American Vanguard Corporation Stock

Greetings. Welcome to the American Vanguard Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Bobby Winters, Director of Investor Relations. You may begin.

Thank you, operator. Good afternoon, and welcome to American Vanguard's Second Quarter 2026 Earnings Review Conference Call. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer; and David Johnson, Chief Financial Officer. After their prepared remarks, we will open up the call for questions. A copy of today's press release, along with supplemental slides, are available on our website. A replay of the webcast and a transcript from this event will be made available on our website shortly after the call.

Before we begin our presentation, we would like to remind everyone that today's press release and certain comments on the call include non-GAAP figures and forward-looking statements and actual results may differ materially from these forecasts. Please refer to the cautionary language in our press release and slides and to the risk factors described in our SEC filings. All of which are available on our website.

It's now my pleasure to turn the call over to CEO, Dak Kaye.

Thank you, Bobby, and welcome, everyone, to our second quarter 2026 earnings conference call. Results for the quarter and the first half of this year reflect ongoing and dynamic cross currents affecting our agricultural markets and customers around the world, but more importantly, the progress we are making on lowering cost and driving commercial improvement regardless of the environment. I want to make 3 major points today. First, despite these difficult market conditions, we are outperforming our peers in the U.S. markets. Second, with the implementation of our business improvement plans, we are gaining greater operating leverage. Third, our investment in new product development is paving the way for future growth and profitability.

In our initiative to reorganize, refocus, and invigorate the commercial effort across the company, we are making good progress so far. The results for the first half of 2026 have laid the foundation for opportunities that we believe are both ahead of us and in our control. Before covering our performance, let's turn to market conditions. The crop protection market in the U.S. continue to be difficult in the second quarter due to continued pressure on the farm economy coming from multiple directions, including the sustained high cost of capital coupled with increased fuel and fertilizer costs arising from the ongoing conflict in the Middle East.

Distributors, retailers, and growers have continued to be conservative in their buying practices, ordering on an as-needed basis and even then deferring purchases from month to month when they can, which is shifting order patterns somewhat across our businesses, both domestically and internationally. I think it's also worth noting that some underlying structural and behavioral shifts in consumption patterns are impacting agriculture markets, including the multiyear decline in overall alcohol consumption as well as the rapid uptake of GLP-1 drug usage and the effect this is having on consumer eating habits.

Outside of the U.S., across our international markets, it's been a much more challenging environment. Due to adverse weather conditions, in particular, a super El Nino plus inflationary pressure and higher raw material prices. As with our U.S. markets and customers, our focus and efforts right now are to increase customer engagement and drive service and attention to our customers, while at the same time, accelerating new product development and introduction, always striving to be a solutions provider for our customers wherever we meet them.

Now let's turn to our first major point that we are outperforming our peers in our combined U.S. markets. While quarterly net sales declined approximately 10% versus the year ago period, this was primarily driven by weaker international sales, which were down 18% for the quarter. We did see a decline in U.S. crop sales for the quarter, but this was more than offset by continued strength and growth in our specialty businesses, where sales were up 11% for the quarter on a year-over-year basis.

For the quarter, U.S. crop sales were impacted by timing of product sales within our cotton product portfolio with some sales shifting to third quarter of this year. Herbicide sales were strong in both the first and second quarters, primarily due to our brand's impact and invoke. As we continue to test the elasticity of our portfolio to drive gross profit dollars and increase manufacturing efficiencies.

In short, we continue to see consistent demand for our domestic products, which constitute our highest margin offerings. For the first half of 2026, revenue was mostly flat on a year-over-year basis, but U.S. sales were up 6% with U.S. crop up 5% year-over-year and specialty sales up 10%. The strength and outperformance we've been able to drive so far in 2026 was mostly offset by the weaker global environment with international sales down 13% for the first half of 2026.

Turning now to our second major point, improved operating leverage while gross profit margins were down year-over-year for the quarter due to lower volumes and the timing of customer shipments, gross profit margins improved by 100 basis points in the first half of 2026 from 29% to 30% on modestly lower revenue.

Notably higher freight costs for a significant cost headwind for the quarter and year-to-date as we estimate that this held back margins by $2.2 million or 90 basis points in the first half of 2026. We have taken pricing actions in the market to recover these higher costs and expect to see these initiatives begin to flow through our results in the second half of 2026.

Operating expenses, excluding transformation costs, improved by 3% year-over-year for the quarter, as we continue to drive efficiency across the organization. Importantly, a number of actions taken in the first half of 2026, including the L.A. plant rationalization and headquarter relocation will translate into lower costs in the second half of this year. We also expect transformation costs to be further reduced.

As a reminder, we expect the rationalization of the LA production facility to save us at least $4 million on an annualized basis going forward. In short, we are keeping expenses in check and managing those things that are within our control, notwithstanding changes in market conditions. Let's turn now to our third point, paving the way for improved growth and profitability through new product development.

I was very pleased to be able to further strengthen our leadership team and commercial efforts here early in the third quarter with the addition of Hermann Castro who joined us early in July as Senior Vice President of Marketing and Business Development. Hermann is a proven leader and performer in our industry, particularly when it comes to new product development and innovation.

Additionally, we continue to invest in future growth as R&D investment was up 12% year-over-year. As I have mentioned before, we have set a goal going forward of having 50 new product launches over the next 5 years, driving $100 million in annualized revenue by 2030. Hermann will play an important role in driving the success of this initiative. At this point, I will pause in my remarks and turn the call over to our CFO, David Johnson who will review our financial results for the quarter in greater detail. After his review, I will return with our thoughts on the outlook for 2026 and our growth trajectory over the next 2 years. David?

Thanks, Dak. Good afternoon, everyone. Turning to our financial performance for the second quarter of 2026, the company generated sales of $117 million in the period as compared to $129 million in the same period of 2025. For the first half, sales of $240 million were down about 2% as compared to the $245 million we reported a year ago. U.S. crop sales decreased 9% in the quarter.

The decline was driven largely by the timing of sales within our cotton portfolio being shifted into the third quarter as customers are buying closer to the time of use. Insecticide sales also declined, reflecting low bug pressure and more cautious grower spending across key crop markets. These declines were partially offset by continued momentum of herbicides, while soil fumigants remained stable. U.S. crop sales were up 5% on a first half basis with herbicide strength across the period and granular soil insecticides and cotton insecticide demand concentrated in the first quarter.

Our specialty business grew 11% in the quarter and 10% for the first half with improvements across multiple market segments. OHP led demand Biological Solutions and [indiscernible] Turf performed ahead of forecast. International sales were down 18% in the quarter and 13% for the first half, dry conditions associated with El Nino delayed and reduced use across Central America. Shipments to certain customers were paused in light of local labor activity.

In Mexico, herbicide sales were impacted by the reduced acres of agave. In Brazil, demand softened due to higher pricing driven by raw material cost increases of our copper fungicide. Gross margin in the quarter was 30% as compared to 31% in the same quarter of 2025, including significant freight cost increases of roughly $2 million impact in the quarter and finally, weaker overall factory absorption. In spite of this Q2 performance, the first half gross margin improved by 100 basis points and ended at 30% as compared to 29% a year ago.

Adjusted EBITDA in the quarter was $6.6 million, a decrease of $4.4 million from $11 million in the second quarter of 2025, driven by lower sales, much higher freight and weaker manufacturing efficiencies, partially offset by higher variable cost margins and lower operating expenses. On a year-to-date basis, however, adjusted EBITDA increased by more than 20% to $17 million as compared to $14 million in the first half of 2025.

Adjusted operating expenses, which exclude items such as transformation costs and asset impairment costs, were $33.5 million or 28.5% of sales this quarter compared to $34.6 million or 26.7% of sales in the year ago period. On a GAAP basis, expenses were down $1.2 million with SG&A down approximately $2.1 million or 7% partially offset by a 12% increase in research, product development and regulatory spending, reflecting the company's focus on new product development.

Turning to the balance sheet, we ended the quarter with $43.9 million in cash as compared to $70.9 million at the end of the first quarter. Cash on hand at the end of July increased as compared to June as a number of receivables we received in July. We continue to be laser-focused on cash management as the second quarter is typically our seasonal peak for working capital needs. Total debt was approximately $267.6 million at quarter end as compared to $267 million at the end of the first quarter.

Net debt was approximately $224.7 million at quarter end compared to $194.7 million at the end of the first quarter. The sequential increase in net debt is due to normalization of our accounts payable, change in early pace strategies from certain key customers driving up accounts receivable and generally peak working capital needs in the second quarter. Inventories were $181 million as compared to $191 million in the second quarter of last year, a $10 million improvement reflecting tighter production planning and working capital discipline.

I will turn the call back to Dak for some final comments.

Thank you, David. Before I open the call up for questions, I want to briefly review and remind investors and all our stakeholders of our key strategic areas of focus and goals going forward. As I've said many times, but we'll continue to reiterate, accountability is about results, and as a public company, those results come back to numbers. We are focused on driving revenue growth improved our higher manufacturing utilization, greater operating cost efficiency, and lower overhead costs, which will lead to higher gross profit margins, higher operating margins and sustainable higher EBITDA.

In the short term, we need to move our EBITDA margins into the double-digit area as soon as possible, and that is top priority. As I've indicated in recent calls, while we wait for an improvement in the agricultural economy, we are focused on the things we can control and executing our strategic business improvement plan, which we expect to enable us to deliver improved adjusted EBITDA as compared to 2025.

We continue to expect to generate adjusted EBITDA of $44 million to $48 million in 2026 on sales of $530 million to $550 million. From a revenue or top-line perspective, we expect to be north of $600 million in annualized run rate revenue by the back half of 2028, which is approximately 20% above our 2025 level. We will, of course, strive to beat this target, but improving on that timing will most likely depend on the U.S. and global agricultural markets performance over the next 2 years.

Our growth needs to be matched by even greater focus and improvement in our productivity, efficiency, and overall cost structure driving margins significantly higher. Together, these should help us to generate solid free cash flow, which along with lower net working capital will enable us to drive net debt down over the next 2 years. This will position us well to refinance our debt. In summary, we are outperforming our peers in many ways in spite of difficult market conditions.

Our operating leverage continues to improve and we are setting the foundation for future growth through investment in new products, including additional dedicated staffing. We acknowledge that there's still a lot of work for us to do and the second half of 2026 is very important to a successful 2026. We will continue to assume that in the short term, the external environment will do us no favors. Consequently, we need to control what we can control and at the same time, continue to execute on our plans for efficiency, growth, and greater profitability.

With that, operator, you can open up the call for questions.

[Operator Instructions] The first question is from Wayne Pinsent with Gabelli.

Just to start off, you touched on pricing in Mexico. And I believe in Latin America. Some of your competitors have been talking about increased pricing pressure there. Just wanted to get more color on what you're seeing with your portfolio?

Yes. The pricing pressure that we -- thanks, Wayne, for the question. First off, I'll go ahead and start that and then we jump into there, but thanks for the question. As far as pricing, it's not a decrease in pricing that we're seeing. We're seeing an increase in pricing. Specifically, we mentioned the Brazilian market with one of our big products there being our copper fungicide. It's directly related to copper LME pricing. So that underlying raw material cost of the product in Brazil has gone up.

And it's fairly elastic product. So as that cost position has gone up on the copper fungicide, the demand has gone down relative there. We are seeing increase in pricing around the globe in relation to freight. Our cost, as we mentioned -- and mentioned, has gone up quite a bit on freight in the last several months, and we are passing that along in new pricing here in July. So we are seeing price increases, and they seem to be taking hold at the moment.

And then you touched on seeing former order patterns and then buying more in line. Just with some of those delayed orders and maintaining guide for the year, what's the confidence of -- what's the level of confidence in orders? How is the order book tracking for -- and visibility for the rest of the year?

Yes. So we still feel comfortable with our forecast, and we still feel that, that is very achievable. What we saw in the second quarter is that we had some shipment delays in Q2 that rolled over into Q3. So the order book was actually pretty nice coming into Q3 in relation to what we probably saw last year. We feel good about Q3 and feel good about the rest of the year as well.

Okay. Great. And then just -- I don't know if it's the first time you put it out, but the 2028 financial targets and priorities, that double-digit EBITDA growth in, is that in 2027 and 2028, so annualized? And is that with some help from the market? Or is that just on what you feel you can control?

Good question. So this is an annualized run rate by the end -- by the back half of 2028. Those are the expected targets. We do expect that we see some -- we do expect that we see the correctness in the agricultural market. If it doesn't, we'll make the appropriate changes to make sure that we continue on our path of progressing forward. We do -- it's been a prolonged ag cycle down our trough. We do feel by '27, '28, we should see some remediation in that cycle and come out of it. But if it's not there, we'll continue to do the things we can do and control our own destiny.

Okay. And just to clarify because you said in the back half run rate, is that lower in 2027 ramping up to a double-digit growth in the back half of '28? Or is it double-digit annualized?

By the second half of 2028, we expect to be on an annualized rate of $600 million in sales.

Okay. But you expect double -- sorry, double-digit EBITDA margin, okay.

Double-digit EBITDA. Yes.

[Operator Instructions] We currently have no questions in the queue. I would like to turn the floor back to management for any closing remarks.

Thank you, everyone, for taking the time today. We continue to value your support and look forward to a successful 2026.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good day, and welcome to the American Vanguard First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Robert Winters with Alpha IR. You may begin.

Thank you, operator. Good afternoon, and welcome to American Vanguard's first quarter 2026 earnings conference call review. Our prepared remarks will be led by Dak Kaye, American Vanguard's Chief Executive Officer; and David Johnson, Chief Financial Officer. After their prepared remarks, we will open up the call for questions. A copy of today's press release, along with supplemental slides are available on our website. A replay of the webcast and a transcript from this event will be made available on our website shortly after the call.

Before we begin our presentation, we would like to remind everyone that today's press release and certain comments on the call include non-GAAP figures and forward-looking statements and actual results may differ materially from these forecasts. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website.

It's now my pleasure to turn the call over to CEO, Dak Kaye.

Thank you, Bobby, and welcome, everyone, to our first quarter 2026 earnings conference call. The year so far for American Vanguard has gotten off to a good start despite continued challenging market conditions, which I will speak to more in a few minutes. As I indicated during our last earnings call in mid-March, 2025 was a challenging year for the agricultural sector overall, but it was also quite a consequential year internally for American Vanguard. Important actions were taken on the commercial and operational fronts and we also made important investments in technology and systems while making key personnel changes across the organization, and we're not done. There's still plenty of work to put the company in a better position for growth opportunities that we see in front of us. However, a lot has been accomplished in the last 12 months that lays the foundation for delivering value for our shareholders.

Going forward, our progress will be measured in many areas, but 3 key metrics to focus on that can be tracked are sales growth, operating efficiency and improvement in net trade working capital. Progress on these fronts will all be tied to accountability around key financial goals or metrics to deliver on our success. Importantly, I will also provide some near- to medium-term goals that we will be focused on over the next 18 to 24 months.

A little later in my prepared remarks, I'm going to provide a more expansive view of what has been accomplished so far beyond my comments from our fourth quarter 2025 earnings call. I will also talk more about the key strategic areas of focus for us going forward and finally, review the new capital structure put in place that positions us well to execute our strategy.

Turning to the first quarter results. We are pleased to see net sales of $124 million for the quarter, an increase of approximately 7% versus the year ago period. The improvement in sales year-over-year was mostly driven by our domestic crop business, which saw sales increase by 17%, driven by strong demand from both our herbicide and our insecticide products as well as a 6% growth in our specialty business driven by our OHP horticultural products. This growth was partially offset by weaker results from our international businesses, which saw revenue decline 7% year-over-year.

Higher sales in Central America, Mexico and Australia were more than offset by lower sales in Brazil, mostly due to timing of deliveries in the previous year that created a tough comparable. We also saw weaker sales year-over-year in India that was mostly timing related. Adjusted EBITDA increased by 245% year-over-year to $10.3 million compared to $3 million in the first quarter of 2025. The strong improvement in adjusted EBITDA was driven by increased sales of higher-margin U.S. crop and specialty domestic products and improved gross margins, which increased by 500 basis points year-over-year.

I am pleased with the progress we are making on the manufacturing front. We have been streamlining our manufacturing footprint over the past year, transferring production from our now more focused L.A. facility to our operation in Axis, Alabama, driving further efficiency and cost savings. As a reminder, we expect the rationalization of the L.A. production facility to save us at least $4 million on an annualized basis going forward.

Adjusted operating expenses, which exclude items such as transformation costs and asset impairment costs were 26.7% of sales this quarter compared to 27.9% in the year ago period. Improvements in operating efficiency and tight cost controls drove the year-over-year improvement. Turning to what we are seeing in the agricultural economy. A lot of what I said in March when we reported our year-end results for 2025 still remains true. The industry is yet to recover from a downturn that started in 2023, though we are seeing some improvement in 2026, at least in the U.S. relative to the environment across most of last year.

As I said in March, while agricultural commodities are recovering from the low levels that we experienced during the summer of 2025, they remain well below what industry observers consider to be historically normal levels. The worst of the industry destocking appears to be in the past, but distributors have shown no inclination to restock their inventories. Farmer liquidity remains a top concern after several years of depressed commodity prices, and thus, growers are making more last-minute crop decisions than ever before. Furthermore, global geopolitical developments this year have only added to the existing levels of uncertainty that was in place last year.

Turning briefly to the disruptions caused by recent events, mostly in the Middle East. Like everyone, we are seeing higher oil prices, higher natural gas prices and higher fertilizer prices. Higher fertilizer prices should not materially impact this season as most farmers have already made those purchases for this season. But the current situation, even if resolved relatively soon, will likely have some impact on next year's crop decision.

As I've indicated in recent calls, while we wait for an improvement in the agricultural economy, we are focused on the things we can control and executing our strategic business improvement plan, which should allow us to improve adjusted EBITDA as compared to 2025. We continue to expect to generate adjusted EBITDA of $44 million to $48 million in 2026 on sales of $530 million to $550 million.

I'll now turn the call over to our CFO, David Johnson, who will briefly review our financial results for the quarter in greater detail.

Thanks, Dak. Good afternoon, everyone. Turning to our financial performance for the first quarter of 2026. The company generated sales of $124 million in the period as compared to $116 million in the same period of 2025, an increase of 7%. The U.S. crop business increased 17% due to strong herbicide and insecticide demand. Additionally, sales of soil fumigants and other products remained steady in the quarter. U.S. crop sales growth was offset by lower nematicide sales of Counter and cotton defoliant sales of Folex.

Our specialty sales improved by 6%, driven primarily by a strong OHP performance and increased demand for biological product solutions. Sales in other specialty markets, including professional pest control, turf and landscape were relatively flat. U.S. growth in the quarter was offset by sales in our international operations, which were down 7% due to Brazil, as Dak mentioned, which was the result of timing of deliveries in the previous year as well as reduced sales in India due to timing delays in customer purchases. The decline was somewhat offset by improved sales in Central America, led by the launch of Mocap in Ecuador.

Gross profit in the first quarter rose to 31% as compared to 26% in the same quarter of 2025 on increased volumes of higher-margin domestic products, reduced volumes of lower-margin international products and a slightly improved factory efficiency performance. Adjusted EBITDA in the first quarter was $10.3 million, an increase of $7.3 million or approximately 245%. The EBITDA expansion was driven by higher sales, higher margins and continued cost-cutting efforts.

Turning to the balance sheet. Cash on hand at the end of the quarter was $71 million as compared to $12 million in the prior year period. The year-over-year increase reflects the term loan structure put in place following the refinancing, which replaced the revolving working capital facility. Total debt was $267 million at quarter end as compared to $166 million at the end of the first quarter of 2025. Given the impact of the change in the debt structure, we are focused on net debt, which was approximately $196 million as compared to $154 million a year ago. The increase is primarily related to the lower customer prepayments we received at the end of 2025.

Inventories were $175 million as compared to $185 million in Q1 last year, a $10 million improvement, reflecting our supply chain discipline and our sales, inventory and operations planning, or SIOP process improvements that we put in place in 2025 that are gaining traction.

I will turn the call back to Dak for some final comments.

Thank you, David. Looking back to 2025, we took important steps to enhance the management team across the organization, bringing in experienced talent as well as elevating rising stars. I've highlighted before the addition of Mike DiPaola and his transition to Chief Commercial Officer as an important step that is already paying dividends. He is adding beneath him more talent. And at the same time, I'm focused on hiring a Senior Vice President of Product Development and Marketing, which is the role that Mike originally held. We've also added or promoted people to key positions in commercial sales, operations, IT and finance, all areas that needed building up and strengthening.

As we've added and promoted people, we also focused on eliminating noncore expenses and prioritizing our resources. As I reviewed during our March call and briefly discussed today, we moved to rationalize our L.A. operation to become a more focused facility and shifted synthesis production to our Alabama operation, building on its strengths in order to optimize our overall manufacturing footprint. Finally, we are relocating our headquarters this month. All these actions will reduce our operating costs and better align responsibilities and accountability across the company.

Turning to the new capital structure we recently put in place. I think it is important to understand that the term loans replaced our existing revolver, which was really a working capital focused credit line and therefore, was not aligned to our long-term strategy. I believe it is also important to track net debt when considering the leverage ratio, as there is now substantial cash on the balance sheet at March 31 and should be there in the future.

The terms of the refinancing align with our strategic plans and objectives while maximizing our flexibility. While this new structure does come at a higher cost, we expected that trade-off because it provides the foundation we need to execute our plan without being overly constrained by quarterly and seasonal working capital swings. The combined facilities give us a stable base of capital and meaningful liquidity, providing excess cash that serves as a buffer or a cushion so we can continue to invest and execute our strategy while maintaining the flexibility to pay down debt as we grow.

As we make progress and execute on our top line and bottom line growth initiatives, we also have the flexibility to pay down these loans on our schedule and we have a game plan to achieve that over the next 2 to 2.5 years and ultimately refinance. Higher revenue, better manufacturing utilization, greater operating cost efficiency and lower overhead costs are expected to drive higher gross profit margins and operating margins, leading to substantially higher EBITDA.

Cash flow and free cash flow from this growth will be supplemented by reduced working capital levels going forward as we achieve greater capital efficiency. Underlying the growth opportunities for American Vanguard is the ability to drive significant volume growth in the future. This will come from a combination of new products and from our existing portfolio, but it will also be driven by a commercial strategy that prioritizes volume across market cycles.

Notably, American Vanguard has a broad portfolio of products across agricultural markets in the U.S. and around the world. And this portfolio is well known from a brand perspective and well regarded by customers. These are large markets, especially relative to American Vanguard's size and sales. And thus, we have the ability and opportunity to drive volume growth without always resorting to price.

I want to talk for a few minutes about what it takes to execute and deliver on the financial goals we have set for ourselves. It starts with the people we have at American Vanguard and the culture we create. It's about building a culture of commercial and operational excellence, focusing on our customers' needs and solving their problems. These actions will drive volume growth across our product portfolio, leveraging the operational focus and the more concentrated asset base we are putting in place.

To succeed, we have, as already mentioned, brought in leaders from the outside with deep industry experience to complement internal talent that we have retained or elevated. We have also put in place new initiatives and programs to drive these results and help our employees succeed in their mission. And of course, we need to give them the tools and information to succeed, which has been another key focus area, our technology footprint. Our systems and our system capabilities as well as the ability for these tools to functionally and seamlessly connect with one another and to be responsive and useful to our people. This is another important area that needed attention at American Vanguard. And as such, we've made it a top priority.

New product development is critical in my opinion and this is yet another area that needed immediate attention upon my arrival, and it has gotten that. Innovation and new product development is a foundational component of our growth strategy going forward. I've talked about our goal to have 50 new product launches over the next 5 years, driving $100 million in annualized revenue by 2030. We have put in place a new product process internally, which will drive this effort.

One of the key things to note about new product introductions and why they are important is that their success and the associated incremental revenue tied to them tends to be ag cycle agnostic. Because the company pursued noncore activities over the last 10 years, the company really found itself in a position over the past 2 to 3 years of not having new products to bring to the market. This is still impacting our business right now, but we changed that in 2025 and have positioned the company to have a more regular and greater cadence of new products to bring to the market starting later this year. We will not fully see the fruits of this until 2028.

And the last thing I want to talk about in terms of key strategic efforts and goals is accountability. We are focused on driving growth here at American Vanguard. And as I previously talked about, our plan 2030, laying out priorities for today and tomorrow, I talked about improving manufacturing efficiency, implementing standard processes across the organization and becoming a KPI-driven management team with a more flexible, dynamic organization. But accountability is also about results. And as a public company, those results come back to the numbers.

And here, I want to provide more specifics about what some of those numbers are, those goals over the next 2-plus years. Executing on these will position American Vanguard to be in a position by the end of 2028 to be able to consider refinancing our debt, presuming that markets and market rates provide an attractive and stable environment for doing so.

From a revenue or top line perspective, we expect to be north of $600 million in annualized revenue, which is approximately 20% above our 2025 level. But this growth needs to be matched by even greater focus and improvement in our productivity, efficiency and overall cost structure, driving margins significantly higher.

I've indicated that over the long term, I believe the business should operate closer to 15% EBITDA margins across the cycle and that is still the goal. But in the short term, we need to move our EBITDA margins in the double-digit area as soon as possible, and that is a top priority. Together, these should help us to generate solid free cash flow, which along with lower net working capital will enable us to drive net debt down over the next 2 years. This will position us well to refinance our debt.

In summary, we've had a good start to 2026, but there is still a lot of work for us to do, and we will continue to assume that the external environment will do us no favors. We have to control what we can control and execute with a capital base in place that aligns with our strategic goals and objectives, it's time to play offense, built on a culture of operational excellence and customer service, supported by new product development and tied to the financial goals that make us accountable.

With that, operator, you can open up the call for questions.

At this time we will be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from Rosemarie Morbelli from Gabelli Funds.

Congratulations on all of the progress you have made so far and thank you for all of the details you have given us. I have a few questions. Your top line growth of 7%. I mean, I understand it was very strong in North America and not so much in Brazil and India. But could you separate the price and the volume?

Yes. So Rosemarie, thank you for the question. Good question. We can -- and one of the things that we're working on more diligently is better data. But I can tell you from the U.S. crop standpoint that the volume was the main driver for the U.S. increase in sales. So there was mainly driven -- the sales increase is mainly driven by volume in the U.S.

Okay. And can you bring us up to date on the generics impact? Is that continuing to affect pricing in addition to volume in other areas in the U.S.? And then if you could give us a better feel for any particular crops that triggered that 17% increase in the U.S.? Or is it that it was so bad last year, and I apologize for phrasing it this way, that it is easy comps more than real demand?

Sure. I think -- let's answer the first question, the generics impact. The generics are definitely coming into the marketplace fairly heavily and in the environment that we have here in the ag cycle, they are prevalent. Having said that, a majority of our products are fairly sticky in the marketplace with the brand reputation. So we are seeing spotty. Specifically, I've talked about Folex in the past, generic pressure. And that has not yet impacted 2026 sales because we haven't got into that cycle yet. But we have a very strategic generic strategy to fight that. And so we're actively engaged to fend off that our market share and actually grow our market share in the U.S. in that segment of Folex.

As far as crops, I can tell you that Impact and Aztec were the 2 large products that we have here that showed increases in sales. Was it related to 2025 or was it related -- I mean, Q1 of 2025 being poor or was it related to Q4 of 2025 being poor or just a switch in timing of the purchases by the market, it's hard to tell. We did see that -- I mean, I can tell you that Impact and Aztec were down in Q4, and they were up in Q1 of this year. Having said that, Metam was still flat or slightly down after being down in Q4 of 2025.

I think a lot of it is a changing in the dynamics of the market and how they buy and we're just trying to feel that out. It's kind of a convoluted answer, but it's still something in motion at this point in time, Rosemarie. I can tell you that -- the one last thing I'd say about crops is that we're a small player in the grand scheme of things. We have a broad portfolio that works very well. But the amount of acres that were on in relation to the total amount of acres of corn and soybean, it doesn't really impact us that much in those 2 crops, where we would see more impact would be in the cotton and peanut acres.

Okay. So that would be the impact in Brazil on the cotton side, right, more than in the U.S.?

Yes. But I mean the impact that we saw in Brazil in Q1 was a comparable issue between Q1 of 2025 and Q1 of 2026. We had some sales in Q1 of 2025 that leaked over from Q4 of 2024 in Brazil due to timing of shipments. And so it made it difficult from a comparable standpoint.

Sure. Just one quick one, if you don't mind. Corteva is expecting the ag market to grow low single digit in 2026. Do you agree with that assessment? Or do you have a different view because you are offering different product lines?

I think the ag industry is going to grow single digits for sure. I don't think it's going to be negative this year, and it is going to grow. It still as we said, there's a lot of things in front of us with geopolitical aspects of it. One, commodity prices; two, and weather and pest. So -- but those are all in front of us as a negative, but it does feel like there's a little bit of clean air in front of us now.

[Operator Instructions] And there were no other questions from the line at this time. I will now hand the call to Dak Kaye for closing remarks.

Thank you. In summary, we had a good start to 2026, but there is still a lot of work for us to do, and we will continue to assume that the external environment will do us no favors. We have to control what we can control and execute with a capital base in place that aligns with our strategic goals and objectives, it's time to play offense, built on culture of operational excellence and customer service, supported by new product development and tied to financial goals that make us accountable.

Thank you all for your time today.

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

Greetings. Welcome to the American Vanguard Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Anthony Young, Director of Investor Relations. You may begin.

Thank you, operator. Good afternoon, and welcome to American Vanguard's Full Year 2025 Earnings Review. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer; and David Johnson, Chief Financial Officer. After the prepared remarks, we will open up the call for questions.

A copy of today's press release, along with supplemental slides, are available on our website. A replay of the webcast and a transcript from the event will be made available on our website shortly after the call.

Before we begin our presentation, we would like to remind everyone that today's press release and certain comments on the call include non-GAAP figures and forward-looking statements, and actual results may differ materially from these forecasts. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website.

It is now my pleasure to turn the call over to CEO, Dak Kaye.

Thank you, Anthony, and welcome, everyone, to our fourth quarter 2025 earnings conference call. While 2025 was a challenging year for the agricultural sector, I am pleased with the progress that has been made at American Vanguard. We have executed on our business, operational, digital and organizational initiatives. We have hired quality experienced colleagues, we have improved our safety metrics across the board, we have focused our team on developing new products, while reducing manufacturing and operating costs. These improvements have positively impacted 2025 as results but more importantly, we are positioning the company for long-term success. Additionally, for over a year now, the team has been focused on finding a capital structure that will allow us to pay down our expiring credit facility, while providing the maximum amount of financial flexibility for future growth. We believe that we have found the right solution through two term loans, one from Centerbridge Partners and one from the existing BMO-led Syndicate. The full details of these term loans can be found in our SEC filings.

While we are paying a higher interest rate on average than our previous revolving credit facility, we now have a significant runway to further improve our operations and show the investment community that the higher earnings power that I believe are possible. Furthermore, the team is now solely focused on running the business and delivering the sales and margins we expect. As we look to position the company for the future, we have made the decision to rationalize the Los Angeles manufacturing facility. The L.A. plant is the company's oldest facility and is no longer competitive in the current environment. We thank the American Vanguard team members at this location for their outstanding service and dedication to running a safe facility over the years of operation. We plan to help many of them pursue the next steps in their careers, but in order for the broader company to remain competitive, it was necessary to take this very difficult step. This rationalization will save the company at least $4 million annually as we move additional volumes through our Axis, Alabama site, we expect to improve utilization there, which will also improve our cost absorption and ultimately, our profitability.

As we have previously announced, the company will be moving its global headquarters from Newport Beach, to a smaller, more cost-effective space in Irvine, California. We estimate this move will save the company approximately $0.5 million annually and will allow our corporate team to be in a more collaborative, modern office environment. We expect the rationalization of the L.A. facility and the headquarters relocation to both be complete by the end of the second quarter of this year. These are two significant milestones for us, but not the last as we will continually work to improve the cost structure of the company.

Turning to the 2025 results. The company generated $39.2 million of adjusted EBITDA, which was slightly better than we generated in the previous year. Sluggish sales in the fourth quarter prevented the company from achieving our adjusted EBITDA target of $40 million to $44 million. That said, we were successful in cutting more costs than we initially estimated and completed a joint development agreement that partially offset the lower sales. The supply chain and logistics team that we hired last year continues to find ways to decrease our material cost and also has improved our warehousing and freight expenses. We attained these improvements even before the implementation of our new software systems that are expected to be fully rolled out later this year, which should allow us to further decrease our inventory and raw material costs.

I expect our inventory turns to increase in 2026 and thereafter as we work to get inventory turns to a goal of 2.25, not only will this have a positive impact on our gross profit, but I also expect that it will decrease the amount of working capital required to operate the business. Cost containment has been a top priority, but it's also important to highlight that there is a growth story at American Vanguard. As I've stated in previous conference calls, I was surprised where the development portfolio was when I joined the company. We have subsequently taken steps to improve in this area, while at the same time, keeping a watchful eye on our R&D expenses.

We have a chart included in our presentation that reflects the new focus on product development. We have already launched one new product in 2026, Duro-LQ, and we expect to launch five new products in North America in total this year. We have a slate of new registrations internationally as well. As we expand the registration footprint and extend the lifetime of our products in multiple jurisdictions, we expect to register at least 25 new products in North America by 2031. New products typically have a higher margin contribution than the existing portfolio. So bringing these new products to market will have a positive impact on revenue and our margin profile. Bottom line, we estimate that we can generate at least an additional $100 million of annual revenue globally over the medium term from new products that are under various stages of development.

In addition to new products, we also plan to be even more responsive to our customers' needs. I believe we can drive more volume through our factories by doing a better job of listening to our customers. This was part of the reason why we appointed a new Chief Commercial Officer, Mike DiPaola. Mike brings 30 years of ag experience, enthusiasm and aggressiveness to our commercial operation that has been missing. As we increase our factory utilization, we can spread our fixed costs over more units, improving our profitability.

I will now address what we have been observing in the broader agricultural economy. The industry has yet to recover from a downturn that started in 2023. While agricultural commodities are recovering from the low levels that we experienced during the summer of 2025. They remain well below industry observers considered to be historically normal levels. The worst of the industry destocking does appear to be in the past, but distributors have shown no inclination to restock their inventories. Farmer liquidity is a concern after several years of depressed commodity prices. Both cotton and corn acreage are forecasted to be slightly down, while soybean acreage is forecasted to increase. All in all, industry observers are forecasting a relatively stable year with respect to planted acreage. We would note that growers are making more last-minute crop decisions than ever before and geopolitical issues are weighing heavily on those decisions.

There are some green shoots as the farmer support payments seem to be rolling out, higher oil prices tend to drive up demand for biofuels that utilize both corn and soybean. Further, higher oil prices increase synthetic fabric costs, leading to greater demand for cotton. Before I provide our 2026 targets, I would like to highlight an issue that impacted our company's financial performance. Typically, American Vanguard collects a significant amount of cash in the fourth quarter from our customers. We have historically referred to this industry dynamic as prepaid. This is an industry-wide strategy that most of our customers and our competitors utilize. Due to the financial strain that one of our competitors was under the channel pulled back from prepay programs across the market. This has led to an increase in our nominal debt levels year-over-year as we typically allocate this capital to paying down debt at year-end. David will have more on this in his prepared remarks.

As we wait for an improvement in the agricultural economy, our business improvement plan should allow us to improve adjusted EBITDA as compared to 2025. We expect to generate adjusted EBITDA of $44 million to $48 million in 2026 on sales of $530 million to $550 million. We are excited about the prospect of better performance in the coming years as we continually launch new products. We believe future earnings power is substantially higher and will allow the company to pay down its debt and make investments in areas which will lead to long-term growth.

I'll now turn the call over to our CFO, David Johnson. David?

Thanks, Dak. Good afternoon, everyone. I would like to start by thanking the team for all the hard work that went into completing the debt refinancing. After looking at numerous structures and holding conversations with a broad cross-section of the financing sector, we selected a term loan structure that includes no equity dilution, provides stability in difficult industry conditions and gives us the option to lower our debt as our results improve. On another positive note, I'm also very pleased to report that we have remediated all the material weaknesses that were identified at the time of the 2024 audit, a Herculean feat, in light of the refinancing work as well as the normal audit work. This is a huge accomplishment in a very short time frame. We are pleased to report that our Form 10-K for 2025 will be filed today.

Now turning to our financial performance for 2025. The company generated sales of $515 million for 2025 compared to $547 million in the prior year, a decrease of 6%. This was slightly below our target range of $520 million to $535 million. Sales in our international operations were down 14% due to elevated channel inventories in Mexico and a persistent drought in Australia, while sales in our U.S. crop business were similar to sales in the year ago period. On a positive note, for the U.S. crop business, it seems that destocking has substantially abated and products on the ground are now approximately equal to our sales, indicating a level -- a low level of channel inventory in the domestic market. However, customers have not yet shown an inclination to buy inventory and continue buying on a just-in-time basis.

Our specialty sales improved by 10%, driven by securing a joint development agreement, our business-to-business sales, along with growth for our mosquito vector solutions. Our gross profit margin is trending in the right direction with this metric increasing to 29% in 2025. At the same time, our OpEx as a percentage of sales slightly decreased to 27%. Given some of the initiatives that we are working on, we expect further improvements in 2026 and beyond for both metrics. For the full year 2025, we generated $39.2 million of adjusted EBITDA as compared to $39.1 million in the prior year. Our cost containment efforts were partially offset by a softer sales environment, but we helped ourselves by improving our manufacturing performance.

Now turning to our balance sheet. Our single largest headwind at the end of 2025 was the difference in prepay as compared to 2024. The company collected approximately $50 million less in prepay in 2025, which resulted in slightly increased debt at year-end. We plan to further decrease our net working capital this year and continue work on this area going forward. I believe that we can operate this company more efficiently in the future as a result of the experienced supply chain leaders we have put in place in 2025 as well as through modern management techniques and software packages we are implementing that will allow us to react more quickly to industry conditions. With respect to capital spending, we spent approximately $4 million in 2025. We will likely spend more than that in 2026, but will remain in the $5 million to $10 million range.

With that, I'll turn the call back to Dak.

Thank you, David. Before opening the call to questions, I would like to take a moment to reflect on what has been a challenging but transformational year for American Vanguard. As most of you know, 2025 was my first full year at the company. The last slide of the presentation titled Plan 2030 shows where American Vanguard was and where it is going. As we achieve these goals, I believe we will generate higher revenue, better EBITDA and more cash flow.

In closing, I would like to thank the team for all the hard work that was accomplished in 2025. But I will also like to challenge everyone to do even more in 2026 as I believe we continue to have a bright future in front of us.

With that, I'll open the call to questions. Operator?

[Operator Instructions] The first question comes from Mike Harrison with Seaport Research Partners.

Was hoping that maybe we could start just with Q4 and kind of coming in below expectations on the revenue line as well as the EBITDA line. It sounds like most of that was on the international side, but I was hoping you could just give a little bit more color on what dragged down revenue. And in terms of the margin performance, with that in line with expectations, and it was just a revenue shortfall that led to the EBITDA shortfall, or were there some issues on the cost side as well?

Okay. Thanks, Mike, for the question. Yes, I mean, it was both international and domestic. I would say that the domestic was primarily due to the U.S. crop related to metam sales from lower potato acres and demand for those products, specifically metam. So insecticides were also down in the U.S. But we did have some positive improvements in our herbicide sales with the Zalo. So that was a big positive as well as impact in the fourth quarter. Internationally, as David mentioned, is primarily related to the drought that we saw in Australia as well as channel inventory in Mexico, they've not gone through the destocking process to the extent that the U.S. has. From a cost containment standpoint, I think we did a really good job in Q4. And our manufacturing expenses were also in good shape in Q4 as well as we continue to do improvement there. And I think that is controlling the things that we can control and controlling them well. So we did see improvement in the cost controls and manufacturing efficiencies in the fourth quarter.

All right. And in terms of your long-term transformation plans, those have been in place for a while. I'm just kind of curious on how the L.A. closure and the headquarter relocation fit in? Are those -- were those kind of contemplated when you initially came out with this 15% EBITDA margin target, or should we think of these as maybe accelerating the process of achieving that 15% target?

Good question. When I first came on, those two were not directly part of the transformational plan. As we've transitioned the transformation plan into our business improvement plan, our business improvement initiatives, the L.A. facility rationalization became more apparent as we started to analyze our capacity utilization across the board and started drawing up plans to move production from the LA site through the access site. So that was not initially part of the initial transformation plan, nor was the moving of the office, the headquarters. So those have been initiatives that we've undertaken subsequent to the transformational plan. The initial transformational plan did have some very good aspects around the digital transformation, commercialization, rationalization of product portfolio and rationalization of our changes in our go-to-market structure in different areas around the world, specifically in Brazil, and some in Central America as well as our growth strategy for our specialty, our non-crop business. Those are still ongoing, along with various other initiatives that came out of that. Did I answer the question, Mike?

Yes. That's perfect. And then I had kind of two questions related to cash flow and to the debt structure going forward. It is great to see that you guys have the new term loans in plan -- in place. But I'm curious, are there any cash proceeds associated with the closure of the Los Angeles facility or the headquarter migration?

Proceeds you mean from the sale of it or from the...

Are you -- are there assets or land or anything that you'll be able to sell?

No, we'll actually continue to operate the L.A. facility as a formulation and warehousing site going forward. So it will continue at a much, much lower scale of operations. There will be no sale, at least initially. There may be some sales of equipment long term as we get to that point. But at the moment, we're not planning to sale any equipment there, we could down the road. As far as the office space, it was a leased space, high rent, not very conducive to running a business, quite honestly, spread out. And so I'm really looking forward to moving in the new headquarters, which is more collaborative work, modern work environment for the team. So it's just -- it's down the road in Irvine and looking forward to that. But there's no pickup in proceeds on that except for the headquarter is $0.5 million here savings from the lease and then the savings on L.A. netted out is about $4 million annually going forward.

Right. Understood. Okay. And then just in terms of cash flow, I understand the prepayments were unusually low in Q4 and that kind of dragged down what cash flow looks like in '25. But I'm curious with the software that you're planning to roll out and your expectations around working capital for 2026. I'm just curious, is it possible that we get to free cash flow positive in 2026 given your expectations for CapEx in the $5 million to $10 million range.

I believe so, Mike. That's -- I believe so, yes. I think when you look at our adjusted EBITDA projections, less our interest. In CapEx, we should be in a favorable cash flow position for 2026.

The next question comes from Rosemarie Morbelli with Gabelli Funds.

I was just wondering, Dak, when you talked about the $100 million of the midterm coming in from new products. When I look at your slides, at the moment, you are only showing one example as the Bullhorn insecticide. Can you give us a little more details as to what you expect? I mean is that going -- are your new products also coming from fungicides or herbicide? And then what is your definition of midterm?

Great questions, Rosemarie. The -- there's more products coming, and they're -- of course, as I mentioned that -- but they're coming from insecticides and herbicides primarily. Those are the main focus based upon the historical nature of the company, as we're taking the assets that we have in hand and utilizing them going forward with new formulations and new products, and that's where the new products are coming from. New products are classified or defined as less than 5 years from launch. So that's how we're going to define them. The -- and the second half of your question was?

Well, I was just wondering, $100 million compared to your current revenue expectations of $540 million at the midpoint for next year. That is a big increase. And so I was wondering, first of all, how comfortable you are with that $100 million? And then what is the timing? You say midterm? Can you quantify midterm?

Yes. I am confident on the $100 million that has been sensitized somewhat based upon experiences that I have with products -- bringing products to launch. So I am comfortable with the $100 million. Medium term is defined from 2030 to -- around 2030 to 2031 is what we're talking about on that standpoint. So not around the corner, as I've expressed in previous calls, we got ourselves in a whole to launch or bring a new product to launch. Generally speaking, it takes around 3 years minimum to go through the regulatory process, to get it to a registered product that we can market and sell. So that's three years from idea creation to registration. We've got in a hold due to the focus that we had of an organization on the SIMPAS technology. So we really only launched one product in '25 in the U.S. And otherwise, it's been pretty bare. And that's the reason we're seeing an uptick in the new product sales starting in '27, '28 -- mostly in '28 as we put these products into the portfolio for launching.

Okay. That is very helpful. And you talked about the high future earning powers of the company. So currently, based on the midpoint of 2026 expectations, your EBITDA margin is about 8.5%. So how high can it get? And what type of top line growth do you need to get there in addition to all of the steps you are taking lowering cost.

Good question. We've had a steady goal of getting to 15% over the long term, and that's still a goal. We have a lot of things to come into fruition to make that happen, not only driving sales up around 4% to 6%, Dave, would you say, we have in our plan 4% to 6%.

Yes.

Our compounded annual growth rate and as well as reducing our cost structure or maintaining our cost structure. I still think that 27% is considerably high or relatively high, especially for our organization, and where we sit in the model of the crop protection industry. So we need to work on reducing that either as a combination of increase in sales or reducing our cost. I think manufacturing efficiencies, we have the ability there. And we will continue to show improvement there just by the sheer focus of the team from Nolteanous' team in the manufacturing and Jerry's team in operations, focusing on controlling costs, better planning. Those going together will increase our profitability at the gross profit level.

[Operator Instructions] We have no further questions in queue. I would like to turn the floor back to management for closing remarks.

Yes, I would like to finalize by saying, by taking the necessary steps to rationalize our manufacturing footprint, focusing on new product development, creating demand for our products by listening to our customers and continually being mindful of our cost, we will generate greater sales, more profitability and cash flow, creating a long-term value for our shareholders. And with that, I'll thank you for your time today. Have a good day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the American Vanguard Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Anthony Young, Director of Investor Relations. Sir, the floor is yours.

Thank you, operator. Good morning, and welcome to American Vanguard's Third Quarter 2025 Earnings Review. Our prepared remarks will be led by Dack Kay, Chief Executive Officer; and David Johnson, Chief Financial Officer. A copy of today's release, along with supplemental slides, are available on our website. A replay of the webcast and transcript from this event will be available on our website shortly as well.

Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include non-GAAP figures and forward-looking statements, and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website.

It is now my pleasure to turn the call over to CEO, Dak Kaye.

Thank you, Anthony, and welcome, everyone, to our third quarter 2025 earnings conference call. When I joined the team 11 months ago, my directive was simplify, prioritize and deliver, and that is what we are doing. Our adjusted EBITDA increased from $1.8 million in the year ago period to $8.2 million in the current quarter, an increase of more than 350% -- the third quarter is typically our weakest quarter, and the fourth quarter is seasonally our strongest. We expect a strong finish to this year. While we operate through the agricultural down cycle, we are controlling the things that we can control, such as lowering net trade working capital, lowering factory costs and operating expenses, while we've positioned the company to have substantially higher earnings when the agricultural market rebounds.

I'll provide my overview of the current state of the agricultural market in a few moments. I am pleased with the progress that we have made so far. Gross profit margins have increased by 300 basis points over the year ago period. A significant portion of this improvement can be attributed to the operations team. Additionally, we are optimizing our manufacturing effort, for example, by transferring production from L.A. to Alabama to maximize production efficiencies. I anticipate that most of the cost savings that have materialized during this quarter will stick with the company for the long term. We have also taken steps to improve our operating expenses.

These expenses have decreased by approximately $6 million as compared to Q3 of 2024 and by $14 million in the 9-month period. The reduction in spending is company-wide. While we are pleased with what we have accomplished so far, we are still laser-focused on watching our expenses. Controlling expenses should not be viewed as a short-term initiative, but as a change in culture at the company. While we still have transformation listed on our statement of operations this quarter, we are transitioning all of these activities to the internal team. We have the talent to continue with the transformation, and we will now be referring to these efforts as our business improvement initiative as we take full ownership. We had already decreased the spend in this area to $2 million from $8 million compared to the third quarter of 2024, but we anticipate decreasing the spend to negligible levels over the coming quarters.

As we seek to simplify the business, we are renaming our non-crop business to be the specialty business. We do not believe the non-crop nomenclature adequately reflects the technology, patents and innovation that are the foundation of this business. While the specialty business is smaller than our crop business, it has critical mass with important contracts for mosquito control and advanced technologies that are being used in home pass control, ornamental and greenhouse applications, golf course, lawn and landscape care. Our current financials still refer to this business as non-crop, but we expect our future financials will reflect the name change. While the business improvement initiative is well underway, I think it is important that we also spend a little bit of time talking about the growth opportunities that are in front of us.

We have not talked about this much in past conference calls, but we are creating an impressive growth portfolio that will potentially contribute $100 million of net sales over the medium term. We will achieve this growth on top of our already proven products, which will be growing as well through geographic expansion and expanding into new crops and sectors. This additional volume should also help with our factory utilization, further lowering the cost structure for the company overall. The development team is focused on growing our crop protection portfolio now that SIMPAS is not a priority.

Turning to what we are seeing in the agricultural economy. We are in the midst of a strong harvest in the U.S. However, trade tensions with China have created a cloud over the industry, particularly with U.S. soybean growers, where important trading channels remain unclear. While there are many reasons to be cautious, there are reasons to be optimistic, such as lower channel inventories of our products, a decreasing interest rate environment, recent news indicating that China is restarting soybean purchases and the possibility for additional subsidies for growers.

Against this uncertain backdrop, we are confident in maintaining our full year 2025 adjusted EBITDA target of $40 million to $44 million. We have lowered our forecast for net sales to $520 million to $535 million in 2025 to reflect various market conditions, primarily in Mexico, Central America and Australia. We will continue to control expenses while ensuring that we are operating our manufacturing facilities as safely and efficiently as possible to maximize our gross profit margin. We are confident we are setting the company up for success in 2026 and beyond.

I will now turn the call over to our CFO, David Johnson. David?

Thank you, Dak. Good morning, everyone. Our business improvement program is clearly having a positive impact on our financial performance, and we expect further improvements over the coming quarters. Our third quarter 2025 U.S. GAAP revenue was $119 million as compared to $118 million in the same quarter of 2024, a 1% increase. We should note that the third quarter of 2024 revenue was impacted by a nonrecurring item and that the adjusted revenue would have been $130 million in the prior year.

Quarter-over-quarter, our U.S. crop business performed well and offset weaker performances for both our specialty and international businesses. In U.S. crop, we saw a mixed bag with, on the other hand, continued weakness in the potato market that impacted our soil fumigant sales. On the other hand, we performed strongly on both herbicides, up about 50% and granular soil insecticides of about 5%. Generally, for our U.S. crop business, we believe that channel inventories are low, and we have seen pricing pressure ease.

Within Specialty, we saw some weakness in our horticultural business which was, to a degree, affected by the product liability matter. Having started the quarter weekly, that business picked up as we progressed through the quarter as our customers trust began to return. Furthermore, our mosquito adulticide product saw slow sales after a weak season with fewer storms, leaving vector control districts in key states, slightly longer inventory.

International sales were down, driven by our strategic decisions in Brazil to drop lower-margin business to allow our organization to focus on servicing higher margin customers and products. In Australia, we have seen significant droughts in key regions, resulting in lower sales. Similar weather patterns have impacted some areas in Central America, while the market in Mexico has not fully destocked. On a U.S. GAAP basis, gross profit margin increased to 29% during the quarter as compared to a gross profit margin of 15% in the year ago period.

A few moments ago, I mentioned the nonrecurring item that affected sales this time last year. If I made the same adjustments to gross margin, we would have recorded 26% in the third quarter of 2024. We continue to have a tight grip on our operating expenses. We cut our selling expense for both the 3- and 9-month periods primarily as a result of implementing a more streamlined global organization structure.

General and administrative expenses are also down following the organization redesign, however, those cost savings are masked by increased accruals for incentive compensation, reflecting our year-to-date financial performance. We have made larger cuts to our research, product development and regulatory costs, focusing on return on investment for product development projects and by cutting out the spending on the SIMPAS project.

Overall, our operating costs were down 11% or $5 million in the 3-month period and $18 million or 14% year-to-date. Looking forward to the final quarter of the year, as Dak mentioned, we expect most cost savings that we have achieved to stick, although product development spending is historically higher in the fourth quarter. Having said that, the R&D costs are forecast to be below last year. Including in the 9-month saving just discussed, spending on transformation activities reduced by about $11 million. That was a planned reduction as we are now driving business improvements from in-house resources. Offsetting that saving, we incurred an expense in the third quarter of 2025 related to the product liability claims.

With regard to those product liability claims, which relate to the Specialty business, the company made the decision that we have sufficient information to record a liability for the expected cost of settling the claims. We have set up the necessary resources to administer the claims process, and we have commenced with claims assessment and payment processes. We expect the expense we have recorded this quarter to be fully reimbursed in the future by a combination of funds from the aphalt counterparty and/or their insurers. We have made an assessment and determined that it was in the company's best interest to proceed with settling customers' claims, even though at this point, we do not have sufficient information to be able to record the offsetting indemnification assets.

Now turning to the balance sheet. Our improved SIOP process has allowed us to operate with comparatively less inventory than we have had in the last 2 years. Our inventory is approximately $47 million less than it was at this time last year. And as is usually the case with our -- for our annual business cycle, we expect to meaningfully draw down our inventory during the fourth quarter of the year. Our net trade working capital was approximately $24 million lower than this time last year. We keep a sharp focus on these balance sheet items as we seek to limit accessing our revolving credit line.

We have decreased our net debt as compared to the same period of last year by approximately $2 million to $165 million. While our net debt only modestly reduced, we bought in less early pay during the quarter than this time last year. While customer interest was high, we made the strategic decision to seek significantly less early pay in the third quarter of 2025 than we did in 2024. As usual, we will be working with customers on the early pay options during the fourth quarter of this year.

Since our last conference call, we announced that we had reached agreement with our senior lenders to extend the term of our credit facility to December 31, 2026. As we continue to improve the business, we will continue to work with both our current lenders and potential new lenders to restructure our debt. We believe that as we continue to deliver, lenders should be drawn to our improved profitability and cash flow profile. We look forward to providing the investment community with an update on this effort at the appropriate time.

As we said on the last call, we expect $5 million to $6 million of CapEx in 2025, coupled with our expectation of $40 million to $44 million in adjusted EBITDA for the full year. Thus, we expect to generate reasonably attractive cash flow in the fourth quarter of the year. We will apply virtually all of this free cash flow towards debt paydown.

With that, I'll turn the call back to our CEO. Dak?

Thank you, David. Before opening up the call to questions, I would like to thank the team for implementing the changes that are necessary to improve this business. Your hard work is delivering tangible results. While the market slowly improves, we will continue to focus on things we can control, improving our manufacturing efficiency, keeping our close eye on net trade working capital and minimizing our operating expenses, while focusing on long-term growth opportunities.

This is a business that has always been a resilient one with products that are proven and effective and backed by the best technical team in the industry. It is also a business that can produce even greater cash flow now that we are a globally integrated organization. The future is bright for American Vanguard with a robust product pipeline improved cost structure and a focused team, we will remain on track to be the trusted provider of proven agriculture and environmental solutions.

With that, I'll open up the call to questions. Operator?

[Operator Instructions] Our first question is coming from Mike Harrison with Seaport Research.

I was hoping we could start out by talking a little bit about some of the trends that you're seeing across the different portions of your business. Maybe starting with the strength in U.S. crop, it sounds like the herbicides area was very strong for you. Can you talk about what was driving that and maybe how you're feeling about momentum into the fourth quarter and into the first part of next year? .

Sure. U.S. crop was very -- performed very well in Q3. As you mentioned, the herbicides impact in vote were performed very well year-over-year as well as Aztec in the quarter. What we're seeing is more normal demand in the U.S. crop business. Therefore, we're not having to incentivize as much as we have -- as we did in Q1. There's a lot more upbeat around the -- in the channel with distribution. There's still a cloud overhanging, the farmers in the marketplace around the tariffs and the impact on soybeans, primarily. But in general, we see corn acres they were up this year, and they are being projected up next year, so that bodes us well for our portfolio in the U.S.

Great. And then on the non-crop or what you're calling the specialty side of the business, it sounds like maybe the product liability situation dragged down part of that business. Is that something that is more of a onetime issue and we get back to growth in Specialty as we look into the fourth quarter? Or is that product liability issue something that's going to continue to drag for a few more months or quarters? .

Yes. Good question, Mike. From an accounting standpoint, we've recognized the impact of that potential claim. We still have the offset that we're working through, the mitigation there, and we fully believe that we're going to get reimbursed for our plan there. We are completely not at fault in the counterparty is related. But it was a drag on the first part of in the Specialty business. We started to process those claims and communication to the customers more readily, middle to end, they are flowing much better now. The market has been very receptive, actually, customers have been very pleased with the fact that we have started processing these claims in light of the situation. So I don't believe that it is a long-term impact. I believe you'll see growth in Q4 and in Q1 for Specialty.

All right. That's good to hear. And then, David, I was hoping you could talk a little bit about free cash flow generation for this year. I believe you used the term reasonably attractive, is there any way to put any numbers around that? It seems like you're making good progress on working capital, and that should improve even further during the fourth quarter.

Yes. I mean we had good cash inflow in the third quarter in comparison to the performance in the first 2 quarters. So that was encouraging. It wasn't quite as big as this time last year. But as I mentioned in my prepared remarks, we got -- we went out for and got less than we got last year in terms of early pay we got more than we looked for. So that was good news.

And cash flow in the final quarter will depend to a degree on the early pay, but it looks pretty good at this point in time. So I'm expecting inflow similar to last year, which was quite strong.

All right. And then last question for me is just on the transformation process. It sounds like transferring that to the internal team is a really important step, I was...

Did we loose Mike?

Sorry, can you still hear me?

We lost you for a moment.

If you could repeat the question, Mike. I appreciate it.

Yes. transferring the transformation process to the internal team sounds important. Can you talk about how meaningful that is? And maybe talk a little bit about how we should think about potential savings and further actions into next year?

Thanks, Mike. This is an important transition of the transformation process to our business improvement initiative. It's primarily to tweak it and manage it internally and give accountability to the plan as we go forth. There's a lot of potential, as I've said a few times, on investor calls, I believe that the [indiscernible] had a great set of initiatives that created a blueprint to go forward with. But I do believe that the plan was really looking at low-hanging fruit and there's a lot of other fruits on the tree there for us to grab, specifically in the manufacturing efficiencies and as we get into the SIOP process more formalized we'll see benefits there throughout the P&L and EBITDA.

Our next question is coming from Wayne Pinsent with Gabelli Funds.

Dak, congrats on a nice improvement there in the quarter. Just wanted to -- a competitor on their call recently noted increased generic pressure in the market. Just wanted to get your thoughts there and if that's impacting you guys at all? I know you noticed that pricing is starting to stabilize, but any color there?

Yes, not speaking directly to the competitor situation. But in our situation, we have one product that underwent competition over the last couple of years. quite honestly, we feel like we're in a very good spot this year, and we've seen an increase in volumes due to various market conditions, I would say. I think also the benefit that we have being a U.S. domestic supplier and producer and specifically on this product I was talking about Folex, we have a benefit there. And we should see some increased volumes in 2026 with Folex, we're planning for it as well.

So there's always going to be generic competition in the marketplace. It's just always important to be cognizant and looking forward to those situations and making sure that you're planning accordingly is what I would say.

Okay. So nothing significantly different than what you've been seeing?

Correct. .

And then Corteva announced that there's splitting up their seed and crop business. Just any positives or negatives there for AVD looking forward? .

I think there's going to be some -- I mean, this is very broad. I think there will be some consolidation in the marketplace with what the other majors are planning to doing as well. the potential with there -- what they might do as well. So I think there's -- ultimately, there's going to be some consolidation in the marketplace in the next 12 to 18 months. And with consolidation, we see a strong opportunity to get back to what we were doing 10 years ago, which was buying a portfolio of products. off the basics when they go through these consolidation period. So in the next 12 to 18 months, I think there will be a real opportunity to add to the portfolio through acquisitions. I think that's the most positive aspect of that.

And then just -- I know you're not going to give a guide on 2026, but just thoughts on volume and pricing trends. I know you mentioned pricing improved seems to be stabilizing. Just what you're seeing and if the crop protection market stabilizes and returns to more normalized low single-digit growth, how do you think AVD could perform in that environment now after a few down years?

I think we'll perform well. I mean in -- we set the company up to perform very well in 2026. There's the transformation plan in 2024, reorganizing the team implementing global best practices. In 2025, setting the stage for a very upbeat 2026 outlook, in my opinion. And I think the team is well positioned. The organization is well positioned. We've got a clear vision of who we are and where we're going to go. I think the pipeline is growing there. It's not going to be there in 2026, but it's going to be there in '27, '28, '29. So we're going to get there. And I think with the current situation with the market stabilized, the channel inventories lower, we should definitely see volumes increase in 2026. .

Okay. Great. And then last one for me. And you just touched on it there. The $100 million of net sales over the medium term from the pipeline, any more color on that and kind of the cadence of how you could see that playing out. .

Yes. Great question, and thank you for asking it. It is something I'm excited about. It was -- when I first got to American Vanguard, I was a little bit disappointed at the pipeline of products that we had there at here. And I think it was because of multiple reasons, the SIMPAS technology was so heavily in focus of new products were not in focus, so to speak. Having said that, as we get into this year and started organizing and analyzing, there is there was some very good products in the product pipeline, that we brought through and cleaned clearing clear through the stage gate process. to -- in order to formalize it to get to that $100 million that we're talking about there.

It's -- there's some really nice product spread pretty broadly across the U.S. crop, international markets and in specialty. It's like I said, there is a gap here. We're not going to see fruition on those new product sales until materially until starting '28. Just because it takes 2 years in most cases, 2 to 3 years to bring a new product to market. So I think what we've gained through this last year is the ability to put the new product pipeline and focus and give accountability to the time line of bringing these new products to market. And more really upbeat about it now that we put it on paper and looked at it and validated them. So it's pretty exciting.

Our next question is coming from Charles Rolls with Cruiser Capital Advisors.

I just want to go through a couple of numbers on the free cash flow issues, just to make sure I got them down sort of properly it looks like if you do something between $40 million and $44 million of EBITDA, I take out, let's say, $5 million or $6 million of CapEx maybe there's $1 million or $2 million of cash taxes at most. I don't think there's any there's much cash taxes. And then interest expense is $20 million. And then maybe working capital is a source of funds, I'm assuming working capital maybe is $5 million or $6 million of the source of funds for the full year. You get free cash flow of about $20 million. Is that sort of the way to look at it? .

That's where I would pencil it up exactly. I think interest should be a little bit under $20 million. But yes, that's a good estimate, Charlie.

Okay. And then if I extrapolate that deck a little further out, right now, your leverage ratio at [ $1.65 ] of EBITDA -- I'm sorry, I wish to [indiscernible] 65 EBITDA, [ $165 ] debt of net debt and $40 million to $44 million of EBITDA, your leverage ratio is running 4x. So by next year, let's say, you can get the numbers up towards something in the [ 50 zone ], and you can get down the debt by another $20 million you should be able to get 1 turn of leverage reduced. Is that sort of the goal you're trying to get to, Dak?

Absolutely get that number under [ 3 ] is the primary goal that we're working for there.

So that's sort of what you want to do when you get towards a refinancing issue, right? .

Yes, yes. Indeed we've shown positive momentum in Q2 and Q3 with our performance. And we are in the process, the mix of the refinancing initiative right now, right in the middle of it.

Then the last question I want to get to, which was asked earlier about Corteva. Obviously, we're seeing companies being set up to take advantage of consolidations. Then you see this issue with FMC and their, let's call it, their troubles. Can you give us some color on that situation to, Dak, if you could, just to say is there something more problematic there? Or is it something that's not as problematic as we as the market is suggesting, I'd love to hear your color on this whole thing because we're seeing now a differentiation between different issues of the ag industry.

Yes. I will be hesitant to speak about that one competitor, Charlie. I have some thoughts on it. But I really don't want to go there that's okay.

Okay. I understand. Because it is a very levered company, and it seems to be more troubled with their products and their there it could be much more trouble than we think. I was just wanted to get your thoughts, but I understand you're not commenting. Okay. Anyway, congratulations on moving the company forward and look forward to your next quarter as well.

[Operator Instructions] Our next question is coming from Dmitry Silverstein with Water Tower Research.

Congratulations on a solid quarter. I'm just curious if I have been a little bit more in your gross margin improvement, 300 basis points of adjusted gross margin year-over-year given what's going on in the industry is pretty impressive. So I was just wondering if it had more to do with the manufacturing improvements you've made over the last year. Was there some pricing or mix involved? So what were the major buckets that allowed you to get that 3-point improvement on a year-over-year basis?

Yes. Dmitry, great question, and thanks for asking it. I think it's a combination, on one specific thing there. It's a combination of sales starting to flow more easily into the marketplace, specifically in the U.S. without so much incentives too. I think the SIOP process is allowing for the inventory replacement cost to be funneled through the P&L now as we've worked off a lot of that old inventory, which is helping the margin. But I think also the manufacturing efficiencies we -- which is both the combination of focus on the manufacturing activities as well as the coordination and communication between demand planning, production planning and procurement is allowing for expand margin there as well. So I think it's a combination of several things. And mostly, it's the great teamwork that we've got going on at American Vanguard.

So it sounds like you didn't have to be as promotional this quarter as you did this time last year. So pricing or mix may have improved a little bit in addition to your internal improvements as far as manufacturing costs themselves are concerned. Is there anything in your -- as you kind of look out towards the end of the year and early in 2026. Any concerns on the raw material situation, anything giving you issues or giving you a reason to expect that your costs are going to be going up faster inflation, let's call it.

No, Dmitry. I mean we're really not. I mean, we've analyzed the tariff impact heavily. There is some. But quite honestly, most of the tariff impact is being offset by lower COGS raw material costs that we're seeing. So it's been mitigated there quite substantially. We were just talking about one raw material just last week with the procurement team, and we're seeing a nice downward trend on that raw material costing. And so yes, I don't see anything in our COGS, it's increasing at this point in time.

Wonderful. And then the last question, just sort of the mood in the marketplace. You talked about inventories getting more kind of in a more appropriate level in the supply chain and for yourself internally. Given that there's a pretty strong outlook, you mentioned [indiscernible] likely again next year in North America. Would you expect your season in the fourth quarter and the first quarter to proceed in a more normal way where demand in the end market is actually reflected in your results and not so much from inventory clearing out of the channel.

Yes. Yes. So I think the -- I mean, personally, I think the inventory -- not personally, what we see from our data from the systems, the third-party process that we get as our inventories in the channel, our products are very low or lower in relation to prior year. And so we feel that the inventories are down, so the normalized buying is coming back. Now what the normalized buying is, we don't believe it's going to be building inventories. But on an annual basis, the product being bought and sold should be consistent. So we don't feel at this point in time, unless there's a black swan event that they will start building inventories again to the level they did right before it just because the market has enough supply and the customers know that now.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session and the [indiscernible] call. This will conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation. .