American Vanguard Corporation — Q1 2021 Form 10-Q
Business context and reporting period: Results cover the three months ended March 31, 2021, compared with the same period in 2020. The company sells crop and non-crop products and royalty licenses, and reports one operating segment. Comparability reflects the 2020 acquisitions of Agrinos and AgNova, whose operations expanded the company’s global footprint.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $116.2 million | $96.0 million |
| Gross profit / margin | $45.1 million / 39% | $38.4 million / 40% |
| Operating income | $3.7 million | $1.8 million |
| Net income | $3.1 million | $0.5 million |
| Diluted EPS | $0.10 | $0.02 |
| Cash used in operating activities | $32.6 million | $14.1 million |
Sales increased 21%: U.S. crop sales rose 9%, U.S. non-crop sales 59%, and international sales 27%. U.S. non-crop growth included approximately $3 million in additional Envance royalty and license fees. Gross profit rose 18%, while gross margin declined one percentage point. Operating expenses increased 13% to $41.4 million, but fell as a share of sales to 35% from 38%. Net income benefited from higher sales and lower interest expense, as well as a $1.1 million fair-value gain on an equity investment and $0.7 million of PPP loan forgiveness recorded as other income.
Operating cash outflow reflected seasonal working-capital investment, notably a $30.4 million increase in receivables, a $9.6 million inventory increase, and an $11.3 million decrease in deferred revenue. Investing cash outflow was $2.9 million, primarily for capital expenditures. Financing provided $32.9 million, including $35.9 million of net line-of-credit borrowings.
Financial position and liquidity
At March 31, 2021, cash was $13.8 million, total assets $710.0 million, and total stockholders’ equity $360.0 million. Long-term debt, net of loan fees, was $143.4 million, up from $107.4 million at year-end 2020. The revolving facility had a $250 million commitment, matured June 30, 2022, and bore interest at 2.75% at quarter-end. The company reported compliance with its credit covenants and $51.0 million of additional borrowing capacity, down from $86.7 million at year-end. Management believes operating cash flow, existing cash and available credit will meet working-capital and cash needs for the next 12 months.
Management commentary, outlook and risks
Management attributed improved results to strong product demand, increased customer procurement, growth in international markets and acquired businesses, and greater Envance licensing revenue. Domestic crop gross profit fell 12%, reflecting product and territory mix and lower factory output; soil fumigant sales were affected by California water-allocation restrictions. International growth included AgNova’s contribution and stronger sales in Mexico and Brazil. Management gave no specific earnings or revenue guidance.
The company reported no significant COVID-19-related business disruption during the quarter, but cited continued uncertainty around the pandemic, foreign exchange volatility, supply-chain and logistics disruptions, demand, and employee safety. It does not hedge its foreign-currency exposures. Its variable-rate debt also exposes it to interest-rate changes.
A longstanding DOJ/EPA investigation concerns alleged violations of FIFRA and RCRA, obstruction, and false statements. The government identified the company and a non-executive employee as targets; the company is evaluating the issues and discussing possible resolution. Potential outcomes could include fines, injunctions, business-practice changes, or a monitor, and could materially adversely affect the business, financial condition, and cash flow. The company cannot predict the timing or outcome and has recorded no loss contingency.
Key facts for investors to verify
- Assess whether the working-capital outflow and increased receivables are seasonal and collectible, given the quarter’s $32.6 million operating cash outflow.
- Track debt, covenant-based borrowing capacity, and the June 2022 credit-facility maturity.
- Evaluate the sustainability of sales growth and gross margins, including acquired-business contributions, Envance royalties, product mix, and domestic crop profitability.
- Monitor developments and potential financial or operational consequences of the DOJ/EPA investigation; no contingency has been accrued.
- Reconcile an apparent filing inconsistency: the cash-flow discussion cites net income of $3.221 million, while the financial statements report $3.071 million.