Greetings and welcome to the American Vanguard Corporation First Quarter 2018 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Kuser, Director of Investor Relations. Thank you. Mr. Kuser, you may begin.

Well, thank you very much, Doug, and welcome everyone to American Vanguard's first quarter 2018 earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; Mr. David Johnson, the company's Chief Financial Officer; and also assisting with our questions, our Chief Operating Officer Mr. Bob Trogele. This afternoon, I should say, American Vanguard has filed its Form 10-Q with the SEC, providing additional details of to the results that we will be discussed in this call. 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 that are detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as to the date of this call and such information will not necessarily be updated by the company. With that said, we turn the call over to Eric Wintemute.

Thank you, Bill. Hello, everyone and welcome to our first quarter earnings call. As always thank you for your continued interest in American Vanguard. We’re off to a strong start in 2018. As you’ve read in our earnings release, first quarter sales were up $34 million or 47% over the first quarter of 2017 and net income was up 35% compared to the same period. $29 million of the increase in net sales arouse from four significant acquisitions that we competed largely in the second half of 2017. These include AgriCenter, OHP, three domestic products Parazone, Equus and Abba that came to us via of FTC mandated divestment and to a larger extend lighter [ph] products in Mexico that came to us through a government ordered divestment. Given the significance of our newly acquired businesses to our quarterly financial performance, I believe it's important to make three points. First, we had forecasted these acquisitions we generate annual sales in excess of $100 million. During the last seven months of 2017, when we were still completing the acquisitions, these assets generated $30 million in sales. Now in our first quarter, we’ve nearly matched that amount. We are well on our way towards meeting or exceeding the annual target. [Indiscernible] to add that as we continue to integrate and grow businesses, we expect to obtain greater efficiencies and improved sales over the course of time. Second, we are able to purchase these assets at a reasonable cost and without diminishing our ability to make further acquisitions. In fact, despite completing these four deals, our borrowing capacity has actually improved year-over-year. We are at $125 million at the end of Q1, 2018 versus $119 million at the end of Q1, 2017. And the aftermath of industry consolidation, we continue to see post merger…

Thank you, Eric. Good afternoon everybody. As Bill mentioned, we follow our Form 10-Q for the three months ended March 31, 2018 just a few moments ago. Everything I'm covering here is included in more detail in that document. With regard to the financial results, so as Eric just detailed, the company sales for the first quarter of 2018 increased by 47% to $104 million as compared to sales of $71 million this time last year. Included in this improvement, our newly acquired businesses generated a 41% increase while our pre-existing product portfolio also had a strong performance and grew by 6%. Our international sales continue to grow in importance and represented 33% of net sales in the first quarter as compared to 26% this time last year. Our tax rate ended the quarter with 26%, which compared with 28.5% for the same period of the prior year, and overall net income for the quarter increased by 53% to $4.7 million or $0.16 per share as compared to $3.5 million or $0.12 per share this time last year. Our first quarter gross margin ended at 39%, which was in line with the guidance we provided last call. This percentage rate includes strong sales of newly acquired products that have comparatively lower average gross margins. During quarter, our operating expenses ended at 32% of net sales compared to 35% this time last year. Notwithstanding this favorable comparison, operating expenses increased by 35% on an absolute basis due to several factors. These include the addition of newly acquired products and businesses, the build out of our international structure, higher short and long-term incentive compensation costs as a result of our improved financial performance and continued expansion of our product portfolio. Finally, we have some changes in volume and mix of domestic sales…

Thank you, David. At this point, I'd like to turn our prospects to our products for the balance of the year at least in terms of market outlook and general direction. Regarding the second quarter, with planted cotton acres forecasted to be up about 8% this year, we expect to see strong sales of our two cotton products BIDRIN and Folex. We also see strong demand for our recently acquired herbicide Parazone for burn down applications prior to late spring planting. Likewise we're seeing strong demand in the peanut market for our newly acquired fungicide Equus, as well as our traditional soil insecticide Thimet. We're also projecting strong performance in our Mexican operations and Central America driven by AgriCenter supplying the in-season demand for growers of tropical crops, like pineapples, citrus, and bananas. In the second half of 2018, we expect to see demand building for our industry-leading soil fumigant products which are applied after harvest. Solid sales of our products in cotton and peanuts will continue along with channel replacement for our mosquito control adulticide. You may have read that the Center for Disease Control recently -- recent report that the incident of insect borne diseases has increased over threefold since 2004, and that the trend will continue moving upward into this year. As we have often pointed out, our Dibrom is the market-leading Ariel applied solution for mitigating this threat. As we’ve observed in the [indiscernible] on an intense mosquito infestation in the wake of hurricane Harvey in Houston last year. We will also see strong late summer demand in LATAM for many of AMVAC's traditional products and those of our AgriCenter distribution franchise. Continuing later into the year, we expect to see strong post harvest soil fumigant business and preplanned season procurement of our corn soil insecticides…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from line of Joseph Reagor with ROTH Capital Partners. Please proceed with your question.

Good afternoon, guys. Thanks for taking the questions.

Pleasure.

So on your international sales, they are slowly becoming bigger piece of the business. But you mentioned some minor issues during the quarter and -- but despite that this quarter last year you were at about 26% international, this quarter you’re around 33%. Can you give us some additional color as to what drove the incremental international sales, despite the minor issues with a couple of spots there?

Yes, I think AgriCenter is the biggest piece of that. Again, we did have increased sales in some of our international products. We mentioned Aztec in Korea that was just really a timing shift from one distributor to another and there was inventory in channel. So -- and Mexico has picked up some as well.

Okay, thank you. I will turn it over.

[Operator Instructions] Our next question comes from line from Jim Sheehan with SunTrust Robinson Humphrey. Please proceed with your question.

Thank you. Could you discuss what you see as the revenue opportunity in SIMPAS for 2020? And also explain how that will American Vanguard to get paid for use of the equipment?

So the first question gets asked a lot. It was the first question in the last conference call. We will probably be looking at providing some guidance on 2020, maybe this time next year or third quarter. There's a number of variables that we need to figure out before we can start nailing down numbers. The products that are going to be available for the 2020 season, obviously, going through -- what we're going through now and seeing if we’ve got anything that’s such as back time wise. I think when we get into next year assuming we wind up across the -- across-the-board, growers that we have I think that will give us the level of confidence we could start projecting. As far as where we would make money on the equipment, so to speak, I think the equipment sales in Smartbox has not been a profit center for us. I think we would look initially -- it gets tremble to doing during marketing of the equipment. And I think they would capture the majority of the value on the equipment itself. Our partners like Simplot who will be writing the prescriptions and working closely with the farmer, I think we’ve pick up not only sales of product going to the farmer, but also looking at how they can help manage return on investment for the farm itself. The predominance of our income will come from the supply of the chemical going into the system through our -- kind of smart cartridges that will be sold to the farmer and returned back to be refilled.

Thank you.

Our next question comes from line of Joseph Reagor with ROTH Capital Partners. Please proceed with your question.

Hey, guys. I have to jump back in for a few other, it seems like a short queue. Is there any impact for you guys on the soybean front from -- sanctions or [indiscernible] by China on that? Have you seen a decrease in demand for any of your products?

Well, soybean has not been a big crop for us. One, we do have scepter obviously with SIMPAS as we started laying those out will have quite a portfolio there. But I don’t think that that we're anticipating any effect of any substance. Bob, I don't know if you have any thoughts?

Yes, Joe, prices are strong. In fact, in parts of the U.S., Illinois and Iowa, specifically, growers this year are planting soybeans ahead of corn. The universities are showing them yield pumps by doing that. Like the surprises are strong. In regards to the negotiations with China, I mean, Brazil is ramping up, but they can't ramp up the infrastructure in the short-term that will have any major effect on the U.S growers in the medium term. And then, we don't export our entire soybean crop. Its only in certain percentage. We are going to [indiscernible] soybeans as Eric have stated with SIMPAS, and one of the reasons we are bullish on that is because we will ramp up in Brazil in our Phase 2 of SIMPAS introduction. So I think we're well-positioned.

Okay. And then on the balance sheet, if I could. Your debt increased a little bit. Is that just the standard situation of -- as your inventory builds at the beginning of the year [indiscernible] draw on your debt a little bit funded and then that will reverse as the year goes on?

Yes, that’s the plan.

Yes. That’s traditional what happened.

Okay. Thank you, guys. I will turn it over.

[Operator Instructions] Our next question comes from the line of Chris Kapsch with Loop Capital Markets. Please proceed with your question.

Yes, good afternoon. I had a question about the base business, I think it was up 6%, if you exclude obviously the benefit of the acquisitions going through. Could -- you talked about some of the products granularly, but can you just talk about just more generally, you -- that 6% is arguably better than the overall market. You have a sense for is it just the trends in acreage or crop reference that growers are planting [indiscernible] that's allowing you to do that or is there any shifts in market share that are benefiting you? Anything like that going on?

I think one of the things that we continue to benefit from is our position that we took starting back in '14 as that we would not try to push product into the channel. We had a far amount of channel inventory out there, and we’ve continued to manage that to levels that are -- the levels of distribution feels comfortable with. So replacement in a normal business and that’s why we’re saying that our corn products I think we were up 13% in the quarter year-over-year. So I think that's probably the bigger issue is anything that’s just management of inventory. And I think the farmers -- I mean, I think people have gotten a sense that the market has bottomed and is starting to show signs to improve. I think farmers are going to start looking at, okay, I’ve got -- as I start to see a little bit better return, maybe I can start going back to some of my more normal type input approach. Bob, I don’t know if you want to add to that?

Well, I think the only thing is we’re staying to launch some new products [indiscernible].

Yes, but this is -- you’re talking about just our 6% on our traditional business not our -- not our new products.

Yes, [indiscernible] acquisitions I’m talking about …

I know.

… [indiscernible] product launches.

Oh, okay. So you’re -- yes, okay. Got it.

So we’ve about what $8 million in U.S prior to launching of new products. So some of that is starting to take traction. We launched in last year also. Chris, so I think that with -- improving customer relationships that’s all benefiting us.

Okay. And then just you mentioned the 13% corn and I think you -- in your formal comments you mentioned that the impact corn herbicide was sales were strong there. So last year that was -- that market was characterized by sort of pronounced pricing pressure from one of the players there. Has that subsided or what’s driving the strong performance and impact this year?

While we made the price adjustment in the third quarter of last year as you recall. And impact has a great name from a safety standpoint and its broad-spectrum of grasses and [indiscernible]. So I think there's a strong royal base there. But, again, we needed to get our price more in line and I think we are feeling fairly comfortable about where we are today.

Okay. And if I just could on the financial metrics, so you guys made it I think abundantly clear that the mix associated with some of the lower margin products you’ve acquired distribution business, in particular, would have -- would affect the overall gross margin. But so, do you have a snapshot of what your core -- your legacy business would have been without the inclusion of the acquisition? So I think you’ve said 39%, but in spite of a better factory performance. So just wondering if -- how that would have looked [indiscernible] the acquisitions?

I think it calculated that to be broadly in line with last year.

Which is 43%.

Yes.

Yes.

43%, okay. Got it. And then just on. Eric, on the -- when I saw you recently you had mentioned that the industry is facing some of this difficulty sourcing, some raw materials out of China. Just wondering, I mean, it seem like that was something that might be an advantage for you guys given your production in the U.S. Just wondering how any new developments in that -- so that dynamic and how it's affecting things in the marketplace, if it is?

So I don’t know that we’ve seen yet a pickup of our domestically manufactured products that might compete with some china products. I think a number of people having concern I think started trying to buy in Q3, Q4 of last year. And I think [indiscernible] thinking that, that will flush out here by -- I don’t know, the middle of third quarter probably anything and so we will start probably if there's going to be that effect, we will probably start seeing that as products, depending on the product line as it starts to get tied and prices move up that we would maybe see some benefit from that.

There's something that might have influenced maybe the next year's growing season or the pre-sell going into next year's current revenue season.

Correct.

Okay. Thank you.

And our next question comes from the line of Jim Sheehan from SunTrust Robinson Humphrey. Please proceed with your question.

Thanks. Regarding the corn insecticides and herbicides, it looks like you weren't affected very much by planting delays, which may have shifted the planting season. Do you think that some demand for your products was pushed out into the second quarter, so that you may have an even better growth rate in the second quarter were the planting delays just not impact your business at all?

Our U.S crop team has done a great job, particularly corn being our biggest nemesis in the 2013-2014. Putting together procurement plans with our distribution, and I think distribution is appreciated that. We're not pushing for a great season, but making sure they have material and so that they can orderly make deliveries. With that said, we definitely have seen a slowness in what we call our EDI of product going as the planting season has been delayed. But we have seen the effects of that in our actual sales. And we will see how this quarter unfolds, we continue to sell products into that space on a daily basis.

And, Jim, just looking at the recent releases, checking the market, the corn growth which have caught up. And in fact in some states they’re ahead of last year. So it's a little bit mix, but we're doing more and more supply chain planning as Eric says with our customers and just natural flow. That we will see how the weed pressure is in the latter half of the quarter and that will determine whether we have a good or very good year with impact.

Terrific. And could you also discuss how the M&A pipeline is shaping up. What are you planning to do, what are you looking at? Should we expect announcements in the next few quarters or have you moved away from that focus.

No, we’re actively engaged and a wide variety of acquisitions now we do expect to close on at least two before the end of the year. There are -- I think we charted recently and had more balls in the air with acquisitions and we’ve ever had at a single time, but I would say a couple of blockbuster deals that we participated and that we did not wind up with those deals that are -- that you saw in the 100s of millions or that went -- we don’t have any of that structure underway at this moment.

Just to be clear, you’re talking about product acquisitions, correct?

Product and company.

Great. Thank you very much.

[Operator Instructions] There are no further questions in the queue. I would like to hand the call back to management for closing comments.

Okay. Well, certainly on behalf of people at American Vanguard, we very much appreciate you taking the time to listen in and asked some very pointed questions. And we look forward to reporting to you in our Q2 report in end of July or early August maybe. Thank you very much. Bye, bye.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.