Office of the CEO Kickstarts Liquidity and Transformation Initiatives New Credit Agreement Bolsters Working Capital Needs
American Vanguard Corporation (NYSE: AVD) announced financial results for the second quarter ending June 30, 2024.
Second Quarter 2024 Financial Highlights – versus Second Quarter 2023:
- Net sales of $128.2 million v. $132.8 million
- Adjusted EBITDA1 of $6.2 million v. $10.7 million
- Earnings per share of $(0.42) v. $(0.04)
First Half of 2024 Financial Highlights – versus First Half of 2023:
- Net sales of $263.4 million v. $257.7 million
- Adjusted EBITDA of $21.7 million v. $22.2 million
- Earnings per diluted share of $(0.36) v. $0.03
“In the face of adverse market conditions, quarterly net sales were slightly below, and first half net sales were slightly above, those of the comparable periods last year. We did record double-digit increases in net sales of our domestic non-crop business and Green Solutions products, driven by strong demand in Central America. However, our profitability was reduced largely due to non-recurring charges, including severance compensation for the former CEO and other one-time costs including various expenses in support of our business transformation activity. That said, the company does not find these results to be acceptable and is focused on changing direction with urgency,” stated Timothy Donnelly, Acting CEO of American Vanguard.
Mr. Donnelly continued, “We have taken immediate steps to enhance liquidity and improve our cost structure. On August 8, 2024, the company entered into an amended credit facility with our senior lenders to relax our EBITDA-based covenant through Q3 of 2025, while significantly upsizing the amount of non-recurring charges that we can exclude from our adjusted EBITDA calculation. These measures will improve our borrowing capacity in light of trailing four-quarter performance. The amended agreement includes an increase in interest rates at the highest leverage ratios and adds a requirement for lender consent in connection with share repurchases, dividends, and acquisitions. We thank the lender group for moving quickly and for their continued support.”
Mr. Donnelly continued, “In addition, after a detailed review, we have recently trimmed our workforce by about 4% and set in motion multiple initiatives to maximize cash while managing inventory downward, including selling out select non-strategic inventory positions to generate cash, building to demand and controlling the accounts receivable/accounts payable cycle. Further, we have redoubled our effort to reduce controllable expenses over the second half, including selling expenses, travel, and entertainment and use of contractors.”
Mr. Donnelly added, “With respect to recent developments affecting our product, Dacthal, as reported widely by the press earlier in the week, the EPA has issued an emergency suspension of that product which prevents its sale, distribution, and use. As you may recall, we had voluntarily suspended sales of Dacthal last April and submitted a mitigated label in an effort to meet the agency’s concerns. In light of our cessation of sales at that time, we removed Dacthal sales from our 2024 forecast assumptions. We are, of course, working in good faith with both EPA and our customers to ensure compliance with the suspension order and will have more to report on this in the near term.”
Mark Basset, board member on special assignment with the Company’s Office of the CEO, stated, “We’ve done a lot of hard work laying the foundation for a successful business transformation that touches every aspect of the company from a new organizational design, to new commercial strategies, to more cost-effective operations. Now is the time to begin to implement those plans with a sense of urgency and purpose.”
Dr. Basset continued, “Accordingly, in the interest of allocating capital prudently, we are seeking a partner within the precision application space to take over the broader commercialization and funding of SIMPAS. In addition, working with our consultant Kearney, we are pursuing multiple paths toward improving operating leverage, including material procurement, manufacturing efficiency, SKU rationalization, customer and pricing strategies, and structural reorganization, which, we believe, will meaningfully improve our cost structure, in an effort to push our adjusted EBITDA margins to 15% on a fully-realized basis in 2026.”
Mr. Donnelly concluded, “In light of the current state of the market and forecasted demand, which we expect to be stable, we are lowering our full year 2024 targets to adjusted EBITDA of $40 - $50 million (compared to our previous estimate of $60 - $70 million) and net sales to be down 2%-to-flat (compared to our previous estimate of sales up 6% to 9%) or $565 million to $580 million. On a related note, we continue to make progress in our effort to hire a CEO. However, during the pendency of the search, the Office of the CEO has a mandate to improve liquidity and change the company for the better and to do so with a sense of urgency. Please join us on our earnings call for more details.”
1 Adjusted earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA is not a financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), operating income (loss) or any other financial measure so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. The items excluded from adjusted EBITDA are detailed in the reconciliation attached to this news release. Other companies (including the Company’s competitors) may define adjusted EBITDA differently.
Conference Call
Timothy Donnelly, Acting CEO, Mark Bassett, Board Member and David T. Johnson, VP & CFO, will conduct a conference call focusing on the financial results and strategic themes at 4:30 pm ET / 1:30 pm PT on Thursday, August 8, 2024. Interested parties may participate in the call by dialing 201-493-6744. Please call in 10 minutes before the scheduled start time and ask for the American Vanguard call. The conference call will also be webcast live via the News and Media section of the Company’s website at www.american-vanguard.com. To listen to the live webcast, go to the website at least 15 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the Company’s website.
Access the archived webcast here:
https://event.webcasts.com/starthere.jsp?ei=1682000&tp_key=4c79646474
CONTACT INFORMATION
Company
American Vanguard Corporation
Anthony Young, Director of Investor Relations
anthonyy@amvac.com
(949) 221-6119
Investor Representative
The Equity Group Inc.
www.theequitygroup.com
Lena Cati
lcati@equityny.com
(212) 836-9611
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (Unaudited)
ASSETS |
| June 30, |
|
| December 31, |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 17,949 |
|
| $ | 11,416 |
|
Receivables: |
|
|
|
|
|
| ||
Trade, net of allowance for credit losses of $7,982 and $7,107, respectively |
|
| 192,081 |
|
|
| 182,613 |
|
Other |
|
| 6,287 |
|
|
| 8,356 |
|
Total receivables, net |
|
| 198,368 |
|
|
| 190,969 |
|
Inventories |
|
| 244,935 |
|
|
| 219,551 |
|
Prepaid expenses |
|
| 9,146 |
|
|
| 6,261 |
|
Income taxes receivable |
|
| 7,183 |
|
|
| 3,824 |
|
Total current assets |
|
| 477,581 |
|
|
| 432,021 |
|
Property, plant and equipment, net |
|
| 74,652 |
|
|
| 74,560 |
|
Operating lease right-of-use assets, net |
|
| 22,635 |
|
|
| 22,417 |
|
Intangible assets, net of amortization |
|
| 166,958 |
|
|
| 172,508 |
|
Goodwill |
|
| 48,878 |
|
|
| 51,199 |
|
Deferred income tax assets |
|
| 3,367 |
|
|
| 2,849 |
|
Other assets |
|
| 13,384 |
|
|
| 11,994 |
|
Total assets |
| $ | 807,455 |
|
| $ | 767,548 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 93,912 |
|
| $ | 68,833 |
|
Customer prepayments |
|
| 12,090 |
|
|
| 65,560 |
|
Accrued program costs |
|
| 86,094 |
|
|
| 68,076 |
|
Accrued expenses and other payables |
|
| 14,444 |
|
|
| 16,354 |
|
Operating lease liabilities, current |
|
| 6,612 |
|
|
| 6,081 |
|
Income taxes payable |
|
| 1,776 |
|
|
| 5,591 |
|
Total current liabilities |
|
| 214,928 |
|
|
| 230,495 |
|
Long-term debt |
|
| 211,254 |
|
|
| 138,900 |
|
Operating lease liabilities, long term |
|
| 16,735 |
|
|
| 17,113 |
|
Deferred income tax liabilities |
|
| 8,670 |
|
|
| 7,892 |
|
Other liabilities |
|
| 2,643 |
|
|
| 3,138 |
|
Total liabilities |
|
| 454,230 |
|
|
| 397,538 |
|
Commitments and contingent liabilities |
|
|
|
|
|
| ||
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred stock, $0.10 par value per share; authorized 400,000 shares; none issued |
|
| — |
|
|
| — |
|
Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued 34,655,429 shares at June 30, 2024 and 34,676,787 shares at December 31, 2023 |
|
| 3,465 |
|
|
| 3,467 |
|
Additional paid-in capital |
|
| 113,165 |
|
|
| 110,810 |
|
Accumulated other comprehensive loss |
|
| (13,256 | ) |
|
| (5,963 | ) |
Retained earnings |
|
| 321,052 |
|
|
| 332,897 |
|
Less treasury stock at cost, 5,915,182 shares at June 30, 2024 and December 31, 2023 |
|
| (71,201 | ) |
|
| (71,201 | ) |
Total stockholders’ equity |
|
| 353,225 |
|
|
| 370,010 |
|
Total liabilities and stockholders’ equity |
| $ | 807,455 |
|
| $ | 767,548 |
|
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| For the Three Months |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net sales |
| $ | 128,209 |
|
| $ | 132,790 |
|
| $ | 263,352 |
|
| $ | 257,674 |
|
Cost of sales |
|
| (90,446 | ) |
|
| (89,881 | ) |
|
| (183,171 | ) |
|
| (176,230 | ) |
Gross profit |
|
| 37,763 |
|
|
| 42,909 |
|
|
| 80,181 |
|
|
| 81,444 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
| (31,051 | ) |
|
| (29,742 | ) |
|
| (60,520 | ) |
|
| (56,140 | ) |
Research, product development and regulatory |
|
| (8,599 | ) |
|
| (9,413 | ) |
|
| (14,305 | ) |
|
| (18,283 | ) |
Transformation |
|
| (7,345 | ) |
|
| — |
|
|
| (8,497 | ) |
|
| — |
|
Operating (loss) income |
|
| (9,232 | ) |
|
| 3,754 |
|
|
| (3,141 | ) |
|
| 7,021 |
|
Change in fair value of equity investment |
|
| (125 | ) |
|
| (55 | ) |
|
| 513 |
|
|
| (77 | ) |
Interest expense, net |
|
| (3,917 | ) |
|
| (3,211 | ) |
|
| (7,610 | ) |
|
| (4,898 | ) |
(Loss) income before provision for income taxes |
|
| (13,274 | ) |
|
| 488 |
|
|
| (10,238 | ) |
|
| 2,046 |
|
Income tax benefit (expense) |
|
| 1,553 |
|
|
| (1,541 | ) |
|
| 69 |
|
|
| (1,181 | ) |
Net (loss) income |
| $ | (11,721 | ) |
| $ | (1,053 | ) |
| $ | (10,169 | ) |
| $ | 865 |
|
Net (loss) income per common share—basic |
| $ | (0.42 | ) |
| $ | (0.04 | ) |
| $ | (0.36 | ) |
| $ | 0.03 |
|
Net (loss) income per common share—assuming dilution |
| $ | (0.42 | ) |
| $ | (0.04 | ) |
| $ | (0.36 | ) |
| $ | 0.03 |
|
Weighted average shares outstanding—basic |
|
| 28,024 |
|
|
| 28,428 |
|
|
| 27,934 |
|
|
| 28,397 |
|
Weighted average shares outstanding—assuming dilution |
|
| 28,024 |
|
|
| 28,428 |
|
|
| 27,934 |
|
|
| 28,985 |
|
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
ANALYSIS OF SALES
(In thousands)
(Unaudited)
|
| For the three months ended June 30, |
|
|
|
|
|
|
|
|
| |||||
|
| 2024 |
|
| 2023 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 52,289 |
|
| $ | 56,212 |
|
| $ | (3,923 | ) |
|
| -7 | % |
U.S. non-crop |
|
| 19,011 |
|
|
| 16,878 |
|
|
| 2,133 |
|
|
| 13 | % |
U.S. total |
|
| 71,300 |
|
|
| 73,090 |
|
|
| (1,790 | ) |
|
| -2 | % |
International |
|
| 56,909 |
|
|
| 59,700 |
|
|
| (2,791 | ) |
|
| -5 | % |
Total net sales |
| $ | 128,209 |
|
| $ | 132,790 |
|
| $ | (4,581 | ) |
|
| -3 | % |
Total cost of sales |
| $ | (90,446 | ) |
| $ | (89,881 | ) |
| $ | (565 | ) |
|
| 1 | % |
Total gross profit |
| $ | 37,763 |
|
| $ | 42,909 |
|
| $ | (5,146 | ) |
|
| -12 | % |
Gross margin |
|
| 29 | % |
|
| 32 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended June 30, |
|
|
|
|
|
|
|
|
| |||||
|
| 2024 |
|
| 2023 |
|
| Change |
|
| % Change |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
| $ | 119,542 |
|
| $ | 118,105 |
|
| $ | 1,437 |
|
|
| 1 | % |
U.S. non-crop |
|
| 36,787 |
|
|
| 30,759 |
|
|
| 6,028 |
|
|
| 20 | % |
U.S. total |
|
| 156,329 |
|
|
| 148,864 |
|
|
| 7,465 |
|
|
| 5 | % |
International |
|
| 107,023 |
|
|
| 108,810 |
|
|
| (1,787 | ) |
|
| -2 | % |
Total net sales |
| $ | 263,352 |
|
| $ | 257,674 |
|
| $ | 5,678 |
|
|
| 2 | % |
Total cost of sales |
| $ | (183,171 | ) |
| $ | (176,230 | ) |
| $ | (6,941 | ) |
|
| 4 | % |
Total gross profit |
| $ | 80,181 |
|
| $ | 81,444 |
|
| $ | (1,263 | ) |
|
| -2 | % |
Gross margin |
|
| 30 | % |
|
| 32 | % |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net (loss) income |
| $ | (10,169 | ) |
| $ | 865 |
|
Adjustments to reconcile net (loss) income to net cash used in operating |
|
|
|
|
|
| ||
Depreciation of property, plant and equipment |
|
| 4,365 |
|
|
| 4,322 |
|
Amortization of intangibles assets |
|
| 6,539 |
|
|
| 6,707 |
|
Amortization of other long-term assets |
|
| 194 |
|
|
| 1,117 |
|
Provision for bad debts |
|
| 883 |
|
|
| 902 |
|
Stock-based compensation |
|
| 2,752 |
|
|
| 2,541 |
|
Change in deferred income taxes |
|
| (276 | ) |
|
| (1,015 | ) |
Changes in liabilities for uncertain tax positions or unrecognized tax benefits |
|
| 71 |
|
|
| 419 |
|
Change in equity investment fair value |
|
| (513 | ) |
|
| 77 |
|
Other |
|
| 213 |
|
|
| 117 |
|
Foreign currency transaction gains |
|
| (127 | ) |
|
| (382 | ) |
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
| ||
Decrease (increase) in net receivables |
|
| (11,962 | ) |
|
| 6,092 |
|
Increase in inventories |
|
| (27,770 | ) |
|
| (50,900 | ) |
Increase in prepaid expenses and other assets |
|
| (3,730 | ) |
|
| (1,749 | ) |
Change in income tax receivable/payable, net |
|
| (7,129 | ) |
|
| (3,510 | ) |
Increase (decrease) in net operating lease liability |
|
| (66 | ) |
|
| 132 |
|
Increase in accounts payable |
|
| 27,197 |
|
|
| 9,105 |
|
Decrease in customer prepayments |
|
| (53,468 | ) |
|
| (83,225 | ) |
Increase in accrued program costs |
|
| 18,209 |
|
|
| 19,607 |
|
Decrease in other payables and accrued expenses |
|
| (1,665 | ) |
|
| (7,824 | ) |
Net cash used in operating activities |
|
| (56,452 | ) |
|
| (96,602 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (4,944 | ) |
|
| (6,498 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 75 |
|
|
| 44 |
|
Intangible assets |
|
| (1,529 | ) |
|
| (718 | ) |
Net cash used in investing activities |
|
| (6,398 | ) |
|
| (7,172 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments under line of credit agreement |
|
| (64,005 | ) |
|
| (54,050 | ) |
Borrowings under line of credit agreement |
|
| 136,359 |
|
|
| 162,500 |
|
Net receipt from the issuance of common stock under ESPP |
|
| 430 |
|
|
| 480 |
|
Net receipt from the exercise of stock options |
|
| — |
|
|
| 32 |
|
Net payment for tax withholding on stock-based compensation awards |
|
| (829 | ) |
|
| (1,948 | ) |
Repurchase of common stock |
|
| — |
|
|
| (7,226 | ) |
Payment of cash dividends |
|
| (1,670 | ) |
|
| (1,702 | ) |
Net cash provided by financing activities |
|
| 70,285 |
|
|
| 98,086 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 7,435 |
|
|
| (5,688 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (902 | ) |
|
| (8 | ) |
Cash and cash equivalents at beginning of period |
|
| 11,416 |
|
|
| 20,328 |
|
Cash and cash equivalents at end of period |
| $ | 17,949 |
|
| $ | 14,632 |
|
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net (loss) income |
| $ | (11,721 | ) |
| $ | (1,053 | ) |
| $ | (10,169 | ) |
| $ | 865 |
|
Income tax (benefit) expense |
|
| (1,553 | ) |
|
| 1,541 |
|
|
| (69 | ) |
|
| 1,181 |
|
Interest expense, net |
|
| 3,917 |
|
|
| 3,211 |
|
|
| 7,610 |
|
|
| 4,898 |
|
Depreciation and amortization |
|
| 5,463 |
|
|
| 5,889 |
|
|
| 11,093 |
|
|
| 12,146 |
|
Stock compensation |
|
| 748 |
|
|
| 1,067 |
|
|
| 2,752 |
|
|
| 2,541 |
|
Transformation costs & legal reserves |
|
| 9,310 |
|
|
| — |
|
|
| 10,462 |
|
|
| — |
|
Proxy contest activities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 541 |
|
Adjusted EBITDA |
| $ | 6,164 |
|
| $ | 10,655 |
|
| $ | 21,679 |
|
| $ | 22,172 |
|