American Vanguard Corp. Q3 FY2024 earnings call

• Reiterated 2024 adjusted EBITDA target of $40 million to $50 million and sales target of $565 million to $580 million, excluding product recall charges.
• Q3 financial performance: Adjusted EBITDA was $2 million vs $11 million prior year, sales $130.7 million vs $149.5 million prior year; excluding Aztec, revenue was flat Y/Y.
• Broader farm economy: Market normalization starting, but distribution partners conservative on inventory; generics pressure on Folex and LatAm markets; fourth quarter typically strong for the company.
• U.S. non-crop business: OHP sales up 45% due to new distribution agreement, driving growth.
• Green Solutions products: Grew 18% in Q3 and 20% YTD, with strength in LatAm.
• Business transformation: Increased EBITDA benefit target from transformation to $20 million from $15 million; savings in raw material and logistics procurement potentially reaching $6M annually; streamlined customer-centric structure being implemented.

In the third quarter of 2024, total revenue was $130.7 million, down 13% from the prior year. The U.S. crop business faced challenges with Aztec and Folex sales declines, but the U.S. non-crop business was a strength with sales up 17%, led by OHP distribution which was up 45%. Green Solution product portfolio sales increased 18% in Q3 and 20% YTD, with pronounced strength in LatAm at 39% Y/Y. International businesses saw a 3% sales decline due to generic pressure, agave market decline, and drought in Australia, but the Ecuador acquisition helped. In terms of revenue contribution, U.S. crop business was impacted by Aztec and Folex, U.S. non-crop was a growing segment, and Green Solutions had significant growth across segments.

• Reiterated 2024 adjusted EBITDA target of $40 million to $50 million and sales target of $565 million to $580 million, excluding product recall charges.
• Increased business transformation EBITDA benefit target from $15 million to $20 million.
• Anticipates continued growth in OHP and Green Solutions products, and benefits from business transformation initiatives.

• Weather conditions, regulatory policy changes.
• Generics pressure, particularly on Folex and in LatAm markets.
• Distribution partners being conservative in accumulating inventory.
• Existing channel inventories of agricultural commodities to work through.

Q: First one is around the full year guidance reiteration, especially on the EBITDA line for this year. In the context of the last couple of quarters being unusually low, a $50 million top end of the EBITDA guide would imply a record fourth quarter by a wide margin in recent history. Can you walk us through kind of what levers you think are out there such that a $50 million full year EBITDA number is a realistic number at this point?

A: Mark Bassett stated guidance is $40 million to $50 million and believes they'll hit it, noting Q4 is typically stronger, demand will improve post destocking, and benefits from transformation. Mason Bennett added Q4 is historically strong for American Vanguard, customers prepping for strong crop year, and product fit for early seasonality.

Q: Wondering about the pressure from generics. Can you comment on the -- maybe the level of Folex specifically or maybe just more broadly, products that you have that are uniquely pressured by generics here today that are embedded within your kind of full year revenue expectations for this full year. Just curious how much of that pressure -- kind of the degree to which your revenue base here has these kind of unique generic pressures that you're...

A: Mark Bassett said biggest impact is on Folex with generic entrant taking market share and depressing margins. Mason Bennett added generics are cyclical, Folex generic caught them off guard, but they focus on service, support, superior formulation, and retail support.

Q: One more for me and I'll get back in queue and that's regarding the fourth quarter outlook. I'm wondering, given the -- what you flagged here in the third quarter around the year-over-year -- the difficult year-over-year comp from Aztec, I'm wondering if you want to flag any year-over-year contributors like that, that came in the fourth quarter of last year and also any expectations for additional costs associated with the Dacthal recall and disposal that you expect to have in the fourth quarter?

A: David Johnson said $16 million charge for Dacthal is current best estimate, and if something new comes up, they'll address it. Mark Bassett noted from revenue perspective, Aztec inventory overhang from last year shouldn't be as substantial as in prior quarters.