American Vanguard Corporation — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. American Vanguard (NYSE: AVD) develops, manufactures and markets agricultural, commercial and consumer crop-protection and biological products. It reports one operating segment. Amounts below are in U.S. dollars; financial metrics are shown in millions unless stated otherwise.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $609.6 | $557.7 | +9% |
| Gross profit / gross margin | $241.4 / 39.6% | $214.0 / 38.4% | +13%; margin +1.2 percentage points |
| Operating income | $40.7 | $30.9 | +31% |
| Net income | $27.4 | $18.6 | +47% |
| Diluted EPS | $0.92 | $0.61 | +$0.31 |
| Operating cash flow | $57.1 | $86.4 | −34% |
| Capital expenditures | $13.3 | $9.5 | +$3.7 |
- Sales growth came from U.S. crop (+9%) and international operations (+13%); U.S. non-crop sales declined 2%. International sales were $244.3 million, or 40.1% of total sales.
- Gross margin improved overall, led by U.S. crop margin rising to 46% from 42%. International margin eased to 30% from 31%, and U.S. non-crop margin fell to 46% from 48%.
- Operating expenses increased 10% to $200.7 million, remaining 33% of sales. Freight, delivery and warehousing costs rose 13% to $49.0 million; management attributed this mainly to higher freight rates, volume, product mix and destinations.
- Interest expense was $4.0 million, compared with $3.7 million. The effective tax rate declined to 23.8% from 30.1%, primarily because of a deferred-tax valuation allowance recorded in Brazil in 2021.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $20.3 million at year-end, versus $16.3 million. Working capital was $122.0 million, up from $118.9 million.
- Operating cash flow fell to $57.1 million from $86.4 million, with higher inventory ($29.6 million increase) and receivables absorbing cash, partly offset by $47.6 million of additional customer prepayments. Cash used in investing was $14.5 million; cash used in financing was $38.3 million.
- Revolving credit borrowings were $52.3 million gross and $51.5 million net of issuance costs, versus $53.3 million and $52.2 million, respectively. The facility matures August 2026; its year-end rate was 5.67%. The company reported $200.4 million of additional borrowing availability at year-end, subject to facility terms and covenants. Substantially all assets are pledged as collateral.
- The company repurchased 1.67 million shares for $34.0 million during 2022 and paid $2.8 million in dividends. Year-end treasury shares totaled 5.03 million.
Material developments, outlook and risks
- Supply disruption: A shortage of a key intermediate prevented production and sale of the leading corn soil insecticide Aztec during Q4. Aztec sales declined 20% for the year; management said this disruption reduced fourth-quarter sales and profit margin. Year-end backlog was unusually large, mainly because of this supply issue. The supplier had resumed full operations, but future supply is not assured.
- Management outlook: Management expected freight costs to recede toward more normalized levels in 2023 and stated that cash flows, cash on hand and credit availability should cover anticipated operating needs for at least 12 months from issuance of the report. The filing provides no specific 2023 revenue or earnings guidance. Management cited weather, commodity prices, regulation, competition and supply constraints as factors that make forecasting difficult.
- Regulatory exposure: The EPA proposed cancellation of PCNB, for which AMVAC is sole registrant, and issued a notice of intention to suspend DCPA/Dacthal registration. A DCPA administrative hearing took place in January 2023; the company remained able to sell the product pending the process. The filing states neither outcome is assured. Several organophosphate products also face registration review and a petition to revoke tolerances.
- Other legal and environmental matters: The company disclosed an ongoing DOJ investigation focused on potential RCRA violations related to reimported Australian containers, as well as DBCP-related litigation and product-liability claims. It recorded no loss contingency for these matters, stating that losses were not considered probable or reasonably estimable, or that information was insufficient to estimate them. For the Commerce, California site remediation plan, the company continued monitoring and recorded no contingency because it did not expect costs to be material.
- Credit agreement change: Effective March 9, 2023, the credit agreement replaced LIBOR with SOFR and waived the minimum fixed-charge coverage ratio requirement for FY2022, while adjusting that covenant for Q1 and Q2 2023. The company reported compliance with its other debt covenants at year-end.
- Unusual and accounting items: Operating expenses included $1.8 million of proxy-defense costs. A $0.7 million loss on the Clean Seed investment was recorded. The filing also reclassified $0.8 million of 2021 Australian agent commissions from sales to operating expenses; management said this had no effect on operating income, net income or EPS. No acquisitions were completed in 2022.
Most important facts for investors to verify
- Whether Aztec supply has normalized and whether the unusually high year-end backlog converted into sales without further margin pressure.
- Developments and potential financial impact of the EPA’s PCNB and DCPA actions, organophosphate reviews, and the DOJ investigation.
- Whether operating cash flow recovers as inventories and receivables unwind, and the sustainability of customer prepayment levels.
- Available borrowing capacity, covenant headroom and borrowing costs under the amended SOFR-based facility.
- Customer concentration: the three largest customers represented 39% of sales in 2022; verify retention, order patterns and receivable collection.
- The MD&A overview contains inconsistent net-income figures: one passage says $26.6 million and describes growth of about 43%, while the audited statements report $27.4 million and the detailed results show 47% growth. The audited financial statements report $27.4 million.