American Vanguard (AVD) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The company reported a net loss of $0.8 million for Q2 2025, an improvement from $11.7 million in Q2 2024, with increased assets and liabilities Condensed Consolidated Statements of Operations Q2 2025 saw a slight increase in net sales to $129.3 million and a significant turnaround to operating income of $4.4 million Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $129,313 | $128,209 | $245,113 | $263,352 | | Gross profit | $40,547 | $37,763 | $70,738 | $80,181 | | Operating income (loss) | $4,366 | $(9,232) | $56 | $(3,141) | | Net loss | $(849) | $(11,721) | $(9,311) | $(10,169) | | Net loss per share—basic | $(0.03) | $(0.42) | $(0.33) | $(0.36) | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income of $3.2 million for Q2 2025, driven by a positive foreign currency translation adjustment Comprehensive Income (Loss) Summary (In thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(849) | $(11,721) | $(9,311) | $(10,169) | | Foreign currency translation adjustment | $4,025 | $(5,729) | $5,850 | $(7,293) | | Comprehensive income (loss) | $3,176 | $(17,450) | $(3,461) | $(17,462) | Condensed Consolidated Balance Sheets Total assets increased to $652.0 million, total liabilities to $421.2 million, and stockholders' equity slightly decreased Balance Sheet Highlights (In thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total current assets | $399,326 | $378,893 | | Inventories | $191,497 | $179,292 | | Total assets | $651,978 | $636,721 | | Total current liabilities | $208,744 | $232,350 | | Long-term debt | $189,500 | $147,332 | | Total liabilities | $421,156 | $403,611 | | Total stockholders' equity | $230,822 | $233,110 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $39.8 million for H1 2025, with financing activities providing $41.5 million Cash Flow Summary (In thousands) | Cash Flow Activity | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,836) | $(49,357) | | Net cash used in investing activities | $(1,057) | $(6,398) | | Net cash provided by financing activities | $41,479 | $63,190 | | Net increase in cash | $586 | $7,435 | Notes to Condensed Consolidated Financial Statements Key notes detail accounting policies, revenue recognition, amended debt agreements, and a new unestimable legal contingency - Total net sales for the six months ended June 30, 2025, were $245.1 million, with U.S. sales contributing $145.0 million and international sales contributing $100.1 million[32] - The company's credit agreement was amended on May 27, 2025, which waived covenant defaults, reduced total revolver commitment, and suspended or adjusted the Total Leverage Ratio and Fixed Charge Coverage Ratio covenants for various periods in 2025[52] - A loss is considered probable from customer complaints about an ornamental insecticide containing herbicide residues. The company has issued a stop sale notice and is aggregating claims, but a range of loss cannot yet be estimated[58] - The company did not declare or pay any cash dividends during the six months ended June 30, 2025, as it is currently prevented from doing so by its loan agreement[59] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 2025 net sales grew 1% with improved gross margin and operating profit, supported by credit facility liquidity Results of Operations Q2 2025 net sales increased 1% to $129.3 million, gross margin improved to 31%, and operating expenses decreased 23% Q2 2025 vs Q2 2024 Performance (In thousands) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $129,313 | $128,209 | 1% | | Total gross profit | $40,547 | $37,763 | 7% | | Total gross margin | 31% | 29% | - | | Operating expenses | $36,181 | $46,995 | -23% | YTD 2025 vs YTD 2024 Performance (In thousands) | Metric | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $245,113 | $263,352 | -7% | | Total gross profit | $70,738 | $80,181 | -12% | | Total gross margin | 29% | 30% | - | | Operating expenses | $70,682 | $83,322 | -15% | - Q2 2025 operating expenses declined by 23% YoY, primarily due to a $5.7 million (78%) reduction in transformation costs and a $2.8 million (33%) decrease in R&D expenses[70][76] Liquidity and Capital Resources Net cash used in operations improved to $39.8 million for H1 2025, with $31.8 million available borrowing capacity - Net cash used in operating activities was $39.8 million for the first six months of 2025, compared to $49.4 million for the same period in 2024[95] - Net borrowings under the credit agreement amounted to $42.2 million during the first half of 2025, compared to $65.3 million in the same period of 2024[100] - As of June 30, 2025, the company had the capacity to increase its borrowings by up to $31.8 million and believes it has sufficient liquidity for the next twelve months[102][103] Critical Accounting Policies and Estimates No material changes to critical accounting policies from the 2024 Form 10-K were identified during the period - There have been no material changes to the critical accounting policies as listed in the Company's Form 10-K for the year ended December 31, 2024[105] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate changes and foreign currency fluctuations, without hedging activities - The company's primary market risks are related to interest rate changes on its variable-rate debt and foreign currency exchange rate fluctuations[106][107] - The company does not currently use hedging instruments to mitigate interest rate or foreign currency exchange risks[107][108] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control, with remediation efforts underway - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were not effective[109] - The ineffectiveness is due to material weaknesses identified in the 2024 Form 10-K related to control environment, control activities, risk assessment, and a specific deficiency in reviewing customer agreements for program costs and prepayments[109][110][112] - Remediation efforts are underway, including enhancing oversight, adding resources, improving training, and strengthening review processes for customer agreements[111][112] PART II—OTHER INFORMATION Item 1. Legal Proceedings A new legal matter involves customer claims for an ornamental insecticide, with a probable but unestimable loss - A loss is probable from customer complaints alleging injury to ornamental plants from a granular insecticide sold by subsidiary OHP Inc. The product was contaminated with herbicide residues by a third-party formulator[58] - The company has issued a stop sale notice and is recalling unused product, but the potential range of loss cannot yet be estimated and could be material to financial performance[58] Item 1A. Risk Factors New risks include potential inability to extend credit agreement and regulatory limitations on pesticide use - A new risk factor is the potential inability to extend or replace the credit agreement expiring in August 2026. Failure to do so by Q3 2025 reporting would require reclassifying the debt as current, which could raise going concern issues[119] - The 'Make America Healthy Again' (MAHA) Commission and related movements pose a risk of new federal or state limitations on pesticide use in food production, which could adversely affect the company's sales[120] Item 2. Purchases of Equity Securities by the Issuer The company is currently prohibited from making stock repurchases under its existing loan agreement - The Company is currently prevented from making stock repurchases pursuant to its loan agreement[121] Item 6. Exhibits Filed exhibits include the 2022 Stock Incentive Plan, SOX certifications, and iXBRL financial data files - Filed exhibits include the 2022 Stock Incentive Plan, Sarbanes-Oxley Act certifications (Sections 302 and 906), and iXBRL data files[122]