Welcome, everyone, to American Vanguard's First Quarter 2019 Earnings Review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; Mr. David Johnson, the company's Chief Financial Officer; and also assisting in answering your questions, Mr. Bob Trogele, the company's Chief Operating Officer. American Vanguard will file our Form 10-Q with the SEC tomorrow, May 8, providing additional detail on the results that we will be discussing in this call. Now before we begin, let's take our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks that have been detailed in the company's SEC reports and filings. All forward-looking statements are – represent the company's best judgment as of the date of this call, such information will not necessarily be updated by the company. That said, we turn the call over to Eric.

Thank you, Bill. Hello, everyone, and welcome to our first quarter earnings call. As always, we thank you for your continued interest in American Vanguard. As a housekeeping note, we have a hard stop at 2:15 but I doubt that we will go that long. They say that you never know how good a ship is until it hits heavy weather. Good captain maintains the ship, trains the crew and stores provisions for good times and for bad. The same is true of a business. What we have been doing over the past few years, mainly diversifying through international acquisitions and managing operational efficiencies has enabled us to weather the storms that plagued many regions in the United States during the first quarter. Despite a modest drop in overall net sales, we were able to improve gross margins. As I explain further, we expect that we will not only make up lost ground over the balance of the year but actually exceed our originally yearly forecast for net sales. Allow me to give some color on the first quarter, including analysis of the top line sales, gross margins and inventory. And then I'll turn it to David for a more detailed analysis of our overall performance. I will then return to give comments on technology development as well as our 2019 forecast. As will be reported in our Form 10-Q quarterly net sales, as a whole, we were down 4%. This was due entirely to a decline in domestic sales due to rain, flooding and, in some cases, snow in multiple areas. For example, wet conditions in the Southeast delayed planting and subsequently, use of our granular soil insecticides. Similarly, fumigant use in the Pacific Northwest was pushed back while burn-down herbicide use was forestalled in the South. As you…

Thank you, Eric. Good afternoon, everybody. As Bill mentioned, we expect to file our Form 10-Q for the three months ended March 31, 2019, tomorrow. Everything I'm covering here is included in more detail in that document. With regard to the financial results, as Eric just detailed, the company's sales for the first quarter 2019 were down about 4%, ending at $100 million as compared to $104 million this time last year. As Eric has just discussed, adverse weather conditions in our domestic ag market and to a lesser extent, our nonag market resulted in lower overall sales as compared to the first quarter of 2018. Basically, wet weather prevented farmers from starting the annual growing season by planting seed and using crop inputs. The delay from farmers translates to lower orders to retailers then to distribution, and that immediately impacts our domestic sales. We expect to see those U.S. ag sales substantially catch-up during the next one to two quarters. While our domestic business suffered, our International business grew, primarily because of the inclusion of our Brazilian business acquired at the start of the year. We consider that our sales performance for the quarter has benefited from the fact that we have succeeded in transitioning from a predominantly domestic U.S. business to a business with a strong International base. For the quarter, International sales represented 38% of net sales as compared to 33% last year. Furthermore, we are pleased that including this regional change in mix, our gross margin performance remains strong for the first quarter, ending at 42% of sales as compared to 39% this time last year. During the first quarter, our operating expenses ended at 35% of net sales compared to 32% this time last year. This included the addition of activities on our newly acquired…

Thank you, David. Turning now to technology. Development of our SIMPAS precision application system continues on schedule. During the planting season of 2019, we were working with some of our major customers both to demonstrate the prescriptive and simultaneous application of an insecticide, nematicide and micronutrient and to line up agronomists to create prescriptions for future use. These efforts will enable us to generate data to support the value proposition for SIMPAS. Additionally, we'll be beta testing the RFID tracking technology, liquid product delivery in combination with granular products and the SmartFill prototypes for reloading SmartCartridge containers. Further, we are working with peer companies to fill out the product portfolio for SIMPAS so that we can maximize our users' choice of at-plant inputs. In 2020, we will mark this proprietary technology through a limited retail distribution campaign. We will also be testing and refining the RFID tracking system and the prescriptive application for both granular and liquid products simultaneously. We expect to be installing the first regional SIMPAS cartridge refilling stations that will facilitate efficient, cost-effective container usage. Further, we continue our collaboration with Trimble on synchronizing the SIMPAS software with their superior geopositioning system in the dashboards of the major planting system manufacturers. We are conducting market demand and pricing assessments of this technology with Trimble's Vantage retail network to determine a detailed commercial plan for SIMPAS by retailers who are experts in precision ag. In April, we presented SIMPAS development plans to the Environmental Protection Agency. This is just the sort of technology that the agency wants to see from industry as it improves growers' ability to account for use of crop protection inputs while optimizing the environmental footprint. In short, we are collaborating with regulators, channel partners and peers to advance this technology. We plan to report on our multiyear forecast for SIMPAS financial performance at our Annual Meeting on – of Shareholders on June 5. In conclusion, our business is showing resiliency in the midst of seasonal adverse marketing conditions in the United States. We expect to recoup most, if not all, of the net sales that we lost during the first quarter. Further, our International businesses are growing and should continue to do so over the balance of 2019. Thus, we're expecting overall top line sales to exceed our prior guidance. In addition, we will maintain our focus on maximizing factory efficiency while reducing inventory and, in the process, generate cash flow. This, in turn, will enable us to bring down debt, increase our borrowing capacity and strengthen our balance sheet by year-end. Beyond 2019, we are poised for further growth. And I will tell you more about this when we speak again at our Annual Shareholders Meeting this June. Now we'd be happy to answer any questions you may have. Adam?

Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Jim Sheehan from SunTrust. You’re now live.

Good afternoon. This is Pete Osterland on for Jim. Just a couple of questions on China, with safety inspections increasing after the recent explosion at the chemicals plant in the Jiangsu province, are you experiencing or do you expect to experience any difficulty with procuring raw materials from China? And then with the news that import tariffs could be increasing at the end of the week, what kind of impact do you expect that this could have?

So with regard to experiencing difficulty with supply, again, we mentioned that we have three key products that we have picked up from Adama. We've brought in product and we think we're in pretty good shape there. The one product that does concern us is Bromacil, which is a product that we bought from DuPont and then later acquisition from Bayer. And we are having – they are, I think, about 90 kilometers away from the incident and are currently shut down. We have alternate sources that we're working on, but that's probably the one product that we could have impact on in the short term. With regard to the tariffs, it kind of goes two ways. If they are enacted, our products that we currently have today are at a lower cost than potentially replacement cost would be. Longer term, most of us are in the same position, and particularly, we're not heavily dependent on China. I think it's maybe less than 20%. But for what we do have, we're pretty much in the same boat with everybody else. So we would be expected to be able to pass those duties forward.

Thank you.

Our next question comes from the line of Chris Kapsch from Loop Capital Markets. You’re now live.

Yes. Good afternoon. So actually, I wanted to ask about SIMPAS. At one point, Eric, you had, I think, an expert or consultancy sort of do some work and frame up a – what you viewed as maybe an addressable market. I forget if it was – I think it was more focused on acreage globally, maybe revenues. I don't know if you're at a point where you can – I know you're going to divulge some of this in coming months, but if you're at a point where you can sort of talk about the appropriate TAM that – where you think your technology is applicable and where you might be targeting that product to commercialize over the next few years. And what sort of metrics are you planning to focus on in terms of measuring the progress and the success of that commercialization?

Yes. So the markets, I mean, we're initially focused on, I'll say, six crops, but predominantly corn, soybeans and cotton in the U.S., but then there is potatoes and sugarcane, sugar beets to a lesser degree. And then we are utilizing the current SmartBox system. We just started in Brazil. We've been doing this now in Australia and also in Canada. So those will be markets that we'd kind of be – kind of next in line, so to speak, for the SIMPAS usage. I'm trying to think what your other question was. Can you repeat, Chris, if I missed it?

Well, if there's any way you could frame up what the addressable market is, not so much in the crop but just in terms of total acreage where you think the technology is applicable. And what sort of metric like revenue, profitability might we expect that you can – would be interested and start tracking and disclosing as far as that commercialization shows progress?

So longer term, I don't see there are too many acres that would not be – have a benefit from the use of SIMPAS. In smaller acreage, there is – we're talking with our team about the use of SIMPAS and drones, where they can take a payload of up to 2.5 gallons of product, the idea of being able to do turf, golf courses, I think. So the uses, I think, are – in total acreage is pretty mind-boggling. As far as metrics, yes, I think we would talk about, as we move forward, kind of treatable – or treated acres. And by treated acres, if we used – if we were going on in a prescription that amounted for 30% of the acres for – on nematicide and 40% for a micronutrient and 70% for an insecticide and nutrient biological, the rest of it, all of those will add up. So an acre itself could be a higher number, even though treatment for each individual input would be likely less than a full acre, if the prescription is accurate the way we would look for it to be. So I think, again, to answer your question in metrics, we would talk about treated acres through the SIMPAS system, and that's probably the measure of how well we're progressing.

And then just one last one on SIMPAS. Eric, the – you obviously have some channel partners that are helping you in terms of the validation and the launch. But presumably, for adoption, you have some peer – insecticide, herbicide suppliers would have to – I don't know if there's some form of relationship – formal relationship, if it's a licensing agreement or anything like that. Just how do you intend to approach that? And is – are we at a point where you're starting to enlist sort of peer crop chemical suppliers that would have a role in supplying materials that would go – be used in the SIMPAS system?

So yes, you're correct. We are working with peers to line up products. I think from their standpoint, they look at it as incremental sales. We originally position this as treating acres that wouldn't be treated for economic reasons if they have to treat 100% of the acre. And so it allows for incremental increase. There certainly will be – there's a current seed treatment practice that can be expanded by us being able to apply product specifically in or around the seed at time of plant. So I think we largely see this as kind of incremental increase for getting on – treating crops and acres that maybe currently aren't being treated in a particular fashion. That being said, with our current SmartBox system, the people that are doing insecticides through that, that we've been offering for the last 18 years will probably shift to this – so there will be some, I'll call it, cannibalization, if you will, but it's going to be, from our vantage point, a much bigger platform for us to be able to do multiple crops in a prescriptive manner with multiple inputs at time of plant.

Thank you. [Operator Instructions] Our next question comes from the line of Joseph Reagor from Roth Capital Partners. You’re now live.

Hi, guys. Thanks for taking the questions. A couple of minor things. I guess first one, the reporting format appears to have changed a bit with your breakdown of sales. Are we going to get the normal breakout in the Q? Or is this kind of the new format going forward?

Are you talking about the domestic and international sales?

Yes. Usually, we get like herbicide and insecticides…

Yes. That is in the Q.

Okay. Great. I'll look for it there. Also, some of your peers didn't – had kind of suggested that product-to-mix wasn't going to be as good as yours turned out to be from a margin standpoint. Is there any additional color you guys can give there of how you guys maintained the strong margin you did?

Well, we kind of mentioned again we're probably more driven by bottom line than top line and this natural flow program that we've tried to do, which recognizes if our customers have full warehouses and planting season is delayed, that we'll wait until they need the product to actually go out to the farm base. So I think that's a big part of it. There were some sales like our Parazone, which in last year's first quarter happened, and those are lower-margin products. But again, the message we sent to all of our team is focus on gross margin dollars, don't focus on the top line sales. So it doesn't mean as much if we sell more product at a lower margin as it does for us to have higher gross margin dollars to work with.

Okay. Fair enough. Shifting gears a bit to the balance sheet. With the increasing debt during the quarter, do you guys feel comfortable that you still have enough bandwidth to make acquisitions? Or do you think that you need a quarter of repaying debt before you'd be out there looking again?

Well, we're always looking and always working on something. When we've looked in the past at some of the blockbuster acquisitions that we were participating in, we were fortunate that – wound up not going to us – but we were certainly entertained in the process. And had they come to the level that we felt they're worth to us, we would have had the backing that we get from our bank syndicate. And they've continued to assure us that if we have acquisitions that make sense, and again, we tend to pay more in the five to six multiple EBITDAs than maybe 10 to 12 where some acquisitions will go, but at those ranges, I think we have – we feel we have – it's a long-standing relationship with these banks and credit unions that are – will be happy to step up and give – make more availability of borrowing available to us. So I don't know, David, if you have...

No. We have a great relationship with the banks, and I keep them informed very closely of how things are going. They have always supported us. So I think that we continue to be in a good position to contemplate acquisitions as they arise.

Okay, thanks guys.

Thank you. Ladies and gentlemen, there are no further questions in queue at this time. I'd like to turn the floor back over to management for closing.

Okay. Well, once again, thank you very much for joining us for the call, and we encourage you to – opportunity to join us in our next call, which will be our Shareholders' Meeting on June 5. Correct? Right. Okay. Thank you very much, and good evening.