Greetings and welcome to the American Vanguard First Quarter 2025 Earnings Conference Call. Please note this conference is being recorded. I will now turn the call over to your host, Mr. Anthony Young. You may begin.

Thank you, Ali. Good afternoon, and welcome to American Vanguard's First Quarter 2025 Earnings Review. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer; and David Johnson, Chief Financial Officer. We have prepared presentation slides, which 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 by 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. It's now my pleasure to turn the call over to CEO, Dak Kaye.

Thank you, Anthony, and welcome, everyone, to our first quarter 2025 earnings conference call. Let me start with a view from 10,000 feet. The year 2024 was one of great change at American Vanguard and was then capped off by a prolonged financial close and audit that delayed our Form 10-K and consequently, the 10-Q, which David will cover shortly. However, our final audited numbers were substantially similar to the unaudited results we published in March. In spite of tough market conditions, I'm happy to report that we were able to drive improvement in the areas that are within our control. For example, during Q1, our operating expenses dropped by $5 million and net trade working capital was reduced by $86 million, both in comparison to last year. We are beginning to see the benefits of our transformation efforts. Further, channel inventories in the U.S. are at historic lows. While customers were able to hold down their working capital during the first quarter, we can see they are starting to replenish their stocks now. Indeed, based upon orders to date, we are seeing a stronger second quarter and expect the remainder of 2025 will be solid. We are well positioned to respond to rising market trends while continuing to improve our operating leverage. Now turning to our first quarter of 2025 financial results. The company generated net sales of $116 million as compared to $135 million in the year-ago period and reported $3 million of adjusted EBITDA as compared to $15.5 million in the year-ago period. There were some specific items in the first quarter of 2024 that positively impacted that period, which we will address later. The first quarter of 2025 was somewhat weaker than we had initially anticipated. This was based upon the opinion formed at the end of 2024 that pretty much all the destocking had finished. Industry data indicates that our product is being applied in the field, but our customers did not replenish their stocks as quickly as our product was being consumed. Thus, the trend of destocking continued in the first 3 months of 2025. We also made decisions to adjust our program strategy to keep up with programs that our competitors were deploying at the end of the first quarter. Top line revenue and gross profit were impacted by these developments. In addition to this dynamic, we did not have access to a previously canceled product. We saw a weakness in the Mexican agave market and drought conditions in Australia. I would also like to highlight 2 bright spots in our portfolio. Metam sales were up 14% in the quarter versus last year. This is our largest single product and continues to be well respected in the market. Thimet sales were also up 17%, and this can be attributed to the increase in peanut acreage that was planted this year. I must admit we have faced several challenges in my first 5 months, but I continue to be impressed with the team at American Vanguard. The opportunity to transform this business largely stands in front of us. We have taken some initial steps to improve the business, but the ongoing weakness of the current cycle has prevented this progress from being fully realized when considering our recent financial results. We expect this hard work should begin to materialize in the upcoming quarters. Two areas of improvement that I would like to highlight are our focus on cost containment and our improvement in our net working capital accounts. First, in the area of cost containment, I have advised the team to continuously evaluate where we can take costs out of the business. Overall, operating expenses are down $5 million in the first quarter as compared to a year-ago period. We expect to continue to bring further costs out of the business as part of our transformation plan, but this was a strong start to this effort. The team has also done an admirable job of managing net working capital, showing an improvement of $86 million as compared to this time last year. Our SIOP process allowed us to limit our inventory build, while our management of accounts receivable and accounts payable allowed us to limit the amount of debt that was necessary to operate the business. I was surprised by how much working capital was consumed by the company before I arrived, and we plan to operate this business in a leaner fashion going forward, which will allow the business to generate higher returns over the long term. Before I turn the call over to David, I did want to address our 2025 revenue and EBITDA guidance. We have analyzed our supply chain and we believe the impact from any tariffs will be nominal to our cost of goods sold. In fact, given our U.S.-based footprint, any long-term tariffs may create opportunities for American Vanguard. But given our weak first quarter and a market that is only beginning to recover, we are decreasing our full year adjusted EBITDA target range to $40 million to $44 million from $45 million to $52 million, and we are adjusting our revenue estimate to $535 million to $545 million. While we are beginning to see early stages of a recovery, we do not want to forecast an overly optimistic outlook at this juncture. I'll return after David provides his remarks to give some additional industry commentary covering the short-term trends and expectations. I'll now turn the call over to David, our CFO.

Thank you, Dak. Good afternoon, everybody. Before discussing our financial performance for the quarter, I would like to address the late 10-K and 10-Q filings. We are pleased to have filed both documents with the SEC, but as many participants on this call are aware, these documents were filed after their SEC deadlines. The company accomplished a great deal during the financial close, including performing a detailed review and impairment assessment of the company's major assets. At the same time, the company identified several internal control matters at the company's relatively small Australian subsidiary due to insufficient staffing. The company also had to work through a number of matters related to customer programs. In an unrelated situation, the company has talked a lot about our efforts to implement a long standard ERP platform across all of our entities. These efforts resulted in a number of implementation matters the company had to address. All these matters, when taken together, resulted in the corporate finance team being unable to meet the SEC deadline for filing the 10-K, which ultimately resulted in our assessment of related material weaknesses in the company's internal controls. The company is working on a remediation plan to resolve those material weaknesses. These matters related to the filing of the 2024 financial statements also led to a corresponding delay in the filing of the first quarter financials for 2025. Having said all that, as you may recall, we published unaudited year-end financial information in March. Now that we have filed our financials, we have been able to report only minor changes from our prior estimates. First, adjusted EBITDA for 2024 decreased to $40 million as compared to the $42 million unaudited figure, while net sales were $547 million as compared to the unaudited $550 million previously indicated. The main reason for the adjustment was related to customer prepayment programs, where the company identified an adjustment after the initial release. Further, final debt ended $9 million lower than initially indicated due to final adjustments related to debt and accounts payable. Turning to financial performance. Our first quarter 2025 revenue was $116 million, a decrease of 14% as compared to the first quarter of 2024. The primary reasons for the decrease were: first, as Dak just mentioned, destocking continued in the quarter; secondly, the absence of a voluntarily canceled herbicide from our product portfolio; third, weakness in the Mexican agave market; and finally, a drought in parts of Australia impacting sales of certain products. Further, market-related factors also dampened our first quarter performance. For instance, in response to aggressive competition in the challenging first quarter market, we implemented increased incentive programs. Gross profit margin declined to 26% during the quarter as compared to 31% last year. This decline in gross profit margin was primarily related to a weaker pricing environment and to a lesser degree, lower volume. Our operating costs were well controlled and were down approximately $5 million, excluding transformation expenses and a one-time benefit recorded in the first quarter of 2024 related to the settlement of a long-time data compensation. We made substantial improvements in our working capital accounts. As I have mentioned in previous conference calls, our business cycle typically leads to an inventory build during the first 2 quarters of the year as we prepare to meet the needs of our customers in the second half. However, this year, our inventory only increased by approximately 3% since the year-end of 2024 and has decreased by 20% as compared to this time last year, resulting in improved inventory turns. We are pleased with this progress and believe further improvement is possible. We are highly focused on managing net trading working capital and were successful in the first quarter, ending with working capital of $86 million lower than this time last year. Along with a better control of working capital, we ended the quarter with debt approximately $20 million or 14% lower than this time last year. It is likely that debt will trend higher during the second quarter, which is normal for the company's annual cycle. Our focus on controlling our working capital levels going forward should help to minimize the debt we need to run the business. Ultimately, we expect this focus will help to create higher returns for shareholders. With regard to debt, because our current credit agreement matures in the third quarter of 2026, we have already begun to work with our lenders to put in place a longer-term capital structure. We are looking at a wide range of options to replace the current credit agreement. Because the current interest rate environment is quite challenging, we expect that new interest rates will likely be higher than our current credit agreement. Our focus is to obtain flexible financing that will give the company ample working capital, both to operate and grow, which is one of the highest priority initiatives at the company at this time. Looking forward to the balance of 2025, we expect that CapEx will fall in the $8 million to $9 million range. Thus, we expect to generate reasonably strong free cash flow this year. As we said in our last quarterly call, we expect virtually all free cash flow to be allocated towards debt paydown as we look to further strengthen our balance sheet. In summary, the financial performance of the first quarter was weaker than a year-ago period, but we believe that we managed well in the areas that were under our direct control—operating expenses, inventory, accounts payable, and debt levels. While the broader agricultural market is in the very early innings of a recovery, if we continue to execute against our transformation plan, we will be well positioned for a cyclical upturn.

Thank you, David. Before we close, I thought I would provide some thoughts on what we are seeing in the agricultural economy. I don't want to sound too optimistic as the level of economic uncertainty remains extremely high. But based upon what I have seen during my more than 15 years as an executive in the crop protection industry, inventory levels have been drawn down to a point where any recovery in buying patterns is going to lead directly to an increase in demand, which will lead to higher volumes or pricing and possibly both higher volumes and pricing. That is the nature of operating in a cyclical industry like ours. We have included a chart in the slide deck, which shows that inventory levels at our distributors are down by nearly 23% as compared to a year-ago period. We should note the industry has already been involved in 18 to 24 months of destocking. While inventories have been drawn down, industry data indicates that corn plantings are at a historically high level. In fact, corn acreage is forecast to be at its highest level since the 2013-2014 season, which was a reasonably strong period for crop protection companies. As I stated previously, based upon industry data, we can see that our product is being applied in the field, and we are not losing market share. Thus, we believe our portfolio is well positioned should the season go as forecasted by the USDA. Cotton acreage is looking incrementally softer than last year, but growers are switching to peanuts, which is also an area of strength for us with Thimet being one of our most popular products, which is used in peanuts. We can see a recovery beginning, but we will need to achieve clarity on tariffs and gain further confidence in agricultural commodity pricing before a cyclical upswing can commence. Important agreements have been reached by some global trading partners, but based upon our conversation with customers, a high level of uncertainty remains in the market on how the global trade landscape will adjust to the additional barriers that may be forthcoming. While we wait for this recovery, we will execute on our business transformation, which should lead to improved financial results. We'll look to take further costs out of the business, continue to improve our net working capital position and importantly, make smart investments that improve the positioning of our product portfolio. As I stated in the last conference call, one of the reasons that I took this job was that I believed American Vanguard is a business that can be fixed. I've just highlighted a few fixes that I've implemented in my first few months here, but there is much more that can be accomplished. We continue to execute against the playbook we developed with our consultants, but the team also continues to find additional areas where we can take costs out of the business. As we chip away at the cost structure, our long-term goal of achieving a 15% adjusted EBITDA margin through the cycle appears more achievable, but it will take a few years to get there. While we have gone through some challenges, I remain extremely excited about the future and our goals remain the same, to position this company to be the trusted provider of proven agricultural and environmental solutions. With that, I'll open the call for questions.

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

Dak, could you elaborate on the year-over-year top line performance on a year-to-date basis? In the fourth quarter call in mid-March, you mentioned that the destocking period had been neutralized, which seems to be true now, but may not have been at the start of the year. Can you discuss the year-over-year performance from January to early June? Has there been favorable progress throughout the year, and how does January's performance compare to what we are seeing in June?

Thank you, Ben, for your question. Year over year, we need to take into account the removal of Dacthal from the market, which significantly affected our sales in the first quarter. This was the largest factor in the change from the previous quarter. Additionally, the agave and Bromacil product changes in Mexico contributed to the impact, along with the drought situation in Australia. These were the three main factors influencing our top line sales. On the positive side, the performance of metam sodium and Thimet helped to offset some of these declines. Concerning destocking, we observed that at the beginning of the year, inventories had indeed been reduced significantly. This pattern continued through until April, resulting in inventory levels that are historically low. We trust this information based on data services, and it appears to hold true. As we look at May and June, we are seeing signs of improvement in our sales, indicating that demand is starting to recover. However, it’s still unclear if inventory levels will rebuild, highlighting some uncertainty in the situation. Overall, it seems that destocking may have reached its lowest point, but further developments remain to be seen.

Okay. Helpful. And so I guess, David, let me ask you a question and then Dak, I've got a follow-up to this. And I definitely understand and I think everybody expected the year-over-year headwinds from Dacthal. Can you isolate the first quarter EBITDA and revenue contributions from Dacthal?

Yes, I've got that right. It's top line $6 million and margin 3.5.

That margin was on a gross margin basis or operating margin?

Gross margin.

Okay. Very good. If you exclude Dak, the situation with Dacthal and Bromacil shows that the overall balance of your portfolio appears to be flat year-over-year. The challenges from Bromacil and Dacthal in Australia were significant, but the rest of your portfolio remained effectively unchanged. Is that an accurate assessment?

I would say that it remains mostly unchanged, with the positive highlights coming from metam sodium and Thimet. Metam sodium is our largest product and continues to be a strong, stable component of our portfolio. We did experience a rise in sales for metam sodium in the first quarter. For Thimet, the demand was directly linked to the increase in peanut acreage that has offset the decrease in cotton acreage, particularly in the Southeast.

Okay. Very good. A few other questions from me. First of all, I know seasonality in this area is really difficult to forecast. But I'm wondering if you can help us understand kind of what your top line seasonality expectations throughout '25. I mean, first quarter is relative to the midpoint of your guidance, the first quarter numbers look to be about 20% of your overall revenue for the full year basis. Can you help us kind of look to the Q2, Q3, Q4 outlook as a percentage of revenue?

I don't have the exact percentages on a quarterly basis at the moment. However, the second half of the year is consistently our strongest season, particularly due to soil fumigants like metam sodium driving top line sales during that time. Historically, the second half has always been our peak period. Based on the current destocking trends, I don't foresee anything that would hinder this pattern from continuing into 2025.

Okay. So still a second half, a sharp second half skew. Okay. Very good. A couple of other sort of ones for me, Dak. Can you educate us on the implications here in corn acreage shifting from soy to cotton kind of on a relative basis, the level of crop protection products applied on an acre of corn versus an acre of soy?

Yes. The USDA is forecasting an increase in corn acreage compared to soybean acreage. Historically, both have been around 90 million acres, but this year, there has been a greater shift towards corn, with projections at 95 million for corn and 85 million for soy. Our portfolio aligns well with the corn market, especially with our corn soil insecticides. As a result, we are observing increased usage in that area, and our sales of corn soil products have risen slightly this year.

Okay. Very good. And then, David, one last one for you, and I'll get back in queue. Good to hear your conviction regarding free cash flow this year. Can you educate us on your expectations for cash taxes this year given the operating losses that you're coming off of in '24?

Yes, we've got some cash taxes to be paid internationally. So I think we're in the $4 million or $5 million range. So yes, the tax situation is kind of difficult at the moment.

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

Dak, you mentioned with inventories at historically low levels, any potential snapback would drop back down to the bottom line and also confidence in the 15% margin target. Just wanted to see if you had any thoughts on the cadence of that over the next few years and in 2026.

Thanks, Wayne. I appreciate the question. My outlook for the company remains unchanged, and I still aim for a 15% EBITDA margin in the long term. The decrease in sales is directly tied to the destocking we observed, particularly in the U.S. market, indicating that the product is still being sold at the same levels. If we compare the changes in our destocking with the changes in our sales variance during the first quarter, they align closely. This suggests that the product is still moving off the shelves. We just need to reach a normalized inventory level in the channel. Overall, my perception of the long-term potential for the company to achieve a 15% EBITDA margin hasn't changed.

Okay. So any thoughts on improvement specifically in 2026, if you start to see a return to maybe normalized going from flat now on the rest of the product portfolio to low single-digit normal top line growth?

We expect to see growth in 2026 as part of our 5-year plan, which we believe will exceed the industry average. This comes as we adjust and continue our transformation of commercial activities, particularly in the U.S. We've also noticed positive developments in our transformation efforts and commercial activities in Brazil. This process began at the start of the year. While sales in Brazil have dipped slightly, the contribution margin has increased. We are making progress in our commercial strategies, and we plan to maintain this focus in the U.S. market as we move toward 2026. The U.S. market has been challenging due to the transformation process in 2025, influenced by destocking and competitive pressures.

Our next question is coming from Rosemarie Morbelli with Gabelli Funds.

I would like to ask a couple of questions regarding Wayne's comments. You mentioned that pricing has been reduced due to the competitive environment. Could you provide more details on which categories are experiencing an increase in generics? Is that the primary concern? Are there specific categories affected, such as fungicides, herbicides, or insecticides? If you could clarify what is occurring and whether you anticipate any changes in the second half of the year, particularly with demand rising due to seasonal factors.

Great question, Rosemarie. Thank you for that. Yes, we experienced a very specific and unusual situation in Q1 with our competitors. There were some atypical activities that occurred that are not typical for the end of a quarter. I believe this was largely due to a downturn in the market. The situation was twofold: it involved competition for our customers' space and their working capital tied up in inventory. It wasn't necessarily competition over specific products, but rather how much inventory they were willing to carry at the end of the quarter, which was minimal. Consequently, there was heightened competition and significant discounting at that time. I should mention that we maintained competitive pricing, and Folex continued to face generic pressure. However, looking ahead, I believe we will be in a strong position with Folex due to our U.S.-based production. Our main competitor isn't from the U.S., and their supply is leftover from the previous year. I expect that this situation will improve over the long term.

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

Yes. Thank you again today for your time and for your continued interest in American Vanguard. The first quarter of 2025 was a challenge for us and the entire agricultural chemical industry. But as I indicated, we believe that the customer activity levels are beginning to pick up, and we will continue to do so as channel inventory levels have been worked down to very low levels. We're also happy to have caught up in our financial filings and appreciate the patience our investors have shown during this time. In closing, our focus remains clear: to improve our cost structure, streamline the balance sheet and be laser-focused on providing the products our customers desire. We greatly appreciate your ongoing support and engagement during this period. And as always, we remain committed to transparency and open communication. So please do not hesitate to reach out with any further questions. Thank you for joining us today, and have a great day.

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