Greetings, and welcome to the American Vanguard First Quarter 2024 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anthony Young, Director of Investor Relations. Thank you. You may begin.

Thank you, Jessie, and welcome, everyone, to American Vanguard's first quarter 2024 earnings review. Our speakers today will be our Chairman and CEO, Eric Wintemute; and our CFO, David Johnson. Also joining us to answer your questions will be our Chief Operating Officer, Bob Trogele; our Chief Information Officer, Tim Donnelly; and our Chief Transformation Officer, Don Gualdoni. Before beginning the presentation, let's take a moment for our cautionary reminder. The company from time to time may discuss forward-looking information. Except for the historical information contained in this release, all forward-looking statements are estimates by the company's management and are subject to various risks and uncertainties that may cause results to differ from management's current expectations. Such factors include weather conditions, changes in regulatory policy and other risks as detailed from time to time in the company's SEC reports and filings. All forward-looking statements, if any, in this release present the company's judgment as of the date of this release. With that, I will turn the call over to Eric.

Thank you, Anthony. Hello, everyone, and welcome to American Vanguard's first quarter 2024 earnings call. We appreciate your continued support and interest. As you will note from Slide 4, I will be covering four topics today: our Q1 '24 financial performance, current market conditions, our '24 outlook, and our transformation efforts. Moving to Slide 5 on Q1 performance. We recorded a 35% jump in adjusted EBITDA during the period. In addition, our operating income rose by 87%. This improvement in operating leverage is evidence that the cost control initiatives that we have started in the second half of '23 are having their desired effect. As I've mentioned in prior calls, our cross-functional teams remain focused on controlling expenses while maximizing operational efficiency. In that vein, we recorded lower operating expenses as a percent of net sales while increasing sales by 8%. Further, all three of our businesses grew during the quarter. Within our consolidated sales results, U.S. Crop was up 9%, U.S. Non-crop 28%, and International 2%. Now let's turn to our sales during Q1 as per Slide 6. In U.S. Crop, we experienced strong results across multiple crops. Sales of our granular soil insecticides rose, which is indicative of continued strong demand from corn growers. Further, we experienced strong sales of our liquid corn soil insecticide index. Similarly, herbicides rose during the period, due in part to Dacthal, which was not available last year due to supply issues. Also, Thimet sales rose with demand driven by increased peanut acreage. These increases were partially offset by a drop in soil fumigant sales as wet conditions in the Northwest truncated the application window. Within U.S. Non-crop, our mosquito adulticide sales were up in anticipation of stronger-than-normal tropical storm activity. Also, our sales of pest strips were up significantly as consumer and technical markets recovered from the prior year. In addition, our ornamental and nursery business, OHP, recorded stronger sales led by its biorational and pre-emergent product lines. Our International business was up slightly at the top line led by Mexico, where most product lines grew and APAC aided by favorable weather conditions in Australia. Our LATAM business was about even for the quarter with the addition of sales from our recently acquired business in Ecuador, partially offset by generic pressure in Central America. All told then, all three of our businesses demonstrated improved performance, and on a consolidated basis, we continue to grow. Before moving on to current market conditions and our '24 outlook and details on transformation, I would like to turn the call over to David for his financial analysis. David?

Thank you, Eric. I will begin my comments with a recap of our first quarter 2024 performance during the course of which I will present important metrics for the period and end with comments on working capital. As you will see from Slide 8, our overall sales for the first three months of 2024 increased by about 8% from $125 million to $135 million for the reasons that Eric has already outlined. It is worth repeating here that all three of our businesses: U.S. Crop was up 9%, U.S. Non-crop was up 28%, and International was up 2%, all grew at the net sales line. Turning to Slide 9. While sales were up 8% overall, gross margin dollars improved by 10%, driven by stronger sales of some of our higher-margin insecticides and herbicides and the strong factory performance. Overall, price-volume actions, mix of sales, and factory performance resulted in gross margin that improved slightly from 30.8% to 31.4% of sales. As you can see on Slide 10, our operating expenses in the first quarter of 2024 edged up to $36.3 million from $35.3 million in the same period of 2023. This increase was driven primarily by our spending of $1.2 million on developing our digital and business transformation plans. We plan to spend more in the next few quarters to invest in the long-term future of our business by implementing initiatives to achieve substantial improvement in business performance. We will see some initial improvements in 2024 that are expected to be largely offset by transformation spending and then primarily benefiting 2025 earnings and beyond. In addition, we had increases in general and administrative expenses related to foreign exchange, audit costs, long-term and short-term incentive compensation, and investments in initiatives to improve both our information technology systems and our human resources infrastructure. These cost increases were offset by cost control efforts in selling, regulatory, product development, and R&D. With respect to cash flow, as per Slide 11, the company has a pronounced annual cycle of building inventory at the start of the calendar year in order to fuel global sales, particularly during the second and third quarters. It is usual for working capital to expand in the first quarter, and Q1 2024 is pretty much in line with the same period of the prior year. We use our revolver debt to fund working capital expansion at the start of the year and pay down as swiftly as possible as the cash cycle completes usually later in the year. We have been carefully managing the inventory build as we monitor industry demand trends. At the end of the quarter, we had $13.7 million in cash compared to $19.6 million this time last year. This improvement in reduced amounts of cash held in order to pay down debt is a result of significant effort at the end of the quarter to pull cash back to the corporate center to reduce debt and interest expenses as much as possible. Looking at our statement of operations on Slide 12, you will note that our sales grew by 8%. Our gross profit increased by 10%, and our operating expenses increased by only 3%. These factors together generated a significant improvement in operating leverage, with operating income up 87% over the same period of 2023. Furthermore, the fair value of our equity instrument improved during the quarter. As a result, profit before interest and tax improved by 107%. Our interest rate increased from 6.8% last year to 8.3% this year, primarily related to movements in the Fed rate but also as a result of the current modifications we have with our bankers. That includes more flexibility on leverage and fixed charge coverage ratios, but adds about 0.5% of interest rate. At the same time, our borrowings are up as a result of our current investment in working capital. As I just mentioned, our business cycle is such that we will normally see working capital and consequently debt increasing during Q1 and Q2, possibly leveling slightly up in Q3 and then significant reduction in Q4 as the growing cycle for our major markets completes its own annual cycle. Our tax rate is higher this quarter, primarily as a result of the fact that our entities in Brazil made losses in the first quarter of 2024. Because of Brazil's past business performance, U.S. GAAP does not currently permit us to take the benefit on tax expense that would normally be available. As a result of the increased interest expense and the changes in year-over-year tax expense, our net income is down slightly, even though our operating performance and consequently, adjusted EBITDA was up significantly. Turning now to working capital on Slide 13. You will see our inventory trends on a quarterly basis for the last several quarters. While inventory grew on an absolute basis in Q1 2024 as compared to Q1 2023, you can see that the increase since December 31, 2023, is actually lower than in 2024 than in 2023. Further, 39% of net sales are invested in inventory similar to the level at this time last year. And though we would like to see this balance come down more quickly, it is something we need to manage carefully down, ensuring that we have the right balance of products in inventory to meet customer needs in a timely manner during the 2024 season. During the later part of the year, we plan to move inventory levels down with the intention of reaching a 2024 year-end target of around 34% of net sales. That sums up my detailed comments. On the whole, the first quarter of 2024 showed improvement in comparison to the same period of 2023 in terms of both operating income and adjusted EBITDA. The company has embarked on an exciting phase of transformation and is managing to invest in a major initiative and still return a profitable result. And as such, I'm quite pleased with the progress we're making in this regard. This initiative will be critically important to the business in the latter part of 2024 and into 2025 and beyond. With that, I turn the call back to Eric.

Thank you, David. As per Slide 14, on news of an improving U.S. economy, the Fed seems to have shifted away from making interest rate hikes and is now debating whether to cut or hold those rates. In addition, the U.S. dollar has begun to strengthen against foreign currencies. While helping consumers with purchasing power over foreign-made goods, the strong dollar, when coupled with high grain inventory stocks, has served to suppress commodity prices compared to 2023. Nevertheless, even with current corn and soybean prices at these levels, farming still remains a profitable business. Further, while still observing conservatism and buying crop inputs, our distribution partners have relaxed their stringent destocking approach from last year, at least regarding our portfolio. In short, the farm economy is strong and we expect stable, albeit more deliberate, buying activity. The same is true of the non-crop market, where we are seeing further normalization of procurement patterns by retail and professional customers. Now let's turn to Slide 15 on our 2024 full-year outlook. While market conditions remain stable, one factor involving our herbicide Dacthal causes us to adjust our previous full-year targets. In the course of routine registration review, the US EPA has expressed concern over potential health issues surrounding this product. Accordingly, out of an abundance of caution, the company has voluntarily suspended sales of Dacthal and submitted a significantly narrowed product label to the agency that we believe addresses their concerns. We have committed to maintaining that suspension of sales pending EPA review and potential approval of that new label. The outcome of the agency's review is uncertain at present, but we are factoring the loss of Dacthal sales into our '24 forecast numbers. Accordingly, our full-year '24 targets are as follows: we expect net sales to increase between 6% and 9% compared to '23, while adjusted EBITDA will be within the range of $60 million to $70 million. The midpoint of this range would be a 19% increase over '23 adjusted EBITDA. Further, at that midpoint, our stock is currently trading at a discount of nearly 50%, assuming a standard valuation metric of 10x EBITDA. Let me turn next to our transformation initiatives as per Slide 16. On the digital slide, we are working with QAD not only to upgrade to their current adaptive global ERP system but also to standardize our business processes. At the end of this initiative, then, all segments will be following the same processes, using the same set of tools, and drawing from one source of truth. This will give senior management a clear granular view into our business operations and both increase our ability to make real-time decisions and to plan and forecast with greater accuracy. On the structural transformation side, we are moving quickly with what we call Project Accelerator. Working with the client's team over the next 16 weeks, we'll be conducting a deep level analysis and several sub-initiatives in parallel. Within the commercial realm, we will focus on our sales and marketing strategy, pricing, and product mix. Within operations, we will do deep dives into material sourcing, logistics, and manufacturing productivity. Within G&A, we will select and refine an organization design that best supports our future business plan as well as ensure that these many efforts are managed through a properly resourced transformation office. This broad initiative will generate EBITDA benefits through a range of results, including reduced costs, improved efficiencies, emphasis on higher-margin products, and better-defined roles and responsibilities. As I've stated in our last call, we are confident that we will gain at least $15 million of annualized adjusted EBITDA by 2026 through this investment. In closing, during the quarter, we navigated our business through complex markets while improving operating efficiencies and growing sales. Further, the '24 market conditions are stable and I would argue stronger than 2023. These conditions will serve to generate demand for our products and enable us to improve our inventory and working capital positions. In addition, having begun transformation initiatives in earnest, we are poised to generate even greater operating leverage. In short, we see promising opportunities for growth and are taking strong measures to ensure that we are positioned to capitalize upon them. So with that, I'll turn that back to you, Jessie. Thank you.

Our first question is coming from the line of Scott Fortune with ROTH MKM.

Just want to follow up regarding the transformation strategy. Nice to see that that's starting to be implemented here. It looks like that will really come through for most of the year. But I heard you say in your comments that any cost savings for 2024 here will be offset by some of the expenses to that. So really kind of factoring in more of a 2025 to expect that $15 million in efficiencies, '25, '26 going forward here. Just want a clarification on that from the operations standpoint?

Yes, Scott, that's true. So we do have costs to implement and go through this deep dive that we are undergoing right now. We hope to have some benefit this year, but as I said, we're projecting that it will overshadow the costs of transformation. But as we move into '25, most of the heavy lifting will be done and we'll start seeing that $15 million of improved actual EBITDA.

Got it. That's helpful. And then just following up on your outlook. Obviously, bringing it down to the 6% to 9% from the 8% to 12% on the sales side of it. Just kind of step us through Dacthal was just getting back on the market from that standpoint. This kind of the size of that from a revenue standpoint that's driving that down a little bit? And are there other factors in that sales of 6% to 9% outside of Dacthal? And then just any color for timing from a historical standpoint kind of as you reregister this through the EPA, I know this is kind of unknown, but your sense of timing for Dacthal coming back on the market?

So we submitted the revised label this week. It is a fairly restricted label. We expect the EPA to respond fairly quickly. We've been in strong negotiations and discussions with the EPA for well over a year, and we think we've kind of reached where we're going to be. And then we discussed pathways of additional information and data that would potentially allow us to recover at least some of the market that we're not going to have certainly in the short-term. So the timing of that, some pieces may be relatively quick, but others could be on a 1- to 3-year timeline depending on the scope of the studies and then the timing for review. As far as scope, this is about a $15 million product, and we had about one-third of that in the first quarter. And so what we've done is we've just made the assumption we're not going to sell anything more for the balance of the year and we'll factor that in. We will have a much clearer picture of what '25 is going to look like soon, certainly before we come up with '25 numbers. And if anything were to change for '24, we'd certainly adjust it. But at this point, we're not anticipating anything material here in the balance of the year.

Got it. Following up on that.

Sure.

As we emerge from the registration process, does that strengthen our position to capture a larger market for you? How do you view that once you complete the process regarding the competition and the potential for Dacthal?

Well, Dacthal was growing nicely for us. It's a very, very niche herbicide for cold crops and onions. I don't think we see going back into the onion market with the cold crops. And so yes, we don't have any assurance that we're going to get back any significant amount of that. But we really have to kind of wait and see. Again, this has been a long process. We've been in discussion with the EPA and had a very good call this week, but we're waiting to hear back from them regarding their assessment of what we just submitted.

Great. And then one last one for me. Any updates on the growth products for you, especially Green Solutions? We've seen considerable competition from China in that area, particularly affecting Latin America. Can you highlight the growth you've experienced this year and what you expect in 2024, particularly regarding Green Solutions and the ongoing adoption of your products?

Yes. So Green Solutions were up 14% this quarter. Most areas had growth, and so that seems to be going well. We have additional opportunities for product expansion as we continue to have companies coming to us and asking, 'Hey, with your market access, would you distribute this product and that product?' So a number of companies are there. We did sign up on a precision plant, a protein called Herpen for the Chinese market. I'm not sure how big that will be, but this is a product that has been around for quite a while. I know I had it at one time. But yes, we see nice growth in that segment as adoption for green products continues to build. So that's kind of the piece on Green Solutions.

Our next question is coming from the line of Chris Kapsch with Loop Capital Markets.

Yes. I have a couple. Just as a follow-up on the Dacthal discussion. Eric, if I remember correctly, was this the product that you mentioned you've been in discussions with the agency for over a year? If I remember correctly, that also manifested in disruption to your sourcing the AI for this particular product. And I thought that the outcome of that was that you came to a resolution. So it's a little surprising to hear this cautious stance in reregistration now. I'm just wondering what the risks associated with getting this to a favorable outcome are and how are you managing that?

Yes. So two different issues. One was supply, and we didn't have a supply for a year. And so that we have resolved, and we have actually two supply sources. So the supply side was certainly taken care of. On the reregistration process, we are on a different path with the EPA. And we're not necessarily in agreement on their assessment. But rather than push that further with them, we went as far as we think we can go for right now, and we believe we've submitted a revised label that they should accept, but that will be certainly a reduction of the market that we've had. So as far as, yes, the timing is kind of as I anticipated; we've got different stages of pieces that we would like to reinstate, and the first piece, as I mentioned, I think will be relatively short. The next two kind of run between 1 and 2 years and then maybe between 2 and 3. I'm not sure that we're going to wind up doing all of it; we'll assess the market as we get further information from the EPA.

Got it. And the costs associated with these studies and reregistrations, is that just sort of a normal course of business and factored into your R&D spend, your normal R&D spend?

That's correct.

Got it. And then so just curious about this year's sort of the mood of the growers and the trends in the Midwest. We came off of what was described related to another company I follow as the most mild winter in like 25 years. And so sometimes when that happens, there’s the infestation of the insects is greater. So I'm curious if there's any evidence that was the case for corn rootworm pressure this season? Are you seeing any indications that you could have an uptrend in demand for your insecticides?

I'll let Bob add some color, but I'll just say in talking with my people, yes, there are wet conditions, particularly. Planting at this point is maybe in the 50% range with the south there, but there are large parts of the corn and soybean markets that have not been planted yet. So it is an extended period. But Bob, your color?

Yes, the mood among growers in the Midwest has been quite cautious. However, there has been a slight increase in July corn and soybean pricing recently, and many are taking advantage of that by locking in prices through forward contracts, leading to a bit more optimism overall. Still, there are areas where challenges persist; for instance, a grower mentioned that he had completed about 90% of his planting by April 16, but hasn't been able to get back into the fields since then due to wet conditions, leaving 10% of his planting unfinished. This inconsistent planting situation is unusual for the agricultural markets, but weather challenges are always a factor.

Regarding the corn rootworm pressures, our product Aztec is mainly used in areas with high corn rootworm pressure, while we have not seen significant use in areas with mild to moderate pressure. We introduced new products a couple of years ago, but we have not been able to produce enough to meet demand, as it has outpaced our internal production. However, we did experience good production and sales in the first quarter up until mid-April. We are currently building inventory for the fourth quarter due to stronger demand than supply. We believe we can significantly increase our production. Also, since this is a liquid material, it competes with bifenthrin in the marketplace, which presents an opportunity for us moving forward. A larger area is treated for mild to medium corn rootworm pressure compared to heavy pressure.

All right. That's helpful. And then last question. So your herbicide impact is often used sort of to complement some of the workhorse broad-spectrum herbicides. And I'm curious, given what had happened with the global supply chain and the supply chains with glyphosate globally and the spike in those prices and sort of outside demand for alternative herbicides, I'm curious how that's played out now that everything has kind of normalized in terms of pricing and availability and some of the cash crop herbicides? And then how that affects your impact sales? And how does that play out in your guidance and expectations this year?

I think you remember that herbicides were in a surplus; prices were high in 2022 but dropped in 2023, and there was a lot of inventory and high prices. That seems to have improved. However, when I look at larger peers, the first quarter was not strong for them, indicating that there may still be residual issues in the herbicide market. We don't operate on a large bulk scale, but we do have some influence with glufosinate as a product. So, impact has been more of a tank mix partner than a primary player, but the situation looks better compared to last year.

Is there any way to quantify that, the improvement? Like what's factored into your outlook on that particular product?

Yes, we were nearly even compared to last year. Our fourth quarter sales were strong relative to the previous year, and it appears we're about even in the first quarter. The second quarter, however, is looking significantly better than the same period last year.

Our next question comes from Andrew Lester with Harley Capital.

If I'm reading it correctly, and forgive me if I'm off by this, 18 months ago or 24 months ago, you sounded very optimistic. You laid out some exciting timelines and information. And even in the last year or so again, you sounded very clear on ways to enhance value to board refreshers, all sorts of things that we are pointing to as milestones to lead to significantly better results. But when I listen to you today, you sound very tentative, equivocal, and really uncertain, looking for a more significant improvement without quantification for like a year from now. Is that a fair read? Have you become much more cautious about your prospects?

Well, I would say that we are pointing towards improvement through the transformation process, but that does have an expense of transforming now it's a one-time expense. But yes, as we've mentioned before that we've grown through acquisitions of companies since 2017 and we did not get the benefit of incorporating those the way we wanted to and were hampered, certainly during COVID, but the process now that we put underway is to get all the systems on the same page so that we can do better management and where we deploy working capital and improve quality. And as I said, our target here, I think we are maybe at 11.5% of EBITDA to sales. What we're looking through this transformation process is to improve that EBITDA margin to 15%.

If I look at things, this is a follow-up on a sort of more mercenary basis as a shareholder, I'm probably down over 40% in the past year. How do you think or when do you expect things to translate into better equity performance?

I believe we're up slightly over 14% so far this year. As we mentioned last year, we faced two significant supply issues that impacted us. The first was related to our largest insecticide, and the second involved the supply of Dacthal that we previously noted. We have since improved our sourcing for both of these products. Moving forward, we have sufficient material for Aztec. These supply challenges notably affected the fourth quarter of 2022 and into 2023, preventing us from meeting demand at that time. Currently, our supply situation has changed, and we are now able to reintroduce Aztec, as well as Index, Force, and SmartChoice into the corn market. In observing our peers, many have predicted declines in Q1, which turned out to be accurate. However, we have seen improvements in Q1. Therefore, we have made our forecast based on the best information available at this moment.

Ladies and gentlemen, it seems there are no further questions at this time. I would like to hand the floor back to Mr. Wintemute for any closing remarks.

Okay. So thank you for all for listening in today. Slide updates as we have them, but I guess the next scheduled time would be our shareholders' meeting, which I believe is June 6 or 7. 6, yes. Okay. Thank you and have a good evening. Bye.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.