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Text: With that said, let's have our usual cautionary reminder.
Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the Company's SEC reports and filings.
2020 was a year that was fraught with changing demands and conditions, and our people weathered the storm admirably.
We met our critical objective of keeping the workplace safe and healthy for our employees with virtually no work-related transmission.
This, in turn, enabled us to operate continuously, and to serve our customers reliably in all regions.
By comparison, the Top 5 public companies in our sector were on average, flat on both the top and bottom line.
While David will be giving you more detail on this and other aspects of our financial performance, I would like to cover a few highlights.
Over the course of 2020, we committed to improving our balance sheet and I'm pleased to report that we succeeded in doing so.
We generated a nine-fold increase in cash from operations versus the prior year due, in part, from inventory and factory management, controlled operating expenses, and record high customer early pay participation.
This, in turn, enabled us to pay down debt and improve borrowing capacity.
We are able to make these improvements while, at the same time, concluding two key strategic acquisitions; AgNova, for market access in Australia, and Agrinos, a green solutions company.
Further, we defined an environmental, social and governance platform, which includes extremely promising products and technology solutions.
Now, I would like to turn to David for his comments on our financial performance, with the focus on matters of particular interest to our investors.
I will then give you my thoughts on our growth platforms, and a particular focus on green solutions and precision application.
I will then close with my 2021 outlook, and then take questions from our listeners.
With regard to our public filing, we plan to file our Form 10-K for 2020 within the next few days.
As we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries, in which we operate.
As a result, throughout 2020, our customers and suppliers, and our employees and operations have all continued more or less without disruption during the pandemic.
Having said that, the pandemic has impacted us in a few ways including, first, at the start of the year, we experienced a significant devaluation in a few key currencies, specifically, the Brazilian real, the Mexican peso, and the Australian dollar.
That negative currency effect has started to somewhat reverse as we reached the end of 2020.
Second, the pandemic prevented us from many of our normal infield activities, including face-to-face meetings with distributors, retailers or growers, or activities such as product development and defense.
On the other hand, as you will see in our financial statements, the same restrictions and foreign exchange rate movements have caused us to spend less on operating expenses, including travel.
With regard to our financial performance for the fourth quarter of 2020, the Company's net sales increased by 8% to $141 million, as compared to sales of $131 million, this time last year.
Within that overall improvement, our US sales were up 4% to $85 million, and our international sales increased by 15% to $56 million.
International sales accounted for 39% of total sales, as compared to 37% of total sales, this time last year.
The main factor -- factors driving our sales performance are as follows.
In our US crop market, sales increased by approximately 19% as a result of strong sales of products sold into the Midwest row crop market such as, our SmartBox, Counter, and Aztec brands, as growers reacted to increased blood pressure and on to increased commodity pricing for soybeans and corn.
Sales for our domestic non-crop market declined about 45% as a result of lower sales of our deep Dibrom products into vector control districts, primarily as customers worked to address slightly elevated channel inventory levels.
Finally, our international sales grew by 15%.
Approximately half of the improvement is associated with new sales related to the two businesses acquired at the start of the quarter.
The balance of the increase relates to strong sales of our bromacil herbicide, which has a much improved supply position this year and Counter sold into Mexico.
With regard to the underlying market performance of our products, during the quarter, our US crop business recorded increased absolute gross profit, but gross margin percentage declined slightly.
The decline in gross margin percentage was driven primarily by the lower manufacturing activity, which is typical for the Company's fourth quarter.
Our fourth quarter non-crop gross margin declined from 42% in Q4 of 2019 to 35% in 2020, driven primarily by the reduced market demand for Dibrom already discussed, and by the lower factory activity rate.
International margins improve with the addition of businesses acquired in the fourth quarter, and strong sales of bromacil, reflecting improved material supply.
Overall, gross margin performance for the final quarter of 2020 was in line with the prior year at 36%.
Operating expenses for the quarter increased by 11% as compared to the same period of the prior year.
This includes the addition of the activities of the two newly acquired businesses, which together accounted for approximately 40% of the increase.
Other increases include, additional marketing expenses, legal expenses, higher cash incentive compensation accruals linked to business performance, and some expense associated with the change in the fair value contingent liabilities associated with an acquisition.
This relates to a business that we purchased out of bankruptcy.
When the opportunity presented itself, we moved quickly and got a great deal.
We engaged outside valuation experts to assist management in the assessment of the fair value of the assets acquired.
The gain we recorded is the difference between the purchase price consideration paid and the fair value of the net assets acquired.
Also during the three-month period, we recorded lower interest expense, primarily as a result of lower federal base rates on our loans.
Finally, our effective tax rate was low in the quarter.
There are couple of reasons for this.
First, the bargain purchase, just discussed, is a non-taxable transaction.
And second, we were able to release some reserves associated with uncertain tax positions related to acquisitions we made in both 2017 and 2019.
As a result of these various factors, net income for the three-month period was more than twice the level reported in the same period of 2019.
With regard to the full-year performance, the overall business revenues reduced by about 2% in 2019, as compared to 2019 -- in 2020, as compared to 2019.
We consider that performance to be reasonably aligned with the prior year in a period that has been marked by widespread closure of many businesses during the prolonged period the pandemic.
Within that revenue decline, our US crop business increased by 1% to $223 million in 2020, our US non-crop business sales declined by 21%, to end at $49 million, and our international business remained approximately flat with new business revenue offsetting the effect of foreign exchange rates.
Our 2020 manufacturing performance ended the year very close to our average long-term performance.
As you can see from the chart, net factory costs for the year amounted to approximately 2.8% of sales.
This compares to 2.6% for 2019, and our target of 2.5%.
This says, that despite all the pandemic-related challenges, we were able to maintain our manufacturing activity at relatively normal levels.
For the full year 2020, despite some movements by category, gross margin percentage was in line with 2019, at 38%.
For the full year of 2020, our operating expenses increased by 2%, to end at $154 million, or 33% of sales as compared to $151 million, or 32% of sales last year.
In 2020, we had several dynamics affecting our operating expenses.
These include, pandemic-related reductions in travel activities, the impact of lower FX rates affecting translation to US dollars of operating costs recorded in other currencies, and finally the addition of new businesses acquired in the final quarter of the year.
Our interest expense is down primarily because of federal reserve base rates.
Our tax expense is down primarily because of the bargain purchase gain, which is non-taxable, and the release of reserves in certain tax positions related to prior acquisitions.
In summary, for the full year 2020, when looking at our income statement performance, we have operated close to normal.
Margins have remained very steady, indicating that prices have held up, raw material costs and factory performance has been well managed throughout this year of disruption.
Our operating costs have increased slightly, but do include additional businesses for both the quarter and the year.
We made a good deal to inquire -- to acquire an exciting biologicals business for a bargain price out of [Phonetic] bankruptcy.
And at the bottom line, we've seen a very strong finish to 2020 and reported net income, up 12% compared to 2019.
From my perspective, the operating and financial focus for the Company remains as follows.
We continue to follow a disciplined approach to planning our factory activity, balancing overhead recovery with demand forecasts and inventory levels.
As you can see on this slide, we've had a very strong year with respect to cash in 2020.
We generated slightly less from operations when compared to prior year, but have been focused full year on working capital, and this slide shows that has gone very well.
Including working capital, we generated $89 million from operations, which is about nine times what we have achieved on a -- in average for the prior two years.
The cash generated was used principally to two purposes.
First, we invested a total of $36 million, acquiring two businesses, making a strategic equity investment, continuing to develop our manufacturing capability, and advancing our SIMPAS delivery systems.
Secondly, we paid down debt by $43 million.
At the end of December 2020, our inventories were at $164 million.
This includes about $14 million of inventory related to acquisitions completed since late December 2019.
And adjusted or underlying inventory of $152 million is slightly better than the $154 million we indicated during the last call.
With regard to accounts receivable, as I noted earlier, our customers have continued to operate without significant disruption.
They are placing orders for our products, making payments when expected.
Participation in our annual standard early pay program was strong, indicating that our customers -- that the customers we deal with had a good year.
The end result for 2020 resulted in consolidated accounts receivable of $119 million in 2020, as compared to $136 million, this time last year, notwithstanding the higher sales in the fourth quarter.
Consequently, we can report that despite the pandemic, we have not seen any material change in the assessment of our credit risk exposure at the end of 2020 in comparison to the prior year.
With regard to liquidity, as you can see from this chart, we have been constantly working down debt from a high in the first quarter, which is a normal rhythm for the Company, to a low at the end of the year.
At the same time, after a challenging first quarter, which was impacted by the arrival of the COVID-19 pandemic, our quarterly financials have steadily improved.
There are three factors in the calculation of availability.
The first is our financial performance, which is broadly in line.
The second is the multiplayer under the terms of the credit facility, which is slightly higher this year than last, and accounts for about $15 million increase in availability.
And the third is the level of debt, which accounts for $43 million increase in availability.
Taking all that together, availability at December 31, 2020 is $85 million, as compared to $27 million for the same time last year.
In summary then, in 2020 from a balance sheet cash perspective, we have continued to be acquisitive for the long-term benefit of the Company.
We have carefully managed inventory and accounts receivable and, thereby, working capital, cash and debt.
At the end of the year, we believe we have improved our balance sheet and liquidity, and are well positioned to look at 2021 with a sense of optimism.
With that, I will hand back to Eric.
As you may recall from our earnings call in November last year, I began to turn our attention to our strategic direction and long-term prospects.
In the course of my comments, I described our three platforms for growth, namely, our core business, our green solutions platform, and our precision application technology, led by SIMPAS and Ultimus.
I also gave you a view into how much we think these platforms will grow over the next three years to five years.
Today, I would like to revisit these platforms with a particular focus on how our green solutions and precision application technology, both provide unique and compelling environmental -- what I'll call, ESG, environmental, social and governance solutions, and position us to grow our business at a faster rate than through conventional AgChem offerings.
Let's start with a quick update on our core business.
As I mentioned earlier, in Q4 we closed on the acquisition of AgNova, an Australian-based company, headquartered in Melbourne that sources, develops and distributes specialty crop protection and protection solutions for the agriculture, horticulture and non-crop markets.
The addition of AgNova, improves our market access in the region, including with respect to SIMPAS, Agrinos, and green plant solutions, and gives us greater critical mass in an important territory.
Furthermore, AgNova offers product lines that we can readily market in other regions.
Now let's turn to the other two platforms.
In doing so, it is first necessary to lay the proper groundwork.
I mentioned earlier, we have defined our ESG position.
Public companies, far and wide, are increasingly being called upon by investors such as, BlackRock happens to be our largest shareholders, institutional shareholder services like ISS, and regulators such as the SEC to report upon their commitment to ESG.
We at American Vanguard, have a great story to tell with regard to ESG.
As I take you through our green solutions and precision application technology platforms, you will see this more clearly.
At the close of 2020, we published our statement under the tab ESG on our website.
As we stated on that page, we are committed to the principal of sustainable agriculture, which to us means that all people should have the right to a stable, affordable food supply both now and into the future while, at the same time, maintaining and preferably improving soil health.
As an essential part of that commitment, we seek to promote three equitable considerations, climate, environment and food.
As per our Climate Change Commitment, also on our website, we are committed to making enterprisewide progressive and measurable efforts toward helping to address the trend of global warming.
With respect to environmental quality, we seek to leave the planet in a better state than we founded.
And as a key supplier of crop inputs, we are essentially involved in food equity.
In order to advance these three agendas, a crop input company such as, ourself, would focus on products or application technology that promote carbon sequestration, improve plant and soil health, have an environmentally friendly profile, and improve yield.
As an example, you can see from this slide, courtesy of our greenhouse business, biostimulants can advance all of these considerations.
They reduce carbon dioxide, thus improving air quality, and the climate; improve the yield per acre, making food more affordable; improve food quality, helping growers to succeed; conserve water, advancing environmental equity; and improve the soil's microbial community.
We have many such ESG-friendly products within our green solution platform.
For example, OHP provide several biosolutions to domestic nursery and ornamental customers.
AmGreen and Central America offers a range of tailored biologicals to customers like, Chiquita.
And we continue to see consumer acceptance of our low-impact insecticides from Envance Technologies that are safe for children and pets.
These -- this technology forms the basis of our innovation partnership with Procter & Gamble, specifically, under the Zevo brand of consumer insect control products.
After having achieved success in 2020 with Home Depot and Target, Zevo's 10-store test and Tampa's Walmart stores has exceeded expectations, and will enable the P&G team to aggressively sell to full chain distribution for calendar 2021.
Let me share with you a short video posted on P&G Venture Capital website -- Venture Capital -- Ventures website that positions Zevo.
For any of you who have not tried any of the core Zevo products, I encourage you to go out and purchase them, and give them a try.
In addition to Zevo for household use, we offer Guardian mosquito repellent, and are expanding these solutions into animal health and professional pest control.
At the same time, we are pursuing two novel development platforms.
Under our Maryland [Phonetic] research platform, we are using our patented screening process to discover and create novel insecticide compounds.
This is true R&D effort.
Over the past several months, we have screened over 130,000 active ingredients in our lab, and have identified a manageable number of promising candidates for further development and possible commercialization.
Similarly, under our Envance Technologies' Dragon Fire research platform, we are developing patented bioherbicide products and applications to help us address a global $18 billion market for non-selective herbicides.
These products will feature high efficacy and will give users eco-friendly solutions for weed control.
Between the Maryland research platform and Dragon Fire's bioherbicides, and that technology continues to ring the bell for environmentally responsible solutions.
Now, let's spend a few minutes on Agrinos.
First, let me note that I was very pleased with the fact that we were able to acquire this business at such a reasonable cost, as its parent of foreign holding company in Norway was in liquidation.
From its three operations in US, Mexico and India, Agrinos produces a line of high-yield technology, soil-applied solutions that it markets into eight regions across the globe.
These products promote carbon sequestration, nitrogen fixation and soil health.
Its invigorate line as an [Indecipherable] approved consortium of 22 bacteria that have been developed to promote multiple benefits including, soil -- include improvement of the soil microbial community on many global crops and soil conditions, facilitating nitrogen absorption and nutrient uptake, while supporting root biomass and plant health.
Its uplift products, which are derived from biologically extracted chitin have similar effects.
And their B Sure nutrient solution provides time-released nitrogen, which in turn improve soil health and help to reduce the need for nitrogen laden fertilizers.
With nearly 150 pending and issued patents in multiple countries, Agrinos is proving to be an excellent fit for American Vanguard.
We gained an established product line, considerable IP, and a specialized fermentation and manufacturing infrastructure.
In fact, our initial interest in Agrinos came last year, when we were seeking distribution rights for putting their solutions through SIMPAS.
The opportunity for Agrinos to be part of American Vanguard organization is so much the better.
After having owned the business for only five months, we have already realized a high percentage of the synergies that we had forecasted.
With our global reach, we can now give these products the market access they deserve.
Let's now turn our attention to SIMPAS.
For some time now, we have been reporting on the exciting development and commercialization of our SIMPAS precision application system.
Let me now elaborate on SIMPAS as an ESG technology.
Put simply, SIMPAS is the ideal tool for advancing both climate and environmental equity, and for that reason food equity as well.
With respect to climate, SIMPAS is designed to be far more efficient than single-product application systems.
It can apply multiple inputs at varying rates, only what is needed, precisely where it is needed, in one pass.
In addition, because it applies inputs only where they're called for, as per the agronomic prescription, SIMPAS enables the grower to use potentially far less full rate at his or her field with significantly less water.
Consequently, the growers' environmental footprint is much smaller and the potential for run-off is that much more reduced.
But there is more to the story.
In addition to efficiency and lowering of the environmental input footprint, SIMPAS is designed to apply not only chemical inputs, but also biologicals, the very types of products that we have described as promoting carbon sequestration, nitrogen uptake and soil health.
Even as I speak, we are testing multiple green technology solutions for use in SIMPAS SmartCartridges.
In short, we are supplying not only the product solutions, but also the application technology with which to advance climate and environmental equity.
And the icing on the cake is that with our Ultimus platform, we can trace all inputs from factory to field, and measure how much of each input is used in each area of each field.
This platform also permits the return of empty and partially used SmartCartridges.
So on top of environmentally responsible products and application technology, we offer unrivaled measuring and tracking capability for multiple inputs.
With this functionality, Ultimus is the ideal technology for measuring inputs in order to obtain carbon credits.
While many carbon banks are being formed and multiple sets of rules are being discussed, they all require a means to measure what the grower is adding to the field.
To our knowledge, no technology does this better than Ultimus.
Nor is this just conjecture on our part, in this slide we show the results of an actual SIMPAS 2020 beta system application, in which we demonstrated that we could apply Counter 20G precisely as per agronomists prescription, and its important that we could measure that application after the fact.
This will be a fundamental importance in the carbon credit market.
The picture on the left illustrates the prescription written for a field in North Carolina.
The picture on the right depicts the actual application.
And when we shared this with our SIMPAS growers, they were all very impressed.
Now for an update on SIMPAS systems.
But, we are targeting more systems for this planting season, and we expect or hope that we will get into that 100,000 acre target, which is the target that we set for ourselves.
Now, let me share our latest SIMPAS video that illustrates key advantages.
With that, let me now turn in to our 2021 outlook.
We see an ag industry that is generally optimistic for 2021.
Reopening of schools and businesses following 2020 lockdown, and a potential for less volatile international trade disruptions, promises to refresh ag sector demand.
The increase in crop commodity prices for corns, soybeans, corn and other crops has improved the prospect for grower profitability and, with that, a more normal purchasing pattern versus the very conservative procurement behavior that we witnessed during the 2020 pandemic.
We estimate a low double-digit year-over-year revenue increase for American Vanguard.
We expect profit margins to remain steady with recent history.
And operating expenses will increase somewhat due, in part, to newly acquired businesses, and the SIMPAS launch.
We expect interest expense will be similar to 2020 levels, and our overall tax rate should be in the mid-20% range.
Consequently, we are targeting a significant percentage increase in net income and earnings per share in 2021.
Finally, we are targeting a debt to EBITDA ratio in the 2 times to 2.5 times range.
And note, that at the end of 2020, our debt to EBITDA ratio was 2.2 times.
With that, we'll take any questions you may have.

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american vanguard corp q4 net sales were $141 million in 2020, compared to $131 million in 2019.

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