American Vanguard (AVD) - 2021 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements The unaudited condensed consolidated financial statements report significant year-over-year growth, with net sales increasing by 25% to $398.1 million and net income growing by 87% to $13.7 million for the nine months ended September 30, 2021 Consolidated Statements of Operations This section provides a summary of the company's revenues, expenses, and net income for the three and nine months ended September 30, 2021 and 2020 Consolidated Statements of Operations ($ millions) | Financial Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $147.3 | $117.4 | $398.1 | $318.0 | | Gross Profit | $57.1 | $43.3 | $154.3 | $122.0 | | Operating Income | $8.9 | $4.2 | $21.6 | $12.8 | | Net Income | $5.5 | $2.9 | $13.7 | $7.3 | | Diluted EPS | $0.18 | $0.10 | $0.45 | $0.25 | Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of September 30, 2021, and December 31, 2020 Consolidated Balance Sheets ($ millions) | Balance Sheet Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $376.3 | $331.7 | | Total Assets | $735.9 | $680.3 | | Total Current Liabilities | $178.3 | $171.3 | | Long-term Debt, net | $136.3 | $107.4 | | Total Liabilities | $367.5 | $319.6 | | Total Stockholders' Equity | $368.3 | $360.7 | Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Consolidated Statements of Cash Flows ($ millions) | Cash Flow Activity (Nine Months Ended Sep 30) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($0.2) | $20.4 | | Net cash used in investing activities | ($18.4) | ($14.1) | | Net cash provided by (used in) financing activities | $20.0 | ($3.1) | | Net increase in cash and cash equivalents | $1.4 | $3.2 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations supporting the condensed consolidated financial statements, including segment information and debt agreements - The company's business is aggregated into one reportable segment, with sales disaggregated by U.S. crop, U.S. non-crop, and International categories[33] Net Sales by Category (Nine Months Ended Sep 30, $ millions) | Net Sales by Category (Nine Months Ended Sep 30) | 2021 | 2020 | | :--- | :--- | :--- | | U.S. crop | $184.1 | $148.6 | | U.S. non-crop | $60.6 | $37.9 | | International | $153.4 | $131.4 | | Total Net Sales | $398.1 | $318.0 | - The company amended its senior secured revolving line of credit agreement on August 5, 2021, increasing the facility to $275 million with an accordion feature of up to $150 million and extending the maturity to August 5, 2026[49] - During Q3 2021, the company repurchased 300,000 shares of its common stock for a total of $4.6 million at an average price of $15.26 per share[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong performance in Q3 and the first nine months of 2021 to a sustained, post-pandemic recovery in the agricultural industry, led by strong commodity prices Results of Operations - Three Months Ended September 30, 2021 and 2020 This section analyzes the company's financial performance for the third quarter, highlighting significant increases in net sales and net income driven by agricultural recovery - Q3 2021 net sales increased by 25% to $147.3 million, and net income rose 88% to $5.5 million compared to Q3 2020, driven by a strong recovery in the agricultural industry and higher commodity prices[93] Q3 Performance by Segment ($ millions) | Q3 Performance by Segment | Net Sales 2021 | Net Sales 2020 | % Change | Gross Profit 2021 | Gross Profit 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Crop | $66.7 | $48.4 | 38% | $30.2 | $20.1 | 50% | | U.S. Non-Crop | $21.6 | $18.3 | 18% | $8.9 | $8.8 | 1% | | International | $59.0 | $50.8 | 16% | $17.9 | $14.4 | 25% | | Total | $147.3 | $117.4 | 25% | $57.1 | $43.3 | 32% | - Domestic crop sales growth was fueled by strong demand for corn products (Aztec®, Impact®), peanuts/sugar cane products (Thimet®), and cotton products (Bidrin®, Folex®) due to higher commodity prices and pest pressure[100] - Operating expenses increased 24% to $48.4 million, driven by costs from recent acquisitions, higher incentive compensation reflecting improved performance, and increased legal expenses[107][108][109] Results of Operations - Nine Months Ended September 30, 2021 and 2020 This section reviews the company's financial results for the first nine months, detailing growth across various segments and overall profitability improvements - For the first nine months of 2021, net sales increased 25% to $398.1 million, and net income grew 87% to $13.7 million compared to the same period in 2020[115] Nine-Month Performance by Segment ($ millions) | Nine-Month Performance by Segment | Net Sales 2021 | Net Sales 2020 | % Change | Gross Profit 2021 | Gross Profit 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Crop | $184.1 | $148.6 | 24% | $78.3 | $68.1 | 15% | | U.S. Non-Crop | $60.6 | $37.9 | 60% | $28.0 | $18.5 | 51% | | International | $153.4 | $131.4 | 17% | $48.0 | $35.3 | 36% | | Total | $398.1 | $318.0 | 25% | $154.3 | $122.0 | 27% | - The 60% growth in domestic non-crop sales was driven by significant increases in Dibrom® mosquito adulticide, commercial pest control products, and Envance technology royalties[120] - International sales growth of 17% was led by strong results in Mexico and Australia, with the latter's sales tripling due to the integration of the recently acquired AgNova business[121] Liquidity and Capital Resources This section discusses the company's cash flow, borrowing capacity, and overall financial flexibility to meet its operational and strategic needs - For the nine months ended Sep 30, 2021, operating activities used $0.2 million in cash, compared to providing $20.4 million in the prior year, primarily due to a $37.6 million increase in working capital to support sales growth[132][133] - Investing activities used $18.4 million, including $10.0 million for a product line acquisition and $8.0 million for capital expenditures[135] - Financing activities provided $20.0 million, mainly from net borrowings under the credit facility, partially offset by $1.8 million in dividend payments[136] - As of September 30, 2021, the company was in compliance with all debt covenants, with a leverage ratio of 2.07 (well below the maximum of 3.5) and available borrowing capacity of $95.0 million[139] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from changes in interest rates on its variable-rate line of credit and from foreign currency exchange rate fluctuations affecting its international subsidiaries' financial results - The company's primary market risks are related to interest rate changes on its variable-rate debt and foreign currency exchange rate fluctuations[145] - The company does not currently engage in hedging activities for interest rate or foreign currency exchange risks[145][146] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective - As of September 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[147] - No material changes were made to the company's internal controls over financial reporting during the most recent quarter[147] PART II—OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity repurchases, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is cooperating with a Department of Justice (DOJ) and EPA investigation regarding potential violations of FIFRA and RCRA environmental statutes - The company is cooperating with an ongoing investigation by the DOJ and EPA into potential violations of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and the Resource Conservation and Recovery Act (RCRA)[66] - The company and one non-executive employee have been identified as targets of the government's investigation, with the ultimate outcome and potential financial impact currently unpredictable and no loss contingency recorded[66][67] - A separate matter regarding a Risk Management Plan audit at the Axis, Alabama facility was resolved with the EPA on September 23, 2021, for a payment amount that is not material to the financial statements[69] Item 1A. Risk Factors The company highlights updated risks, noting that while it has not incurred significant disruptions, the ultimate impact of the COVID-19 pandemic on future results remains uncertain - The company is unable to predict the ultimate impact of the COVID-19 pandemic on its future financial condition due to numerous uncertainties, including the scope, severity, and duration of the pandemic[151] - A new risk factor is the disruption in the global supply chain, which is causing delays, unavailability of goods, and significant price increases, particularly for ocean freight, potentially materially and adversely affecting the company's operations or financial condition[152] Item 2. Purchases of Equity Securities by the Issuer On August 30, 2021, the company announced a share repurchase program for 300,000 shares, which was completed during the third quarter Purchases of Equity Securities by the Issuer | Period | Total Shares Purchased | Average Price Paid Per Share | Total Amount Paid ($ millions) | | :--- | :--- | :--- | :--- | | August 2021 | 78,300 | $15.37 | $1.203 | | September 2021 | 221,700 | $15.23 | $3.376 | | Total | 300,000 | $15.26 | $4.579 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act - Exhibits filed include CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1) and financial data in iXBRL format (Exhibits 101, 104)[156][157][158][159][160]