American Vanguard's Q3 2025 Earnings Call: Contradictions in Inventory Management, Tariff Impact, and Free Cash Flow Projections

Date of Call: November 10, 2025

Financials Results

• Revenue: $119M in Q3 2025, up 1% YOY vs $118M in Q3 2024 (management noted prior-year quarter included a nonrecurring item; adjusted prior-year revenue would have been $130M)
• Gross Margin: 29% in Q3 2025, vs 15% in Q3 2024 (management notes a 300 bps improvement YOY; adjusted prior-year comparable would be 26%)

Guidance:

• Full-year 2025 adjusted EBITDA expected to be $40M–$44M.
• 2025 net sales forecast lowered to $520M–$535M.
• Expect $5M–$6M of CapEx in 2025 and reasonably attractive free cash flow in Q4 to be applied primarily to debt paydown.
• Most cost savings expected to persist; R&D/product development spending forecast below prior year in Q4.

Business Commentary:

• Earnings and Profitability Improvement:
• American Vanguard's adjusted EBITDA increased from $1.8 million in the year ago period to $8.2 million in the current quarter, an increase of over 350%.

• The improvement was attributed to operational efficiency measures, including lowering net trade working capital and factory costs, as well as an increase in gross profit margins by 300 basis points.

• U.S. Crop Business Growth:

• The U.S. crop business performed well, with herbicides such as Impact, Envoke, and Aztec showing significant growth of up to 50% and granular soil insecticides seeing a 5% increase.

• This growth was driven by more normal demand in the U.S. crop business, reduced incentives, and increased corn acres projected for next year.

• Specialty Business Challenges:

• The Specialty business faced a temporary product liability issue, which affected the horticultural business in Q3 but started to recover by the end of the quarter.

• The recovery was due to improved communication with customers and a proactive claims process, indicating no long-term impact on the business.

• Cost Control and Savings:

• The company cut its selling expense for both the 3- and 9-month periods and made larger cuts to research, product development, and regulatory costs.
• Savings were achieved through a more streamlined global organization structure and a focus on return on investment for product development projects.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted operational improvement: "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%." CEO: "confident in maintaining our full year 2025 adjusted EBITDA target of $40 million to $44 million."

Q&A:

• Question from Michael Harrison (Seaport Research Partners): 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?
  Response: U.S. crop demand normalized with strong herbicide sales (Impact, Envoke, Aztec); less need for incentives, positive channel sentiment and higher corn acreage support momentum into Q4 and early 2026 despite soybean tariff uncertainty.

• Question from Michael Harrison (Seaport Research Partners): On the non-crop or what you're calling the Specialty side of the business, it sounds like maybe the product liability situation dragged on 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?
  Response: Product liability was a near-term drag; company recognized the liability, has begun processing and paying claims, expects reimbursement from the at-fault counterparty/insurers, and anticipates Specialty returning to growth in Q4 and Q1.

• Question from Michael Harrison (Seaport Research Partners): 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.
  Response: Q3 cash inflow improved versus H1; Q4 cash flow depends on early-pay activity but management expects inflow similar to last year and therefore strong free cash flow in Q4.

• Question from Michael Harrison (Seaport Research Partners): 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?
  Response: Transitioning to an internal business improvement initiative increases accountability and should unlock further savings, particularly via manufacturing efficiencies and a formalized SIOP process, yielding P&L and EBITDA benefits.

• Question from Wayne Pinsent (The Gabelli Healthcare & Wellness Trust): 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?
  Response: Generic competition is manageable; one product faced competition but AVD benefited from being a U.S. supplier, saw increased volumes and expects further volume growth (e.g., Folex) into 2026.

• Question from Wayne Pinsent (The Gabelli Healthcare & Wellness Trust): Corteva announced that there's splitting up their seed and crop business. Just any positives or negatives there for AVD looking forward?
  Response: Management expects industry consolidation over the next 12–18 months and views it as an acquisition opportunity to add portfolio products during consolidation.

• Question from Wayne Pinsent (The Gabelli Healthcare & Wellness Trust): I know you're not going to give a guide on 2026, but just thoughts on volume and pricing trends. 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?
  Response: Company is positioned to perform well in 2026: improved cost structure, lower channel inventories and validated pipeline should drive increased volumes as market normalizes.

• Question from Wayne Pinsent (The Gabelli Healthcare & Wellness Trust): 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?
  Response: Pipeline validated and spread across U.S. crop, International and Specialty; revenues from these new products are expected to materialize materially starting around 2028 due to typical 2–3 year commercialization timelines.

• Question from Charles Rose (Cruiser Capital Advisors): If you do something between $40 million and $44 million of EBITDA, take out $5M–$6M CapEx, maybe $1M–$2M cash taxes, interest ~$20M, and working capital source ~$5M–$6M, you get free cash flow of about $20M. Is that sort of the way to look at it?
  Response: Management agrees with that math; interest may be slightly under $20M, but the ~$20M free cash flow estimate is a good approximation.

• Question from Charles Rose (Cruiser Capital Advisors): With $165M net debt and $40M–$44M EBITDA, leverage is ~4x; by next year, if EBITDA rises and debt falls, you could reduce leverage by a turn. Is getting leverage under 3x the goal?
  Response: Yes — primary goal is to reduce leverage below 3x to support refinancing efforts.

• Question from Charles Rose (Cruiser Capital Advisors): Can you give some color on the FMC situation and whether it's more problematic than the market thinks?
  Response: Management declined to comment on that competitor.

• Question from Dmitry Silversteyn (Water Tower Research LLC): The 300 bps adjusted gross margin improvement YOY is impressive. Was it more manufacturing improvements, pricing or mix? What were the major buckets driving the 3-point improvement?
  Response: Margin improvement driven by a combination of factors: reduced promotional activity, SIOP-driven inventory replacement effects, and manufacturing efficiencies plus better coordination across planning/procurement.

• Question from Dmitry Silversteyn (Water Tower Research LLC): Looking into late 2025 and early 2026, any concerns on raw materials or reasons to expect costs to rise faster than inflation?
  Response: No major raw material concerns; tariffs exist but have been offset by declining raw material costs and COGS trends are favorable.

• Question from Dmitry Silversteyn (Water Tower Research LLC): Given lower channel inventories and likely increased acreage next year, would you expect Q4 and Q1 demand to be driven by end-market demand rather than channel destocking?
  Response: Yes — channel inventories are low, so normalized buying should reflect end-market demand rather than inventory rebuilding, barring a black swan event.

Contradiction Point 1

Inventory Management and Demand Forecasting

It involves differing statements about inventory levels and the company's ability to accurately forecast demand, which can impact operational efficiency and financial performance.

How will inventory levels and demand impact results in Q4 and Q1? - Dmitry Silversteyn (Water Tower Research LLC)

2025Q3: Inventories are at low levels, and we expect a more normal buying pattern from the channel, with no significant inventory build-up unless there is a black swan event. - Douglas Kaye(CEO)

What are the forward-looking goals for inventory management? - Wayne Pinsent (Analyst)

2025Q2: We are striving for inventory turns of 2, aiming to achieve this by the end of 2026 or early 2027. This is part of ongoing efforts to improve cash flow and operational efficiency. - Douglas Kaye(CEO)

Contradiction Point 2

Impact of Tariffs and International Production Strategy

It concerns the company's strategy and expectations regarding the impact of tariffs and international production, which can affect cost structures and competitive positioning.

Are there concerns about raw material costs affecting margins in the near term? - Dmitry Silversteyn (Water Tower Research LLC)

2025Q3: Tariff impacts have been mitigated by lower COGS, and we're seeing downward trends in raw material costs. - Douglas Kaye(CEO)

Can you discuss factory utilization initiatives and tariff impacts? - Benjamin Klieve (Lake Street Capital)

2025Q2: Tariffs present an opportunity for domestic manufacturers like ours. - Douglas Kaye(CEO)

Contradiction Point 3

Free Cash Flow Projections

It involves differing statements regarding free cash flow projections, which are critical for financial planning and investor expectations.

Could you clarify your free cash flow outlook for the year? - Charles Rose (Cruiser Capital Advisors)

2025Q3: With an expectation of $20 million in free cash flow based on adjusted EBITDA, interest, taxes, and working capital, our focus is to reduce our leverage ratio, aiming for less than 3x. - Douglas Kaye(CEO)

What were the key points of your closing remarks? - Douglas Kaye (American Vanguard)

2025Q1: Early in 2025, we will address reducing leverage and improving cash flow. - Douglas Kaye(CEO)

Contradiction Point 4

Free Cash Flow Projections and Expectations

It raises questions about the reliability of the company's financial projections and expectations for cash flow generation, which are crucial for investor confidence and planning.

Can you provide an update on your free cash flow projections for the year? - Charles Rose (Cruiser Capital Advisors)

2025Q3: With an expectation of $20 million in free cash flow based on adjusted EBITDA, interest, taxes, and working capital, our focus is to reduce our leverage ratio, aiming for less than 3x. - Douglas Kaye(CEO)

How will working capital be reduced in 2025, especially inventory? - Ben Klieve (Lake Street Capital)

2024Q4: We expect to generate between $30 million and $40 million of free cash flow for the full year 2025, reflecting the benefits of inventory reduction, improved working capital management, and continued strong operating results. - David Johnson(CFO)

Contradiction Point 5

Inventory Management and Channel Buying Behavior

It affects the company's operational strategies and expectations regarding inventory management and customer behavior, which are critical for maintaining supply chain efficiency and market competitiveness.

How will inventory and demand impact results in Q4 and Q1? - Dmitry Silversteyn (Water Tower Research LLC)

2025Q3: Inventory levels are lower than they were a year ago. Distributors are buying in a 'just-in-time' fashion, but we're seeing more of a normal buying pattern emerge. - Douglas Kaye(CEO)

What are channel inventory levels in key regions? - Mike Harrison (Seaport Research Partners)

2024Q4: We expect inventory reductions as we continue to implement our SIOP program and stock our own U.S. warehouses. Given current channel conditions, we are not anticipating rebuilding inventory levels. - David Johnson(CFO)