American Vanguard Corp. Q1 FY2024 earnings call

• Q1 2024 financial performance: Adjusted EBITDA increased by 35%, operating income by 87%. Cost control initiatives started in the second half of 2023 are having a positive effect. - Sales details: U.S. Crop had strong results in granular soil insecticides, liquid corn soil insecticide index, and herbicides (partially offset by a drop in soil fumigant sales due to wet conditions in the Northwest). U.S. Non-crop saw growth in mosquito adulticide, pest strips, and OHP's biorational and pre-emergent product lines. International was up slightly led by Mexico and APAC. - Market conditions: The U.S. farm economy is strong with stable buying activity; the non-crop market is seeing normalization of procurement patterns. - Transformation initiatives: Working with QAD to upgrade the ERP system and standardize business processes; Project Accelerator for structural transformation across sales/marketing, operations, and G&A, aiming for $15 million of annualized adjusted EBITDA by 2026.

In the first quarter of 2024, all three of American Vanguard's businesses grew. U.S. Crop experienced a 9% increase in sales, U.S. Non-crop saw a 28% rise, and International grew by 2%. Adjusted EBITDA jumped 35% during the period, and operating income rose by 87%. Operating expenses as a percentage of net sales decreased while sales increased by 8%.

• Full-year 2024 outlook is adjusted due to the suspension of Dacthal sales. Sales are expected to increase between 6% and 9% compared to 2023. Adjusted EBITDA is projected to be within the range of $60 million to $70 million, with the midpoint representing a 19% increase over 2023 adjusted EBITDA. - The loss of Dacthal sales is factored into the 2024 forecast numbers.

• Uncertainty regarding the EPA's review of Dacthal, which could impact sales as the company has voluntarily suspended sales pending the agency's review. - Weather conditions that can truncate application windows for crop inputs. - Regulatory policy changes that may affect product registrations and sales.

Q: Follow up regarding transformation strategy, clarification on cost savings timing.

A: Eric Wintemute stated that there are costs associated with implementing transformation, with some benefit in 2024 but most of the significant cost savings and improved EBITDA will be seen in 2025 as the heavy lifting of the transformation is completed to achieve $15 million in annualized adjusted EBITDA.

Q: Follow up on Dacthal outlook, size of revenue impact, timing.

A: Eric Wintemute said the revised label for Dacthal was submitted this week, Dacthal is a $15 million product with 1/3 of that amount in sales in the first quarter, and the company is factoring the loss of Dacthal sales for the balance of 2024 into the forecast.

Q: Risks associated with Dacthal reregistration, managing that.

A: Eric Wintemute explained that the supply side of Dacthal was resolved, but the reregistration process with the EPA is a separate matter, and the timing of reinstating market segments for Dacthal varies, with some pieces potentially being quicker than others but others taking 1 to 3 years depending on study scope and review timing.

Q: Growers' mood, corn rootworm pressure impact.

A: Bob Trogele discussed the cautious mood of growers in the Midwest due to wet conditions affecting planting, and Eric Wintemute talked about Aztec product for corn rootworm pressure, noting strong demand that outpaced supply initially and plans to increase production for future needs.

Q: Herbicide impact, normalization of pricing.

A: Eric Wintemute said the herbicide market has improved versus last year, with impact product being about even to last year and expected to be considerably stronger in the second quarter compared to last year's second quarter.