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Text: A little reminder for those of you who may be listening by phone.
If you are unable to listen to our entire call today, the conference call will be archived on the company's website for your review at a later date.
Before beginning, let's take our usual cautionary reminder.
So it's 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.
We appreciate your continued support and interest in the company.
Today, I want to give you a quick view of our financial performance supported by commentary on market conditions.
Then I will turn to the global supply chain, which is a subject of strong interest to most industries.
I will then ask David to cover financial and operational matters in great detail.
After that I will return with an update on our green solutions and precision application initiatives.
So at the -- on Slide four here at the end -- as we ended Q2s conference call, we presented a scorecard on how we did in the first half of '21 versus what we had given at the beginning of the year as our target.
So I'm going to update that now through the third and year-to-date through third quarter.
And so with revenue, we were at 25% through the first half through three quarters were exactly still 25%.
With our gross profit margin, we were tracking right on 39% through three quarters last year we had slipped a little to 38%, we're still holding at 39% at this point.
Our operating expenses, you know, we said we would maintain hope to move down slightly if we could as a percent of sales in the first half we had dropped from 35% to 34% and year-to-date, we are now at 33% versus 34%.
Our interest expense is down now at 20%, so we're attracting certainly below 2020 and believe we'll outperform our initial forecast.
On our tax rate, we were 31% versus 23% at -- through the first half, we're now at 27% versus 20% at this point last year.
We do expect that rate to drop in the fourth quarter and certainly to meet or exceed our mid-20% range.
On our debt to EBITDA, you can see we've dropped from 2.5 times to 2.1 times and as we look at it now, we expect to drop further and probably below the 2 times target that we had drawn out.
And as far as net income is concerned, pretty much the same we were at 86% for the three quarters we're at 87% increase.
Definitely a faster rate than our 25% revenue growth and our EBITDA is moving up, as we're now 39% increase from where we were at this time last year.
So our strong performance was across all sectors, but our domestic crop business led the way, we benefited from a combination of factors.
Let me just focus first on commodity prices and I'll start with cotton.
And what we've done is we've measured the price per pound.
This is with macro trends as of September 27th of '20 and then comparing that to September 27th of '21, a pretty dramatic increase, it's about 59% increase.
And so this has prompted growers to invest heavy -- more heavily in corn.
We've benefited from our corn, I mean, from our cotton insecticides Bidrin, which had a very strong third quarter.
In addition, we've had an increase in our cotton defoliant, Folex, which was very strong in the third quarter and we're still seeing orders in -- we saw orders in through October, so that's a big part of our benefit here so far.
Let's get this back up to where we were.
So, soybeans have -- we're at $10.21 a bushel, have increased to $12.85 over that year period, 26% increase.
You may recall that we have improved our soybean portfolio with several herbicides we've acquired over the last three years, and as such, soybeans are moving up as a crop for us.
I think currently or last week we were around 7%, 8%, but -- so it's looking positive for us in that sector.
And then, corn moving from $3.79 a bushel up to $5.42.
And with that, we've seen strong performance with Aztec and our number one corn soil insecticide and IMPACT, which is our number one herbicide -- corn herbicide and we've launched of two new, we had IMPACT C, which was with Atrazine, we've launched off now IMPACT CORE, which is with Seed to [Phonetic] CORE, and SINATE with IMPACT plus glufosinate.
And all four of these are performing well at this point.
So our increase overall in the ag sector was up 38% for US crop.
And so that certainly did lead the way for us and this is despite us having logistics issues for our biggest product normally, which is our soil fumigant products where large volume and certainly impacted by the supply chain disruptions.
On the remaining sectors, OHP continues to see strong performance, particularly in the markets of the horticulture and plants and in greenhouse activity.
AMGUARD again professional pest market that is also recovering well.
AgNova, our Australian business, which is tripled where we were last year.
Agrinos, which is adding incremental new business.
Mexico is performing well as our other two sectors, Brazil and Central America.
Overall, these combine to increase17% versus where they were this time last year.
So I want to take a second to just talk about supply chain.
And I was at an industry meeting last week, where I was asked to talk a little bit about supply chain from a manufacturing side.
And as I was driving from our plant in Alabama up to the conference in Memphis, I was listening to the radio and the COO of Toyota was talking about specifically the jam that's occurred in the Long Beach Harbor, which is where I grew up.
And he was saying that there are currently 540,000 containers and you're looking at boats here that have about 500 containers on them and 540,000 that are sitting at the port today that have not been -- that are backed up waiting to be unloaded.
So that's about 100 vessels and if you go down there, you can see them anchored all up and down the Southern Coast there.
And the current ability to unload at that port is about 18,000 containers a day.
So if you looked at it and said, well, I guess in 30 days, we would be able to unload those 540,000 containers, which is true, but the problem is that 29,000 new containers are arriving each day.
And so we're not going the right way and there doesn't seem to be any real solution at the moment.
So why is this happening?
And I guess, you know, we talk about maybe a perfect storm that's occurred.
We have a shift in buying pattern due to COVID, people got behind, they panicked on certain items.
So things shifted around.
Some items are plentiful, some are short, as you certainly were aware, as you hit your supermarkets or if you try to get a car, anything with circuit boards.
We've been operating with the same port capacity for years and generally, being able to kind of make it through, but we just haven't had this bigger shift in buying pattern.
Same thing with containers, there is limited number of containers and those containers are being delayed as they're sitting waiting to be unloaded or in some cases, the empties are having trouble getting back.
And just a word, we've got products that we were -- we've been trying to ship to Australia and we can't get a truck to take us -- to take it from the 20 miles from our plant down to Long Beach Harbor.
If they get there, they're going to wait eight hours and truckers don't particularly want to do that.
As such -- lot of the empty containers are just winding up on residential streets throughout the harbor area, as truckers are frustrated and they're just dropping the trailers anywhere and moving on.
So, it's created quite a miss and of course, we're dealing with somewhere in that 60,000 to 80,000 truckers short, which makes even once those containers do get offloaded, it gets difficult to actually move them out of the harbor.
So what's to be done?
How do you deal with it?
And I really, kind of, boil this down to three key factors: first is, production itself.
We've got to decide if the product that you're searching for, whether it's intermediate or finished good is going to be produced and when it's going to be produced.
I'll talk a minute about us dependence on China.
But for instance, China has shut down a number of factories for environmental, not necessarily that factor, but production sites.
Also, the government is, kind of, prioritizing energy and certain high energy products are not getting permitted to continue for production.
So that's putting a squeeze that goes across the world.
So first is, can you -- is the product -- can you make that purchase order.
We've had products that we've ordered and they've come back and said, you've got to pay more.
And so we say, OK, and then it's like, well, we're not going be able to ship anything.
So that's certainly the first thing that you've got to identify, are you going to be able to produce or get the product itself?
The second is on logistics, which we talked a little bit about, but those containers that you saw that come over -- last year, we were running about $2,500 to $3,000 per container.
This year they've picked up to $26,000 per container and that's just bringing them into the US.
Once they are here, then you've got to get it moved from there to your factory or your production site and then from that standpoint, you've got to get it delivered and you've got this shortage of truckers and you've got to try to figure out how you're going to get it, and then how much you're going to pay.
So it gets to be sometimes a bidding war.
If you want the product to get to point A, how much we'll pay to do it rather than kind of standard fares.
So that kind all boils down to maybe -- and the most important point is, let's assume you do get your goods, you clearly need to do quick calculations to understand exactly how much those goods are costing.
We're also seeing cost rises in factories as labor wages are going up.
And so we're working with our finance team to look at all SKUs and doing analysis in real-time of what our costs are and making sure that we present those to our commercial product managers, so they have a vision of what's their cost of goods that they're selling.
And so I think the companies that can go through this process will fare the best.
There is no real clear vision as to when this disruption I think will cease.
It will hit other areas harder than others and will be cyclical.
And so I think you just got to be nimble to understand where this is going.
So, on the positive side, again, we're sitting here with six production sites here in North America that gives us the ability to produce and be in a stronger position to handle the instructions.
I mentioned with China about 8% of our portfolio is dependent on materials from China.
Few years ago, we've started the process of second sourcing, if we could, outside of China, due to the tariffs, which were pushing up to 31%.
Second, we manufacture 46% of our portfolio within our six North American factories.
Having these manufacturing facilities gives us both greater independence and the ability to respond quickly to market conditions.
Third, we order goods from overseas on a comparatively sporadic basis.
By contrast, many of our consumer businesses or many of the consumer businesses that's being computing goods, probably and that sort of thing rely upon a steady stream of imported goods.
Nevertheless, we are working closely with our logistics partners to ensure that we can get good from Point A to Point B, and we are ordering good from overseas further and advance sound looking at lesser congested ports, through that means we have been able to manage through the supply chain conditions and at this stage we're optimistic that we will be able to continue to do so without material interruption.
With regard to our public filing, I understand from my controller that we are in the file and the queue to file and so I expect that we will file within the half hour or 45 minutes.
And as I have mentioned in previous conference calls, our industry is one that considered critical in all jurisdictions in which we operate and during the pandemic in 2020 and now throughout the nine months of 2021, our business, our customers, our suppliers have all operated without major disruption throughout, so it's been a good place to be during this difficult time.
And this is our quarterly sales performance, you can see that our sales have increased, as Eric mentioned since the first -- the third quarter of 2020.
Overall, our sales were up about $30 million to a $147 million, that's a 25% increase over the prior year.
Our US sales were up about 33% or $22 million and our international sales were up about 16% or $8 million.
And because of the very strong US performance, despite the strong international performance, our international sales reduced to about 40% of total sales, whereas this time last year there were at about 43%.
And during the third quarter of 2021, our production performance has been much better this was we expected.
And that has an impact on our gross margin performance and when I look at the crop business, our gross margin performance improved by about 50%, including the impact of the recovery of [Indecipherable] in the factory.
And our non-crop business had significant mix changes in 2021 in comparison to the prior year.
With some higher margin business happening earlier in the year in 2020, as compared to this year.
And as a result, our margins have remained comparatively flat in the quarter.
For international sales gross margin improved, as compared to the prior year and is primarily the result of the addition of businesses acquired late in 2020, which generate margins higher than our pre-existing business performance.
I particularly like this graph, because I think it gives a quick way of visualizing the impact of the factory performance has on our results.
And you can see that in the third quarter of 2021, on the far right of the graph, our factories cost is about 1.2% of net sales on the recovery and that compares, if you look back a couple of quarters to the third quarter of 2020, you will see that the cost amounted to 2.5% and that's just a reflection of the kind of activity that we managed to record in the factory in this third quarter.
Operating expenses increased by about 24% and that amounted to $9 million.
Our newly acquired businesses accounted for about 14% of the increase and freight accounted for 17%, and then the balance was incentive compensation linked to financial performance, some legal expenses, and increased marketing costs.
And overall our opex as a percentage of sales remained steady at 33%.
Our operating income in the third quarter was up 112% versus last year.
In addition, we made some immaterial adverse changes in the value of two investments we've had for some time.
As Eric mentioned, our interest expense continues to track about 24% below the prior year.
Our tax rate is a little higher than last year, primarily as a result of the strong taxable income in comparison to the prior year.
And finally, our bottom line is about $5.5 million, which is up 88% in comparison to the prior year.
For the first nine months of 2021, our sales were up 25%.
Gross margin in absolute terms are up 27%.
All our main activities in US crop, US non-crop and international, contributed to this exciting performance.
Our operating expenses increased primarily as a result of the new businesses acquired in the final quarter of 2020, increased performance linked incentive compensation, legal costs, some increases in travel and costs associated with the volume changes, such as freight and warehouse costs.
Overall, operating costs were up 22%, as compared to the net sales increase I mentioned a moment ago of 25%, and operating costs, compared to sales improved 33% in 2021, as compared to 34% last year.
Interest expenses reduced by 23% as a result of cash generated over the last 12 months, and overall, our net income has increased by 87%.
Now, I'd like to turn my attention to the balance sheet.
As you can see from this slide, during the third quarter, we increased cash generated from operations by 56%, as compared to the same quarter of the prior year.
Further, you can see that the movements on working capital was in line with the prior year and this performance includes the expanded scope related to the businesses acquired in the fourth quarter of 2020.
Overall, net cash from operations increased by 34%.
At the end of September 2021, our inventories were about $167 million, as compared to $176 million this time last year.
If for a moment, we exclude the impact of products and entities acquired since December 2019, which accounted for $10 million of inventory at the end of Q3, our base inventory decreased by 11% from this time last year.
So we feel that we have controlled inventory well during this phase of the company's annual cycle.
Our current inventory target for the end of the financial year remains at $155 million that compares with $164 million at the end of 2020.
That target is, obviously, dependent on a few things, including a continued low impact from the pandemic, normal weather patterns, and no more acquisitions this year.
With regard to liquidity, under the terms of the credit facility agreement, the company uses consolidated EBITDA as defined in that agreement to determine leverage.
Our consolidated EBITDA for the trailing four quarters to September 30th, 2021, was $66 million, as compared to $49 million for the four quarters to September 30th, 2020.
This taken in conjunction with outstanding indebtedness translates to borrowing availability amounting to $95 million at the end of September 30th, 2021, as compared to $45 million at the same time last year.
As you can see from this chart, we've been controlling debt well even as we work through the annual cycle and as we continue to invest in the business for the future.
Overall, in summary then, the second -- the third quarter of 2021, we have increased sales by 25%, improved overall margins, we have managed operating expenses, which increased in absolute terms, but declined when expressed as a percentage of sales, our net income increased by 88%.
We have a similar story for the first nine months of 2021, we increased sales by 25%, gross margins by 24%, operating costs have reduced when compared to net sales, our interest expense is down and net income has improved by 87%.
From a balance sheet perspective, accounts receivables increased driven by strong sales, inventories have been well-controlled, working capital has been held flat during the quarter and debt is lower than this time last year.
Despite three acquisitions in the intervening 12-months.
And finally, our liquidity position has improved significantly.
With that, I will hand back to Eric.
And recently, in quarterly earnings calls, we've provided updated information on our two strategic growth initiatives in green solutions and prescriptive application technology.
So let me just go into green solutions.
So we mentioned last time that we have, kind of, grown our technology on the green solutions and we've now -- see that we've got 100 different products in our expanding portfolio.
So in this slide, we break out the functional categories of our offerings.
As you can see, it's a balanced range of solutions with a strong emphasis on bio-fertilizers, bio-stimulants, bio-pesticides, and micronutrients.
These products allow us to offer not only our traditional crop protection, kind of, defensive products but beneficial plant nutrition and soil health amendments, as well and so we've developed quite a balanced and growing portfolio.
So green solutions has posted steady recent growth as seen on this slide.
For Q3, we increased about $10 million, which is 26% increase from Q2.
And I think most of -- a good portion of that growth anyway was attributed to increased sales in LatAm, Brazil, India, and Australia.
Year-to-date, our revenue is at just $27 million and for the full-year, we're up in our forecast from the $32 million to $35 million range.
We're now sticking somewhere in that $35 million to $37 million range.
And of that, about $10 million is coming from.
LatAm, which is our largest so far.
So when you look through what we're focusing on and keeping our eyes on the targets of what we're trying to do in expansion, we've got registrations underway in LatAm, the Columbia business has been transitioned over completed and working well.
We've got a pipeline building for further distribution in Europe and Africa.
We've got our US group that's looked at opportunities now for some significant increases in '22.
And part of that's a result of the 1,500 spot trials we mentioned last time that we were doing in '21, which are basically looking to benefit in the '22 period.
We've also linked this with our SIMPAS trials where we're introducing iNvigorate, which again is a nitrogen fixation product that looks extremely promising.
We've got turf and ornamental, our trials are near completion at this point.
We've got large scale customer demo plots that we're doing.
Again, looking for a pickup for next year.
Within then AMGUARD, we mentioned before, our bioherbicide product that we are looking for both consumer and professional pest use on our way to potentially developing for agricultural use.
This is significant given Bayer's decision to exit the consumer market through -- at least, domestically through Scotts with RoundUp the kind of leading herbicide in that space.
So we see demand for solutions, strong and we think we're well-positioned there.
We think Greenplants, which we acquired as part of Agricenter in the latter part of 2017, we knew we had some strong products with which to expand, but it has taken us a while to work that into our other areas.
And we recently moved product into China, and Colombia.
We have got other areas down in Australia where we think we've got some strong growth potential.
Bi-PA, which is a consortium in Belgium that we became part of six, seven years ago, maybe, David?
And we've got really our first product that's come out of that.
It's a biofungicide that's called Vintec, originally developed in Europe for grapes.
They tried this on grapes and -- but we've seen some very strong activity in almonds, and we received our registration in California recently.
There's over 1 million acres of almonds in California, and we think we've got a nice fit for a biotreatment for canker, a particular disease that hits almonds.
And we're also doing testing in bananas in Central America that also is looking promising and we're hoping to get registrations there as well.
So I guess what we're saying here is, it's a modest change just that we're looking -- kind of moving the needle a few million dollars up in '21 on our target which basically we're looking to double that in the next couple of years and then double that in the next couple of years as well.
So it's an aggressive growth, but given all the products that we have and the development work we're doing, the high demand for solutions in that space, currently, we're feeling that our forecast is looking good.
Shifting over to SIMPAS, again, you guys have seen how this graphic demonstrates how the system works.
During our last call, we've updated our forecast revenue for SIMPAS through '25.
At this point, the forecast remains unchanged.
What we did do since our last call, as we talked about that we were going to be reaching out to progressive retailers to then focus on their precision farmers begin that shift to prescription application of crop inputs.
And so, with this, we've identified a number of retailers that fit this.
We've got over a dozen retailers so far that have entered into agreements for distribution of SIMPAS with us.
We expect that, that number to double over the next few months and we've identified I think there is 26 here mostly in the Midwest, but also we've got five retailers in the South.
So I guess one question is what's in it for a retailer?
Sorry about that, so these retail partners can provide agronomy and prescription software capabilities needed for targeting SIMPAS inputs of crop protection, plant nutrition, and the soil health fertility enhancements.
With this on-the-ground template, SIMPAS can dispense and deposit ingredients that will give the grower maximum yield, minimum cost, elevated return on investment, and beneficial environmental outcomes.
These precision ag services help build a strong bond between the grower and the retailer creating a long-term business loyalty.
Kind of one final point that I want to make as we showed this slide before about the attention of the Ultimus software data retention that's part of SIMPAS, which allows concrete documentation through MDR to beneficial agricultural treatment practices.
As we pointed out in the emerging carbon credit market, the ability to authoritatively validate such beneficial practices can facilitate securing financial compensation that could substantially offset the investment outlay in adopting technologies such as SIMPAS.
So we are working with USDA on sharing this technology, which they were very excited about and they asked us or invited us to apply for a grant and which is under the Agricultural Innovation Center for Program of USDA, and we did get the grant at the end of September.
A decision-making process is somewhere in that two to eight months, so we expect a decision by Q2 of '22.
But this grant that we submitted is for nitrogen reduction by using a SIMPAS Ultimus system, decreasing the use of synthetic fertilizer and in its place applying soil health products.
So Ultimus gives the carbon credit program a way to verify, measure, and validate what the grower is doing to qualify for the credits.
When linked to the permanent ledger, since it's blockchain, Ultimus makes an immutable record of everything that was applied to the field by volume and by location.
As I've mentioned before, we know of no one else in our industry that has climate-friendly technology as comprehensive of our SIMPAS Ultimus system, particularly when used to dispense our green solutions.
So let me end these comments by letting somebody else have the last word.
This quote is from Jason Ore, who is an Ore Farms in Iowa and a happy user, I think he has been in the last year or two with SIMPAS and so his words are, the opportunities are endless.
I can foresee in the future dozens of SIMPAS supplied solutions being applied this way.
This is going to change the way we producers look at in-furrow application.
So with that, I'd like to open it up to any questions you may have.

user
compname reports q3 net sales up 25% and net income up 88%.
compname reports improved financial results with third quarter net sales up 25% and net income up 88%.
american vanguard corp - qtrly net sales up 25% to $147 million.

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