American Vanguard's adjusted EBITDA surges to $8.2 million; company anticipates strong Q4 despite agricultural market challenges.

OPERATOR - (00:01:49)

Greetings and Welcome to the American Vanguard third quarter 2025 earnings conference call. At this time, all participants are on a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. And please note this conference is being recorded. I will now turn the conference over to your host, Mr. Anthony Young, Director of Investor Relations. Sir, the floor is yours.

Anthony Young - Director of Investor Relations - (00:02:24)

Thank you, operator. Good morning and welcome to American Vanguard's third quarter 2025 earnings review. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer and David Johnson, Chief Financial Officer. A copy of today's release along with supplemental slides are available on our website. A replay of the webcast and transcript from this event will be available our website shortly as well. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include non GAAP figures and forward looking statements and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. It is now my pleasure to turn the call over to CEO Dak.

Dak Kaye - Chief Executive Officer - (00:03:20)

Thank you Anthony and welcome everyone to our third quarter 2025 earnings conference call. When I joined the team 11 months ago, my directive was simplify, prioritize and deliver and that is what we are doing. Our adjusted EBITDA increased from 1.8 million in the year ago period to 8.2 million in the current quarter, an increase of more than 350%. The third quarter is typically our weakest quarter and the fourth quarter is seasonally our strongest. We expect a strong finish to this year. While we operate through the agricultural down cycle, we are controlling the things that we can control such as lowering net trade, working capital, lowering factory costs and operating expenses, while we've positioned the company to have substantially higher earnings when the agricultural market rebounds. I'll provide my overview of the current state of the agricultural market in a few moments. I am pleased with the progress that we have made so far. Gross profit margins have increased by 300 basis points over the year ago period. A significant portion of this improvement can be attributed to the operations team. Additionally, we are optimizing our manufacturing effort, for example, by transferring production from LA to Alabama to maximize production efficiencies. I anticipate that most of the cost savings that have materialized during this quarter will stick with the company for the long term. We've also taken steps to improve our operating expenses. These expenses have decreased by approximately 6 million as compared to Q3 of 2024 and by 14 million in the nine month period. The reduction in spending is company wide. While we are pleased with what we have accomplished so far, we are still laser focused on watching our expenses. Controlling expenses should not be viewed as a short term initiative, but as a change in culture at the company. While we still have transformation listed on the statement of operations this quarter, we are transitioning all of these activities to the internal team. We have the talent to continue with the transformation and we will now be referring to these efforts as our business improvement initiative as we take full ownership. We had already decreased the spend in this area to $2 million from $8 million compared to the third quarter of 2024, but we anticipate decreasing this spend to negligible levels over the coming quarters. As we seek to simplify the business, we are renaming our non crop business to be the Specialty Business. We do not believe the non crop nomenclature adequately reflects the technology, patents and innovation that are the foundation of this business. While the specialty business is smaller than our crop business, it has critical mass with important contracts for mosquito control and advanced technologies that are being used in home pest control, ornamental and greenhouse applications, golf course, lawn and landscape care. Our current financials still refer to this business as non crop, but we expect our future financials will affect the name change. While the business improvement initiative is well underway, I think it is important that we also spend a little bit of time talking about the growth opportunities that are in front of us. We have not talked about this much in past conference calls, but we are creating an impressive growth portfolio that will potentially contribute 100 million of net sales over the medium term. We will achieve this growth on top of our already proven products, which will be growing as well through geographic expansion and expanding into new crops and sectors. This additional volume should also help with our factory utilization, further lowering the cost structure for the company. Overall, the development team is focused on growing our crop protection portfolio now that Simpas is not a priority. Turning to what we are seeing in the agricultural economy, we are in the midst of a strong harvest in the U.S. however, trade tensions with China have created a cloud over the industry, particularly with US Soybean growers where important trading channels remain unclear. While there are many reasons to be cautious, there are reasons to be optimistic, such as lower channel inventories of our products, a decreasing interest rate environment, recent news indicating that China is restarting soybean purchases and a possibility for additional subsidies for growers against this uncertain backdrop, we are confident in maintaining our full year 2025 adjusted EBITDA target of 40 to 44 million. We have lowered our forecast for net sales to 520 to $535 million in 2025 to reflect various market conditions primarily in Mexico, Central America and Australia. We will continue to control expenses while ensuring that we are operating our manufacturing facilities as safely and efficiently as possible to maximize our gross profit margin. We are confident we are setting the company up for success in 2026 and beyond. I will now turn the call over to our CFO David Johnson. David thank you, Dak.

David Johnson - Chief Financial Officer - (00:08:51)

Good morning everyone. Our business improvement program is clearly having a positive impact on our financial performance and we expect further improvements over the coming quarters. Our third quarter 2025 US GAAP revenue was 119 million as compared to 118 million in the same quarter of 2024, a 1% increase. We should note that the third quarter of 2024 revenue was impacted by a non recurring item and that the adjusted revenue would have been 130 million in the prior year. Quarter over quarter our US crop business performed well and offset weaker performances for both our specialty and international businesses. In US Crop we saw a mixed bag with on the one hand, continued weakness in the potato market that impacted our soil fumigant sales. On the other hand, we performed strongly on both herbicides up about 50% and granular soil insecticides up about 5%. Generally for our US crop business, we believe that channel inventories are low and we have seen pricing pressure ease within specialty. We saw some weakness in our horticultural business which was to a degree affected by the product liability matter. Having started the quarter weekly, that business picked up as we progressed through the quarter as our customers trust began to return. Furthermore, our mosquito adulticide product saw slow sales after a weak season with fewer storms leaving vector control districts in key states slightly long on inventory. International sales were down driven by our strategic decisions in Brazil to drop lower margin business to allow our organization to focus on servicing higher margin customers and products. In Australia we have seen significant droughts in key regions resulting in lower sales. Similar weather patterns have impacted some areas in Central America, while the market in Mexico has not fully destocked on a US GAAP basis, gross profit margin increased to 29% during the quarter as compared to a gross profit margin of 15% in the year ago period. A few moments ago I mentioned the non recurring item that affected sales this time last year. If I made the same adjustments to gross margin we would have recorded 26% in the third quarter of 2024. We continue to have a tight grip on our operating expenses. We cut our selling expense for both the three and nine month periods primarily as a result of implementing a more streamlined global organization structure. General and administrative expenses are also down following the organization redesign. However, those cost savings are masked by increased accruals for incentive compensation. Reflecting our year to date financial performance, we have made larger cuts to our research, product development and regulatory costs, focusing on return on investment for product development projects and by cutting out the spending on the Simpas project. Overall, our operating costs are down 11% or 5 million in the three month period and 18 million or 14% year to date. Looking forward to the final quarter of the year, as Dak mentioned, we expect most cost savings that we have achieved to stick. Although product development spending is historically higher in the fourth quarter. Having said that, the R and D costs are forecast to be below last year, including in the nine month saving just discussed, spending on transformation activities reduced by about 11 million. That was a planned reduction as we are now driving business improvements from in house resources offsetting that saving we incurred an expense in the third quarter of 2025 related to the product liability claims. With regard to those product liability claims which relate to the specialty business, the Company made the decision that we have sufficient information to record a liability for the expected costs of settling the claims. We have set up the necessary resources to administer the claims process and we have commenced with claims assessment and payment processes. We expect the expense we have recorded this quarter to be fully reimbursed in the future by a combination of funds from the at fault counterparty and or their insurers. We have made an assessment and determined that it was in the Company's best interest to proceed with settling customers claims in even though at this point we do not have sufficient information to be able to record the offsetting indemnification asset. Now turning to the balance sheet, our improved Sales & Operations Planning (SIOP) process has allowed us to operate with comparatively less inventory than we have had in the last two years. Our inventory is approximately 47 million less than it was at this time last year and as is usually the case with our for our annual business cycle, we expect to meaningfully draw down our inventory during the fourth quarter of the year. Our net trade working capital is approximately 24 million lower than this time last year. We keep a sharp focus on these balance sheet items as we seek to limit accessing our evolving credit line. We have decreased our net debt as compared to the same period of last year by approximately $2 million to 165 million. While our net debt only modestly reduced, we bought in less early pay during the quarter than this time last year. While customer interest was high, we made the strategic decision to seek significantly less early pay in the third quarter of 2025 than we did in 2024. As usual, we will be working with customers on early pay options during the fourth quarter of this year. Since our last conference call, we announced that we had reached agreement with our senior lenders to extend the term of our credit facility to December 31, 2026. As we continue to improve the business, we will continue to work with both our current lenders and potential new lenders to restructure our debt. We believe that as we continue to deliver, lenders should be drawn to our improved profitability and cash flow profile. We look forward to providing the investment community with an update on this effort at the appropriate time. As we said on the last call, we expect 5 to 6 million of CapEx in 2025, coupled with our expectation of 40 to 44 million in adjusted EBITDA for the full year. Thus, we expect to generate reasonably attractive cash flow in the fourth quarter of the year. We will apply virtually all of this free cash flow towards debt paydown. With that, I'll turn the call back to our CEO Dak.

Dak Kaye - Chief Executive Officer - (00:16:33)

Thank you David. Before opening up the call to questions, I would like to thank the team for implementing the changes that are necessary to improve this business. Your hard work is delivering tangible results. While the market slowly improves, we will continue to focus on things we can control. Improving our manufacturing efficiency, keeping a close eye on net trade, working capital and minimizing our operating expenses while focusing on long term growth opportunities. This is a business that has always been a resilient one, with products that are proven and effective and backed by the best technical team in the industry. It is also a business that can produce even greater cash flow. Now that we're a globally integrated organization, the future is bright for American Vanguard. With a robust product pipeline, improved cost structure and a focused team, we will remain on track to be the trusted provider of proven agricultural and environmental solutions. With that, I'll open up the call to questions. Operator.