Greetings. Welcome to American Vanguard Third Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will for the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Thank you very much, Sherry and welcome, everyone, to American Vanguard's third quarter and nine month year-to-date earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; and Mr. David Johnson, the company's Chief Financial Officer. Also assisting to answer your questions, Mr. Bob Trogele, the company's Chief Operating Officer. A little reminder for those of you who may be listening by phone, this conference call is being webcast live via the News and Media section of the company's website. This approach would allow you to see the PowerPoint presentation that accompanies our commentary. To listen to the live webcast, go to the AVD website, register, download and install any necessary audio software. If you're unable to listen to our entire call today, the conference call will be archived on the company's website for your review at a later date. Before beginning, let's take 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 of the date of this call. Such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Thank you, Bill. Good morning and good afternoon to everyone. Welcome to American Vanguard 2021 third quarter and nine months business update. We appreciate your continued support and interest in the company. Today, I want to give you a quick view of our financial performance supported by commentary on market conditions. Then I will turn to the global supply chain which is a subject of strong interest to most industries. I will then ask David to cover financial and operational matters in great detail. After that, I will return with an update on our green solutions and precision application initiatives. So at the -- on Slide 4 here, at the end -- as we ended Q2's conference call, we presented a scorecard on how we did in the first half of '21 versus what we had given at the beginning of the year as our targets. So I'm going to update that now through the third quarter and -- year-to-date through third quarter. And so with revenue, we were at 25% through the first half. Through three quarters, we're exactly still at 25%. With our gross profit margin, we were tracking right on 39%. Through three quarters last year, we had slipped a little to 38%. We're still holding at 39% at this point. Our operating expenses; we said we would kind of maintain and hope to move down slightly if we could. As a percent of sales in the first half, we had dropped from 35% to 34%. And year-to-date, we're now at 33% versus 34%. Our interest expense is down now at 23%. So we're tracking certainly below 2020 and believe we'll outperform our initial forecast. On our tax rate, we were at 31% versus 23% through the first half. We're now at 27% versus 20% at this…

Thank you, Eric. With regard to our public filing, I understand from my controller that we are in the file -- in the queue to file. And so I expect that we will file within the half hour or 45 minutes. As I've mentioned in previous conference calls, our industry is one that's considered critical in all jurisdictions in which we operate. And during the pandemic in 2020 and now throughout the nine months of 2021, our business, our customers, our suppliers have all operated without major disruption throughout. So it's been a good place to be during this difficult time. This is our quarterly sales performance. You can see that our sales have increased, as Eric mentioned, since the first -- the third quarter of 2020. Overall, our sales are up about $30 million to $147 million. That's about a 25% increase over the prior year. Our U.S. sales are up about 33% or $22 million and our international sales were up about 16% or $8 million. And because of the very strong U.S. performance despite the strong international performance, our international sales reduced to about 40% of total sales, whereas this time last year, they were at about 43%. With regard to our gross profit performance, when we spoke at the end of Q2, we acknowledge that we'd had some production delays but indicated that, that issue was temporarily -- was temporary and substantially behind us. And during the third quarter of 2021, our production performance has been much better just as we expected. And that has an impact on our gross margin performance. And when I look at the crop business, our gross margin performance improved by about 50%, including the impact of the recovery of overhead cost in the factory. Our noncrop business had significant mix…

Thank you, David. In recently quarterly earnings calls, we've provided updated information on our two strategic growth initiatives in green solutions and prescriptive application technology. So, let me just go into green solutions. So we mentioned last time that we have kind of grown our technology on the green solutions and we've now seen that we've got 100 of different products in our expanding portfolio. So in this slide, we break out the functional categories of our offerings. As you can see, it's a balanced range of solutions with a strong emphasis on biofertilizers, biostimulants, biopesticides and micro/macro nutrients. These products allow us to offer not only our traditional crop protection kind of defensive products but beneficial plant nutrition and soil health amendments as well. And so we've developed quite a balanced and growing portfolio. So green solutions has posted steady recent growth, as seen on this slide. For Q3, we increased about $10 million which is a 26% increase from Q2. And I think most of -- a good portion of that growth anyway was attributed to increased sales in LATAM, Brazil, India and Australia. Year-to-date, our revenues at just $27 million. And for the full year, we're upping our forecast from the $32 million to $35 million range, we're now taking somewhere in that $35 million to $37 million range. And of that, about $10 million is coming from LATAM which is our largest so far. So, when you look through what we're focusing on and keeping an eye on the targets of what we're trying to do in expansion, we've got registrations underway in LATAM. The Colombia business has been transitioned over completed and working well. We've got a pipeline building for further distribution in Europe and Africa. We've got our U.S. group that's looked at opportunities…

Our first question is from Gerry Sweeney with ROTH Capital Partners. Please proceed.

Good afternoon. Thank you for taking my call.

Sure.

Eric, you went through the supply chain. I actually learned a little bit about the unloading and loading -- or unloading of vessels and the speed of which is done and the amount of ships coming in. But as we look forward to 2022, do you foresee any issues with maintaining your profitability? Or do you expect your multiple sourcing relationships as well as factories, et cetera, to be able to manage demand and everything going forward?

Yes. Again, I think the key to that is -- I mean so far, at least domestically, we haven't had real pushback in putting forward increases. But it is so dynamic that unless our commercial team knows where their costs are -- and generally, we have inventory. So when we know what the cost is kind of going forward or what is happening in real time, we're not at the point now where we're manufacturing just to order. And in fact, our customers are kind of placing orders kind of in advance. And so we're trying to stay ahead of the game. But the key is to truly understand what our costs are. And I think if we can do that and get that information, we can discuss where we need to be with our products. So I think if that was your question about are we going to be able to pass through increased supply, that will be the key for that. As far as disruption, I mean, we definitely saw a disruption in our soil fumigant I mentioned. But this is -- we produce about 12 million gallons a year. And so rail and trucking that through all over the United States, Mexico, Australia, Central America, Mexico, it's a quite logistic issue. And you can think about if there's 12 million gallons of product being produced, we've got a similar amount of raw materials coming in. And we have seen disruptions in trains and getting those raw materials in on a timely fashion, potentially -- particularly when we get into crunch time which we saw a third quarter. I think about 70% of our volume happens probably between August and November. And so it puts quite a strain. And even though we've got a fair amount of storage around -- the demand was high. And so I hope that was your question. And then, as far as other products where we meet -- our whole team meets every month and we talk about -- and all the issues and if there's something that comes up in between we do. But we got about 29 or maybe 30 of our people, somewhere in that range, globally on each month to kind of walk through it. So, did I…

That is helpful. Yes, yes.

Okay.

Actually more than my question which is actually perfect, Sir. I appreciate that. Then the other question was just on acquisitions and I was focusing a little bit on green solutions. You have 100 different products as you outlined. As you look at the playing field and opportunities you're looking at, is there anything that you're looking at in terms of green solutions opportunities or places that you feel as though that you would want to add to that portfolio? Or do you still remain just opportunistic on opportunities across the board?

Well, I think we're seeing more opportunities than we have historically. I mean the industry has been consolidating. There's a lot of shifting going on. We obviously look for bargains like what we did with Agrinos. We've got -- we've laid a lot of foundation to get to this point. And I think we're now looking at putting a number of these solutions through SIMPAS. When we have our product like or -- so fumigant that basically kind of sterilizes the soil, we now have the opportunity to come back and introduce beneficials into the soil that, again, promotes uptake of various nutrients. So yes, our team -- and Bob heads this up. So I don't know if you want to comment on that, Bob, as far as are we looking opportunistically or strategically. I think the answer is yes to both but actually go ahead.

Yes. So Gerry, yes, so we're, of course, always -- I mean let anybody know who's in the selling side that we're interested in acquisitions. The EU would be a target as far as regionally, simply because of all the environmental headwinds for chemistry in Europe would be a good place maybe to invest if the price was right. But we're actually very much into a lot of licensing in discussions, distribution agreements because we have such a great team and footprint to market green solutions. Then we acquired a microbial library from the Agrinos acquisition. So we're looking at how do we develop that further. But last but not least, I would say there, we are looking for strategic partnerships. When you combine the green solutions with SIMPAS, there are areas around the globe where we don't have a structural footprint. So we're talking to some folks about that. So there's lots there to do besides the acquisitions and I think we'll continue to take advantage of those opportunities.

Okay, great. Very helpful. That's it for me. I appreciate it. Thank you.

Sure.

Our next question is from Christopher Kapsch with Loop Capital Markets. Please proceed.

Hi, good afternoon. Thanks for taking my questions. Focused on the green solutions portfolio, given that it's an important growth vector for the company. Just curious about your confidence in those numbers that you have for '23 and '25. In other words, are those something that should be considered as guidance or projections? Or are those more aspirational in nature?

Well, at this point, this is our best estimate of where we're going to be. And we've -- if we think we're going to be missing at some point, again, we'll make that adjustment. I think we felt we could -- we can get to the 70 and the 140 based on what we currently have in our portfolio. There's no acquisitions that we're putting on top of that. And the fact that we're up a few million, we think, we believe, this year versus what we had originally put out just kind of brings a little more confidence that we can get there.

Okay. And just in that upside that you referenced, what was the driver of that, just out of curiosity? Is there a couple of different product lines or one specifically like...

No. It was a variety and I think we said that our Central American piece was the strongest. We did have a truckload of product, a Greenplants product going to China. Our Agrinos people, when they looked at it, they said, this is great and they immediately went out and got a truckload order for product. India is performing well. So I think it's a collective effort. I think we -- I may have mentioned we had our meeting with our team in the first part of '19 after we acquired the Brazilian business. And the biggest enthusiasm for the bioproducts was outside the United States but United States is now picking up. I mean when our guys go into -- make their sales calls now, they -- if they mentioned anything about bio, yours pop up because there's kind of mandates and -- throughout most of our customers that they need to look at biosolutions in a totally different light. So, I think the willingness for people to get into the space and try different products that maybe haven't been tried before, that's, I think, kind of leading as to why we said that's the second fastest-growing segment in crop inputs today.

Got it. And out of curiosity, do you have a sense for what percentage of that growth that you're sort of forecasting from green solutions that you believe will come from your Envance essential oil technology?

Right. So we're not kind of giving a percentage. I would say, obviously, we've got a movement that we're looking to get beyond the minimum royalty space. We're not getting specific targets as to where that's going to be. But as you've mentioned in your report, it is straight margin as well. But I think -- I don't think we're being any way aggressive on that level.

Eric, if excluding the margin benefit from those royalties that you just referenced, do you have a sense for -- like -- so the green solutions bucket, if you will, excluding Envance, do you -- would those be margin accretive to the overall company? Or do they come currently with lower-than-corporate average margins, again, excluding the benefit from the Envance royalty structure?

Yes. I mean I think across the portfolio, we're -- particularly since these are used also well outside the United States, I think the bioproducts for them represent kind of at the higher end, if I'm correct, Bob.

That's correct. So Agrinos, of course, were a basic manufacturer. And Greenplants were also basic. Those are very good accretive margin areas. Of course, we'd like to grow those at a higher rate but we also get good licensing possibilities from those who want to market, for example, through SIMPAS in future or want to market through our direct-to-market organization in Central America, AgriCenter. So we're in a very good position to get good trading margins also.

Yes. I mean I think, again, since the products are not all households that have been tried and proven, there's not -- and many of them are differentiated. And so I think the margins are higher because there is a higher degree of effort that goes into them as far as the field trials that you have to do. You've got to be able to prove that they work. And with that comes higher margins. And so, I think that's kind of -- I mean this is -- I won't say it's new because it's been around for quite a while but it hasn't gathered strength like this until more recently. And so I think at least for now, in the foreseeable future, it's not so much you're just saying, oh, this is generic. They're all the same. There's a lot of uniqueness to this and performance is differentiatable.

Okay. And then I had a question just on the core business and also given your comments about supply chain which are obviously disruptive across most industrial markets these days. But -- so are there -- just the strength of your core business in terms of sales, are there any instances where you think that you're relatively lower exposure to sourcing from China or given your domestic manufacturing or just your proactive management of all the challenges has led to any instances of share gains or outsized demand for your products? Or is this really just a function of a healthy ag market, healthy commodity prices, farmers or growers feeling pretty good?

Yes. So I mean I do think it's a combination of both. I think certainly, we're seeing from our customers one side being the markets look strong. We want to make sure we can secure our product lines. But also, there's a lot of products that are short right now. And so our customers are, one, they make sure they've got products that, one, are available and, two, can fit into a space and potentially replace products that are not. And I would say certainly within our herbicide lines is there are some real shortages that are occurring in herbicides. We're seeing some big uptakes in our herbicide business and these are some of the more niche products that maybe haven't had the resistance develop or as products are -- as our herbicides prices are going up dramatically and some of the bigger herbicides just because of lack of supply, it opens the door for us to step in and take a much stronger role. So the soybean prices certainly help but the -- some of the boost that we're getting is definitely because we're replacing other harder-to-get or higher-priced products.

So if I could just follow up on that last point, Eric. So you referenced a couple of herbicides where your more recent introductions, ImpactZ, Impact plus glufosinate. So just to be clear, the strength for those products is -- do you think it's a function of resistance to sort of the one-trick pony herbicides? Or is it a function of just a surge in prices and/or lack of availability for those sort of mainstream herbicides?

Yes, it's more of the latter that we're seeing concerns over getting products that will work. And so we're benefiting by the supply tightness of some of the other herbicides.

Thank you.

As there are no more questions, I would like to turn the conference back over to Eric for closing comments.

Okay. Thank you, Sherry and thank you, everyone, for joining us today. Again, it's our pleasure to report on the quarter. We're looking positive as we go into fourth quarter and things seem teed up well for the '22 season. So again, we'll keep you updated. And next call, we're a little ways until probably the first week of March. So okay. Again, thank you for joining us and have a good evening.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.