Q3 2025 American Vanguard Corp Earnings Call
Greetings and welcome to the American Vanguard third quarter 2025 earnings conference call.
At 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 keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host, Mr. Anthony Young, Director of Investor Relations. Sir, the floor is yours.
Thank you, operator. Good morning and welcome to American vanguard's. Third quarter 2025 earnings review.
Our prepared remarks will be led by DAC K chief executive officer and David Johnson, Chief Financial Officer.
A copy of today's release, along with supplemental slides, is available on our website.
A replay of the webcast and transcript from this event will be available on our website shortly as well.
Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include non-GAAP figures and forward-looking statements.
An actual results May differ materially.
please refer to the cautionary language included in our press release, and slides into the risk factors described in our SEC filings, all of which are available on our website,
it is now my pleasure to turn the call over to CEO. D k.
Thank you, Anthony, and welcome, everyone, to our third quarter 2025 earnings conference call.
When I joined the team 11 months ago, my director was simplify prioritize and deliver and that is what we are doing our adjusted. Even I increase from 1.8 million in the year ago, period to 8.2 million in the current quarter.
An increase of more than 350%.
The third quarter is typically our weakest quarter, and the fourth quarter is seasonally our strongest. We expect a strong finish to this year.
While we operate through the agricultural down cycle, we are controlling these things that we can control such as lowering, net trade, working, capital, lowering Factory costs and operating expenses while we've positioned the company to have substantially higher earnings. When the agriculture Market rebounds, I'll provide my overview of the current state of the Agricultural market and a few moments
I am pleased with the progress that we have made so far. Gross profit. Margins have increased by 300 basis points over the year ago, period.
A significant portion of this Improvement, can be attributed to the operations team.
Additionally, we are optimizing our manufacturing effort.
For example, by transferring production from LA to Alabama to maximize production efficiencies.
I anticipate that most of the cost savings that have materialized during this quarter will stick with the company for the long term.
We have also taken steps to improve our operating expenses.
These expenses have decreased by approximately 6 million as compared to Q3 of 2024 and by 14 million in the 9-month period.
The reduction in spending is companywide.
While we are pleased with what we have accomplished so far, we are still laser-focused on watching our expenses. Controlling expenses should not be viewed as a short-term initiative.
but as a change in culture at the company,
While we still have transformation listed on our statement of operations, this quarter, we are transitioning all these activities to the internal team.
We have the talent to continue with the transformation and we will now be referring to these efforts as our business Improvement initiative as we take full ownership.
As we seek to simplify the business, we are renaming our non-crop business to be the specialty business. We do not believe the non-crop nomenclature adequately, reflects the technology, patents, and Innovation that are the foundation of this business.
While the specialty business is smaller than our crop business, it has critical mass with important contracts for mosquito control, and Advanced Technologies that are being used in home pest control.
Ornamental and Greenhouse applications Golf Course Lawn and Landscape care.
Our current financials still refer to this business as non-crop.
We expect our future financials will affect the name change.
While the business improvement initiative is well underway, I think it is important that we also spend a little bit of time talking about the growth opportunities that are in front of us.
We have not talked about this much in past conference calls, but we are creating an impressive growth portfolio. That will potentially contribute. A 100 million of net sales over the medium term.
We will achieve this growth on top of our already proven products, which will be growing as well through Geographic expansion and expanding into new crops and sectors.
This additional volume should also help with our factories' utilization.
Further lowering the cost structure for the company overall.
The development team is focused on growing. Our crop protection portfolio. Now that sass is not a priority.
Turning to what we are seeing in the agricultural economy.
We are in the midst of a strong harvest in the US. However, trade tensions with China. Have created a cloud over the industry, particularly with us soybean Growers, where important trading channels remain unclear
While there are many reasons to be cautious, there are reasons to be optimistic such as lower Channel, inventories of our products, a decreasing interest rate environment.
Recent news indicating that China is restarting soybean purchases and the possibility for additional subsidies for Growers.
Against this uncertain backdrop. We are confident in our full year 2025 adjusted ibida, Target of 40 to 44 million.
We have lowered our forecast for net sales to $520 million to $535 million in 2025, to reflect various market conditions, primarily in Mexico, Central America, and Australia.
We will continue to control expenses while ensuring that we are operating our manufacturing facilities as safely and efficiently as possible to maximize our gross profit margin.
We are confident, we are setting the company up for success in 2026 and Beyond.
I will now turn the call over to our CFO, David Johnson. David?
Thank you. Dak. Good morning, everyone.
Our business Improvement program is clearly having a positive impact on our financial performance. And we expect further improvements over the coming quarters.
Our third quarter, 2025 us, gaap Revenue was 119 million as compared to 118 million in the same quarter of 2024 a 1% increase.
We should note that the third quarter of 2024 Revenue was impacted by a non-recurring item and that the adjusted Revenue would have been 130 million in the prior year.
Quarter over quarter, our us crop business performed well and offset weaker performances for both our specialty and international businesses.
In US crop. We saw a mixed bag with, on the 1 hand continued weakness in the potato Market that impacted our soil fumigant sales. On the other hand, We performed strongly on both herbicides up about 50%.
And granular soil insecticides are up about 5%.
Generally, for our U.S. crop business, we believe that channel inventories are low, and we have seen pricing pressure ease.
Within specialty, we saw some weakness in our Horticultural business which was to a degree affected by the product liability matter.
Having started the quarter strong, business picked up as we progressed through the quarter, as our customers' trust began to return.
Furthermore, our mosquito adulticide products saw slow sales after a weak season with fewer storms, leaving vector control districts in key states with slightly longer inventory.
To drop lower-margin business, to allow our organization to focus on servicing higher-margin customers and products.
In Australia, we have seen significant droughts in key regions, resulting in lower sales.
Similar weather patterns have impacted some areas in Central America, while the market in Mexico has not fully docked.
On a U.S. GAAP basis, gross profit margin increased to 29% during the quarter, as compared to a gross profit margin of 15% in the year-ago period.
A few months ago, I mentioned the non-recurring item that affected sales this time last year. If I made the same adjustments to gross margin, we would have recorded 26% in the third quarter of 2024.
We continue to have a tight grip on our operating expenses.
We cut our selling expense for both the 3 and 9 month periods. Primarily as a result of implementing a more streamlined, Global organization structure,
General and administrative expenses are also down following the organization redesign. However, those cost savings are masked by increased acres for incentive compensation.
Reflecting our year-to-date financial performance.
We have made larger cuts to our research product development and regulatory costs.
focusing on return on investment for product development projects and by cutting out the spending on the Sass project,
Overall, our operating costs are down 11% or 5 million in the 3-month period and 18 million or 14% year to date.
Looking forward to the final quarter of the year. As Dak mentioned, we expect most cost savings that we have achieved to stick.
Although product development spending is historically higher in the fourth quarter,
Having said that the R&D costs are forecast to be below last year.
Including in the 9-month saving just discussed spending on transformation activities reduced by about 11 million.
That was a planned reduction as we are now. Driving business improvements from in-house resources,
Off setting that saving, we incurred an expense in the third quarter of 2025 related to the product liability claims.
With regard to those product liability claims, which relate to the specialty business, the company made the decision that we have sufficient information to record a liability, for the expected costs of settling the claims.
We have set up the necessary resources to administer and the claims process and we have commenced with claims assessment and payment processes.
We expect the expense. We have recorded this quarter to be fully reimbursed in the future, by a combination of funds from the app fault counterparty Andor their insurers.
We have made an assessment and determined that it was in the company's best interest to proceed with settling customers claims. Even though at this point we do not have sufficient information to be able to record the offsetting indemnification assets.
Now, turning to the balance sheet, our improved siop process has allowed us to operate with comparatively less inventory than we have had in the last 2 years. Our inventory is approximately 47 million less than it was at this time last year and as is usually the case with our, for our annual business cycle. We expect to meaningfully draw down our inventory. During the fourth quarter of the year,
Our net trade working. Capital is approximately 24 million lower than this time last year.
We keep a sharp focus on these balance sheet items as we seek to limit accessing our evolving credit line.
We have decreased our net debt as compared to the same period of last year by approximately dollars to 165 million.
While our net debt only modestly reduced we bought in less early pay during the course of this time. Last year.
While customer interest was high, we made the strategic decision to seek significantly less early pay in the third quarter of 2025 than we did in 2024.
As usual, we will be working with customers on early pay options during the fourth quarter of this year.
As we continue to improve the business, we will continue to work with both our current lenders and potential new lenders to restructure our debt.
We believe that as we continue to deliver lenders, should be drawn to our improved profitability and cash flow profile.
We look forward to providing the investment community with an update on this effort at the appropriate time.
As we said on the last call, we expect 5 to 6 million of capex in 2025 coupled with our expectation of 40 to 44 million in adjusted ibida for the full year,
Thus, we expect to generate reasonably attractive cash flow in the fourth quarter of the year, we will apply virtually all of this free cash flow towards debt paid out.
With that, I'll turn the call back to our CEO. Zach
Thank you, David. Before opening up the call to questions, I would like to thank the team for implementing the changes that are necessary to improve this business. Your hard work is delivering tangible results.
While the market slowly improves, we will continue to focus on things. We can control, improving our manufacturing efficiency, keeping our close eye on net trade working, capital and minimizing our operating expenses.
While focusing on long-term growth opportunities.
This is a business that has always been a resilient 1 with products that are proven and effective and backed by the best technical team in the industry.
It is also a business that can produce even greater cash flow. Now that we're globally integrated organization,
The future is bright for American Vanguard with a robust product pipeline, improve, call structure and a focused team. We will remain on track to be the trusted provider of proven Agricultural and Environmental Solutions with that. I'll open up the call to questions, operator.
Thank you at this time. We will be conducting our question and answer session.
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1 moment, please while we pause for questions.
Thank you. Our first question is coming from Mike Harrison with C Port Research. Your line is live.
Hi, good morning.
Good morning, Mike. Good morning.
I uh, I was hoping we could start out by talking a little bit about some of the trends that you're seeing across, uh, the different portions of your business. You know, maybe starting with the strength in, in US crop. It sounds like the the herbicides, uh, area was, was very strong for you. Can you, uh, talk about, uh, what was driving that and and maybe how you're feeling about momentum into the fourth quarter. And, and in the first part of next year,
Sure.
Yeah, yes crop was was able very uh performed very well in Q3.
Um, as you mentioned, the herbicides impact invoke where uh, performed very well um year over year um, as well as Aztec in the quarter.
um, what we're seeing is, uh, more
More normal demand in the US crop business. Therefore, we're not having to incentivize as much as we've had, as we did in Q q1. Um, there's a lot more uh, upbeat around the uh, in the, in the Channel with distribution. Um, there's still a cloud overhanging the farmers in the marketplace around the, uh, the tariffs and the impact on soybeans primarily.
But uh, in general, we we see, uh, corn Acres. Uh, they were up this year and we, they are being projected up next year. So that bonuses well for our portfolio, uh, in the US.
Right? And then on the the non-crop or or what you're calling the specialty side of the business, um, it sounds like maybe the the product liability, uh, situation, uh, dragged on part of that business is that something that is more of a 1-time issue? And we get back to growth in uh, in specialty as we look into the fourth quarter or is that product liability issue, something that's going to uh, continue to drag for a few more months or quarters.
Reimbursed.
For our claim. There we are completely not at fault in the, the counterparty is
Um, related. It was a drag on the the first first part of Q3.
In the, in the specialty business.
Um, we started to process these claims and get communication to the customers more readily. The middle to end of the quarter seems to be flowing much better. Now, the market has been very receptive. Actually, customers have been very pleased with the fact that we have started processing these claims in light of the situation. So, I don't believe that it is a long-term impact. I believe you'll see growth in Q4 and in Q1 for specialty.
All right, that's good to hear. And then, um, David, I was hoping you could talk a little bit about free cash flow generation for this year. I believe, uh, you use the term reasonably attractive. Uh, uh, is there any way to put, uh, any numbers, uh, around that, uh, seems like you're making, uh, good progress on working capital. Uh, and that should, uh, uh, improve even further during the fourth quarter,
Yeah. I mean we had good cash inflow in the third quarter um, in comparison to the pro to the performance in the first 2 quarters. So that was encouraging. It wasn't quite as big as this time last year. But as I mentioned, in my prepared remarks, we got um we went out for and got less than uh we got last year in terms of early pay um we got more than we looked for so that was good news and um, our cash flow in in the final quarter will depend to a degree on on the early pay but
Uh, it looks pretty good at this point in time. So um, I'm expecting uh, inflow similar to last year, um, which was quite strong
All right. And then uh, last question for me is is just on the transformation process. It it sounds like uh transferring that uh to the internal team is a really important step. Uh, I was hoping
They were losing my.
Uh, sorry, can you still hear me?
There, we lost you for a minute.
Um if you could repeat the question mark appreciate it. Yeah. Um transferring the uh the transformation process to the internal team sounds important um can you talk about how meaningful that is and maybe talk a little bit about um how we should think about potential savings uh and and further actions into next year.
Yeah, thanks Mike. This is important transition to the transformation. Um
Process to our business um, Improvement initiative. Uh it's primarily to to to tweak it and manage it um internally and give accountability.
To the plan as we go forth. There's a lot of potential as I've said uh a few times.
On uh, investor calls. I believe that the Kearney had a great set of initiatives that that created a blueprint to go forward with
um, but I, I do believe that the uh, the plan
Was really looking, uh, at low hanging fruit. And there's a lot of other fruits on the tree that for us to grab specifically in the manufacturing efficiencies and it. And as we get into the siop process more, um, formalized. We will see. We'll see benefits there throughout throughout the, uh, the p&l and ibida.
All right, thanks very much.
Thanks Mike.
Time key.
Our next question is coming from Wayne pinsent with gabelli funds. Your line is live
Hi Dak. Thanks for uh, taking the questions.
And congrats on a a nice nice Improvement there in the quarter.
Um, thank you. Thank you.
Just wanted to, you know, a competitor, uh, on their call. Recently, noted increased generic pressure.
Uh, in the morning. Um, just wanted to get your thoughts there and if that's impacting you guys at all. I know you noticed that pricing is starting to stabilize, but any color there?
Yeah. Um,
Um, we feel like we're in a very good spot this year. We've seen an increase in volumes due to various market conditions. I would say, um, I think also the benefit that we have.
Being a US domestic supplier.
And producer and specifically on this product I was talking about Flex. Um, we have we have a benefit there and we should see some increased volumes in 2026 with uh with flex more planning for it as well.
So, all there's always going to be a generic competition in the marketplace.
It's, um, it's just always important to be, uh, cognizant and um, and looking forward to those situations and making sure.
That, uh, you're planning accordingly, is what I would say.
Okay, so nothing significantly different than what you've been seeing.
Right. Correct.
um, and then quick, you know, cortiva announced that there's
Splitting up their seed and crop business, just any positives or negatives for their, uh, their forward-looking?
Um,
I think there's going to be some consolidation. I mean, this is very broad. I think there will be some consolidation in the marketplace with what the other majors are planning and doing as well.
The potential with Bayer um, what they might do as well. So I think there's ultimately there's going to be some consolidation and the marketplace in the next 12 to 18 months and with consolidation uh we see a strong opportunity to get back to what we would.
What we were doing?
Uh, ten years ago, we focused on building a portfolio of products, um, off the basics, especially when they go through these consolidation periods. So, in the next 12 to 18 months, I think there will be a real opportunity to add to the portfolio, um, through acquisitions. I think that's the most positive aspect of that.
Uh, and then just, I know, I know you're not going to give guidance on 2026, but...
Just thoughts on volume and pricing that Trends. I know you mentioned pricing and improved. It seems to be stabilizing. Um just what you're seeing and if the crop protection market stabilizes and returns to more normalized low single digit growth. How how do you think avd could perform in that environment? Now after a few, you know, down years
I think we'll perform well. I think the way nothing.
You know, we've set the company up to perform very well in 2026. There's the transformation planning for 2024.
You know, reorganizing the team, um, implementing global best practices, um, in 2025 is setting the stage for a very, very upbeat 2026 outlook, in my opinion.
I think the team is well positioned. The organization is well positioned.
We've got clear vision of who we are and where we're going to go.
Um, I think the pipeline is growing there. It's not going to be there in 2026, but it's going to be there in 27 28/29. So we're going to get there. And, and I think with the, uh, the current situation with the the market stabilized, the channel, inventories lower, we should definitely see volumes increase in 2026.
Okay. Great. And then let last 1 for me. Um and and you just touched on it there the the hundred million dollars of net sales over the medium-term from from the pipeline at any more color on that and and kind of the Cadence of of how you can see that playing out.
Yeah, great question, and thank you for asking it. Um, is this something I'm excited about? It was. Yeah.
When I first got to American Vanguard, I was a little bit disappointed, um, at the pipeline of products, um, that we had there had here. Um, and I think it was in the, it's because of multiple reasons they sent past technology was was so so heavily and focused that, um, the new products were not not not in Focus, so to speak having said that, as we got into the, the this year and started organizing and analyzing. Um, there is there was some very good products in the, in the product pipeline that we've brought through and cleaned, um, clearing clear through the stage gate process. Um, to in order to formalize it to get to that 100 million dollars that we're talking about their um it's there's some really nice products that spread pretty broadly across the US, crop International markets, and in specialty. Um, it's like I said it there is a gap here. We're not going to see fruition on those new products. So,
To bring up a new product to Market. So I think what we've what we've gained through this last year is the ability to, um, to put the new product pipeline in focus and give accountability to the timeline of bringing these new products to Market. And, uh, I'm more. I'm really upbeat about it now that we, uh, put it on paper and, uh, and looked at it and validated them. So it's pretty exciting.
Okay, thank thanks a lot. Uh, good luck with everything.
Thanks Ryan. Thanks for the questions.
Thank you. Our next question is coming from Charles rules with Cruiser Capital. Advisors your line is life.
Hey Doug. Good morning.
Morning, Charlie.
Hey buddy. Uh I just want to go through a couple of numbers on the free cash flow issues just to make sure I got them down so they're properly. It looks like if you do something between 40 and 44 million of you but uh
I take out, let's say 5 or 6 million in a capex.
Maybe there's a million or 2 million dollars of cash taxes at most. I don't think there's many, there's much to cash taxes. And then interest expense is 20
And then maybe working capital is a source of funds. I'm assuming working capital, it maybe is 5 or 6 million dollars of the social funds for the full year. You get free cash flow of about 20. Is that sort of the way to look at it.
That's where all the pencil is up. Uh, exactly. I think interest we should be a little bit under 20 but yeah that's a good estimate.
um,
good estimate Charlie.
Okay, then if I if I if I extrapolate that deck a little further out, right now, you'll leverage ratio at 1 165 of e but uh
I'm sorry. 160. I wish you were 165 165? You have debts of of net debt.
And 40 to 44 million dollars of debt. But, uh, your leverage ratio is running 4 times. So my next year, let's say you can get the numbers up towards something in the 50 Zone.
And you can get down the debt by another 20 million.
You should be able to get 1 turn of leverage reduced. Is that sort of the goal you're trying to get to, Deck?
Absolutely get that number. Um, under 3 is the primary goal that we're working for their
So, that's sort of what you want to do when you get towards a refinancing issue, right?
Yes. Yes, indeed. We've we've shown pause momentum in Q2 and Q3 with our performance. Um,
And we we we are in the process of the mix of the uh, 3 financing initiative right now, right. In the middle of it.
Then, then, then, then the last question I want to get to, which was asked earlier about Corteva. Obviously, we're seeing companies being set up to take advantage of consolidation.
Then you see this issue with FMC.
And their let's call it their, their, their troubles.
Can you give us some color on that situation too deck? If you if you could just to say, if there's if there's something more
More problematic there or is it something that's not as problematic as not as problematic as we as as the markets suggesting. I I'd love to hear your color on this whole thing because
we're seeing now differentiation between different, uh, issues of the egg industry.
Yeah, I'm going to be hesitant to speak about that 1 competitor. Um Charlie. I have I have some thoughts on it. Um,
But you know, I I really don't want to. I really don't want to go there if that's okay. Okay.
that's all I understand because it is a very leopard company and it seems to be more troubled with their products and their
their, it could, it could be much more trouble than we think. That's what I was just wanted to get your thoughts, but I understand, you're not commenting, okay? Anyway congratulations on moving. The company forward to look forward to your next quarter as well. Thanks deck.
Thanks, John. Thanks for the questions.
Thank you. As a reminder, ladies and gentlemen, if you have any questions or comments, please press *1 on your telephone keypad.
Our next question is coming from Dmitri Silverstein with Water Tower Research. Your line is live.
Point Improvement on the year-over-year basis.
Yes, good to meet you. Great question. And thanks for asking.
You know, I think it's a it's a combination. It's not 1 specific thing. Um there.
It's a combination of sales, um, starting to flow more easily, um, into the marketplace specifically in the US without so much incentives to, I've seen the, uh, the siop process um, is allowing for that, uh, inventory replacement cost to be funneled through the, the p&l now, um, as as we've worked off, a lot of that, that old inventory, which is up in the margin, but I think also the uh the manufacturing efficiencies we uh through the which is both the combination of focus on the manufacturing activities as well as
Um, the community coordination that can communicate between, uh, demand planning, production planning, and procurement is allowing for expanded margins there as well. So, I think it's a combination of, uh, several things. Um, and mostly, it's the, uh, the great teamwork that we've got going on at American Vanguard.
Thank you for that granularity. So it sounds like you didn't have to be as promotional this quarter as you did at this time last year. So pricing or mix may have improved a little bit. Uh, in addition to your um, internal improvements as far as manufacturing, uh, costs themselves are concerned. Um is there anything in your, as you kind of look out towards the end of the year and early in 2026? Um, any concern?
Concerns on the, um, raw material situations, anything giving you, uh, issues or or giving you reason to expect that, uh, your costs are going to be going up, um, you know, faster than inflation. Let's call it.
um,
No, no Demetri. I mean we're really not. I mean we we've analyzed the Tariff impact heavily. There's some, but quite honestly, most of the Tariff impact is being is being offset by.
Um, lower costs for raw material that we're seeing. Um, so it's been mitigated quite substantially. We were just talking about one raw material just last week with the procurement team, and we're seeing a...
um, a nice downward, uh, trend on that raw material. Um, costing and so, uh, yeah, I don't I don't see anything and, um, in our, in our, in our colleagues, it's increasing at this point in time. Wonderful. And then the last question just, uh, sort of the the mood and the marketplace. You talked about inventory is getting more um kind of in the in a more appropriate level in the supply chain and for yourself internally. Um, given that there's a pretty strong Outlook. Uh, you mentioned the increase likely again next year in North America. Um, would you expect your your season in the fourth quarter in the first quarter to proceed, you know, more normal way? Where, where demand In the End Market is actually reflected in your results. Uh, and not so much from inventory clearing out of the channel.
Yes. Yes. I think the, I mean, personally, I think the inventory and, well, not personally, what we see from our data, um, from the systems. The third-party processor that we get is our inventories in the channel are...
Our products are very low and not or lower, um, in relation to Prior years. And so, uh, we feel that the inventories are down
Um, so the normalized buying is coming back. Now, what the normalized buying is is not going to, we don't believe is going to be building inventory. Um, but the, on an annual basis, the uh, the product being being bought and sold should be consistent. So, uh, we don't feel that at this point in time, unless there's a Black Swan event that they will start building inventories again, um, to the level they did. Right? Right before. Co just because the market,
the market has enough Supply and and the customers know that now,
Understood, thank you very much. That's all the questions I have.
Thank you. We'll meet you for the questions.
Thank you. Ladies and gentlemen, we have reached the end of our question and answer session and the vertical
This will conclude today's call and you may disconnect your lines at this time and we thank you for your participation.