American Vanguard Corporation — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparison is primarily with FY2020. The company manufactures and markets specialty chemical, biological and biorational products for agricultural, commercial and consumer uses. It reports one operating segment. Unless stated otherwise, financial amounts below are in millions of U.S. dollars.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $556.9 | $458.7 | +21% |
| Gross profit / gross margin | $213.2 / 38% | $172.6 / 38% | Profit +24%; margin unchanged |
| Operating income | $30.9 | $22.9 | +35% |
| Net income | $18.6 | $15.2 | +22% |
| Diluted earnings per share | $0.61 | $0.51 | +$0.10 |
| Cash from operating activities | $86.4 | $90.3 | -$4.0 |
| Cash and cash equivalents at year-end | $16.3 | $15.9 | +$0.4 |
| Long-term debt, net | $52.2 | $107.4 | -$55.2 |
| Unused borrowing availability | $178.7 | $86.7 | +$92.0 |
Revenue increased across U.S. crop (+25%), U.S. non-crop (+30%) and international (+15%) businesses. International sales were $214.6 million, or 38.5% of total sales. Cost of sales rose 20%; operating expenses rose 18% to $182.5 million, but declined to 33% of sales from 34%. Net interest expense fell 29% to $3.7 million, reflecting lower average debt and interest rates.
FY2021 income tax expense was $8.2 million versus $3.1 million, and the effective tax rate rose to 30.0% from 16.7%. The increase included a $3.3 million charge for a valuation allowance against Brazilian deferred tax assets. The company reported $18.6 million of comprehensive income, including a $4.5 million foreign-currency translation loss.
Operating cash flow was $86.4 million. Investing activities used $20.0 million, including $9.5 million of capital expenditures and $10.0 million for acquisitions; financing activities used $65.9 million, including $55.6 million of net credit-facility repayments, $4.6 million of share repurchases and $2.4 million of dividends. Inventory declined to $154.3 million from $163.8 million; receivables rose to $158.9 million from $137.0 million.
Material changes and business developments
- Management attributed stronger demand to the improving agricultural economy, higher crop commodity prices and distributor restocking. U.S. crop sales benefited from corn and cotton products; non-crop sales benefited from mosquito adulticide demand and commercial-market reopening.
- FY2021 comparisons include contributions from AgNova and Agrinos, acquired in late 2020. In July 2021, the company acquired Envoke herbicide-related assets for $10.0 million.
- Operating income included a $0.2 million bargain-purchase adjustment in 2021, compared with a $4.7 million bargain-purchase gain in 2020 related to Agrinos. Management stated that excluding the 2020 gain, operating-income growth would have been about 65%.
- The company ended 2021 with an unusually large order backlog, which management expected to support a strong start to 2022. Deferred revenue increased to $63.1 million from $43.6 million, largely reflecting customer prepayments; the company expected to recognize the remaining performance obligations in 2022.
Outlook, risks and contingencies
The filing provides no numerical earnings or revenue guidance. Management said demand remained high and expected the year-end backlog to support early-2022 performance. It considered cash from operations, cash on hand and available credit sufficient for anticipated needs for at least 12 months after issuance, while noting that growth could require additional borrowing or financing.
- Credit and liquidity: The revolving facility has a $275 million commitment, a $150 million accordion feature and a maturity date of August 2026. The year-end interest rate was 1.98%; the company was covenant-compliant. Substantially all company assets secure the facility.
- Regulation and litigation: A DOJ/EPA investigation concerns alleged FIFRA, RCRA, obstruction and false-statement violations. The company had not recorded a loss contingency and said the outcome could materially affect business, financial condition or cash flows. The filing reports DBCP-related lawsuits for which no loss was considered probable or reasonably estimable. A Canadian grower also sought approximately $5 million over alleged crop damage; no reserve was recorded because the loss could not yet be assessed. A separate Canadian product-liability matter had a recorded contingency described as immaterial.
- Commercial and operating risks: The three largest customers represented 39% of sales. The company cited pesticide registration and use restrictions, competition, weather and crop prices, foreign-exchange exposure, supply-chain delays and cost increases, and reliance on some sole-source suppliers. It reported that 2021 supply disruptions had not materially affected overall performance, but warned that future disruption could.
- Estimates and unusual items: Accrued program costs were $63.2 million at year-end, based on estimates of customer discounts and incentives; the auditor identified this as a critical audit matter. Program costs recorded as a reduction of gross sales totaled $99.5 million in 2021. Other notable items included the Brazilian tax valuation allowance and a $0.4 million impairment of the Bi-PA investment.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also reported effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether strong demand and the unusually large year-end backlog converted into shipped sales and cash in 2022, and how much of deferred revenue was recognized.
- Whether the $63.2 million accrued program-cost estimate and related sales deductions prove adequate as customer programs settle.
- Developments and potential financial or operational consequences of the DOJ/EPA investigation and the disclosed product-liability matters.
- Whether customer concentration, supply-chain constraints, pesticide regulation, weather and crop-price changes affect sales, margins or collections.
- Whether debt, covenant capacity and liquidity remain adequate as the company funds growth, capital spending and shareholder returns.