Q4 2024 American Vanguard Corp Earnings Call
[inaudible]
Greetings and welcome to the American Vanguard 4th Quarter Earnings Review Conference
At this time, all participants are on a listen-only mode, and a question and answer session to follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note, this conference is being recorded.
On the note, turn the conference over to your host, Mr. Anthony Young, Director and Investor Relations.
Sir, the floor is yours.
Anthony Young: Thank you, operator. Good morning and welcome to American Vanguard's fourth quarter and full year of 2024 earnings review.
Speaker Change: Our prepared remarks will be led by that K Chief Executive Officer and David Johnson, Chief Financial Officer.
Anthony Young: Tim Donnelly, CIO, and General Counsel is also available to answer questions.
Anthony Young: We have prepared a presentation slides which we will reference during this call. These slides are posted on the Invest Relations section of the American Vanguard website.
Anthony Young: Let's begin this call with our four looking cautionary reminder. During this call, we may discuss four looking information.
Anthony Young: All of four looking statements are estimates by the company's management and are subject to various risks and uncertainties that may cause actual results differing.
Anthony Young: Such factors included, weather conditions, changes in regulatory policy and other risks as detailed on the company's SEC reports and filings.
Anthony Young: All four of the statements represent the company's judgment as the date of this release, and such information will not necessarily be updated by the company [inaudible]
Anthony Young: Before mentioning what to call, I would like to note the numbers that are being presented today are unordered numbers.
Anthony Young: Wayne Dispaser will be a delay in filing the audited 10K and are working closely with their auditors to complete the process and will look forward to providing these audited financial documents shortly.
Anthony Young: Thanks, Anthony. Hello, everyone, and welcome. My name is Douglas K. But throughout my life, my family, friends, and colleagues have referred to me as DACA. So please feel free to call DACA in the future.
Anthony Young: This is my first conference call I see you up. So the four discussing our results I would like to take a moment to introduce myself and answer the question I received most frequently during my three months on the job. Why did you join American Vanguard?
Anthony Young: I've been on the job of CEO for three months, but have known, competed yet an admired American Vanguard for many years.
Anthony Young: I started my career in finance but I spent the second half of my career managing and growing large-scale crop detection businesses.
Anthony Young: It was not an easy decision to leave my last role, but I saw a tremendous opportunity at American Vanguard to build upon a business that provides high quality, irreplaceable products that are customers' value and needed by grovers.
Anthony Young: This company has resilient revenue base that we can build upon, but we must improve margins, right size of our sheep and get back to growth.
Speaker Change: As David was discussing a few minutes, the one-time charge has taken to this quarter a part of a broader strategy to improve this business. The magnitude of the charge is substantial. These steps are necessary to reposition the company for long-term growth and profitability. Anthony Young, Christopher Kapsch, Eric Wintemute, David Johnson,
Speaker Change: We have a lot of ground to cover on this call, but before we get started, I wanted to emphasize that I plan on having a culture that stresses the importance of safety.
Speaker Change: Ensuring the safety, health and well-being of employees and the environment is an important part of my role here and one of my goals is to ensure that our employees return home safely after every day of work.
Speaker Change: From the attached start you can see that our safety performance has improved over the last 12 months. One of my goals is to share that this trend continues to improve.
Speaker Change: While we may never be the largest agricultural company, I will strive to make this one of the safest.
Speaker Change: Now, turning to the four-year 2024 results, to able to compare 24 results with previous periods, our
Speaker Change: Adjusted revenue was approximately $560,000,000, slightly lower target of $560,000,000 to $580,000,000.
Speaker Change: We acknowledge that in the past, American Vanguard has had a history of missing its targets. But going forward, we want to be a company that has set achievable goals and consistently meets our exceeding expense marks.
Speaker Change: That is a commitment that we want to make to our stakeholders, our customers, regulators, employees, and shareholders and all other constituents.
Speaker Change: While we are pleased to achieve, to have achieved our 2024 EBITOT target.
Speaker Change: The result is just the starting point for what is possible at this company, in my opinion. With an adjusted EBITDA margin of 7.5% in 2024, we would view this level of profitability as being approximately half of what our full cycle earnings power can be.
Speaker Change: On a percentage basis, we believe that we can achieve double-digit EBITI growth over the next three to four years as we simplify, prioritize and deliver.
Speaker Change: This is a matter that I have been repeating since the first day I joined the company and will continue to repeat for the foreseeable future.
Speaker Change: For a relatively small business, I have noticed a significant amount of complexity and I believe that simplifying many of the things we do will allow us to better understand what is important and be able to deliver against the highest priority tasks.
Speaker Change: The Board of Directors has taken the right initial steps to fix the business over the past seven to eight months, exiting step paths, cutting costs, and looking to install an ERP system or the right initial steps to fix the business.
Speaker Change: I had a deep understanding of what the board was looking to accomplish before I joined the company, but I believe the Transpiration Plan was a starting point for what is possible, not the ultimate destination.
Speaker Change: I don't think anything revolutionary is necessary to improve upon the business transformation that is well underway.
Speaker Change: But deploying modern management techniques that I've implemented in several prior positions should build upon the targets that we've already established.
Speaker Change: Before I turn the call over to David, I can provide some details on what we are seeing in the farm economy. Since taking this role, I have met with many of our largest customers within the long-standing relationships.
Speaker Change: These customers are indicating that the slight improvement in the sentiment since the low-points experienced in the summer of 2024 has created a more positive environment amongst rovers.
Speaker Change: So they were only conservative in their buying patterns after enduring the recent cyclical downturn in phasing the uncertainty of continuing high cost of capital and now the specter of increasing tariffs.
Speaker Change: It seems the channel is purchasing in season instead of ahead of the season as we have seen historically.
Speaker Change: It does not appear that customers are looking to rebuild amateurs which have largely been depleted.
Instead, they're buying just a towel for the season.
Speaker Change: I firmly believe that 2025 will be better than 2024, but the improvement will be gradual, and the interest rate environment coupled with the uncertainty of potential tariffs will lead to farmers remaining cautious for some time.
Speaker Change: Taking into consideration these factors, for 2025, we have an adjusted EBITDA target range of 45 to 52 million, and expect sales falling to range of 565 to 585 million.
Speaker Change: We expect capex of approximately 10 million for 2025. So free cash flow should be meaningful, which we will allocate towards the paydown of debt.
Speaker Change: As we continue to transform this business, we believe that future margins will continue to improve and we believe there will be further margin enhancement in 2026 and beyond.
Speaker Change: Now I'll turn the call over to David to discuss financial resource before returning for my closing remarks.
David Johnson: Thank you, Dad. Good morning, everyone. Turning to our financial performance.
David Johnson: I'd like to reiterate that our comments today are based on unordered numbers.
4th quarter revenues were approximately 169 million.
David Johnson: A decrease of 2% has compared to the fourth quarter of 2023, and our adjusted EBITDA was approximately 18 million, a decrease of 18% has compared to the fourth quarter of 2023.
David Johnson: During the fourth quarter we were able to pay down $22 million in debt.
David Johnson: For the full year 2024, the company recorded adjusted revenues of approximately $563 million.
David Johnson: a decrease of approximately 3% as compared to 2023. This explains the credits we recorded to withdraw that toll from the market.
Our reported revenues will be approximately $550 million for $550 million.
David Johnson: Adjust the dividend was $42 million as compared to $53 million in the prior period.
David Johnson: While we had previously targeted inventory to sales, we are now adjusting this target to inventory turns, as we believe there's more closely in line with the goals of the business.
David Johnson: Our average inventory turns for 2024 ended at 1.67 on an adjusted basis and we should be able to push this metric towards about two turns by year and 2025.
David Johnson: I would also like to mention that we received an amendment to our credit facility for over 35 years BMO and its predecessors as shown continued support for our business.
David Johnson: We appreciate the voted confidence they're showing in our transformation work.
David Johnson: With our credit facility expiring in August of 2026, we aim to announce a new facility in the summer of this year.
David Johnson: Let's discuss the one-time charges that impacted our performance. In total, to a calendar year of 2020-24, we have recorded $118 million of non-recurring charges.
David Johnson: The magnitude of these charges highlights the amount of work that was necessary to redelition American Vanguard. The one-time charges fall into two categories, asset impairments and transformation projects.
David Johnson: made approximately $76 million in asset impairments during the fourth quarter.
David Johnson: consisting of the Sympaths Write Down, which was approximately 22.4 million, a Goodwill Write Down, which was approximately 27 million, the Write Down of slow-moving and obsolete inventory, which was approximately 20 million, and the Write Down of a previous investment and other assets.
David Johnson: We have smaller transformation charges during the fourth quarter, related to our transformation consultant, Kerney, and our organization redesigned. These expenses and the right downs are substantial, but they position American Vanguard for improved profitability and growth over the coming quarters.
David Johnson: I would be happy to answer further questions about these charges in our Q&A.
David Johnson: Finally, I would like to mention the delay in our financial filing with a number of somewhat complicated assessments required related to the write downs, especially Goodwill, that we have addressed in the fourth quarter.
David Johnson: We will end up filing our 10K after the statutory deadline and consequently we will be filing a 12B25 with the SEC. We are working with our auditors in an effort to complete the open items. We review the filing the 10K as soon as possible.
Dak: With that, I would like to turn the call back to that Thank you very much.
Speaker Change: Thank you, David. Before we wrap things up, I would like to acknowledge two new members of our team and one promotion.
Speaker Change: We have recently hired Mike DiPolo as Senior Vice President, Strategy and R&D, and Jared Straley as Senior Vice President, Operations and Supply Chain. [inaudible]
Speaker Change: We also recently promoted Nultaneous Gillam to Senior Vice President, Manufacturing
Speaker Change: Mike and Jared were hired to bring a skill set to American Vanguard that was missing while on the pain is, is getting a well earned promotion from within.
Speaker Change: I'm excited to have all three reporting directly to me and over time I look forward to introducing them to the investment community and I'm sure you'll be as impressed with them as I am.
Speaker Change: Looking forward to 2025, as we stated earlier, the agricultural economy is gradually improving and we're making steady progress with our business transformation.
Speaker Change: We've analyzed an ongoing tariff situation and believe it will have a nominal impact on a raw material cost with less than three million dollars if that impact if tariffs remain in place for four years.
Speaker Change: Given the fluid nature of the situation, it is too early to tell how this may impact growers.
Speaker Change: But we are in a constant contact with our customers as we gauge how they're reacting to these developments.
Speaker Change: We have the capability to improve our profitability through our business transformation and we look forward to even stronger results in the future periods driven by initiatives that are within our control.
Speaker Change: Before closing the call, I would like to say that I am more excited today than when I recently joined the company. I have seen a lot of opportunities to improve and modernize the company to driving proving results.
Speaker Change: As we look forward to 2025, our goals are straightforward. Operator manufacturing facilities is safely and as sufficiently as possible.
Achieve the financial targets we have provided.
Speaker Change: Further transform this business into a company that can consistently generate three cash flow to master resilient revenue it already generates.
Speaker Change: Anne Wright's eyes and strength in the bouncy, which will entail an increasing net working capital and paying down debt.
Speaker Change: As we achieve these near-term benchmarks, we will be moving towards our longer-term goal of becoming the trusted provider of proven agricultural and environmental solutions.
With that, we will open the floor for questions. Operator.
Thank you.
Speaker Change: At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone key part.
Speaker Change: The confirmation tome will indicate your line is in the question, Keith.
Speaker Change: and you may press star two if you would like to remove your question from the queue.
Speaker Change: For those participants using speak recruitment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we pull for questions.
Thank you.
Speaker Change: Our first question is coming from Ben Klieve with Lake Street Capital. Your line is life.
Ben Cleave: Alright, thanks for taking my questions. First question around the preliminary nature of the earnings release.
Ben Cleave: You noted in the prepared remarks that this would get done as soon as possible. I'm wondering if you can first of all help kind of characterize your expectations for timing. And then second of all, you know, it sounded like the reasoning behind this was just purely a function of just kind of a more kind of, you know, complex.
Ben Cleave: Dynamic around the series of write downs rather than anything that was necessarily, you know, surprising or concerning. I just want to confirm that that, you know, the takeaway that we should have here for the reason behind the preliminary nature. Thank you very much.
Ben Cleave: Yeah, I think that's a fair assessment. It's a little difficult for me to say exactly when in the next week or so that we'll file, but we're working as hard as we can with our auditors to finish off all the procedures.
Ben Cleave: Okay, but you're only gonna, you know, days or weeks, not months [inaudible]
Oh, certainly. Yeah. Okay. Okay. Perfect. I'm very good. I'm
Ben Cleave: The great job on the balance sheet here in the second half of the year and appreciated your comments on inventory turnover expectations for $25. I'm wondering if you can further elaborate on...
Ben Cleave: How much you think you could potentially still get out of work in capital in 2025?
Ben Cleave: You know, given how much progress was made in 24, you know, outside of inventory, do expect any other working capital, you know, net inflows, or do you think that's going to be, you know, a more static number in 25?
Ben Cleave: You know, inventory is certainly, you know, our high focus item is the one that, you know, we see as
Ben Cleave: The greatest opportunity to move and work in capital down. So yeah, we're highly focused on it, we've got a...
Ben Cleave: and newly sort of refreshed version of our SIOP model. And as that mentioned earlier, we've got Gerard's joined and he's going to be leading that process. It's a focus that we haven't had before.
Very good.
Duck, a question for you, you noted the...
and the complexity of the organization.
Ben Cleave: and how you're looking to improve that dynamic.
Can you talk about-
Ben Cleave: kind of the steps that are needed to improve the complexity, how much of the complexity will be addressed, you think, by a modernized ERP system versus larger structural or organizational change that needs to take place? Yeah, I guess with my first question.
Speaker Change: Thanks, Ben. Yeah, so it was extremely complex when I came in. It was on the path from an organizational restructuring with the KERNIE transformation plan, so there was a lot of work done through in 2024.
Ben Cleave: We finalized that plan, the organizational plan, which simplified the structure.
Ben Cleave: so that we had some accountability and responsibility and the functions.
Ben Cleave: I think that was the first necessary step to get the organization accountable and also at the same time reduce some of that complexity in the organization to identify who's responsible for what.
Ben Cleave: The ERP system absolutely will help us reduce the complexity, the flow of information will be tremendous improvement over the next 20-25, so the ERP system will greatly enhance.
Ben Cleave: or Simplify, I would say the transfer of information around the organization. The other items I would say they're on the on the on the simplifying the SIOP process along with the ERP.
System Implementation of the SIOP or re-implementation, I'd say.
That will greatly improve our efficiencies and managing inventory.
Ben Cleave: and Procurement. So there's a simplification there, and I also would say as we refocus the business on growing or portfolio organically, a stage gate process of managing product and new product development.
Ben Cleave: will simplify that process as well. So there's a lot of things ongoing inside the business today that will create that simplification and prioritization and allow us to deliver as well.
Speaker Change: Great, great. We're looking forward to hearing progress on the threat this year.
Speaker Change: Last one for me, and then I'll get back to you. You've fled tariffs in multiple manners. I appreciated that the impact on raw materials would be, you know, putting negligible, you know, as we understand the tariff situation to be today. But I'm curious, you know, your comments on, on, you know, revenue guidance in the kind of cautionary note you have regarding tariffs. You know, how are you seeing, you know, former buying patterns?
Speaker Change: impacted by this uncertainty that a function of them just
Speaker Change: looking at in the context of tariffs right now that are impacting your guidance.
Absolutely. I mean, uncertainty in any business creates...
Speaker Change: Creates uncertainty. So that's what we're seeing around the tariffs right now. As you mentioned I don't believe that the the tariff impact on raw materials is material. I don't believe that the tariff impact on raw materials is material.
in nature, around $3 million. $3 million.
for 2025. When we're talking to our customers...
Who are the distributors of distribution in the channel?
Speaker Change: They're relatively positive about the change from 24 to 25 in the ag industry.
The Growers are being cautious.
Speaker Change: around this because of the impending tariff implications, not necessarily on their underlying cost, but as you mentioned, the potential, the reciprocal tariffs on their commodity products.
Speaker Change: So that's the concern there, but we do have a feel that the 25 will be better than 24. That's a pretty positive indication in the marketplace. If we can get through these tariff issues, I think it'll be a very good year for 2025.
Speaker Change: Very good. Well, I appreciate you guys taking my questions best of luck here with all these ongoing initiatives. I don't get back in queue.
Thank you.
Speaker Change: Our next question is coming from Mike Harrison with Seaport Research Partners. Your line is light.
Bye, good morning. Thanks for taking my questions.
Um...
Speaker Change: was hoping to just pick you back off the last question there. In terms of channel inventories in the marketplace,
Speaker Change: Can you talk a little bit about what you're seeing in your key regions? Are there still areas where? [inaudible]
Speaker Change: Distributors feel like they have elevated channel inventory and they're continuing to pull back on purchases, or have you seen some improvement, either broadly or a specific region?
Speaker Change: Yeah, Mike, this is Doc. Thanks for the question and it's a good follow up question to finish up on Vince question. The channel inventory is we do see those down considerably.
Speaker Change: in the U.S. and around the world. They are down. And then we hear that from our customers. The issue is that it costs a capital now. The channel seems to have gone to just in time.
David Johnson, David Johnson,
servicing of the of the products.
Speaker Change: by the four of the growers, so that we see in the just in time now. So there's not a real indication of restocking as they were in previous years before the downturn. So it's more of the channels have destocked, but the restocking is not going back to the levels that they were.
Speaker Change: Pre-2023, but we are seeing favorable conditions in the marketplace as the growers and distributors are purchasing, but just in time for the season.
Speaker Change: Got it. And then a couple of questions on margins. You talked about the seven and a half percent of the time margin that you did.
for the Folier 2024 Being About Half. [inaudible]
Speaker Change: of the yearning's potential or that earnings power over the cycle.
Speaker Change: Can you just help bridge how you guys would expect to get to a mid-teens EBITF on margin? How much of that is?
Speaker Change: and a volume recovery and operating leverage. How much is related to the ongoing business transformation? And I guess are there any other key pieces or key drivers of margin improvement over time? No, no, no.
Yes, good question, and...
Speaker Change: The way we envision it, we'll have the transformation process that we've got ongoing with the commercial activities.
Speaker Change: That's one component of it. And I figure that around 3%, we can go from 29 to say 32% gross margins on products, on sales.
Speaker Change: That will be a portion of the way, the rest of the way, roughly, we need to come down from that op-x as a percentage of sales.
of 26 to low 20s
Speaker Change: to around 20% is what I would say. Some kind of mix of those two. The op-ex has been addressed on going with not only the transformation, reorganization.
Speaker Change: process, but also, you know, administering cost-cutting strategies as well, initiatives as well. But the seven and a half plus the gross margin plus the op-x reduction should get us in those mid-teens full cycle.
Thank you.
Speaker Change: So just kind of curious, should we expect the EBITDA margin to kind of start lower in the first path and then show improvement?
Speaker Change: and momentum, maybe even getting further into the double digit to the second half. Just what are your thoughts on margin and earnings cadence this year? Thank you.
Great questions. Yes, we are seeing the second half.
Speaker Change: Second half of the year, be more positive in the EBITDA margin.
Speaker Change: So we anticipate the Q1 and Q2 being lower in that respect and the Q4 has always been a strong
for us and we've seen that. Thank you very much.
Speaker Change: Projecting this for 2025 as well. So H2, the second half of the year will be more positive than the first half of the year.
All right. Thanks very much.
Thank you. Bye.
Unknown Speaker.
Speaker Change: Thank you. Our next question is coming from Wayne Pinson with Gabelli Funds. Your line is live.
Wayne Pinson: Hi, decked. Thanks for taking my question. Congrats again on your first call, CEO .
Thank you, Wintemute.
Speaker Change: Just wanted to piggyback on that question, just given everything that's going on in the industry and specifically at the company over the past couple of years, can you just further speak to your competence in the 2025 guide and what could take you to the upper and lower ends of the range?
Speaker Change: Bluecross Blueshield is a proud sponsor of Second Opinion. Live Fearless.
I think there's a good question, Mike. Thank you.
The lower the lower range would be something slower than...
in the Ag Industry slower than 2024.
and the upper end would be, you know, a positive...
Speaker Change: Influence on 2025 and the agonistrate that would be lack of a...
Speaker Change: that the it'd be more positive and from the purchasing of the from the growers but we anticipate
that the lower end of the range would be something...
Speaker Change: Negative, I would say, in reflection, compared to 2024. So we anticipate doing better than 2024 in nearly all cases.
Okay.
Speaker Change: And then you mentioned a few of the things you're working on and the transformation plan, you know, being a starting point. Is there anything substantial and that you're going to be doing in 2024 and can you quantify if there's any?
and further substantial transformation costs in 2024.
in 2025, sorry.
Speaker Change: Yes, yes. So, from the transformation calls to not be substantial, we've got those projected at around $5 million for 2025. So, wait, wait down from 2024. The largest pickups in 2025 from the...
Speaker Change: from the transformation. It will be around the commercial activities.
Speaker Change: We expect a four to five million around those and then also in logistics and procurement, another two to three.
Speaker Change: and then there's also some organizational pick-ups as well, around two million. So it'll get around 8 to 10 million dollars of transformation benefits in 2025.
Okay, great. Thank you very much.
and Mark Wilson. Thank you. Thank you.
Thank you.
Speaker Change: As we have no further questions online at this site, I'd like to hand it back over to Mr. K for his closing remarks.
Thank you, operator.
Mr. Kay: I'd like to conclude by thanking everyone for listening and participating in our call today. I look forward to providing further updates on our ongoing initiatives and value your questions and support as we strive for the long-term success and growth of the company.
and Mark. Thank you. Thank you.
Mr. Kay: These interactions give us an opportunity to think in a disciplined way about how we are assessing our recent past performance and our prospects.
Mr. Kay: And also to hear from you about what's on your mind and maybe the gaps in what we've explained to you and how we can better respond. We are committed to maintaining transparency and open communication, so please feel free to contact us if you have any questions or need further information.
Mr. Kay: I hope to meet and see some of you in person in the near future. I'll be traveling to New York City next week to participate in the 16th Annual Specialty Chemical Symposium hosted by Get Belly Fonds and perhaps I will have the chance to meet you, meet some of you there.
Mr. Kay: Importantly, as I stated earlier, I don't think anything revolutionary is necessary to execute and improve upon the business transformation that is underway at American Vanguard. My mantra is straightforward in this regard, simplify, prioritize, and deliver.
Mr. Kay: Thank you again for the participation and we look forward to reporting our first quarter 2025 results to you in May
Thank you.
Mr. Kay: Thank you. This does conclude today's call. You may disconnect your lines at this time and we thank you for your participation.