American Vanguard Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 10 speakers on the call.

Operator

Welcome to the American Vanguard Corporation First Quarter 2023 Financial Results. I will now turn the call over to Bill Kreusser, Director of Investor Relations. You may begin.

Speaker 1

Thank you, Misty, and welcome, everyone, to American Vanguard's Q1 2023 earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard Mr. David Johnson, the company's Chief Financial Officer Mr. Scott Hendricks, Senior Vice President in charge of the U.

Speaker 1

S. And Canadian Sales and our Application Technology Initiatives Mr. Jim Thompson, Director of Portfolio Strategy and Business Development, The one who is guiding our green solutions initiative. Also available to assist in answering your questions, Mr. Robert Tregell, to differ from management's current expectations.

Speaker 1

Such factors can include weather conditions, expects the risks as detailed in the company's SEC reports and filings. All forward looking statements represent the company's best judgment As of the date of this call, such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Speaker 2

Thank you, Bill. For those of you who are joining us for the first time, just a quick Slide, we're trading on the New York Stock Exchange. As American Vanguard Found in 'sixty nine, we've got about 800 employees. We're fully integrated ag company. We do basic R and D as well.

Speaker 2

And our business model has largely been to As you will have read from our earnings release and we have highlighted on that on the Slide 5, Our Q1 sales of Astec and Impakt were lower than expected due to supply chain delays in China in the case of Astec And a glut of large volume herbicides, specifically glyphosate and glufosinate in the U. S. Market in the case of impact. However, with unusually low channel inventory of our domestic crop products, we expect strong sales for the balance of the year. In fact, even with the Q1 performance, well below our original forecast, our 2023 full year outlook will improve upon Adjusted EBITDA of 14% to 18% and net income of 17% to 25%.

Speaker 2

So So let's start with Q1 and move forward to the full year and beyond. There are two main reasons for our Q1 shortfall, Astec, our leading insecticide and Impak, our leading herbicide. And in both cases, the drivers were unique. Let's begin with Astec. There are several raw materials needed to make Astec, But our issues were with 2.

Speaker 2

Let me walk you through Slide 6. First is an intermediate called Dapo That has been historically made by a European supplier. Last year, our supplier advised us that they would not be able to produce again until 2024. Accordingly, we successfully developed a DAPRO source in China, which successfully commenced production last year. Dapo is used to make another key intermediate required for Aztec production called Sodium HP.

Speaker 2

Historically, we relied upon a domestic producer of sodium HP. However, in June of 'twenty two, that supplier informed us that they could not to produce until the end of the 2022 year. Since this would not be in time to meet our Q4 Astec demand, We engaged our new Chinese DAPRO toller to convert the DAPRO that they produce into sodium HP. Initial production was to begin in October of 2022, But due to a series of issues, people, equipment, shutdown and COVID, their production did not commence until the last week of December 2022. Steady production, however, did not really begin until the middle of February of 'twenty three and daily output levels did not optimize until April.

Speaker 2

Adding to the issue, our domestic producer of sodium HP was unable to produce until March of 'twenty three. As a result, we We were able to produce only 1 third of the Aztec demand in time for the 'twenty three season. We attempted to substitute Our other corn soil insecticides, but had limited success. That said, we have positioned both suppliers for full production and plenty of lead time in advance of the 2024 season. For additional color on NASDAQ with respect To Q1 and market conditions for the coming year, I turn to Scott Hendricks.

Speaker 2

Scott?

Speaker 3

Thank you, Aaron. On Slide 7, You will see that our 2023 demand forecast for Astec was approximately £7,000,000 As we assessed In prepared for the 2023 Aztec Supply Challenge, it was critical that we understood our supply position at distribution and retail. Through our analysis of grower point of sale data and distributor reported inventory, we calculated that we had over £2,800,000 of for the £2,280,000 we sold to ensure historical Aztec users as much as possible. Also, we were able to secure additional Force 10 gs that equated to approximately £430,000 of ASTEC. Therefore, Through a combination of channel inventory, in season production and product substitution, we were able to provide 5 £54,000,000 of astec 4.67 equivalent for the 2023 growing season.

Speaker 3

This was a very fluid and dynamic scenario as we had daily and weekly supply updates that our commercial team overlaid with geographic We calculate that channel inventory has declined to less than 5% of the annual demand as compared to our historical inventory levels of approximately 30 Gerson. As a result, we anticipate strong demand for our customers in Q4 of 2023 in preparation for the 2024 growing season.

Speaker 2

Thank you, Scott. To cap off this subject, it is worth noting the effect that Astec sales have had on our overall profitability. As you can see from Slide 8, we estimate that missing Astec sales of about $30,000,000 in revenue is roughly equivalent And Q1, in the Q1 alone, this caused a drop in EPS of about $0.20 a share. Now Scott, let's circle back to you for a better understanding of impact.

Speaker 3

As Eric pointed out and as you will see on Slide 9, The market dynamics for the 2023 season are much different than 2022. It is important that we understand our customers' buying behavior. Working capital over the last several years has not been a challenge as the cost of money was inexpensive and channel inventory had been for 2022, which is $3,000,000,000 more than 2021. Eric previously mentioned increased If you combine increased ending inventories with increased prices and higher interest rates, customers had significant capital Distribution and retail customers are now focused on reducing inventories and driving cash flow, which has influenced our impact sales in Q1 of 'twenty three. Turning to Slide 10.

Speaker 3

Our lead impact brand drove our upside in 20 to manage difficult to control weeds. We anticipate retail agronomists will continue to exhibit best practices expects for weed resistance, but they will have a focus on exhausting existing inventories as dictated by their current financial needs. Impact inventories are normal and this puts us in a positive position for the 2023 season and full year performance. We anticipate this is a short term performance challenge with our lead impact brand and will not continue as customers work through their surplus inventories of non selective herbicides. Lastly, I want to highlight our continued formulation innovation with our Impact Brand family.

Speaker 3

We now have 4 brands that have expanded our historical use pattern in corn and across strategic customer bases. Furthermore, our innovation pipeline continues to grow in rice and soybeans. In fact, we launched our latest herbicide solution, RENDE, that contains our Prolease technology. The power of Prolease

Speaker 2

Thank you, Scott. As you can see from Slide 11, during the Q1 of 23. Impac sales were about $10,000,000 less than those in Q1 of 2022. This shortfall alone would have accounted for another $0.12 And earnings per share. Thus taken together, the Q1 EPS effect on Astec plus impact dollars per share, not the $0.07 that we have reported.

Speaker 2

At this point, let me ask David to make a few comments and then I will return to give an update on our growth initiatives and to further talk about the balance of the year. David?

Speaker 4

Thank you, Eric. With regard to our You will note the Q1 of 2023 has seen a challenging operating performance for the company with overall revenues down about $25,000,000 or 17% as compared to the same period of 2022 for the reasons that Eric has already outlined. The other main sales drivers for our business performed in a more usual manner with quarter over quarter increases of 4% in our non crop business and 2% for the international business. Moving to Slide 14. As we indicated at the time of the last call, this is the Q1 that we are presenting our results in a manner that we think to cost of sales rather than operating expenses.

Speaker 4

This change results in an equal reduction of both gross margin percentage and operating expenses as a percentage of net sales. It has no impact on operating income or net income. For the Q1 of 2023, under our new accounting approach for freight and logistics, on Slide 15, You see that our gross margin percentage ended at 31% of net sales as compared to 34% in 2022. The lower overall gross margin performance is driven by the reduction the reduced sales of U. S.

Speaker 4

Crop products, which are some of our best gross margin performance, And by reduced factory overhead recovery, driven primarily by our inability to manufacture asset in the volumes As Eric detailed in his opening remarks, missing sales of these U. S. Crop products had a direct and significant impact on our gross margin performance. Further to my remarks regarding the new presentation of our statement of operations, On Slide 16, you can see our operating expenses are presented here without costs associated with outbound logistics. Typically, those costs amount to about 7% to 8% of sales.

Speaker 4

For the 3 months ended March 31, 2023, operating expects the full year expenses reduced by 4% from the same period of 2022. This was driven by lower administrative costs associated with short term incentive compensation as a result of the lower financial performance and the benefit of some positive exchange rate movements across our global business. As something of an offset, the Board agreed to pay Cruiser Capital's proxy contest fees resolving all outstanding matters. In summary, on Slide 17, our net sales declined by 17% Our cash management performance was good and we ended with debt at about the same level as this time last year, notwithstanding spending $27,300,000 to repurchase approximately 1,400,000 shares of the company's stock during the last 12 months. Interest We continue to follow a disciplined approach to planning Our factory activity including balancing overhead recovery with demand forecast and inventory level.

Speaker 4

On the graph on slide 18, you can see that At the end of the Q1 of 2023, our inventory increased to $219,000,000 as compared to $168,000,000 at the same point in 2022. This increase was driven by a few factors, including the increased inventories of raw materials necessary to manufacture Astec, Comparatively higher inventories of impact and generally across our business an expectation that we are looking at strong sales growth in the second half of And based on that forecast, we need to have higher inventories to meet related customer demand. The graph on Slide 19 shows that debt ended at $97,000,000 at the end of the Q1 Despite the fact that we have spent $27,300,000 repurchasing the company's stock over the last 12 months. Moving to Slide 20. During the Q1 of 2023, we have made some additional share repurchases and as a result, Shares outstanding have produced slightly.

Speaker 4

The share price remained relatively flat during the period. Debt increased, which is normal for the start of the company's but increased from 0.72 times bank adjusted EBITDA at December 31, 2022 to 1.63x at March 31, 2023, reflecting the company's annual cycle. With that, I will hand back to Eric.

Speaker 2

Thank you, David. Having heard Scott's color on the major elements of our core business, let me turn next to 2 other important business Citiks for an update on SIMPAS, I turn it back to Scott.

Speaker 3

Thanks, Eric. Our focus for 2023 for SimPass experience. We launched our Phase 3 SimPass technology, which includes units that will be equipped with liquid sensors. This technology will enable the grower to monitor and measure how much liquid material is prescriptively applied by the equipment. Further, we have enhanced our tracing capability by installing a dedicated modem that communicates all SIMPAS data points to our Ultimus platform.

Speaker 3

Taken together, these advancements will enable users to measure, record and verify what they are applying where and when, Whether it's granular or liquid. We have sold 50 new SIMPAS systems domestically. We're estimating that this will treat approximately 100,000 acres based on the prescriptions that have been defined. Our domestic total Look is unchanged at $12,000,000 to date. Slide 22 identifies the key financial drivers for Senpass commercialization.

Speaker 3

Our treated acre growth with our SimPass SOLO technology has grown almost 3x since 2021, while Average revenue per use grew 56%. We now have 161 SIMPAS technology systems being used domestically The biggest players in precision ag to forge alliances with those companies and to call upon distribution, retail and growers to embrace this technology. At the same time, we're meeting with regulatory authorities to keep them apprised of the capabilities of this technology that we Bill. After having spent about $27,000,000 over the past 5 years developing this technology, We are now focusing on attaining broader markets as well. In fact, we plan to sell 15 to 20 units in Brazil, which is the largest ag

Speaker 2

To our Green Solutions, to cover that business we'll have Jim Thompson handle. So Jim?

Speaker 5

Thank you, Eric. As we move to Slide 23, we wanted to highlight the key financial performance indicators Guggenberger. With a strong start to the year, we can reaffirm our Green Solutions guidance of $70,000,000 for fiscal year 2023, With Q2 and Q3 generally being the highest selling quarters for biologicals throughout the year. The performance in Q1 was led by strong organic growth by our We successfully launched our BioWake brands for corn and soybean in the U. S.

Speaker 5

Seed lubricant market. We view this market as an incremental value add platform for Ambac and And we will expand the BioWake product line into new crops in the future. Our AmGuard team also executed a new supply agreement with New Leaf Symbiotics in the Q1 where both parties will collaborate to launch new products in Ambac's non crop segment. This further strengthens the relationship between New Leaf and Ambac in the United States. Our AmGuard team also recognized 1st sales of the American Biosystems products in the Q1, which stemmed from the acquisition made at the end of 2022.

Speaker 5

We continue to grow our Green Solutions segment in our international markets. We received regulatory approval for the AgriMOS products via our Latin American in Costa Rica, which opens the door for increased sales of our proprietary family of products acquired from Agrenos in 2020. Lastly, the business development and M and A landscape continues at a feverish pace. The recent changes in capital markets have caused More companies to seek partnerships with larger companies, accelerated financing events or potential M and A transactions, All of which increased the potential for incremental growth in the Green Solutions business. Ambac is working diligently to evaluate all new growth opportunities with an intense focus on bolstering our Green Solutions portfolio.

Speaker 5

On slide 24, we wanted to tell a little bit more about Our BioWake market opportunity. BioWake launched in Q1 and we view the market opportunity as very large in excess of 150,000,000 treatable acres for corn and soybean in the U. S. Alone. We showed strong sales in Q1 and a good pace of sales in Q2.

Speaker 5

We're happy with the progress on the line given the accelerated launch window and the fact that BioWake is our first product in the Developed a BioWake product pipeline that focuses on crop expansion into peanuts, Cotton, Wheat and Other Broad Acre Crops, while also expanding the product line to include additional biological products Such as bio herbicides, bio insecticides and micronutrients. BioWake is showing yield increases of 4.4 bushels per acre for soybean and 5.3 25, we wanted to show a short video clip that demonstrates the ease of use of the BioWake products for our farmers. We felt it would be very valuable for you to see our new product system at work. The video will follow shortly.

Speaker 6

Can I talk about

Speaker 3

the convenience benefits of that application? Do you

Speaker 7

want to?

Speaker 3

It is, Matt.

Speaker 5

And lastly, Slide 26 shows the continued strong guidance that we are targeting in our Green Solutions business. The bulk of the growth in 2023 will come from the organic growth of our existing portfolio as we continue to integrate and market key products from our acquisitions. In addition, we're adding new products such as BioWake and the American Bioproducts. Ambac's international business continues to be a strong driver for growth in all of our geographic areas in 2023. In 2024 2025, we expect to generate incremental revenue by new partnerships, for geographic market expansion and M and A transactions.

Speaker 2

Thank you, Jim. At this point, we can turn to our 2025 performance targets. As you can see on Slide 27, With our revised Q1 performance, our upward trajectory has been moderated in the middle of the graph. However, the upward curve is otherwise unchanged for the years 2024 2025. In other words, We remain on track to meet our midterm targets.

Speaker 2

Our final important topic is the full year 20 2023 outlook. Even after factoring in lower than expected Q1, as you can see from Slide 27, We're still expecting that our 'twenty three performance will exceed that of 'twenty two and are targeting the following. Net sales between $640,000,000 $652,000,000 which would be 5% to 7% above 22%. Gross profit margins in that 33% to 35% range, which is similar to 22 Operating expenses as a percent of sale $25,000,000 to $27,000,000 which is in line with last year adjusted EBITDA Between $84,000,000 $86,000,000 represent an improvement of 14% to 18%. Net income of between $32,000,000 $34,000,000 which I see strong performance for the balance of 2023.

Speaker 2

Given the conditions of our core business, the trend line for Green Solutions portfolio And our focused approach on gaining further adoption of SIMPAS, we are positioned to drive growth and profitability in both the short and mid term. With that, I'll turn it over to the operator to take any questions you may have. Misty?

Operator

Thank you. It looks like we have a question from Chris Ketch from Loop Capital. Your line is open.

Speaker 8

Yes. Hi. So I have a couple of questions. But on the Mixed sales and let's focus on maybe on

Speaker 6

Let's see,

Speaker 8

the Aztec soil insecticides. I'm just curious if so the $0.20 in the quarter, was that Fully attributable to revenues that you think you would have had orders for and delivered or is there also an impact from Not having the inputs and therefore, getting adverse factory absorption variances and therefore affecting the gross margins for the rest of the business Or is that $0.20 yes, dollars 0.20 exclusively attributable to the net sales?

Speaker 2

That $0.20 is to the sales. There's a factory performance. Again, we're running the factory at about 33% of capacity During that Q1 and practically, actually over the quarter, probably even less than that. But once we're beginning manufacturing, we can't shut down and do something else because We've got a 3 week or 4 week turnaround. So we basically had a plant that was running well below capacity.

Speaker 2

That's the particular unit at AXIS. We have other units there, but that's our main unit.

Speaker 8

Okay. And then just so I understand that Obviously, you were not able to deliver to the channel, but as of the end of the quarter, I think You know corn planting were only 2%, end of April just 26%, maybe yesterday from the USDA it's up to half the acreage. But is so The question is that are you were you able to recoup any of this lost sales in the Q1 and the second quarter as Corn plantings are progressing.

Speaker 2

Yes, we did sell more in the second quarter than we did in the first quarter. And but I think, Scott, we probably were done about April Somewhere between April 15 April 20. We did continue to produce and we do have additional tech and we've got some formulation, but basically the channel Really kind of shut down on us in that by that 3rd the end of the 3rd week maybe of April. Scott?

Speaker 3

Yes. I would confirm that Eric. There is an optimum planting window for most of the producers. And as we were getting close to middle to the end of April, Understanding there is time logistics to get product to the market, customers at that point made a decision that it was going to be too late for the market.

Speaker 8

Got you. And then on the impact, So I thought of this is not sort of post emergent broad spectrum Herbicide, but more one that complement some of those workforce herbicides like, obviously, glyphosate and glufosinate. But so I don't it's a little counterintuitive that just the surplus availability of those. I get that there's a downward pricing You know pressure on those molecules given the normalization of the supply chain, but to the extent that those are more available To the extent that your product was to complement those, especially in areas where resistance was an issue, I would have thought You know that demand would be okay for those. So can you just reconcile that difference?

Speaker 2

I'll take a first swing at that, but no, Scott or Bob. But so What we saw and Scott alluded to was that Both distributors and dealers were sitting on Good quantities of both glyphosate and glufosinate carried over. And each of them, they charge their units for cash management. And so from a buying standpoint, totally unlike what we saw for the 'twenty two season where people were Fine, everything they could get their hands on. At this point, they're saying, okay, we're going to move through our inventory, Some of which is upside down in terms of cost versus where the market is.

Speaker 2

And then once we've accomplished that, then we'll look to later. So Scott, maybe any color you might want to add on that?

Speaker 3

Yes. Eric, I'll try to build upon it. 'twenty two performance That were trade enabled glyphosate and gluposinapine primarily in 2 of them. Most of the supply that we've referenced in our commentary Came in the second half middle to the second half of last year, which was too late for the season. So a lot of the upside that we took advantage of 22 by increasing rates as the market got prepared or was preparing for 2023.

Speaker 3

We still think Best practices from a weed resistance management is going to take place. Impakt is very complementary to both of those molecules. We just want to have the same opportunity because of the surplus that's in the market today of both glyphosate and glufosinate that we had in 2022.

Speaker 2

But as a brand too, we've got The 3 other combination products that we see the brand building in addition to our overall herbicide portfolio with what we've got now in So we were really herbicides was a weak spot for us back maybe 3, 4 years ago Other than impact and since then we've built out a nice portfolio.

Speaker 8

Well, let me just last one on that subject and then I can jump So given this normalization of the sort of these major herbicides RoundUp in particular. So pricing is way down for those products. Is that To the extent that there was upward pressure on pricing as the supply chain was challenged And that provides an umbrella for other suppliers of herbicides to lift their prices. With the normalization, is that creating pressure on your Sales of Impact or your pricing for Impact or other herbicides?

Speaker 2

Jim, first, Frank, go ahead.

Speaker 3

Yes, really good question. What I'd share with you, the complementary nature of Impakt and really the proprietary nature of what it delivers to help control some of the most difficult weeds in the marketplace today. So that's Palmer amaranth, waterhemp, ragweed. Those molecules are either resistance, meaning glyphosate or glucosamine or resistant or the performance is very low. So, Impakt He's complementary and helping manage and to control those difficult weeds.

Speaker 3

So the value proposition is Completely different than glyphosateroglucosanate. And so we feel good about our current pricing position despite what's happening with pricing dynamics

Operator

Our next question is going to come from Gerry Sweeney from Roth Capital. Your line is open.

Speaker 6

Good afternoon. Thanks for taking my questions. So I wanted to start with Astec, right? And actually take a step back. This sounds like with Astec, it was A long lead time sort of supply chain issue.

Speaker 6

It had started at some of the last year, Developed through December into this year. And really the gist of the question is, does this change how you to view your supply chain or how you can manage it or track it, so we don't necessarily have issues like this in the future?

Speaker 2

Yes. So again, when COVID hit, we shifted dramatically our focus on supply chain and we looked at those areas We were sole sourced. We had a huge challenge in phosphorus when Pakistan shut down, people declared force majeure, China was no longer going to export phosphorus and that put a monumental strain on us, but we were able to Steer our way through that and really not miss sales in any material way. This one Yes, it did kind of hit us. We this product Dapo, when we got hit with that, we said, okay.

Speaker 2

We set somebody up to manufacture. They did a good job at manufacturing, but we did have just one source of our sodium HP and it was domestic. They had issues and were and pushed back what we Thought was going to be a June 2022 campaign, and it went to as it started moving towards September, We engaged our Chinese supplier of Dapo to convert the Dapo into the sodium HP. And with that, We felt also that our domestic supplier was going to come on stream. So even though we knew we were going to be At some point, we figured we'd have some challenges making all the demand we needed for Q4.

Speaker 2

We were pretty sure we would have product available through Q1 to meet the demand, which was again £7,000,000 very, very strong. As we Kind of got through. They had startup problems at the Chinese producer in manufacturing this product that they've never made before and it just got coupled with China with the COVID shutdowns. They had the New Year's, they had a park shutdown for the whole industrial park. There were a whole series of things that just kind of kept going forward.

Speaker 2

And they initially expected to be able to produce around 3,500 kilos a day, But for quite a while, it was down at 1,000 kilos per day. We were air freighting every 3 days, everything that we could get. Our U. S. Producer who was going to be 4th in December, then got pushed into March.

Speaker 2

And so each week we just kept seeing it getting tougher and tougher. So that being said, we did with the 2 manufacturers to make sure we have plenty of material going into Q4 when we'll do our next campaign with Astec. Overall, I would say, we have before, I think previously, as we got into the latter part If you look at our inventory, you see it's gone up considerably over where it was Q1 last year. A number of those things Our raw materials to use in other words packaging, labels, intermediates, We did manufacture all of the campaign for the other half of the Aztec molecule we made at the Excess facility. So I guess as far as changing, I think for the foreseeable future.

Speaker 2

Until we see something different, we will be bringing materials in advance to make sure that this doesn't happen again.

Speaker 6

And then even taking a step further, I mean, not necessarily I mean, maybe are there any other sort of Intermediary products that are sort of sole source that are Key ingredients or key intermediate ingredients that are larger revenue products, Right. So outside of Astec, right, maybe you give up a couple of points of margin, but you have And go out to a couple of different producers or set up a couple of different producers. Have you sort of reviewed the supply chain to understand what's going on from that perspective?

Speaker 2

Yes, we have and we've gone through our Head of Supply Chain, Suneet, has Basically charted out every product that were sold sourced on and the path on and we've been doing that for the last two and a half years, the path To dual source and we're pretty well complete on that. We have one herbicide that we We have a second source that we're able to use for outside the U. S, but we're in the process of getting EPA to approve that source for U. S. As well.

Speaker 2

We've had our Bromacil herbicide was sole sourced after we lost Our supplier in China that got shut down, but we have also backed that up with the source out of Malaysia. So we're pretty well focused on the idea that we would not be sole sourced on a product again. And that being said to your point, Do we if to keep 2 suppliers alive, we have a blended cost that is Potentially higher than one producer. Yes, we're going to do that. And so far, we've been able to factor those Increases into our pricing program.

Speaker 6

So Got it. That's helpful. I appreciate that. What do you have a sort of projection of maybe your EBITDA to sort of free cash flow conversion or what would Potential free cash flow would be this year. And then the follow-up with that would be any changes sort of to your investment schedule With the reduced cash flow from this year, ostensibly from the Q1, miss?

Speaker 4

We have given the forecasted range for EBITDA From a cash flow perspective, we are a little bit behind in the Q1, but anticipate Our annual cycle is to expand our working capital in the 1st 3 quarters or quarters and then Start to come down at the end and I don't see any difference in our profile for 2023 at this time.

Speaker 6

Okay. Got it. Sorry, go ahead.

Speaker 4

I don't think there's any change in our strategy with regard to Investments. I mean, we're looking at all sorts of different things all the time. And yes, we're not planning to change that.

Speaker 6

Got it. Perfect. That's it for me. I appreciate it.

Operator

Our next question is going to come from Wayne Pissent with Gabelli. Your line is open.

Speaker 7

Hi, thanks for taking my question. Most of my questions have been answered, but just to expand a little on The Astec supply issue when you guys got back online with that, thought that was pretty well resolved when you guys reported to Q4 in March, But then you mentioned the selling season going through late April. I know prior you guys had mentioned that you were anticipating getting a lot of those missed sales Q4 into the first half. Just if you walk through the cadence there, just is it just that Those few weeks, it was just it came on a little too late to be able to make those sales. And then you mentioned Some going into Q2, like what percentage of that $0.20 miss in Q1 do you think shifted into Q2 and We might see recovered.

Speaker 2

So as far as that the shift, yes, we did have Higher sales in Q2 than Q1 and year over year, I think we were a little higher In Q2, then Q2 of 2022. But on the $0.20 If you take I'm talking about what we actually did sell and What Scott's numbers reflected on the £2,300,000 out of the £7,000,000 that includes 2nd quarter sales, which were about $1,300,000 and I think we had about $1,000,000 in Q1 of Aztec equivalent. So that miss of $0.38 I'll say the difference between the $2,300,000 and the $7,000,000 So I don't know if that was did you have the second part of the question? I'm not sure if I answered it.

Speaker 7

Yes, just Because that's from the Q4 into Q1. Like you said sales have picked up into Q2, you may have sold a little more, but the selling season sort of ended there. Can you just quantify how much was there any shift there from What you missed in Q1 into Q2?

Speaker 2

Well, as I said, we were just we were a little ahead of sales in Q2 Of 2023 versus Q2 of 2020 So I would say those are kind of more natural, but the bottom line is that of the £7,000,000 which It was a bigger demand than what we had for the 2023 season. Of that of actual sales of Astec, we did about GBP 2,300,000 and this is equivalent of the 4.67% material or granular. So I mean the $0.38 I'm reporting is the difference between the £7,000,000 and the 2 So there'll be a marginal pickup in Q2 of what we missed, but the Total combined leaves us £4,700,000 short on the Astec, but as Scott alluded, we did pick up Additional sales of a substitute product, which was equivalent to another £400,000

Speaker 7

Okay. And then I know it's different dynamics with the impact, but just the missed sales there, the ability to make those up? Or is it just that Inventories are looking good going forward and we should just see more normalized demand.

Speaker 2

Yes.

Speaker 3

I think we'll see more normalized demand. We've had growth in our Impact Brand family for the last 3 years. 2022 was significant for the dynamics that we described earlier. We anticipate to continue to grow our portfolio Through the 4 brands that I referenced in my comments and then we're continuing to innovate in this space. So So you'll see at least 1, maybe 2 brands to come in that within our pipeline.

Speaker 6

Okay.

Speaker 7

All right. Thank you.

Operator

Your line is open.

Speaker 8

Yes. I had a follow-up on focused on Green Solutions and maybe just focused on Biologics first. So when you sort of established the beachhead in that niche, if you will, sort of Yeah. M and A, it was a time when the rest of the industry, at least the big guys were sort of going through a wave of consolidation, so weren't maybe as focused on it. But now Fast forward to today, it's viewed as one of the I mean Corteva's highlight is Probably the single largest growth area within crop protection.

Speaker 8

Seems like the big guys are more focused on this. There are More development efforts, maybe committing more resources to developing the market. Obviously, the sustainability characteristics are more interesting. So just curious about How you've seen this affect your positioning there? Has it become more competitive or conversely Given the awareness that these big guys might be bringing to the marketplace and the commercial push to me that's beneficial to where you are with your products, Just wondering how you see that playing out as you focus on delivering your growth goals in that vector?

Speaker 9

Chris, Bob here. That question is a good question. It's a space which is growing very fast, Very profitable, better margins than the, I would say, mature crop protection chemical business. We feel that we're outpacing the market today with a 40% growth rate versus A growth rate of, let's say, 15% in most of the segments. We feel that we have established Good solid foundation in manufacturing with the 2 plants we acquired through the Agrios acquisition.

Speaker 9

We have good research capabilities both in RTP And also in India, so we've got an excellent pipeline. We've got great market access Throughout the market access structure in the Americas, China and India And we have dedicated people in selling that. I think so from a business model, we're about as advanced as anybody And therefore, as you were shown today that BioWake, for example, It's an opportunity for us where companies are coming to us because they see that know how, they see that structure. New Leaf, which we also announced is another company, which is coming to us with their technology. So we have not only in house Competitive in that space, that space is only going to grow and we're going to grow with it.

Speaker 9

So I don't know if you have a follow-up question to that, Chris.

Speaker 8

No, I appreciate that color, Bob. And maybe the follow-up would also be maybe for you because I know SimPass is near and dear to you. And When you joined the company, it was something that you were pretty enthusiastic about, the progress that was and the opportunity there. The question focused on SIMPAS is, I think it was you that mentioned that The infrastructure around delivering that was also going to provide a data platform for with which growers could measure And capture their or measure and keep track of, I guess, their carbon avoidance, if you will. And given the momentum behind sort of decarbonizing our economy, It seems like ag is certainly in focus in that regard and this is a platform which may enable that.

Speaker 8

So I'm just wondering If there's still a play for SIMPAS in that regard? Or is this really just more focused right now on delivering the inputs In a more precision planting manner. Thanks.

Speaker 9

Well, Cipass as you say is The perfect delivery mechanism for any biorational products or nutritional products at plant. So we're developing that range. You've seen the announcements that we partnership the partnership we have with our Verdesion On the nutritional side, we're delivering those products. The partnerships we have with Other companies that are coming to us, we have actually more opportunities than we can process right now. The holdup is really the Getting those products registered through the EPA, you're going to see a lot more announcements coming in the future.

Speaker 9

But we also through the Agritos I just want to remind everyone that we bought 4 products and 3 of those were for soil health. With one of them that we're seeing now that we're getting good results In our trial work for nitrogen fixation, which goes right into the carbon market and that's Tremendous opportunity for us going forward as the soil health market develops.

Speaker 2

And I think it's again part of the system that we Wound up developing because of wanting to be able to trace and measure what goes into the soil It's the ultimate system, right, which is what we're talking about being a measure of validate and record. And so that As we're implementing that through the SIMPAS system that winds up giving the grower the ability to I have a 3rd party validation of his practices. So what we're really looking to do is capture his practices as far as nitrogen And reduction, let's say, and are the biologicals that Bob mentioned as far as that we're going to help with nutrient uptake. So that's the platform that we'll be using that we talked about before.

Speaker 8

I appreciate the color. Thanks.

Operator

Fitzgerald. Okay. It doesn't look like there are any more questions. I'll turn it back over to our speakers for any closing remarks.

Speaker 2

Okay. Well, appreciate everybody that participated on the phone today and listened in. Obviously, yes, we were disappointed with the Q1, but we do see that we will have a strong recovery over the balance of the 3 quarters And ultimately report very positive results for the year. And more importantly that we continue to be on track with our for next 2 year goals and targets and also we're making good progress on all three of our growth platforms. So with that, thank you.

Speaker 2

And we will have another discussion with the shareholders meeting June Seventh, I believe. All right. Thank you, everybody.

Operator

And this concludes your call. You may now disconnect.

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Earnings Conference Call
American Vanguard Q1 2023
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