Greetings. Welcome to the American Vanguard Corporation Second Quarter 2020 Financial Results Conference Call and Webcast. Please note, this conference is being recorded.

Thank you very much, Alex, and welcome everyone to American Vanguard's Second Quarter and Midyear 2022 Earnings Review. Our speakers today will be Mr. Eric Wintemute, Chairman and CEO of American Vanguard; Mr. David Johnson, the company's Chief Financial Officer; and also assisting in answering your questions, Mr. Bob Trogele, the company's Chief Operating Officer. Before beginning, let's take a moment for our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Those factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks that are detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as of the date of this call, and such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Thank you, Bill. Moving on to Slide 3 on the agenda. Before we start, I want to discuss our 10-Q filing, which we completed yesterday afternoon, and our earnings release this morning. In the past, we were asked to file our 10-Q beforehand to give everyone a chance to read it for more in-depth questions. Typically, we have also released earnings prior to market opening and conducted our call after. We believed that during times of unusual earnings, it would be better to release them at the same time after the market closed. This quarter, we met or exceeded expectations. We finalized our Q yesterday and today is the last day for a timely filing. We have faced some issues in the past while processing the filing. We did not anticipate the kind of reaction we received today and apologize; in retrospect, it was a mistake. In the future, we won’t prep our 10-Q unless necessary and will communicate that. Now, I’ll make a few remarks, then hand it over to Bill, and touch on our growth initiatives before we open for questions. Moving to Slide 4, regarding revenue growth, these are our targets from March: 8% to 11% revenue growth, 38% to 40% gross profit margin, 31% to 33% operating expenses, interest expense similar to 2021, and a mid-20s tax rate. The debt-to-EBITDA ratio without acquisitions at year-end should be below 1, and could reach 2.5 with acquisitions. We project a 60% to 70% increase in net income, and we have translated this into a 24% to 28% growth in EBITDA percentage. In real numbers, this translates to a range of 79% to 81%, with 79% being our highest EBITDA ever, achieved in 2012. At the halfway point, our revenue growth has actually exceeded our initial targets. Gross profit margins are above the range we provided. Operating expenses align with our targets, and interest expense has decreased by 40%. Unless we make significant acquisitions by year-end, we expect to be below our 2021 figures. Our current tax rate is at 30%, and we anticipate it to be around 27% for the entire year. The debt-to-EBITDA ratio stands at 1.33x, but we expect it to be below 1% without acquisitions. For the halfway point, our net income is up 104%, surpassing our target, and EBITDA has increased by 40%, also ahead of our forecast. Moving on to Slide 5, we have a few highlights to cover. Revenue has increased by $47 million. When looking at this increase in relation to price versus volume, 45% or $21 million is due to price increases, while 55% or $26 million is from volume growth. Our gross margins have risen from 39% to 41%, a 2% increase, primarily driven by factory performance, contributing about 1.5% to that gross margin increase. Our factories are operating well, and despite the challenges, we are performing effectively at this stage. Moving on to Slide 6. So we've talked about supply chain challenges in each of the past calls because it continues to be something top of mind. We talked about the availability of finding the resources, the cost of those resources, if you can find them, and then the logistics of getting them delivered to the plant on time for manufacturing or for actual sales. So one of the things we did was lay out our schedules for production that are laid out in advance of the year. We're working on the '23 schedule right now. In that process, we kind of know generally when we're going to be manufacturing different products. As I went through, when I listened to peers having all kinds of problems: packaging, bottles, caps, pallets, all the inerts, some of the solvents, and the intermediates. Again, any one of those issues or inputs that you don't have can cause delays and missed actual demand. What we stated is we were going to place orders for all of the raw materials we needed for the balance of the year, giving delivery dates that were out; just the concept that we're not going to do just in time. We're going to purchase and bring in advance. Our raw material inventory has doubled from where we were in '21. A lot of that is packaging and some inerts. The intermediates, we laid out a schedule for everything through the balance of the year and intend to take those as needed. Regarding forecasting costs and timely price increases, I think we've done very well with that, particularly as you look at what our cost increases have been for this first half of the year. In addition, those increases have been in advance, and therefore our margins are being maintained well. We've had increases in several additives along with a lot more air freight, as ocean freight costs are 10 times, calculating all of that; this is inbound freight. We're not typically doing deliveries by air freight, but the inbound freight is built in so that we understand what our true cost of goods is, and that filters down to the marketing people enabling them to figure out how they're going to recoup the increased cost. Lastly, in-season factory production adjustments, our calls have been ongoing on a weekly basis, looking at the schedules. I look at them every day making sure that we stay ahead of use, not necessarily ahead of demand because people are pushing for products sooner than they actually need due to scarcity, but making sure that we're sticking with the demand. Moving on to Slide 7. I included this to demonstrate the impact as we entered the 2022 season, which begins around September and October of 2021. We experienced significant demand from our domestic customer base, as they sought to secure materials, resulting in a backlog entering the first quarter of this year. We managed our available products for our customers, ensuring that no single customer over-ordered. Our U.S. customers reported high satisfaction, indicating that we performed better than any other suppliers in the U.S. The domestic second quarter was flat compared to the previous year, but we observe that international markets are picking up in Q2 as customers strive to ensure they have enough products to meet their needs. Moving on to Slide 8, looking at our core products and year-end targets: Herbicides, which is the #1 crop input, were previously weak for us but we're strong in insecticides. Our herbicide market targets are primarily within the corn market with the Impact product line. Over the last four years, we've added 10 new products mainly through acquisition, expanding our portfolio beyond corn to cotton, rice, sugarcane, soybean, and canola. We're up significantly in the first half and expect to finish the year up about 40%. For our soil insecticides, we expect about 17% growth. The factory in Alabama is producing our cotton defoliant Folex for an additional four weeks to meet excess demand. Due to this, we have pushed our Aztec production from November to December to address backorders. I mentioned Folex and Bidrin, which are performing strongly, leading to an expected 29% growth this year. With all the sales that we've done, we're tracking in-channel inventories. We have information from key retailers indicating they have more inventory that they plan to keep and are not returning to distribution. Overall, we estimate that inventories in channel will be less going into '23 than they were in '22, signaling a strong '23 season.

Thank you, Eric. With regard to the continuing pandemic, a small number of employees around our global business have experienced COVID infections during the last few months. It's good to report that all have followed appropriate safety protocols, isolated, worked remotely where possible, and have recovered or are recovering. Further, these isolated cases have not interfered with our operations. Moving to Slide 10, our sales performance for the second quarter of 2022 indicates that the company's net sales increased by 10% to $148 million, compared to $135 million this time last year. Within that overall improvement, our U.S. sales remained comparable to the prior year while our international sales increased by 26% to $64 million, accounting for 43% of total net sales, compared to 38% this time last year. Turning to Slide 11, with regard to gross profit performance, our U.S. crop business recorded an 11% increase in absolute gross profit on approximately the same level of sales as last year. This performance was largely due to price increases that we implemented as inflation was taking hold. Additionally, strong sustained global demand allowed us to run factories closer to capacity, achieving better overhead recovery than in the same period of 2021. Overall, U.S. crop gross margins improved from 43% to 47%. Our non-crop sales absolute gross margin improved by 3% on sales that were approximately flat quarter-over-quarter. The main driver for this improvement is related to better factory efficiency. Regarding our second-quarter international sales, we saw a 26% increase with an associated 28% improvement in gross margin. Strong sales of both the company’s products and sales of third-party products through our international distribution businesses in LatAm and Australia were the main drivers. Our international business experienced similar cost increases as the U.S. but managed to maintain margins through effective negotiations with customers. Overall, gross margin percentage was at 31% for both the second quarter of 2022 and the same period of the prior year. On Slide 12, we can observe the impact of factory performance on our overall gross margin. In Q2 of 2021, factory costs were at 3.3% of sales. For Q2 2022, factory under-recovery amounted to 1.1% of sales. On to Slide 13, which shows operating expenses for the quarter that increased by $5.9 million compared to the same period last year, making our expenses 33% compared to sales. As detailed in our public filing, the company spent $1.8 million on proxy defense activities, regarded as a nonrecurring cost. Absent those costs, our operating expenses would have been $47.2 million or 32% of sales. The underlying increase on net sales was about 10%. The main driver for the increased operating expenses, besides the proxy contest costs, were $1.3 million in freight costs, primarily due to volume, logistics inflation, and destination-driven reasons. As seen in Slide 14, our Q2 2022 operating income was 21% higher than the same period in 2021. We recorded lower interest expense in the second quarter of 2022 compared to the same period in 2021 due to two factors. First, we generated cash while spending very little on fixed assets and acquisitions, using funds to manage working capital needs, continue development of our precision application systems, investing in manufacturing assets, and paying dividends. Secondly, we benefited from the tail end of the 2021 Early Pay program, resulting in cash flow earlier than the due date for accounts receivable. From a tax perspective, our effective tax rate improved from 31.9% last year to 28.5% this year due to jurisdictional mix and stock vesting impacts. Overall, we reported $6.8 million in net income, compared to $5.1 million last year, representing a 33% quarter-over-quarter increase. On Slide 15, we report that for the first six months of 2022, sales were up 19% and gross margins in absolute terms increased by 24%. Both our U.S. and international businesses contributed to this strong performance. Operating expenses increased primarily due to proxy contest expenses, growth in sales affecting freight costs, and the adverse impacts of a strong U.S. dollar on inventory purchasing for our foreign subsidiaries, among other factors. Overall, operating costs were up 13% compared to a 19% increase in net sales, representing significant improvement compared to the 34% operating costs recorded in the first half of the previous year. As we move to Slide 16, during the second quarter, we increased cash generated from operations by 6% compared to the same quarter last year. We increased working capital, primarily resulting from decisions to procure key raw materials and finished goods early, ensuring supply continuity for the balance of this year and into 2023. In Slide 17, I note that at the end of June 2022, inventories were reported at $182 million, up from $175 million last year. We are working hard at managing inventories in the face of strong demand growth, procuring inventories earlier to secure product availability for the growing season. On Slide 18, with regard to liquidity, under the credit facility agreement terms, the company uses consolidated EBITDA to determine borrowing capacity. Our consolidated bank EBITDA for the trailing four quarters to June 30, 2022, was $75 million, compared to $59 million for the same period in 2021. At June 30, 2022, our debt was $101 million, down from $149 million last year. The combination of higher bank-adjusted EBITDA and lower debt results in a significant improvement in credit line availability to $163 million this year compared to $57 million last year. Turning to Slide 19, we show our progression on adjusted EBITDA from $31 million in the 12 months ended June 30, 2015, to $76 million this year, representing a compound annual growth rate of 16%. It's encouraging to note that we are close to achieving the company’s all-time high, which was $79 million in 2012. We expect to meet or exceed that performance this year based on our current results. In summary, on Slide 20, for the first half of 2022, sales increased by 19%. Early conversations with our customers about the near-term impact of raw materials and logistics costs enabled us to secure price increases across global markets. We've increased factory output to meet strong demand year-to-date and enhance margins despite inflationary and foreign currency pressures. Our operating expenses, while increasing in absolute terms, decreased as a percentage of sales from 34% last year to 32% this year. Our interest expense decreased by 40% compared to the first half of the previous year, and our tax rate improved - all contributing to the net income increase of 104%. From a balance sheet perspective, accounts receivable increased driven by strong sales, while inventories increased primarily as a hedge against supply chain challenges.

Thank you, David. Moving on to Slide 21. With SIMPAS in '22, we have 81 new systems, including one in Ukraine, now in use. We're awaiting yield results to demonstrate improvements in the fields from the materials applied both prescriptively and more accurately with the new systems and meters. For this coming year, we are targeting 150 to 200 new systems in operation. We're on target to achieve our previously stated forecasts. Moving to Slide 22, much of SIMPAS's success relies on the availability of various products. In '23, we anticipate strong usage due to the introduction of new products that can be applied through the system. We've seen great progress with our nitrogen-fixing plant stimulants, which align with the growing focus on carbon reduction and sustainability in agriculture. We believe our SIMPAS system will enable growers to effectively measure, record, and validate their carbon credits. Continuing on to our Green Solutions, we've had a good Q2, up 62% from where we were in '21. Strong performances were reported particularly in Central America, India, Australia, and Mexico, and we are on track to grow from $40 million last year to $52 million this year, achieved through organic growth and without any new acquisitions in '22. Moving to Slide 24, we’re currently in discussions with other biological companies about marketing and selling product lines instead of building their own teams. We're looking forward to announcing progress in this area soon. We are also filling materials at our Clackamas, Oregon factory for distribution this season. Our AMGUARD Environmental Technologies have consumer trials underway, and initial professional trials have shown positive results. We believe this non-selective bioherbicide can become a significant product for both consumer and professional use while being examined for crop applications as well. Lastly, regarding our micro fertilizer stimulants, we have completed registrations in Spain and have planned growth initiatives for '23. Overall, the outlook is positive. On our final slide, we measure our 2023 to 2025 targets, and everything looks to be on track from our core business perspective. We're optimistic about achieving a 70% growth target next year, potentially doubling that by 2025 due to our robust pipeline. For SIMPAS, we anticipate approximately $28 million in sales next year, growing dramatically to $113 million in subsequent years. This wraps up our strategic objectives, and now Alex will open up for any questions.

Our first question comes from Gerry Sweeney with ROTH Capital.

Eric, in your prepared remarks, you expressed confidence in your targets for this year and next. Can you elaborate on your visibility regarding those targets and the specific areas you find most promising? Are there any concerns that might help clarify our outlook for the next 6 to 18 months?

The factors making us feel bullish include good market share gains in a high-demand environment where we have delivered well. We expect good momentum heading into '23. Regarding inventories, we aren't aware of any issues that could hinder upcoming seasons. Our belief is that commodity prices and therefore demand will remain robust. I feel confident as we approach Q3 and Q4, having gone through each SKU to ensure we have adequate supply. It hasn't been easy, especially with the shifting packaging of products and manufacturing timelines. We expect to meet demand for '23. On the concern front, there are economic factors such as interest rates and political positions. However, the goods we supply are essential for food supply. Thus, we don't foresee a dramatic drop in commodity prices. Farmer health should remain strong, even in extreme scenarios like Ukraine.

It sounds like things are going well, but is there a concern that capacity utilization might get tight? Do you expect to expand capacity, and how costly would it be to drive additional utilization in your facilities, if necessary?

Yes, we do face tightness in certain areas. Our granular capacity at Axis is limited for formulation and packaging. While we are leveraging outside capacity, we are considering moving from a batch process to a continuous one, which would require a couple of million dollars in CapEx for a 25% expansion. For sulfumigants, we have sufficient capacity; this is our biggest product. However, at the Axis facility, we need to weigh decisions on manufacturing profitability of our products. The growth opportunity for Index is significant, but capacity constraints are a concern. Overall, I'm pleased with our current position compared to previous years, especially in managing excess inventory.

I have a couple of questions. Could you detail how much of the gross margin improvement is due to better factory overhead absorption versus price increases? Are there any other nuances affecting the gross margin?

From a pricing standpoint, we stayed ahead significantly, and about 1.5% gross margin lift was driven by factory performance. This accounts for approximately 75% of the improvement, with the rest due to pricing and mix. We're pleased with how we handled price increases compared to some of our peers, especially given the international markets' challenges. Overall, I believe we handled the situation remarkably well.

Given your report of $47 million year-to-date revenue increase, assuming channel inventories are lower than last year, it might suggest application volume growth is better than market growth. What products are contributing to this above-market growth, and do you believe this trend is sustainable?

Your assessment is accurate. Our herbicides are up 40%, primarily due to global shortages, which aligns well with acquisitions made between '18 and '21. We positioned ourselves strategically to deliver herbicides effectively, earning market share growth through unique product performance. Given the improvements, we have real growth opportunities in the herbicide segment going forward.

So, the demand for your herbicides seems partly due to shortages of conventional products like glyphosate. Are you benefiting primarily from market need, or is it the efficacy of your products that drives this above-market growth?

We've certainly accelerated market penetration for our products; thus, our positioning has aided in that acceleration. There's been a performance discrepancy due to shortages, boosting our sales momentum and earning market share more quickly. However, we believe our product effectiveness also plays a significant role in maintaining growth over time.

Could you elaborate on whether recent legislation regarding sustainable practices could actually buoy your sales efforts with products like SIMPAS and Ultimus?

Yes, we're optimistic about the opportunities presented by this legislation. With a focus on carbon footprint reduction, farmers could see financial incentives for sustainability. The growing interest in reducing nitrogen expenditure coincides well with our products. SIMPAS could significantly enhance adoption rates as it enables more precise application and tracking of inputs while allowing growers to maximize ROI.

I want to add that seed companies are indeed working on breeding plants that can uptake nitrogen more efficiently. Our strategy is to combine breeding with our input solutions through SIMPAS. We're confident that we can capture a substantial market as we position ourselves as providers of the technology that tracks the effectiveness of these solutions.

We also have measures in place to track the amount of nutrients applied, giving a comprehensive view of the effectiveness of nitrogen solutions. This will further entrench our position in the market as we offer detailed verification of application efficiencies, making our products highly valuable to growers and environmental objectives alike.

Could you share the percentage of your business that is represented by Ukraine?

Very small, around $1.4 million with expectations to reach $2.5 million this year. Currently, we believe we will generate about $1.8 million. While not a significant market, we still see potential there for SIMPAS.

The stock appears to have dropped significantly today. Was there anything in the reports that should raise concerns?

We had about 670,000 shares available for our buyback program, and we purchased about 48,000 shares today. We're prepared to continue this program as long as the share price remains below $20. Regarding today's market reaction, while we don't fully understand it, we believe it stemmed from our decision to release the Q and earnings before this call. There wasn’t anything alarming in our report; we exceeded expectations and remain confident in our performance. I agree with your viewpoint about conforming to conventional practices for releasing our information going forward. We won't repeat this approach again. I appreciate all participants today. It's encouraging to see so many of you here, and we look forward to providing you with further updates. Thank you, and have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.