Riverwater Partners, an investment management company, released its “Micro Opportunities Strategy” Q3 2025 investor letter. A copy of the letter can be downloaded here. The strategy reported solid absolute returns in the quarter but lagged the benchmark as it did not keep pace with the strong rally. The strategy continues to focus on quality companies in the volatile environment. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025. In its third-quarter 2025 investor ...

Group 1 - The investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective [1] - The approach does not prioritize market-driven dynamics or future price action, instead emphasizing the long-term earnings power of companies [1] - Most recommendations will be holds, indicating a cautious stance in a bullish market, with only a small fraction of companies deemed suitable for purchase at any given time [1] Group 2 - The analysis aims to provide important information for future investors while maintaining a healthy skepticism towards market optimism [1] - The articles are written on an "as is" basis, reflecting the author's opinions without any warranty [1] - There is a clear distinction that the author does not have any business relationship with the companies mentioned, ensuring an unbiased perspective [2]

Group 1 - The investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective [1] - The approach does not prioritize market-driven dynamics or future price action, instead emphasizing long-term earnings power and competitive dynamics [1] - Most recommendations will be holds, indicating a cautious stance in a bullish market, with only a small fraction of companies deemed suitable for buying at any time [1] Group 2 - The analyst has a beneficial long position in the shares of AVD, indicating personal investment interest [2] - The article reflects the author's own opinions and is not influenced by compensation from any company mentioned [2] - There is no business relationship with any company whose stock is discussed in the article [2]

Financial Performance - Quarterly adjusted EBITDA of $8.2 million, a significant increase from $1.8 million in Q3 2024[1] - Net sales reached $119 million, slightly up from $118 million year-over-year[4] - Gross profit margin improved to 29%, compared to 15% in the same quarter last year[4] - Net loss reduced to $12.4 million from $25.7 million in Q3 2024[4] - Total net sales for Q3 2025 reached $119,313,000, a 1% increase from $118,307,000 in Q3 2024[15] - Total gross profit for Q3 2025 was $34,214,000, representing a 98% increase from $17,293,000 in Q3 2024[15] - Total gross margin improved to 29% in Q3 2025, up from 15% in Q3 2024[15] - For the nine months ended September 30, 2025, total net sales decreased by 5% to $364,426,000 compared to $381,659,000 in the same period of 2024[15] - The company reported a net loss of $21,669,000 for the nine months ended September 30, 2025, an improvement from a net loss of $35,911,000 in 2024[17] - Adjusted EBITDA for Q3 2025 was $8,210,000, compared to $1,800,000 in Q3 2024[19] - Total cost of sales for Q3 2025 was $85,099,000, a decrease of 16% from $101,014,000 in Q3 2024[15] Inventory and Expenses - Total inventory decreased by $47 million year-over-year, totaling $199 million[5] - Operating expenses related to business transformation were down nearly $7 million compared to the previous year[5] Future Outlook - The company maintains full year 2025 adjusted EBITDA guidance of $40 million to $44 million[1] - The fourth quarter is historically the strongest period, with expectations for significant free cash flow generation[5] Sales Breakdown - U.S. crop sales increased by 22% to $43,310,000, while U.S. non-crop sales decreased by 14% to $19,233,000[15] - The company experienced a decrease in international sales by 6% to $56,770,000 in Q3 2025 compared to $60,320,000 in Q3 2024[15] Product Liability - The company recorded a charge of $7.6 million for product liability claims, which is expected to be recovered in the future[5] Cash Position - Cash and cash equivalents at the end of the period increased to $16,795,000 from $11,880,000 in the previous year[17] Strategic Focus - The company plans to focus on its Specialty business to better align with market technologies[2]

Financial Data and Key Metrics Changes - Adjusted EBITDA increased from $1.8 million in Q3 2024 to $8.2 million in Q3 2025, representing a growth of over 350% [3] - Gross profit margins improved by 300 basis points year-over-year, reaching 29% in Q3 2025 compared to 15% in Q3 2024 [10][12] - U.S. GAAP revenue for Q3 2025 was $119 million, a 1% increase from $118 million in Q3 2024, with adjusted revenue for Q3 2024 estimated at $130 million [10] Business Line Data and Key Metrics Changes - U.S. crop business showed strong performance, particularly in herbicides, which increased by approximately 50%, while granular soil insecticides rose by about 5% [10] - Specialty business experienced some weakness due to product liability issues but is expected to recover in Q4 2025 [11][24] - International sales declined, primarily due to strategic decisions in Brazil and adverse weather conditions in Australia and Central America [11] Market Data and Key Metrics Changes - The agricultural market is currently experiencing a strong harvest in the U.S., but trade tensions with China are creating uncertainty, especially for soybean growers [8][9] - Channel inventories of products are reported to be low, and pricing pressure has eased [11] Company Strategy and Development Direction - The company is focusing on controlling expenses and improving manufacturing efficiencies, with a long-term goal of higher earnings when the agriculture market rebounds [3][4] - A business improvement initiative is being implemented to transition transformation activities to the internal team, aiming for sustainable cost reductions [5][30] - The company is optimistic about creating a growth portfolio that could contribute $100 million in net sales over the medium term [7][8] Management's Comments on Operating Environment and Future Outlook - Management remains cautious but optimistic, maintaining a full-year 2025 adjusted EBITDA target of $40-$44 million while lowering net sales forecast to $520-$535 million [9] - The company is confident in its ability to generate attractive cash flow in Q4 2025 and plans to apply this towards debt reduction [18] Other Important Information - The company has reduced net trade working capital by approximately $24 million compared to the previous year and decreased net debt by about $2 million to $165 million [16][17] - A product liability claim related to the specialty business has been recognized, with expectations for reimbursement from the at-fault counterparty or their insurers [15] Q&A Session Summary Question: Trends in U.S. crop business and momentum into Q4 - The U.S. crop business performed well in Q3, particularly in herbicides, with normal demand returning and less need for incentives [23] Question: Impact of product liability on specialty business - The product liability issue is expected to be a short-term drag, with growth anticipated in Q4 and Q1 [24] Question: Free cash flow generation expectations - Free cash flow is expected to be reasonably attractive, with inflow anticipated to be similar to last year [26] Question: Transformation process and potential savings - Transitioning the transformation process to the internal team is crucial for accountability and further savings [30] Question: Competitive pressure in the market - The company is well-positioned despite generic competition, with expectations for increased volumes in 2026 [33] Question: Consolidation in the market and opportunities - Management sees potential for acquisitions during market consolidation in the next 12-18 months [34] Question: Outlook for 2026 and beyond - The company is optimistic about performance in 2026, with a focus on manufacturing efficiencies and a growing product pipeline [36][38]

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Financial Performance - American Vanguard's adjusted EBITDA increased by over 350% to $8.2 million compared to the year-ago period[4] - Gross profit margin increased by 300 basis points compared to last year, driven by improved factory utilization[4] - The company maintains 2025 adjusted EBITDA guidance of $40 million to $44 million and anticipates revenue of $520 million - $535 million[5] - Q3 2025 adjusted EBITDA was $8.2 million compared to $1.8 million in Q3 2024[6] - Q3 2025 gross profit margin was 29% compared to 26% in Q3 2024[6] - Net debt decreased by $2 million[19, 20] Revenue Analysis - Total net sales increased by 1% to $119.313 million in Q3 2025 from $118.307 million in Q3 2024[10] - U S Crop sales increased by 22% to $43.31 million in Q3 2025 from $35.533 million in Q3 2024[10] - U S Non-Crop sales decreased by 14% to $19.233 million in Q3 2025 from $22.454 million in Q3 2024[10] - International sales decreased by 6% to $56.77 million in Q3 2025 from $60.32 million in Q3 2024[10] Strategic Initiatives and Cost Management - The company has an attractive growth pipeline that will potentially generate $100 million of net sales over the medium-term[4] - Operating expenses decreased by 14% compared to last year[17]

Sales Performance - Overall sales for Q3 2025 increased by 1% compared to Q3 2024, with domestic sales up 8% and international sales down 6%[73] - U.S. crop net sales increased by 22% to $43,310, while U.S. non-crop sales decreased by 14% to $19,233[78][80] - International net sales decreased by 6% to $56,770, impacted by droughts and strategic changes in Brazil[81] - Overall net sales decreased by 5% to $364,426 in 2025 from $381,659 in 2024, with domestic sales down 3% and international sales down 6%[90] - International net sales decreased by 6% to $156,848 in 2025, impacted by ongoing droughts in Australia and Mexico[98] - Total net sales for the third quarter of 2025 increased by 1% to $119,313, with domestic sales up 8% to $62,543, while international sales decreased by 6% to $56,770[78] Profitability - Cost of goods sold decreased by 15%, leading to an improvement in gross margins to 28% of net sales, up from 15% in the same period of 2024[74] - Gross profit for Q3 2025 increased by 98% to $34,214, compared to $17,293 in Q3 2024[82] - Gross profit increased by 8% to $104,952 in 2025 compared to $97,474 in 2024, resulting in a gross margin improvement from 26% to 29%[90][99] - The company recorded an operating loss of $6,449 for the first nine months of 2025, an improvement from an operating loss of $31,529 in the same period of 2024[92] - Net loss for Q3 2025 was $12,358, or $(0.43) per share, compared to a net loss of $25,742, or $(0.91) per share, in the prior year quarter[77][88] - Net loss for the period was $21,669, or ($0.76) per share, compared to a net loss of $35,911, or ($1.28) per share in 2024[94][104] Operating Expenses - Operating expenses declined by 11%, resulting in an operating loss of $6,505 for Q3 2025, compared to a loss of $28,388 in Q3 2024[75] - Operating expenses declined by 14% to $111,401 in 2025, representing 30.6% of net sales, down from 33.8% in 2024[100][101] - Operating expenses decreased by $4,962 to $40,719 for the three-month period ended September 30, 2025, compared to $45,681 in the same period of 2024, representing an 11% reduction[83] - Operating expenses as a percentage of net sales improved to 34.1% in Q3 2025 from 38.6% in Q3 2024, with adjusted expenses (excluding transformation and product liability claims) at 27.0%[84] - Operating expenses for the first nine months of 2025 declined by 14%, with operating expenses as a percentage of sales decreasing to 31% from 34% in the prior year[91] Interest and Tax Expenses - Interest expense slightly increased, resulting in a net loss before taxes of $11,936 for Q3 2025, compared to a net loss of $32,766 in Q3 2024[76][88] - Interest costs net of capitalized interest increased to $4,920 in Q3 2025 from $4,378 in Q3 2024, with average debt remaining flat at approximately $209,575[86] - The company incurred an income tax expense of $1,574 in 2025, compared to an income tax benefit of $7,093 in 2024[103] - The company incurred an income tax expense of $422 in Q3 2025, compared to an income tax benefit of $7,024 in Q3 2024, reflecting changes in profitability and valuation allowances[87] - Interest expense increased to $13,135 in 2025 from $11,988 in 2024, with average debt decreasing to $197,097[102] Cash Flow and Financing - Cash used for investing activities decreased to $2,042 in the nine-month period ended September 30, 2025, from $6,381 in the same period of 2024[110] - Net borrowings under the Credit Agreement amounted to $34,919 during the nine-month period ended September 30, 2025, compared to $31,478 in the same period of the prior year[111] - The Company did not declare and pay dividends for the first nine months of 2025, compared to $2,510 paid during the same period in 2024[111] - As of September 30, 2025, the Company had the capacity to increase borrowings by up to $46,862, compared to $28,623 as of December 31, 2024[113] - Financing activities provided $32,659 in 2025, an increase from $28,453 in 2024, with net borrowings under the Credit Agreement amounting to $34,919[111] Research and Development - The company recorded a charge of $7,029 related to product liability claims in 2025, with significant reductions in research and development expenses[91][100] - Research, product development, and regulatory expenses decreased by $5,523, or 49%, due to improved resource management and cost controls[85] - Research, product development, and regulatory expenses decreased by $8,343 to $17,139, a 33% reduction, driven by the decision to stop investment in the SIMPAS delivery system[100]

Group 1 - American Vanguard Corporation (NYSE: AVD) reported 2Q25 results indicating modest operational changes anticipated since coverage began in late July [1] Group 2 - The investment approach focuses on long-only strategies, emphasizing operational evaluations and long-term earnings potential rather than market-driven dynamics [2] - The articles aim to provide insights for future investors while maintaining a skeptical view in a generally bullish market [2] Group 3 - The analyst holds a beneficial long position in AVD shares, indicating personal investment interest [3] - There is no compensation received for the article, ensuring an independent opinion [3] Group 4 - Seeking Alpha clarifies that past performance does not guarantee future results and that no specific investment recommendations are provided [4] - The platform's analysts include both professional and individual investors, who may not be licensed or certified [4]

Core Insights - American Vanguard reported a GAAP EPS loss of $(0.03) for Q2 2025, better than the analyst estimate of $(0.11) and a significant improvement from $(0.42) in Q2 2024 [1][2][5] - Revenue for the quarter was $129.3 million, exceeding forecasts of $125.0 million and slightly up from $128.2 million in Q2 2024, indicating a 1% year-over-year growth [1][2][5] - Adjusted EBITDA increased by 77% year-over-year to $11.0 million, reflecting improved operational performance [2][5][6] - Gross profit margin expanded to 31% from 29% in Q2 2024, driven by lower costs and improved manufacturing processes [1][2][5][6] Financial Performance - The company narrowed its quarterly net loss to $0.85 million from $11.7 million in the prior-year quarter, indicating a recovery in profitability [5][6] - U.S. crop sales rose 1% to $52.7 million, suggesting a reversal of previous declines and a subsiding customer destocking cycle [5][6] - Selling, general, and administrative expenses decreased to $28.8 million from $31.1 million, contributing to improved operating income [6] Balance Sheet and Cash Flow - Inventory at the end of Q2 2025 was $191 million, down $53 million from the previous year, indicating effective working capital management [7] - Outstanding debt fell by $22 million to $189 million, with plans to use free cash flow primarily for debt reduction [7] Product Portfolio and Market Dynamics - Metam sodium and Thimet were highlighted as strong products, while challenges in international markets persisted but did not worsen [8] - The company is focusing on differentiated and sustainable solutions, although no new product launches were announced for the quarter [8] Guidance and Future Outlook - Management reaffirmed full-year guidance for FY2025, expecting revenue between $535 million and $545 million and adjusted EBITDA of $40 million to $44 million [10] - Leadership emphasized ongoing cost control, inventory reduction, and margin improvement, with a cautious outlook on agricultural recovery [11]