Q1 2025 American Vanguard Corp Earnings Call
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Unknown Executive: This time all participants are on a listen-only mode and a 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. Please note, this conference is being recorded.
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I'll now turn the conference over to your host.
Anthony Young: I will now turn the conference over to your host.
Speaker Change: Mr. Anthony Young.
Anthony Young: Sir you may begin.
Anthony Young: Anthony Young, Sir, you may begin. Thank you, Ollie.
Speaker Change: Thank you Ali good afternoon, and welcome to American Vanguard's first quarter 2025 earnings review.
Douglas Kaye: Good afternoon, and welcome to American Vanguard's first quarter 2025 earnings Our prepared remarks will be led by Dat Kaye, Chief Executive Officer, and David Johnson, Chief Financial Officer.
Dr. Kay: Paired remarks will be led by Dr. Kay Chief Executive Officer, and David Johnson, Chief Financial Officer.
Dr. Kay: We have prepared presentation slides, which are posted on the Investor Relations section of the American Vanguard website.
Douglas Kaye: We have prepared presentation slides which are posted on the investor relations section of the American Vanguard.
Dr. Kay: Let's begin this call with our forward looking and cautionary reminder.
Douglas Kaye: Let's begin this call with our forward-looking cautionary remarks. During this call, we may discuss forward-looking input. All forward-looking statements are estimates by the company's management and are subject to various risks and uncertainties that may cause actual results to differ. Such factors include weather conditions. Changes in Regulatory Policy and Other Risks as detailed in the company's SEC report. 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.
Dr. Kay: During this call we may discuss forward looking information.
All forward looking statements are estimates by the Companys management and are subject to various risks and uncertainties that may cause actual results to differ.
Dr. Kay: Such factors include weather conditions.
Dr. Kay: Changes in regulatory policy and other risks as detailed in the Companys SEC reports.
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: It's now my pleasure to turn the call over to CEO Jack Kane.
Douglas Kaye: It's now my pleasure to turn the call over to CEO. Thank you, Anthony, and welcome everyone to our first quarter 2025 earnings conference. Let me start with a view from 10,000 feet. The year 2024 was one of great change at American Vanguard and was then capped off by a prolonged financial close and audit that delayed our Form 10-K and consequently the 10-Q, which David will cover short. However, our final audited numbers were substantially similar to the unaudited results we published in. In spite of tough market conditions, I'm happy to report that we were able to drive improvement in the areas that are within our control.
Jack Kane: Thank you Anthony and welcome everyone to our first quarter 2025 earnings conference call.
Jack Kane: Let me start with a view from 10000 feet.
Year 2024 was one of great change at American Vanguard and was then capped off by a prolonged financial close and audit that delayed our Form 10-K, and consequently, the 10-Q, which David will cover shortly.
Jack Kane: However, our final audited numbers or substantially similar to the unaudited results we published in March.
Jack Kane: In spite of tough market conditions I'm happy to report that we were able to drive an improvement in the areas that are within our control. For example, during Q1, our operating expenses dropped by $5 million and net trade working capital was $85 million lower both in comparison to last year, we're beginning to see that.
Douglas Kaye: For example, during Q1, our operating expenses dropped by $5 million and net trade working capital was $85 million lower, both in comparison to last year. We're beginning to see the benefits of our transformation effort. Further, channel inventories in the US are at historic lows. While customers were able to hold down their working capital during the first quarter, we can see they are starting to replenish their stock. Indeed, based upon orders to date, we are seeing a stronger second quarter and expect the remainder of 2025 will be solid. We are well positioned to respond to rising market trends while continuing to improve our operating leverage.
Jack Kane: Benefits of our transformation efforts.
Jack Kane: Further channel inventories in the U S are at historic lows, while customers were able to hold down their working capital during the first quarter. We can see they are starting to replenish their stocks now.
Jack Kane: Indeed based upon orders to date, we are seeing a stronger second quarter and expect the remainder of 2025 will be solid.
Jack Kane: We are well positioned to respond to rising market trends, while continuing to improve our operating leverage.
Jack Kane: Now turning to our first quarter of 2025 financial results. The company generated net sales of $115 million as compared to $135 million in the year ago period, and reported $3 million of adjusted EBITDA as compared to $15 5 million in the year ago period.
Douglas Kaye: Now turning to our first quarter of 2025 financial results, the company generated net sales of $115 million as compared to $135 million in the year ago period, and reported $3 million of adjusted EBITDA as compared to $15.5 million in the year ago period. There were some specific items in the first quarter of 2024 which make it difficult to compare that quarter to the recently completed first quarter of 2025. We will address these items later in the call. The first quarter of 2025 was somewhat weaker than we initially anticipated. That was based upon the opinion formed at the end of 2024 that pretty much all of the stocking had finished.
Jack Kane: There were some specific items in the first quarter of 2024, which make it difficult to compare that quarter. So the recently completed first quarter of 2025, we will address these items later in the call. The first quarter of 2025 was somewhat weaker than we initially anticipated that was based upon.
Jack Kane: The opinion informed at the end of 2024.
Jack Kane: That pretty much all of the Destocking had finished.
Jack Kane: Industry data indicates that our product is being applied in the field, but our customers did not replenish their stocks as quickly as our product was being consumed.
Douglas Kaye: Industry data indicates that our product is being applied in the field, but our customers did not replenish their stocks as quickly as our product was being Thus, the trend of destocking continued in the first three months of 2025. We also made decisions to adjust our program strategy to keep up with programs that our competitors were deploying at the end of the first Top-line revenue and gross profit were impacted by these developments. In addition to this dynamic, we did not have access to a previously canceled product. We saw weakness in the Mexican agave market and drought conditions in Australia.
Jack Kane: Thus the trend of Destocking continued in the first three months of 2025.
Jack Kane: We also made decisions to adjust our program strategy to keep out with programs that our competitors were deploying at the end of the first quarter.
Jack Kane: Top line revenue and gross profit were impacted by these developments.
Jack Kane: In addition to this dynamic we did not have access to our previously canceled product.
Jack Kane: We saw weakness in the Mexican agave market.
Jack Kane: And drought conditions in Australia.
Jack Kane: I would also like to highlight two bright spots in our portfolio met.
Douglas Kaye: I would also like to highlight two bright spots in our portfolio. met themselves were up 14% in the quarter versus last year. This is our largest single product and continues to be well respected in the market. Diamond sales were also up 17%, and this can be attributed to the increase in peanut acreage that was planted this year. I must admit we have faced several challenges in my first five months, but I continue to be impressed with the team at American Vanguard. The opportunity to transform this business largely stands in front of us. We have taken some initial steps to improve the business, but the ongoing weakness of the current cycle has prevented this progress from being fully realized when considering our recent financial results.
Jack Kane: <unk> sales were up 14% in the quarter versus last year. This is our largest single product and continues to be well respected in the market.
Jack Kane: I met sales were also up 17% and this can be attributed to the increase in peanut acreage that was planted this year.
Jack Kane: Most admit we have faced several challenges in my first five months, but I continue to be impressed with the team that American Vanguard.
Speaker Change: The opportunity to transform this business largely stands in front of us.
Jack Kane: We have taken some initial steps to improve the business with the ongoing weakness of the current cycle has prevented this progress.
Jack Kane: From being fully realized when considering our recent financial results.
Jack Kane: We expect this hard work should begin to materialize in the upcoming quarters two areas of improvement that I would like to highlight our focus on cost containment and our improvement in our net working capital accounts.
Douglas Kaye: We expect this hard work should begin to materialize in the upcoming quarter. Two areas of improvement that I would like to highlight are our focus on cost containment and our improvement in our net working capital. First, in the area of cost containment, I have directed the team to continuously evaluate where we can take costs out of the business. Overall, OPEX is down $5 million in the first quarter as compared to a year ago period. We expect to continue to wring further costs out of the business as part of our transformation plan. But this was a strong start for this industry.
Jack Kane: First in the area of cost containment I have directed the team to continuously evaluate where we can take cost out of the business overall opex is down $5 million in the first quarter as compared to a year ago period.
Jack Kane: We expect to continue to bring further costs out of the business as part of our transformation plan, but this was a strong start to this effort.
Jack Kane: The team has done an admirable job of managing net working capital showing an improvement of $85 million as compared to the year ago period.
Douglas Kaye: The team has done an admiral job of managing net working capital, showing an improvement of $85 million as compared to the year ago period. Our SIOP process allowed us to limit our inventory bill, while our management of accounts receivable and accounts payable allowed us to limit the amount of debt that was necessary to operate the business.
Jack Kane: Our SIOP process allowed us to limit our inventory build while our management of accounts receivable and accounts payable allowed us to limit the amount of debt that was necessary to operate the business.
Jack Kane: I was surprised by how much working capital was consumed by the company before I arrived.
Douglas Kaye: I was surprised by how much working capital was consumed by the company before I arrived, and we plan to operate this business in a leaner fashion going forward, which will allow the business to generate higher returns over the long Before I turn the call over to David, I did want to address our 2025 revenue and EBITDA guidance. We have analyzed our supply chain and we believe the impact from any tariff will be nominal to our cost of goods. In fact, given our U.S.-based footprint, any long-term tariffs may create opportunities for American Given our weak first quarter and a market that is only beginning to recover, we are decreasing our full-year adjusted EBITDA target range to $40-$44 million from $45-$52 million.
Jack Kane: And we plan to operate this business in a leaner fashion going forward, which will allow the business to generate high returns over the long term.
David Johnson: Before I turn the call over to David.
David Johnson: I did want to address our 2025 revenue and EBITDA guidance.
David Johnson: We have analyzed our supply chain and we believe the impact from any tariffs.
David Johnson: Nominal to our cost of goods sold.
David Johnson: That given our U S based footprint any long term tariffs may create opportunities for American Vanguard.
David Johnson: But given our weak first quarter in a market that is only beginning to recover we are decreasing our full year adjusted EBITDA target range to $40 million to $44 million.
David Johnson: <unk> $45 million to $52 million.
David Johnson: And we are adjusting our revenue estimate to $535 million to $545 million.
Douglas Kaye: and we are adjusting our revenue estimate to $535 to $545 million. While we are beginning to see early stages of recovery, we do not want to forecast an overly optimistic outlook at this time. A return after David provides his remarks to give some additional industry commentary covering the short-term trends and expectations.
David Johnson: While we are beginning to see early stages of a recovery, we do not want to forecast an overly optimistic outlook at this juncture.
David Johnson: I will return after David provides his remarks to give some additional industry commentary covering the short term trends and expectations.
David Johnson: And now I'll turn the call over to David our CFO.
David Johnson: And now I'll turn the call over to David Garcia. Thank you, Dak. Good afternoon, everybody.
David Johnson: Thank you Dan good afternoon, everybody.
David Johnson: Before discussing our financial performance for the quarter I would like to address the late and K and 10-Q filings. We are pleased to have filed documents with the SEC, but many participants over where these documents filed after their FCC deadlines.
David Johnson: Before discussing our financial performance for the quarter, I would like to address the late 10-K and 10-Q filings. We are pleased to have filed both documents with the SEC, but as many participants on this call are aware, these documents were filed after their SEC deadline. The company accomplished a great deal during the financial close, including performing a detailed review and impairment assessment of the company's major assets. At the same time, the company identified several internal control matters of the company's relatively small Australian subsidiary due to insufficient staffing. The company also had to work through a number of matters related to customer programming.
David Johnson: The company accomplished a great deal during the financial close.
David Johnson: <unk> performing a detailed review of impairment assessment of the company's major assets.
David Johnson: At the same time the company identified several internal control messages accompanied relatively slow Australian subsidiary due.
David Johnson: Due to insufficient staffing.
David Johnson: The company also had to work through a number of matters related to customer programs.
David Johnson: And an unrelated situation the companies talk about.
David Johnson: In an unrelated situation, the company has talked a lot about their efforts to implement one standard ERP platform across all of our enterprises. These efforts resulted in a number of implementation matters the company had to address. All these matters, when taken together, resulted in the corporate finance team being unable to meet the SEC deadline for filing the 10K, which ultimately resulted in our assessment of related material weaknesses in the company's internal controls. The company is working on a remediation plan to resolve those material issues.
David Johnson: Under the ERP platform across all of our entities.
David Johnson: These efforts resulted in a number of implementation the company has to address.
David Johnson: All of these methods when taken together resulted in the corporate finance team being enable to meet the SEC deadline for filing the 10-K, which ultimately resulted in our assessment related material weaknesses in the company's internal control.
David Johnson: The company's working on a remediation plan to result.
David Johnson: These matters related to the filing of the 2000 2012 financial statements also led to a corresponding delay the filing of the Facebook.
David Johnson: These matters related to the filing of the 2024 financial statement also led to a corresponding delay in the filing of the first quarter financials for 2025. Having said all that, as you may recall, we had published unaudited year-end financial information in March. Now that we have filed our financials, we have been able to report just did EBITDA for 2024 of $40 million as compared to $42 million on audit. and net sales of $547 million as compared to the unaudited $550 million previously indicated. The main reason for the adjustment was related to customer prepayment programs, where the company identified an adjustment after the initial release.
David Johnson: <unk> 2025.
David Johnson: Having said all that as you may recall, we had published unaudited year end financial information in March now that we have filed our financials, we have been able to report adjusted.
David Johnson: Adjusted EBITDA for 2024 of $40 million as compared to $42 million unaudited figures.
David Johnson: And net sales of $547 million as compared to the unaudited $550 million previously indicated.
David Johnson: The main reason for the adjustment was related to customer prepayment programs, where the company identified an adjustment after the initial release.
David Johnson: Further final debt ended $9 million lower than initially indicated due to final adjustments related to debt and accounts payable.
David Johnson: Further, final debt ended $9 million lower than initially indicated due to final adjustments related to debt and accounting.
David Johnson: Turning to financial performance, our first quarter 2025 revenue was up $116 million.
David Johnson: Turning to financial performance, our first quarter 2025 revenue was $116 million, a decrease of 14% as compared to the first quarter of 2024. The primary reasons for the decrease were first, as Dak just mentioned, de-stocking continued in the quarter. Secondly, the absence of a voluntarily counseled curbside from our product portfolio. Third, weakness in the Mexican agave market, and finally, a drought in parts of Australia impacting sales of certain products. Further, market-related tax has also dampened after... For instance, in response to aggressive competition in the challenging first quarter market, we implemented increased incentives. Gross Profit Margin declined to 26% during the quarter compared to 31% last year.
David Johnson: Decrease of 14%.
David Johnson: To the first quarter of 2024.
David Johnson: The primary reasons for the decrease with first.
David Johnson: Just mentioned.
David Johnson: Stocking continued in the quarter.
David Johnson: Secondly, the absence of a voluntarily council side from a product.
David Johnson: Yes.
David Johnson: The weakness in the Mexican agave market and finally, a drought in parts of Australia impacting sales of certain products.
David Johnson: Further market related taxes also dampened up this quarter.
David Johnson: For instance in response to aggressive competition.
David Johnson: In the challenging first quarter market implemented increased incentive programs.
David Johnson: Gross profit margin declined to 26% during the quarter compared to 31%.
David Johnson: This decline in gross profit margin.
David Johnson: This decline in Gross Profit Margin was primarily related to a weaker pricing environment and to a lesser degree lower volume. Our operating costs were well controlled and were down approximately $5 million excluding transformation expenses and a non-recurring item recorded in the first quarter of 2024. We have made substantial improvements in our working capital account. As I have mentioned in previous conference calls, our business cycle typically leads to an inventory build during the first two quarters of the year as we prepare to meet the needs of our customers in the second half. However, this year our inventory only increased by approximately 3%.
David Johnson: Primarily related to a weaker pricing environment and to a lesser degree lower volume.
David Johnson: Our operating costs were well controlled and were down approximately $5 million, excluding transformation expenses and a nonrecurring item recorded in the first quarter of 2024.
David Johnson: We made substantial improvements in our working capital accounts as Ive mentioned in previous conference calls our business cycle typically leads to an inventory build during the first two quarters.
David Johnson: And to meet the needs of our customers in the second half.
David Johnson: However, this year, our inventory only increased by approximately 3%.
David Johnson: Since the year end of 2024 and has decreased 20% compared to this time last year, resulting in improved inventory turns.
David Johnson: since the year end of 2024 and has decreased. compared to this time last year, resulting in improved inventory. We are pleased with this progress and believe further improvement is possible. We are highly focused on managing net trading working capital and were successful in the first quarter, ending with working capital $86 million lower than this time last year. Along with a better control of working capital, we ended the quarter with debt approximately $20 million, or 14% lower than this year. It is likely that debt will trend higher during the second quarter, which is normal for the company's annual cycle.
David Johnson: We are pleased with this progress and beliefs that the improvements as possible.
David Johnson: We are highly focused on managing net trading working capital and was successful in the first quarter ending working capital $86 million lower than this time last year.
David Johnson: Along with a better control of working capital we ended the quarter with debt of approximately $20 million of bookings lower than this time last year.
David Johnson: It is likely that that will trend higher during the second quarter, which is normal for the company's annual cycle of <unk>.
David Johnson: Focus on controlling our working capital levels going forward should help to minimize that debt we need to run the business.
David Johnson: Our focus on controlling our working capital levels going forward should help to minimize the debt we need to run the business.
David Johnson: Ultimately, we expect this focus will help to create higher returns to shareholders.
David Johnson: Ultimately, we expect this focus will help to create higher returns for shareholders. With regard to debt, because our current credit agreement matures in the third quarter of 2026, we have already begun to work with our lenders to put in place a longer term capital For more information visit www.americanvanguard.com We're looking at a wide range of options to replace the current credit agreement. because the current interest rate environment is quite challenging, we expect that new interest rates will likely be higher than our current current. Our focus is to obtain flexible financing that will give the company ample working capital both to operate and grow.
David Johnson: With regard to debt because our current credit agreement matures in the third quarter of 2026, we have already begun to work with our lenders to put in place a longer term capital structure.
David Johnson: We're looking at a wide range of options to replace the current credit agreement.
David Johnson: Because of the current interest rate environment is quite challenging and we expect that new interest rates will likely be higher than our current credit ratings.
David Johnson: Our focus is to obtain flexible financing that will give the company ample working capital to operate and grow.
David Johnson: Which is one of the highest priority initiatives.
David Johnson: which is one of the highest priority initiatives at the company.
David Johnson: Got it.
David Johnson: Looking forward to the balance of 2025, we expect that Capex will fall in the $8 million to $9 million range.
David Johnson: Looking forward to the balance of 2025. We expect that CAPEX will fall in the $8-9 million range. Does we expect to generate reasonably strong free cash flow this year? As we said in our last quarterly call, we expect virtually all free cash flow to be allocated towards debt pay down as we look to further strengthen our balance.
David Johnson: Thus, we expect to generate reasonably strong free cash flow this year.
David Johnson: As we said in our last quarterly call, we expect virtually all free cash flow to be allocated towards debt paydown as we look to further strengthen our balance sheets.
David Johnson: In summary, the financial performance of the first quarter was weaker than a year ago period, but we believe that we managed well in the areas that were under our direct control operating expenses inventory accounts payable and debt levels.
David Johnson: In summary, the financial performance of the first quarter was weaker than a year ago period, but we believe that we managed well in the areas that were under our direct control, operating expenses, inventory, accounts payable, and debt level. While the broader agricultural market is in the very early innings of a recovery, if we continue to execute against our transformation plan, we will be well positioned for a cyclical uptick.
While the broader agricultural market is in the very early innings of a recovery.
David Johnson: If we continue to execute against our transformation plan, we will be well positioned for a cyclical upturn with.
Dirk: With that I'll turn the call back to Dirk.
Douglas Kaye: With that, I'll turn the call back to Dan.
Dirk: Thank you David.
Dirk: Before we close I thought I would provide some thoughts on what we're seeing in the agricultural economy.
Douglas Kaye: Thank you, David. Before we close, I thought I would provide some thoughts on what we are seeing in the agricultural economy. I don't want to sound too optimistic as the level of economic uncertainty remains extremely high. Based upon what I've seen during my more than 15 years as an executive in the crop protection industry. Inventory levels have been drawn down to a point where any recovery in buying patterns is going to lead directly to an increase in demand, which will lead to higher volumes or pricing, and possibly both higher volumes and pricing. That is the nature of operating in cyclical industry like ours.
Dirk: I don't want to sound too optimistic as the level of economic uncertainty remains extremely high.
Speaker Change: But based upon what I've seen during my more than 15 years as an executive in the crop protection industry.
Dirk: Inventory levels have been drawn down to a point, where any recovery in buying patterns is going to lead directly to an increase in demand.
David Johnson: Which will lead to higher volumes or pricing and possibly both higher volumes and pricing.
David Johnson: That is the nature of operating and cyclical industry like ours.
David Johnson: We've included a chart in the slide deck, which shows the inventory levels at distributors are down by nearly 18% as compared to the year ago period. We should note. The industry has already been involved in 18 to 24 months of Destocking.
Douglas Kaye: We've included a chart in the slide deck, which shows the inventory levels that distributors are down by nearly 18% as compared to the year ago period. We should note the industry has already been involved in 18 to 24 months of de-stocking. While inventories have been drawn down, industry data indicates that corn plantings are at a historically high level. In fact, corn acreage is forecast to be at its highest level since the 2013-2014 season, which was a reasonably strong period for crop protection. As I stated previously, based upon industry data, we can see that our product is being applied in the field.
David Johnson: While inventories have been drawn down industry data indicates that corn plantings are at historically high level.
David Johnson: That corn acreage is forecast to be at its highest level. Since the 2013 2014 season, which was a reasonably strong period for crop protection companies.
David Johnson: As I stated previously based upon industry data, we can see that our product is being applied in the field.
David Johnson: And we are not losing market share.
David Johnson: Thus, we believe our portfolio is well positioned to this season go as forecasted by the USDA.
Douglas Kaye: and we are not losing more. Thus we believe our portfolio is well positioned should this season go as forecasted by the U.S. Cotton acreage is looking incrementally softer than last year. The growers are switching to peanuts, which is also an area of strength for us, with Thymat being one of our most popular products, which is used in peanuts. We can see a recovery beginning, but we will need to achieve clarity on tariffs and gain further confidence in agricultural commodity prices. before a cyclical upswing can commence. important agreements have been reached by some global trading partners, but based upon our conversation with customers, a high level of uncertainty remains in the market on how the global trade landscape will adjust to the additional barriers that may be forthcoming.
David Johnson: Cotton acreage is looking incrementally softer than last year. The growers are switching to peanuts, which is which is also an area of strength for us with <unk> being one of our most popular products, which is used in peanuts.
David Johnson: We can see a recovery beginning when we will need to achieve clarity on tariffs and gain further confidence in our agricultural commodity pricing.
David Johnson: We're a cyclical upswing can commence.
David Johnson: Important agreements have been reached some global trading partners, but based upon our conversation with customers a high level of uncertainty remains in the market on how the global trade landscape will adjust to the additional barriers that may be forthcoming.
David Johnson: While we wait for this recovery, we will execute on our business transformation.
Douglas Kaye: While we wait for this recovery, we will execute on our business transformation. which should lead to improved financial results. We'll look to take further costs out of the business, continue to improve our networking capital position, and importantly, make smart investments that improve the positioning of our product. As I stated in the last conference call, one of the reasons that I took this job was that I believed American Vanguard is a business that can be I've just highlighted a few fixes that I've implemented in my first few months here. But there is much more that can be accomplished.
David Johnson: Which should lead to improved financial results, we will look to take further costs out of the business continue to improve our net working capital position and importantly, make smart investments that improve the positioning of our product portfolio.
David Johnson: As I stated in the last conference call one of the reasons that I took this job was that I believed American Vanguard is a business that can be fixed.
David Johnson: I've just highlighted a few fixes that I've implemented in my first few months here.
David Johnson: But there is much more that can be accomplished.
David Johnson: We continued to execute against that playbook, we developed with our consultants, but the team also continues to find additional areas, where we can take cost out of the business.
Douglas Kaye: We continue to execute against the playbook we developed with our consultants. But the team also continues to find additional areas where we can take costs out of the business. As we chip away at the cost structure, our long-term goal of achieving a 15% adjusted EBITDA margin through the cycle appears more achievable, but it will take a few years to get there. While we have gone through some challenges, I remain extremely excited about the future and our goals remain the same, to position this company to be the trusted proprietor of proven agricultural and environmental solutions.
David Johnson: As we chip away at the cost structure, our long term goal of achieving achieving.
David Johnson: Assuming a 15% adjusted EBITDA margin through the cycle peers more achievable, but it will take a few years to get there.
David Johnson: While we have gone through some challenges I remain extremely excited about the future and our goals remain the same to position this company to be the trusted provider of proven agricultural and environmental solutions.
David Johnson: With that open the call for questions operator.
Unknown Executive: With that, open the call for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone key. Confirmation Tone will indicate your line is in the question area. and you may press star 2 if you would like to remove your question.
David Johnson: Thank you.
David Johnson: At this time, we will be conducting our question and answer session.
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David Johnson: Participants using speaker equipment, it may be necessary to pick up your handset before pressing this turkeys.
Unknown Executive: participants using speaker equipment it may be necessary to pick up your handset before pressing One moment please, while we pause for questions.
David Johnson: One moment, please while we poll for questions.
David Johnson: Thank you.
Speaker Change: Our first question is coming from Ben PV with Lake Street Capital. Your line is live.
Benjamin Klieve: Our first question is coming from Ben Klieve with Lake Street Capital. Your line is open. All right, thanks for taking my questions.
Ben PV: Alright, Thanks for taking my questions first one for you I am curious if you can elaborate.
Douglas Kaye: First one, Dak, for you. I'm curious if you can elaborate a bit on kind of the cadence of the year over year performance here on a year to date basis. Basically on the fourth quarter call in mid-March, you kind of suggested that the destocking period was, you know, it was kind of neutralized, which is You know, which today it sounds like is the case now, but maybe wasn't necessarily the case the very beginning of the year. Can you talk about the, you know, kind of year over year performance from, you know, January through where we are in early June have things been progressing favorably throughout the year and how bad was it in January relative to how good it may be Yeah, thanks.
Ben PV: Elaborate a bit on kind of the cadence of the year over year.
David Johnson: Topline performance here.
David Johnson: On a year to date basis.
David Johnson: Basically on the fourth quarter call in mid March you kind of suggested that the Destocking period was.
David Johnson: It was kind of neutralized wishes.
David Johnson: <unk>.
David Johnson: Today It sounds like is the case now, but maybe it wasn't necessarily the case at the very beginning of the year can you talk about the.
David Johnson: Kind of year over year performance.
David Johnson: January through to where we are in early June.
David Johnson: <unk> been progressing favorably throughout the year.
David Johnson: How bad was it in January relative to how good it maybe in June now.
Speaker Change: Yes. Thanks, Thanks Man excuse me Thanks, Ben for the question I appreciate it from a year over year basis. I mean, there is you have to consider the.
Douglas Kaye: Thanks, Ben. Excuse me. Thanks, Ben, for the question. Appreciate it. From a year over year basis. I mean, there's, you have to consider the, the dactyl, the, the product that we removed from the market. That was a that was a fairly sizable year over year amount that came out in first quarter of this year. So that's, that's the biggest change in in top line sales from the previous quarter. Then we had the, the Agave Bromosil product in Mexico. That's the next biggest change that we had that down in Mexico. And then the next one was the drought in Australia.
Speaker Change: The Doctor.
Speaker Change: The product that we removed from the market.
Speaker Change: That was a fairly sizeable year over year amount that came out in first quarter of this year. So that's the biggest change and top line sales from the previous quarter.
Speaker Change: Then we had the.
Speaker Change: The agave Bromo sale product and Mexico, that's the next biggest changed.
David Johnson: Definitely.
David Johnson: Down in Mexico, and then the next one was the drought in Australia.
Douglas Kaye: Those are the three biggest changes in the top line. We did have some positives with the Metam sodium and the Thymet that offset some of the others, but those are the primary changes year over year in the top line sales. We get this information from data services, and that's the reason we have confidence in it. But it appears to be a historical low. And that's, it just continued through the first quarter. And then as we see now, we do, we do see positive trends in May and June related to our sales. So that's the, the demand seems to be being replenished.
Speaker Change: The three biggest changes in the top line, we did have some positives.
Speaker Change: Matt Tam sodium and the time at that offset some of the others, but those are the primary changes year over year on the top line sales.
Speaker Change: Addressing your Destocking.
Speaker Change: The.
Speaker Change: At the levels that we saw at the beginning of the year.
Speaker Change: And the channel suggested that the.
David Johnson: The inventories had been destock.
David Johnson: Just continued through.
David Johnson: All the way to April from our last standpoint to level that.
David Johnson: In the channels and what we see in the inventory at a level that are historical lows as what we see when we get this information from data services and Thats. The reason, we have confidence in it but.
David Johnson: But it appears to be at historical low and Thats.
David Johnson: And it just continued through the first quarter.
David Johnson: And then as we see now we do see positive trends.
David Johnson: In May and June related to our sales.
David Johnson: So thats the demand seems to be being replenished I don't know if we can't tell at the moment, if theyre going to build inventory.
Douglas Kaye: I don't know if there, we can't tell at the moment if they're going to build inventory. That's the uncertainty part of it about it. But the de-stocking appears to have bottomed out, but that's to be determined. Okay, um, helpful.
David Johnson: Certainly part of it about it but the destocking appears to have.
David Johnson: Bottomed out, but that's to be determined.
David Johnson: Okay.
David Johnson: Helpful.
David Johnson: David Let me ask you a question and then I have got.
David Johnson: And so I guess, David, let me ask you a question. And then, Dak, I've got a follow up to this. And I definitely understand that everything everybody expected that the year of your headwinds from Dak's all, can you isolate the first quarter EBITDA and revenue contribution? from Dactyl. Yeah, I've got that right. It's it's top line, six million and margin three and a half. 30 and a half percent. That margin is on a gross margin basis or operating.
David Johnson: A follow up to that.
Speaker Change: Definitely understand that everything everybody expected the year over year headwinds from dock, Paul can you isolate the first quarter EBITDA and revenue contributions from <unk>.
David Johnson: Yes, I've got that right.
David Johnson: Top line of $6 million and margin of 35.
David Johnson: 35% that margin is on a gross margin basis for operating margin.
David Johnson: Gross margin.
David Johnson: Okay.
David Johnson: Very good so the.
David Johnson: Okay, very good. So the The, if you back out DAC, this dynamic with DACDAL and Bromacell, kind of the balance of your portfolio, you know, was that, it seems to be, you know, effectively flat year over year. The, you know, Australia, Bromacell, DACDAL, those were the headwinds, you know, the balance of your portfolio was effectively flat. Is that a fair characterization? I'd say that it's effectively flat with the highlights being on the other side, Metem Sodium and Thymet. Metem Sodium is our largest product, and it continues to be a strong, core product in our portfolio.
David Johnson: If you back out dock this dynamic with with docs all on Brahma sell kind of the balance of your portfolio.
David Johnson: Was that.
David Johnson: To be sucked.
David Johnson: Secondly, flat year over year.
David Johnson: Australia promise sell backhaul those were the headwinds the balance of your portfolio was effectively flat does that is that a fair characterization.
David Johnson: I would say that is effectively flat with the highlights being on the other side midterm sodium <unk>.
David Johnson: Midterm segment is our largest product and it continues to be a strong core product in our portfolio.
David Johnson: Resilience.
David Johnson: It's stable.
David Johnson: It's resilient. It's stable. We did see an uptick in sales in the first quarter of Metem Sodium. And the Thymet, that demand was directly associated with the increase in peanut acres that we've seen offsetting the cotton acres primarily in the southeast.
David Johnson: So.
David Johnson: We did see an uptick and sales in the first quarter of <unk> and the time, Matt that was those that.
David Johnson: Demand was directly associated with the increase in peanut acres that we've seen.
David Johnson: Offsetting the cotton acres.
David Johnson: Primarily in the southeast.
David Johnson: Okay very good.
Speaker Change: A few other questions for me first of all I know seasonality in this era is really difficult to forecast, but im wondering if you can help help us understand kind of what your top line seasonality expectations throughout 2005, I mean first quarter.
Unknown Executive: Okay, very good.
Douglas Kaye: A few other questions from me. First of all, I know seasonality in this era is really difficult to forecast, but I'm wondering if you can help us understand kind of what your top line seasonality expectations throughout 25. I mean, first quarter, you know, relative to the midpoint of your guidance, the first quarter numbers look to be about 20% of your overall revenue, you know, for the full year basis. You know, can you help us kind of kind of, you know, look to the Q2, Q3, Q4, you know, outlooks as a percentage of revenue? I don't have the percentages right at my hand on a quarter-by-quarter basis, but overwhelmingly, the second half of the year is our strong season, with the soil fumigants, methamsodium being one of those, driving the top-line sales in that period.
Speaker Change: Relative to the midpoint of your guidance the first quarter numbers look to be about 20% of your overall revenue.
Speaker Change: For the full year basis.
Speaker Change: Can you help us kind of kind of.
Speaker Change: Look at the Q2 Q3 Q4.
Speaker Change: Outlets as a percentage of revenue.
Speaker Change: Yes.
Speaker Change: Don't have the percentages.
Speaker Change: Right at my hand on it by quarter by quarter basis, but the overwhelming leader.
Speaker Change: The second half of the year is our is our strong season.
Speaker Change: Season with.
Speaker Change: With the sole <unk> against <unk>.
Speaker Change: Tim sodium being one of those driving.
Speaker Change: The top line sales in that period.
Speaker Change: The second half of the year is always the strongest for us and based upon what we've seen the Destocking I don't have no.
Douglas Kaye: So the second half of the year is always the strongest for us, and based upon what we see I have no, nothing comes to mind that would prevent that being continuing in 2025. Okay, so still a second half, a sharp second half skew. Okay. Very good.
Speaker Change: No.
Speaker Change: Nothing comes to mind that would prevent that banner.
Speaker Change: Continuing and in 2025.
Speaker Change: Okay.
Speaker Change: So still a second half sharp second half skew okay.
Speaker Change: Very good a couple of other sort of ones for me can you educate us on the implications here in corn acreage shifting from soy to cotton.
Douglas Kaye: A couple other sordid ones from me. Dak, can you educate us on the implications here in corn acreage shifting from soy to cotton, you know, kind of on a relative basis, the level of crop protection products applied on an acre of corn versus an acre of soy? Yeah, so the USDA is projecting an increase in corn acres over soybean acres that shift, and it normally runs around 90 million acres each. Over the history, it has shifted to this year to corn acres. It was shifted last year too, but it's shifted more since 95-85 kind of arrangement.
Speaker Change: On a relative basis.
Speaker Change: The level of crop protection products supplied on an acre of corn versus an acre of soy.
Speaker Change: Yes so.
Speaker Change: The USDA is projecting an increase.
David Johnson: Corn acres over.
David Johnson: Soybean acres that shift and it normally runs around 90 million acres each.
David Johnson: Over over the history. It has shifted to this year to corn acres.
Speaker Change: We shifted last year or two but it shifted more so its $95 85 kind of arrangement our portfolio Doug Linde.
David Johnson: Lend itself.
Douglas Kaye: Our portfolio does lend itself to corn acres with our corn and soil insecticides. So, yeah, we are seeing greater usage in that area in the corn acres, and our sales of corn and soil insecticides are slightly up this year. Okay, very good.
David Johnson: <unk>.
David Johnson: Corn acres with our corn soil insecticides. So yeah. So we should we are seeing greater usage in that area on the corn and the corn acres and our sales of corn and so on.
David Johnson: There are slightly up this year.
Speaker Change: Okay very good and then David one last one for you and I'll get back in queue.
David Johnson: And then, David, one last one for you. And I'll get back in queue. Good to hear your conviction regarding free cash flow this year. Can you educate us on your expectations for cash taxes this year, given the operating losses that you're coming off on? Yeah, we've got some cash taxes to be paid internationally. So I think we're in the four or five million dollar range. So yeah, the tax situation is kind of difficult at the moment. Okay. That's directionally helpful. Very good.
David Johnson: Good to hear your conviction regarding free cash flow. This year can you educate us on your expectations for cash taxes. This year, given the operating losses that youre coming off of in 'twenty four.
David Johnson: Yes, we've got some cash.
David Johnson: Taxes to be paid.
David Johnson: <unk>. So I think we're in the $4 million to $5 million range.
David Johnson: So.
Speaker Change: Yes, the tax situations kind of difficult at the moment.
David Johnson: Yes.
David Johnson: Okay.
David Johnson: That's directionally helpful very good alright, well I. Appreciate you guys, taking my questions best of luck here running out Q2, I'll get back in queue.
Benjamin Klieve: All right. Well, I appreciate you guys taking my questions. Best of luck here rounding out Q2. I'll get back in queue. Thanks, Ben. Thank you once again.
Pam: Thanks Pam.
Speaker Change: Thank you once again, just as a reminder, ladies and gentlemen, it is star one if you have any questions or comments.
Unknown Executive: Just as a reminder, ladies and gentlemen, it is star one. If you have any questions.
Speaker Change: Our next question is coming from.
Speaker Change: With Gabelli funds your line is live.
Wayne Pinsent: Our next question is coming from Wayne Pinsent with Gabelli Funds.
Speaker Change: Hi, Thanks.
David Johnson: Thanks, guys for taking my question.
Wayne Pinsent: Hi, Dak. Thanks, guys, for taking my question. Just, Dak, you mentioned, you know, with inventories that historically low levels, any potential snapback would drop back down to the bottom line.
David Johnson: Just that you mentioned with inventory.
David Johnson: Historically low levels any potential snapback would drop back down to the bottom line.
David Johnson: And also <unk>.
David Johnson: Confidence in the 15%.
Douglas Kaye: and also, you know, confidence in the 15% margin target, just wanted to see if you had any thoughts on the cadence of that over the next few years and in 2026. Thanks, thanks, Wayne. I appreciate the question. Yes, I mean, there's nothing changed in my outlook of the company and the goal of 15% EBITDA margin over the long term. You know, with the fact that the decrease in sales is directly related to the de-stocking that we saw, and specifically in the US market. It tells me that the sales on ground or the product on ground is still going out at the same level.
David Johnson: Margin target just wanted to see if you add any.
David Johnson: Thoughts on the cadence of that over the next few years and in 2026.
Wayne: Thanks, Thanks, Wayne I appreciate the question.
David Johnson: Yes, I mean, there's nothing changed in my outlook of the company and the goal of 15% EBITDA margin over the long term.
David Johnson: With the fact that the decrease in sales is directly related to the destocking.
David Johnson: We saw and specifically in the U S market.
David Johnson: And does it tells me that the sales on ground on.
David Johnson: Product on ground is still going out at the same level. If you look at.
David Johnson: The change in our Destocking versus the change in our sales.
Douglas Kaye: If you look at the change in our de-stocking versus the change in our sales variance in the first quarter, they're pretty much aligned. So it tells me that the products still are going on ground. We just got to get to a normalized level of inventories in the channel.
David Johnson: In the first quarter they are pretty much aligned.
David Johnson: So it tells me that the product still going on a ground, we just got to get to a normalized level where.
David Johnson: Inventories in the channel so overall perception.
David Johnson: Isn't changed there on the long term potential for the company for our EBITDA, a 15% margin.
Douglas Kaye: So my overall perception hasn't changed there on the long term potential for the company for EBITDA 15% margin.
David Johnson: Okay. So any thoughts on improvements specifically in 2020.
Douglas Kaye: Okay, so any any thoughts on improvements specifically in 2026? If you if you start to see a return to maybe, you know, normalize going from flat now on the rest of the product portfolio to low single digit normal? top line growth. We are projecting growth in 2026 in our five-year plan. That is, it's better than the industry average, of course, is what we're projecting as we right-size and go through the transformation process on our commercial activities, specifically in the U.S. And we have seen some real positive signs on the transformation process and the commercial activities in Brazil, specifically.
David Johnson: <unk> will see a return to maybe.
David Johnson: Normalized going from flat now on the rest of the product portfolio to low single digit normal.
David Johnson: Top line growth.
David Johnson: We are projecting growth in 2026, and our five year plan that is.
David Johnson: Better than the industry average of course.
David Johnson: <unk> as we as we rightsize and.
David Johnson: And go through the transformation process on our commercial activities specifically in the U S and we have seen some real positive signs on the transformation process and the commercial activities in Brazil, specifically.
David Johnson: The transformation process was executed the first this year.
Douglas Kaye: That transformation process, it was executed the first of this year. Sales are slightly down, but the contribution margin is up for Brazil. So, we see execution there in the commercial activities, and we will continue to work towards that in 2026.
David Johnson: Sales are slightly down but the.
David Johnson: Contribution margin is up from Brazil, So we see execution, there and the commercial activities and we will see we will continue to work towards that.
David Johnson: 26 in the U S market. The U S market has been kind of compensated with the transformation process and 25% due to the destocking and the pressures that we've seen by all the competitors in the marketplace.
Douglas Kaye: In the U.S. market, the U.S. market has been kind of complicated with the transformation process in 2025 due to the restocking and the pressures that we've seen by all the competitors in the market.
David Johnson: Alright, Thanks, Zach on and look forward to following up soon.
Wayne Pinsent: All right, thanks, Zach, and look forward to following up. Thank you, Wayne.
David Johnson: Yes. Thank you.
Speaker Change: Thank you. Our next question is coming from Rosemarie <unk>.
Rosemarie Morabelli: Our next question is coming from Rosemarie Morabelli with GoodBelly. Your line is Thank you.
Speaker Change: <unk> with Gabelli funds your line of sight.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: Yes.
Speaker Change: To add a couple of questions to Wayne's comments.
Rosemarie Morabelli: Good morning, everyone. I just would like to add a couple of questions to Wayne's comments. You mentioned that you have lowered pricing due to the competitive environment. Could you give us a little more details as to which categories are you seeing more generics, and is that the main issue, or is it any particular categories, fungicide, herbicide, insecticide, etc.? If you could help us understand what is happening and whether you see that actually reversing in the second half, for example, when demand... you know, increases with the seasonality.
Speaker Change: You mentioned that you have.
Speaker Change: No its pricing due to the competitive environment.
Speaker Change: Would you give us a little more detail as to which categories.
Speaker Change: You're seeing more <unk> and is that the main issue.
Speaker Change: And is it any particular categories synergy side herbicide insecticide <unk> if.
Speaker Change: If you could help us understand what is happening and whether you see that actually reversing in <unk>.
Speaker Change: The second half for example, when demand.
Speaker Change: Increases suite this is a night.
Speaker Change: <unk>.
Speaker Change: Great question Rosemarie, Thank you for that.
Douglas Kaye: Great question, Rosemary. Thank you for that. Yes, it was a very specific, very unusual situation in Q1 with our competitors. There was some very unusual activity that took place that's not normal for end-of-quarter type situation. I think that's because all of the market was down. And it was really around, I'd say it's twofold. It was really around competing for our customers' space and net trade working capital, their inventory headroom. Not necessarily a competition on specific product basis, but it was more related to how much they were willing to take on in inventory at the end of the quarter.
Speaker Change: Yes, it was a very specific.
Speaker Change: Very unusual situation in Q1.
Speaker Change: With our competitors.
Speaker Change: There was some very unusual activity that took place that is not normal for end of end of quarter type situation I think that's because all of the the market was down and it was really around I'd say its two fold it was really around competing for our customer.
Speaker Change: Space in net trade working capital inventory headroom.
Speaker Change: Not necessarily.
Speaker Change: Competition on specific product basis, but it was more related to how much they were willing to take on in inventory at the end of the quarter. They just we're not willing to take on much and so there was a lot of competition a lot of discounting that took place at the end of the quarter.
Douglas Kaye: They just were not willing to take on much. And so there was a lot of competition and a lot of discounting that took place at the end of the quarter around that. Now, I will say that we did have competitive pricing, and Folex as I continue to see generic pressure. But I believe looking forward, we're going to be in a very good position in Folex going forward because of our U.S.-based production. Our competitor in the marketplace is not from the U.S., and their supply was left over from last year. So I think that's going to work its way out, and we see improvement there long-term.
Speaker Change: Around that now I will say that we did have.
Speaker Change: Hi.
Speaker Change: Competitive pricing and <unk> has that continued to C.
Speaker Change: Generic pressure, but I believe looking forward, we're going to be in a very good position.
Speaker Change: And <unk> going forward because of our U S based production.
Speaker Change: Our competitor in the marketplace is.
Speaker Change: Not from the U S and their supply was leftover from last year. So I think that's going to that's going to.
Speaker Change: That's going to work its way out and we see improvement there long term.
Speaker Change: Thank you.
Rosemarie Morabelli: Thank you.
Speaker Change: Thank you.
Speaker Change: We have no further questions in the queue at this time I would like to hand, it back over to Mr. King for any closing remarks.
Douglas Kaye: As we have no further questions in the queue at this time, I would like to hand it back over to Mr. Kaye for any closing remarks. Thank you again today for your time and for your continued interest in American Vanguard. The first quarter of 2025 was a challenge for us and the entire agricultural chemical industry. But as I indicated, we believe that the customer activity levels are beginning to pick up and will continue to do so as channel inventory levels have been worked down to very low levels. We're also happy to have caught up in our financial filings and appreciate the patience of our investors have shown during this time.
Speaker Change: Yes.
Mr. King: Thank you again today for your time and for your continued interest in American Vanguard. The first quarter of 2020 was a challenge for us and the entire agricultural chemical industry.
Speaker Change: As I indicated we believe that the customer activity levels are beginning to pick up and we will continue to do so as channel inventory levels have been worked down to very low levels.
Speaker Change: Also happy to have caught up in our financial filings and appreciate the patience of our investors have shown during this time.
Speaker Change: In closing our focus remains clear to improve our cost structure streamline the balance sheet and be laser focused on providing the products our customers desire.
Douglas Kaye: In closing, our focus remains clear to improve our cost structure, streamline the balance sheet, and be laser-focused on providing the products our customers desire. We greatly appreciate your ongoing support and engagement during this period. And as always, we remain committed to transparency and open communication. Please do not hesitate to reach out with any further questions.
Speaker Change: We greatly appreciate your ongoing support and engagement during this period and as always we remain committed to transparency.
Speaker Change: And open communication.
Speaker Change: So please do not hesitate to reach out with any further questions.
Speaker Change: Thank you for joining us today and have a great day.
Unknown Executive: Thank you for joining us today, and have a great day. Thank you ladies and gentlemen.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's conference and you may disconnect. Your lines at this time and we thank you for your participation.
Unknown Executive: This does conclude today's conference and you may disconnect your lines at this time. We thank you for your participation.