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AMERICAN VANGUARD CORP - Quarter Report: 2023 September (Form 10-Q)

10-Q

hi

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-13795

 

AMERICAN VANGUARD CORPORATION

 

 

Delaware

95-2588080

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

4695 MacArthur Court, Newport Beach, California

92660

(Address of principal executive offices)

(Zip Code)

(949) 260-1200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.10 par value

 

AVD

 

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value — 28,750,439 shares as of November 2, 2023.

 

 

 


 

AMERICAN VANGUARD CORPORATION

INDEX

 

 

Page Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

4

 

 

 

 

Condensed Consolidated Balance Sheets

 

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

8

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

29

 

 

 

PART II—OTHER INFORMATION

 

30

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

Item 1A.

Risks Factors

 

30

 

Item 2.

Purchases of Equity Securities by the Issuer

 

31

 

Item 6.

Exhibits

 

31

 

 

 

SIGNATURES

 

32

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

149,516

 

 

$

152,267

 

 

$

407,191

 

 

$

450,063

 

Cost of sales

 

 

(106,432

)

 

 

(102,629

)

 

 

(282,662

)

 

 

(299,698

)

Gross profit

 

 

43,084

 

 

 

49,638

 

 

 

124,529

 

 

 

150,365

 

Operating expenses

 

 

(38,893

)

 

 

(38,394

)

 

 

(113,317

)

 

 

(113,559

)

Operating income

 

 

4,191

 

 

 

11,244

 

 

 

11,212

 

 

 

36,806

 

Change in fair value of equity investments

 

 

(247

)

 

 

(454

)

 

 

(324

)

 

 

(857

)

Interest expense, net

 

 

(3,384

)

 

 

(1,086

)

 

 

(8,282

)

 

 

(2,256

)

Income before provision for income taxes

 

 

560

 

 

 

9,704

 

 

 

2,606

 

 

 

33,693

 

Income tax expense

 

 

(885

)

 

 

(2,963

)

 

 

(2,066

)

 

 

(10,187

)

Net income (loss)

 

$

(325

)

 

$

6,741

 

 

$

540

 

 

$

23,506

 

Net income (loss) per common share—basic

 

$

(.01

)

 

$

.23

 

 

$

.02

 

 

$

.80

 

Net income (loss) per common share—assuming dilution

 

$

(.01

)

 

$

.23

 

 

$

.02

 

 

$

.78

 

Weighted average shares outstanding—basic

 

 

27,919

 

 

 

29,214

 

 

 

28,236

 

 

 

29,496

 

Weighted average shares outstanding—assuming dilution

 

 

27,919

 

 

 

29,805

 

 

 

28,656

 

 

 

30,128

 

 

See notes to the Condensed Consolidated Financial Statements.

 

3


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

For the Three Months
Ended September 30,

 

 

For the Nine Months
Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income (loss)

 

$

(325

)

 

$

6,741

 

 

$

540

 

 

$

23,506

 

 Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax effects

 

 

(3,123

)

 

 

(2,764

)

 

 

2,928

 

 

 

(1,748

)

Comprehensive income (loss)

 

$

(3,448

)

 

$

3,977

 

 

$

3,468

 

 

$

21,758

 

 

See notes to the Condensed Consolidated Financial Statements.

 

4


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

ASSETS

 

 

 

September 30,
2023

 

 

December 31,
2022

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,529

 

 

$

20,328

 

Receivables:

 

 

 

 

 

 

Trade, net of allowance for doubtful accounts of $6,274 and $5,136, respectively

 

 

185,619

 

 

 

156,492

 

Other

 

 

11,919

 

 

 

9,816

 

Total receivables, net

 

 

197,538

 

 

 

166,308

 

Inventories

 

 

247,932

 

 

 

184,190

 

Prepaid expenses

 

 

8,517

 

 

 

15,850

 

Income taxes receivable

 

 

6,071

 

 

 

1,891

 

Total current assets

 

 

471,587

 

 

 

388,567

 

Property, plant and equipment, net

 

 

73,205

 

 

 

70,912

 

Operating lease right-of-use assets

 

 

22,907

 

 

 

24,250

 

Intangible assets, net

 

 

174,918

 

 

 

184,664

 

Goodwill

 

 

47,426

 

 

 

47,010

 

Other assets

 

 

12,435

 

 

 

10,769

 

Deferred income tax assets, net

 

 

366

 

 

 

141

 

Total assets

 

$

802,844

 

 

$

726,313

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

71,054

 

 

$

69,000

 

Customer prepayments

 

 

5,998

 

 

 

110,597

 

Accrued program costs

 

 

90,367

 

 

 

60,743

 

Accrued expenses and other payables

 

 

16,555

 

 

 

20,982

 

Current operating lease liabilities

 

 

5,553

 

 

 

5,279

 

Total current liabilities

 

 

189,527

 

 

 

266,601

 

Long-term debt, net

 

 

218,000

 

 

 

51,477

 

Long-term operating lease liabilities

 

 

18,102

 

 

 

19,492

 

Other liabilities, net of current installments

 

 

4,805

 

 

 

4,167

 

Deferred income tax liabilities, net

 

 

13,709

 

 

 

14,597

 

Total liabilities

 

 

444,143

 

 

 

356,334

 

Commitments and contingent liabilities (Note14)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $.10 par value per share; authorized 400,000 shares; none issued

 

 

 

 

 

 

Common stock, $.10 par value per share; authorized 40,000,000 shares; issued
  
34,666,431 shares at September 30, 2023 and 34,446,194 shares at December 31, 2022

 

 

3,467

 

 

 

3,444

 

Additional paid-in capital

 

 

108,937

 

 

 

105,634

 

Accumulated other comprehensive loss

 

 

(9,254

)

 

 

(12,182

)

Retained earnings

 

 

326,752

 

 

 

328,745

 

Less treasury stock at cost, 5,915,182 shares at September 30, 2023 and 5,029,892 shares at December 31, 2022

 

 

(71,201

)

 

 

(55,662

)

Total stockholders’ equity

 

 

358,701

 

 

 

369,979

 

Total liabilities and stockholders' equity

 

$

802,844

 

 

$

726,313

 

 

See notes to the Condensed Consolidated Financial Statements.

 

5


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For The Three and Nine Months Ended September 30, 2023

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in
  Capital

 

 

Comprehensive
Loss

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, December 31, 2022

 

 

34,446,194

 

 

$

3,444

 

 

$

105,634

 

 

$

(12,182

)

 

$

328,745

 

 

 

5,029,892

 

 

$

(55,662

)

 

$

369,979

 

Stocks issued under ESPP

 

 

22,101

 

 

 

2

 

 

 

478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

480

 

Cash dividends declared on common stock
   ($
0.030 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(851

)

 

 

 

 

 

 

 

 

(851

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

2,546

 

 

 

 

 

 

 

 

 

 

 

 

2,546

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,474

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

(4,466

)

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,835

 

 

 

(557

)

 

 

(557

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,918

 

 

 

 

 

 

 

 

 

1,918

 

Balance, March 31, 2023

 

 

34,463,829

 

 

 

3,446

 

 

 

107,591

 

 

 

(9,636

)

 

 

329,812

 

 

 

5,057,727

 

 

 

(56,219

)

 

 

374,994

 

Cash dividends declared on common stock ($0.030 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(848

)

 

 

 

 

 

 

 

 

(848

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

3,505

 

 

 

 

 

 

 

 

 

 

 

 

3,505

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,067

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

179,845

 

 

 

18

 

 

 

(1,939

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,921

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

380,366

 

 

 

(6,669

)

 

 

(6,669

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,053

)

 

 

 

 

 

 

 

 

(1,053

)

Balance, June 30, 2023

 

 

34,643,674

 

 

 

3,464

 

 

 

106,719

 

 

 

(6,131

)

 

 

327,911

 

 

 

5,438,093

 

 

 

(62,888

)

 

 

369,075

 

Common stock issued under ESPP

 

 

27,924

 

 

 

3

 

 

 

497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

Cash dividends declared on common stock ($0.030 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(834

)

 

 

 

 

 

 

 

 

(834

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

(3,123

)

 

 

 

 

 

 

 

 

 

 

 

(3,123

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,716

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

(5,167

)

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

477,089

 

 

 

(8,313

)

 

 

(8,313

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(325

)

 

 

 

 

 

 

 

 

(325

)

Balance, September 30, 2023

 

 

34,666,431

 

 

$

3,467

 

 

$

108,937

 

 

$

(9,254

)

 

$

326,752

 

 

 

5,915,182

 

 

$

(71,201

)

 

$

358,701

 

 

See notes to the Condensed Consolidated Financial Statements.

 

 

6


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For The Three and Nine Months Ended September 30, 2022

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-in
  Capital

 

 

Comprehensive
Loss

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, December 31, 2021

 

 

34,248,218

 

 

$

3,426

 

 

$

101,450

 

 

$

(13,784

)

 

$

304,385

 

 

 

3,361,040

 

 

$

(22,739

)

 

$

372,738

 

Common stock issued under ESPP

 

 

26,751

 

 

 

2

 

 

 

434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

436

 

Cash dividends declared on common stock ($0.025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(736

)

 

 

 

 

 

 

 

 

(736

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

7,080

 

 

 

 

 

 

 

 

 

 

 

 

7,080

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,563

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

(183,093

)

 

 

(18

)

 

 

(2,156

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,174

)

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332,404

 

 

 

(6,219

)

 

 

(6,219

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,935

 

 

 

 

 

 

 

 

 

9,935

 

Balance, March 31, 2022

 

 

34,091,876

 

 

 

3,410

 

 

 

101,291

 

 

 

(6,704

)

 

 

313,584

 

 

 

3,693,444

 

 

 

(28,958

)

 

 

382,623

 

Cash dividends declared on common stock ($0.025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(742

)

 

 

 

 

 

 

 

 

(742

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

(6,064

)

 

 

 

 

 

 

 

 

 

 

 

(6,064

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,273

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

351,358

 

 

 

35

 

 

 

892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

927

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

606

 

 

 

(13

)

 

 

(13

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,830

 

 

 

 

 

 

 

 

 

6,830

 

Balance, June 30, 2022

 

 

34,443,234

 

 

 

3,445

 

 

 

103,456

 

 

 

(12,768

)

 

 

319,672

 

 

 

3,694,050

 

 

 

(28,971

)

 

 

384,834

 

Common stock issued under ESPP

 

 

24,489

 

 

 

2

 

 

 

399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401

 

Cash dividends delcared on common stock ($0.025 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(715

)

 

 

 

 

 

 

 

 

(715

)

Foreign currency translation adjustment, net

 

 

 

 

 

 

 

 

 

 

 

(2,764

)

 

 

 

 

 

 

 

 

 

 

 

(2,764

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,560

 

Stock options exercised; grants, termination
   and vesting of restricted stock units
   (net of shares in lieu of taxes)

 

 

(3,776

)

 

 

(1

)

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

387,340

 

 

 

(7,499

)

 

 

(7,499

)

Accelerated share repurchase pending final settlement

 

 

 

 

 

 

 

 

(4,000

)

 

 

 

 

 

 

 

 

802,810

 

 

 

(16,000

)

 

 

(20,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,741

 

 

 

 

 

 

 

 

 

6,741

 

Balance, September 30, 2022

 

 

34,463,947

 

 

$

3,446

 

 

$

101,426

 

 

$

(15,532

)

 

$

325,698

 

 

 

4,884,200

 

 

$

(52,470

)

 

$

362,568

 

 

See notes to the Condensed Consolidated Financial Statements.

 

7


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

540

 

 

$

23,506

 

Adjustments to reconcile net income to net cash used in operating
   activities:

 

 

 

 

 

 

Depreciation and amortization of property, plant and equipment

 

 

6,396

 

 

 

6,207

 

Amortization of intangibles assets

 

 

10,009

 

 

 

10,442

 

Amortization of other long-term assets

 

 

1,445

 

 

 

2,656

 

Loss on disposal of property, plant and equipment

 

 

7

 

 

 

265

 

Accretion of discounted liabilities

 

 

 

 

 

28

 

Amortization of deferred loan fees

 

 

174

 

 

 

174

 

Provision for bad debts

 

 

952

 

 

 

597

 

Fair value adjustment to contingent consideration

 

 

 

 

 

621

 

Stock-based compensation

 

 

4,257

 

 

 

4,396

 

Change in deferred income taxes

 

 

(977

)

 

 

(64

)

Changes in liabilities for uncertain tax positions or unrecognized tax benefits

 

 

467

 

 

 

 

Change in fair value of equity investments

 

 

324

 

 

 

857

 

Net foreign currency adjustments

 

 

199

 

 

 

218

 

Changes in assets and liabilities associated with operations:

 

 

 

 

 

 

Increase in net receivables

 

 

(29,055

)

 

 

(46,289

)

Increase in inventories

 

 

(58,163

)

 

 

(38,987

)

Increase in prepaid expenses and other assets

 

 

(633

)

 

 

(4,272

)

Increase in income tax receivable/payable, net

 

 

(4,046

)

 

 

(5,201

)

Increase in net operating lease liability

 

 

227

 

 

 

10

 

Increase in accounts payable

 

 

1,240

 

 

 

14,418

 

Decrease in customer prepayments

 

 

(104,590

)

 

 

(62,831

)

Increase in accrued program costs

 

 

29,779

 

 

 

45,016

 

(Decrease) increase in other payables and accrued expenses

 

 

(4,406

)

 

 

2,555

 

Net cash used in operating activities

 

 

(145,854

)

 

 

(45,678

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(8,589

)

 

 

(8,946

)

Proceeds from disposal of property, plant and equipment

 

 

200

 

 

 

46

 

Intangible assets

 

 

(759

)

 

 

(1,078

)

Net cash used in investing activities

 

 

(9,148

)

 

 

(9,978

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments under line of credit agreement

 

 

(62,800

)

 

 

(64,000

)

Borrowings under line of credit agreement

 

 

228,500

 

 

 

160,000

 

Net receipt from the issuance of common stock under ESPP

 

 

980

 

 

 

837

 

Net receipt from the exercise of stock options

 

 

46

 

 

 

783

 

Payment for tax withholding on stock-based compensation awards

 

 

(1,957

)

 

 

(2,020

)

Repurchase of common stock

 

 

(15,539

)

 

 

(33,731

)

Payment of cash dividends

 

 

(2,550

)

 

 

(2,072

)

Net cash provided by financing activities

 

 

146,680

 

 

 

59,797

 

Net (decrease) increase in cash and cash equivalents

 

 

(8,322

)

 

 

4,141

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(477

)

 

 

382

 

Cash and cash equivalents at beginning of period

 

 

20,328

 

 

 

16,285

 

Cash and cash equivalents at end of period

 

$

11,529

 

 

$

20,808

 

See notes to the Condensed Consolidated Financial Statements.

 

8


 

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except share data)

(Unaudited)

 

1. Summary of Significant Accounting Policies — The accompanying unaudited condensed consolidated financial statements of American Vanguard Corporation and Subsidiaries (“AVD” or “the Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of consolidating adjustments, eliminations and normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three- and nine-month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The financial statements and related notes do not include all information and footnotes required by US GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. Certain operating cash flow items have been reclassified in the prior period condensed consolidated financial statements to conform with the September 30, 2023 presentation.

2. Leases — The Company has operating leases for warehouses, manufacturing facilities, offices, cars, railcars and certain equipment. The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise. The Company has leases with a lease term ranging from one year to twenty years.

Finance leases are immaterial to the accompanying condensed consolidated financial statements. There were no lease transactions with related parties as of and for the three- and nine-month periods presented in the table below.

The operating lease expense for the three-month periods ended September 30, 2023, and 2022, was $1,701 and $1,653, respectively, and $5,012 and $4,876 for the nine-month periods ended September 30, 2023 and 2022, respectively. Lease expenses related to variable lease payments and short-term leases were immaterial. Additional information related to operating leases are as follows:

 

 

 

Three months
ended
September 30, 2023

 

 

Three months
ended
September 30, 2022

 

 

Nine months
ended
September 30, 2023

 

 

Nine months
ended
September 30, 2022

 

Cash paid for amounts included in the
   measurement of lease liabilities

 

$

1,601

 

 

$

1,613

 

 

$

4,788

 

 

$

4,846

 

ROU assets obtained in exchange for new lease
   liabilities

 

$

643

 

 

$

2,378

 

 

$

3,220

 

 

$

4,202

 

 

The weighted-average remaining lease term and discount rate related to the operating leases as of September 30, 2023 were as follows:

 

Weighted-average remaining lease term (in years)

 

 

5.29

 

Weighted-average discount rate

 

 

4.37

%

 

 

9


 

Future minimum lease payments under non-cancellable operating leases as of September 30, 2023 were as follows:

 

2023 (excluding nine-months ended September 30, 2023)

 

$

1,682

 

2024

 

 

6,113

 

2025

 

 

5,538

 

2026

 

 

4,251

 

2027

 

 

2,736

 

Thereafter

 

 

6,200

 

Total lease payments

 

 

26,520

 

Less: imputed interest

 

 

(2,865

)

Total

 

$

23,655

 

Amounts recognized in the condensed consolidated balance sheets:

 

 

 

Operating lease liabilities, current

 

$

5,553

 

Operating lease liabilities, long-term

 

$

18,102

 

 

3. Revenue Recognition —The Company recognizes revenue from the sale of its products, which include crop and non-crop products. The Company sells its products to customers, which include distributors, retailers, and growers. In addition, the Company recognizes royalty income from licensing agreements within the U.S non-crop business. The Company has one reportable segment. Selective enterprise information of sales disaggregated by category and geographic region is as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

67,749

 

 

$

69,101

 

 

$

185,823

 

 

$

220,303

 

U.S. non-crop

 

 

19,250

 

 

 

18,946

 

 

 

50,041

 

 

 

53,844

 

Total U.S.

 

 

86,999

 

 

 

88,047

 

 

 

235,864

 

 

 

274,147

 

International

 

 

62,517

 

 

 

64,220

 

 

 

171,327

 

 

 

175,916

 

Total net sales:

 

$

149,516

 

 

$

152,267

 

 

$

407,191

 

 

$

450,063

 

The Company recognized revenue for substantially all of its net sales at a point in time.

Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $3,100 at September 30, 2023 and December 31, 2022. The contract assets of $3,100 are included in other receivables on the condensed consolidated balance sheets as of September 30, 2023. The short-term and long-term contract assets of $2,098 and $1,002 are included in other receivables and other assets, respectively, on the condensed consolidated balance sheet as of December 31, 2022.

The Company receives payments from its customers in advance of goods and services being provided in return for early cash incentive programs. These payments are included in customer prepayments on the condensed consolidated balance sheets. Revenue recognized for the three- and nine-month periods ended September 30, 2023, that was included in customer prepayments at the beginning of 2023, was $16,374 and $82,099, respectively, and $22,500 was refunded to customers. The Company expects to recognize all its remaining customer prepayments as revenue in fiscal 2023.

 

 

10


 

4. Property, Plant and EquipmentProperty, plant and equipment at September 30, 2023 and December 31, 2022 consists of the following:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

Land

 

$

2,762

 

 

$

2,757

 

Buildings and improvements

 

 

21,009

 

 

 

20,794

 

Machinery and equipment

 

 

147,376

 

 

 

142,980

 

Office furniture, fixtures and equipment

 

 

10,846

 

 

 

13,231

 

Automotive equipment

 

 

1,205

 

 

 

1,584

 

Construction in progress

 

 

8,805

 

 

 

5,897

 

Total gross value

 

 

192,003

 

 

 

187,243

 

Less accumulated depreciation

 

 

(118,798

)

 

 

(116,331

)

Total net value

 

$

73,205

 

 

$

70,912

 

 

The Company recognized depreciation expense related to property and equipment of $2,074 and $2,130 for the three-month periods ended September 30, 2023 and 2022, respectively. The Company recognized depreciation expense related to property and equipment of $6,396 and $6,207 for the nine-month periods ended September 30, 2023 and 2022, respectively.

Substantially all of the Company’s assets are pledged as collateral to its lenders.

5. Inventories — Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) or average cost methods. The components of inventories consist of the following:

 

 

 

September 30,
2023

 

 

December 31, 2022

 

Finished products

 

$

216,767

 

 

$

155,128

 

Raw materials

 

 

31,165

 

 

 

29,062

 

 

 

$

247,932

 

 

$

184,190

 

 

6. Accrued Program Costs — The Company offers various discounts to customers based on the volume purchased within a defined time period, other pricing adjustments, some grower volume incentives or other key performance indicator driven payments, which are usually made at the end of a growing season, to distributors, retailers or growers. The Company describes these payments as “Programs”. Programs are a critical part of doing business in both the U.S. crop and non-crop chemicals marketplaces. These discount Programs represent variable consideration. Revenues from sales are recorded at the net sales price, which is the transaction price net of the impact of Programs and includes estimates of variable consideration. Variable consideration includes amounts expected to be paid to its customers estimated using the expected value method. Each quarter management reviews individual sale transactions with Programs to determine what, if any, estimated program liabilities have been incurred. Once this initial calculation is made for the specific quarter, sales and marketing management, along with support from financial analysts, reviews the accumulated Program balance and, for volume driven payments, make assessments of whether or not customers are tracking in a manner that indicates that they will meet the requirements set out in agreed upon terms and conditions attached to each Program. Following this assessment, management makes adjustments to the accumulated accrual to properly reflect the Company’s best estimate of the liability at the balance sheet date. Programs are then reviewed with executive management for final approval. Programs are paid out predominantly on an annual basis, usually in the final quarter of the financial year or the first quarter of the following year. No significant changes in estimates were made during the three- and nine-month periods ended September 30, 2023, and 2022.

7. Cash Dividends on Common Stock —The Company has declared and paid the following cash dividends in the periods covered by this Form 10-Q:

 

Declaration Date

 

Record Date

 

Distribution Date

 

Dividend
Per Share

 

 

Total
Paid

 

September 12, 2023

 

September 22, 2023

 

October 6, 2023

 

$

0.030

 

 

$

834

 

June 12, 2023

 

June 28, 2023

 

July 14, 2023

 

$

0.030

 

 

$

848

 

March 13, 2023

 

March 24, 2023

 

April 14, 2023

 

$

0.030

 

 

$

851

 

December 13, 2022

 

December 28, 2022

 

January 11, 2023

 

$

0.030

 

 

$

851

 

September 12, 2022

 

September 23, 2022

 

October 7, 2022

 

$

0.025

 

 

$

715

 

June 6, 2022

 

June 24, 2022

 

July 8, 2022

 

$

0.025

 

 

$

742

 

March 14, 2022

 

March 25, 2022

 

April 15, 2022

 

$

0.025

 

 

$

736

 

December 13, 2021

 

December 27, 2021

 

January 10, 2022

 

$

0.020

 

 

$

594

 

 

 

11


 

 

8. Net Income (Loss) Per Share The components of basic and diluted net income (loss) per share were as follows:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(325

)

 

$

6,741

 

 

$

540

 

 

$

23,506

 

Denominator: (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding-basic

 

 

27,919

 

 

 

29,214

 

 

 

28,236

 

 

 

29,496

 

Dilutive effect of stock options and grants

 

$

 

 

 

591

 

 

 

420

 

 

 

632

 

Weighted average shares outstanding-diluted

 

 

27,919

 

 

 

29,805

 

 

 

28,656

 

 

 

30,128

 

Due to a net loss for the three-month period ended September 30, 2023, stock options and other grants were excluded from the computation of diluted net loss per share as the impact is anti dilutive. For the three-month ended September 30, 2022, and nine-month periods ended September 30, 2023, and 2022, no stock options were excluded from the computation of diluted income (loss) per share.

9. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. The Company has no short-term debt as of September 30, 2023 and December 31, 2022. The debt is summarized in the following table:

 

Long-term indebtedness ($000's)

 

September 30, 2023

 

 

December 31, 2022

 

Revolving line of credit

 

$

218,000

 

 

$

52,300

 

Deferred loan fees

 

 

(897

)

 

 

(823

)

Net long-term debt

 

$

217,103

 

 

$

51,477

 

 

The deferred loan fees as of September 30, 2023 are included in other assets on the condensed consolidated balance sheets.

The Company and certain of its affiliates are parties to a revolving line of credit agreement entitled the “Third Amended and Restated Loan and Security Agreement” dated as of August 5, 2021 (the “Credit Agreement”), which is a senior secured lending facility among AMVAC, the Company’s principal operating subsidiary, as Agent (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by BMO Bank, N.A. (formerly Bank of the West) as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, on the other hand. The Credit Agreement consists of a line of credit of up to $275,000, an accordion feature of up to $150,000, a letter of credit and swingline sub-facility (each having limits of $25,000) and has a maturity date of August 5, 2026. The Credit Agreement amended and restated the previous credit facility, which had a maturity date of June 30, 2022. With respect to key financial covenants, the Credit Agreement contains two: namely, borrowers are required to maintain a Total Leverage (“TL”) Ratio of no more than 3.5-to-1, during the first three years, stepping down to 3.25-to-1 as of December 31, 2024, and a Fixed Charge Coverage Ratio ("FCCR") of at least 1.25-to-1. In addition, to the extent that it completes acquisitions totaling $15 million or more in any 90-day period, AMVAC may step-up the TL Ratio by 0.5-to-1, not to exceed 4.00-to-1, for the next three full consecutive quarters. Acquisitions below $50 million do not require Agent consent.

The Company’s borrowing capacity varies with its financial performance, measured in terms of Consolidated EBITDA as defined in the Credit Agreement, for the trailing twelve-month period. Under the Credit Agreement, revolving loans bear interest at a variable rate based, at borrower’s election with proper notice, on either (i) LIBOR plus the “Applicable Margin” which is based upon the Total Leverage (“TL”) Ratio (“LIBOR Revolver Loan”) or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month LIBOR Rate plus 1.00%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). The Company and the Lenders entered into an amendment to the Credit Agreement, effective March 9, 2023, whereby LIBOR was replaced by SOFR with a credit spread adjustment of 10.0 bps for all SOFR periods. The revolving loans now bear interest at a variable rate based at our election with proper notice, on either (i) SOFR plus 0.1% per annum and the “Applicable Margin” or (ii) the greater of (x) the Prime Rate, (y) the Federal Funds Rate plus 0.5%, and (z) the Daily One-Month SOFR Rate plus 1.10%, plus, in the case of (x), (y) or (z) the Applicable Margin (“Adjusted Base Rate Revolver Loan”). Interest payments for SOFR Revolver Loans are payable on the last day of each interest period (either one-, three- or six- month periods, as selected by the Company) and the maturity date, while interest payments for Adjusted Base Rate Revolver Loans are payable on the last business day of each month and the maturity date. The interest rate on September 30, 2023, was 7.04%. Interest was $3,384 and $1,086 for the three months ended September 30, 2023 and 2022, respectively, and $8,282 and $2,256 for the nine months ended September 30, 2023 and 2022, respectively.

 

12


 

On November 7, 2023, the Company entered into Amendment Number Six to the Third Amended Loan and Security Agreement that provided relief in respect of both financial covenants. Specifically, with respect to the Maximum Total Leverage Ratio, the existing ratio of 3.5 through September 30, 2024 and 3.25 through December 31, 2024 and thereafter was changed to 5.5 through September 30, 2023, 4.5 for the periods ending December 31, 2023 and March 31, 2024, 4.0 for the period ending June 30, 2024, 3.5 through September 30, 2024 and returning to 3.25 from December 31, 2024 and thereafter. In addition, the Minimum Fixed Charge Coverage Ratio was changed from 1.25 to 1.0 for the periods ending September 30, 2023, December 31, 2023 and March 31, 2024 and returning to 1.25 for the period ending June 30, 2024 and thereafter. Further, after the delivery of financial statements and a covenant compliance certificate for the period ending December 31, 2023 assuming Total Leverage is less than 2.75, then Borrowers may terminate the covenant modification period (“CMP”) and revert to the terms of the existing Credit Agreement. Further, for the duration of the CMP, the Company is restricted from making share repurchases. Finally, the Applicable Margin (SOFR and Adjusted Base Rate) and Letter of Credit fees increase by 0.50 basis points for each tier of interest during CMP.

As of September 30, 2023, by virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants.

According to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $28,760 and $200,372 as of September 30, 2023 and December 31, 2022, respectively.

10. Classification Corrections — Corrections to the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 were made in connection with the Company’s operations in Australia, where the Company sells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of third-party agent’s commission amounts. The Company evaluated these errors and the impact to previously issued financial statements and concluded that the impact of this classification error is not material to any previously issued quarterly or annual financial statements. However, management has recorded correcting adjustments to the previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $150 and $427 was reclassified from net sales to operating expenses for the three and nine months ended September 30, 2022, respectively. The impact was an increase in net sales and gross profit in the amount of $150 and $427 and an offsetting increase in operating expenses in the same amount. These corrections did not have any impact on operating income, net income (loss), and net income (loss) per common share.

11. Change in Accounting Principle — Historically, the Company included warehousing, handling and outbound freight costs in operating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to include these costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include these warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. This change in accounting principle does not impact operating income, net income (loss), and net income (loss) per share. The following table compares the Company’s historical classification with the classification after the adoption of the change in accounting for the three and nine months ended September 30, 2023 and 2022:

 

13


 

 

 

 

Classification after adoption
of accounting change

 

 

Classification prior to adoption
 of accounting change

 

 

 

For the three months ended September 30,

 

 

For the three months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

149,516

 

 

$

152,267

 

 

$

149,516

 

 

 

152,267

 

Cost of sales

 

 

(106,432

)

 

 

(102,629

)

 

 

(91,938

)

 

 

(90,733

)

Gross profit

 

 

43,084

 

 

 

49,638

 

 

 

57,578

 

 

 

61,534

 

Operating expenses

 

 

(38,893

)

 

 

(38,394

)

 

 

(53,387

)

 

 

(50,290

)

Operating income

 

$

4,191

 

 

$

11,244

 

 

$

4,191

 

 

$

11,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification after adoption
 of accounting change

 

 

Classification prior to adoption
 of accounting change

 

 

 

For the nine months ended September 30,

 

 

For the nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

407,191

 

 

$

450,063

 

 

$

407,191

 

 

 

450,063

 

Cost of sales

 

 

(282,662

)

 

 

(299,698

)

 

 

(249,294

)

 

 

(267,280

)

Gross profit

 

 

124,529

 

 

 

150,365

 

 

 

157,897

 

 

 

182,783

 

Operating expenses

 

 

(113,317

)

 

 

(113,559

)

 

 

(146,685

)

 

 

(145,977

)

Operating income

 

$

11,212

 

 

$

36,806

 

 

$

11,212

 

 

$

36,806

 

 

12. Comprehensive Income (Loss) — Total comprehensive income (loss) includes, in addition to net income (loss), changes in equity that are excluded from the condensed consolidated statement of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three- and nine-month periods ended September 30, 2023, and 2022, total comprehensive income (loss) consisted of net income (loss) and foreign currency translation adjustments.

13. Stock-Based Compensation — The following tables illustrate the Company’s stock-based compensation (included in operating expenses in the condensed consolidated statements of operations), unamortized stock-based compensation, and remaining weighted average amortization period.

 

 

 

Stock-Based
Compensation
for the Three
months ended

 

 

Stock-Based
Compensation
for the Nine
months ended

 

 

Unamortized
Stock-Based
Compensation

 

 

Remaining
Weighted
Average
Period (years)

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock

 

$

1,187

 

 

$

3,597

 

 

$

7,764

 

 

 

2.0

 

Unrestricted Stock

 

 

130

 

 

 

390

 

 

 

347

 

 

 

0.7

 

Performance-Based Restricted Stock

 

 

399

 

 

 

270

 

 

 

2,832

 

 

 

2.0

 

Total

 

$

1,716

 

 

$

4,257

 

 

$

10,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock

 

$

1,184

 

 

$

3,257

 

 

$

8,010

 

 

 

2.0

 

Unrestricted Stock

 

 

130

 

 

 

369

 

 

 

347

 

 

 

0.7

 

Performance-Based Restricted Stock

 

 

246

 

 

 

770

 

 

 

3,093

 

 

 

1.9

 

Total

 

$

1,560

 

 

$

4,396

 

 

$

11,450

 

 

 

 

 

The Company also granted stock options in past periods. All outstanding stock options are fully vested and exercisable and no expense was recorded during the three- and nine-month periods ended September 30, 2023, and 2022.

 

 

14


 

Time-Based Restricted and Unrestricted Stock A summary of non-vested shares as of, and for, the three- and nine-month periods ended September 30, 2023, and 2022 is presented below:

 

 

 

Three and Nine Months Ended
September 30, 2023

 

 

Three and Nine Months Ended
September 30, 2022

 

 

 

Number
of Shares

 

 

Weighted
Average
Grant
Date Fair
Value

 

 

Number
of Shares

 

 

Weighted
Average
Grant
Date Fair
Value

 

Nonvested shares at December 31st

 

 

742,050

 

 

$

18.86

 

 

 

817,290

 

 

$

17.04

 

Vested

 

 

(2,017

)

 

 

15.71

 

 

 

(230,080

)

 

 

17.31

 

Forfeited

 

 

(5,479

)

 

 

19.87

 

 

 

(24,109

)

 

 

17.10

 

Nonvested shares at March 31st

 

 

734,554

 

 

 

18.86

 

 

 

563,101

 

 

 

16.93

 

Granted

 

 

279,419

 

 

 

21.17

 

 

 

242,067

 

 

 

23.79

 

Vested

 

 

(309,318

)

 

 

14.83

 

 

 

(27,482

)

 

 

22.35

 

Forfeited

 

 

(16,354

)

 

 

19.50

 

 

 

(14,070

)

 

 

18.53

 

Nonvested shares at June 30th

 

 

688,301

 

 

 

21.59

 

 

 

763,616

 

 

 

18.88

 

Granted

 

 

9,745

 

 

 

13.63

 

 

 

13,600

 

 

 

18.94

 

Vested

 

 

(3,666

)

 

 

16.79

 

 

 

(1,262

)

 

 

19.39

 

Forfeited

 

 

(15,080

)

 

 

21.70

 

 

 

(15,945

)

 

 

20.09

 

Nonvested shares at September 30th

 

 

679,300

 

 

$

21.50

 

 

 

760,009

 

 

$

18.86

 

 

Performance-Based Restricted Stock A summary of non-vested performance-based shares as of, and for, the three- and nine-month periods ended September 30, 2023, and 2022, respectively is presented below:

 

 

 

Three and Nine Months Ended
September 30, 2023

 

 

Three and Nine Months Ended
September 30, 2022

 

 

 

Number
of Shares

 

 

Weighted
Average
Grant
Date Fair
Value

 

 

Number
of Shares

 

 

Weighted
Average
Grant
Date Fair
Value

 

Nonvested shares at December 31st

 

 

318,699

 

 

$

18.05

 

 

 

379,061

 

 

$

16.43

 

Additional granted (forfeited) based on
  performance achievement

 

 

 

 

 

 

 

 

(41,088

)

 

 

16.56

 

Vested

 

 

 

 

 

 

 

 

(78,704

)

 

 

17.18

 

Forfeited

 

 

 

 

 

 

 

 

(7,074

)

 

 

16.77

 

Nonvested shares at March 31st

 

 

318,699

 

 

 

18.05

 

 

 

252,195

 

 

 

16.17

 

Additional granted (forfeited) based on
  performance achievement

 

 

(58,827

)

 

 

14.73

 

 

 

 

 

 

 

Granted

 

 

94,028

 

 

 

21.51

 

 

 

83,190

 

 

 

23.63

 

Vested

 

 

(86,188

)

 

 

13.99

 

 

 

 

 

 

 

Forfeited

 

 

(3,316

)

 

 

16.91

 

 

 

(7,829

)

 

 

17.50

 

Nonvested shares at June 30th

 

 

264,396

 

 

 

21.36

 

 

 

327,556

 

 

 

16.58

 

Forfeited

 

 

(466

)

 

 

20.03

 

 

 

(2,577

)

 

 

17.80

 

Nonvested shares at September 30th

 

 

263,930

 

 

$

21.36

 

 

 

324,979

 

 

$

16.57

 

 

 

15


 

Stock Options — The Company has stock options outstanding under its incentive stock option plans and performance incentive stock option plan. All outstanding stock options are vested and exercisable. The following tables present details for each type of plan:

Incentive Stock Option Plans

Activity for the three- and nine-month periods ended September 30, 2023:

 

 

 

Number of
Shares

 

 

Weighted
Average Exercise Price
Per Share

 

Balance outstanding, December 31, 2022

 

 

68,896

 

 

$

11.49

 

Options exercised

 

 

(1,537

)

 

 

11.49

 

Balance outstanding, March 31, 2023

 

 

67,359

 

 

$

11.49

 

Options exercised

 

 

(1,287

)

 

 

11.49

 

Balance outstanding, June 30, 2023

 

 

66,072

 

 

$

11.49

 

Options exercised

 

 

(1,200

)

 

 

11.49

 

Balance outstanding, September 30, 2023

 

 

64,872

 

 

$

11.49

 

 

All the incentive stock options outstanding as of September 30, 2023, have an exercise price per share of $11.49, total intrinsic value of $0, and a remaining life of 15 months.

Activity for the three- and nine-month periods ended September 30, 2022:

 

 

 

Number of
Shares

 

 

Weighted
Average Exercise Price
Per Share

 

Balance outstanding, December 31, 2021 and March 31, 2022

 

 

108,036

 

 

$

11.49

 

Options exercised

 

 

(33,745

)

 

 

11.49

 

Balance outstanding, June 30, 2022

 

 

74,291

 

 

$

11.49

 

Options exercised

 

 

(1,541

)

 

 

11.49

 

Balance outstanding, September 30, 2022

 

 

72,750

 

 

$

11.49

 

 

Performance Incentive Stock Option Plan

Activity for the three- and nine-month periods ended September 30, 2023:

 

 

 

 

Number of
Shares

 

 

Weighted
Average Exercise Price
Per Share

 

Balance outstanding, December 31, 2022

 

 

81,808

 

 

$

11.49

 

Options exercised

 

 

 

 

 

 

Balance outstanding, March 31, June 30, and September 30, 2023

 

 

81,808

 

 

$

11.49

 

 

Activity for the three- and nine-month periods ended September 30, 2022:

 

 

 

Number of
Shares

 

 

Weighted
Average Exercise Price
Per Share

 

Balance outstanding, December 31, 2021 and March 31, 2022

 

 

114,658

 

 

$

11.49

 

Options exercised

 

 

(32,850

)

 

 

11.49

 

Balance outstanding, June 30 and September 30, 2022

 

 

81,808

 

 

$

11.49

 

 

All the performance incentive stock options outstanding as of September 30, 2023, have an exercise price per share of $11.49, total intrinsic value of $0, and a remaining life of 15 months.

 

16


 

14. Legal Proceedings — During the reporting period, there have been no material developments in legal proceedings that were reported in the Company’s Form 10-K for the year ended December 31, 2022, except as described below.

Department of Justice and Environmental Protection Agency Investigation. On November 10, 2016, AMVAC was served with a grand jury subpoena from the United States Attorney’s Office for the Southern District of Alabama, seeking documents regarding the importation, transportation, and management of a specific pesticide. The Company retained defense counsel to assist in responding to the subpoena and otherwise in defending the Company’s interests. AMVAC is cooperating in the investigation. After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DoJ”) identified the Company and a manager-level employee as targets of the government’s investigation. DoJ’s investigation focused on potential violations of two environmental statutes, the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and the Resource Conservation and Recovery Act (“RCRA”), as well as obstruction of an agency proceeding and false statement statutes. In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In July 2022, the DoJ sent correspondence to the Company’s counsel to the effect that it was focusing on potential RCRA violations relating to the reimportation of Australian containers in 2015. Our defense counsel has spoken with DoJ on the subject intermittently over the past several months, and DoJ expressed an interest in resolving the matter. The Company anticipates further discussion on resolution of the matter.

The governmental agencies involved in this investigation have a range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of FIFRA, RCRA and other federal statutes including, but not limited to, injunctive relief, fines, penalties and modifications to business practices and compliance programs, including the appointment of a monitor. If violations are established, the amount of any fines or monetary penalties which could be assessed and the scope of possible non-monetary relief would depend on, among other factors, findings regarding the amount, timing, nature and scope of the violations, and the level of cooperation provided to the governmental authorities during the investigation. As a result, the Company cannot yet anticipate the timing or predict the ultimate resolution of this investigation, financial or otherwise, which could have a material adverse effect on our business prospects, operations, financial condition and cash flows. Accordingly, the Company has not recorded a loss contingency for this matter.

Notice of Intention to Suspend DCPA. On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in support of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet the agency’s schedule. After an appeals court (the Environmental Appeals Board) clarified the proper standard for use at the hearing (namely, whether registrant took appropriate steps to respond to the data call-in), a hearing was held in January 2023 before the ALJ, by which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been started by the Company and none of which are necessary for USEPA to commence its risk assessment. In April 2023, the ALJ reached a decision, finding that the agency acted within its authority in issuing the NOITS. On approximately August 22, 2023, the company entered into a settlement agreement with USEPA pursuant to which the Company waived the right to appeal and accepted a suspension of the registration in consideration of the agency reinstating the registration within 75 days after submission of the final study (which was subsequently provided to the agency on or about August 18, 2023). That period expired on or about November 3, 2023, after which, barring a finding of inadequacy in meeting study protocols, the agency has ten days within which to reinstate. In connection with this matter, the Company believes that a loss is neither probable nor estimable and, consequently, has not set aside a reserve in connection with this matter.

Reyes v. AMVAC. On September 28, 2023, the Company received correspondence from counsel for ex-employee Jorge Reyes Jr. addressed to the California Department of Industrial Relations alleging a host of wage and hour violations under California law. This is a precursor to a civil filing under applicable state law. Subsequently, plaintiff, putatively on behalf of the class of similarly situated, non-exempt California-based employees, served a summons and complaint on the Company’s registered agent that had been electronically filed as Case No. 238TCV23665, encaptioned, Jorge Reyes v. AMVAC etc., etal., with the Superior Court for the County of Los Angeles, Central District. As is typical of these sorts of action, plaintiff alleges wages and hours violations of all imaginable types, including overtime, minimum wage, sick leave, rest periods and so on. The Company intends to defend the matter vigorously, does not believe that the claims have any merit. Accordingly, the Company has not recorded a loss contingency for this matter.

15. Recently Issued Accounting Guidance The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.

 

17


 

16. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires certain disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s borrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate that represents current market rates.

The Company measures its contingent earn-out liabilities in connection with business acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. The Company did not have any contingent earn-out liabilities at September 30, 2023 and December 31, 2022.

The following table illustrates the Company’s contingent earn-out liability movements related to its business acquisitions as of, and for the three- and nine-month periods ended September 30, 2022:

 

 

 

Three months ended
September 30, 2022

 

 

Nine months ended
September 30, 2022

 

Balance, June 30, 2022 and December 31, 2021, respectively

 

$

1,367

 

 

$

786

 

Fair value adjustment

 

 

 

 

 

635

 

Payments on existing obligations

 

 

(1,292

)

 

 

(1,292

)

Accretion of discounted liabilities

 

 

10

 

 

 

28

 

Foreign exchange effect

 

 

(85

)

 

 

(157

)

Balance, September 30, 2022

 

$

 

 

$

 

 

 

18


 

17. Accumulated Other Comprehensive Loss (“AOCL”)The following table lists the beginning balance, annual activity and ending balance of accumulated other comprehensive loss, which consists of foreign currency translation adjustments:

 

 

 

Total

 

Balance, December 31, 2022

 

$

(12,182

)

Foreign currency translation adjustment, net of tax effects of ($132)

 

 

2,546

 

Balance, March 31, 2023

 

 

(9,636

)

Foreign currency translation adjustment, net of tax effects of ($122)

 

 

3,505

 

Balance, June 30, 2023

 

 

(6,131

)

Foreign currency translation adjustment, net of tax effects of $133

 

 

(3,123

)

Balance, September 30, 2023

 

$

(9,254

)

 

 

 

 

Balance, December 31, 2021

 

$

(13,784

)

Foreign currency translation adjustment, net of tax effects of ($48)

 

 

7,080

 

Balance, March 31, 2022

 

 

(6,704

)

Foreign currency translation adjustment, net of tax effects of $109

 

 

(6,064

)

Balance, June 30, 2022

 

 

(12,768

)

Foreign currency translation adjustment, net of tax effects of $81

 

 

(2,764

)

Balance, September 30, 2022

 

$

(15,532

)

 

18. Equity Investments — In February 2016, AMVAC Netherlands BV made an investment in Biological Products for Agriculture (“Bi-PA”). Bi-PA develops biological plant protection products that can be used for the control of pests and disease of agricultural crops. As of September 30, 2023 and December 31, 2022, the Company’s ownership position in Bi-PA was 15%. Since this investment does not have a readily determinable fair value, the Company has elected to measure the investment at cost less impairment, if any, and also records an increase or decrease for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Bi-PA. The Company periodically reviews the investment for possible impairment. There was no impairment or observable price changes on the investment during the three- and nine-month periods ended September 30, 2023 and 2022. The investment is recorded within other assets on the condensed consolidated balance sheets and amounted to $2,869 as of September 30, 2023 and December 31, 2022.

On April 1, 2020, AMVAC purchased 6.25 million shares, an ownership of approximately 8%, of common stock of Clean Seed Capital Group Ltd. (TSX Venture Exchange: “CSX”) for $1,190. The shares are publicly traded, have a readily determinable fair value, and are considered a Level 1 investment. The fair value of the stock amounted to $460 and $784 as of September 30, 2023 and December 31, 2022, respectively. The Company recorded a loss of $247 and $454 for the three-month periods ended September 30, 2023 and 2022, respectively. The Company recorded a loss of $324 and a gain of $857 for the nine-month periods ended September 30, 2023 and 2022, respectively. The investment is recorded within other assets on the condensed consolidated balance sheets and the associated gains and losses are included in the change in fair value of equity investments.

19. Income Taxes —Income tax expense for the three and nine months ended September 30, 2023 and 2022, is computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The Company’s tax rate is subject to management’s quarterly review and revision, as necessary. The Company’s provision for income taxes and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign income (loss) before income taxes.

Income tax expense was $885 and $2,963 for the three-month period ended September 30, 2023, and 2022, respectively, and $2,066 and $10,187 for the nine months ended September 30, 2023 and 2022, respectively. The effective income tax rate was 158.0% and 30.5% for the three-month periods ended September 30, 2023 and 2022, respectively, and 79.3% and 30.2% for the nine months ended September 30, 2023 and 2022, respectively.

For the three-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets.

Additionally, for the nine-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is due to withholding tax charges ( net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. The increase in the effective income tax rate is partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes.

 

19


 

It is expected that $1,814 of unrecognized tax benefits will be released within the next twelve months due to expiration of the statute of limitations.

20. Stock Re-purchase Programs —The Company periodically repurchases shares of its common stock under a board-authorized repurchase program through a combination of open market transactions and accelerated share repurchase ("ASR") arrangements.

On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to 1,000,000 shares of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws. During 2022 and 2023, the Company purchased 761,985 shares of its common stock for a total of $14,558 at an average price of $19.11 per share under this plan which terminated on March 8, 2023.

On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $15,000 of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws. During the three months ended September 30, 2023, the Company purchased 477,089 shares of its common stock for a total of $8,313 at an average price of $17.42 per share under this plan. During the nine months ended September 30, 2023, the Company purchased 885,290 shares of its common stock for a total of $15,539 at an average price of $17.55 per share under this plan.

The table below summarizes the number of shares of the Company’s common stock that were repurchased through open market transactions during the three and nine months ended September 30, 2023 and 2022.

 

Three months ended

 

Total number of
shares purchased

 

 

Average price paid
per share

 

 

Total amount paid

 

September 30, 2023

 

 

477,089

 

 

$

17.42

 

 

$

8,313

 

September 30, 2022

 

 

387,340

 

 

$

19.36

 

 

$

7,499

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

Total number of
shares purchased

 

 

Average price paid
per share

 

 

Total amount paid

 

September 30, 2023

 

 

885,290

 

 

$

17.55

 

 

$

15,539

 

September 30, 2022

 

 

720,350

 

 

$

19.06

 

 

$

13,731

 

On August 22, 2022, pursuant to a Board of Directors resolution, the Company entered into an ASR arrangement to repurchase $20,000 of its common stock. Under the agreement, the Company paid $20,000 and immediately received an initial delivery of 802,810 shares in the amount of $16,000, which the Company recorded as treasury shares. The Company recorded the remaining $4,000 as a reduction to additional paid-in capital pending final settlement in the fourth quarter of 2022. On December 14, 2022, the ASR was completed, and pursuant to the settlement terms of the ASR, the Company received an additional 131,892 shares of its common stock. The average price paid for all of the shares delivered under the ASR was $21.40 per share.

The table below summarizes the number of shares of the Company’s common stock that were received under the accelerated share repurchase arrangement during the three- and nine-month periods ended September 30, 2022.

 

Three months ended

 

Total number of
shares purchased

 

 

Average price
paid per share

 

 

Total amount paid

 

September 30, 2022

 

 

802,810

 

 

$

19.93

 

 

$

16,000

 

Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.

 

20


 

21. Supplemental Cash Flow Information

 

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

7,317

 

 

$

2,073

 

Income taxes, net

 

$

7,643

 

 

$

15,530

 

Non-cash transactions:

 

 

 

 

 

 

Cash dividends declared and included in accrued expenses

 

$

834

 

 

$

715

 

 

22. Subsequent Event October 9, 2023, the Company completed the acquisition of Punto Verde, a well-established distributor in Guayaquil, Ecuador, to strengthen its product portfolio and market access in the Latin American region, for a total consideration of approximately $4,800. The acquisition will be accounted for as a business combination on the Company's consolidated financial statements.

 

21


 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Numbers in thousands)

FORWARD-LOOKING STATEMENTS/RISK FACTORS:

The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Annual Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission (the “SEC”). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 3., Quantitative and Qualitative Disclosures about Market Risk, and Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q.

Effective January 1, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of these warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income (loss) and net income (loss) per share. Please refer to Note 11 to the condensed consolidated financial statements for further details.

MANAGEMENT OVERVIEW

Overview of the Company’s Performance

The third quarter of 2023 has been marked by the same factors that have lingered over the course of the full year to date, namely: destocking by customers that seek to avoid the high carrying costs of inventory; supply chain issues with a key herbicide; procurement of goods closer to time-of-use; the influence of low-cost generic products exported to multiple markets from China-based suppliers working within a strained economy; and a strong US Dollar with relatively stable commodity prices. These factors have tended to affect different markets somewhat disparately, as will be noted from the discussion below.

Within this context, the Company’s financial performance for the third quarter of 2023 declined as compared to the third quarter of 2022. Domestically, sales of both crop and non-crop products were nearly flat with those of the comparable quarter in 2022. As a result of the conservative procurement trend, inventory of many of our crop products within the distribution channel was at historic lows, even though end customer demand was strong; this was true, for example of Aztec, our leading corn soil insecticide. Further, we experienced mixed results among other crop protection products. For example, sales of soil fumigants in the Pacific Northwest were strong (as this is the application season and weather was favorable), while sales of cotton products (primarily into the south and southwest) were affected by reduced planted acres and unfavorable weather. Within the domestic non-crop business, retailers continued to demonstrate conservative stocking patterns. Nevertheless, we experienced steady demand for nursery, ornamental and professional pest control products. Within our international business, sales were down slightly, while some regions (e.g., Mexico) showed greater strength and others (e.g., Central America and Brazil) continued to experience market pressure from low-priced, generic goods from China-based suppliers.

Against this backdrop, on a consolidated basis, domestic sales declined by 1% while international sales declined by 3%, resulting in an overall net sales decline of 2%. Overall cost of sales increased by 4% and was 71% of sales in 2023, as compared to 67% for the same period of 2022. These factors, taken together with slightly higher net manufacturing costs resulted in a 13% decrease in gross profit (to $43,084 in 2023 from $49,638 in 2022), while overall gross margin percent declined to 29% from 33% quarter-over-quarter.

Operating expenses increased slightly to $38,893 for the three-months period ended September 30, 2023 from $38,394 in the same quarter of the prior year; further, operating expenses as a percent of net sales rose to 26% in the third quarter of 2023 from 25% in the comparable period of 2022, largely due to higher research, product development costs, regulatory expenses costs and increased sales and marketing expenses.

 

22


 

Operating income for the period decreased to $4,191 from $11,244, driven by reduced sales, higher freight charges (an element of cost of sales), a decreased gross margin percentage and higher operating expenses. During the third quarter, the Company experienced significantly higher interest expenses, due to increased borrowing and significantly higher interest rates. Income before taxes ended at $560 including a profitable performance for most of the Company’s operating entities around the world, offset by losses in certain businesses, including Brazil. Losses at that entity generate a tax benefit, which was not realized as a result of maintaining a full valuation allowance. As a result, net tax expense exceeded income before taxes, resulting in a net loss for the quarter.

These factors yielded a net loss for the period of $325, as compared to net income of $6,741 in the third quarter of 2022. Details on our financial performance are set forth below.

RESULTS OF OPERATIONS

Quarter Ended September 30, 2023 and 2022:

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

67,749

 

 

$

69,101

 

 

$

(1,352

)

 

 

-2

%

U.S. non-crop

 

 

19,250

 

 

 

18,946

 

 

 

304

 

 

 

2

%

Total U.S.

 

 

86,999

 

 

 

88,047

 

 

 

(1,048

)

 

 

-1

%

International

 

 

62,517

 

 

 

64,220

 

 

 

(1,703

)

 

 

-3

%

Total net sales

 

 

149,516

 

 

 

152,267

 

 

 

(2,751

)

 

 

-2

%

Total cost of sales

 

 

(106,432

)

 

 

(102,629

)

 

 

(3,803

)

 

 

4

%

Total gross profit

 

$

43,084

 

 

$

49,638

 

 

$

(6,554

)

 

 

-13

%

Total gross margin

 

 

29

%

 

 

33

%

 

 

 

 

 

 

 

Our domestic crop business recorded net sales that were 2% lower than those of the third quarter of 2022 ($67,749 as compared to $69,101). Our cotton products were negatively influenced by a year-over-year decline in US cotton acreage of up to 25% in key Southeast and Mississippi delta regions resulting in reduced sales of our foliar insecticide Bidrin. Further, late planting of cotton in 2023 led to some delayed applications of our Folex harvest defoliant from this year’s third quarter to the fourth quarter. In addition, we recorded no sales of our herbicide Dacthal, as the Company is awaiting reinstatement of the product registration after having submitted data study requirements. These declines were largely offset by significantly higher sales of our corn soil insecticide Aztec, as corn rootworm pressure intensified, while channel inventories are at historical lows. Sales of our Thimet insecticide for use against wireworm infestation in sugarcane were very strong in the third quarter. Similarly, our metam sodium soil fumigants also posted larger sales, as late summer and early autumn dry weather patterns facilitated increased third quarter application.

Our domestic non-crop business posted increased net sales in the third quarter of 2023, as compared to the same period in the prior year ($19,250 versus $18,936). In the quarter, demand for our OHP nursery and ornamental products remained relatively flat, as consumer spending on such products remained steady. Likewise, we saw a normal late summer/early fall demand for goods that we supply to professional pest control applicators and landscapers. Sales of mosquito control product were slightly lower than those of the prior year third quarter.

Net sales of our international businesses declined by 3% during the period ($62,517 in 2023 vs. $64,220 in 2022) and constituted 42% of our consolidated quarterly sales in the three months ended September 30, 2023 and 2022, respectively. These results arose from a number of factors, including the foreign exchange effect of a strong US Dollar, various supply-chain constraints, industry-wide channel inventory destocking and intensified competition of generic products from Asia. The business benefited from sales increases in several countries of our Mocap and Nemacur soil insecticides and our Counter nematicide in Brazil. Conversely, our Central American business, while maintaining a strong presence in the pineapple, banana, and citrus markets, posted lower sales attributed to significant drought conditions in the region and continued pricing pressure caused by a surge of imported generic products from China. In Mexico, our business recorded good performance driven by our Bromacil herbicide. We experienced relatively flat performance in Australia, as well as with respect to our growth regulators, biorational products and our Agrinos portfolio.

 

23


 

Operating expenses were flat at $38,893 for the three-month period ended September 30, 2023, as compared to $38,394 for the same quarter of the prior year. The changes in operating expenses by nature are as follows:

 

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Sales and marketing

 

$

14,718

 

 

$

14,311

 

 

$

407

 

 

 

3

%

General and administrative

 

 

15,095

 

 

 

15,570

 

 

 

(475

)

 

 

-3

%

Research, product development and regulatory

 

 

9,080

 

 

 

8,513

 

 

 

567

 

 

 

7

%

 

 

$

38,893

 

 

$

38,394

 

 

$

499

 

 

 

1

%

 

Sales and marketing expenses increased by $407 for the three-month period ended September 30, 2023, as compared with the same period of the prior year. This included inflation related increased wages and other costs offset by reductions in travel and marketing expenses.
General and administrative expenses decreased by $475 for the three-month period ended September 30, 2023, as compared to the same period of 2022. The main drivers were lower legal expenses and incentive compensation expenses, partially offset by inflation related increases in wages and other costs, and adverse movements in key currencies as compared to the US Dollar.
Research, product development costs and regulatory expenses increased by $567 for the three-month period ended September 30, 2023, as compared to the same period of 2022. The main drivers were increased spending related to the development of our SIMPAS system and expanded registrations for our products in Brazil.

On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded negative fair value adjustments in the amount of $247 and $454 for the three months ended September 30, 2023 and 2022, respectively.

Interest costs net of capitalized interest were $3,384 in the three-month period ended September 30, 2023, as compared to $1,086 in the same period of 2022. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

 

 

 

Three months ended September 30, 2023

 

 

Three months ended September 30, 2022

 

 

 

Average
Debt

 

 

Interest
Expense

 

 

Interest
Rate

 

 

Average
Debt

 

 

Interest
Expense

 

 

Interest
Rate

 

Revolving line of credit (average)

 

$

200,247

 

 

$

3,578

 

 

 

7.1

%

 

$

125,441

 

 

$

1,104

 

 

 

3.5

%

Amortization of deferred loan fees

 

 

 

 

 

56

 

 

 

 

 

 

 

 

 

61

 

 

 

 

Amortization of other deferred liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

Other interest (income)

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

(1

)

 

 

 

Subtotal

 

 

200,247

 

 

 

3,590

 

 

 

7.2

%

 

 

125,441

 

 

 

1,174

 

 

 

3.7

%

Capitalized interest

 

 

 

 

 

(206

)

 

 

 

 

 

 

 

 

(88

)

 

 

 

Total

 

$

200,247

 

 

$

3,384

 

 

 

6.8

%

 

$

125,441

 

 

$

1,086

 

 

 

3.5

%

 

The Company’s average overall debt for the three-month period ended September 30, 2023 was $200,247, as compared to $125,441 for the three-month period ended September 30, 2022. Our borrowings in the three-month period ended September 30, 2023, were higher primarily as a result of customer decisions to slow down purchases from buying early to now buying as close to time of use as possible, resulting in increased working capital for the company as we work through this change in the market places in which we operate. As can be seen from the table above, the effective bank interest rate on our revolving line of credit was 7.1% and 3.5% at each of the three-month period ended September 30, 2023 and 2022, respectively.

Income tax expense decreased by $2,078 to $885 for the three-month period ended September 30, 2023, as compared to $2,963 for the comparable period in 2022. The effective tax rates for the three-month period ended September 30, 2023 and 2022, were 158.0% and 30.5%, respectively. The increase in the effective tax rate for the three months ended September 30, 2023 as compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain valuation allowances against their net deferred tax assets.

Our net loss for the three-month period ended September 30, 2023, was $325 or ($0.01) per basic and diluted share, as compared to net income of $6,741 or $0.23 per basic and diluted share in the same quarter of 2022.

 

24


 

Nine Months Ended September 30, 2023 and 2022:

Overview of the Company’s Performance

During much of the year-to-date in 2023, the global agricultural industry has been influenced by a handful of dynamics. First, commodity prices have remained relatively stable; this has been so since the Russian invasion of Ukraine. Second, the US Dollar has been strong, while the Chinese economy has weakened. This, in turn, has created foreign exchange impacts for US-based businesses that serve international markets. In addition, China-based suppliers have oversupplied certain markets (e.g., Central America) with low-priced generic products. Third, the cost of money has risen to the point that customers have engaged in destocking activity to limit carrying costs for inventory. Finally, supply chain disruptions continued to arise from time to time, particularly among domestic companies that import goods from Asia and India. Against that backdrop, the Company’s overall operating results for the first nine months of 2023 declined as compared to those of the same period of 2022.

On a consolidated basis, with domestic sales down 14% and international down by 3%, overall net sales decreased by 10% (to $407,191 from $450,036). Cost of sales were down 9% on an absolute basis but increased as a percent of net sales to 69% from 67%. Factory performance was less cost efficient during the first nine months of 2023, as compared to that of 2022. These factors, taken together, yielded an decrease in gross profit margin to 31% of net sales from 33% during the first nine months of 2022. Operating expenses were flat on an absolute basis but increased as a percent of net sales to 28% as compared to 25% of net sales for the same period of the prior year.

Interest expense rose sharply due to higher interest rates and higher average borrowing, while income tax expense decreased significantly to $2,066 from $10,187 during the comparable period last year, primarily as a result of lower income before taxes. Overall, the Company’s net income for the period decreased to $540 from $23,506 during the first nine months of the prior year. Details on our financial performance are set forth below.

RESULTS OF OPERATIONS

Nine months ended September 30, 2023, and 2022

 

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. crop

 

$

185,823

 

 

$

220,303

 

 

$

(34,480

)

 

 

-16

%

U.S. non-crop

 

 

50,041

 

 

 

53,844

 

 

 

(3,803

)

 

 

-7

%

Total U.S.

 

 

235,864

 

 

 

274,147

 

 

 

(38,283

)

 

 

-14

%

International

 

 

171,327

 

 

 

175,916

 

 

 

(4,589

)

 

 

-3

%

Total net sales

 

 

407,191

 

 

 

450,063

 

 

 

(42,872

)

 

 

-10

%

Total cost of sales

 

 

(282,662

)

 

 

(299,698

)

 

 

17,036

 

 

 

-6

%

Total gross profit

 

$

124,529

 

 

$

150,365

 

 

$

(25,836

)

 

 

-17

%

Total gross margin

 

 

31

%

 

 

33

%

 

 

 

 

 

 

 

Our domestic crop business recorded net sales that were 16% lower than those of the first nine months of 2022. The main driver of this performance was in our herbicide product category. Dacthal, which is used on a wide variety of high-value crops was unavailable for sale this year, as the company awaits the reinstatement of its registration. Additionally, our Impact post-emergent corn herbicide posted lower sales this year due to an unexpected grower preference for low-priced non-selective herbicides. Offsetting this decline was our leading soil insecticide Aztec, which rebounded from earlier supply constraints and saw strong demand in light of heavy rootworm pressure throughout the Midwest region. Our domestic cotton business, led by Bidrin foliar insecticide and Folex harvest defoliant, declined during the first three quarters of 2023 due to lower cotton acreage, moderate pest pressure, and a delay in harvest defoliant applications. At the same time, we posted modest increases in our soil fumigant and sugarcane products. The US crop business continues to experience the effects of channel inventory destocking, driven by high interest rate carrying costs. This has led to very cautious purchasing patterns throughout the domestic business since the beginning of the second quarter.

Year-to-date, the Company’s domestic crop business was slowed by supply chain disruption of its premier corn soil insecticide Aztec and herbicide Dacthal during the first quarter. During the second quarter, both US crop and US non-crop experienced slowed sales resulting from global destocking on the part of our distribution channels. Crop sales declines were partially offset by stronger sales of soil fumigants. Within non-crop, big box stores and retailers slowed and reduced procurement activity and departed from the historical norm of maintaining about 6 months’ inventory to about 30 days’ inventory. Within our International business, Central America and Brazil were adversely affected by the export of low-priced generic product from China, partially offset by strong performances in Mexico and Australia.

 

25


 

Our domestic non-crop business recorded an 8% decrease in net sales for the first nine months of the year (to $49,791 from $53,844). We experienced a nine month reduction in consumer demand for our OHP nursery and ornamental products, most of which occurred earlier this year and now has normalized in the most recent quarter. Sales of our Dibrom® mosquito adulticide remained nearly flat while sales for commercial pest control products (pest strips and bifenthrin) declined, due in part to measures imposed by distribution to control inventory carrying costs. License revenue for our Envance technologies increased when compared to the same period in 2022, due to an increase in contractually guaranteed royalty fees.

Net sales of our international businesses declined by 3% during the first three quarters of 2023 (to $171,327 in 2023 from $175,916 in 2022). Central America experienced a rare multi-quarter sales decline due to continuing regional drought conditions and increased competitive pressure from Chinese imports. Brazil continued to gain further market penetration of our Counter granular insecticide/nematicide, but the overall business suffered otherwise from intense channel inventory destocking in the region. Mexico delivered solid performance by satisfying continuing strong demand for Bromacil herbicides and granular soil insecticides, offset somewhat by lower sales of our soil fumigant products. Australia posted higher sales with our expanded market footprint following full integration of the AgNova business, despite the recurrence of drought conditions in parts of the continent.

Operating expenses decreased by $242 to $113,317 for the nine-month period ended September 30, 2023, as compared to the same period in 2022. The changes in operating expenses by department are as follows:

 

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Sales and marketing

 

$

41,288

 

 

$

38,271

 

 

$

3,017

 

 

 

8

%

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

44,125

 

 

 

50,262

 

 

 

(6,137

)

 

 

-12

%

Proxy contest activities

 

 

541

 

 

 

1,785

 

 

 

(1,244

)

 

 

-70

%

Research, product development and regulatory

 

 

27,363

 

 

 

23,241

 

 

 

4,122

 

 

 

18

%

 

 

$

113,317

 

 

$

113,559

 

 

$

(242

)

 

 

0

%

 

Sales and marketing increased by $3,017 for the nine-month period ended September 30, 2023, as compared to the same period of 2022. The main drivers were increased inflation related increased wages, higher travel expenses associated with more in-person interactions with customers and increase expenses related to changes in key currencies compared to the US Dollar, offset by lower marketing spending.
General and administrative expenses - other decreased by $6,137 for the nine-month period ended September 30, 2023, as compared to the same period of 2022. The main drivers were decreased incentive compensation expenses related to our financial performance, lower legal costs and beneficial movements in some key currencies as compared to the US Dollar, partially offset by inflation related increases in wages.
The Company spent $541 in fees associated with our Proxy defense activities, as compared to $1,785 in the comparative period of the prior year.
Research, product development costs and regulatory expenses increased by $4,122 for the nine-month period ended September 30, 2023, as compared to the same period of 2022. The main drivers were increased costs associated with in-field activities in support of our proprietary delivery systems, and international product defense and registration expenses supporting strong sales growth.

During the nine-month period ended September 30, 2023, the Company recorded a decrease in the fair value of our equity investment in Clean Seed in the amount of $324 compared to $857 during the nine months ended September 30, 2022. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.

 

26


 

Interest costs net of capitalized interest were $8,282 in the first nine-month period of 2023, as compared to $2,256 in the same period of 2022. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

 

 

 

Nine months ended September 30, 2023

 

 

Nine months ended September 30, 2022

 

 

 

Average
Debt

 

 

Interest
Expense

 

 

Interest
Rate

 

 

Average
Debt

 

 

Interest
Expense

 

 

Interest
Rate

 

Revolving line of credit (average)

 

$

149,009

 

 

$

7,819

 

 

 

7.0

%

 

$

111,939

 

 

$

2,250

 

 

 

2.7

%

Amortization of deferred loan fees

 

 

 

 

 

174

 

 

 

 

 

 

 

 

 

199

 

 

 

 

Amortization of other deferred liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

Other interest expense

 

 

 

 

 

657

 

 

 

 

 

 

 

 

 

20

 

 

 

 

Subtotal

 

 

149,009

 

 

 

8,650

 

 

 

7.7

%

 

 

111,939

 

 

 

2,496

 

 

 

3.0

%

Capitalized interest

 

 

 

 

 

(368

)

 

 

 

 

 

 

 

 

(240

)

 

 

 

Total

 

$

149,009

 

 

$

8,282

 

 

 

7.4

%

 

$

111,939

 

 

$

2,256

 

 

 

2.7

%

 

The Company’s average overall debt for the nine-month period ended September 30, 2023, was $149,009, as compared to $111,939 for the nine months ended September 30, 2022. During the period, our average borrowings increased due to share repurchase programs and an increase in inventory due to a slowdown in sales as a result of channel destocking. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 7.0% for the nine months ended September 30, 2023, as compared to 2.7% for the same period of 2022.

Income tax expense decreased by $8,121 to $2,066 for the nine-month period ended September 30, 2023, as compared to $10,187 for the comparable period in 2022. The effective tax rates for the nine-month period ended September 30, 2023 and 2022, were 79.3% and 30.2%, respectively.

The increase in the effective tax rate for the nine months ended September 30, 2023, as compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets. Additionally, the Company recorded withholding tax charges (net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. These factors are partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes.

Our net income for the nine-month period ended September 30, 2023 was $540 or $0.02 per basic and diluted share, as compared to $23,506 or $0.80 per basic and $0.78 per diluted share in the same period of 2022.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s operating activities utilized net cash of $145,854 during the nine-month period ended September 30, 2023, as compared to $45,678 during the nine months ended September 30, 2022. Included in the $145,854 are net income of $540, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $17,850, loss on disposal of property, plant and equipment of $7, amortization of deferred loan fees of $174 and provision for bad debts in the amount of $952. Also included are stock-based compensation of $4,257, increase in deferred income taxes of $977, changes in liabilities for uncertain tax positions or unrecognized tax benefits of $467, change in fair value of an equity investment of $324, and net foreign currency adjustments of $199. These together provided net cash inflows of $23,793, as compared to $49,903 for the same period of 2022.

During the nine-month period of 2023, the Company increased working capital by $160,094, as compared to an increase of $59,659 during the same period of the prior year. Included in this change: inventories increased by $58,163, as compared to $38,987 for the same period of 2022. While increases in inventory are normal for the Company’s annual cycle, the increase was bigger due to slowed sales resulting from global destocking on the part of our distribution channels.

 

27


 

Customer prepayments decreased by $104,590, as compared to $62,831 in the same period of 2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $1,240, as compared to an increase of $14,418 in the same period of 2022, driven by decreased factory activity levels. Accounts receivables increased by $29,055, as compared to an increase of $46,289 in the same period of 2022. This is primarily driven by lower overall sales. Prepaid expenses increased by $633, as compared to $4,272 in the same period of 2022. Income tax receivable changed by $4,046, as compared to $5,201 in the prior year. Accrued programs increased by $29,779, (as compared to $45,016 in the prior year), which is normal at this point in the growing season and is related to sales volume. Finally, other payables and accrued expenses decreased by $4,406 compared to an increase of $2,555 in the prior year.

The Company accrues programs in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30th of each year. During the first nine months of 2023, the Company made accruals for programs in the amount of $62,248 and payments in the amount of $32,469. During the first nine months of the prior year, the Company made accruals in the amount of $78,885 and made payments in the amount of $33,869. The decrease in accruals for programs in the first nine months of 2023, compared to the same period in 2022, is a direct result of an decrease in sales of qualifying products.

Cash used for investing activities for the nine-month period ended September 30, 2023, and 2022 was $9,148 and $9,978, respectively. In 2023, the Company spent $8,589 on purchases of fixed assets primarily focused on continuing to invest in manufacturing infrastructure, as compared to $8,946 for the same period of prior year. The Company spent $759 on patents and other intangible assets in 2023 as compared to $1,078 in 2022. In addition, the Company received proceeds from disposal of property, plant and equipment in the amount of $200, as compared to $46 in prior year.

During the nine months ended September 30, 2023, financing activities provided $146,680, as compared to $59,797 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $165,700 during the nine-month period ended September 30, 2023, as compared to $96,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $2,550 during the nine months ended September 30, 2023, as compared to $2,072 in the same period of 2022. The Company paid $15,539 for the repurchase of 885,290 shares of its common stock during the nine-month period ended September 30, 2023, as compared to $13,731 for 720,350 shares and $20,000 related to an accelerated share repurchase agreement during the nine-month period ended September 30, 2022. The Company received $1,026 for the issuance of ESPP shares and exercise of stock options for the nine months ended September 30, 2023, as compared to $1,620 for the same period in prior year. Lastly, in exchange for shares of common stock returned by employees, the Company paid $1,957 and $2,020 for tax withholding on stock-based compensation awards during the nine months ended September 30, 2023 and 2022, respectively.

The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. These are summarized in the following table:

 

Long-term indebtedness ($000's)

 

September 30, 2023

 

 

December 31, 2022

 

 Revolving line of credit

 

$

218,000

 

 

$

52,300

 

As of September 30, 2023, by virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants (refer to Note 9 to the condensed consolidated financial statements for further details).

At September 30, 2023, according to the terms of the Credit Agreement, as amended, including our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $28,760, compared to $200,372 as of December 31, 2022.

RECENTLY ISSUED ACCOUNTING GUIDANCE

Please refer to Note 15 in the accompanying Notes to the condensed consolidated financial statements for recently issued accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2022, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2022.

 

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Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of updates to estimates and assumptions are reflected in the condensed consolidated financial statements in the period that these updates are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions. Our estimates did not change materially during the three- and nine-months ended September 30, 2023.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2022 and Note 9 to the condensed consolidated financial statements.

The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.

Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.

Item 4. CONTROLS AND PROCEDURES

As of September 30, 2023, the Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of September 30, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has concluded, based on their evaluation, that the Company’s disclosure controls and procedures are effective to provide reasonable assurance of the achievement of the objectives described above.

There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

 

 

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PART II. OTHER INFORMATION

The Company was not required to report any matters or changes for any items of Part II except as disclosed below.

Please refer to Note 14 in the accompanying Notes to the condensed consolidated financial statements for legal updates.

 

Item 1A. Risk Factors

The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 16, 2023. There are no material changes to the risk factors as so stated, except as follows:

Disruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry—Despite improvement in container availability and freight costs, the global supply chain continues to present risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the Company’s supply of raw materials and intermediates in the past. There is no guarantee that the supply chain condition will materially improve any time soon or that the Company will avoid material disruption. Such disruption could have a material adverse effect on the Company’s operations, financial condition or cash flows.

The Company is dependent upon sole source or a limited number of suppliers for certain of its raw materials and active ingredients—There are a limited number of suppliers of certain important raw materials used by the Company in a number of its products. Certain of these raw materials are available solely from single or very few sources either domestically or overseas. In connection with supply chain disruptions in 2022 phosphorus and related compounds were increasingly difficult to source for our entire industry; ensuring a continuous supply required extraordinary efforts both with respect to sourcing and production planning. Similarly, in the first half of 2023, DCPA, the active ingredient in one of the Company’s high-margin herbicides, was unavailable from its overseas supplier. That said, there is no guarantee that any of our suppliers will be willing or able to supply products to the Company reliably, continuously and at the levels anticipated by the Company or required by the market. If these sources prove to be unreliable and the Company is not able to supplant or otherwise second source these products, it is possible that the Company will not achieve its projected sales which, in turn, could adversely affect the Company's consolidated financial statements.

The Company benefits from customer early pay in meeting its working capital needs—As is the case with other companies in this industry, the Company receives cash from certain major domestic customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s liquidity and its ability to meet working capital demands.

Public statements made by USEPA regarding their preliminary findings in connection with the registration review of the Company’s products could adversely affect product sales and/or commercial viability. Registrations for the Company’s products are subject to registration review by the USEPA from time to time. In the course of the review, the Company submits, and the USEPA reviews, data studies. At any stage in the course of the review, USEPA may reach preliminary findings that could impair the commercial viability of a product. For example, in connection with USEPA’s review of the DCPA registration, based upon a comparative thyroid assay study (which is comparatively rare and quite complex), based upon limited data points, the USEPA found an adverse effect upon neonate rodents. Consequently, in June 2023, the agency published preliminary findings, noting its concern that based upon current, permitted use patterns, the product could have an adverse effect upon human health and, in particular, pregnant women. At the same time, the agency invited the Company to examine mitigation measures to allay their concerns, which the Company is doing. There is no guarantee that mitigation measures or additional data proffered by the Company will be sufficient to overcome USEPA’s conclusions. Further, it is possible that the agency could take more drastic measures to either reduce the use or cancel the registration of the product. Regulatory activities of this nature, whether in connection with DCPA or other products of significance, could have a material adverse effect upon the Company’s financial performance.

 

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Item 2. Purchases of Equity Securities by the Issuer

On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $15 million of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws.

The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three months ended September 30, 2023.

 

Month ended

 

Total number of
shares purchased

 

 

Average price paid
per share

 

 

Total amount paid

 

July 31, 2023

 

 

325,224

 

 

$

17.80

 

 

$

5,788

 

August 31, 2023

 

 

151,865

 

 

$

16.63

 

 

$

2,525

 

Total

 

 

477,089

 

 

$

17.42

 

 

$

8,313

 

Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.

Item 3. Defaults Upon Senior Securities

N/A

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

N/A

Item 6. Exhibits

Exhibits required to be filed by Item 601 of Regulation S-K:

 

Exhibit

No.

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following materials from American Vanguard Corp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statement of Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

 

 

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL.

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

american vanguard corporation

 

 

 

Dated: November 8, 2023

By:

/s/ eric g. wintemute

Eric G. Wintemute

Chief Executive Officer and Chairman of the Board

 

 

 

Dated: November 8, 2023

By:

/s/ david t. johnson

David T. Johnson

Chief Financial Officer & Principal Accounting Officer

 

 

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