AVD earnings call transcript, November 9, 2026

Good afternoon.

And welcome to American Vanguard's third quarter, 2026 earnings review conference call. Our prepared remarks will be led by Dak Kay, Chief Executive Officer, and Matt Horwath, Chief Financial Officer.

After their prepared remarks, we will open the call for questions. A copy of today's press release, along with supplemental slides, are available on our website. A replay of the webcast and a transcript from this event will be made available on our website shortly after the call. Before we begin our presentation, we would like to remind everyone that today's press release and certain comments on the call include non- gap figures and forward-looking statements. And actual results may differ materially from these forecasts. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. It's now my pleasure to turn the call over to CEO Dak K.

And welcome everyone to the American Vanguard third quarter 2026 earnings conference call. On our last call, I said the second half of the year would be very important to a successful 2026. And I also discussed the challenging and dynamic cross currents affecting global agricultural markets and our customers. Indicated that we are making good progress on lowering our cost structure and driving commercial improvement regardless of the environment. I'm pleased to report that our actions are taking hold and that progress being made continues to grow and accelerate at American Vanguard. The increase in prepayments we saw this quarter up 44% over the prior year quarter shows the strength of our portfolio and commitment from our customers. Unfortunately, current market conditions are doing us no favors, especially outside of the US, where El Nino is materially impacting our business. Against a backdrop of generally difficult macro conditions for agricultural markets around the world, distributors and retailers are still buying on an as needed basis and carrying lean inventories. And this is true across all of the geographies in which we operate. I want to repeat the same three points that I made last quarter because they remain the right way to measure our progress. First, our commercial execution in the US continues to outperform. Second, the cost actions we took in the first half are delivering on

an absolute basis. Third, we are building a new product engine that will drive growth over the next several years. Before I review our results for the quarter at a high level, let me briefly cover market conditions. Overall business conditions have generally worsened in global agricultural markets as the effects of the conflict in the Middle East, higher interest rates, and particularly in the case of our international markets, adverse weather conditions from the Super El Nino, which in some areas has caused drought-like conditions and in others flooding. Our focus and efforts continue to be to increase customer engagement by driving service and attention to our customers while at the same time accelerating new product development and introduction. Always striving to be a solutions provider for our customers wherever we meet them. Turning to our home country, the crop protection market in the U.S. continued to be difficult in the third quarter due to ongoing pressure on the farm economy coming from multiple directions, including the sustained high cost of capital coupled with increased fuel and fertilizer. costs arising from the ongoing conflict in the Middle East. More specifically, in the U.S., higher transportation costs in the form of surging diesel prices climbing over 40% in the third quarter alone and up over 80% year-to-date in 2026 are having a negative impact not only on customer behavior, but

also on our gross margins as the industry struggles to catch up with and move our pricing up to capture this incrementally rapid rising cost savings that we anticipated from the closure of our L.A. manufacturing operation and consolidation of the production at our Alabama facility have been achieved at the operational level these savings have been more than offset by the significant increase in transportation costs. Longer term, we still expect the savings to be realized when diesel prices settle at a more normalized level. But for now, we are implementing price increases where we can to offset the increase in fuel costs. In this environment of rising input and transportation costs, farmers are also dealing with commodity prices that remain at relatively low historical values on an inflation-adjusted basis. It's also important to note that the U.S. government aid this year is expected to count for over 40% of the total net farm income, as compared to 25% last year. To give some longer-term perspective on this, over the past 30 years, U.S. government aid to farmers averaged closer to 18% to 19% of total net farm income. Collectively, these factors have created a significant degree of uncertainty and continued conservatism in procurement among growers in the distribution channel. Turning to our results for the quarter, net sales for the quarter were 108 million, down 9% versus the year-ago period, and adjusted EBITDA that was essentially break-even, down 8.3 million compared to the prior year period. In the quarter, U.S. crop sales were down 2%. As we discussed in August, a portion of our cotton portfolio sales shifted from the

year-ago period. Second quarter, into the third, as customers bought closer to time of use. And we saw the shift come through as folic sales were doubled compared to the prior year quarter. Herbicide and granule soil insecticide sales were down primarily due to timing versus the prior year. Sales in our specialty business, which includes turf, ornamental, home, lawn, and garden, and public health, were also down 2% in the quarter, due primarily to lower sales by OHP or ornamental and greenhouse business. This appears to be another timing issue as the orders are strong Q4 to date. As I mentioned early in my comments, conditions in our international markets have remained difficult. With the environment worsening across the Thursday, quarter, El Nino continues to have a negative impact on our Central America business with a drought on the Pacific side and excessive rains on the Atlantic side. In addition, Mexico was negatively impacted by low crop prices and intense competition from generic products, putting significant pressure on sales and margins. Further, Brazil was impacted by political uncertainty, elevated copper prices, increasing the price of our fungicide, and delayed purchasing decisions by growers, resulting in weaker-than-expected sales. By contrast, Australia's fungicide product, Flute, has added cereals to the label and is performing very well. Our focus is the same in every market. Stay close to our customers, provide service and solutions, and control what we can control. Turning to the subject of controlling what we can control, we completed the two footprint actions we announced in March. First, the rationalization of our Los Angeles facility is complete. With synthesis production now.

Running at our Axis, Alabama site. We expect that move to save at least $4 million a year. And the third quarter was our first full quarter of those savings. We saw excellent manufacturing performance in the third quarter. Second, our headquarters relocation to Irvine is complete, saving approximately a half a million dollars a year. At the end of the third quarter, we acquired four U.S. brands and registrations from Syngenta. We also entered into a distribution agreement with SIPCAM Agro. Both portfolio additions are projected to add a total of $15 to $20 million in annualized revenue over the next 12 months and will help drive future revenue. to grow alongside our organic new product launches. Speaking of new products, I'm pleased to report that we have launched 10 new products year-to-date, mostly smaller third-party distribution products in our international markets. But more importantly, we will be launching Duro LQ, a liquid-based corn insecticide in the U.S. in Q4. We have high expectations for this product. As a reminder, our goal remains 50 new product launches, driving $100 million in annualized revenue by 2030. New products drive revenue growth, and this is why investing resources here is one of the most important things we can do. In the quarter, we had several new additions to management. Herman Castro, who... we mentioned in last quarter's call, has joined us to drive new product development. Also, Mark Helt has joined us as a new U.S. crop president. Mark is an industry veteran who I've worked with in the past. And most recently, Matt Hortwith has joined us taking over the CFO position. Before I turn the...

call over to Matt, I want to briefly take a moment to welcome him to American Vanguard. He's been in the seat already for a month now and has certainly hit the ground running, which is exactly what I expected. His experience, energy, fresh eyes, and leadership will be important in driving the execution of multiple initiatives we have. As well as focusing on simplifying, prioritizing, and delivering across the company. There's a lot of work to be done here, and I'm excited that Matt is with us. With that, I'll turn the call over to Matt to review the financials in more detail. After his review, I'll come back with our 2026 full-year outlook and our progress towards our 2028 targets.

Before we open the call for questions, I want to cover our outlook for the rest of 2026 and how that translates into 2027 from where we stand right now. I also want to talk about that. I want to talk about our longer-term, reminding everyone of the goals we have set for ourselves. Let's turn now to the outlook for the remainder of 2026. Because of the more challenging environment in the U.S. and international markets and the weaker-than-expected results we saw in the third quarter, we are lowering our guidance for revenue and adjusted EBITDA for the full year. We now expect full-year revenue to be in the range of $500 million to $500 million. $530 million down from our prior range of $530 to $550 million. For adjusted EBITDA, we now expect this to come in the $36 million to $40 million range down from our prior forecast of $44 million to $48 million. As I discussed in my earlier remarks, the primary drivers of this change are weaker results from our international business relative to prior expectations and the inability to pass along price increases fast enough to keep up with the rising fuel costs and increases in underlying raw materials. I also want to take a moment to briefly review our outlook for the fourth quarter of 2026. In relation to our performance in the 2025 fourth quarter from a top line and adjusted EBITDA perspective. Last year's fourth quarter was negatively impacted by a number of unique factors, both in internal and external, that will not be repeated this year. The poor results in last year's fourth quarter reflected these factors, but performance was mitigated.

By the upfront royalty income, then increased sales and adjusted EBITDA accordingly by over $11 million. Nonetheless, we expect to exceed last year's fourth quarter adjusted EBITDA performance, as well as top line performance with projected net sales of approximately $166 million, up 10% versus the year ago period, and projected adjusted EBITDA of $21 million. Up roughly 25% versus last year's fourth quarter. As a reminder, the fourth quarter is historically our best quarter for sales and EBITDA performance. Our expectations for improved performance in the fourth quarter of this year are driven by three factors. Here, I'm going to focus on the items shown in the adjusted EBITDA bridge slide shown on slide. eight in the quarter three presentation. The first and most important is that we expect to benefit from higher volumes and a better mix driven by higher US crop and specialty sales and relatively better performance internationally. This is primarily driven by new energized and focused commercial teams with a defined plan. Increased sales, specifically US crop herbicide volumes, granular soil insecticides, and specialty sales in the ornamental market. Annual increases in customer contracted volumes will drive the increase in year-over-year sales in LATAM, as well as the label extension of flute in Australia. New product sales from the recent additions and Dura LQ will be incremental compared to the year-ago fourth quarter.

To be clear, it's not that we see much better environment year-over-year in these markets. The improvement we forecast is more about controlling what we can control and executing at a higher level regardless of the environment. In addition, there were specific mix and timing issues that affected results in the year-ago fourth quarter in both the U.S. and international markets that we do not expect to repeat this year. Secondly, the improved sales are expected to drive improved manufacturing fixed-cost absorption year-over-year. Third, we also expect to see cost savings from our L.A. plant closure and further gains in efforts to continue to lower operating expenses on an ongoing basis. Partially offsetting these, we expect higher transportation costs in the form of mainly higher diesel prices to continue to negatively impact performance on a year-over-year basis. Let me finish by reminding everyone about where we are headed. As said many times, accountability is about results, and as a public company, those results come back to the numbers. We are focused on driving revenue growth, higher manufacturing utilization, greater operating cost efficiency, and lower overhead costs. Together, these lead to higher gross margins, higher operating margins, and... sustainably higher EBITDA. In the near term, our top priority remains moving our EBITDA margin into double digits as soon as possible. On the top line, we expect to reach an annualized run rate of more than $600 million in sales by the back half of 2028, approximately 20% above our 2025 goal.

Doing better than that timeline will depend largely on how U.S. and global agricultural markets perform over the next two years. That growth, combined with lower net working capital, should generate solid free cash flow that we will use to reduce net debt over the next two years. That puts us in a position to refinance our debt on attractive terms. In summary, our business continues to outperform our peers in a difficult market. The cost initiatives we took earlier this year are now delivering operating leverage, and we are building a pipeline of new products that will drive growth into 2028 and beyond. We have more work to do, and we will continue to assume that the external environment will do us no further.

We will keep controlling what we can control and executing our plan for growth, efficiency, and greater profitability. With that, operator, you can open the call for questions. Certainly, and thank you. Ladies and gentlemen, the floor is now open for questions. If you wish to ask a question at this time, please press. star 1 on your telephone keypad to join the queue. We do ask if listening on speakerphone this afternoon that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 on your telephone keypad at this time. If you wish to join queue to ask a question, please hold a moment while we poll for questions.