American Vanguard 2026 Q3 Earnings Call

Thank you, operator. Good afternoon, and welcome to American Vanguard's Third Quarter 2026 Earnings Review Conference Call. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer, and Matt Horwath, Chief Financial Officer. After their prepared remarks, we will open 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 the American Vanguard Third Quarter 2026 Earnings Conference Call. On our last call, I said the second half of the year would be very important to a successful 2026, and I also discussed the challenging and dynamic cross-currents affecting global agricultural markets and our customers. I indicated that we are making good progress on lowering our cost structure and driving commercial improvement regardless of the environment. I'm pleased to report that our actions are taking hold and that progress being made continues to grow and accelerate at American Vanguard. The increase in prepayments we saw this quarter, up 44% over the prior year quarter, shows the strength of our portfolio and commitment from our customers. Unfortunately, current market conditions are doing us no favors, especially outside of the U.S., where El Niño is materially impacting our business.

Against a backdrop of generally difficult macro conditions for agricultural markets around the world, distributors and retailers are still buying on an as-needed basis and carrying lean inventories, and this is true across all of the geographies in which we operate. I want to repeat the same three points that I made last quarter, because they remain the right way to measure our progress. First, our commercial execution in the U.S. continues to outperform. Second, the cost actions we took in the first half are delivering on an absolute basis. Third, we are building a new product engine that will drive growth over the next several years. Before I review our results for the quarter at a high level, let me briefly cover market conditions.

Overall business conditions have generally worsened in global agricultural markets as the effects of the conflict in the Middle East, higher interest rates, and particularly in the case of our international markets, adverse weather conditions from the Super El Niño, which in some areas has caused drought-like conditions, and in others, flooding. Our focus and efforts continue to be to increase customer engagement by driving 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.

Turning to our home country, the crop protection market in the U.S. continued to be difficult in the third quarter due to ongoing 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. More specifically, in the U.S., higher transportation costs in the form of surging diesel prices, climbing over 40% in the third quarter alone and up over 80% year-to-date in 2026, are having a negative impact not only on customer behavior, but also on our gross margins as the industry struggles to catch up with and move our pricing up to capture this incrementally rapid rising cost.

Savings that we anticipated from the closure of our L.A. manufacturing operation and consolidation of the production at our Alabama facility have been achieved at the operational level, but these savings have been more than offset by the significant increase in transportation costs. Longer term, we still expect the savings to be realized when diesel prices settle at a more normalized level, but for now, we are implementing price increases where we can to offset the increase in fuel costs. In this environment of rising input and transportation costs, farmers are also dealing with commodity prices that remain at relatively low historical values on an inflation-adjusted basis. It's also important to note that the U.S. government aid this year is expected to count for over 40% of the total net farm income, as compared to 25% last year.

To give some longer-term perspective on this. Over the past 30 years, U.S. government aid to farmers averaged closer to 18%-19% of total net farm income. Collectively, these factors have created a significant degree of uncertainty and continued conservatism in procurement among growers in the distribution channel. Turning to our results for the quarter, net sales for the quarter were $108 million, down 9% versus the year-ago period, and adjusted EBITDA was essentially break-even, down $8.3 million compared to the prior year period. In the quarter, U.S. crop sales were down 2%. As we discussed in August, a portion of our cotton portfolio sales shifted from the second quarter into the third as customers bought closer to time of use, and we saw the shift come through as Folex sales were double compared to the prior year quarter.

Herbicide and granular soil insecticide sales were down primarily due to timing versus the prior year. Sales in our specialty business, which includes turf, ornamental, home lawn and garden, and public health, were also down 2% in the quarter, due primarily to lower sales by OHP, our ornamental and greenhouse business. This appears to be another timing issue as the orders are strong Q4 to date. As I mentioned early in my comments, conditions and our international markets have remained difficult. With the environment worsening across the third quarter, El Niño continues to have a negative impact on our Central America business, with a drought on the Pacific side and excessive rains on the Atlantic side. In addition, Mexico was negatively impacted by low crop prices and intense competition from generic products, putting significant pressure on sales and margins.

Further, Brazil was impacted by political uncertainty, elevated copper prices increasing the price of our fungicide, and delayed purchasing decisions by growers, resulting in weaker-than-expected sales. By contrast, Australia's fungicide product, Flute, has added cereals to the label and is performing very well. Our focus is the same in every market: stay close to our customers, provide service and solutions, and control what we can control. Turning to the subject of controlling what we can control, we completed the two footprint actions we announced in March. First, the rationalization of our Los Angeles facility is complete. With synthesis production now running at our Axis, Alabama site, we expect that move to save at least $4 million a year, and the third quarter was our first full quarter of those savings. We saw excellent manufacturing performance in the third quarter.

Second, our headquarters relocation to Irvine is complete, saving approximately a half a million dollars a year. At the end of the third quarter, we acquired four U.S. brands and registrations from Syngenta. We also entered into a distribution agreement with Sipcam Agro. Both portfolio additions are projected to add a total of $15 million-$20 million in annualized revenue over the next 12 months and will help drive future revenue growth alongside our organic new product launches. Speaking of new products, I am pleased to report that we have launched 10 new products year to date, mostly smaller third-party distribution products in our international markets. But more importantly, we will be launching Duro LQ, a liquid-based corn insecticide, in the U.S. in Q4. We have high expectations for this product. As a reminder, our goal remains 50 new product launches, driving $100 million in annualized revenue by 2030.

New products drive revenue growth, and this is why investing resources here is one of the most important things we can do. In the quarter, we had several new additions to management. Hermann Castro, who we mentioned in last quarter's call, has joined us to drive new product development. Also, Mark Helt has joined us as a new U.S. Crop President. Mark is an industry veteran who I've worked with in the past. Most recently, Matt Horwath has joined us, taking over the CFO position. Before I turn the call over to Matt, I want to briefly take a moment to welcome him to American Vanguard. He's been in the seat already for a month now and has certainly hit the ground running, which is exactly what I expected.

His experience, energy, fresh eyes, and leadership will be important in driving the execution of multiple initiatives we have, as well as focusing on simplifying, prioritizing, and delivering across the company. There's a lot of work to be done here, and I'm excited that Matt is with us. With that, I'll turn the call over to Matt to review the financials in more detail. After his review, I'll come back with our 2026 full-year outlook and our progress towards our 2028 targets.