Welcome to the American Vanguard Corporation First Quarter 2023 Financial Results. I will now turn the call over to Bill Kuser, Director of Investor Relations. You may begin.

Thank you, Misty, and welcome, everyone, to American Vanguard's First Quarter 2023 Earnings Review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; Mr. David Johnson, the company's Chief Financial Officer; Mr. Scott Hendrix, Senior Vice President in charge of the U.S. and Canadian crop sales and our application technology initiatives; Mr. Jim Thompson, Director of Portfolio Strategy and Business Development, the one who is guiding our Green Solutions Initiative. Also available to assist in answering your questions, Mr. Robert 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. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, supply chain disruptions and other types of risks as 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. For those of you who are joining us for the first time, just a quick slide, we're traded on the New York Stock Exchange as American Vanguard founded in '69. We've got about 800 employees. We're a fully integrated ag company. We do basic R&D as well. And our business model has largely been to acquire branded products from the majors. We have two growth initiatives on top of that, that we'll be talking about in a moment. As you will have read from our earnings release, and we have highlighted on Slide 5, our Q1 sales of Aztec and IMPACT were lower than expected due to the supply chain delays in China, in the case of Aztec, and a glut of large volume herbicides, specifically glyphosate and glufosinate in the U.S. market in the case of IMPACT. However, with unusually low channel inventory of our domestic crop products, we expect strong sales for the balance of the year. In fact, even with the Q1 performance, while well below our original forecast, our 2023 full-year outlook will improve upon our '22 year with the ranges of revenue up 5% to 7%, adjusted EBITDA up 14% to 18%, and net income up 17% to 25%. So let's start with Q1 and move forward to the full year and beyond. There are two main reasons for our Q1 shortfall, Aztec, our leading insecticide, and IMPACT, our leading herbicide. And in both cases, the drivers were unique. Let's begin with Aztec. There are several raw materials needed to make Aztec, but our issues were with two. Let me walk you through Slide 6. First is an intermediate called DAPRO that has been historically made by a European supplier. Last year, our supplier advised us that they would not be able to produce again until 2024. Accordingly, we successfully sourced a DAPRO source in China, which successfully commenced production last year. DAPRO is used to make another key intermediate required for Aztec production called Sodium HP. Historically, we've relied upon a domestic producer of Sodium HP. However, in June of '22, that supplier informed us that they could not produce until the end of the '22 year. Since this would not be in time to meet our Q4 Aztec demand, we engaged our new Chinese DAPRO toller to convert the DAPRO that they produce into Sodium HP. Initial production was to begin in October of '22, but due to a series of issues such as personnel challenges, equipment shutdown, and COVID, their production did not commence until the last week of December '22. Steady production, however, did not really begin until the middle of February of '23, and daily output levels did not optimize until April. Adding to the issue, our domestic producer of Sodium HP was unable to produce until March of '23. As a result, we were able to produce only one-third of the Aztec demand in time for the '23 season. We attempted to substitute our other corn soil insecticides, but had limited success. That said, we have positioned both suppliers for full production with plenty of lead time in advance of the 2024 season. For additional color on Aztec with respect to Q1 and market conditions for the coming year, I turn to Scott Hendrix. Scott?

Thank you, Eric. On Slide 7, you will see that our 2023 demand forecast for Aztec was approximately 7 million pounds. As we assessed and prepared for the 2023 Aztec supply challenge, it was critical that we understood our supply position at distribution and retail. Through our analysis of grower point-of-sale data and distributor reported inventory, we calculated that we had over 2.8 million pounds of Aztec in customer inventories. We used this data to develop extensive supply planning by customer for the 2.28 million pounds we sold to ensure historical Aztec users are served as much as possible. Also, we were able to secure additional Force 10G that equated to approximately 430,000 pounds of Aztec. Therefore, through a combination of channel inventory, in-season production, and product substitution, we were able to provide 5.54 million pounds of Aztec, 4.67 equivalent for the 2023 growing season. This was a very fluid and dynamic scenario as we had daily and weekly supply updates that our commercial team overlaid with geographic market dynamics to confirm proper product placement in the market. As we have continued to monitor the season, we calculate that channel inventory has declined to less than 5% of the annual demand compared to our historical inventory levels of approximately 30%. As a result, we anticipate strong demand from our customers in Q4 of 2023 in preparation for the '24 growing season.

Thank you, Scott. To cap off this subject, it is worth noting the effect that Aztec sales have had on our overall profitability. As you can see from Slide 8, we estimate that missing Aztec sales of about $30 million in revenue is roughly equivalent to reducing earnings per share by $0.38. That would largely have been recognized over both Q4 and Q1. In the first quarter alone, it's caused a drop in EPS of about $0.20 a share. Now Scott, let's circle back to you for a better understanding of IMPACT.

As Eric pointed out and as you will see on Slide 9, the market dynamics for the 2023 season are much different than in 2022. It is important that we understand our customers' buying behavior. Working capital over the last several years has not been a challenge as the cost of money was inexpensive and channel inventories have been running historically low as the supply chain has been under stress. According to early estimates, the U.S. crop protection market surpassed $15 billion in 2022, which is $3 billion more than in 2021. Eric previously mentioned the increased supply of glyphosate and glufosinate in 2022. The channel ended the 2022 season with higher inventories across all crop protection segments. If you combine increased ending inventories with increased prices and higher interest rates, customers had significant capital outlay in inventory entering the 2023 year. Furthermore, those large volume molecules, along with a range of fertility products began devaluing as supply increased and demand decreased at all channel levels. Distribution and retail customers are now focused on reducing inventories and driving cash flow, which has influenced our IMPACT sales in Q1 of '23. Turning to Slide 10. Our lead IMPACT brand drove our upside in 2022 and is used primarily in mid- to late-season applications by itself or combined with non-selective herbicides that are trait-enabled to manage difficult-to-control weeds. We anticipate retail agronomists will continue to exhibit best practices for weed resistance, but they will have a focus on exhausting existing inventories as dictated by their current financial needs. IMPACT inventories are normal, which puts us in a positive position for the '23 season and full-year performance. We anticipate this is a short-term performance challenge with our lead IMPACT brand and will not continue as customers work through their surplus inventories of non-selective herbicides. Lastly, I want to highlight our continued formulation innovation with our IMPACT RAM family. We now have four brands that have expanded our historical use pattern in corn and across strategic customer bases. Furthermore, our innovation pipeline continues to grow in rice and soybeans. In fact, we launched our latest herbicide solution, ProLease, that contains our ProLease technology. The power of ProLease optimizes weed control and stability, and to date, we are almost sold out of that brand.

Thank you, Scott. As you can see from Slide 11, during the first quarter of '23, IMPACT sales were about $10 million less than those in Q1 of '22. This shortfall alone would have accounted for another $0.12 in earnings per share. Thus, taken together, the Q1 EPS effect on Aztec plus IMPACT was $0.32 a share. In short, had we not had these two unprecedented conditions, our quarterly EPS would have been $0.39 per share, not the $0.07 that we have reported. At this point, let me ask David to make a few comments, and then I will return to give an update on our growth initiatives and to further talk about the balance of the year. David?

Thank you, Eric. With regard to our public filing, we plan to file our Form 10-Q later today. On Slide 13, you will note the first quarter of 2023 has seen a challenging operating performance for the company, with overall revenues down about $25 million or 17% as compared to the same period of 2022 for the reasons that Eric has already outlined. The other main sales drivers for our business performed in a more usual manner with quarter-over-quarter increases of 4% in our non-crop business and 2% for the international business. Moving to Slide 14. As we indicated at the time of the last call, this is the first quarter that we are presenting our results in a manner that we think more closely parallels our market peers. We have moved our outbound freight and logistics costs, which are substantially variable and tracked closely with sales performance to cost of sales rather than operating expenses. This change results in an equal reduction of both gross margin percentage and operating expenses as a percentage of net sales. It has no impact on operating income or net income. For the first quarter of 2023, under our new accounting approach for freight and logistics, on Slide 15, you see that our gross margin percentage ended at 31% of net sales as compared to 34% in 2022. The lower overall gross margin performance is driven by the reduced sales of U.S. crop products, which are some of our best gross margin performers, and by reduced factory overhead recovery driven primarily by our inability to manufacture Aztec in the volumes we planned as a result of material shortages. As Eric detailed in his opening remarks, missing sales of these U.S. crop products had a direct and significant impact on our gross margin performance. Further to my remarks regarding the new presentation of our statement of operations, on Slide 16, you can see our operating expenses are presented here without costs associated with outbound logistics. Typically, those costs amount to about 7% to 8% of sales. For the three months ended March 31, 2023, operating expenses reduced by 4% from the same period of 2022. This was driven by lower administrative costs associated with short-term incentive compensation as a result of lower financial performance and the benefit of some positive exchange rate movements across our global business. As something of an offset, the Board agreed to pay proxy contest fees resolving all outstanding matters. In summary, on Slide 17, our net sales declined by 17% and gross profit ended at 31% versus 34% in the prior year. Operating expenses were reduced by 4%, mainly driven by lower accruals for short-term incentive compensation. Our cash management performance was good, and we ended with debt at about the same level as this time last year, notwithstanding spending $27.3 million to repurchase approximately 1.4 million shares of the company's stock during the last 12 months. Interest expense is up significantly, driven primarily by interest rates, which averaged 6.8% during the quarter as compared to 1.9% for the same period of the prior year, a more than 3.5-fold increase. We continue to follow a disciplined approach to planning our factory activity, including balancing overhead recovery with demand forecasts and inventory levels. On the graph on Slide 18, you can see that at the end of the first quarter of 2023, our inventory increased to $219 million as compared to $168 million at the same point in 2022. This increase was driven by a few factors, including increased inventories of raw materials necessary to manufacture Aztec, comparatively higher inventories of IMPACT, and generally across our business, an expectation that we are looking at strong sales growth in the second half of 2023. And based on that forecast, we need to have higher inventories to meet related customer demand. The graph on Slide 19 shows that debt ended at $97 million at the end of the first quarter of 2023 as compared to $98 million at the same point in 2022. Essentially, debt remained flat despite the fact that we've spent $27.3 million repurchasing the company's stock over the last 12 months. Moving to Slide 20. During the first quarter of 2023, we have made some additional share repurchases and, as a result, shares outstanding have decreased slightly. The share price remained relatively flat during the period. Debt increased, which is normal for the start of the company's annual cycle, and cash remained about flat at December. Enterprise value increased by 7.6% during the period. Finally, the leverage remains low but increased from 0.72x bank adjusted EBITDA at December 31, 2022, to 1.63x at March 31, 2023, reflecting the company's annual cycle. With that, I will hand back to Eric.

Thank you, David. Having heard Scott's comments on the major elements of our core business, let me turn next to two other important business drivers: SIMPAS and Green Solutions. This review will give us a foundation for our full year '23 and '25 performance targets. For an update on SIMPAS, I turn it back to Scott.

Thanks, Eric. Our focus for 2023 has and is to continue to innovate within our SIMPAS technology platform by introducing several hardware and software upgrades to deliver the targeted SIMPAS experience. We launched our Phase 3 SIMPAS technology, which includes units that will be equipped with liquid sensors. This technology will enable the grower to monitor and measure how much liquid material is prescriptively applied by the equipment. Further, we have enhanced our tracing capability by installing a dedicated modem that communicates all SIMPAS data points to our Ultimus platform. Taken together, these advancements will enable users to measure, record, and verify what they are applying, whether granule or liquid. We have sold 15 new SIMPAS systems domestically. We're estimating that this will treat approximately 100,000 acres based on the prescriptions that have been defined. Our domestic total SIMPAS revenue outlook is unchanged at $12 million to date. Slide 22 identifies the key financial drivers for SIMPAS commercialization. Our treated acre growth with our SIMPAS SOLO technology has grown almost threefold since 2021, while average revenue per use grew 56%. We now have 161 SIMPAS technology systems being used domestically that treat approximately 350,000 acres annually. To that end, we are currently adding a dedicated sales and marketing team to identify the biggest players in precision ag to forge alliances with those companies and to call upon distribution, retail, and growers to embrace this technology. At the same time, we're meeting with regulatory authorities to keep them apprised of the capabilities of this technology that we believe answers USDA's call for digital agriculture. After having spent about $27 million over the past five years developing this technology, we are now focusing on attaining broader markets as well. In fact, we plan to sell 15 to 20 units in Brazil, which is the largest ag producer in the world. With that, I turn it back to Eric.

Thank you, Scott. And I'd say that 15 to 20 systems are for the September '23 season. So it's still to come yet. Next, let's turn to our Green Solutions. To cover that business, we'll have Jim Thompson. So Jim?

Thank you, Eric. As we move to Slide 23, we wanted to highlight the key financial performance indicators and commercial achievements for Q1 of 2023. In terms of our financial performance for Q1, we generated Green Solutions revenues of $13.7 million, which was an increase of 39% as compared to Q1 2022 and in line with our growth estimates of 40%. With a strong start to the year, we can reaffirm our Green Solutions guidance of $70 million for fiscal year 2023, with Q2 and Q3 generally being the highest selling quarters for biologicals throughout the year. The performance in Q1 was led by strong organic growth by our Latin American team and strong sales of our Bsure product in the U.S. market. On the commercial front, we successfully launched our BioWake brands for corn and soybean and the U.S. seed lubricant market. We view this market as an incremental value-add platform for AMVAC and its channel partners. And we will expand the BioWake product line into new crops in the future. Our AMGUARD team also executed a new supply agreement with NewLeaf Symbiotics in the first quarter, where both parties will collaborate to launch new products in AMVAC's non-crop segment. This further strengthens the relationship between NewLeaf and AMVAC in the United States. Our AMGUARD team also recognized first sales of the American Biosystems products in the first quarter, which stemmed from the acquisition made at the end of 2022. We continue to grow our Green Solutions segment in our international markets. We received regulatory approval for the greenhouse products via our Latin American team in Costa Rica, which opens the door for increased sales of our proprietary family of products acquired from Agrinos in 2020. Lastly, the business development and M&A landscape continues at a feverish pace. The recent changes in capital markets have caused more companies to seek partnerships with larger companies, accelerated financing events, or potential M&A transactions, all of which increased the potential for incremental growth in the Green Solutions business. AMVAC is working diligently to evaluate all new growth opportunities with an intense focus on bolstering our green solutions portfolio. On Slide 24, we wanted to tell a little bit more about our BioWake market opportunity. BioWake launched in Q1, and we view the market opportunity as very large, in excess of 150 million treatable acres for corn and soybean in the U.S. alone. We showed strong sales in Q1 and a good pace of sales in Q2. We're happy with the progress on the line, given the accelerated launch window and the fact that BioWake is our first product in the seed lubricant space. We developed a BioWake product pipeline that focuses on crop expansion into peanuts, cotton, wheat, and other broadacre crops, while also expanding the product line to include additional biological products such as bioherbicides, bioinsecticides, and micronutrients. BioWake is showing yield increases of 4.4 bushels per acre for soybean and 5.3 bushels per acre on corn, providing a very attractive return on investment for our growers. As we move to Slide 25, we wanted to show a short video clip that demonstrates the ease of use of the BioWake products for our farmers. We felt it would be very valuable for you to see our new product system at work. And lastly, Slide 26 shows the continued strong guidance that we are targeting in our Green Solutions business. The bulk of the growth in 2023 will come from the organic growth of our existing portfolio as we continue to integrate and market key products from our acquisitions. In addition, we're adding new products such as BioWake and the American Bioproducts. AMVAC's International business continues to be a strong driver for growth in all of our geographic areas in 2023. In 2024 and 2025, we expect to generate incremental revenue by new partnerships, geographic market expansion, and M&A transactions.

Thank you, Jim. At this point, we can turn to our 2025 performance targets. As you can see on Slide 27, with our revised Q1 performance, our upward trajectory has been moderated in the middle of the graph. However, the upward curve is otherwise unchanged for the years '24 and '25. In other words, we remain on track to meet our midterm targets. Our final important topic is the full year 2023 outlook. Even after factoring in lower-than-expected Q1, as you can see from Slide 27, we are still expecting that our '23 performance will exceed that of '22 and are targeting the following: net sales between $640 million to $652 million, which would be 5% to 7% above '22; gross profit margins in that 33% to 35% range, which is similar to '22; operating expenses as a percent of sales 25% to 27%, which is in line with last year; adjusted EBITDA between $84 million and $86 million, representing an improvement of 14% to 18%; net income of between $32 million and $34 million, which would be a 17% to 25% improvement over '22. In closing, following a first quarter setback, I see strong performance for the balance of '23. Given the conditions of our core business, the trend line for the Green Solutions portfolio, and our focused approach on gaining further adoption of SIMPAS, we are positioned to drive growth and profitability in both the short and midterm. With that, I'll turn it over to the operator to take any questions you may have. Misty?

It looks like we have a question from Chris Kapsch from Loop Capital.

I have a couple of questions. Regarding the sales mix, specifically related to the Aztec soil insecticides, I’m curious if the $0.20 in the quarter was entirely due to revenues from orders you had and delivered. Or is there also an effect from lacking inputs, which resulted in negative factory absorption variances, consequently impacting the gross margin for the rest of the business? Or is that $0.20 solely due to the sales mix?

That $0.20 is to the sales. There's a factory performance. Again, we're running the factory at about 33% of capacity during that first quarter. And in fact, actually, over the quarter, probably even less than that. But once we're beginning manufacturing, we can't shut down and do something else because we've got a three-week or four-week turnaround. So we basically had a plant that was running well below capacity. And that's the particular unit for Aztec. We have other units there, but that's our main unit.

Okay. Just to clarify, it seems you were unable to deliver to the channel. However, as of the end of the quarter, I believe that corn planting is usually around 2% by the end of April, and the USDA reported that it's reached about 26% recently, potentially rising to half the acreage. So my question is, were you able to recover any of the lost sales in the first or second quarter as corn planting has progressed?

Yes, we sold more in the second quarter compared to the first quarter. However, I think we wrapped up around mid-April, likely between April 15 and April 20. We continued to produce and have more technology and formulations available, but essentially, the distribution channel mostly closed off by the third week of April. Scott?

Yes, I would confirm that, Eric. There's an optimum planting window for most of the producers. As we were getting close to the middle to the end of April, understanding there's time and logistics to get product to the market. And customers at that point made a decision that it was going to be too late for the market.

Got you. Regarding the IMPACT, I initially viewed it not as a post-emergent broad-spectrum herbicide, but rather as a product that complements key herbicides like glyphosate and glufosinate. It seems a bit counterintuitive considering the excess availability of those. I understand that there's downward pricing pressure on those products due to the normalization of the supply chain. However, since those are more readily available and your product is meant to complement them, especially where resistance has been a problem, I would have expected demand to remain stable. Can you help clarify this discrepancy?

I'll take the first one, but Scott or Bob, what we observed was that both distributors and dealers have good quantities of glyphosate and glufosinate in stock. They are managing their inventories carefully for cash flow. Unlike the 2022 season, where demand was high and everyone was buying what they could, now they plan to work through their existing inventory, some of which is undervalued compared to current market prices. Once they have done that, they will consider future purchases. Scott, do you have anything to add?

Yes, Eric, I'll expand on that. The performance in 2022 was impressive. We successfully positioned IMPACT to replace many of the larger non-selective herbicides that were trait-enabled, notably glyphosate and glufosinate. Most of the supply we mentioned in our discussion came in the latter part of last year, which was too late for the season. Therefore, much of the advantage we gained in 2022 by raising rates as the market prepared for 2023 is still reflected in best practices for weed resistance management. IMPACT complements both of those herbicides well. However, we did not have the same opportunity due to the current surplus of glyphosate and glufosinate in the market compared to 2022.

But as a brand, too, we've got three other combination of products that we see the brand building in addition to our overall herbicide portfolio with what we've got now in soybeans. So we really herbicides were a weak spot for us back maybe three or four years ago, other than IMPACT. And since then, we've built out a nice portfolio. So...

Let me ask one last question on this topic, and then I’ll rejoin the queue. Given the normalization of major herbicides, particularly Roundup, pricing has decreased significantly for those products. To the extent that there is upward pressure on pricing due to supply chain challenges—allowing other herbicide suppliers to raise their prices—are you experiencing any pressure on your sales of IMPACT or on the pricing for IMPACT and other herbicides?

You can take first one, go ahead.

Yes, really good question. What I'd share with you is the complementary nature of IMPACT and really the proprietary nature of what it delivers to help control some of the most difficult weeds in the marketplace today. So that's Palmer amaranth, waterhemp, ragweed, those molecules are either resistant, meaning glyphosate or glufosinate resistant or the performance is very low. So IMPACT is complementary in helping manage and control those difficult weeds. So the value proposition is completely different than glyphosate or glufosinate. And so we feel good about our current pricing position despite what's happening with pricing dynamics on the other molecules.

Our next question is going to come from Gerry Sweeney from ROTH Capital.

So I wanted to start with Aztec, right, and actually take a step back. This sounds like with Aztec, it was a long lead time sort of supply chain issue. It had started, it sounded though last year, developed through December into this year. And then really the gist of the question is, does this change how you view your supply chain or how you can manage it or track it, so we don't necessarily have issues like this in the future?

Yes, when COVID hit, we significantly changed our focus on the supply chain. We identified areas where we were heavily reliant on sourcing and faced significant challenges, especially with phosphorus when Pakistan shut down and China ceased its exports. This created immense pressure, but we managed to navigate through it without major sales losses. We encountered issues with a product called DAPRO, which led us to set up a domestic manufacturing operation. However, we faced problems with our sole domestic source of Sodium HP, causing delays in what we anticipated would be a June 2022 campaign, which shifted towards September. We collaborated with our Chinese supplier of DAPRO to convert it into Sodium HP and expected our domestic supplier to resume operations soon. While we anticipated some challenges in meeting fourth-quarter demand, we were confident in supplying sufficient product during the first quarter, expecting a demand of 7 million pounds. However, the Chinese producer faced startup issues with this new product, compounded by COVID-related shutdowns and other delays. They had initially projected production of about 3,500 kilos per day but struggled to reach even 1,000 kilos daily. We resorted to air freighting supplies every three days, while our U.S. producer faced delays that pushed their timeline into March. Each week, the situation became increasingly difficult. Nonetheless, we coordinated with both manufacturers to ensure adequate material for the fourth quarter's campaign with Aztec. In the latter part of 2021 heading into 2022, we had previously discussed strategically positioning ourselves to avoid being affected. Our inventory has significantly increased compared to the first quarter last year, with many items being raw materials for packaging, labels, and intermediates. We didn’t produce the entire campaign for the second half of the Aztec molecule at our access facility. Looking ahead, we will continue to bring in materials ahead of time to prevent such issues from arising in the future.

Have you looked into whether there are additional intermediary products that are sole sourced and serve as key or intermediate ingredients that could generate larger revenue? Outside of Aztec, perhaps you could consider working with a few different producers, even if it means sacrificing some margin. Have you reviewed the supply chain to understand the situation from that angle?

Yes, we have conducted a thorough review of our supply chain, identifying every product that we are solely reliant on, and this process has been ongoing for the past two and a half years as we transition to dual sourcing. We are nearly finished with this effort. We have secured a second source for one herbicide that we can utilize outside the U.S., and we are currently working to obtain EPA approval for this source within the U.S. After losing our sole supplier of Bromacil herbicide in China, we have established a backup source from Malaysia. We are committed to ensuring that we do not rely on a single supplier for any product in the future. To address your concern, maintaining two suppliers may result in a higher blended cost compared to working with just one producer, and we are prepared to handle that. Thus far, we have successfully incorporated these cost increases into our pricing strategy.

I understand. That's useful information, and I appreciate it. Do you have any projections regarding your EBITDA to free cash flow conversion? What do you anticipate potential free cash flow might be this year? Additionally, are there any changes to your investment schedule due to the reduced cash flow this year, particularly following the miss in Q1?

David?

We have given the forecasted range for EBITDA from a cash flow perspective, and while we are somewhat behind in the first quarter, we expect our annual cycle to reflect an increase in working capital during the first three quarters, followed by a decrease towards the end. At this time, I don't see any changes in our outlook for 2023.

Okay. Got it. Sorry, go ahead.

I don't think there's any change in our strategy with regard to investments. I mean we're looking at all sorts of different things all the time. And yes, we're not planning to change that.

Our next question is going to come from Wayne Pinsent with Gabelli.

Most of my questions have been answered. However, I want to delve a bit deeper into the Aztec supply issue. I believed that was largely resolved when you reported Q4 in March. You mentioned the selling season extending into late April, and previously, you indicated you expected to recover many of the missed sales from Q4 in the first half of this year. Can you explain the timeline? Did the sales come in too late to capitalize on those few weeks? Additionally, regarding the $0.20 miss in Q1, what percentage do you think will shift into Q2 for recovery?

We had higher sales in Q2 compared to Q1, and looking at year-over-year data, Q2 was also slightly better than Q2 of '22. Regarding the $0.20 miss, if we consider what we actually sold and the figures reflected by Scott, we sold 2.3 million pounds out of 7 million. This includes about 1.3 million in Q2 and around 1 million in Q1 of Aztec equivalent. The $0.38 shortfall can be attributed to the difference between these figures. Did you have another part to your question? I'm not sure if I fully addressed it.

Yes. Since the sales increased from Q4 to Q1, and as you mentioned, sales have continued to rise in Q2, you may have actually sold a bit more, but the selling season seems to have ended there. Could you clarify whether there was any shift from what you missed in Q1 to Q2?

We were slightly ahead in sales in Q2 of 2023 compared to Q2 of 2022. The key point is that out of the 7 million pounds we projected, actual sales of Aztec reached about 2.3 million pounds, representing a 4.67% increase. The $0.38 I mentioned reflects the difference between the 7 million pounds and the 2.3 million. While there will be a slight recovery in Q2 from what we didn't achieve, we are still short a total of 4.7 million pounds in Aztec sales. However, we did achieve additional sales with a substitute product that added another 400,000 pounds.

And then I know it's different dynamics with the impact, but just the missed sales there, the ability to make those up? Or is it just that inventories are looking good going forward and we should just see more normalized demand?

I believe we will experience more typical demand moving forward. Our IMPACT brand family has seen growth over the last three years, with 2022 being particularly notable for the reasons mentioned earlier. We expect to continue expanding our portfolio through the four brands I mentioned, and we are innovating in this area. You can anticipate at least one, if not two, new brands coming from our pipeline.

It doesn't look like there are any more questions, so I'll turn it back over to our speakers for any closing remarks.

Okay. Well, I appreciate everybody that participated on the phone today and listened in. Obviously, yes, we were disappointed with the first quarter, but we do see that we will have a strong recovery over the balance of the three quarters and ultimately report very positive results for the year. And more importantly, that we continue to be on track with our next two-year goals and targets. And also, we're making good progress on all three of our growth platforms. So with that, thank you, and we will have another discussion with the shareholders' meeting on June 7, I believe. All right. Thank you, everybody.

And this concludes your call. You may now disconnect.