speaker Change: We believe that those efforts will yield annualized savings in excess of $5 million.

Mark Bassett: Thirdly, we have several commercial initiatives involving pricing and customer strategy that are being implemented as we speak. The American Vanguard team has a high degree of confidence that these will yield annualized earnings improvements of over $5 million. Lastly, we have also done a deep dive into our international strategy. As a result of that effort, we've identified numerous opportunities to improve performance that we believe will lead to over $2 million in improved earnings.

Speaker Change: Thirdly, we have several commercial initiatives involving pricing and customer strategy that are being implemented as we speak. The American Vanguard team has a high degree of confidence that these will yield annualized earnings improvements of over $5 million.

Speaker Change: Lastly, we have also done a deep dive into our international strategy. As a result of that effort, we've identified numerous opportunities to improve performance that we believe will lead to over $2 million a year in improved earnings.

Mark Bassett: In summary, I'm proud to say that our team has come together very quickly. We're working collaboratively. The team is energized, and we've accomplished quite a bit in a very short period of time. We've taken numerous actions to reduce spending, lower working capital, and we're dramatically accelerating our transformation, which touches all aspects of the company and will allow us to reach our full potential. I will now turn the call over to our Chief Financial Officer, David Johnson. Thank you.

Speaker Change: In summary, I'm proud to say that our team is to come together very quickly. We're working collaboratively, the team is energized, and we've accomplished quite a bit in a very short period of time.

Speaker Change: We've taken numerous actions to reduce spending, to lower working capital, and we're dramatically accelerating our transformation, which touches all aspects of the company and will allow us to reach our full potential.

Speaker Change: I will now turn the call over to our Chief Financial Officer, David Johnson.

David Johnson: I will begin my comments with a summary of the terms of our amended credit agreement, followed by a recap of our performance for the second quarter of the 1st half of 2024, and we'll close with comments on working capital and current liquidity. In order to ensure that we have ample working capital to operate the business within current conditions, we have reached agreement with our lenders to modify our senior credit facility, as summarized on slide 16.

David Johnson: Thank you, Mark.

David Johnson: I will begin my comments with a summary of the terms of our amended credit agreement, followed by a recap of our performance for the second quarter and first half of 2024, and we'll close with comments on working capital and current liquidity.

Speaker Change: In order to ensure that we have ample working capital to operate the business within current conditions, we've reached agreement with our lenders to modify our senior credit facility as summarized on slide 16.

David Johnson: The amendment includes, first, a reset of our total leverage covenant, which, as you may recall, ties borrowing capacity to trailing four-quarter adjusted EBITDA, allowing us to work through this challenging time for the global Ag Chem market. And second, a higher basket for non-recurring charges to allow us to follow through on our transformation projects without impacting borrowing capacity. However, this continued support from the lender comes with some restrictions. First, our interest rate will increase by 25 basis points when the leverage ratio exceeds four times. And, for the present, we are prevented from repurchasing any shares, paying any dividends, or making any acquisitions without the lenders' consent.

Speaker Change: The amendment includes first a reset of our total leverage covenant, which as you may recall ties borrowing capacity to trailing four-quarter adjusted EBITDA.

Speaker Change: Allowing us to work through this challenging time for the global webcam market. And second, a higher basket for non-recurring charges to allow us to follow through on our transformation projects without impacting boring capacity.

Speaker Change: This continued support from the lender comes with some restrictions. First, our interest rate will increase by 25 basis points when the leverage ratio exceeds four times.

Speaker Change: And for the present, we have prevented from repurchasing any shares, paying any dividends, or making any acquisitions without lenders consent.

David Johnson: The lenders have agreed that, notwithstanding the term of the amendment, once we can show sustained improvement in our performance, we can request approval to reinstate one or more of these important capital allocation levers. Turning now to our financial performance, let's focus on sales. As you will see from slide 17, overall revenue from the quarter was down about 4.5 million, or 3%, as compared to the same period of 2023. Our U.S. crop business was challenged by just-in-time ordering and pressure from customers, and recorded net sales that were down 7% as compared to the second quarter of 2023. On the other hand, during the quarter, our U.S. non-crop business was a bright spot, with sales growing 13% compared to last year.

Speaker Change: The lenders have agreed that, notwithstanding the term of the amendment, once we can show sustained improvement in our performance, we can request approval to reinstate one or more of these important capital allocation levers.

David Johnson: Finally, net sales of our international business declined by 2% as compared to the comparable period of the prior year. Turning to the first half of 2024 on slide 18, overall revenue was up about 3% compared to the comparable period of 2023. Well, net sales of our US crop and our international businesses were essentially flat with the prior year; US non-crop sales rose by 20% during the same period. Turning to slide 19, with the decline in second quarter net sales and some product mix changes, gross profit for the quarter decreased by approximately 12%.

Speaker Change: Turning now to our financial performance, let's focus on sales. As you will see from slide 17, overall revenue from the quarter was down about 4.5 million or 3% as compared to the same period of 2023.

Speaker Change: Our U.S. crop business was challenged by just-in-time ordering and pressure from generics and recorded net sales that were down 7% as compared to the second quarter of 2023.

Speaker Change: On the other hand, during the quarter, our U.S. non-crop business was a bright spot, with sales growing 13% compared to last year.

Speaker Change: Finally, net sales are international business declined by 2% as compared to the comparable period of the prior year.

Speaker Change: Turning to the first half of 2024 on slide 18, overall revenue was up about 3% compared to the comparable period of 2023. While net sales of our US crop and our international businesses were essentially flat with the prior year, US non-crop sales rose by 20% during the same period.

Speaker Change: Turning to slide 19, with the decline in second quarter net sales and some product mix changes, gross profit for the quarter decreased by approximately 12%.

David Johnson: This decline primarily arose from lower net sales of our U.S. crop products, which generally carry higher average margins. In addition, we recorded lower factory overhead cost recovery as we worked to control inventory and working capital. Overall, gross margins reduced to 29% from 32% of sales. On the plus side, our inventories ended marginally lower than our internal target for the end of the second quarter, which was encouraging. With respect to the first six months of 2024, net sales were up 2%, and gross profit was flat compared to a comparable period of 2023.

Speaker Change: This decline primarily arose from lower net sales of our U.S. crop products, which generally carry higher average margins.

Speaker Change: In addition, we recorded lower factory overhead costs recovery as we worked to controlled inventory and working capital.

Speaker Change: Overall, gross margins reduced to 29% from 32% of sales.

Speaker Change: On the plus side, our inventories ended marginally lower than our internal target for the end of the second quarter, which was encouraging.

David Johnson: And gross profit margin declined slightly to 31% from 32% of sales. As you will see from slide 21, operating expenses for the second quarter of 2024 increased by approximately 20% over the comparable period in 2023. The primary driver for this increase was non-recurring expenses arising from activities to transform both our business structure and process and our digital platform. These transformation costs include third-party consulting costs in support of the change initiatives just discussed and severance costs for the former CEO. We also encode some other one-time crops without these out of the ordinary costs.

Speaker Change: [inaudible]

Speaker Change: With respect to the first six months of 2024, net sales were up 2% and gross profit was flat with a comparable period of 2023. And gross profit margin declined slightly to 31% from 32% of sales.

Speaker Change: As you will see from slide 21, operating expenses for the second quarter of 2024 increased by approximately 20%.

Speaker Change: Over the comparable period in 2023 the primary driver for this increase

Speaker Change: were non-recurring expenses arising from activities to transform both our business structure and process and our digital platform. These transformation costs include third party consulting costs in support of the change initiatives just discussed and severance costs for the former CEO.

Speaker Change: We also incurred some other one-time costs. Without these, out of the ordinary costs, operating expenses would have declined by 5% for the quarter as compared to last year.

David Johnson: Operating expenses would have declined by 5% for the quarter as compared to last year. Similarly, for the first half of 2024, operating expenses rose by 12%, including approximately 10.5 million from transformation severance and other one-time costs.

Speaker Change: Similarly, for the first half of 2024, operating expenses rose by 12%, including approximately $10.5 million from transformation, severance, and other one-time type costs.

David Johnson: Turning now to inventory, on slide 23, you will see our inventory trends on a quarterly basis since the start of 2023. We are moving quickly to reduce inventory levels by monitoring factory activity, building only to demand, reducing procurement of third-party products, and selling out of smaller non-strategic inventory positions. Through these efforts, we are focused on driving down inventory levels to reach our targets of 34% of net sales by year's end. Inventory drives working capital levels, which in turn drives are dead.

Speaker Change: Turning now to inventory on slide 23, you will see our inventory trends on a quarterly basis since the start of 2023. We are moving quickly to reduce inventory levels by monitoring factory activity, building only to demand, scaling back procurement of third party products, and selling out of smaller non-strategic inventory positions.

Speaker Change: Through these efforts we are focused on driving down inventory levels to reach our target of 34% of net sales by year end.

Speaker Change: Inventory drives are working capital levels, which in turn drives are dead.

Speaker Change: Debt ended at $211 million on June 30th, 2024. That was slightly lower than our internal target. So that was a pleasing result, following a lot of focus across the entire company.

Speaker Change: Furthermore, it is interesting to note that in the first two weeks of July , we collected more than $40 million from our U.S. customers and additional funds through our international subsidiaries.

Speaker Change: Accordingly, we were able to drive down the start of Q3 before starting to borrow again as the annual cycle continues.

Tim Donnelly: Thank you, David. Our last topic is our full year financial outlook. A year to date, our sales are actually higher than they were last year; nevertheless, as I had mentioned earlier, weakness in the agricultural economy has had an impact on both year-to-date sales and profit performance. Like a number of our competitors, we foresee stable demand within the crop segment over the second half of 2024. At the same time, we are cognizant of the many factors that could affect the ag market, such as commodity prices, interest rates, geopolitical activity, channel inventory, and the like.

Speaker Change: That sums up my detailed comments and with that I'll turn the call back to Tim. Thank you David. Our last topic is our full year financial outlook.

Speaker Change: A year-to-date, our sales are actually higher than they were last year. Nevertheless, as I had mentioned earlier, weakness in the agricultural economy has had an impact on both year-to-date sales and profit performance.

Speaker Change: Like a number of our competitors, we foresee stable demand within the crop segment over the second half of 2024. At the same time, we are cognizant of the many factors that could affect the ag market.

Speaker Change: commodity prices, interest rate, geopolitical activity, channel inventory, and the like.

Tim Donnelly: Furthermore, as David mentioned, controlling working capital will also require us to optimize factory activity while working through our inventory. In light of these considerations, like a number of our competitors, we are decreasing our full year 2024 targets. And in this case, we are targeting adjusted EBITDA to be between $40 and $50 million, down from $60 to $70 million. We are also decreasing our sales target, which we now expect to be in the range of 565 to 580 million dollars.

Speaker Change: Further, as David mentioned, controlling working capital will also require us to optimize factory activity while working through our inventory.

David Johnson: In light of these considerations, like a number of our competitors, we are decreasing our full-year 2024 targets. And in this case, we are targeting adjusted EBITDA to be between $40 and $50 million, down from $60 to $70 million.

Speaker Change: We are also decreasing our sales target, which we now expect to be in the range of 565 to 580 million dollars.

Tim Donnelly: Diff results in a... down 2% to flat versus our prior targeting of sales up 6 to 9%. As we mentioned earlier, we are conducting a CEO search and have retained the well respected ag tech search firm of Ken Cannon and Reed in that effort. You will note the attributes of the ideal candidate, or some of them, on slide 27. And as this search progresses, we will provide updates to the market as appropriate.

Speaker Change: Diff results in a...

Speaker Change: Down 2% to flat versus our prior targeting of sales up 6 to 9%.

Speaker Change: As we mentioned earlier, we are conducting a CEO search and have retained the well-respected ag tech search form of Ken Cannon and Reed in that effort.

Speaker Change: You will note the attributes of the ideal candidate, or some of them, on slide 27. And as this search progresses, we will provide updates to the market as appropriate.

Tim Donnelly: So let's review what we have done in the last four weeks, as summed up on slide 29. First, we formed the OCEO to unleash the company's earnings potential. Endowing it with a full complement of executive skills, both to manage day-to-day operations and to steer the enterprise while we search for a CEO. Second, we have acted quickly to reset our credit agreement and to ensure greater flexibility of working capital. Third, we have redoubled our efforts to reduce expenses and maximize liquidity in the short to midterm, including workforce reduction.

Speaker Change: So let's review what we have done in the last four weeks as summed up on slide 29.

Speaker Change: First, we have formed the OCEO to unleash the company's earnings potential.

Speaker Change: Endowing it with a full complement of executive skills, both to manage day-to-day operations, and to steer the enterprise while we search for a CEO . Second, we have acted quickly to reset our credit agreement and to ensure greater flexibility of working capital.

Speaker Change: Third, we have redoubled our efforts to reduce expenses and maximize liquidity in the short to midterm, including a workforce reduction.

Tim Donnelly: And fourth, we are driving transformation, both digital and business-related, with the goal of achieving a 15% EBITDA margin in 2026 and beyond. In closing, our focus is to provide our shareholders with the highest possible return. We are Ulrich Trogele.

Speaker Change: And fourth, we are driving transformation, both digital and business related, with the goal of achieving a 15% EBITDA margin in 2026 and beyond.

Speaker Change: In closing, our focus is to provide our shareholders with the highest possible return.

Tim Donnelly: And we know that the long-term future of this company depends upon our efforts to return the company to greater profitability while transforming it into a leaner engine for growth. Let me put one final point on it. We at the OCEO have been given a mandate to change the company for the better. We are the agents of that chain. And the time for that change is now. With that, I'll open up the call for questions. Alicia

Speaker Change: We are all shareholders, and we know that the long-term future of this company depends upon our efforts to return the company to greater profitability while transforming it into a leaner engine for growth.

Speaker Change: Let me put a final point on it. We at the OCEO have been given a mandate to change the company for the better.

Speaker Change: We are the agents of that change, and the time for that change is now.

Speaker Change: Is that I'll open up the call for questions, Alicia?

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, press star one on your telephone keypad. A confirmation tone will indicate your line is in the question; you may press start, too, if you would...

Alicia: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Apologies, I lost connection for a second. Our first question comes from the line of Scott Fortune with Roth Capital Partners. Please proceed with your question.

Speaker Change: One moment, please, while we poll for questions.

Alicia: Thank you very much for joining us today.

Speaker Change: You You You You You You You You You You You You

Alicia: [inaudible]

Alicia: www.AmericanVanguardCorps.com

Alicia: [inaudible]

Speaker Change: Apologies, I lost connection for a second. Our first question comes from the line of Scott Fortune with Roth Capital Partners. Please proceed with your question.

Mark Bassett: Good afternoon, and thanks for stepping through all the color and changes going on on board here. You mentioned kind of the transformation and accelerating that. Just kind of walk us through, you know, you see $15 million in cost synergies and savings, kind of the expectation for that, and kind of what are the steps to kind of really accelerate these costs and kind of timing to see these cost savings kind of flow through the P&L and the financials for the company, just kind of a sense of that acceleration moving forward here. Sure.

Scott Fortune: Good afternoon, and thanks for stepping through all the color and changes going on on board here. You mentioned kind of the transformation and accelerating that. Just kind of step us through, you know, you see $15 million in cost synergies and savings, kind of the expectation of that, and kind of what are the steps to kind of really accelerate these costs and kind of timing to see these cost savings kind of flow through the P&L and the financials for the company, just kind of a sense of that acceleration moving forward here.

Mark Bassett: Sure, this is Mark Bassett. So I'll take a stab at answering that. I think, again, there are multiple tracks. So starting with, you know, there's a procurement track, and the logistics savings should start appearing sometime in the third quarter, I believe, and should realize those full savings through the end of 2025. The raw materials, there's a raw material track as well, and we're in the middle of the bid process for that, and should begin to see those later this year but won't see the full bid process.

Scott Fortune: Sure, this is Mark Bass, that's all I'll take a stab at answering that, and again, there's multiple tracks, so starting with the other's a procurement track.

Speaker Change: And the logistics savings we should start seeing sometime in the third quarter, I believe.

Scott Fortune: and should realize those full savings through the end of 2025.

Scott Fortune: the raw material.

Scott Fortune: There's a raw material track as well, which we're in the middle of the bid process for that, and should begin to see those later this year, but won't see the full benefit until probably the end of next year, because it takes time for those savings to roll through our income statement.

Mark Bassett: Those will benefit till probably the end of next year because it takes time for those savings to roll through our income statement. Then you've got a number of commercial initiatives, which again, will begin probably late this year or early next year. And, you know, but by the end of 2025, we expect to see the full 15 million beginning to hit our earnings by the beginning of 2026. So they'll ramp up beginning late this year and get the full 15 by the end of next year.

Scott Fortune: Then you've got a number of commercial initiatives, which again will begin probably late this year, early next year. But by the end of 2025, we expect to see the full...

Scott Fortune: 15 million beginning to hit our, in total, hitting our earnings by the beginning of 2026. So they'll ramp up beginning late this year and get the full 15 by the end of next year.

Mason Bennett: Got it? I appreciate that detail. And just trying to dig into the guidance here a little bit and more about the current North American agricultural market and the international side, but just wanted to get since obviously you brought down numbers pretty significantly. What's changed so significantly, you know, we saw kind of a weaker agricultural market from that standpoint, and just provide more color on the visibility around a fourth quarter that is your big quarter in kind of your sense, the constant level of the fourth quarter being kind of the There's a sense there. M.A.V.

Speaker Change: God, I appreciate that detail, and just trying to dig into the guidance here a little bit and more that the current North American mag market and the international five, but just wanted to get a sense.

Speaker Change: Obviously, you brought down numbers pretty significantly. What has changed so significantly? We saw kind of a weaker ag market from that standpoint. And just provide a little more color on the visibility around

Speaker Change: 4th quarter, that's your big quarter in kind of your sense that the constant level of the 4th quarter being kind of the strong quarter as normal or we can see push out potential for the 215, they're sent there.

Mason Bennett: Maybe Mason Bennett's on the line with us, and he runs our U.S. crop business. Mason, your thoughts on the crop sector, the U.S. crop sector, looking at the 2025 season and its relative...

Mason Bennett: Maybe Mason Bennett's on the line with us and he runs our U.S. crop business. Mason, your thoughts on the crop sector, U.S. crop sector, looking at the 2025 season and its relative...

Mason Bennett: Yes, Scott, thank you for the question. Mason Billings here, just to comment a little bit on your Q4 inquiry and then move into 25. Yes, we did, did look to lower it a little bit and Q4.

Scott Fortune: Stability.

Scott Fortune: Yes, Scott, thank you for the question, Mason Billinger.

Speaker Change: Just to comment a little bit on your Q4.

Speaker Change: Inquiry and then moving into 25.

Speaker Change: Yes, we did look to lower a little bit and Q4, we understand what's happening in the ag industry, we know that ag economy that.

Speaker Change: The challenges we're having, a lot of this comes back to customers trying to manage, again, manage down their channel, inventory, which has had a little bit of favorable outcome, but what we're seeing now Scott is...

Scott Fortune: These customers are beginning to manage their cash flow and look at just-in-time purchases. So, we believe that although we'll see...

Scott Fortune: City Purchase 3 P4, we will see customers actually probably moving to more just in time in Q1 of 25.

Speaker Change: to begin to bring purchases in for the growers. So that's really what's driven a lot of that. We don't think that it's down below share. It's more of a phasing of the business.

Mason Bennett: And you really quick followed up on that, that the farmer's health and that economy still remains very positive and strong. Are we starting to see his fracture, obviously with the commodity prices again, just kind of your sense of the farm's health overall?

Speaker Change: And you real quick follow up on that, that the farmers' health and economic still remains very positive and strong. Are we starting to see it? Bracks are obviously with the community prices down just kind of your sense of the farm's health, overall.

Mason Bennett: Yeah, no, that's a very good question. We're seeing a lot of movement around the ag economy and pricing. So unfortunately, we've seen commodity prices slide. Corn and soybeans have dropped pretty significantly over the last several months. We are beginning to see reports that net farm incomes are dropping somewhere near 25% versus last year, Scott. So that puts a lot of pressure on timing to buy for these customers.

Speaker Change: Yeah, no, that's a that's a very good question. We're seeing a lot of

Speaker Change: A lot of those are around their economy and pricing, so...

Speaker Change: Unfortunately, we've seen commodity prices slide. Corn and soybeans have dropped pretty significantly over the last several months.

Speaker Change: We are beginning to see reports that net farm incomes.

Scott Fortune: dropping somewhere near 25% versus last year, Scott. So that puts a lot of pressure on timing to buy for these customers.

Mason Bennett: We don't think that it's going to reduce the amount that they necessarily purchase, especially around some of our portfolio. It just comes back more to timing. But the farm economy and health are not good. It was referenced by Tim earlier. Many of our competitors, you can see what their outlook is, and we're seeing other parts of the industry, equipment, and other segments in the ag economy taking some pretty drastic moves as well around op-ex and expenses. So that's all a reflection of the ag economy and the drop that we've seen here over the last several months.

Scott Fortune: We don't think that it's going to reduce the amount that they necessarily purchase, especially

Scott Fortune: portfolio, it just comes back more to timing.

Tim Donnelly: It was referenced by Tim earlier, many of our competitors, you can see what their outlook is.

Speaker Change: And we're seeing other parts of the industry, equipment, and other segments in the ag economy taking some pretty drastic moves as well around op-ecs and expenses. So that's all a reflection of the ag economy and the drop that we've seen here over the last several months.

Tim Donnelly: Really appreciate that. And then, go ahead.

Tim Donnelly: Scott, Scott, this is Tim. Yeah, I know, it's how they work. We're getting up on you. The... Yeah, there were growers who had recently been before Congress seeking to have additional consideration in connection with the farm bill, looking at the profitability of that which growers are experiencing down to the decline in it. That being said, you're looking at some other factors here, yes, commodity prices have been a bit of a malaise, interest rates look like, I mean, ask me tomorrow, but somewhat more encouraging.

Tamiya: I really appreciate that. And then... Oh, it's got this one. This is Tamiya. I know, it's how they work. We're getting up on you. The...

Speaker Change: Yeah, there were growers had recently been before Congress seeking to have additional consideration connection with the Farm Bill, looking at the profitability of that growers are experiencing that as a decrement in it.

Tim Donnelly: So the cost of money is a thing that is on their minds as well. And then finally, I mean, I think Mason would agree with this, growers will still be growing, and they'll still be requiring inputs, but I think we can expect them to move to continue this sort of fiscal rectitude in their procurement practices in light of the last several quarters, and particularly with respect to the cost of money as it relates to commodity prices.

Speaker Change: That being said, you're looking at some other factors here.

Speaker Change: Yes, commodity prices have been a bit of a malays.

Speaker Change: Interest rates look like, I mean, ask me tomorrow, but somewhat more encouraging. So the cost of money is a thing that is on their minds as well. And then finally, and I think Mason would agree with this, growers will still be growing and they'll still be requiring inputs.

Speaker Change: But I think we can expect them to move, to continue this sort of fiscal rectitude in their procurement practices in light of the last trailing several quarters, particularly with respect to cost of money as it relates to commodity pricing.

Tim Donnelly: That's real helpful. I appreciate that. And if I could get one more in just kind of touch base on DACTOL and the recent EPA news, your sense of any, you know, litigation or any issues with that, kind of moving forward, kind of the risks there, and just want to get a sense for, do you have potential alternative products that can replace that dactyl? Just kind of what's in that pipeline from your product set and the green solution side, which we should put Unknown Speaker

Speaker Change: That's real helpful. I appreciate that. If I could get one more in, just kind of touch base on DACTOL and the recent EPA news. Your sense of any, you know, litigation or any issues?

Speaker Change: With that kind of moving forward kind of the risk there and just want to get things for, do you have potential Appjet products that can replace that tactile just kind of what's in the pipeline from your product set and the green solution side, which you have more focus on to drive profile.

Tim Donnelly: Yeah, I think I'm maybe answering it from back to front. Yeah, I, we will be placing an emphasis on expanding other product lines. I mean, the green solution products have a different effect than our biorational, I'm sorry, DAXol does in our biorational green solution products. Yes, to invest in and continue to expand green solutions is certainly an important initiative that we have, and we continue to drive it.

Speaker Change: Yeah, I think maybe answering it from back to front. Yeah, we will be placing an emphasis on expanding other product lines. I mean, the Green Solution products have a different...

Speaker Change: Effect in our bio-rational, I'm sorry, DAXL does in our bio-rational, green solution products.

Speaker Change: Yes, to invest in and continue to expand green solutions is certainly a priority.

Speaker Change: and an important initiative that we have and we continue to drive it with respect to...

Tim Donnelly: With respect to other issues that DAXol raises, you know, we are a very highly regulated industry, and we continue to work, I think constructively and in good faith, through it all with EPA. We have, like, our competitors; many products are always under registration review. Let me go back to the earliest, and the question is really one of risk and litigation and the like. We're not aware of any at present; obviously, the public relations environment is adverse to this compound at present. I will try.

Speaker Change: Other issues that DACS all raises, we are a very highly regulated industry and we continue to work.

Speaker Change: I think constructively and in good faith through it all with EPA, we have, like our competitors, many products are always under registration review.

Speaker Change: But let me go back to the earliest. And the question is really one of risk and litigation and the like.

Speaker Change: We're not aware of any at present. Obviously, the public relations environment is adverse to this compound presently. I will.

Tim Donnelly: Maybe take a minute, if you've got a minute, Scott, to give us sort of a sense of the context. I don't think that maybe the regulatory context or where the press has gone with this are necessarily giving fair coverage to how it works in the world of registration. So let me just frame it up a little bit; it might help to give a little context to it. I think maybe about 15 years ago.

Speaker Change: Maybe take a minute, if you've got a minute, Scott to...

Scott Fortune: Give a sort of a sense of the context. I don't think that the regulatory context or the...

Speaker Change: where the press has gone with this necessarily is giving fair coverage to how it works in the world of registration. So let me just frame it up a little bit, it might help to give a little context to it.

Tim Donnelly: EPA started focusing on endocrine functions in the body, and they established things like the endocrine disruptors screening program, EDSP, which they were requiring any number of AI's active ingredients that are registered products to undergo. That move forward, and it culminated in some more refined testing, the likes of which All right, the basis of what happened with the axle, and that test was a comparative thyroid essay, and it was really the agency looking at that test where they were testing laboratory rats, there was, there was.

Speaker Change: I think maybe about 15 years ago EPA started focusing on endocrine

Speaker Change: functioned in the body.

Speaker Change: and they established things like the Endocrine Disruptor Screening Program, EDSP, which...

Speaker Change: They were requiring any number of AI's active ingredients that is registered products to undergo. That move forward and it culminated in some more refined testing, the likes of which.

Speaker Change: are at the basis of what happened with Daxol and that test was a, it's a comparative thyroid assay.

Speaker Change: and it was really the agency looking at that test where they were they were testing laboratory rats there was there was

Tim Donnelly: Prenatal Fetal Rats, Neonates, and Mothers looking to see if there is any effect that Daxil might have on those rodents, and they found an effect. And by the way, that was a study they had requested that we do, and we did that study, and then looking at it, the agency would do what their scientists typically do. You know, there's no human testing that's done these days, right? That's legal, but it's not humane, so all of this is done with laboratory animals.

Speaker Change: Prenatal Seedle Rath, Neonate and Mothers, looking to see if there is any effect that Dexel might have on those rodents.

Speaker Change: And they found an effect. And by the way, that was a study they had requested that we do, and we did that study.

Speaker Change: and then looking at it, the agency...

Speaker Change: would do what their scientists.

Speaker Change: typically do, you know, there's no...

Speaker Change: Human testing that's done these days, right? That's legal. It's not humane. So all of this is done with laboratory animals, and what happened in this case, as they take what they perceive as an effect, and here it was only on the fetal rodents, and they extrapolate that.

Speaker Change: and they do kind of an inter-species translation and they say, well, there could be a risk of harm for...

Speaker Change: Human fetuses and in that vein then they would say either help us out with trying to figure a way to mitigate that which is why we ended up submitting a reduced label and or is there other data that could

Speaker Change: could give us enough information to, let's say, alleviate our uncertainty. And ultimately, after many months, we were not able to do so. So my point, Scott, here really is that

Tim Donnelly: So my point, Scott, here really is that, What we're looking at here is the agency doing making a preventative move, it's a prophylactic kind of a thing to say, let's stop the train on this product because the data that we have says that we believe that there could be this effect. We don't looking at it, you know, from the company's point of view and from a registrant, we don't have more data, it would take probably years to develop data from the other end of things to say I found a person with a certain condition and I can trace it all the way back to an exposure in utero, my, my point being that we're not looking here at, there's been no report of actual injury to anyone.

Scott Fortune: What we're looking at here is...

Scott Fortune: is the agency doing, making a preventative move, it's a, it's a prophylactic

Scott Fortune: kind of a thing to say let's stop the train on this product because

Scott Fortune: The data that we have says that we believe that there could be this effect.

Scott Fortune: We don't.

Scott Fortune: Looking at it, you know, from the company's point of view.

Speaker Change: and from a registrant, we don't have more data. It would take probably years to develop data.

Scott Fortune: from the other end of things to say, I found a person with a certain condition and I can trace it all the way back to an exposure in utero.

Scott Fortune: My point being that

Scott Fortune: We're not looking here at...

Speaker Change: There's been no report of actual injury to anyone. There's been no report of actual harm. It's the EPA taking measures that they believe are important to ensuring that there's safety in a preventive way. So that's...

Speaker Change: Kind of the context. I just I'm not sure that's coming out and many of the things that I have read But if that's of any use to you, then I thought maybe I would at least volunteer that

Tim Donnelly: No, it's very helpful. It's a great context to appreciate how your friend did. That's very helpful. I will jump. That's it for me. I'll jump back in the queue. Thanks.

Speaker Change: That's very helpful. It's a great context and I appreciate how you affirmed it. That's very helpful. I will jump. That's it for me. I'll jump back in the queue. Thanks.

Operator: Thank you. Our next question comes from the line of Ben Cleve with Lake Street Capital Market. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Ben Cleve with Lake Street Capital Market. Please proceed with your question.

Ben Cleve: All right, thanks for taking my questions. My first one is regarding the 2024 guidance and the outlook for 2026 once all your initiatives have been implemented. Your current guidance implies that EBITDA margin midpoint in the like high seven range, you know, really ratcheted down from where you were before, but your 2026 EBITDA margin target of 15% remains unchanged from a few months ago. I'm wondering if you can help us square that, you know, the clearly conditions today are tough, but the transformation targets that you have from an expense perspective, you know, would help but not get anywhere close to 15% So can you help us understand why you feel comfortable still having 15% EBITDA margins two years from now as your target given all of the dynamics underway right now?

Ben Cleve: All right, thanks for taking my questions. My first one is regarding the 2024 guidance and the outlook for 2026 once all your initiatives have been implemented. Your current guidance implies that EBITDA margin midpoint in the like high seven range, you know, really ratcheted down from where you were before, but your 2026 EBITDA margin target of 15% remains unchanged from a few months ago.

Speaker Change: I'm wondering if you can help us square that. You know, clearly conditions today are tough, but the transformation targets that you have from an expense perspective...

Speaker Change: would help, but not get anywhere close to 15% EBITDA margins 24 months from now. So can you help us understand why you feel comfortable still having 15% EBITDA margins two years from now as your target, given all of the dynamics underway right now?

Tim Donnelly: Yeah, I can certainly be at the, this is Tim, at the top end and let Mark fill in. The factors that would be contributing to an improvement in an EBITDA margin wouldn't just be efficiency; it would also be recovery vis-a-vis consistency and sales of higher-margin products over a period of time. I think we're looking right now at depressed sales over the 12-month trailing period, and we would expect that 2025 is not going to be necessarily subject to the same vagaries that we have currently undergone.

Speaker Change: Yeah, I can certainly be at the, this is Tim, at the...

Speaker Change: at the top end and let Mark fill in.

Mark: The factors that would be contributing to an improvement in an EBITDA margin wouldn't just be efficiency, it would also be recovery vis-a-vis consistency and sales of higher margin products.

Speaker Change: Over a period of time. I think we're looking right now at

Speaker Change: at Depressed Sales over the 12-month trailing period.

Speaker Change: and we would expect that 2025 is not going to be...

Speaker Change: and necessarily subject to the same vagaries that we have currently undergone.

Tim Donnelly: So if we take an improved top-line performance and conjoin it with an improved number of efficiencies that we can bring to bear, as Mark has described, those things taken together should conspire to produce an EBITDA margin that is in that 15% range that we're seeking. Admittedly, what you're looking at now does not appear to be representative of what could be done in the future, but the whole purpose of the transformation was – if we look at what has been more of the historical norm on an EBITDA margin, surely it is feasible that with a more efficient enterprise, even with stable sales of well-margined products, we could arrive at that 15% on a full-year basis in 2026.

Speaker Change: So if we take an improved top line performance

Speaker Change: and conjoined it with and improved.

Mark: Number of efficiencies that we can bring to bear, as Mark has described, those things taken together should conspire to produce an EBITDA margin that is in that 15% range as we're seeking admittedly what you're looking at now does not appear to be.

Speaker Change: representative of what could be done in the future.

Mark: but the whole purpose of the transformation was if we look at what has been more of a historical norm

Mark: on an EBITDA margin.

Speaker Change: Shirley, it is feasible that with a more efficient enterprise, even with stable sales of margin, well margin products, we could arrive at that 15% at a full year basis in 2026.

Mark Bassett: I would just add to that, on top of improving conditions, I think these are, but I would say we're very comfortable with these numbers, and we feel like there's an upside to all of the numbers that we've talked about, and I think that there are a lot of benefits sometimes that are hard to quantify. For example, with a much simpler, more focused organization and better allocation of resources, there's a lot of potential value there that you can unleash at the hard to quantify this stage of the transformation.

Speaker Change: I would just add to that, that on top of improving conditions, I think these are, what I would say, we're very comfortable with these numbers and we feel like there's...

Speaker Change: upside to all of the numbers that we've talked about. And I think there's a lot of benefits sometimes that are hard to quantify. For example, with a much simpler, more focused organization and better allocation of resources, you know,

Speaker Change: There's a lot of potential value there that you can unleash that's hard to quantify at this stage of the transformation.

Speaker Change: So, you know, I personally believe 15 million is a number I'm very comfortable with, but I think there's a lot of upside to that number as well as we get into this and continue to build on it and to develop it. I think also we talked about some initiatives in the liquidity section that are also recurring benefits.

Speaker Change: You know, if we do continue down the path of ramping down spending on SimPASS.

Speaker Change: That's quite a bit of money as well that we've been spending every year that if we do slow that down, we'll drop to the bottom line as well. Again, the S&OP process, I think, will unleash. We've had a number of lost sales over the last handful of years because of

Speaker Change: You know a process that was not as far advanced as it could be, and so I think there's a lot of secondary and tertiary benefits that we haven't captured, that we will capture as this transformation continues.

Tim Donnelly: Yeah, and it's also, this is a very, I'm into kind of appreciate, and I know that when calculating return on investment, we all would like to be as definitive as possible, what we are doing effectively now is this is a living and breathing business organism. We're kind of, We're working this thing up kind of like T.S. Eliot might have in many senses. It's the background, it's the foreground, and the impact of those things will be revealing a picture that is better than it was, that has greater clarity, that has greater strength, I think, going forward.

Speaker Change: Yeah, and it's also, this is a very...

Speaker Change: I'm into good appreciate and I know that when calculating return on investment we all would like

Speaker Change: as to be as definitive as possible. What we are doing effectively now is this is a living and breathing, business organism, we're kind of...

Speaker Change: We're working this thing up kind of like T.S.

Speaker Change: It's the background, it's the foreground, and the impact of those things.

Speaker Change: We'll be revealing a picture that is better than it was, that has greater clarity, that has greater strength, I think, going forward.

Ben Cleve: Got it. That's helpful. You are more well read than me. I'll look up what that TSA reference was.

Speaker Change: Got it. That's helpful. You are more well-read than me. I'll look up what that TS Eliot reference was.

Ben Cleve: And all that makes sense. I certainly understand kind of how dynamic the environment is right now and how many moving pieces you guys are kind of working through at the same time. So I appreciate the context there.

Speaker Change: All that makes sense and I certainly understand how dynamic the environment is right now and how many moving pieces you guys are kind of working through at the same time. So I appreciate the context there.

Mark Bassett: One question I have on your legacy portfolio and green solutions. It sounds like from all the comments you've made today that you all remain quite enthusiastic about that opportunity. Can you talk about kind of what transformation specifically would take place within green solutions in any material way? Or is that business going to kind of continue on, as you know, as it has?

Speaker Change: One question I have on your legacy portfolio and grand solutions.

Speaker Change: It sounds like from all the comments you've made today that you all remain quite enthusiastic about...

Mark Bassett: that opportunity. Can you talk about kind of what transformations specifically would take place within Green Solutions in any material way, or is that business gonna kind of continue on as it has?

Mark Bassett: I'll take a stab at it. I think, you know, the company has had a lot of success with green solutions. I think this is one of those areas where, you know, again, the transformation has an opportunity to allow us to be even more successful. You know, with us aligning into two global businesses, a crop and non-crop business, I think we'll be able to develop very business- and customer-centric strategies to figure out ways to have a more coherent growth strategy than we have historically, very targeted allocation of resources, very targeted allocation of capital, and R&D strategies that will allow us to accelerate the growth of that portfolio.

Speaker Change: Well, I'll take a stab at it. I think, you know, the company has had a lot of success in green solutions. I think this is one of those areas where, you know, again, the transformation I think has an opportunity.

Speaker Change: to allow us to be even more successful. You know, with us aligning into two global businesses across a non-profit business, I think we'll be able to develop very business customer centric strategies.

figure out ways to have a more coherent growth strategy.

Speaker Change: than we have historically.

Mark Bassett: Very targeted allocation of resources, very targeted allocation of capital, people, R&D strategies.

Mark Bassett: Even more so than we've had thus far. So, I think that's another area where the transformation can really help us focus our resources and drive growth faster than we have in the past. And then, I think there is one more.

Mark Bassett: Wittler.

Mark Bassett: will allow us to accelerate the growth of that portfolio even more so than we've had thus far. So I think that's another area where the transformation can really help us focus our resources and drive growth faster than we have in the past.

Mason Bennett: Unknown Attendee, Brandon Rogers, Don Gualdoni, David Johnson, William Pinsent, Don Gualdoni, working on state registration, so that we can expand the breadth of the market that we are serving with that. These products would be for plant health purposes, primarily, these are also things that would improve soil health insofar as the microbiome is concerned by the root mass. One of the reasons for our level of enthusiasm with the, Portfolio is that there is this continued evolving emphasis, probably being led by the EU in Digital Farming and Regenerative Ag, where the focus is on how to enhance the value of your most prized asset as a grower, that is to say, your soil, how to sustain it, even in some places like Germany, they are, the authorities are requiring growers to test the level of nitrogen in the soil before applying any kind of synthetic nitrogen fertilizer.

Speaker Change: and then, I think, one other point is, and with respect to some of our, like, bacteria-based fermented products, then we are in the midst of.

Mason Bennett: working on state registrations.

Mason Bennett: so that we can expand the breadth of the market that we are serving.

Mason Bennett: with that, these products would be.

Mason Bennett: for plant health purposes, primarily these are also things that would improve soil health and so far as the microbiome is concerned by the root mass. And you know...

Mason Bennett: One of the reasons for our level of enthusiasm with the

Mason Bennett: Portfolio, is that there is this continued evolving emphasis, probably being led by the EU in...

Mason Bennett: Digital Farming and Regenerative Ag, these were the focuses is on how to...

Mason Bennett: How to enhance the value of your most prized asset as a grower, that is to say, your soil, how to sustain it, even in some places like Germany.

Mason Bennett: They are the authorities are requiring growers to test the level of nitrogen in the soil before applying any kind of synthetic nitrogen fertilizer.

Mason Bennett: And the products that we have would be helping with phosphorus, nitrogen, and potassium uptake, for example. And so this fits well, this product line fits well into, let's say, a green sort of direction that agriculture is taking globally.

Mason Bennett: and the products that we have would be helping with.

Mason Bennett: Phosphorus, nitrogen, potassium, uptake, for example, and so this fits well, this product line fits well into, let's say, a green sort of direction that agriculture is taking globally.

Mason Bennett: If I may comment on North America as well, Ben, just specifically, what we've done with our sales organization in the US, and we're evolving in Canada as well, is our green solutions are one of our key pillars of strategy within our sales organization. There's a big focus there because it's one of our fastest growing segments, and the profits and margins are good in this space for us. We're working with external partners that have previously been announced, folks like Newly, and we're building a franchise around seed inclusion products, but we're also looking internally at development projects and what we can bring to the table to continue to grow our portfolio.

Mason Bennett: If I may come in on North America as well, then just specifically.

Mason Bennett: What we've done with our self-organization in the U.S. and we're evolving in Canada as well as

Mason Bennett: Our green solutions is one of our key pillars of strategy within our sales organization.

Mason Bennett: There's a big focus there because it's one of our fastest-growing segments. The profits and margins are good in this space for us. We're working with external partners that previously had been announced.

Mason Bennett: I'll focus like Newly and we're building a franchise.

Mason Bennett: around seed inclusion products.

Mason Bennett: But we're also looking internally at development projects.

Mason Bennett: and what we can bring to the table to continue to grow a portfolio.

Speaker Change: And I just want to note, I think it may have been mentioned before, but AMVAC was named a top 10 supplier of biologicals.

Mason Bennett: in the U.S. by CropLife. So we're proud of what we have done to this point, but we're gonna focus.

Mason Bennett: We're going to put energy in effort, we're going to specialize in areas to ensure that we continue to build on the growth that we have up to this point. So that goes back to what Mark referenced.

Speaker Change: as accelerating our transformation and focusing on...

Ben Cleve: Got it. Got it. All helpful comments. One last one for me, and I'll get back in the queue. You commented on your target for inventory to fall from 42% at the end of this quarter, well, at the end of the second quarter, excuse me, down to 34% at the end of the year. On a high level, working capital in general, I'm wondering if you can kind of lay out any expectations for working capital that you're going to be able to rip out of the balance sheet here from the levels ending the second quarter through the end of

Speaker Change: specific product strategies. So that's what we're doing in that space.

Ben Cleve: All helpful comments. One last one for me and I'll get back in queue. You commented on your target for inventory to fall from 42% at the end of this quarter, well, at the end of the second quarter, excuse me.

Ben Cleve: down to 34% ending the year on a high level, you know, working capital in general. I'm wondering if you can kind of lay out any expectations for working capital that you're going to be able to rip out of the balance sheet here from the levels ending the second quarter through the end of this calendar year.

David Johnson: Yeah, I think it's typical of the company's annual cycle that we see working capital expand during the first two or three quarters of the year; the expansion usually slows in the third quarter and then comes down in the fourth. So we are expecting to see working capital come down by $70 to $80 million over the balance of the year.

David Johnson: Yeah, I think, you know, it's typical of the company's annual cycle.

David Johnson: that we see working capital expand.

David Johnson: During the first two or three quarters of the year, the expansion usually slows in the third quarter, and then comes down in the fourth. So we are expecting to see working capital come down 70 to 80 million over the next, over the balance of the year.

Ben Cleve: Very good. Um, all right, that's helpful. Thanks for taking my questions. Best of luck with all of these ongoing initiatives here over the next couple months, and I'll get back to you.

Ben Cleve: Very good. All right, that's helpful. Thanks for taking my questions. Best of luck with all of these ongoing initiatives here over the next couple months, and I'll get back in queue.

Operator: Thank you, our next question comes from a line from Wayne Pinsent with Gabby Elie Fun. Please proceed with your question.

Speaker Change: Thank you.

Operator: Thank you, our next question comes from a line of Wayne Pinsett with Gabrielle funds. Please proceed with your questions.

Wayne Pinsent: Hi, thanks for taking my question. Yeah, Wayne Pinsent with Good Belly Funds. I just wanted to ask about Dactyl. Do you know if there's product still in the channel and the risk of that product getting put back to you? And is that any component of the significantly lowered guide?

Wayne Pinsent: Hi, thanks for taking my question. Yeah, Wayne Pinsent with Good Belly Funds.

Wayne Pinsent: I just wanted to ask on the Dactyl, do you know if there's product still in the channel and risk of that product getting put back to you and is that any component of the significantly lowered guide?

Tim Donnelly: There is there is a product in the channel. There's not much of it.

Speaker Change: There is product in the channel, there's not much, and one of the reasons for that was we had

Tim Donnelly: And one of the reasons for that was we had, I mean, we're not sure how much, but I think that the fact is we were only in the market for a short time. It was unavailable, then it was, and then we suspended the sales. Subsequently, so is that included in our numbers going forward? To the extent, I think, from an accounting point of view, there was any recall or take back of material, that's a thing that would be a commercial transaction and would typically be accounted for in the period in which it occurred. Is that how it works, David? You know, there's no decision at this point. So... Yeah, that would be accounted for whenever. Yeah, so it's a little indefinite at this point.

Tim Donnelly: I mean we're not sure how much but I think the fact is we were only in the market for a short time, it was unavailable and it was and then we suspended the sales.

David Johnson: Subsequently, so is that included in our numbers going forward to the extent I think from an accounting point of view there was any

Tim Donnelly: Recall or take back of material. That's a thing that would be a commercial subject and would typically be Accounted for in the in a period in which it occurred as how it works David, you know There's no decision at this point. So yeah

David Johnson: Yeah, that would be accounted whenever. Yeah, so it's a little indeterminate at this point

Wayne Pinsent: Okay, thanks. And then you mentioned the timing of those Q4 sales, in the drop and guide with, you know, farmers going to just in time. What's the confidence level that those are just moving into 2025 and not legal sales?

Speaker Change: Okay, thanks. And then you mentioned on the timing of those Q4 sales in the drop and guide with, you know, farmers going to just in time. What's the confidence level that those are just moving into 2025 and not law sales?

Mason Bennett: Mason, you want to handle that? Yeah, sure.

Mason Bennett: Yeah, I sure will. So first of all, the distributors are the customers that will be purchasing. So I first want to say there's a normal purchase pattern that our distributor customers will make around our portfolio. So that's going to happen.

Mason Bennett: Mason, you want to handle that?

Mason Bennett: Yeah, sure we'll. So first of all, the distributors are the customers that'll be purchasing. So first want to say there's a normal purchase pattern that our distributor customers.

Mason Bennett: We just don't see that these distributor customers are going to pull in excess product, especially after they got into the overstocking that we've seen the last couple of two or three years. So they're going to be very, very conservative in their approach and what they bring in. So we see normal in that space.

Speaker Change: will make a round up portfolio, so that's going to happen.

Mason Bennett: We just don't say that these distributed customers are on a...

Mason Bennett: for William XS product, especially after they got into.

Mason Bennett: The overstocking that we've seen the last couple of two or three years

Mason Bennett: So they're going to be very, very conservative in their approach and what they bring in, so we see, we see normal in that space.

Mason Bennett: As far as the farmers and what they do, they're still at their purchase timing. From a confidence standpoint, it's going to happen. There may be consolidation, it may look different, but growers still have to grow a crop, and they have to protect their crops for crop input. So, depending on what the offers are and the opportunities, growers will continue to purchase. It just means they may not be flush with cash as they have in the past due to net farm income being down, but they will have to grow a crop, and that farm acre will be farmed. So there will be a need for the products and many of our products that we utilize to get the crop started. Yes, we're confident that that will take place.

Mason Bennett: As far as the farmers and what they do, their skill, their purchase timing.

Mason Bennett: from a confidence standpoint, it's going to happen.

Mason Bennett: There may be consolidation, it may look different, but growers still have to grow a crop and they have to protect their crops with crop input.

Mason Bennett: We see that, depending on what the offers are and the opportunities, growers will continue to purchase. It just means they may not be flush with cash.

Mason Bennett: as they have in the past due to net farm income being down.

Mason Bennett: But they will have to grow a crop, and that farm acre will be...

Mason Bennett: will be farms, so there will be a need for the products and many of our products that we utilize to get the crop started. So, yes, we're confident that we'll take place.

Wayne Pinsent: Okay, thanks. And then, just finally, it appears that the press release hasn't gone out yet. Just wondering when we'll see the full financials, because it was a little unusual.

David Johnson: and we We're trying to get to a point of filing today. It may actually slip until tomorrow. But the financials are pretty much ready to go. I think you're talking about the press release. The press release has been released, but I guess it may arrive on the wire very shortly. Okay, okay. Thank you.

Speaker Change: Because it was a little unusual.

David Johnson: We

David Johnson: We're trying to get to a point of filing today, it may actually stop until tomorrow, but the financials are pretty much ready to go I think it's all about the press release, it was released, but I guess it may

Operator: Okay, okay. Thank you very much. You're welcome. Thank you. Our next question comes from Paul Berliner with Levi Kapsch.

Operator: may arrive on the wire very shortly.

Operator: Okay, okay. Thank you very much.

Operator: Thank you. Our next question comes from the line of Paul Berliner with Levi Capital. Please proceed with your question, for clarification.

Operator: You're welcome.

Paul Berliner: Thank you.

Speaker Change: Our next question comes from the line of Paul Berliner with Levite Capital.

Operator: Please proceed with your question.

Paul Berliner: A clarification with regard to the press release and not being out yet, it's not on the website either. So you mentioned in the slide show that the lenders have put some sort of restriction on dividends and buybacks. Does that affect the current 12 cent annual dividend?

Paul Berliner: Yes, it will impact me going forward.

Paul Berliner: Yeah.

Paul Berliner: Yes it will impact going forward. Right, so the... It's just three million dollars annually, twelve cents.

David Johnson: It's true. And also, what we would be doing in conjunction with the quarterly consideration is clearing the notion of making a dividend at the time with our lenders, which was something we didn't have to do before, but we will have to do that going forward. Yes, it's part of the overall package, but yeah, the sizing is correct.

David Johnson: It's true, and also what we would be doing in conjunction with the quarterly consideration is.

David Johnson: is clearing the notion of making a dividend at the time with our lenders, which was something we didn't have to do before, but we will have to do that going forward. Yes, it's part of the overall package, but yeah, you got the sizing as correct, yes. But thank you.

Operator: Thank you. As a reminder, please, to ask a question, please press star one at this time. Our next question comes from the line of Andrew Lester, a private investor. Please proceed with your question.

Speaker Change: You are?

Operator: Thank you, as a reminder, please to ask a question, please press star 1 at this time.

Operator: Our next question comes from the line of Andrew Lester, a private investor. Please proceed with your question.

Andrew Lester: Hi, thank you for taking the question. I want to start off by sort of thanking and applauding the board for taking the necessary steps to change the direction of the company and hoping to get things under control. I'm not an attorney, and I don't understand DACTL all that well, but I did do some Google searches, and I just want to make sure I understand. The company started producing this in 2001. Is that correct?

Andrew Lester: Hi, thank you for taking the question. I want to start off by sort of thanking and applauding the board for taking necessary steps to

Andrew Lester: direction of the company and hoping to get things under control.

Andrew Lester: and Attorney, and I don't understand Dactyl all that well, but I did do some Google searches, and I just want to make sure I understand. The company started producing this in 2001, is that correct?

Unknown Attendee: Unknown Attendee Well, selling it, selling it.

Unknown Attendee: [inaudible]

Speaker Change: And in 2007, there was supposedly a private settlement where the company paid $300,000.

Speaker Change: Dolphoods, which again there's no greater disclosure when I try to search for it, but I assume that there was sort of an awareness of a potential issue with this product and necessitate a settlement.

Speaker Change: That was a different product, that was a DBCP, DBCP was used in banana plantations in various places including in Hawaii and its use was discontinued in the early 1980s, but yeah that's how that relates.

Speaker Change: Okay, so there was no, there's no, although the government, I mean the wording of the government statement seems somewhat severe, but there was no specific issues or problems before separate and distinct from their studies of this. Is that correct?

Speaker Change: That's correct. This is a move by the agency to take sort of an interdiction following a scientific studies. It's not in response to

Speaker Change: Harm that has been identified to persons or property.

Speaker Change: Okay, that's comforting. Thank you for that.

Unknown Attendee: Also, when you follow the track of the company's announcements for the last couple of years, and I've been a shareholder for the last couple of years. I mean, this sort of an uninterrupted series of...

Speaker Change: earnings and EBITDA reductions and revisions and I I'm pretty familiar with investing commodities and I understand the nature of the cycles the nature of what happens in the marketplace but separate and distinct from the marketplace we have like downward revisions and never upward revisions

Speaker Change: So, at this point, you know,

Speaker Change: Addressing the industry in its current state.

Speaker Change: Do these numbers incorporate a base case going forward, or is there some... Because I can only assume there was optimism in the past, and there was nothing in the prior quarter that would lead somebody to believe that a revision of this order of magnitude could potentially happen.

Speaker Change: I think we have been

Speaker Change: very punctilious about

Unknown Attendee: Making...

Speaker Change: Giving targets in the future based upon what we believe to be the then current conditions.

Unknown Attendee: Oh.

Speaker Change: I know you've been a shareholder for some time and you're aware that there have been exigencies that have arisen subsequent to the establishment of our targets that have affected them.

Speaker Change: But I also can tell you that the targets that we have posited today are targets that are, we believe, achievable, conservative, and that do take stock of not only conditions as we see them now.

Speaker Change: But conditions for the remainder of the year and also taken to account what we understand to be the actual demand.

Speaker Change: from our people who are in the trenches selling the products, whether they be crop, non-crop, or international. So that's the rubric that we're following in setting targets. And to the extent that we find in the future that...

Speaker Change: Our targets have been set at a level that's far too low based upon things that we're fairly certain are going to happen. We would enjoy raising up estimates.

Speaker Change: Yes. Okay.

Speaker Change: Previous statements regarding the company's assumption

Speaker Change: of death or use of it, but really been sort of dislocations in the marketplace whereby the company used that to sort of smooth the manufacturing of product and expected everything to return to normal and as they would sell that product they would repeat the death and essentially go back to their status as either very low debt or debt free type of company.

Speaker Change: So it seems that something might have changed.

Speaker Change: between the relationship with the lenders for them to require, I guess, pre-approval before the announcement or payment of a dividend. Does that circumstance exist until all their debt is repaid or is there something more significant that's changed?

Speaker Change: It's not...

Speaker Change: The terms of the amended agreement are not.

Speaker Change: based upon some sort of a concern that

Speaker Change: or our requirement that we repay the debt.

Speaker Change: in its fullness over some specific period of time. That is our ability to use the funds, the revolvers, the letters of credit and the like, our unchange. It's from our point of view.

Speaker Change: What you would expect from a lender is if you seek to have

Speaker Change: Relief in conjunction with financial covenants and specifically...

Speaker Change: Those relate to...

Speaker Change: Ratios and the Ratios of maximum leverage ratio becomes tighter, the risk for the lender is higher, and what they will tend to do then is to cover the additional risk that they're incurring by increasing the interest matrix to a degree at 4x on above.

Speaker Change: and also in return for there, let's say, obeisances in allowing us to...

Speaker Change: Take the put more into the non-recurring basket to allow for transformation charges. That's a use of cash, cash being our greatest security, if you will, in this case. And finally,

Speaker Change: With respect to that, then they would say, let's look at, then your business at your...

Unknown Attendee: Your

Speaker Change: Financial Performance on an Ongoing Basis.

Speaker Change: before we allocate.

Speaker Change: Funds to other things that are outside the purview of direct investments in the company. And I think that's where those three elements would arise, otherwise, the dividend, the share repurchase and the acquisitions.

Speaker Change: Thank you for explaining that.

Unknown Attendee: .. .. .. .. ...

Speaker Change: You're welcome.

Unknown Attendee: And in 2007, it was supposedly a private settlement that the company paid $300,000 to Adolfoods, which again, there was no greater disclosure when I tried to search for it. But I assumed that there was sort of an awareness of a potential issue with this product and necessitated a settlement. It was sort of Yeah, that was a different product. That was a DBCP. DBCP was used in banana plantations in various places, including Hawaii, and its use was discontinued in the early 1980s.

Unknown Attendee: But yeah, that's how that relates. Okay, so there was no, there's no, although the government, I mean, the wording of the government statement seems somewhat severe, but there were no specific issues or problems before separate and distinct from their studies of this. Is that correct?

Unknown Attendee: Okay.

Unknown Attendee: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Tim for closing comments.

Unknown Attendee: That's correct. This is a move by the agency to take sort of an interdiction following scientific studies. It's not in response to harm that has been identified to persons or property. Okay. That's it.

Unknown Attendee: Okay, that's comforting. Thank you for that.

Andrew Lester: Also, when you follow the track of the company's announcements for the last couple of years, and I've been a shareholder for the last couple of years, I mean, there's sort of an uninterrupted series of earnings and EBITDA reductions and revisions. And I'm pretty familiar with investing commodities, and I understand the nature of the cycles, and I understand the nature of what happens in the marketplace. But separate and distinct from the marketplace, we have downward revisions and never upward revisions.

Andrew Lester: Thank you for explaining that.

Andrew Lester: So at this point, you know, addressing the industry in its current state, do these numbers incorporate a base case going forward? Or is this because I can only assume there was optimism in the past, and there was nothing in the prior quarter that would lead somebody to believe that a revision of this order of magnitude could potentially happen?

Tim Donnelly: I think we have been very punctilious about making giving targets for the future based upon what we believe to be the then current conditions. And I know you've been a shareholder for some time, and you're aware that there have been exigencies that have arisen subsequent to the establishment of our targets that have affected us. But I can also tell you that the targets that we have posited today are targets that are, we believe, achievable, and conservative, and that take stock of not only conditions as we see them now but conditions for the remainder of the year.

Tim Donnelly: Thank you everyone for joining the call today. Thank you also for your interest and support in American Vanguard Corporation. Again, we are

Tim Donnelly: And also take into account what we understand to be the actual demand from our people who are in the trenches selling the products, whether they be crop, non-crop, or international. So that's the rubric that we're following in setting targets. And, to the extent that we find in the future that our targets have been set at a level that's far too low, based upon things that we're fairly certain are going to happen, we would enjoy raising estimates. Yeah.

Operator: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Tim for closing comments.

Andrew Lester: In the past, previous statements regarding the company's assumption of debt or use of it would really have been sort of dislocations in the marketplace whereby the company used debt to sort of smooth the manufacturing of the product and expected everything to return to normal. And as they would sell that product, they would repeat the debt and essentially go back to their status as either a very low debt or debt-free type of company. So it seems that something might have changed in the relationship with the lenders for them to require, I guess, pre-approval before the announcement or payment of a dividend. Is that until, does that circumstance exist until all their debt is repaid, or is there something more significant that's changed?

Tim Donnelly: The terms of the amended agreement are not based upon some sort of concern that or our requirements that we repay the debt in its fullness over some specific period of time. That is, our ability to use the funds, the revolvers, the letters of credit, and the like are unchanged.

Tim Donnelly: Thank you everyone for joining the call today. Thank you also for your interest and support in American Vanguard Corporation. Again, we are committed to maximizing investor value in the company, and we look forward to continuing to do so. We thank you for the privilege of being able to do so and look forward to speaking with you all very soon. Take care. This concludes today's conference call. Disconnect your lines at this time.

Tim Donnelly: From our point of view, it's... What you would expect from a lender is if you seek to have relief in conjunction with financial covenants, and specifically those related to ratios, and the maximum leverage ratio becomes tighter, the risk for the lender is higher. And what they will tend to do then is to cover the additional risk that they're incurring by increasing the interest matrix up to a degree at 4x and above, and also, in return for their, let's say, obeisance in allowing us to put more into the nonrecurring basket to allow for transformation charges. That's a use of cash.

Tim Donnelly: Cash being their greatest security, if you will, in this case. And and and finally, with respect to that, then they would say, let's look at your business and your financial performance on an ongoing basis before we allocate funds to other things that are sort of outside the purview of direct investments in the company, and I think that's where those three elements would arise otherwise: the dividend, the share repurchase, and the acquisitions Thank you for...

Tim Donnelly: committed to...

Tim Donnelly: maximizing investor value.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

unknown: [inaudible]

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

unknown: www.americanvanguard.com

unknown: [inaudible]

unknown: [inaudible]

David Johnson: Death ended at $211 million on June 30, 2024. That was slightly lower than our internal target, so that was a pleasing result following a lot of focus across the entire company. Furthermore, it is interesting to note that in the first two weeks of July, we collected more than $40 million from our U.S. customers and additional funds through our international subsidiaries. Accordingly, we were able to drive debt down at the start of Q3 before starting to borrow again as the annual cycle continued. That sums up my detailed comments, and with that, I'll turn the call back to Tim. Thank you, David.

Tim Donnelly: And domestic total sales of 5%, outperforming the first half of 2023. In addition, we recorded double-digit sales increases with our Green Solutions portfolio, led by strong demand in Central America. Furthermore, and as David will report while down in the second quarter, growth profit for the first half of the year was about equal to that of 2023. That said, the current management team and the board view our overall results as unacceptable.

Tim Donnelly: And what happened in this case is what they usually do is they take what they perceive as an effect. And here it was only on the fetal rodents, and they extrapolated that, and they did kind of an interspecies translation, and then they say, well, there could be a risk of harm for.. www.thevenusproject.com could give us enough information to, let's say, alleviate our uncertainty, and ultimately, after many months, we were not able to do so.

Mason Bennett: We understand what's happening in the ag industry. We know that the ag economy and the challenges we're having come about because customers trying to manage again, mainly down there, channel inventory, which has had a little bit of a favorable outcome, but what we're seeing now, Scott, is that these customers are beginning to manage their cash flow and look at just-in-time purchases. So we believe that although we'll see city purchases through Q4, we will see customers actually probably moving to more just in time in Q1 of 25 to begin to bring purchases in for the growers. So that's really what's driven a lot of that. We don't think that it's down; we'll leave the share; it's more of a phased business.

Tim Donnelly: There's been no report of actual harm, and it's the EPA taking measures that they believe are important to ensuring that there's safety in a preventive way. So that's kind of the context; I'm not sure what's coming out and many of the things that I have read, but if that's of any use to you, then I thought maybe I would at least volunteer that.

Mason Bennett: And I just want to note, I think it may have been mentioned before, but Impact was named a top 10 supplier of biologicals in the U.S. by CropLife. So we're proud of what we have done to this point, but we're going to focus, we're going to put in the energy and effort, and we're going to specialize in areas to ensure that we continue to build on the growth that we have achieved up to this point. So that goes back to what Mark referenced as accelerating our transformation and focusing on specific product strategies, but that's what we're doing in that space.

Tim Donnelly: So we, you know, I personally believe 15s and millions of a number I'm very comfortable with, but I think there's a lot of upside to that number as well as we get into this and continue to build on it and to develop it. I think also, as we talked about some initiatives in the liquidity section, there are also recurring benefits. So, you know, if we do continue down the path of ramping down, spending on some paths, you know, that's quite a bit of money as well that we've been spending every year that if we do slow that down, we'll drop to the bottom line as well.

Tim Donnelly: Again, the S&OP process, I think, will unleash lost sales. We've had a number of lost sales over the last handful of years because of, you know, a process that was not as far advanced as it could be, and so I think there's a lot of secondary and tertiary benefits that we haven't captured that we will capture as this transformation continues.