Greetings, and welcome to the American Vanguard Fourth Quarter Earnings Review Conference Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Anthony Young, Director, Investor Relations. Sir, the floor is yours.

Thank you, operator. Good morning, and welcome to American Vanguard's Fourth Quarter and Full Year 2024 Earnings Review. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer; and David Johnson, Chief Financial Officer. Tim Donnelly, CIO and General Counsel, is also available to answer questions. We have prepared the presentation slides, which we will reference during this call. These slides are posted on the Investor Relations section of the American Vanguard website. Let's begin this call with our forward-looking cautionary reminder. During this call, we may discuss forward-looking information. All forward-looking statements are estimates of the company's management and are subject to various risks and uncertainties that may cause actual results to differ. Such factors include weather conditions, changes in regulatory policy, and other risks as detailed in the company's SEC reports and filings. All forward-looking statements represent the company's judgment as of the date of this release, and such information will not necessarily be updated by the company. Before commencing with the call, I would like to note that the numbers being presented today are unaudited numbers. We anticipate there will be a delay in filing the audited 10-K and are working closely with our auditors to complete the process, and we'll look forward to providing these audited financial documents shortly. It is now my pleasure to turn the call over to our CEO, Dak Kaye.

Thanks, Anthony. Hello, everyone, and welcome. My name is Douglas Kaye, but throughout my life, my family, friends, and colleagues have referred to me as Dak. So please feel free to call me Dak in the future. This is my first conference call as CEO. Before discussing our results, I would like to take a moment to introduce myself and answer the question I have received most frequently during my three months on the job. Why did you join American Vanguard? I've been CEO for three months but have known, competed against, and admired American Vanguard for many years. I started my career in funding and have spent the second half of my career managing and growing large-scale crop protection businesses. It was not an easy decision to leave my last role, but I saw a tremendous opportunity at American Vanguard to build upon a business that provides high-quality, irreplaceable products that our customers value and that are needed by growers. This company has resilient revenue that we can build upon, but we must improve margins, right-size the balance sheet, and get back to growth. As David will discuss in a few minutes, the one-time charges taken this quarter are part of our broader strategy to improve this business. The magnitude of these charges is substantial. These steps are necessary to reposition the company for long-term growth and profitability. We have a lot of ground to cover on this call. Before we get started, I wanted to emphasize that I plan on having a culture that stresses the importance of safety. Ensuring the safety, health, and well-being of our employees and the environment is an important part of my role here. One of my goals is to ensure that our employees return home safely after every day of work. From the attached chart, you can see that our safety performance has improved over the last 12 months. One of my goals as CEO is to ensure that this trend continues to improve. While we may never be the largest agricultural company, I will start to make us the safest. Now turning to the Full Year 2024 results. To be able to compare our '24 results with previous periods, I will reference adjusted numbers. American Vanguard generated approximately $42 million of adjusted EBITDA in 2024, within the range we previously outlined. This is a commitment we want to make to our stakeholders, our customers, regulators, shareholders, and all other constituents. While we are pleased to achieve our 2024 EBITDA target, the result is just the starting point for what is possible for this company, in my opinion. With an adjusted EBITDA margin of 7.5% in 2024, we view this level of profitability as being approximately half of what our full cycle earnings power can be. On a percentage basis, we believe that we can achieve double-digit EBITDA growth over the next 3 to 4 years as we simplify, prioritize, and deliver. This is a measure that I have been repeating since the first day I joined the company and will continue to repeat for the foreseeable future. For a relatively small business, I have noticed a significant amount of complexity, and I believe that simplifying many of the things we do will allow us to better understand what is important and enable us to deliver against the highest priority tasks. The Board of Directors has taken the right initial steps to fix the business over the past 7 to 8 months. Exiting SIMPAS, cutting costs, and looking to install an ERP system were the right initial steps to face the business. I had a deep understanding of what the Board was looking to accomplish before I joined the company, but I believe the transformation plan was a starting point for what is possible, not the ultimate destination. I don't think anything revolutionary is necessary to improve upon the business transformation that is well underway, but deploying modern management techniques that I've implemented in several prior positions should build on the targets that we've already established. Before I turn the call over to David, I can provide some details on what we are seeing in the farm economy. Since taking this role, I have met with many of our largest customers and built relationships. These customers indicate that the slight improvement in sentiment since the low point experienced in the summer of 2024 has created a more positive environment among growers. However, they remain conservative in their buying patterns after enduring the recent cyclical downturn and facing the uncertainty of high capital costs along with the sector facing increasing tariffs. It seems the channel is purchasing in-season instead of ahead of the season as we have seen historically. It does not appear that customers are looking to rebuild inventories, which have largely been depleted. Instead, they are buying just in time for the season. I firmly believe that 2025 will be better than 2024, but the improvement will be gradual, and the interest rate environment, coupled with the uncertainty of potential tariffs, will lead to farmers remaining cautious for some time. Taking into consideration these factors, for 2025, we have an adjusted EBITDA target range of $45 million to $52 million and expect sales to fall in the range of $565 million to $585 million. We expect CapEx of approximately $10 million for 2025, so free cash flow should be meaningful, which we will allocate towards the paydown of debt. As we continue to transform this business, we believe that the future market will continue to improve, and we expect further margin enhancement in 2026 and beyond. Now I'll turn the call over to David to discuss financial results before returning for my closing remarks.

Thank you, Dak. Good morning, everyone. Turning to our financial performance. I'd like to reiterate that our comments today are based on unaudited numbers. Our fourth quarter revenues were approximately $169 million, a decrease of 2% compared to the fourth quarter of 2023, and our adjusted EBITDA was approximately $18 million, a decrease of 18% compared to the fourth quarter of 2023. During the fourth quarter, we were able to pay down $22 million in debt. In addition, the company is focused on improving its balance sheet and we are pleased to report that inventories ended at approximately $180 million, which included some write-downs for obsolescence and slow-moving items. In 2025, the bulk of the free cash flow we generate will be allocated towards paying down debt. For the full year, the company recorded adjusted revenues of approximately $563 million, a decrease of approximately 3% compared to 2023. This excludes the credits we recorded to withdraw from the market. Our reported revenues will be approximately $550 million. Adjusted EBITDA was $42 million compared to $53 million in the prior period. We continue to make progress in our effort to drive down inventory. Before asset write-downs, we decreased our inventory by approximately $47 million during the quarter, but slightly missed our inventory to sales target of 34%. While we had previously targeted inventory to sales, we are now adjusting this target to inventory turns as we believe this more closely aligns with the goals of the business. Our average inventory turns for 2024 ended at 1.67 on an adjusted basis, and we should be able to push this metric towards about 2 turns by year-end 2025. I would also like to mention that we received an amendment to our credit facility. For over 35 years, BMO and its predecessors have shown continued support for our business. We appreciate the vote of confidence they are showing in our transformation work. With our credit facility expiring in August of 2026, we aim to announce a new facility in the summer of this year. Let's discuss the one-time charges that impacted our performance. In total, for calendar year 2024, we have recorded $118 million of nonrecurring charges. The magnitude of these charges highlights the amount of work that was necessary to reposition American Vanguard. The one-time charges fall into two categories: asset impairments and transformation projects. With approximately $76 million in asset impairments during the fourth quarter, consisting of the SIMPAS write-down, which was approximately $22.4 million, a goodwill write-down of approximately $27 million, the write-down of slow-moving and obsolete inventories of approximately $20 million, and the write-down of previous investments and other assets. We had smaller one-time charges during the fourth quarter related to our transformation consulting and our organization redesign. These expenses and the write-downs are substantial, but they position American Vanguard for improved profitability and growth over the quarters. I would be happy to answer further questions about these charges in our Q&A. Finally, I would like to mention the delay in our financial filing due to a number of somewhat complicated assessments required related to the write-downs, especially goodwill that we have addressed in the fourth quarter. We will end up filing our 10-K after the statutory deadline, and consequently, we will be filing a 12b-25 with the SEC. We are working with our auditors in an effort to complete the open items with the view to filing the 10-K as soon as possible. With that, I would like to turn the call back to Dak.

Thank you, David. Before we wrap things up, I would like to acknowledge two new members of our team and a promotion. We have recently hired Mike Depalo as Senior Vice President of Strategy and R&D, and Jared Stradley as Senior President of Operations and Supply Chain. We also recently promoted Maltinas Gillam to Senior Vice President of Manufacturing. Mike and Jared were hired to bring a skill set to American Vanguard that was missing, while Maltinas' promotion is well-earned from within. I'm excited to have all three reporting directly to me, and over time, I look forward to introducing them to the investment community. I'm sure you'll be as impressed with them as I am. Looking forward to 2025, as we stated earlier, the agricultural economy is gradually improving, and we are making steady progress with our business transformation. We have analyzed the ongoing tariff situation and believe it will have a nominal impact on our real costs, with less than a $3 million EBITDA impact if tariffs remain in place for a full year. From the fluid nature of the situation, it is too early to tell how this may impact growers, but we're in constant contact with our customers as we gauge how they are reacting to these developments. We have the capability to improve our profitability through our business transformation, and we look forward to stronger results in future periods, driven by initiatives that are within our control. Before closing the call, I would like to say that I am more excited today than when I originally joined the company. I have seen a lot of opportunities to improve and modernize the company to drive improved results. As we look forward to 2025, our goals are straightforward: operate manufacturing facilities as safely and as efficiently as possible, achieve the financial targets that we have provided, further transform this business into a company that can consistently generate free cash flow from the resilient revenue it already generates, and right-size and strengthen the balance sheet, which will entail decreasing net working capital and paying down debt. As we achieve these near-term benchmarks, we will be moving towards our longer-term goal of becoming the trusted provider of proven agricultural and environmental solutions. With that, we will open the floor for questions.

Our first question is coming from Ben Klieve with Lake Street Capital.

First question around the preliminary nature of the earnings release. You noted in the prepared remarks that this would get done as soon as possible. I'm wondering if you can, first of all, help kind of characterize your expectations for timing? And then second of all, it sounded like the reasoning behind this was just purely a function of a complex dynamic around the series of write-downs rather than anything that was necessarily surprising or concerning. I just want to confirm that that's the takeaway that we should have here for the reason behind the preliminary nature.

Yes, I think that's a fair assessment. It's a little difficult for me to say exactly when in the next week or so that we'll file, but we're working as hard as we can with our auditors to finish the other procedures.

Okay. But you're looking at either weeks, not months?

Certainly, yes.

Okay. Okay. Perfect. Great job on the balance sheet here in the second half of the year. And I appreciated your comments on inventory turnover expectations for '25. I'm wondering if you can further elaborate on how much do you think you could potentially still get working capital in 2025, given how much progress was made in '24? Outside of inventory, do you expect any other working capital maneuvers, or do you think that’s going to be a more static number in '25?

Inventory is certainly our high-focus item; it is the one we see as the greatest opportunity to move working capital down. So we're highly focused on it. We've got a newly sort of refreshed version of our SIOP model, and as I mentioned earlier, we have Jared who has joined and he's going to be leading that process. It's a focus that we haven't had before.

Very good. Dak, question for you. You noted the complexity of the organization and how you're looking to improve that dynamic. Can you talk about the steps that are needed to improve the complexity? How much of the complexity will be addressed, you think, by a modernized ERP system versus larger structural or organizational changes that need to take place? Yes, I guess that's my first question.

Thanks, Ben. Yes. So it was extremely complex when I came in. It was on the path from an organizational restructuring with the transformation plan. So there was a lot of work done throughout 2024. We finalized that plan, the organizational plan, which simplified the structure, so we had some accountability and responsibility in the functions. I think that was the first necessary step to make the organization accountable and also, at the same time, reduce some of that complexity in the organization to identify who’s responsible for what. The ERP system will absolutely help us reduce complexity. The flow of information will show tremendous improvement over the next year or two. The ERP system will greatly enhance or simplify, I would say, the transfer of information around the organization. The other items I would say there are simplifying the SIOP process, along with the ERP system, and the reimplementation of SIOP will greatly improve our efficiencies in managing inventory and procurement. So there's simplification there, too. I would also say, as we refocus the business on growing our portfolio organically, a stage gate process of managing new product development will simplify that process as well. So there are a lot of things ongoing inside the business today that will create that simplification and prioritization and allow us to deliver as well.

Great, great. I'm looking forward to hearing progress throughout this year. Last one for me and then I'll get back in queue. You've flagged tariffs in multiple manners. I appreciate that the impact on raw materials would be pretty negligible as we understand the tariff situation to be today. But I'm curious, your comments on revenue guidance in the cautionary note you have regarding tariffs. How are you seeing farmer buying patterns impacted by this uncertainty? Is it a function of them just really wanting to have a just-in-time kind of approach in crop protection products? Are they really concerned about the trade dynamics as a fallout of this and not having end buyers for their harvested grain? What really are farmers looking at in the context of tariffs right now that are impacting your guidance?

Absolutely. I mean, uncertainty in any business creates uncertainty. So that's what we're seeing about tariffs right now. As you mentioned, I don't believe that the tariff impact on raw materials is materially significant, being around $3 million for 2025. When we're talking to our customers, who are the distributors in the channel, they're relatively positive about the change from '24 to '25 in the ag industry. However, growers are being cautious about this because of the impending tariff implications, not necessarily on their underlying costs, but as you mentioned, the potential reciprocal tariffs on their commodity products. So that's the concern there. But we do feel that '25 will be better than '24. That's a pretty positive indication in the marketplace. If we can get through these tariff issues, I think it will be a very good year for 2025.

Our next question is coming from Mike Harrison with Seaport Research Partners.

I was hoping just kind of piggybacking off the last response to the last one there. In terms of channel inventories in the marketplace, can you talk a little bit about what you're seeing in your key regions? Are there still areas where distributors feel like they have elevated channel inventory and they're continuing to pull back on purchases? Or have you seen some improvement either broadly or in specific regions?

Yes, Mike, this is Dak. Thanks for the question, and it's a good follow-up question to finish up on Ben's question. The channel inventories, we do see those down considerably in the U.S. and around the world, they are down. We hear that from our customers. The issue is that with the current cost of capital, the channel seems to have gone to just-in-time service for the other products by the growers, so that we see a just-in-time approach now. So there's not a real indication of restocking to levels that we saw before the downturn. The channels have destocked but are not going back to the levels they were at pre-2023. However, we are seeing favorable conditions in the marketplace as the growers and distributors are purchasing, but just in time for the season.

Got it. And then a couple of questions on margins. You talked about the 7.5% EBITDA margin that you did for the full year 2024 being about half of the earnings potential or that earnings power over the cycle. Can you just help bridge how you guys would expect to get to a mid-teens EBITDA margin? How much of that is kind of volume recovery and operating leverage? How much is related to the ongoing business transformation? And I guess, are there any other key pieces or key drivers of margin improvement over time?

Yes. Good question. And the way we envision it with the transformation process that we've got ongoing with the commercial activities, that's one component of it. I figured that around 3%, we can go from 29% to say, 32% gross margins on products or sales, which will get us a portion of the way. The rest of the way, roughly, we need to come down from that OpEx as a percentage of sales from 26% to the low 20s, around 20%, is what I would say. Some kind of mix of those two. The OpEx is being addressed ongoing, not only with the transformation reorganization process but also administering cost-cutting strategies. But the 7.5% plus the gross margin plus the OpEx reduction should get us into those mid-teens full cycle.

All right. Very helpful. And then just in terms of trying to understand the earnings cadence for 2025. At the midpoint, your guidance is, call it, 8.5% EBITDA margin. You're coming off of Q4, where you did closer to 10.5%. So just kind of curious, should we expect EBITDA margin to kind of start lower in the first half and then show improvement and momentum maybe even getting further into the double-digit second half? Just kind of what are your thoughts on margin and earnings cadence this year?

Great question. Yes, we are seeing the second half of the year being more positive in terms of EBITDA margin. So we anticipate that Q1 and Q2 will be lower in that respect. Q4 has historically been a strong quarter for us, and we're seeing that projecting into 2025 as well. So H2, the second half of the year, will be more positive than the first half.

Our next question is coming from Wayne Pinsent with Gabelli Funds.

Dak, congrats again on your first call as CEO. Just wanted to piggyback on that question. Just given everything that's going on in the industry and specifically at the company over the past couple of years, can you just further speak to your confidence in the 2025 guide? And what could take you to the upper and lower end of the range?

That's a great question, Wayne. Thank you. The lower range suggests a slower growth than what we saw in the agriculture industry and below 2024 levels, while the upper end indicates a positive outlook for 2025, lacking negativity and benefiting from increased purchases by growers. We expect that the lower end of the range will reflect some negativity compared to 2024, so overall, we believe we will perform better than in 2024 in most scenarios.

Okay. And then you mentioned a few of the things you're working on and the transformation plan being a starting point. Is there anything substantial in that you're going to be doing in 2024? And can you quantify if there's any further substantial transformation in 2025?

Yes, yes. So the transformation costs will not be substantial. We've got those projected at around $5 million for 2025, so way down from 2024. The largest pickups in 2025 from the transformation will come from commercial activities, around $4 million to $5 million. Additionally, in logistics and procurement, we expect another $2 million to $3 million, and also some organizational improvements around $2 million. So it amounts to around $8 million to $10 million of transformation benefits in 2025.

As we have no further questions online at this time, I would like to hand it back over to Mr. Kaye for his closing remarks.

Thank you, operator. I'd like to conclude by thanking everyone for listening and participating in our call today. I look forward to providing further updates on our initiatives and value your questions and support as we strive for the long-term success and growth of the company. These interactions give us an opportunity to think in a disciplined way about how we are assessing our recent past performance and our prospects, and also to hear from you about what’s on your mind and maybe the gaps in what we've explained to you and how we can better respond. We are committed to maintaining transparency and open communication. So please feel free to contact us if you have any questions or need any further information. I hope to meet and see some of you in person in the near future. I will be traveling to New York City to participate in the 16th Annual Specialty Chemical Symposium hosted by Gabelli Funds, and perhaps I will have the chance to meet some of you there. Importantly, as I stated earlier, I don't think anything revolutionary is necessary to execute and improve upon the business transformation that is underway at American Vanguard. My mantra is straightforward in this regard, simplify, prioritize, and deliver. Thank you again for your participation, and we look forward to reporting our first quarter 2025 results to you in May. Thank you.

Thank you. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.