Greetings and welcome to American Vanguard Corporation's First Quarter 2017 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to Tim Donnelly, Chief Administrative Officer. Thank you, please go ahead.

Thank you very much and welcome over to American Vanguard First quarter Earnings review. Our speakers today will be Eric Wintemute, Chairman and CEO; and David Johnson, our Chief Financial Officer; also Bob Trogele, our COO is available from Europe to help with the Q&A later on. Before beginning, let's take a moment for our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks as detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as of the date of this call and such information will not necessarily be updated by the company. And one more introductory item as you may know, earlier today we filed our Form 10-Q for the period ended March 31, 2017 you will find greater detail on the company's financial performance for the reporting period in that filing. I now turn the presentation over to Eric.

Thank you, Tim. Hello, and welcome everyone. Thank you for your continued interest in American Vanguard Corporation. First, I am pleased to report that our full year 2017 expectations are looking very positive. This is due to a number of factors including trends in our three primary markets, which are U.S. crop, non-crop and international, our growth initiatives and our operating efficiencies. I plan to cover these topics allowing David to comment in more detail on financial metrics, and then I will wrap up before taking questions. As we sited in our press release, our first quarter net sales increased by 2% and our net income improved by 24% over the comparable period with last year. I'm pleased to see that our participation in diverse crops and other applications continues to support solid financial performance. Our quarterly improvement was driven primarily by increased sales of our insecticide products into cotton, peanuts, fruits and vegetables, sugar crops and pest control. I will give some color on these and other markets that we serve both with respect to the first quarter and over the balance of the year. Let's start with cotton, during the quarter we experienced very strong sales of our cotton insecticide BIDRIN. This was due to the anticipated increase in cotton acres and test pressure. As you may know cotton acres have been forecast to increase by 10% this year and we've built our operating plan based upon that forecast. However USDA is now forecasting an increase of more than 20%. With the USDA outlook we are producing more BIDRIN and Folex for the additional planted acres. We expect the demand for both products to continue through Q2 and for Folex to show further increased sales over Q3, and Q4. In addition, the uptick in cotton acres within California…

Thank you, Eric. Good morning, everybody. As Tim mentioned we filed our Form 10-Q for three months ended March 31, 2017 at market close today. Everything I am going to cover here in brief is included in more detail in that document. With regard to the financial results, as Eric just detailed the company's sales for the first quarter of 2017 increased by 2% to $70.7 million as compared to $69.5 million last year. Our first quarter gross margin improved to 43% compared to 40% last year. Operating expenses increased from 33% of net sales to 35%, driven by higher spending on marketing for the 2017 season. Some increased long-term incentive compensation cost and continued spending on the development of our SIMPAS Precision Application System. Overall, net income ended at $3.5 million or $0.12 per share in the first quarter of 2017 as compared to $2.8 million or $0.10 per share in this time last year. From my perspective the key financial issues remain consistent with prior periods. First, we continue to carefully manage our factory activity, as we balance recovery of overhead cost with demand forecast and inventory levels. In the first quarter, while both our factory activity and factory cost increased, activity outpaced cost which had the impact of adding $1 million to the pre-tax income line. Second, as I mentioned gross margin for the quarter was 43% as compared to 40% last year. This 3% improvement included about 0.7% from managing the combination of selling price and mix of our quarter-over-quarter sales. 1.5% from improved factory performance and 0.8% overall reduction on raw material pricing. Third, as I've mentioned in the past, our attractive performance is linked very closely to inventory levels. If you look back to this time last year, we had inventories of $144 million.…

Thank you, David. Now I would like to touch on a few of our key growth initiatives. Let me start with growth by acquisition and note in my 40 year career in this industry I have never seen more consolidation activity or more divestments. When mergers began and earn several quarters ago, we predicted that there would be many opportunities from American Vanguard, either in anticipation of or in response to merger control agencies. That has become a reality, as reported by both the FTC and American Vanguard last quarter in light of the ChemChina/Syngenta merger. The FTC the Adama Group to divest three product lines namely Paraquat Abamectin and Chlorothalonil to Amvac. This products fit well into our expanding specialty crop portfolio and our sales and marketing teams stand ready to take over these high performing products. This deal subject to closure of the merger, which we expect to take place in this quarter. We will tell you more about the transaction when it closes. Further, this is one of several acquisition opportunities that we are reviewing in various stages. We expect that we will close a number of deals in addition to the Adama divestment by year-end. As many of you know growing by acquisition has been a key strategy for American Vanguard. Over the course of the past 40 years we have acquired three dozen active ingredients. We are pleased to see the current opportunities before us, particularly at a time when as David noted we have ample borrowing capacity. I hasten to add however that we are always judicious about how we spend our acquisition dollars and consistently apply rigorous acquisition criteria when valuing and bidding on new products. The idea here is that we seek to add products and or businesses that will be accretive…

Thank you. [Operator Instructions] Our first question is coming from the line of James Sheehan with SunTrust. Please go ahead with your questions.

Thanks for taking my question. With respect to the acquisition opportunities that you're expecting in this consolidated ag market, does that depend on the closing of deals that are in progress now, or are there other deals that you think you might be able to execute. And can you also just give us a flavor for what kind of multiples you're expecting to pay for those acquisitions.

Well the first comment is, as far as the number of deals and what you are trying to closures. I'd say about half of we have got about seven that we are looking at right now, about half of those are tied to closure, the others are outside of that realm. With regard to the multiple, we're seeing or looking to pay I really can't comment on that obviously some of these are early stage, some of them price has been determine but another is we are still in the negotiation process. So at this point it wouldn't be prudent for us to comment on that. So I don't know Jim if I get your question but I had to be evasive on that one, I am sorry.

Got it. And on the Adama acquisition, can you give us a sense for how many - what's the size of this business, I figure it's probably around $20 million to $25 million in sales per year, is it significantly higher or lower than that guess?

No I wouldn't say it was significantly one way or the other. We are under again a position where we can't comment on the size until such time. And I think we're - we feel we're only a couple of weeks away and we will be able to make announcement then.

Okay, great. And then on your gross margin, you previously commented that this should be flatted in 2017 looks like it's up pretty significantly in the first quarter. Do you still maintain that flat outlook for gross margin for the year or is it moving higher now?

I think we are optimistic it might move a little bit up, but we are seasonal we do have heavier manufacturing periods and lighter ones. Particularly the final quarter tends to be lightest so it tends to even out towards the end of the year.

But I think we said last time at the end of the quarter, the Q4 last year we were asked, I think we were 42%...

42% for the final quarter, 41% over the years.

I think the question came up, do we believe that this is a trend that will move forward and I think we commented yes, we are feeling good about that where our margins are moving to and you can see that in the first quarter at 43%. I think we're given the output of the plants going forward I think that drag that we have seen in the past will be diminished. So I think we feel good about that where we are.

Okay. And then on Dibrom, you saw an uptick in sales this quarter and you indicated that should flow through the rest of the year, why do you think that improved demand for Dibrom will be sustainable?

Well one of the main reasons and this is overall on our business is that we have allowed inventories in channel to come down to I'll call it low possible levels and Dibrom was no exception. So within our primary mosquito business companies that we sell to, their inventories are kind of at historical low. So that's I think the primary reason why we see an uptick.

Thank you.

Our next question comes from the line of Tyler Etten with Piper Jaffray. Please go ahead with your questions.

Good afternoon guys and thanks for taking the question. Maybe building off that last question and under selling the market demands to kind of bring inventory levels down. I feel like you guys are pretty comfortable with where channel inventories are now. Do you think about under selling the market again in the second quarter or start producing a little bit more towards and even market demand?

Well I think - I mean I think we see again it's really up to our customers, they are managing cash, I think they like the fact that we are helping them manage their cash position and working capital with regards to our product lines. With I mean the only danger you get to is if the well gets too dry, do they have product in time to take care of the demand. And I think we saw with cotton where I think the areas that service the cotton market are very bullish on the market they are stepping up and pushing to make sure that they are not cough short. So, our position has been we do not want to take any discounts in a quarter that in order to move inventory. That tends to also be something that overtime our customers don't get to keep and it just results in determination. So we are also mindful that we are trying to steward our products in the market opportunities for our customers as well. So, I think we said within the corn soil piece, I mean, I looked at the numbers of what the setting our customers level and it's less than 10% of the sales at this point. So, it just puts us I think in a good position moving forward.

Got it. Okay. And then maybe moving on to the herbicides, fumigants and fungicides segment I was a little surprised to see it down year-over-year. Can you just talk about the moving pieces within that segment that's because and I am assuming it's more a timing issue that to be just expand on the segment a little bit and what happened in the quarter?

With regard to the soil fumigants the big month are third and fourth quarter, but the fourth quarter as you get into November it pretty well dies down with the exception of California and certain Florida too. But for California it was wet and it never got dry and so it stayed wet through the first quarter. And so a number of areas did not get material. But we expect that in the fourth quarter that those acres will pick up. In addition any applications in the Pacific Northwest that don't get done in the spring, will get done in the fall. So, I think we feel our team is looking as on top of it and feel that we will make up the volume over the balance of the year. With regard to the corn herbicide impact, yes we've seen slower than anticipated sales driven by two factors. One due to witness the planting season is delayed at least two maybe three weeks, which people are pushing back and taking their herbicide because again this is a post-emergent herbicide market, which does bode well for us because they run once the fields get dry, they may not have time to get their pre-emergent herbicide down. And therefore illustrate to planning, which means the post-emergent market will be much stronger. So that we got some higher expectations for, I did mentioned that there are comparative similar chemistry issues that have occurred Syngenta's products has come off patent and that has resulted in a price decrease in some segments of their market. So, that certainly has an effect as well.

Got it. And just a couple more if I could, building up off of the outlook for Impact does the increase in spend acres have any sort of adversity to the Impact's business? And then are you seeing any pricing pressure from competitors in the post-emergent herbicide please? Thanks.

So, as I mentioned on the post-emergent yes so [indiscernible] Syngenta's brand is MISO Tyron [ph] and we do note that that has experienced pricing pressure and caused growers to kind of consider okay what are their options. That being said, we feel that impact is superior is certainly in grass control and in plant safety. The Impact name is a very strong brand and we feel that usage will continue. Within the extent we have not predicted that we will - that that market will suffer. Again we have grown this business every year it's too early to call how are going to wind up this year as we really see probably strong sales picking up in the second half of May and running through June and even into July. So, Impact is one of the few molecules that you can say right up until close to harvest. So overall, I think we - that's an area let's say of potential softness it's in soft so far, but on the other hand last time we had a strong post-emergence. We moved a great deal of material in the later part of the season.

Excellent, thank you.

Thank you. [Operator Instructions]. Our next question comes from the line of Chris Kapsch with Aegis Capital. please go ahead with your questions.

Yes, good afternoon. Question about the upward revision in cotton acres, can you just talk about where you see those acres geographically? And then depending on the answer to that, I just want to understand presumably that like for example that's in the Mississippi delta that it's going to be in areas that generally doesn't impact your business for example for corn. In other words those acres transitioning from some other crop presumably. Just wanted to understand if there is all upside, but no negative effect because of the focus of the application of your corn products.

Sure, I'll start off and Bob you may want to kick in on this as well. I think I mean we do see increase in the Southeast and mid-south and again we do have good use of BIDRIN and Pholex in those areas. And as I mentioned California is going to be up, which we use Dibrom instead of BIDRIN in that area. With corn products those tend to be stronger in the Midwest area, Iowa into the Dakota and Indiana, Illinois and not as strong in the South. Although we do have contra tends to be stronger in the South and there are nematode issues that are stronger that they do a little more treatment in Corn with. Bob if you able to kick in do you have comments on this as well on this question?

Yes Chris, I would just say that the cotton expansion is good for us. The upside would be of course insect pressure. But the fact that the acreage is up is good for our defoliant business. Prices are good, which is probably the key factor, and demand is strong for U.S. cloudy export cotton and those are the drivers that people - farmers are going to invest in the cotton - to the cotton crop so having said that that's the positive. As Eric said I don't see any negative effect on our corn or soybean portfolio. Does that answers your question Chris?

Yes, that's helpful. And then just a follow-up on the - you called out some increased competitive pressure in the Impact business. And that's if I understand right the post-emerging herbicide. So just wondering if you're the competition you're seeing is it solely in the like products in other words other conventional chemistries I think you mentioned the Syngenta one coming off patent. Is that the sole source of sort of increased competitive pressure? Is there other additional pressures like from GMO solutions?

No, the issue is strictly that there it's HPDD class of chemistry. And MISO Tyrone try on was the first one that came out into the market. And so there are couple of other HPDD chemistry products. So that's the kind of the sole competition that we are looking at.

Okay. And then just to follow-up on the acquisition opportunities, it sounds exciting. When you characterize the fact that you're looking at seven different opportunities, are you talking about seven different product lines or is it specific transactions. For example like the Adama acquisition, I guess it's one transaction, but three product lines. So does that count as three of those seven or does that count as one of those seven?

Count is one. No these are a number of them have multiple product lines associated with them.

Okay. And then I guess I appreciate you can't discuss sort of multiple and something that's potentially being negotiated, but can you just talk about the characterized like what sorts of products do you feel that are strategically complementary your portfolio and your company's growth strategy. Some of these are being forced to be sold because of competitive any trust issues associated with the consolidation in the industry, but may not necessarily fit with the strategic now imperative of your company. So just if you could reconcile are these just opportunistic because of some consolidations forcing their sale or they also strategically fit what you are looking to do? Thanks.

All of these are strategic for us. There are others that we have elected to not to participate in that we did not feel would be a strategic. We put together what we think is a very strong upside where we would be successful with all of these. But I think in my comments I made the statement that we look very judiciously at our dollars and we look through the financial models to assure that these will be accretive from day one. So maybe that could kind of give you an idea about what we are paying for these molecules.

And then maybe just the nature of the process itself is there I mean the sort of four sellers in a way is there other buyers at the table, private equity, other strategic or as it just is it sort of tilt in your favor in terms of being at the table here?

Well, I mean we have a long track record of being successful with these acquisitions and I think as much as anything as well that I think we are considered a strong steward and competitor in the marketplace. We also have the ability to close the deals very quickly because most of these companies we have done other contracts with. And so the language is pretty much resolved. So, when we get into the divestments that are required divestments, there are number of things that the divester is looking for, one would be somebody that has the ability to market the product and has the coverage to do so. So that to some degree limits equity play, I mean equity play we need some market access with somebody strategic. I think also as I mentioned getting the deal done quickly that there is not a long drag out of negotiations, I think they feel comfortable with that aspect of it as well. But I should mention that some of these deals have nothing to do with the acquisitions and with the consolidation that's going on. These are opportunities for us that have come along the way as well just happens to be the same timeline.

I see, that's helpful. And then just one last follow-up on the process because one thing you didn't mentioned is I guess typically these products going to come with some responsibility to keep the data current. And had just - what's the sort of cost, is that a capital cost or an operating cost needed to maintain registration data. And how do you bake that into your sort of accretion analysis? Thanks Eric.

Sure, so at the time of the acquisition, I mean we do capitalize our peers and tangibles and make some goodwill. Obviously there is inventory that's involved also. But as we go forward maintaining registration that's all expensed in the period that it occurs. With regards to the Adama compounds obviously Syngenta is the brand, original brand holder and data holder Adama is part of a task force to maintain those registrations along with Syngenta. So it's normal business for us, I guess we look at when we do these valuations we do look at there are specific spend that we are going to need to make that might be unusual outside of what we would put down as a normal level and those get baked into our model at the time we make our initial bid and of course then we refine that as we go through due diligence to make sure that our assumptions are correct before we submit our final binding offer.

Thank you, Eric.

Sure, thank you.

Our next question is comes from the line of Aaron Steele with Feltl & Company. Please go ahead with your questions.

Hi guys thanks for taking the call. Just wanted to get your take on gross margins for the rest of the year, will you see a benefit in the second quarter from lower raw material pricing? And then on the plant side, the manufacturing performance you hinted out the performance there improving gross margin. Just wondering how that continues and does that grow as - into that second quarter and for the year.

So currently I guess we'd anticipate the current trend of raw material prices to hold. These are prices that have been negotiated either last year or earlier in this year. So I think we feel good about that aspect of it. As we mentioned the plant factories look strong at this point, and basically we've gone through our game plans for the balance of the year. And we do see improvements that will be material versus last year's performance. And then of course the other piece is that we do have sales mix each quarter and we do have material depending on when it goes the margins vary on each of our product lines and so that's also the mix. So those three things really kind of make up our margins.

Okay. And then on the herbicide business, what was the impact from the wet weather and then how much of that catch up could be or should we expect in the second quarter?

Yes it's a little early to call pick up I mean but certainly by the end of June I think we'll have a real good vision of what that looks like. As far as quantifying the number at this point, yes I don't think I mean in the midst of it right now. And so I mean it was in the nature of $2 million I think was where we were off.

Okay, alright. Understandable there. And then looking for - looking at the R&D expense a slight tick up here in the first quarter. Is that kind of all related to additional investment in SIMPAS? And then how we view that going forward as well? Are we likely to see kind of similar increases for the rest of the year? And then how - can you give us a little more color on the field trials that are going on right now with the SIMPAS system?

So some of that increases were regulatory spend. We have also probably I think our budget this year in terms of field trials and product development is up significantly from what we've done in the past as we feel that we've got some very nice growth initiatives within our existing product lines. And then we have combination products that we're looking to bringing out as well that we're looking to do more field development work just to verify that what we think we've got is strong. With regard to SIMPAS, I think we - for the balance of the year, I don't know David that we've got forecasted anything highly unusual. We are doing these field test I think we've got four planters of whatever we've rented it to go out in with these growers. And I think they're like $50,000 of fees of whenever so that's an expense of $200,000 to do these trials. But these are not huge numbers, but we are going to continue to invest in bringing SIMPAS to where it needs to be. And also as we look to bring other products into this mix, and of course we're going to be doing field testing with other products to verify their performance some of which maybe born either all or impart by the current registrants as they look to get access into this market. So I don't know if that - and you asking the development of field trials. All that I - just a one anecdote that I remember is that we had delivered the system to one of the growers that had not given us planter and we were going to go out and work with them and he came back and sent back report about how it was like a Christmas he opened up the boxes said it was really easy to hook up and it's wireless he used this he use his own planner, used his own little iPad. And so the thing work just perfectly and was thrilled with that. So I think we are anticipating no problems at this point as because we did in the fall 216 different meters going through the field and really saw no issues. So we are expecting some solid performance out of this planting season right now to cheer up for more marketing commercial approach this summer.

Excellent that's great color there. And then just on your appetite for acquisitions you previously commented on a range of values maybe in buy yourself kind of in that $200 million range and partnering maybe with another strategic partner that value increasing. But has your kind of range of values narrowed at all considering the acquisition you've previously made with Adama or is that kind of those ranges still intact?

No I think we feel good about what we've said in the past that on our own in that $200 million range with strategic partners up into that billion dollar range and this - what we have laid out has the color of both. So we are excited about what we have got in front of us.

Alright, excellent, that's it for me. Thanks.

Thank you. Our next question is coming from the line of Bruce Winter, Private Investor. Please go ahead with your questions.

Yes, thanks. Following on SIMPAS this summer you are going to do a more marketing commercial approach does that mean that farmers aren't going to be using this next planting season?

Yes that's the plan that will be demonstrated during this summer we will expand certainly the 12 farmers will probably be some control and we kind of monitor how each of the farmers that are do windup with the system do to make sure that we are there in case we see any issues. We do want to make sure that this is a very positive experience for each of our - of the people that do use it. And as I said, we get a good sampling with these 12 growers would through have videos and demonstrations to show people so they can touch it, feel it and they can just sit with the iPad and move the thing up and down and they will be able to see the material going through this system. And I mentioned - I may mentioned before that for the demonstration purposes we have made the meter clear so you can actually see the augur of granuals coming through and the speed or volume that's going through that going up and down as you just touching the keypad that would stimulate. But we will also have we will have a stimulated prescription, so that they can - they will be able to see on the iPad what's moving up and down as this is being applied at the trade show. So given have ability for them to participate and experience it first hand and we will see again kind of what we generate from that and then we will make assessments on 2018 how bigger a push we can make at that point.

Are you going to sell it or include it in the cost of your product?

No, it will be sold and one of the things that we do see much bigger value here than the SmartBox System alone from a costing position I think we feel very good about what our cost position is which even though we have got multiple meters the fact that we are not doing any hard wind, which is pretty expensive brings down the cost. We may wind up with something more sturdy than an iPad down the road, but basically all - virtually all farmers out there have an iPad at this point. And so I'll let you just download the app push it and go. So, it's much simpler as mentioned it's self-calibrating. There are additional pieces that we're bringing forward, which will be the RFID tag inputs on the containers themselves. So, again we are making good progress on all aspects.

And are other chemical companies lining up to license spots in your program there?

What we've done with each of the companies is we've talk with them about do they have a product that could benefit from being prescribetedly [ph] applied and they virtually all do. And so we're working with those where they're interested on having market access. And as I mentioned we do want to test, we've got this down pretty well with based upon density and size of the granule. We have not done the testing with liquid material at this point. But I think we're confident we'll get to that pretty quickly. But we want that to be a good experience for the grower and we want to make sure that whatever material we put through there winds up coming out to the performance so that plus or minus 1% accuracy and we don't have any cog in due to variability and size of the granules or so anything with thickness of liquid.

And where does the farmer get the map for where to put each little pixel - what to put on each little pixel in the whole map of the field?

Right. So, agronomists are definitely going to be involved and our customers typically at the retail level have wide variety of agronomist. Some of the bigger farms certainly have their own agronomist, but they have field mapping has been done for years on harvest. So they have gone all that information on where we every square meter of their field is historically what the yields are in that particular spot. So then interpreting the data as far as okay we've got strong yields in this section and reaps over here then it starts getting into why are we going to better or worse you can sometime see disease in particular areas of the field might be related to lower levels in the field that might have higher moisture contents where it might bread more disease. There is ph levels which might affect where pockets of nematodes would be. So this is - it will be an evolving process from the beginning, from information they have now. I think they are very far advanced as far as understanding nutrition in the field for micro nutrients. So I think that's a fairly low hanging foot piece that we can get after. So that's - it's not that these prescriptions are sitting there today. It will be interpreting they do have prescriptions certainly for micro nutrients and they know how to do that. But this is - this will be involving process for agronomist and I think they are very excited about the opportunity to being able to do that, because then it does timing close to with the farmer themselves.

Okay. Different topic, probably a stupid question, but why do California coffee farmers like Dibrom rather than BIDRIN? Thanks for taking my questions.

BIDRIN was never registered in California. California has additional registration requirements and for whatever reason shell never registered it in California or Arizona. We do have registrations in Arizona, but just historic Dibrom works well for the same bugs that are in California. Plant bugs or a bigger instinct bugs are bigger issue down in the South and Dibrom works a better there. So it's just historic.

Okay, thank you very much.

Thank you. [Operator Instructions] It seems we have no further questions. I would like to turn the call back to Eric Wintemute for closing comments.

Okay, well, thank you very much and thank you all for joining us it's an exciting time for American Vanguard. And we look forward to reporting the continued growth as we go throughout the year. And talk about specific acquisition as we close them. Thank you.

Ladies and gentlemen this concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.