Hello, and welcome to the American Vanguard Business Update Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Chairman and CEO, Eric Wintemute. Please go ahead, sir.

Thank you, Kevin. Good morning, everyone, and thank you for joining this call. Let me start by putting a point on what we had outlined in the press release that we issued on Friday. We expect our full year 2022 financial performance will exceed that of 2021 in all material respects. Furthermore, we expect to achieve significant growth and profitability in 2023 over 2022, and we will be giving you specific performance targets for the '23 year in about six weeks on our March earnings call. In the fourth quarter, we were forced to delay roughly $15 million of high-margin sales due to a supply chain disruption. Now that we have fixed this supply disruption, we expect to largely recoup the sales that we lost in Q4, such that they will shift forward and benefit 2023 performance. With a strong balance sheet and favorable market conditions, we believe we are poised to enjoy strong growth in all metrics for this coming year. On Slide 3, the global supply chain has been in an unsettled state for the past three years due to the pandemic and shifting buying practices. At one time or another, we have witnessed shortages in containers, ships, warehouses, and trucks used to transport many goods across multiple sectors. Within our industry, these factors have interrupted production of raw materials and intermediates, particularly those sourced in Asia. In spite of these conditions, our supply chain team has succeeded in sourcing virtually all raw materials, intermediates, and packaging without interruption over the past three years of the pandemic. I am proud of the work that we have done as this has required near-constant attention and pre-planning. However, in the fall of '22, our domestic supplier of a key intermediate used to produce Aztec, our leading corn soil insecticide, was unable to start production due to capacity constraints. This persisted for several months. Accordingly, we positioned one of our China-based suppliers to commence production of that input. Synthesizing this intermediate involves a very complex multistep process. While technically capable of filling our requirements, the Chinese supplier was caught in continual lockdowns from China's Zero-COVID policy, which, once lifted, resulted in nearly everyone in the facility contracting COVID. This culminated with a mandatory closure of the entire industrial park during the New Year. With the return of its full workforce, our Chinese supplier has resumed manufacturing the key intermediate. Also, our domestic supplier is back online. Further, we have started synthesis of Aztec at our own facility in Alabama. As we continue to receive this key intermediate, we will be producing Aztec over the next 75 days or so. In short, we have prepared the supply chain and are looking forward to returning to business as usual. In parallel, we are a leading manufacturer of corn soil insecticides. As you can see on Slide 4, we market many brands in the U.S. and abroad. As it became clear that our inventory of Aztec was going to be impacted by the supply disruption, we began working with our customers to meet grower needs through increased supply of these other CSIs, especially Counter, Force, and SmartChoice. While unable to make up for the sales of Aztec that we anticipated in Q4, consolidated net sales for the period were equal to those of Q4 '21. Further, we now have orders in hand for Aztec in amounts that are 3x to 4x higher than what we typically have during the first quarter. In short, subject to achieving full production, we expect the net sales and gross profits that we anticipated from Aztec in Q4 to shift forward into Q1s and Q2 of '23 as we supply growers in time for the upcoming planting season. Before looking forward, let's take a quick step back to recap last year. As per our press release, we have revised our 2022 performance targets on Slide 5. The overarching point here is that despite the temporary unavailability of our leading high-margin corn and soil insecticide during the fourth period, we generated sound financial results on a full-year basis. Bear in mind that the figures I'm about to discuss are based upon preliminary unaudited financial data. Going from the top of the P&L to the bottom, our revenue is forecast to grow at about 10%, which is within our targeted range. Similarly, gross profit margin at 40% and OpEx as a percent of sales at 33% are also within range. Interest expense will be about 5% above the target for 2021, which, given all of the rate hikes that occurred over the last year, is excellent. The debt-to-EBITDA target is within range and well below our 2.5x max rate. Net income is not yet known as it will depend upon tax and final accounting, and our adjusted EBITDA at a 15% to 18% growth rate will fall below the range previously given. Please be mindful that we are reporting on '22 estimates versus our own targets. When we look at how '22 stacks up against '21, we expect that our financial performance will exceed the prior year in all material respects. Before turning to the '23 outlook, let me note that over the past several quarters, we have placed an emphasis on maintaining a strong balance sheet. As you can see on Slide 6, we ended 2022 with cash available in the amount of $198 million. Further, our debt net of cash was $31 million compared to $36 million at the end of '21. In addition, our net average, which is debt net of cash divided by EBITDA, was 0.42. In other words, we started the year virtually debt-free with ample cash and cash equivalents to meet working capital needs while funding R&D, further commercializing technologies like SIMPAS and Ultimus, and completing accretive acquisitions. In addition, we achieved this very low debt position after having spent $34 million on repurchasing 1,668,892 of our shares through two share repurchase programs: a $20 million accelerated share repurchase, which we have completed, and a $20 million 10b5-1 plan, which still has $6 million of capital available for future purchases. Further, we increased our cash dividend to shareholders by 25%, thereby returning a portion of our profits to our shareholders. There are two key takeaways from Slide 7 that I want to emphasize. First, our Q4 miss was due to a supply chain issue that is now resolved. This effect should boost our corn soil insecticide sales in the first half of '23. As mentioned, our current Aztec orders are 3x to 4x higher than they would normally be at this time of year. Second, we expect to achieve significant growth in revenue and earnings in 2023. Finally, we are well positioned to address the market and expand our business. As you'll note on Slide 8, the outlook for '23 presents ideal conditions for the company's strong financial performance. As mentioned, we anticipate higher sales of our corn soil insecticides during the first half. Second, we expect to benefit from lower costs of goods and an improved supply chain for raw materials and intermediates. This should enable us to build inventory to meet demand. Third, freight costs, which peaked in 2022, have settled down and are returning to more reasonable levels. Fourth, the level of AMVAC products in the distribution channel is comparatively low. In addition, our new formulations, expanded portfolio of green product solutions, and improved market access, for example, into Australia and Brazil, should enable us to participate more fully in a strong global Ag economy. In summary, we expect to achieve significant growth and profitability in 2023, and we'll be giving you more specific performance targets in our March earnings call. Finally, thank you for your continued support of American Vanguard. And with that, I will ask our operator to poll for any questions you may have. Kevin?

Our first question today is coming from Gerry Sweeney from ROTH Capital. Your line is now live.

Good morning, Eric, Bob, thank you for taking my call this morning. I have a couple of questions. It seems that the shortfall on the Aztec product will fully carry over into the first half of '23. I'm also wondering if this will affect the margins for that business since you may have had to seek alternatives or incur higher costs, or is this simply a matter of shifting to the first half of '23?

Yes. As far as increased costs, the only increased costs we have are air freighting. We're going to be air freighting all of the material that's being made in China and the material, obviously, domestic is up in Wisconsin, so that won't be air freight. But we'll have some additional costs, but it will be relatively immaterial in the overall margin.

Got it. And then you did touch upon this, I think, in your comments, but it sounds maybe just a little bit more commentary on the supply chain overall. It feels like things are loosening up across the board. I know you've been fighting a lot of headwinds on that side and you've done pretty well. You can't always bet a thousand. But is it a fair assumption to say things are loosening up across the board? Any commentary on maybe tightness in any markets or inputs for '23?

Well, one of the key areas since we do a lot of phosphate business is that the phosphorus supply chain was really, really bad in '21 and not only increases but disruptions, such as the shutdown in Kazakhstan, and China was not supplying for P4 anymore. So a number of our phosphorus suppliers had filed or claimed force majeure. But yes, that's probably for us specifically, that was maybe our biggest challenge, which phosphorus has come back down, everybody is back online, and so the availability of our raw materials is much easier than what we had dealt with last year. And we're seeing, again, some raw materials having a strong tie like methanol. Those prices were high, but again, those are coming back down as well. Natural gas prices are coming back down. Overall, yes, going into this year, we're feeling a lot more comfortable with our raw material chain.

That brings me to my last question. Obviously, raw material prices are looking good, low inventory in the channel, transportation costs coming down—big tailwinds. And obviously, you also had the Aztec pushing into this year, which will be a benefit, but sort of one-time. But any headwinds—you're painting a pretty good picture for '23, even though you haven't put official guidance out there, but I'm just curious if there's anything that concerns you for '23?

Yes. Right now, I think there's always the possibility of having shortages of different pieces. With our SIMPAS equipment, we're installing equipment now; we're getting things built. Different parts are—when you have something that has a lot of different components, there's always concern that you don't get everything on time. But overall, optimism looks fine. I mean, obviously, there are factors that could happen, such as escalations of conflicts that would be out of our control. But we—the farm economy is really strong. The food banks are low. The reserves are not there, and talking with experts in the field, they think that this should continue into '26. So I'm not identifying anything right now that is a major concern.

Got it. So we're looking at some good tailwinds for '23. I appreciate that. That's it for me.

Okay. Thanks, Gerry.

Thank you. Next question today is coming from Chris Kapsch from Loop Capital Markets. Your line is now live.

Good morning. Just a follow-up on that last question—headwinds, tailwinds. Given that raw material costs are easing and supply chains generally, notwithstanding this Aztec issue, easing lower transportation, just curious how ag chem pricing from your vantage is holding up compared to what could be viewed as a lower-cost environment?

Yes. So I mean, I think the biggest shift is fertilizer. That took the biggest increase as availability is coming. I think prices are coming down there. We're seeing some downward pricing on some of the commodities such as glyphosate, glufosinate, and some of the more generic insecticides and fungicides. With regard to our products, we're not seeing a position where we're going to need to re-adjust our pricing downward. So I think that's right now. We're—in most of our products, certainly, we're in a better position because we're kind of the only supplier of that particular chemistry. And some of our distribution business, let's say, in Central America and maybe in Australia, there may be some pressure on certain products that they sell that are commodities. But again, we're seeing lower costs coming through, so some of that lower cost may need to be passed through to be competitive. But overall, yes, I think growers are seeing a shift that has occurred for the '23 season versus the '22 season. As growers were going into the '22 season, they were concerned about getting supply at any cost. The push was to get everything in Q4, make sure it's in the barn. For this year, I think people are seeing that prices softening and are looking at Q4 as, okay, we don't have to have it right now; we can do more just in time and hope that prices come down before we actually purchase and plant. So I think that's kind of what we're seeing. So as far as our margins, I think we feel pretty good about where we are.

Got it. That's helpful. And twice, you mentioned that Aztec orders are at this juncture in the first quarter, 3x to 4x 'normal seasonal level.' So I'm just looking for some more context around that. Is that simply because some of the orders that were not fulfilled in the fourth quarter? Is there double ordering from certain customers to try to get safety stock? Or how much of this is a function of simply higher corn acreage this year? Have you looked at the USDA forecast for higher corn? How much of that is in the addressable market for these soil corn insecticides, which is really just the heart of the corn belt? Additional context might be helpful.

Yes. I mean, going into the year, we did see growers stepping up for what they anticipated, one: being a strong commodity price, and two: corn rootworm pressure seems to be increasing year-over-year. But the bulk of what I'm addressing is these are orders that didn't get filled in fourth quarter, and our team went out to everybody. As we had this Aztec issue, we said, okay, here's the amount of Aztec. We feel comfortable we may get to everything that you need for Aztec. But for now, let's place kind of supply chain, and this is what H1 kind of allocated out would get for Aztec, along with some additional orders for Counter, Force, and SmartChoice that would ensure that they're going to be able to meet customer demand. So we'll—as we go through the next 1.5 months, we'll get a much better picture of what percent of the original Aztec will be met with Aztec, and if we do all of it, great, but we produce more of the other corn soil insecticides to make sure that every grower out there gets corn soil insecticide in order to treat this field.

Eric, what are the chances or the risk that because of this issue, you will have lost some opportunity or acres with an alternative to soil corn insecticides?

I mean, the alternatives are really us, right? I mean, Syngenta has Force and Bag, but going through the SmartBox system and SIMPAS, obviously, that is our business. And so I don't think—I mean, I think growers will use the product they intended to use, and so I don't think they're going to not use the product. I think it's more a function of what of our corn soil insecticides they will use.

Got it. And last one, since you weren't manufacturing, synthesizing, or compounding this product, I'm just curious if you could quantify the impact on the absorption variances and gross margins? And does that carry through into '23 at all? Or is it isolated in the fourth quarter '22? Thank you.

Yes. So in the fourth quarter, there was the other half of the Aztec molecule that we were not able to make. But there's another section that does get made, and we've continued to make that at the Axis facility in Q4. So though the second half of the molecule that then gets combined with the first piece, we didn't make, which is true. So absorption wasn't as high. But again, we're doing that in Q1 and into the beginning of Q2. Overall, we're not seeing any major impact.

Thank you.

Thank you, Chris.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Okay. Well, thank you, everybody, for getting on the call this morning. We're looking forward to this '23 year, and we'll be giving the normal guidance that we do for the year at the next call, which I think we're currently scheduled for March 13. So I look forward to updating you at that point, and have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.