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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
|
|
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
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(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) |
(Zip Code) |
(
(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 |
|
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|
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.
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).
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 |
☐ |
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☒ |
|
Non-Accelerated Filer |
☐ |
|
Smaller reporting company |
|
|
Emerging growth company |
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|
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $0.10 Par Value—
AMERICAN VANGUARD CORPORATION
INDEX
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Page Number |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
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23 |
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23 |
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24 |
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24 |
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30 |
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31 |
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32 |
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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 March 31 |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
( |
) |
|
|
( |
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
( |
) |
|
|
( |
) |
|
Adjustment to bargain purchase gain on business acquisition |
|
|
— |
|
|
|
( |
) |
|
Operating income |
|
|
|
|
|
|
|
|
|
Change in fair value of an equity investment |
|
|
|
|
|
|
|
|
|
Other income |
|
|
— |
|
|
|
|
|
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
Income before provision for income taxes and loss on equity method investment |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
( |
) |
|
Income before loss from equity method investment |
|
|
|
|
|
|
|
|
|
Loss from equity method investment |
|
|
— |
|
|
|
( |
) |
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Earnings per common share—basic |
|
$ |
|
|
|
$ |
|
|
|
Earnings per common share—assuming dilution |
|
$ |
|
|
|
$ |
|
|
|
Weighted average shares outstanding—basic |
|
|
|
|
|
|
|
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|
Weighted average shares outstanding—assuming dilution |
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
|
For the three months ended March 31 |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax effects |
|
|
|
|
|
|
( |
) |
|
Comprehensive income |
|
$ |
|
|
|
$ |
|
|
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
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Current assets: |
|
|
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|
|
|
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|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Receivables: |
|
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Trade, net of allowance for doubtful accounts of $ |
|
|
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Other |
|
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Total receivables, net |
|
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Inventories |
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Prepaid expenses |
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Total current assets |
|
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
|
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|
Intangible assets, net of applicable amortization |
|
|
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Goodwill |
|
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Other assets |
|
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|
|
|
|
|
|
Deferred income tax assets, net |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
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|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|||||||
|
Current liabilities: |
|
|
|
|
|
|
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|
|
Current installments of other liabilities |
|
$ |
|
|
|
$ |
|
|
|
Accounts payable |
|
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Customer prepayments |
|
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Accrued program costs |
|
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Accrued expenses and other payables |
|
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Income taxes payable |
|
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Operating lease liabilities, current |
|
|
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|
Total current liabilities |
|
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|
Long-term debt, net |
|
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|
Operating lease liabilities, long term |
|
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Other liabilities, net of current installments |
|
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|
Deferred income tax liabilities, net |
|
|
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Total liabilities |
|
|
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|
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|
Commitments and contingent liabilities |
|
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|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ |
|
|
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|
|
|
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|
Common stock, $ |
|
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|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
Retained earnings |
|
|
|
|
|
|
|
|
|
Less treasury stock at cost, |
|
|
( |
) |
|
|
( |
) |
|
Total stockholders’ equity |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
|
|
|
$ |
|
|
See notes to the condensed consolidated financial statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Three Months Ended March 31, 2022 and March 31, 2021
(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 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Stocks issued under ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends on common stock ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Stocks issued under ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends on common stock ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination and vesting of restricted stock units (net of shares in lieu of taxes) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
See notes to the condensed consolidated financial statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
For the three months ended March 31 |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed and intangible assets |
|
|
|
|
|
|
|
|
|
Amortization of other long-term assets |
|
|
|
|
|
|
|
|
|
Loss on disposal of property, plant and equipment |
|
|
|
|
|
|
— |
|
|
Accretion of discounted liabilities and deferred loan fees |
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
Loan principal and interest forgiveness |
|
|
— |
|
|
|
( |
) |
|
Fair value adjustment of contingent consideration |
|
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Decrease in deferred income taxes |
|
|
|
|
|
|
( |
) |
|
Change in fair value of an equity investment |
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
— |
|
|
|
|
|
|
Net foreign currency adjustment |
|
|
( |
) |
|
|
|
|
|
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
|
|
|
Increase in net receivables |
|
|
( |
) |
|
|
( |
) |
|
Increase in inventories |
|
|
( |
) |
|
|
( |
) |
|
Increase in prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
|
Decrease in income tax receivable/payable, net |
|
|
|
|
|
|
|
|
|
Decrease in net operating lease liability |
|
|
( |
) |
|
|
( |
) |
|
Increase in accounts payable |
|
|
|
|
|
|
|
|
|
Decrease in customer prepayments |
|
|
( |
) |
|
|
( |
) |
|
Increase in accrued program costs |
|
|
|
|
|
|
|
|
|
Increase (decrease) in other payables and accrued expenses |
|
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from disposal of property, plant and equipment |
|
|
|
|
|
|
— |
|
|
Intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net borrowings under line of credit agreement |
|
|
|
|
|
|
|
|
|
Net receipt from the issuance of common stock under ESPP |
|
|
|
|
|
|
|
|
|
Net receipt from the exercise of stock options |
|
|
— |
|
|
|
|
|
|
Payment for tax withholding on stock-based compensation awards |
|
|
( |
) |
|
|
( |
) |
|
Repurchase of common stock |
|
|
( |
) |
|
|
— |
|
|
Payment of cash dividends |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to the 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 presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021.
The Company is closely monitoring the impact of the novel coronavirus (COVID-19) pandemic on all aspects of its business, including how the pandemic will impact its customers, business partners, and employees. The Company is considered an essential business by most governments in the jurisdictions and territories in which the Company operates and, as a result, did not incur significant disruptions from the COVID-19 pandemic during the three-months ended March 31, 2022 and 2021. During the three-month period ended March 31, 2022, the Company experienced strong demand for its domestic crop and international products, significant favorable movements on foreign exchange rates and, generally more normal business activities including face-to-face meetings with customers and suppliers etc. The Company established a pandemic working group at the start of the COVID-19 pandemic.
Looking forward, the Company is unable to predict the impact that the pandemic may have on its future financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its customers in the near term will depend on future developments, which are highly uncertain and, beyond extrapolating our experience since the start of the pandemic, cannot be predicted with confidence. The Company continues to monitor its business for adverse impacts of the pandemic, including some continuing volatility in foreign exchange markets, supply-chain disruptions in certain markets, and increased costs of employee safety, among others.
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
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-month periods presented in the table below.
The operating lease expense for the three months ended March 31, 2022 and 2021 was $
|
|
|
Three months ended March 31, 2022 |
|
|
Three months ended March 31, 2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
ROU assets obtained in exchange for new liabilities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (in years) |
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
|
% |
|
|
|
% |
8
Future minimum lease payments under non-cancellable operating leases as of March 31, 2022 were as follows:
|
2022 (excluding three months ended March 31, 2022) |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
$ |
|
|
|
Less: imputed interest |
|
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
|
|
|
Amounts recognized in the condensed consolidated balance sheet: |
|
|
|
|
|
Operating lease liabilities, current |
|
$ |
|
|
|
Operating lease liabilities, long term |
|
$ |
|
|
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. Based on similar economic and operational characteristics, the Company’s business is aggregated into
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net sales: |
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
U.S. non-crop |
|
|
|
|
|
|
|
|
|
Total U.S. |
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
Total net sales: |
|
$ |
149,435 |
|
|
$ |
116,155 |
|
|
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
Goods and services transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
Goods and services transferred over time |
|
|
|
|
|
|
|
|
|
Total net sales: |
|
$ |
|
|
|
$ |
|
|
Contract assets amounted to $
The Company sometimes 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 months ended March 31, 2022, that was included in customer prepayments at the beginning of 2022, was $
9
4. Property, Plant and Equipment —
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Buildings and improvements |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Office furniture, fixtures and equipment |
|
|
|
|
|
|
|
|
|
Automotive equipment |
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
The Company recognized depreciation expense related to property and equipment of $
Substantially all of the Company’s assets are pledged as collateral with its lender banks.
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 method.
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Finished products |
|
$ |
|
|
|
$ |
|
|
|
Raw materials |
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
|
|
|
$ |
|
|
6. Segment Reporting — Based on similar economic and operational characteristics, the Company’s business is aggregated into
|
|
|
For the three Months Ended March 31 |
|
|||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
U.S. non-crop |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
% |
|
Total U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Total net sales: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
U.S. non-crop |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
% |
|
Total U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Total gross profit: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
U.S. non-crop |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
Total U.S. |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
International |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
Gross margin: |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
10
7. Accrued Program Costs — The Company offers various discounts to customers based on the volume purchased within a defined time period, other pricing adjustments, volume incentives or other key performance 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 that are expected to be paid to its customers estimated using the expected value method. Each quarter management compares 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 executive and financial management, review 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 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 months ended March 31, 2022 and 2021, respectively.
8
|
Declaration Date |
|
Record Date |
|
Distribution Date |
|
Dividend Per Share |
|
|
Total Paid |
|
||
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
9. Earnings Per Share —
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic |
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and grants |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-diluted |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2022 and 2021,
10. Debt — The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021. The Company has
|
Long-term indebtedness ($000's) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Revolving line of credit |
|
$ |
|
|
|
$ |
|
|
|
Deferred loan fees |
|
|
( |
) |
|
|
( |
) |
|
Total indebtedness |
|
$ |
|
|
|
$ |
|
|
The Company’s main bank is Bank of the West, a wholly-owned subsidiary of the French bank, BNP Paribas. Bank of the West has been the Company’s bank for more than 40 years and is the syndication manager for the Company’s loans.
11
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 Borrower Agent (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by Bank of the West as administrative agent, documentation agent, syndication agent, collateral agent, sole lead arranger and book runner, on the other hand. The Credit Agreement consists of a line of credit of up to $
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.
As of March 31, 2022, the Company was compliant with all covenants of its Credit Agreement. As of March 31, 2022, based on its performance against the most restrictive covenants in the Credit Agreement, the Company had the capacity to increase its borrowings by up to $
As of the date it was acquired by the Company in October 2020, Agrinos had an existing Paycheck Protection Program (PPP) loan in the amount of $
11. Reclassifications — Certain items have been reclassified in the prior period condensed consolidated financial statements to conform with the March 31, 2022 presentation.
12. Comprehensive Income — Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the condensed consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three-month periods ended March 31, 2022 and 2021, total comprehensive income consisted of net income attributable to American Vanguard and foreign currency translation adjustments.
12
13. Stock-Based Compensation —
|
|
|
Stock-Based Compensation for the Three months Period |
|
|
Unamortized Stock-Based Compensation as of March 31 |
|
|
Remaining Weighted Average Period (years) |
|
|||
|
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Restricted Stock |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Unrestricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Restricted Stock |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Unrestricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
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 months ended March 31, 2022 and 2021.
Restricted and Unrestricted Stock — A summary of nonvested time based restricted and unrestricted stock is presented below:
|
|
|
Three Months Ended March 31, 2022 |
|
|
Three Months Ended March 31, 2021 |
|
||||||||||
|
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||||
|
Nonvested shares at December 31st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Nonvested shares at March 31st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Performance-Based Restricted Stock — A summary of nonvested performance-based stock is presented below:
|
|
|
Three Months Ended March 31, 2022 |
|
|
Three Months Ended March 31, 2021 |
|
||||||||||
|
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||||
|
Nonvested shares at December 31st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Additional granted (forfeited) based on performance achievement |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Nonvested shares at March 31st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
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.
13
Incentive Stock Option Plans
There was no activity for the three months ended March 31, 2022. There were
Activity of the incentive stock option plans for the three months ended March 31, 2021:
|
|
|
Number of Shares |
|
|
Weighted Average Price Per Share |
|
||
|
Balance outstanding, December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
( |
) |
|
|
|
|
|
Balance outstanding, March 31, 2021 |
|
|
|
|
|
$ |
|
|
Outstanding at March 31, 2021, summarized by exercise price:
|
|
|
Outstanding Weighted Average |
|
|||||||||
|
Exercise Price Per Share |
|
Shares |
|
|
Remaining Life (Months) |
|
|
Exercise Price |
|
|||
|
Incentive Stock Option Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Performance Incentive Stock Option Plan
There was no activity for the three months ended March 31, 2022 and 2021. There were
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, 2021, except as described below.
EPA FIFRA/RCRA Matter. On November 10, 2016, the Company 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 defending the Company’s interests. AMVAC is cooperating in the investigation.
Since April 2018, the Department of Justice (“DOJ”) has conducted several interviews of AMVAC employees and issued supplemental document requests in connection with the investigation. In November 2020, DOJ issued a second grand jury subpoena seeking records and related communications with regard to a submission made by the Company to the Environmental Protection Agency (“EPA”) in connection with a request to amend a pesticide’s registration. Soon thereafter, DOJ also identified the Company and one of its non-executive employees as targets of the government’s investigation. In January 2021, DOJ and EPA informed the Company that it is investigating 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. DOJ also identified evidence that it contends supports alleged violations with respect to both the Company and the individual target. As part of discussions regarding possible resolution, in October 2021, the Company presented its evaluation of the legal and factual issues raised by the government (which do not include any allegations of harm to human health or the environment) to both DOJ and USEPA. Further, three corporate witnesses were interviewed by the grand jury in Mobile, Alabama in February 2022. Following that interview, the individual target entered into a plea agreement which is expected to be entered with the court having jurisdiction in this matter in August 2022. At this stage, the Company is evaluating the legal and factual issues raised by the government and is engaged in discussions with DOJ regarding possible resolution.
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
14
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 flow. Accordingly, we have not recorded a loss contingency for this matter.
Harold Reed v. AMVAC et al. During January 2017, the Company was served with two Statements of Claim that had been filed on March 29, 2016 with the Court of Queen’s Bench of Alberta, Canada (as case numbers 160600211 and 160600237) in which plaintiffs, Harold Reed (an applicator) and 819596 Alberta Ltd. dba Jem Holdings (an application equipment rental company), allege physical injury and damage to equipment, respectively, arising from a fire that occurred during an application of the Company’s potato sprout inhibitor, SmartBlock, at a potato storage facility in Coaldale, Alberta on April 2, 2014. Four other related matters were subsequently consolidated into this case (alleging loss of potatoes, damage to equipment, damage to Quonset huts and loss of business income). The parties have exchanged written discovery, and depositions of persons most knowledgeable took place during the first quarter of 2019. Citing the length of the cases’ pendency and the expense, in December 2019, plaintiff Reed voluntarily dismissed two actions (160600211 and 160600237) for no consideration. Over the course of 2020, discovery was completed, and the parties held a mediation on March 11, 2021; however, no settlement was reached. The parties have set a second mediation to occur in August 2022. The Company continues to believe that it is not primarily at risk but that a loss is probable and reasonably estimable and, to that end, has recorded a loss contingency in an amount that is not material to its financial performance or operations cash flows.
15. Recent Issued Accounting Guidance
Accounting Standards Adopted
In November 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2021-10, “Disclosures by Business Entities about Government Assistance.” The ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021. Effective January 1, 2022, the Company adopted ASU No. 2021-10 on a prospective basis. The adoption of this standard was not material to the Company’s condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" (“ASU 2021-08”). The standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the adoption of ASU 2021-08 to have a significant impact on its consolidated financial statements and plans to adopt the standard effective January 1, 2023.
The Company reviewed all other 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.
16. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded 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, long-term investments, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s short-term and long-term borrowings, which
15
are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt.
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.
|
|
|
Three months ended March 31, 2022 |
|
|
|
Balance, December 31, 2021 |
|
$ |
|
|
|
Fair value adjustment |
|
|
|
|
|
Accretion of discounted liabilities |
|
|
|
|
|
Foreign exchange effect |
|
|
|
|
|
Balance, March 31, 2022 |
|
$ |
|
|
|
|
|
Three months ended March 31, 2021 |
|
|
|
Balance, December 31, 2020 |
|
$ |
|
|
|
Payment on contingent consideration |
|
|
( |
) |
|
Accretion of discounted liabilities |
|
|
|
|
|
Foreign exchange effect |
|
|
( |
) |
|
Balance, March 31, 2021 |
|
$ |
|
|
The current portion of the contingent consideration in the amount of $
17. Accumulated Other Comprehensive Loss —
|
|
|
Total |
|
||
|
Balance, December 31, 2021 |
|
$ |
( |
) |
|
|
Foreign currency translation adjustment, net of tax effects of ($ |
|
|
|
|
|
|
Balance, March 31, 2022 |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
( |
) |
|
|
Foreign currency translation adjustment, net of tax effects of $ |
|
|
( |
) |
|
|
Balance, March 31, 2021 |
|
$ |
( |
) |
|
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 March 31, 2022 and 2021, the Company’s ownership position in Bi-PA was
On April 1, 2020, AMVAC purchased
16
19. Income Taxes — Income tax expense was $
20. Stock Re-purchase Program — On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to
The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three months ended March 31, 2022. There were
|
Month ended |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total amount paid |
|
|
Maximum number of shares that may yet be purchased under the plan |
|
||||
|
March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Total number of shares repurchased |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
21. Supplemental Cash Flow Information
|
|
|
For the three months ended March 31 |
|
|||||
|
Cash paid during the period: |
|
2022 |
|
|
2021 |
|
||
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income taxes, net |
|
$ |
|
|
|
$ |
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
ROU assets in exchange for lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Deferred consideration in connection with business acquisitions: |
|
$ |
|
|
|
$ |
— |
|
|
Cash dividends declared and included in accrued expenses |
|
$ |
|
|
|
$ |
|
|
17
|
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.
MANAGEMENT OVERVIEW
Overview of the Company’s Performance
For the agriculture industry, the first quarter of 2022 marked the entry into the second year of an upcycle, following a multi-year downcycle. Domestic commodity prices were buoyed up by this upcycle, and the farm economy showed marked improvement, in spite of supply chain disruptions that carried over from 2021. Further, the invasion of Ukraine, which is a major exporter of corn, wheat and sunflower oil, coupled with likely restrictions on Russia’s export of fertilizers (primarily ammonia and urea) have provided an additional updraft to agricultural commodity pricing globally and the farm economy domestically. At the same time, the novel coronavirus (COVID-19) pandemic has receded significantly in many countries. As more fully described below, the Company’s domestic crop business net sales surged 61% with strong commodity prices, a positive outlook for the farm economy and robust procurement activity by the distribution channel. Within this context, the Company’s overall operating results for the first three months of 2022 improved considerably, as compared with those of the same period of 2021. Net sales increased by 29% ($149,435 as compared to $116,155) and net income increased more than threefold (to $9,935 from $3,071).
On a consolidated basis, domestic sales rose 41% and international sales increased 9%, resulting in an overall net sales improvement of 29%. In comparison, cost of sales increased by 24% or $17,218. This lower comparative increase was a result of a favorable mix of higher-margin products in the first quarter of 2022, as compared to the same period of the prior year. Cost of sales were 59% of sales in 2022, as compared to 61% for the same period of 2021. These factors, taken together, yielded a 36% increase in gross profit (to $61,193 from $45,131 in the comparable quarter of 2021), while overall gross margin percent improved to 41% from 39% quarter-over-quarter.
Operating expenses declined to 31% of net sales (or $46,444), as compared to 36% (or $41,444) in the same period of the prior year indicating greater economies of scale for the period.
Operating income for the period increased four-fold (to $14,749 from $3,654), driven by the strong sales increase, improved gross margin percentage and proportionately lower operating expenses. The Company recorded significantly lower interest expense during the quarter on significantly lower average levels of debt, as a result of working capital management in part driven by strong support from some of our biggest customers participating in early pay programs. These factors yielded net income for the period of $9,935, a three-fold increase compared to $3,071 in the first quarter of 2021. Details on our financial performance are set forth below.
18
RESULTS OF OPERATIONS
Quarter Ended March 31:
|
|
|
For the three months ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
88,193 |
|
|
$ |
54,755 |
|
|
$ |
33,438 |
|
|
|
61 |
% |
|
U.S. non-crop |
|
|
13,396 |
|
|
|
17,453 |
|
|
|
(4,057 |
) |
|
|
-23 |
% |
|
Total U.S. |
|
|
101,589 |
|
|
|
72,208 |
|
|
|
29,381 |
|
|
|
41 |
% |
|
International |
|
|
47,846 |
|
|
|
43,947 |
|
|
|
3,899 |
|
|
|
9 |
% |
|
Total net sales: |
|
$ |
149,435 |
|
|
$ |
116,155 |
|
|
$ |
33,280 |
|
|
|
29 |
% |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
47,848 |
|
|
$ |
33,484 |
|
|
$ |
14,364 |
|
|
|
43 |
% |
|
U.S. non-crop |
|
|
7,431 |
|
|
|
8,070 |
|
|
|
(639 |
) |
|
|
-8 |
% |
|
Total U.S. |
|
|
55,279 |
|
|
|
41,554 |
|
|
|
13,725 |
|
|
|
33 |
% |
|
International |
|
|
32,963 |
|
|
|
29,470 |
|
|
|
3,493 |
|
|
|
12 |
% |
|
Total cost of sales: |
|
$ |
88,242 |
|
|
$ |
71,024 |
|
|
$ |
17,218 |
|
|
|
24 |
% |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
$ |
40,345 |
|
|
$ |
21,271 |
|
|
$ |
19,074 |
|
|
|
90 |
% |
|
U.S. non-crop |
|
|
5,965 |
|
|
|
9,383 |
|
|
|
(3,418 |
) |
|
|
-36 |
% |
|
Total U.S. |
|
|
46,310 |
|
|
|
30,654 |
|
|
|
15,656 |
|
|
|
51 |
% |
|
International |
|
|
14,883 |
|
|
|
14,477 |
|
|
|
406 |
|
|
|
3 |
% |
|
Total gross profit: |
|
$ |
61,193 |
|
|
$ |
45,131 |
|
|
$ |
16,062 |
|
|
|
36 |
% |
|
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. crop |
|
|
46 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
U.S. non-crop |
|
|
45 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
Total U.S. |
|
|
46 |
% |
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
International |
|
|
31 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
Gross margin: |
|
|
41 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
Our domestic crop business recorded net sales that were 61% higher than those of the first quarter 2021 ($88,193 as compared to $54,755). During the first quarter, we saw strong demand in the domestic market, as elevated crop commodity prices caused growers and retailers to increase their purchases of crop protection inputs. In addition, in response to significant increases in freight costs, we have collected freight surcharges from our customers. Among our corn products, sales of our granular soil insecticides, including Aztec®, SmartChoice®, Force®, and Counter®, were up significantly as growers sought to control rootworm and nematode pressure. Sales of our Impact® herbicide brands increased sharply, as the introduction of two new products, ImpactCore and Sinate, broadened the application window for managing hard-to-control weeds. Our expanded portfolio of soybean herbicides recorded higher sales, as compared to the same quarter in 2021, and our soil insecticide Thimet also posted stronger sales for use in sugarcane, peanuts and sugar beets. By contrast, we experienced a decline in net sales of our soil fumigants versus the prior year due in part to continuing water allocation restrictions in California.
Cost of sales within the domestic crop business increased by 43% (from $33,484 in 2021 to $47,848 in 2022) as a result of increased volumes and raw material cost increases as compared to the first quarter of 2021. Included in raw material price increases were significant increases in in-bound freight costs. Nevertheless, with significant price increases and favorable factory performance, domestic crop generated a 90% increase in gross profit (from $21,271 in the first quarter of 2021 to $40,345 this year).
Our domestic non-crop business posted lower net sales in the first quarter 2022 compared to the same period in the prior year (down 23% to $13,396 from $17,453). In this category, our Dibrom® mosquito adulticide and our pest strips business sales both posted relatively flat sales compared to the same quarter of the prior year. Royalty and license fees for our Envance proprietary solutions were $3,000 lower than the first quarter of last year, during which the Company received an up-front license payment; in later periods, payments will take the form of either a minimum royalty or a royalty based upon product sales. In addition, we recorded slightly lower net sales from our nursery and ornamental business and the pharmaceutical products of our GemChem business.
Cost of sales within the domestic non-crop business declined by about 8% in the first quarter 2022 compared to the same period in the prior year (from $8,070 to $7,431). As a result of the decline in net sales, gross profit for domestic non-crop decreased by 36% (from $9,383 in 2021 to $5,965 in 2022).
19
Net sales of our international businesses rose by about 9% during the period ($47,846 in 2022 vs. $43,947 in 2021). These businesses benefited from sales increases in soil fumigants, foliar insecticides, soil insecticides and fungicides offset somewhat by chain disruption affecting shipments of bromacil herbicides to Japan. We posted sales increases in the Central American market through our AgriCenter group and enjoyed improved demand for our Assure II herbicide in Canada. Our Australian and Brazilian businesses both delivered slightly lower sales versus the prior year, but the gross profit margins of both businesses improved, as they focused on a more profitable product mix. The international business of Agrinos continued to grow approximately 25%, contributing to the overall expansion of our Green Solutions portfolio.
Cost of sales in our international business increased by 12% (from $29,470 in 2021 to $32,963 in 2022), primarily driven by cost increases of third-party products that we distribute, and increased logistics and freight costs. Gross profit for the international businesses increased by about 3% (to $14,883 in 2022 from $14,477 in 2021).
On a consolidated basis, gross profit for the first quarter of 2022 increased by 36% (from $45,131 in 2021 to $61,193 in 2022). Increased sales volume, improved product mix and price increases, partially offset by raw material cost increases and supply chain challenges, all factored into shaping this improved profitability. Overall gross margin percentage ended at 41% in the first quarter of 2022, as compared to 39% in the first quarter of the prior year.
Operating expenses increased by $5,000 or 12% to $46,444 for the three months ended March 31, 2022, as compared to the same period in 2021. The differences in operating expenses by department are as follows:
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
||||
|
Selling |
|
$ |
11,085 |
|
|
$ |
11,133 |
|
|
$ |
(48 |
) |
|
|
0 |
% |
|
General and administrative |
|
|
18,433 |
|
|
|
15,848 |
|
|
|
2,585 |
|
|
|
16 |
% |
|
Research, product development and regulatory |
|
|
6,970 |
|
|
|
6,616 |
|
|
|
354 |
|
|
|
5 |
% |
|
Freight, delivery and warehousing |
|
|
9,956 |
|
|
|
7,847 |
|
|
|
2,109 |
|
|
|
27 |
% |
|
|
|
$ |
46,444 |
|
|
$ |
41,444 |
|
|
$ |
5,000 |
|
|
|
12 |
% |
|
• |
Selling expenses remained essentially flat compared with the same period of the prior year ending at $11,085 for the three months ended March 31, 2022. This included increased costs associated with travel expenses as the business continues to build back to normal face to face contact with customers, increased spending on advertising and promoting the Company’s products offset by the beneficial movements in some key exchange rates. |
|
• |
General and administrative expenses increased by $2,585 to end at $18,433 for the three months ended March 31, 2022, as compared to the same period of 2021. The main drivers were the business performance driven increase in incentive compensation, a charge for deferred consideration related to the acquisition of a business in 2020, and some additional wage and travel expenses in support of both getting back to business as usual and the strong growth in our business activities. |
|
• |
Research, product development costs and regulatory expenses increased by $354 to end at $6,970 for the three months ended March 31, 2022, as compared to the same period of 2021. The main drivers were increased costs associated with the commercialization of our SIMPAS delivery system. These costs were partially offset by comparatively lower spending on regulatory projects. |
|
• |
Freight, delivery and warehousing costs for the three months ended March 31, 2022 were $9,956 or 6.6% of sales as compared to $7,847 or 6.8% of sales for the same period in 2021. This change was primarily driven by the mix of product shipped and associated delivery destinations during the period. |
20
On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded positive fair value adjustments in the amount of $83 and $1,066 for the three months ended March 31, 2022 and 2021, respectively.
During the three months ended March 31, 2021, a Paycheck Protection Program loan assumed on the acquisition of Agrinos in the fourth quarter of 2020 was fully extinguished with the majority of the balance forgiven and recorded as other income in the Company’s condensed consolidated statements of operations in the amount of $672. There was no similar adjustment in the three months ended March 31, 2022.
Interest costs net of capitalized interest were $398 in the first three months of 2022, as compared to $946 in the same period of 2021. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
|
|
Q1 2022 |
|
|
Q1 2021 |
|
||||||||||||||||||
|
|
|
Average Debt |
|
|
Interest Expense |
|
|
Interest Rate |
|
|
Average Debt |
|
|
Interest Expense |
|
|
Interest Rate |
|
||||||
|
Revolving line of credit (average) |
|
$ |
85,756 |
|
|
$ |
401 |
|
|
|
1.9 |
% |
|
$ |
125,299 |
|
|
$ |
860 |
|
|
|
2.7 |
% |
|
Amortization of deferred loan fees |
|
|
— |
|
|
|
69 |
|
|
|
— |
|
|
|
— |
|
|
|
80 |
|
|
|
— |
|
|
Amortization of other deferred liabilities |
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
Other interest (income) expense |
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
48 |
|
|
|
— |
|
|
Subtotal |
|
$ |
85,756 |
|
|
$ |
485 |
|
|
|
2.3 |
% |
|
$ |
125,299 |
|
|
$ |
1,006 |
|
|
|
3.2 |
% |
|
Capitalized interest |
|
|
— |
|
|
|
(87 |
) |
|
|
— |
|
|
|
— |
|
|
|
(60 |
) |
|
|
— |
|
|
Total |
|
$ |
85,756 |
|
|
$ |
398 |
|
|
|
1.9 |
% |
|
$ |
125,299 |
|
|
$ |
946 |
|
|
|
3.0 |
% |
The Company’s average overall debt for the three months ended March 31, 2022 was $85,756, as compared to $125,299 for the three months ended March 31, 2021. Our borrowings in the three months ended March 31, 2022 were lower mainly due to the increased participation from our biggest customers in our 2021 year-end early pay program and the comparatively lower level of acquisition activity over the last twelve months, as compared to the twelve months to March 2021. These positive cash changes were partly offset by investment in expanded working capital as our business continues to grow strongly. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 1.9% for the three months ended March 31, 2022, as compared to 2.7% in 2021.
Income tax expense increased by $3,137 to $4,499 for the three months ended March 31, 2022, as compared to $1,362 for the comparable period in 2021. The effective tax rate for the three months ended March 31, 2022 and 2021 was 31.2% and 30.6%, respectively. The rate has increased compared to prior year reflecting a mix of income in different jurisdictions and partially offset by an increased benefit from the tax impact of the vesting of certain stock grants. For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act (“TCJA”) of 2017 amends Internal Revenue Code Section 174 costs wherein research and development expenditures will no longer be deducted in the tax year that such costs are incurred but must now be capitalized and amortized over either a five- or fifteen-year period, depending on the location of the activities performed. The effective tax rate for all interim periods is based on the projected income for the full year and is subject to ongoing review and adjustment by management.
Our overall net income for the first three months of 2022 was $9,935 or $0.33 per basic and diluted share, as compared to $3,071 or $0.10 per basic and diluted share in the first quarter of 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $32,315 in operating activities during the three months ended March 31, 2022, as compared to $32,536 during the three months ended March 31, 2021. Included in the $32,315 are net income of $9,935, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $6,403, loss on sales of property, plant and equipment of $77, accretion of discounted liabilities and amortization of deferred loan fees of $75 and provision for bad debts in the amount of $494. Also included are stock-based compensation of $1,563, decrease in deferred income taxes of $207, change in equity investment fair value of $83, adjustment in fair value of contingent consideration of $599 and net change in foreign currency adjustment of $261. These together provided net cash inflows of $19,009, as compared to $10,480 for the same period of 2021. The TCJA amendment requires taxpayers to capitalize and amortize all research and development expenditures over five years for domestic and fifteen years for foreign, for tax years beginning after December 31, 2021. Therefore, the Company anticipates paying more in taxes due to aforementioned provision. There is congressional support in proposed legislation to retroactively postpone the effective date of capitalizing and amortizing the research and development expenditures, but it is uncertain if such deferral will pass.
21
During the first three months of 2022, the Company increased net working capital by $55,031, as compared to $38,589 during the same period of the prior year. Included in this change: inventories increased by $11,738, as compared to $9,615 for the first quarter of 2021. Customer prepayments decreased by $44,528, as compared to $11,293 in the same period of 2021, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $9,677, as compared to $2,223 in the same period of 2021. Accounts receivables increased by $33,660, as compared to $30,482 in the same period of 2021. This is primarily driven by the strong growth in domestic consolidated net sales, as compared to the same period of the prior year. Prepaid expenses increased by $800, as compared to $1,052 in the same period of 2021. Income tax receivable decreased by $3,046, as compared to $638 in the prior year. Accrued programs increased by $24,601, as compared to $7,770 in the prior year, as a result of both higher sales and the mix of those sales including products with higher program elements incorporated in pricing. Finally, other payables and accrued expenses increased by $2,145, as compared to a decrease of $1,187 in the prior year.
With regard to our program accrual, the increase (as noted above) primarily reflects our level and mix of sales and customers in the first quarter of 2022, as compared to 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 quarter of 2022, the Company made accruals for programs in the amount of $40,469 and made payments in the amount of $15,752. During the first quarter of the prior year, the Company made accruals in the amount of $18,815 and made payments in the amount of $11,060.
Cash used for investing activities was $4,250 for the three months ended March 31, 2022, as compared to $2,945 for the three months ended March 31, 2021. The Company spent $3,294 on fixed assets acquisitions primarily focused on continuing to invest in manufacturing infrastructure, partly offset by proceeds on sale of property, plant and equipment of $54. In addition, the Company made a payment of $1,000 to Clean Seed to amend a license agreement whereby ongoing sales-based royalty payments were replaced by fully paid, royalty-free rights, and spent $10 on patents for the Envance technology business.
During the three months ended March 31, 2022, financing activities provided $37,449, as compared to $32,854 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $46,000 in the first quarter of 2022, as compared to $35,900 in the same period of the prior year. The Company paid dividends to stockholders amounting to $594 during the three months ended March 31, 2022, as compared to $592 in the same period of 2021. The Company paid $6,219 for the repurchase of 332,404 of shares of its common stock during the three months ended March 31, 2022. There were no such purchases during the three months ended March 31, 2021. Lastly, in exchange for shares of common stock returned by employees, we paid $2,174 and $2,861 for tax withholding on stock-based compensation awards during the three months ended March 31, 2022 and 2021, respectively.
The Company has a revolving line of credit shown as long-term debt in the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021. The debt is summarized in the following table:
|
Long-term indebtedness |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Revolving line of credit |
|
$ |
99,300 |
|
|
$ |
53,300 |
|
|
Deferred loan fees |
|
|
(991 |
) |
|
|
(1,060 |
) |
|
Total indebtedness |
|
$ |
98,309 |
|
|
$ |
52,240 |
|
As of March 31, 2022, the Company is compliant with all covenants in its Credit Agreement. As of March 31, 2022, based on its performance against the most restrictive covenants in the Credit Agreement (see Note 10), the Company had the capacity to increase its borrowings by up to $166,165, according to the terms thereof. This compares to an available borrowing capacity of $178,705 as of December 31, 2021 and $50,993 as of March 31, 2021. The level of borrowing capacity is driven by three factors: (1) our financial performance, as measured in EBITDA for both the trailing twelve-month period and proforma basis arising from acquisitions, (2) net borrowings, (3) the leverage covenant (the Consolidated Funded Debt Ratio).
We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.
22
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 15 in the accompanying Notes to the Condensed Consolidated Financial Statements for recently issued and adopted 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, 2021, 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, 2021.
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 revisions are reflected in the condensed consolidated financial statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions.
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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, 2021.
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.
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Item 4. |
CONTROLS AND PROCEDURES |
As of March 31, 2022, 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 March 31, 2022, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, had 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.
23
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.
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Item 1. |
Legal Proceedings |
Please refer to Note 14 in the accompanying Notes to the Condensed Consolidated Financial Statements for legal updates.
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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, 2021, filed on March 14, 2022. The following disclosure amends and supplements those risk factors and, except to the extent restated below, there are no material changes to the risk factors as so stated.
Regulatory/Legislative/Litigation Risks
The regulatory climate remains challenging to the Company’s interests both domestically and internationally—Various agencies within the U.S. (both federal and state) and foreign governments continue to exercise increased scrutiny in permitting continued uses (or the expansion of such uses) of many chemistries, including several of the Company’s products and, in some cases, have initiated or entertained challenges to these uses. The challenge of the regulatory climate is more pronounced in certain geographical regions (outside the U.S.) where the Company faces resistance to the continued use of certain of its products. For example, the European Union (“EU”) employs a hazard-based analysis when considering whether product registrations can be maintained; under this approach, EU regulatory authorities typically do not weigh benefit against risk in their assessments and routinely cancel products for which a safer alternative is available, notwithstanding the benefit of the cancelled product. There is no guarantee that this regulatory climate will change in the near term or that the Company will be able to maintain or expand the uses of many of its products in the face of such regulatory challenges.
The impending contested election of directors and related matters associated with our engagement by activist hedge fund Cruiser Capital Management may create a disruption among our employees and customers, may result in a material increase in our general and administrative expenses, and may distract management from our day to day operations—On March 7, 2022, we received a letter from an activist investor, Cruiser Capital Master Fund, L.P., and its managing general partner, Keith Rosenbloom (collectively “Cruiser”), notifying us of an attempt to nominate four individuals (“Cruiser Nominees”) to replace four of our nine existing directors. After an extensive interview of the Cruiser Nominees that consumed most of two days on April 11-12, 2022, our board of directors (“Board”) determined that none of the Cruiser Nominees possessed skills and qualifications superior to our existing directors, and on April 19, 2022, we notified Cruiser and its affiliates (the "Cruiser Parties") that we did not intend to nominate any of the Cruiser Nominees for election to our Board. We filed a preliminary proxy statement that same day, and on April 29, 2022, we filed a definitive proxy statement nominating nine incumbent directors for election at our Annual Meeting of Shareholders to be convened on June 1, 2022. Cruiser, which owned a total of 0.19% of our common stock as of the date it submitted its nominations, has been highly critical of the Company’s performance over certain specified periods.
A proxy contest or other activist campaign and related actions, such as the one discussed above, could have a material and adverse effect on our results of operations and our financial condition and cash flows for the following reasons:
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|
• |
Activist investors, such as Cruiser, do not necessarily promote a strategy that leads to the long-term creation of value for all stockholders, and may promote initiatives that favor short-term interests of such investors over the interests of stockholders more generally. |
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|
• |
Activist investors may attempt to effect changes in the Company's strategic direction and how the Company is governed, or to acquire control over the Company. If Cruiser or another activist were successful in the efforts to seat one or more directors whose experience and perspectives are not aligned with the Board’s desire for long-term growth, the Board may experience conflicts or distractions that may limit the Company’s ability to identify and respond promptly and effectively to risks and opportunities. |
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|
• |
While we welcome the opinions of all stockholders, responding to proxy contests and related other activism tactics can be costly and time-consuming, disrupt our operations, and divert the attention of our Board and senior management and employees away from their regular duties and the pursuit of our business objectives. |
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|
• |
Responding to activists, particularly in connection with proxy contests, can be expected to result in the incurrence of substantial legal and advisory fees, which may materially and adversely affect our accrued general and administrative expenses. In addition, there may be litigation in connection with a proxy contest, which would serve |
24
|
|
as a further distraction to our Board, senior management and employees and could require the Company to incur significant additional costs. |
|
|
• |
Perceived uncertainties as to our future direction as a result of potential changes to the composition of our Board may lead to the perception of instability or lack of continuity, which may be exploited by our competitors; may cause concern to our existing or potential customers and employees; may result in the loss of potential business opportunities; and may make it more difficult to attract and retain qualified personnel and business partners. |
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|
• |
Proxy contests, hedging, and related actions by activist investors may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. For example, at the time Cruiser nominated the Cruiser Nominees on March 7, 2022, Cruiser and its affiliates claimed to own approximately 63,000 shares of our common stock. By the time Cruiser filed its preliminary proxy statement for the contested election on April 27, 2022, Cruiser claimed to have accumulated approximately 721,000 shares of common stock. Given the relatively limited trading volume in our stock, Cruiser’s acquisitions may have had the effect of increasing the reported trading prices of our stock on the dates on which Cruiser was making purchases. Similarly, a decision by Cruiser to abandon its investment could result in temporary downward pressure on our stock price, an increase in trading volumes, and other indicia of volatility. |
Our stock repurchase program may not enhance our long-term shareholder value—On March 8, 2022, we announced that the Board of Directors approved a stock repurchase program for up to one million shares of our outstanding common stock at a price of up to $20 per share. As noted in Part II, Item 2., Purchases of Equity Securities by the Issuer, we acquired approximately 332,000 shares at an average price of $18.71 per share between the announcement date and the end of our first fiscal quarter on March 31, 2022. We cannot be assured that our stock repurchase program will enhance long-term shareholder value. The timing and actual number of shares repurchased, depend on a variety of factors including price, corporate and regulatory requirements, and other market conditions. In addition, while we expect to conduct this repurchase plan pursuant to Rules 10b-18 and Rule 10b5-1, which allows for trading in closed windows, it cannot be adopted or modified except in an open window period. The program may be suspended or discontinued at any time without prior notice. Repurchases pursuant to our stock repurchase program could affect our stock price and increase its volatility. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially affect the liquidity of our stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves, which may adversely impact our ability to pursue possible future strategic opportunities and acquisitions and may result in lower overall returns on our cash balances. There can be no assurance that any stock repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our stock repurchase program is intended to enhance long-term shareholder value, short-term stock price fluctuations could reduce the program's effectiveness.
The Russian invasion of the Ukraine may expand into a broader international conflict that could adversely affect multiple channels of commerce and markets—While the occupation of Ukraine has had an effect on commodity prices and fertilizer supply (primarily ammonia and urea from Russia) and business operations relating to the Ukraine constitute an immaterial part of the Company’s overall business, there is no guarantee that the current conflict will not draw military intervention from other countries or retaliation from Russia, which, in turn, could lead to a much larger conflict. It is possible that supply chain, trade routes and markets currently served by the Company could be adversely affected, which, in turn, could materially, adversely affect the Company’s business operations and financial performance.
Product liability judgments on glyphosate and cases involving other pesticides by domestic courts present a litigation risk to companies in this industry—Multiple judgments have been rendered by domestic courts in product liability cases against Bayer/Monsanto in connection with injuries allegedly arising from exposure to the herbicide product, glyphosate. The basis was purported carcinogenicity based largely upon the findings of a certain international organization, despite significant scientific evidence to the contrary. While the Company does not sell glyphosate, the theory of these results could put one or more of the Company’s products at risk. Further, a number of product liability cases involving paraquat have been filed in domestic courts. While the Company is not a party to these cases and discontinued its limited sales of this herbicide shortly after acquiring an end-use registration as part of a larger acquisition, there is no guarantee that one or more product liability actions would not be brought against the Company on a similar basis, and it is possible that adverse rulings in any such actions could have a material adverse effect upon the Company’s financial performance in future reporting periods.
The trend of passing pesticide “ban-bills” in various states could put one or more of the Company’s products at risk—In certain states, including Maryland and New York, state and/or local legislatures have passed legislation banning the use of specific pesticides, such as chlorpyrifos, or pesticide in general, in spite of valid registrations at USEPA and/or the equivalent state agency. While the Company does not sell chlorpyrifos products, there is no guarantee that one or more of its registered products would not be targeted in state or local legislation of this nature. Further, such legislation could have a material adverse effect upon the Company’s financial performance in future reporting periods.
25
Use of the Company’s products is subject to continuing challenges from activist groups—Use of agrochemical products, including the Company’s products, is regularly challenged by activist groups in many jurisdictions under a multitude of federal, state and foreign statutes, including FIFRA, the Food Quality Protection Act, Endangered Species Act (“ESA”) and the Clean Water Act, to name a few. These challenges typically take the form of lawsuits or administrative proceedings against the USEPA and/or other federal, state or foreign agencies, the filing of amicus briefs in pending actions, the introduction of legislation that is inimical to the Company’s interests, and/or adverse comments made in response to public comment invited by regulatory agencies in the course of registration, re-registration or label expansion. The most prominent of these actions include a line of cases under which environmental groups have sought to suspend, cancel or otherwise restrict the use of pesticides that have been approved by USEPA on the grounds that that agency failed to confer with the National Marine Fishery Service and/or the Fish and Wildlife Service under the ESA with respect to biological opinions relating to the use of such products. While industry has been active in defending registrations and proposing administrative and legislative approaches to address serious resource issues at the affected agencies, these cases continue to be brought. It is possible that one or more of these challenges could succeed, resulting in a material adverse effect upon one or more of the Company’s products and consolidated financial statements.
USEPA has proposed further limitations and taken action on the continued registration of organophosphates— In September 2015, the USEPA published in the Federal Register a memorandum entitled, “Literature Review on Neurodevelopmental Effects & FQPA Safety Factor Determination for the Organophosphate Pesticides,” in which it adopted a position recommending the application of a 10X safety factor under the FQPA (Food Quality Protection Act) in light of the alleged possibility of neurodevelopmental harm to women and children based on epidemiological data. Since that time, in the face of objection from industry, the agency has applied this safety factor to all registered Organophosphate Pesticides (“Ops” or “OP”), including those owned by the Company, as they have come up for review or renewal. The Company, like many in our industry, believes that applying this safety factor is not based upon sound science and that the limited studies upon which the agency is relying (for which raw data is not available even to the agency) do not establish a causal link between the perceived harm and the use of its products. In addition, finding that the tolerances for chlorpyrifos (an organophosphate not sold by the Company) that had been established under FFDCA could not be deemed with reasonable certainty to cause no harm, USEPA revoked those tolerance factors and consequently cancelled the registrations for chlorpyrifos. There is no guarantee that USEPA will not employ a similar standard of review against one or more of the Company’s organophosphates. Accordingly, the Company intends to take all action necessary to defend its registrations. We have been joined in this effort by other companies that are similarly concerned about the potential impact of USEPA’s action. Nevertheless, there is no guarantee that the Company’s actions will alter the course that USEPA has proposed; if the agency’s position becomes final, some uses of the Company’s OP products could be limited or cancelled. Such action could have a material adverse effect upon the Company’s financial performance in future reporting periods.
The distribution and sale of the Company’s products are subject to prior governmental approvals and thereafter ongoing governmental regulation—The Company’s products are subject to laws administered by federal, state and foreign governments, including regulations requiring registration, approval and labeling of its products. The labeling requirements restrict the use of, and type of, application for our products. More stringent restrictions could make our products less available, which would adversely affect our revenues and profitability and cash flows. Substantially all the Company’s products are subject to the USEPA (and/or similar agencies in the various territories or jurisdictions in which we do business) registration and re-registration requirements and are registered in accordance with FIFRA or similar laws. Such registration requirements are based, among other things, on data demonstrating that the product will not cause unreasonable adverse effects on human health or the environment when used according to approved label directions. All states, where any of the Company’s products are used, also require registration before products, such as the Company sells, can be marketed or used in that state. Governmental regulatory authorities have required, and may require in the future, that certain scientific data requirements be fulfilled on the Company’s products. The Company, on its behalf and also in joint efforts with other registrants, has furnished, and is currently furnishing certain required data relative to its products. There can be no assurance, however, that the USEPA or similar agencies will not request that certain tests or studies be repeated, or that more stringent legislation or requirements will not be imposed in the future. For example, in April 2022, after the period covered by this Quarterly Report on Form 10-Q, the USEPA issued a notice of intent to suspend the use of one of our products, the pesticide dimethyl tetrachloroterephthalate (DCPA). We have been regularly engaged in discussions with the USEPA regarding DCPA, and we anticipate providing additional test results in June 2022 that we believe will persuade the USEPA that DCPA remains suitable for its intended uses. However, initiatives such as these can increase our general and administrative expense and, in some cases, can increase the costs of producing our products or can impair the value of our investment in related intellectual property, and if not resolved, the issue could result in our loss of the ability to produce or sell DCPA in the United States. We do not believe the loss of permit authority regarding DCPA would pose a material risk to our business, operations, or financial condition, but events such as these can create significant administrative burdens for our management and sales teams and, in protracted circumstances or those involving our most critical products, may pose a material risk of adverse effects upon our results of operations, financial condition, or cash flows. The Company can provide no assurance that any testing approvals or registrations will be granted on a timely basis, if at all, or that its resources will be adequate to meet the costs of regulatory compliance.
26
The manufacturing of the Company’s products is subject to governmental regulations—The Company currently owns and operates five manufacturing facilities which are located in Los Angeles, California; Axis, Alabama; Hannibal, Missouri; Marsing, Idaho; Clackamas, Oregon; and Etchojoa, Mexico (the “Facilities”). The Facilities operate under the laws and regulations imposed by relevant country, state and local authorities. The manufacturing of key ingredients for certain of the Company’s products occurs at the Facilities. An inability to renew or maintain a license or permit, or a significant increase in the fees for such licenses or permits, could impede the Company’s manufacture of one or more of its products and/or increase the cost of production; this, in turn, would materially and adversely affect the Company’s ability to provide customers with its products in a timely and affordable manner.
Pandemic/Climate Risks
The Covid-19 pandemic is creating risk, uncertainty and adverse conditions in many industries both here and abroad—While the Company did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2022, the Company is unable to predict the impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. There is no guarantee that the Company will be able to operate without material disruption for the duration of the pandemic or that its financial conditions and results of operations will not be materially adversely affected by the pandemic in future quarters.
Disruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry, including significant price increases especially with regard to ocean bound shipments—With the prolongation of the coronavirus pandemic, the global supply chain has been under increased stress stemming from container shortages, a lack of domestic truck drivers and a shift in consumer buying habits. Consequently, ocean cargo both inbound to, and, in some cases, outbound from, the U.S. has experienced significant delays, while domestic ports and regional warehouses have been filled to capacity. To date, while experiencing disruptions in the supply of raw materials, intermediates, finished goods and packaging, the Company has been able to carry on business without a material adverse effect upon its overall operations or financial performance. There is no guarantee that the supply chain condition will materially improve any time soon or that the Company will continue to avoid material disruption. Such disruption could have a material adverse effect on the Company’s operations, financial condition or cash flows.
Climate Change may adversely affect the Company’s business—Over the course of the past several years, global climate conditions have become increasingly inconsistent, volatile and unpredictable. Many of the regions in which the Company does business have experienced excessive moisture, cold, drought and/or heat of an unprecedented nature at various times of the year. In some cases, these conditions have either reduced or obviated the need for the Company’s products, whether pre-plant, at-plant, post-emergent or at harvest. Further, the random nature of climactic change has made it increasingly difficult to forecast market demand and, consequently, financial performance, from year-to-year. There is no guarantee that climate change will abate in the near future, and it is possible that such change will continue to hinder the Company’s ability to forecast its sales performance with accuracy and otherwise adversely affect the Company’s financial performance.
The Company’s business may be adversely affected by weather effects and commodity prices—Demand for many of the Company’s products tends to vary with weather conditions and weather-related pressure from pests. Adverse weather conditions, then, may reduce the Company’s revenues and profitability. In light of the possibility of adverse seasonal effects, there can be no assurance that the Company will maintain sales performance at historical levels in any particular region. Similarly, demand for the Company’s products used in row crops tends to vary with the commodity prices of those crops in the U.S., particularly corn, soybeans and cotton. These prices may be driven in part by weather, pest pressure, the domestic farm economy and international markets (e.g., yield and pricing from similar crops grown in Brazil). There is no guarantee that the U.S. farm economy and row crop commodity prices will maintain sufficient strength and stability to support the Company’s products at or above historical levels.
The Company may be subject to environmental liabilities—The Company is fully committed toward minimizing the risk of discharge of materials into the environment and to complying with governmental regulations relating to protection of the environment, its neighbors and its workforce. Nevertheless, federal and state authorities may seek fines and penalties for any violation of the various laws and governmental regulations. In addition, while the Company continually adapts its manufacturing processes to the environmental control standards of regulatory authorities, it cannot entirely eliminate the risk of accidental contamination or injury from hazardous or regulated materials. In short, the Company may be held liable for significant damages or fines relating to any environmental contamination, injury, or compliance violation which could have a material adverse effect on the Company’s consolidated financial condition, statements of operations and cash flows.
27
Acquisition/Investment Risks
Newly acquired businesses or product lines may not generate forecasted results—While the Company conducts due diligence using a combination of internal and third-party resources and applies what it believes to be appropriate criteria for each transaction before making acquisitions, there is no guarantee that a business or product line acquired by the Company will generate results that meet or exceed results that were forecasted by the Company when evaluating the acquisition. There are many factors that could affect the performance of a newly acquired business or product line. While the Company uses assumptions that are based upon due diligence and other market information in valuing a business or product line prior to concluding an acquisition, actual results generated post-closing could vary widely from the Company’s forecast and, as such, could have a material effect upon the Company’s overall financial performance.
The Company’s investment in foreign businesses may pose additional risks—With the expansion of its footprint internationally, the Company now carries on business at a material level in some jurisdictions that have a history of political, economic or currency-related instability and customers with a potentially higher risk profile regarding accounts receivable collectivity compared to the Company’s legacy business. While such instability may not be present at the current time, there is no guarantee that conditions will not change in one or more jurisdictions quickly and without notice, nor is there any guarantee that the Company would be able to recoup its investment in such territories in light of such changes and potential losses due to political factors, economic factors, devaluation of local currencies, or the collectability risk from customers. Adverse changes of this nature could have a material effect upon the Company’s overall financial performance.
The Company’s investment in technology may not generate forecasted returns—The Company has had a history of investing in technological innovation, including with respect to product delivery systems, natural oil technology and biologicals, as one of its core strategies. These investments are based upon the premise that new technology will allow for safer handling or lower overall toxicity profile of the Company’s product portfolio, appeal to regulatory agencies and the market we serve, gain commercial acceptance, and command a return that is sufficiently in excess of the investment. However, there is no guarantee that a new technology will be successfully commercialized, generate a material return or maintain market appeal. Further, many types of development costs must be expensed in the period in which they are incurred. This, in turn, tends to put downward pressure on period profitability. There can be no assurance that these expenses will be recovered through successful long-term commercialization of a new technology.
The Company’s growth has been fueled in part by acquisitions—Over the past few decades, the Company’s growth has been driven by the acquisitions of established businesses and the acquisition and licensing of both established and developmental products from third parties. There is no guarantee that acquisition targets or licensing opportunities meeting the Company’s investment criteria will remain available or will be affordable. If such opportunities do not present themselves, then the Company may be unable to duplicate historical growth rates in future years.
The Company is dependent upon sole source 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 sources either domestically or overseas. In connection with supply chain disruptions in 2021, 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. That said, there is no guarantee that any of our suppliers will be willing or able to supply these 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 faces competition in certain markets from new technologies and demand for organically produced food— The Company faces competition from larger companies that market new chemistries and other similar technologies in certain of the crop protection sectors in which the Company competes. There is no guarantee that the Company will maintain its market share or pricing levels in sectors that are subject to competition from companies that market new technologies. Further, it is possible that increased demand for organic crops may, over time, reduce the demand for the Company’s products.
The Company faces competition from generic competitors that source product from countries having lower cost structures—The Company continues to face competition from competitors around the globe that may enter the market through either offers to pay data compensation, or similar means in foreign jurisdictions, and then subsequently source material from countries having lower cost structures (typically India and China). These competitors typically tend to operate at thinner gross margins and, with low costs of goods, tend to drive pricing and profitability of subject product lines downward. There is no guarantee that the Company will maintain market share and pricing when facing such generic competitors, or that such competitors will not offer generic versions of the Company’s products in the future.
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The Company’s key customers typically carry competing product lines and may be influenced by the Company’s larger competitors—A significant portion of the Company’s products are sold to national distributors in the U.S., which also carry product lines of competitors that are much larger than the Company. Typically, revenues from the sales of these competing product lines and related program incentives constitute a greater part of our distributors’ income than do revenues from sales and program incentives arising from the Company’s product lines. With the recent consolidation among domestic distribution companies, these considerations have become more pronounced. In light of these facts, there is no assurance that such customers will continue to market our products aggressively or successfully, or that the Company will be able to influence such customers to continue to purchase our products instead of those of our competitors.
Industry consolidation may threaten the Company’s position in various markets—The global agricultural chemical industry continues to undergo significant consolidation. Many of the Company’s competitors have grown or are expected to grow through mergers and acquisitions. As a result, these competitors will tend to be in position to realize greater economies of scale, offer more diverse portfolios and thereby exert greater influence throughout the distribution channels. Consequently, the Company may find it more difficult to compete in various markets. While such merger activity may generate acquisition opportunities for the Company, there is no guarantee that the Company will benefit from such opportunities. Further, there is a risk that the Company’s future performance may be hindered by the growth of its competitors through consolidation.
The Company is dependent on a limited number of customers, which makes it vulnerable to the continued relationship with and financial health of those customers—Our top three customers accounted for 39% of the Company’s sales in 2021, 2020 and 2019. The Company’s future prospects may depend on the continued business of such customers and on our continued status as a qualified supplier to such customers. The Company cannot guarantee that these key customers will continue to buy products from us at current levels. The loss of a key customer could have a material adverse effect on the Company’s consolidated financial statements.
General Risks
The carrying value of certain assets on the Company’s consolidated balance sheets may be subject to impairment depending upon market trends and other factors—The Company regularly reviews the carrying value of certain assets, including long-lived assets, inventory, fixed assets and intangibles. Depending upon the class of assets in question, the Company takes into account various factors including, among others, sales, trends, market conditions, cash flows, profit margins and the like. Based upon this analysis, where circumstances warrant, the Company may leave such carrying values unchanged or adjust them as appropriate. There is no guarantee that these carrying values can be maintained indefinitely, and it is possible that one or more such assets could be subject to impairment which, in turn, could have an adverse impact upon the Company’s consolidated financial statements.
The Company’s computing systems are subject to cyber security risks—In the course of its operations the Company relies on its computing systems, including access to the internet, the use of third-party applications and the storage and transmission of data through such systems. While the Company has implemented security measures to protect these systems, there is no guarantee that a third-party will not penetrate these defenses through hacking, phishing or otherwise and either compromise, corrupt or shut down these systems. Further, in the event of such incursion it is possible that confidential business information and private personal data could be taken. Such an event could adversely affect both the Company’s ability to operate, its reputation with key stakeholders and its overall financial performance.
Reduced financial performance may limit the Company’s ability to borrow under its credit facility—The Company has historically grown net sales and net income through the expansion of current product lines, the acquisition of product lines from third parties and the acquisition of both domestic and international distributors with strong niche market positions. In order to finance such acquisitions, the Company has drawn upon its senior credit facility. However, the Company’s borrowing capacity under the senior credit facility depends, in part, upon its satisfaction of a negative covenant that sets a maximum ratio of borrowed debt to earnings (as measured over the trailing 12-month period). There is no guarantee that the Company will continue to generate earnings necessary to ensure that it has sufficient borrowing capacity to support future acquisitions or that, when necessary, the lender group will amend the senior credit facility to provide for such borrowing capacity. Further, despite the Company’s long-standing relationship with its lenders, in light of the uncertainties in global financial markets, there is no guarantee that the Company’s lenders will be either willing or able to continue lending to the Company at such rates and in such amounts as may be necessary to meet the Company’s working capital and operational needs.
The Company is subject to taxation related risks in multiple jurisdictions—The Company is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In 2017, the U.S. enacted significant tax reform, and in the long-term certain provisions of the new law may adversely affect us. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the EU, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are
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actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition, results of operations, or cash flows may be adversely impacted.
To the extent that capacity utilization is not fully realized at its manufacturing facilities, the Company may experience lower profitability—While the Company endeavors continuously to maximize utilization of it manufacturing facilities, our success in these endeavors is dependent upon many factors, including fluctuating market conditions, product life cycles, weather conditions in our key markets, availability of raw materials, manufacturing equipment performance, retention of the workforce and regulatory constraints, among other things. There can be no assurance that the Company will be able to maximize the utilization of capacity at its manufacturing facilities. Underutilization of such manufacturing resources could have a material adverse effect upon the Company’s financial performance.
The Company’s continued success depends, in part, upon a limited number of key employees—Within certain functions, the Company relies heavily on a small number of key employees to manage ongoing operations and to perform strategic planning. In some cases, there are no internal candidates who are qualified to succeed these key personnel in the short term. In the event that the Company were to lose one or more key employees, there is no guarantee that Company could replace them with people having comparable skills. Further, the loss of key personnel could adversely affect the operation of our business.
Item 2. Purchases of Equity Securities by the Issuer
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, par value $0.10 per share, in the open market over the succeeding one year at a price not to exceed $20 per share, subject to limitations and restrictions under applicable securities laws.
The table below summarizes the number of shares of our common stock that were repurchased during the three months ended March 31, 2022. There were no such purchases during the three months ended March 31, 2021. The shares and respective amount are recorded as treasury shares on the Company’s condensed consolidated balance sheet.
|
Month ended |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total amount paid |
|
|
Maximum number of shares that may yet be purchased under the plan |
|
||||
|
January 31, 2022 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
February 28, 2022 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
March 31, 2022 |
|
|
332,404 |
|
|
$ |
18.71 |
|
|
$ |
6,219 |
|
|
|
667,596 |
|
|
Total number of shares repurchased |
|
|
332,404 |
|
|
$ |
18.71 |
|
|
$ |
6,219 |
|
|
|
667,596 |
|
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|
Item 6. |
Exhibits |
Exhibits required to be filed by Item 601 of Regulation S-K:
|
Exhibit No. |
|
Description |
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
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 March 31, 2022, formatted in XBRL (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. |
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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: May 4, 2022 |
By: |
/s/ eric g. wintemute |
|
|
|
Eric G. Wintemute |
|
|
|
Chief Executive Officer and Chairman of the Board |
|
|
|
|
|
Dated: May 4, 2022 |
By: |
/s/ david t. johnson |
|
|
|
David T. Johnson |
|
|
|
Chief Financial Officer & Principal Accounting Officer |
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