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hi
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
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:
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Title of each class |
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Trading Symbol(s) |
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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.
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Large Accelerated Filer |
☐ |
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☒ |
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Non-Accelerated Filer |
☐ |
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Smaller reporting company |
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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, $.10 Par Value —
AMERICAN VANGUARD CORPORATION
INDEX
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Page Number |
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3 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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4 |
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5 |
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6 |
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8 |
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9 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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29 |
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29 |
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30 |
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30 |
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30 |
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31 |
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31 |
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32 |
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2
PART I. FINANCI AL INFORMATION
Item 1. FINANC IAL STATEMENTS
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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(
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) |
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(
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(
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) |
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(
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Gross profit |
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Operating expenses |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Operating income |
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Change in fair value of equity investments |
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(
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) |
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(
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) |
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(
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) |
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(
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) |
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Interest expense, net |
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(
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) |
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(
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) |
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(
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) |
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(
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Income before provision for income taxes |
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Income tax expense |
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(
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) |
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(
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) |
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(
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) |
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(
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Net income (loss) |
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$ |
(
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) |
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$ |
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$ |
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$ |
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Net income (loss) per common share—basic |
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$ |
(
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) |
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$ |
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$ |
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$ |
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Net income (loss) per common share—assuming dilution |
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$ |
(
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) |
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$ |
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$ |
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$ |
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Weighted average shares outstanding—basic |
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Weighted average shares outstanding—assuming dilution |
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See notes to the Condensed Consolidated Financial Statements.
3
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEM ENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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For the Three Months
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For the Nine Months
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2023 |
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2022 |
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2023 |
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2022 |
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Net income (loss) |
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$ |
(
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) |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment, net of tax effects |
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(
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) |
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(
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) |
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(
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) |
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Comprehensive income (loss) |
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$ |
(
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) |
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$ |
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$ |
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$ |
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|
See notes to the Condensed Consolidated Financial Statements.
4
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDAT ED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS
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September 30,
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December 31,
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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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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Income taxes receivable |
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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 |
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Goodwill |
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Other assets |
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Deferred income tax assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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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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Current operating lease liabilities |
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Total current liabilities |
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Long-term debt, net |
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Long-term operating lease liabilities |
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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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Stockholders' equity: |
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Preferred stock, $
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Common stock, $
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Additional paid-in capital |
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Accumulated other comprehensive loss |
|
|
(
|
) |
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(
|
) |
|
Retained earnings |
|
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Less treasury stock at cost,
|
|
|
(
|
) |
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|
(
|
) |
|
Total stockholders’ equity |
|
|
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Total liabilities and stockholders' equity |
|
$ |
|
|
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$ |
|
|
See notes to the Condensed Consolidated Financial Statements.
5
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEM ENTS OF STOCKHOLDERS’ EQUITY
For The Three and Nine Months Ended September 30, 2023
(In thousands, except share data)
(Unaudited)
|
|
|
Common Stock |
|
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Additional |
|
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Accumulated
|
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Treasury Stock |
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||||||||||||||
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Shares |
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Amount |
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Paid-in
|
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Comprehensive
|
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Retained
|
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Shares |
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Amount |
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Total |
|
||||||||
|
Balance, December 31, 2022 |
|
|
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|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Stocks issued under ESPP |
|
|
|
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|
|
|
|
|
|
|
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends declared on common stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Cash dividends declared on common stock ($
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Balance, June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Common stock issued under ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends declared on common stock ($
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Balance, September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
See notes to the Condensed Consolidated Financial Statements.
6
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEM ENTS OF STOCKHOLDERS’ EQUITY
For The Three and Nine Months Ended September 30, 2022
(In thousands, except share data)
(Unaudited)
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Shares |
|
|
Amount |
|
|
Total |
|
||||||||
|
Balance, December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Common stock issued under ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends declared on common stock ($
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|||||
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Cash dividends declared on common stock ($
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Common stock issued under ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends delcared on common stock ($
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Foreign currency translation adjustment, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised; grants, termination
|
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Accelerated share repurchase pending final settlement |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance, September 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
$ |
(
|
) |
|
$ |
|
|
See notes to the Condensed Consolidated Financial Statements.
7
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash used in operating
|
|
|
|
|
|
|
||
|
Depreciation and amortization of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Amortization of intangibles assets |
|
|
|
|
|
|
|
|
|
Amortization of other long-term assets |
|
|
|
|
|
|
|
|
|
Loss on disposal of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Accretion of discounted liabilities |
|
|
|
|
|
|
|
|
|
Amortization of deferred loan fees |
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
Fair value adjustment to contingent consideration |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Change in deferred income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Changes in liabilities for uncertain tax positions or unrecognized tax benefits |
|
|
|
|
|
|
|
|
|
Change in fair value of equity investments |
|
|
|
|
|
|
|
|
|
Net foreign currency adjustments |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities associated with operations: |
|
|
|
|
|
|
||
|
Increase in net receivables |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in inventories |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in prepaid expenses and other assets |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in income tax receivable/payable, net |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in net operating lease liability |
|
|
|
|
|
|
|
|
|
Increase in accounts payable |
|
|
|
|
|
|
|
|
|
Decrease in customer prepayments |
|
|
(
|
) |
|
|
(
|
) |
|
Increase in accrued program costs |
|
|
|
|
|
|
|
|
|
(Decrease) increase 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: |
|
|
|
|
|
|
||
|
Payments under line of credit agreement |
|
|
(
|
) |
|
|
(
|
) |
|
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 (decrease) increase 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.
8
AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES
Notes to Condensed Consol idated 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 statement have been included. Operating results for the three- and nine-month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022. Certain operating cash flow items have been reclassified in the prior period condensed consolidated financial statements to conform with the September 30, 2023 presentation.
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- and nine-month periods presented in the table below.
The operating lease expense for the three-month periods ended September 30, 2023, and 2022, was $
|
|
|
Three months
|
|
|
Three months
|
|
|
Nine months
|
|
|
Nine months
|
|
||||
|
Cash paid for amounts included in the
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
ROU assets obtained in exchange for new lease
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The weighted-average remaining lease term and discount rate related to the operating leases as of September 30, 2023 were as follows:
|
Weighted-average remaining lease term (in years) |
|
|
|
|
|
Weighted-average discount rate |
|
|
|
% |
9
Future minimum lease payments under non-cancellable operating leases as of September 30, 2023 were as follows:
|
2023 (excluding nine-months ended September 30, 2023) |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
(
|
) |
|
Total |
|
$ |
|
|
|
Amounts recognized in the condensed consolidated balance sheets: |
|
|
|
|
|
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 within the U.S non-crop business. The Company has one reportable segment.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. non-crop |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company recognized revenue for substantially all of its net sales at a point in time.
Contract assets relate to royalties earned on certain functional licenses granted for the use of the Company’s intellectual property and amounted to $
The Company 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- and nine-month periods ended September 30, 2023, that was included in customer prepayments at the beginning of 2023, was $
10
4.
Property, Plant and Equipment
—
|
|
|
September 30,
|
|
|
December 31,
|
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Buildings and improvements |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Office furniture, fixtures and equipment |
|
|
|
|
|
|
|
|
|
Automotive equipment |
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
Total gross value |
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
(
|
) |
|
|
(
|
) |
|
Total net value |
|
$ |
|
|
|
$ |
|
|
The Company recognized depreciation expense related to property and equipment of $
Substantially all of the Company’s assets are pledged as collateral to its lenders.
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 methods.
|
|
|
September 30,
|
|
|
December 31, 2022 |
|
||
|
Finished products |
|
$ |
|
|
|
$ |
|
|
|
Raw materials |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
6
7
|
Declaration Date |
|
Record Date |
|
Distribution Date |
|
Dividend
|
|
|
Total
|
|
||
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
11
8. Net Income (Loss)
Per Share
—
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Denominator: (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding-basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and grants |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to a net loss for the three-month period ended September 30, 2023, stock options and other grants were excluded from the computation of diluted net loss per share as the impact is anti dilutive. For the three-month ended September 30, 2022, and nine-month periods ended September 30, 2023, and 2022,
9.
Debt
— The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. The Company has
|
Long-term indebtedness ($000's) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
|
Revolving line of credit |
|
$ |
|
|
|
$ |
|
|
|
Deferred loan fees |
|
|
(
|
) |
|
|
(
|
) |
|
Net long-term debt |
|
$ |
|
|
|
$ |
|
|
The deferred loan fees as of September 30, 2023 are included in other assets on the condensed consolidated balance sheets.
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 Agent (including the Company and AMVAC BV), as Borrowers, on the one hand, and a group of commercial lenders led by BMO Bank, N.A. (formerly Bank of the West) as administrative agent, documentation agent, syndication agent, collateral agent and sole lead arranger, 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.
12
On November 7, 2023,
As of September 30, 2023, by virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants.
According to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $
10.
Classification Corrections —
Corrections to the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 were made in connection with the Company’s operations in Australia, where the Company sells its products to distribution companies as well as directly to growers via third-party agents. The Company identified errors related to the classification of third-party agent’s commission amounts. The Company evaluated these errors and the impact to previously issued financial statements and concluded that the impact of this classification error is not material to any previously issued quarterly or annual financial statements. However, management has recorded correcting adjustments to the previously reported financial statement line items and related disclosures. The third-party agents’ commission in the amount of $
11.
Change in Accounting Principle —
Historically, the Company included warehousing, handling and outbound freight costs in operating expenses on its Consolidated Statements of Operations. Effective January 1, 2023, the Company elected to include these costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of this warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include these warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. This change in accounting principle does not impact operating income, net income (loss), and net income (loss) per share.
13
|
|
|
Classification after adoption
|
|
|
Classification prior to adoption
|
|
||||||||||
|
|
|
For the three months ended September 30, |
|
|
For the three months ended September 30, |
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Cost of sales |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Operating income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Classification after adoption
|
|
|
Classification prior to adoption
|
|
||||||||||
|
|
|
For the nine months ended September 30, |
|
|
For the nine months ended September 30, |
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Cost of sales |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Operating income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12. Comprehensive Income (Loss) — Total comprehensive income (loss) includes, in addition to net income (loss), changes in equity that are excluded from the condensed consolidated statement of operations and are recorded directly into a separate section of stockholders’ equity on the condensed consolidated balance sheets. For the three- and nine-month periods ended September 30, 2023, and 2022, total comprehensive income (loss) consisted of net income (loss) and foreign currency translation adjustments.
13.
Stock-Based Compensation —
|
|
|
Stock-Based
|
|
|
Stock-Based
|
|
|
Unamortized
|
|
|
Remaining
|
|
||||
|
September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Restricted Stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Unrestricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
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- and nine-month periods ended September 30, 2023, and 2022.
14
Time-Based Restricted and Unrestricted Stock — A summary of non-vested shares as of, and for, the three- and nine-month periods ended September 30, 2023, and 2022 is presented below:
|
|
|
Three and Nine Months Ended
|
|
|
Three and Nine Months Ended
|
|
||||||||||
|
|
|
Number
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
||||
|
Nonvested shares at December 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at March 31 st |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at June 30 th |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at September 30 th |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Performance-Based Restricted Stock — A summary of non-vested performance-based shares as of, and for, the three- and nine-month periods ended September 30, 2023, and 2022, respectively is presented below:
|
|
|
Three and Nine Months Ended
|
|
|
Three and Nine Months Ended
|
|
||||||||||
|
|
|
Number
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
||||
|
Nonvested shares at December 31 st |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Additional granted (forfeited) based on
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at March 31 st |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional granted (forfeited) based on
|
|
|
(
|
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at June 30 th |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Nonvested shares at September 30 th |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
15
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. The following tables present details for each type of plan:
Incentive Stock Option Plans
Activity for the three- and nine-month periods ended September 30, 2023:
|
|
|
Number of
|
|
|
Weighted
|
|
||
|
Balance outstanding, December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, March 31, 2023 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, June 30, 2023 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, September 30, 2023 |
|
|
|
|
|
$ |
|
|
All the incentive stock options outstanding as of September 30, 2023, have an exercise price per share of $
Activity for the three- and nine-month periods ended September 30, 2022:
|
|
|
Number of
|
|
|
Weighted
|
|
||
|
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, September 30, 2022 |
|
|
|
|
|
$ |
|
|
Performance Incentive Stock Option Plan
Activity for the three- and nine-month periods ended September 30, 2023:
|
|
|
Number of
|
|
|
Weighted
|
|
||
|
Balance outstanding, December 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
Balance outstanding, March 31, June 30, and September 30, 2023 |
|
|
|
|
|
$ |
|
|
Activity for the three- and nine-month periods ended September 30, 2022:
|
|
|
Number of
|
|
|
Weighted
|
|
||
|
Balance outstanding, December 31, 2021 and March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Options exercised |
|
|
(
|
) |
|
|
|
|
|
Balance outstanding, June 30 and September 30, 2022 |
|
|
|
|
|
$ |
|
|
All the performance incentive stock options outstanding as of September 30, 2023, have an exercise price per share of $
16
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, 2022, except as described below.
Department of Justice and Environmental Protection Agency Investigation . On November 10, 2016, AMVAC 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 in defending the Company’s interests. AMVAC is cooperating in the investigation. After interviewing multiple witnesses (including three employees before a grand jury in February 2022) and making multiple document requests, the Department of Justice (“DoJ”) identified the Company and a manager-level employee as targets of the government’s investigation. DoJ’s investigation focused on potential 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. In March 2022, the individual target entered into a plea agreement relating to provision of false information in a government proceeding. In July 2022, the DoJ sent correspondence to the Company’s counsel to the effect that it was focusing on potential RCRA violations relating to the reimportation of Australian containers in 2015. Our defense counsel has spoken with DoJ on the subject intermittently over the past several months, and DoJ expressed an interest in resolving the matter. The Company anticipates further discussion on resolution of the matter.
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 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 flows. Accordingly, the Company has not recorded a loss contingency for this matter.
Notice of Intention to Suspend DCPA. On April 28, 2022, the USEPA published a notice of intent to suspend (“NOITS”) DCPA, the active ingredient of an herbicide marketed by the Company under the name Dacthal. The agency cited as the basis for the suspension that the Company did not take appropriate steps to provide data studies requested in support of the registration review. In fact, over the course of several years, the Company cooperated in performing the vast majority of the nearly 90 studies requested by USEPA and had been working in good faith to meet the agency’s schedule. After an appeals court (the Environmental Appeals Board) clarified the proper standard for use at the hearing (namely, whether registrant took appropriate steps to respond to the data call-in), a hearing was held in January 2023 before the ALJ, by which time USEPA had narrowed the scope of its claim to nine outstanding studies, all of which have been started by the Company and none of which are necessary for USEPA to commence its risk assessment. In April 2023, the ALJ reached a decision, finding that the agency acted within its authority in issuing the NOITS. On approximately August 22, 2023, the company entered into a settlement agreement with USEPA pursuant to which the Company waived the right to appeal and accepted a suspension of the registration in consideration of the agency reinstating the registration within 75 days after submission of the final study (which was subsequently provided to the agency on or about August 18, 2023). That period expired on or about November 3, 2023, after which, barring a finding of inadequacy in meeting study protocols, the agency has ten days within which to reinstate. In connection with this matter, the Company believes that a loss is neither probable nor estimable and, consequently, has not set aside a reserve in connection with this matter.
Reyes v. AMVAC . On September 28, 2023, the Company received correspondence from counsel for ex-employee Jorge Reyes Jr. addressed to the California Department of Industrial Relations alleging a host of wage and hour violations under California law. This is a precursor to a civil filing under applicable state law. Subsequently, plaintiff, putatively on behalf of the class of similarly situated, non-exempt California-based employees, served a summons and complaint on the Company’s registered agent that had been electronically filed as Case No. 238TCV23665, encaptioned, Jorge Reyes v. AMVAC etc., etal., with the Superior Court for the County of Los Angeles, Central District. As is typical of these sorts of action, plaintiff alleges wages and hours violations of all imaginable types, including overtime, minimum wage, sick leave, rest periods and so on. The Company intends to defend the matter vigorously, does not believe that the claims have any merit. Accordingly, the Company has not recorded a loss contingency for this matter.
15. Recently Issued Accounting Guidance — The Company reviewed all 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.
17
16. Fair Value of Financial Instruments — The accounting standard for fair value measurements provides a framework for measuring fair value and requires certain 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:
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, approximates fair value because of the relatively short maturity of such instruments. The carrying amount of the Company’s borrowings, which are considered Level 2 liabilities, approximates fair value as they bear interest at a variable rate that represents current market rates.
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. The Company did not have any contingent earn-out liabilities at September 30, 2023 and December 31, 2022.
The following table illustrates the Company’s contingent earn-out liability movements related to its business acquisitions as of, and for the three- and nine-month periods ended September 30, 2022:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
||
|
Balance, June 30, 2022 and December 31, 2021, respectively |
|
$ |
|
|
|
$ |
|
|
|
Fair value adjustment |
|
|
|
|
|
|
|
|
|
Payments on existing obligations |
|
|
(
|
) |
|
|
(
|
) |
|
Accretion of discounted liabilities |
|
|
|
|
|
|
|
|
|
Foreign exchange effect |
|
|
(
|
) |
|
|
(
|
) |
|
Balance, September 30, 2022 |
|
$ |
|
|
|
$ |
|
|
18
17.
Accumulated Other Comprehensive Loss (“AOCL”)
—
|
|
|
Total |
|
|
|
Balance, December 31, 2022 |
|
$ |
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of ($
|
|
|
|
|
|
Balance, March 31, 2023 |
|
|
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of ($
|
|
|
|
|
|
Balance, June 30, 2023 |
|
|
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of $
|
|
|
(
|
) |
|
Balance, September 30, 2023 |
|
$ |
(
|
) |
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
$ |
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of ($
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of $
|
|
|
(
|
) |
|
Balance, June 30, 2022 |
|
|
(
|
) |
|
Foreign currency translation adjustment, net of tax effects of $
|
|
|
(
|
) |
|
Balance, September 30, 2022 |
|
$ |
(
|
) |
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 September 30, 2023 and December 31, 2022, the Company’s ownership position in Bi-PA was
On April 1, 2020, AMVAC purchased
19. Income Taxes — Income tax expense for the three and nine months ended September 30, 2023 and 2022, is computed using the estimated effective tax rates applicable to each of the domestic and international taxable jurisdictions for the full year. The Company’s tax rate is subject to management’s quarterly review and revision, as necessary. The Company’s provision for income taxes and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign income (loss) before income taxes.
Income tax expense was $
For the three-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets.
Additionally, for the nine-month period ended September 30, 2023, the increase in the effective income tax rate compared to the same period in 2022, is due to withholding tax charges ( net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. The increase in the effective income tax rate is partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes.
19
It is expected that $
20. Stock Re-purchase Programs —The Company periodically repurchases shares of its common stock under a board-authorized repurchase program through a combination of open market transactions and accelerated share repurchase ("ASR") arrangements.
On March 8, 2022, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase an aggregate number of up to
On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $
The table below summarizes the number of shares of the Company’s common stock that were repurchased through open market transactions during the three and nine months ended September 30, 2023 and 2022.
|
Three months ended |
|
Total number of
|
|
|
Average price paid
|
|
|
Total amount paid |
|
|||
|
September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
September 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Nine months ended |
|
Total number of
|
|
|
Average price paid
|
|
|
Total amount paid |
|
|||
|
September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
September 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
On August 22, 2022, pursuant to a Board of Directors resolution, the Company entered into an ASR arrangement to repurchase $
The table below summarizes the number of shares of the Company’s common stock that were received under the accelerated share repurchase arrangement during the three- and nine-month periods ended September 30, 2022.
|
Three months ended |
|
Total number of
|
|
|
Average price
|
|
|
Total amount paid |
|
|||
|
September 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.
20
21. Supplemental Cash Flow Information
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
2023 |
|
|
2022 |
|
||
|
Supplemental cash flow information: |
|
|
|
|
|
|
||
|
Cash paid during the period for: |
|
|
|
|
|
|
||
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income taxes, net |
|
$ |
|
|
|
$ |
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
||
|
Cash dividends declared and included in accrued expenses |
|
$ |
|
|
|
$ |
|
|
22.
Subsequent Event
—
October 9, 2023, the Company completed the acquisition of Punto Verde, a well-established distributor in Guayaquil, Ecuador, to strengthen its product portfolio and market access in the Latin American region, for a total consideration of approximately $
21
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.
Effective January 1, 2023, the Company includes warehousing, handling and outbound freight costs in cost of sales instead of operating expenses on its condensed consolidated statements of operations. The effects of the change in accounting have been retrospectively applied to all periods presented. The Company believes that the change in accounting is preferable as it aligns the Company’s classification of these warehousing, handling and outbound freight costs in such a way as to present operational management with a clearer vision of the operational performance by business unit. This accounting change also increases the comparability of the Company’s financial performance with its peer companies as most peer companies include warehousing, handling and outbound freight costs in cost of sales rather than operating expenses. As a result, this change is intended to help interested parties better understand the Company’s performance and facilitate comparisons with most of the Company’s peer companies. The change in accounting principle did not have any impact on operating income, net income (loss) and net income (loss) per share. Please refer to Note 11 to the condensed consolidated financial statements for further details.
MANAGEMENT OVERVIEW
Overview of the Company’s Performance
The third quarter of 2023 has been marked by the same factors that have lingered over the course of the full year to date, namely: destocking by customers that seek to avoid the high carrying costs of inventory; supply chain issues with a key herbicide; procurement of goods closer to time-of-use; the influence of low-cost generic products exported to multiple markets from China-based suppliers working within a strained economy; and a strong US Dollar with relatively stable commodity prices. These factors have tended to affect different markets somewhat disparately, as will be noted from the discussion below.
Within this context, the Company’s financial performance for the third quarter of 2023 declined as compared to the third quarter of 2022. Domestically, sales of both crop and non-crop products were nearly flat with those of the comparable quarter in 2022. As a result of the conservative procurement trend, inventory of many of our crop products within the distribution channel was at historic lows, even though end customer demand was strong; this was true, for example of Aztec, our leading corn soil insecticide. Further, we experienced mixed results among other crop protection products. For example, sales of soil fumigants in the Pacific Northwest were strong (as this is the application season and weather was favorable), while sales of cotton products (primarily into the south and southwest) were affected by reduced planted acres and unfavorable weather. Within the domestic non-crop business, retailers continued to demonstrate conservative stocking patterns. Nevertheless, we experienced steady demand for nursery, ornamental and professional pest control products. Within our international business, sales were down slightly, while some regions (e.g., Mexico) showed greater strength and others (e.g., Central America and Brazil) continued to experience market pressure from low-priced, generic goods from China-based suppliers.
Against this backdrop, on a consolidated basis, domestic sales declined by 1% while international sales declined by 3%, resulting in an overall net sales decline of 2%. Overall cost of sales increased by 4% and was 71% of sales in 2023, as compared to 67% for the same period of 2022. These factors, taken together with slightly higher net manufacturing costs resulted in a 13% decrease in gross profit (to $43,084 in 2023 from $49,638 in 2022), while overall gross margin percent declined to 29% from 33% quarter-over-quarter.
Operating expenses increased slightly to $38,893 for the three-months period ended September 30, 2023 from $38,394 in the same quarter of the prior year; further, operating expenses as a percent of net sales rose to 26% in the third quarter of 2023 from 25% in the comparable period of 2022, largely due to higher research, product development costs, regulatory expenses costs and increased sales and marketing expenses.
22
Operating income for the period decreased to $4,191 from $11,244, driven by reduced sales, higher freight charges (an element of cost of sales), a decreased gross margin percentage and higher operating expenses. During the third quarter, the Company experienced significantly higher interest expenses, due to increased borrowing and significantly higher interest rates. Income before taxes ended at $560 including a profitable performance for most of the Company’s operating entities around the world, offset by losses in certain businesses, including Brazil. Losses at that entity generate a tax benefit, which was not realized as a result of maintaining a full valuation allowance. As a result, net tax expense exceeded income before taxes, resulting in a net loss for the quarter.
These factors yielded a net loss for the period of $325, as compared to net income of $6,741 in the third quarter of 2022. Details on our financial performance are set forth below.
RESULTS OF OPERATIONS
Quarter Ended September 30, 2023 and 2022:
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
67,749 |
|
|
$ |
69,101 |
|
|
$ |
(1,352 |
) |
|
|
-2 |
% |
|
U.S. non-crop |
|
|
19,250 |
|
|
|
18,946 |
|
|
|
304 |
|
|
|
2 |
% |
|
Total U.S. |
|
|
86,999 |
|
|
|
88,047 |
|
|
|
(1,048 |
) |
|
|
-1 |
% |
|
International |
|
|
62,517 |
|
|
|
64,220 |
|
|
|
(1,703 |
) |
|
|
-3 |
% |
|
Total net sales |
|
|
149,516 |
|
|
|
152,267 |
|
|
|
(2,751 |
) |
|
|
-2 |
% |
|
Total cost of sales |
|
|
(106,432 |
) |
|
|
(102,629 |
) |
|
|
(3,803 |
) |
|
|
4 |
% |
|
Total gross profit |
|
$ |
43,084 |
|
|
$ |
49,638 |
|
|
$ |
(6,554 |
) |
|
|
-13 |
% |
|
Total gross margin |
|
|
29 |
% |
|
|
33 |
% |
|
|
|
|
|
|
||
Our domestic crop business recorded net sales that were 2% lower than those of the third quarter of 2022 ($67,749 as compared to $69,101). Our cotton products were negatively influenced by a year-over-year decline in US cotton acreage of up to 25% in key Southeast and Mississippi delta regions resulting in reduced sales of our foliar insecticide Bidrin. Further, late planting of cotton in 2023 led to some delayed applications of our Folex harvest defoliant from this year’s third quarter to the fourth quarter. In addition, we recorded no sales of our herbicide Dacthal, as the Company is awaiting reinstatement of the product registration after having submitted data study requirements. These declines were largely offset by significantly higher sales of our corn soil insecticide Aztec, as corn rootworm pressure intensified, while channel inventories are at historical lows. Sales of our Thimet insecticide for use against wireworm infestation in sugarcane were very strong in the third quarter. Similarly, our metam sodium soil fumigants also posted larger sales, as late summer and early autumn dry weather patterns facilitated increased third quarter application.
Our domestic non-crop business posted increased net sales in the third quarter of 2023, as compared to the same period in the prior year ($19,250 versus $18,936). In the quarter, demand for our OHP nursery and ornamental products remained relatively flat, as consumer spending on such products remained steady. Likewise, we saw a normal late summer/early fall demand for goods that we supply to professional pest control applicators and landscapers. Sales of mosquito control product were slightly lower than those of the prior year third quarter.
Net sales of our international businesses declined by 3% during the period ($62,517 in 2023 vs. $64,220 in 2022) and constituted 42% of our consolidated quarterly sales in the three months ended September 30, 2023 and 2022, respectively. These results arose from a number of factors, including the foreign exchange effect of a strong US Dollar, various supply-chain constraints, industry-wide channel inventory destocking and intensified competition of generic products from Asia. The business benefited from sales increases in several countries of our Mocap and Nemacur soil insecticides and our Counter nematicide in Brazil. Conversely, our Central American business, while maintaining a strong presence in the pineapple, banana, and citrus markets, posted lower sales attributed to significant drought conditions in the region and continued pricing pressure caused by a surge of imported generic products from China. In Mexico, our business recorded good performance driven by our Bromacil herbicide. We experienced relatively flat performance in Australia, as well as with respect to our growth regulators, biorational products and our Agrinos portfolio.
23
Operating expenses were flat at $38,893 for the three-month period ended September 30, 2023, as compared to $38,394 for the same quarter of the prior year. The changes in operating expenses by nature are as follows:
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Sales and marketing |
|
$ |
14,718 |
|
|
$ |
14,311 |
|
|
$ |
407 |
|
|
|
3 |
% |
|
General and administrative |
|
|
15,095 |
|
|
|
15,570 |
|
|
|
(475 |
) |
|
|
-3 |
% |
|
Research, product development and regulatory |
|
|
9,080 |
|
|
|
8,513 |
|
|
|
567 |
|
|
|
7 |
% |
|
|
|
$ |
38,893 |
|
|
$ |
38,394 |
|
|
$ |
499 |
|
|
|
1 |
% |
On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company recorded negative fair value adjustments in the amount of $247 and $454 for the three months ended September 30, 2023 and 2022, respectively.
Interest costs net of capitalized interest were $3,384 in the three-month period ended September 30, 2023, as compared to $1,086 in the same period of 2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
|
|
Three months ended September 30, 2023 |
|
|
Three months ended September 30, 2022 |
|
||||||||||||||||||
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
||||||
|
Revolving line of credit (average) |
|
$ |
200,247 |
|
|
$ |
3,578 |
|
|
|
7.1 |
% |
|
$ |
125,441 |
|
|
$ |
1,104 |
|
|
|
3.5 |
% |
|
Amortization of deferred loan fees |
|
|
— |
|
|
|
56 |
|
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
— |
|
|
Amortization of other deferred liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
Other interest (income) |
|
|
— |
|
|
|
(44 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
Subtotal |
|
|
200,247 |
|
|
|
3,590 |
|
|
|
7.2 |
% |
|
|
125,441 |
|
|
|
1,174 |
|
|
|
3.7 |
% |
|
Capitalized interest |
|
|
— |
|
|
|
(206 |
) |
|
|
— |
|
|
|
— |
|
|
|
(88 |
) |
|
|
— |
|
|
Total |
|
$ |
200,247 |
|
|
$ |
3,384 |
|
|
|
6.8 |
% |
|
$ |
125,441 |
|
|
$ |
1,086 |
|
|
|
3.5 |
% |
The Company’s average overall debt for the three-month period ended September 30, 2023 was $200,247, as compared to $125,441 for the three-month period ended September 30, 2022. Our borrowings in the three-month period ended September 30, 2023, were higher primarily as a result of customer decisions to slow down purchases from buying early to now buying as close to time of use as possible, resulting in increased working capital for the company as we work through this change in the market places in which we operate. As can be seen from the table above, the effective bank interest rate on our revolving line of credit was 7.1% and 3.5% at each of the three-month period ended September 30, 2023 and 2022, respectively.
Income tax expense decreased by $2,078 to $885 for the three-month period ended September 30, 2023, as compared to $2,963 for the comparable period in 2022. The effective tax rates for the three-month period ended September 30, 2023 and 2022, were 158.0% and 30.5%, respectively. The increase in the effective tax rate for the three months ended September 30, 2023 as compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain valuation allowances against their net deferred tax assets.
Our net loss for the three-month period ended September 30, 2023, was $325 or ($0.01) per basic and diluted share, as compared to net income of $6,741 or $0.23 per basic and diluted share in the same quarter of 2022.
24
Nine Months Ended September 30, 2023 and 2022:
Overview of the Company’s Performance
During much of the year-to-date in 2023, the global agricultural industry has been influenced by a handful of dynamics. First, commodity prices have remained relatively stable; this has been so since the Russian invasion of Ukraine. Second, the US Dollar has been strong, while the Chinese economy has weakened. This, in turn, has created foreign exchange impacts for US-based businesses that serve international markets. In addition, China-based suppliers have oversupplied certain markets (e.g., Central America) with low-priced generic products. Third, the cost of money has risen to the point that customers have engaged in destocking activity to limit carrying costs for inventory. Finally, supply chain disruptions continued to arise from time to time, particularly among domestic companies that import goods from Asia and India. Against that backdrop, the Company’s overall operating results for the first nine months of 2023 declined as compared to those of the same period of 2022.
On a consolidated basis, with domestic sales down 14% and international down by 3%, overall net sales decreased by 10% (to $407,191 from $450,036). Cost of sales were down 9% on an absolute basis but increased as a percent of net sales to 69% from 67%. Factory performance was less cost efficient during the first nine months of 2023, as compared to that of 2022. These factors, taken together, yielded an decrease in gross profit margin to 31% of net sales from 33% during the first nine months of 2022. Operating expenses were flat on an absolute basis but increased as a percent of net sales to 28% as compared to 25% of net sales for the same period of the prior year.
Interest expense rose sharply due to higher interest rates and higher average borrowing, while income tax expense decreased significantly to $2,066 from $10,187 during the comparable period last year, primarily as a result of lower income before taxes. Overall, the Company’s net income for the period decreased to $540 from $23,506 during the first nine months of the prior year. Details on our financial performance are set forth below.
RESULTS OF OPERATIONS
Nine months ended September 30, 2023, and 2022
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. crop |
|
$ |
185,823 |
|
|
$ |
220,303 |
|
|
$ |
(34,480 |
) |
|
|
-16 |
% |
|
U.S. non-crop |
|
|
50,041 |
|
|
|
53,844 |
|
|
|
(3,803 |
) |
|
|
-7 |
% |
|
Total U.S. |
|
|
235,864 |
|
|
|
274,147 |
|
|
|
(38,283 |
) |
|
|
-14 |
% |
|
International |
|
|
171,327 |
|
|
|
175,916 |
|
|
|
(4,589 |
) |
|
|
-3 |
% |
|
Total net sales |
|
|
407,191 |
|
|
|
450,063 |
|
|
|
(42,872 |
) |
|
|
-10 |
% |
|
Total cost of sales |
|
|
(282,662 |
) |
|
|
(299,698 |
) |
|
|
17,036 |
|
|
|
-6 |
% |
|
Total gross profit |
|
$ |
124,529 |
|
|
$ |
150,365 |
|
|
$ |
(25,836 |
) |
|
|
-17 |
% |
|
Total gross margin |
|
|
31 |
% |
|
|
33 |
% |
|
|
|
|
|
|
||
Our domestic crop business recorded net sales that were 16% lower than those of the first nine months of 2022. The main driver of this performance was in our herbicide product category. Dacthal, which is used on a wide variety of high-value crops was unavailable for sale this year, as the company awaits the reinstatement of its registration. Additionally, our Impact post-emergent corn herbicide posted lower sales this year due to an unexpected grower preference for low-priced non-selective herbicides. Offsetting this decline was our leading soil insecticide Aztec, which rebounded from earlier supply constraints and saw strong demand in light of heavy rootworm pressure throughout the Midwest region. Our domestic cotton business, led by Bidrin foliar insecticide and Folex harvest defoliant, declined during the first three quarters of 2023 due to lower cotton acreage, moderate pest pressure, and a delay in harvest defoliant applications. At the same time, we posted modest increases in our soil fumigant and sugarcane products. The US crop business continues to experience the effects of channel inventory destocking, driven by high interest rate carrying costs. This has led to very cautious purchasing patterns throughout the domestic business since the beginning of the second quarter.
Year-to-date, the Company’s domestic crop business was slowed by supply chain disruption of its premier corn soil insecticide Aztec and herbicide Dacthal during the first quarter. During the second quarter, both US crop and US non-crop experienced slowed sales resulting from global destocking on the part of our distribution channels. Crop sales declines were partially offset by stronger sales of soil fumigants. Within non-crop, big box stores and retailers slowed and reduced procurement activity and departed from the historical norm of maintaining about 6 months’ inventory to about 30 days’ inventory. Within our International business, Central America and Brazil were adversely affected by the export of low-priced generic product from China, partially offset by strong performances in Mexico and Australia.
25
Our domestic non-crop business recorded an 8% decrease in net sales for the first nine months of the year (to $49,791 from $53,844). We experienced a nine month reduction in consumer demand for our OHP nursery and ornamental products, most of which occurred earlier this year and now has normalized in the most recent quarter. Sales of our Dibrom® mosquito adulticide remained nearly flat while sales for commercial pest control products (pest strips and bifenthrin) declined, due in part to measures imposed by distribution to control inventory carrying costs. License revenue for our Envance technologies increased when compared to the same period in 2022, due to an increase in contractually guaranteed royalty fees.
Net sales of our international businesses declined by 3% during the first three quarters of 2023 (to $171,327 in 2023 from $175,916 in 2022). Central America experienced a rare multi-quarter sales decline due to continuing regional drought conditions and increased competitive pressure from Chinese imports. Brazil continued to gain further market penetration of our Counter granular insecticide/nematicide, but the overall business suffered otherwise from intense channel inventory destocking in the region. Mexico delivered solid performance by satisfying continuing strong demand for Bromacil herbicides and granular soil insecticides, offset somewhat by lower sales of our soil fumigant products. Australia posted higher sales with our expanded market footprint following full integration of the AgNova business, despite the recurrence of drought conditions in parts of the continent.
Operating expenses decreased by $242 to $113,317 for the nine-month period ended September 30, 2023, as compared to the same period in 2022. The changes in operating expenses by department are as follows:
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% Change |
|
||||
|
Sales and marketing |
|
$ |
41,288 |
|
|
$ |
38,271 |
|
|
$ |
3,017 |
|
|
|
8 |
% |
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Other |
|
|
44,125 |
|
|
|
50,262 |
|
|
|
(6,137 |
) |
|
|
-12 |
% |
|
Proxy contest activities |
|
|
541 |
|
|
|
1,785 |
|
|
|
(1,244 |
) |
|
|
-70 |
% |
|
Research, product development and regulatory |
|
|
27,363 |
|
|
|
23,241 |
|
|
|
4,122 |
|
|
|
18 |
% |
|
|
|
$ |
113,317 |
|
|
$ |
113,559 |
|
|
$ |
(242 |
) |
|
|
0 |
% |
During the nine-month period ended September 30, 2023, the Company recorded a decrease in the fair value of our equity investment in Clean Seed in the amount of $324 compared to $857 during the nine months ended September 30, 2022. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.
26
Interest costs net of capitalized interest were $8,282 in the first nine-month period of 2023, as compared to $2,256 in the same period of 2022. Interest costs are summarized in the following table:
Average Indebtedness and Interest expense
|
|
|
Nine months ended September 30, 2023 |
|
|
Nine months ended September 30, 2022 |
|
||||||||||||||||||
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
||||||
|
Revolving line of credit (average) |
|
$ |
149,009 |
|
|
$ |
7,819 |
|
|
|
7.0 |
% |
|
$ |
111,939 |
|
|
$ |
2,250 |
|
|
|
2.7 |
% |
|
Amortization of deferred loan fees |
|
|
— |
|
|
|
174 |
|
|
|
— |
|
|
|
— |
|
|
|
199 |
|
|
|
— |
|
|
Amortization of other deferred liabilities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
— |
|
|
Other interest expense |
|
|
— |
|
|
|
657 |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
|
— |
|
|
Subtotal |
|
|
149,009 |
|
|
|
8,650 |
|
|
|
7.7 |
% |
|
|
111,939 |
|
|
|
2,496 |
|
|
|
3.0 |
% |
|
Capitalized interest |
|
|
— |
|
|
|
(368 |
) |
|
|
— |
|
|
|
— |
|
|
|
(240 |
) |
|
|
— |
|
|
Total |
|
$ |
149,009 |
|
|
$ |
8,282 |
|
|
|
7.4 |
% |
|
$ |
111,939 |
|
|
$ |
2,256 |
|
|
|
2.7 |
% |
The Company’s average overall debt for the nine-month period ended September 30, 2023, was $149,009, as compared to $111,939 for the nine months ended September 30, 2022. During the period, our average borrowings increased due to share repurchase programs and an increase in inventory due to a slowdown in sales as a result of channel destocking. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 7.0% for the nine months ended September 30, 2023, as compared to 2.7% for the same period of 2022.
Income tax expense decreased by $8,121 to $2,066 for the nine-month period ended September 30, 2023, as compared to $10,187 for the comparable period in 2022. The effective tax rates for the nine-month period ended September 30, 2023 and 2022, were 79.3% and 30.2%, respectively.
The increase in the effective tax rate for the nine months ended September 30, 2023, as compared to the same period in 2022, is primarily attributable to an increase in losses incurred at certain entities which did not result in a benefit for income tax purposes as these entities continue to maintain a valuation allowance against their net deferred tax assets. Additionally, the Company recorded withholding tax charges (net of income tax credits) associated with interest on certain intercompany loans and the establishment of liabilities for uncertain tax positions in certain jurisdictions. These factors are partially offset by a benefit from the remeasurement of certain U.S. federal and state deferred taxes.
Our net income for the nine-month period ended September 30, 2023 was $540 or $0.02 per basic and diluted share, as compared to $23,506 or $0.80 per basic and $0.78 per diluted share in the same period of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s operating activities utilized net cash of $145,854 during the nine-month period ended September 30, 2023, as compared to $45,678 during the nine months ended September 30, 2022. Included in the $145,854 are net income of $540, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $17,850, loss on disposal of property, plant and equipment of $7, amortization of deferred loan fees of $174 and provision for bad debts in the amount of $952. Also included are stock-based compensation of $4,257, increase in deferred income taxes of $977, changes in liabilities for uncertain tax positions or unrecognized tax benefits of $467, change in fair value of an equity investment of $324, and net foreign currency adjustments of $199. These together provided net cash inflows of $23,793, as compared to $49,903 for the same period of 2022.
During the nine-month period of 2023, the Company increased working capital by $160,094, as compared to an increase of $59,659 during the same period of the prior year. Included in this change: inventories increased by $58,163, as compared to $38,987 for the same period of 2022. While increases in inventory are normal for the Company’s annual cycle, the increase was bigger due to slowed sales resulting from global destocking on the part of our distribution channels.
27
Customer prepayments decreased by $104,590, as compared to $62,831 in the same period of 2022, driven by customer decisions regarding demand, payment timing and our cash incentive programs. Our accounts payable balances increased by $1,240, as compared to an increase of $14,418 in the same period of 2022, driven by decreased factory activity levels. Accounts receivables increased by $29,055, as compared to an increase of $46,289 in the same period of 2022. This is primarily driven by lower overall sales. Prepaid expenses increased by $633, as compared to $4,272 in the same period of 2022. Income tax receivable changed by $4,046, as compared to $5,201 in the prior year. Accrued programs increased by $29,779, (as compared to $45,016 in the prior year), which is normal at this point in the growing season and is related to sales volume. Finally, other payables and accrued expenses decreased by $4,406 compared to an increase of $2,555 in 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 30 th of each year. During the first nine months of 2023, the Company made accruals for programs in the amount of $62,248 and payments in the amount of $32,469. During the first nine months of the prior year, the Company made accruals in the amount of $78,885 and made payments in the amount of $33,869. The decrease in accruals for programs in the first nine months of 2023, compared to the same period in 2022, is a direct result of an decrease in sales of qualifying products.
Cash used for investing activities for the nine-month period ended September 30, 2023, and 2022 was $9,148 and $9,978, respectively. In 2023, the Company spent $8,589 on purchases of fixed assets primarily focused on continuing to invest in manufacturing infrastructure, as compared to $8,946 for the same period of prior year. The Company spent $759 on patents and other intangible assets in 2023 as compared to $1,078 in 2022. In addition, the Company received proceeds from disposal of property, plant and equipment in the amount of $200, as compared to $46 in prior year.
During the nine months ended September 30, 2023, financing activities provided $146,680, as compared to $59,797 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $165,700 during the nine-month period ended September 30, 2023, as compared to $96,000 in the same period of the prior year. The Company paid dividends to stockholders amounting to $2,550 during the nine months ended September 30, 2023, as compared to $2,072 in the same period of 2022. The Company paid $15,539 for the repurchase of 885,290 shares of its common stock during the nine-month period ended September 30, 2023, as compared to $13,731 for 720,350 shares and $20,000 related to an accelerated share repurchase agreement during the nine-month period ended September 30, 2022. The Company received $1,026 for the issuance of ESPP shares and exercise of stock options for the nine months ended September 30, 2023, as compared to $1,620 for the same period in prior year. Lastly, in exchange for shares of common stock returned by employees, the Company paid $1,957 and $2,020 for tax withholding on stock-based compensation awards during the nine months ended September 30, 2023 and 2022, respectively.
The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. These are summarized in the following table:
|
Long-term indebtedness ($000's) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
|
Revolving line of credit |
|
$ |
218,000 |
|
|
$ |
52,300 |
|
As of September 30, 2023, by virtue of Amendment Number Six to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants (refer to Note 9 to the condensed consolidated financial statements for further details).
At September 30, 2023, according to the terms of the Credit Agreement, as amended, including our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $28,760, compared to $200,372 as of December 31, 2022.
RECENTLY ISSUED ACCOUNTING GUIDANCE
Please refer to Note 15 in the accompanying Notes to the condensed consolidated financial statements for recently issued 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, 2022, 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, 2022.
28
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 updates to estimates and assumptions are reflected in the condensed consolidated financial statements in the period that these updates are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions. Our estimates did not change materially during the three- and nine-months ended September 30, 2023.
Item 3. QUANTITATIVE AND QUALITAT IVE 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, 2022 and Note 9 to the condensed consolidated financial statements.
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.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2023, 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 September 30, 2023, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has 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.
29
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.
Item 1. Legal Proceedings
Please refer to Note 14 in the accompanying Notes to the condensed consolidated financial statements for legal updates.
Item 1A. Ri sk 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, 2022, filed on March 16, 2023. There are no material changes to the risk factors as so stated, except as follows:
Disruption in the global supply chain is creating delays, unavailability and adverse conditions for our industry —Despite improvement in container availability and freight costs, the global supply chain continues to present risk. Industry consolidation, coupled with longer-term production commitments, has materially affected the Company’s supply of raw materials and intermediates in the past. There is no guarantee that the supply chain condition will materially improve any time soon or that the Company will avoid material disruption. Such disruption could have a material adverse effect on the Company’s operations, financial condition or cash flows.
The Company is dependent upon sole source or a limited number of 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 or very few sources either domestically or overseas. In connection with supply chain disruptions in 2022 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. Similarly, in the first half of 2023, DCPA, the active ingredient in one of the Company’s high-margin herbicides, was unavailable from its overseas supplier. That said, there is no guarantee that any of our suppliers will be willing or able to supply 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 benefits from customer early pay in meeting its working capital needs —As is the case with other companies in this industry, the Company receives cash from certain major domestic customers at year-end in exchange for granting discounts on the Company’s products during the first half of the following year. The Company typically uses this cash to pay down secured debt and for other working capital needs. This flow of cash obviates the need for additional borrowing, which, in turn, preserves borrowing capacity used in part for paying customer programs in the middle of the calendar year and, consequently, reduces interest expense. There is no guarantee that the Company’s customers will continue to support the early pay program at current levels. Further a material change in this program could have an adverse effect upon the Company’s liquidity and its ability to meet working capital demands.
Public statements made by USEPA regarding their preliminary findings in connection with the registration review of the Company’s products could adversely affect product sales and/or commercial viability. Registrations for the Company’s products are subject to registration review by the USEPA from time to time. In the course of the review, the Company submits, and the USEPA reviews, data studies. At any stage in the course of the review, USEPA may reach preliminary findings that could impair the commercial viability of a product. For example, in connection with USEPA’s review of the DCPA registration, based upon a comparative thyroid assay study (which is comparatively rare and quite complex), based upon limited data points, the USEPA found an adverse effect upon neonate rodents. Consequently, in June 2023, the agency published preliminary findings, noting its concern that based upon current, permitted use patterns, the product could have an adverse effect upon human health and, in particular, pregnant women. At the same time, the agency invited the Company to examine mitigation measures to allay their concerns, which the Company is doing. There is no guarantee that mitigation measures or additional data proffered by the Company will be sufficient to overcome USEPA’s conclusions. Further, it is possible that the agency could take more drastic measures to either reduce the use or cancel the registration of the product. Regulatory activities of this nature, whether in connection with DCPA or other products of significance, could have a material adverse effect upon the Company’s financial performance.
30
Item 2. Purchases of Eq uity Securities by the Issuer
On May 25, 2023, pursuant to a Board of Directors resolution, the Company announced its intention to repurchase up to $15 million of its common stock under a 10b5-1 plan, par value $0.10 per share, in the open market over the succeeding one year, subject to limitations and restrictions under applicable securities laws.
The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three months ended September 30, 2023.
|
Month ended |
|
Total number of
|
|
|
Average price paid
|
|
|
Total amount paid |
|
|||
|
July 31, 2023 |
|
|
325,224 |
|
|
$ |
17.80 |
|
|
$ |
5,788 |
|
|
August 31, 2023 |
|
|
151,865 |
|
|
$ |
16.63 |
|
|
$ |
2,525 |
|
|
Total |
|
|
477,089 |
|
|
$ |
17.42 |
|
|
$ |
8,313 |
|
Pursuant to Amendment Number Six to the Third Amended Loan and Security Agreement, effective November 7, 2023, the Company is currently prevented from making stock repurchases.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
N/A
Item 6. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K:
|
Exhibit No. |
|
Description |
|
|
|
|
|
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 September 30, 2023, formatted in iXBRL (Inline 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. |
|
|
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL. |
31
SIGNA TURES
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.
|
|
a merican v anguard c orporation |
|
|
|
|
|
|
Dated: November 8, 2023 |
By: |
/s/ e ric g . w intemute |
|
|
|
Eric G. Wintemute |
|
|
|
Chief Executive Officer and Chairman of the Board |
|
|
|
|
|
Dated: November 8, 2023 |
By: |
/s/ d avid t . j ohnson |
|
|
|
David T. Johnson |
|
|
|
Chief Financial Officer & Principal Accounting Officer |
32