Greetings, and welcome to the American Vanguard 2019 Fourth Quarter and Full Year Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded.I would now like to turn the conference over to our host, Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Thank you very much, Diego, much appreciated. Welcome everyone to American Vanguard’s 2019 fourth quarter and full year 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 assist 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, that documents providing additional detail to the results that we will be discussing in this call.Before beginning, let’s take a moment for 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 other risks that are detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call. Such information will not necessarily be updated by the company.With that, we’ll turn the call over to Eric.

Thank you, Bill. Good afternoon, everyone, and thank you for your continued support of American Vanguard. Before speaking on our 2019 fiscal year, I think it's appropriate to pause for a moment and reflect on today's extreme overall market [volatility].As you may know, led primarily by energy and bank stocks, the Dow dropped over 2,000 points today and early sell-off actually triggered a 15 minute trading halt. The sell off was driven primarily by drop in oil prices triggered by Saudi Arabia's price war with Russia. In addition, the coronavirus has investors worried about supply chain disruption in various sectors. The impact of energy companies has in turn put pressure on their lenders. While Dow stocks were trading at about two times normal volume, American Vanguard traded slightly under its normal daily volume. Our shares dropped about 6.25% over the course of the day.Generally speaking, most of our competitors experienced share price declines in high single digit to low double digit range. This is in contrast with energy stocks, which in some cases were down at 20%. Obviously, our stock is not immune to overall stock market trends. However, we have seen relative stability in both corn and soybean prices, and I've observed that farm economy tends to have its own cycles in spite of energy and other sectors.With respect to COVID-19, to-date we have not experienced any material interruptions in supply or services from affected regions, including China. On the one hand, we are seeing indications such as more normalized inter-country transportation that would suggest the virus is beginning to show contraction within China. However, the virus has spread into multiple countries with over 100,000 cases and over 3,000 fatalities worldwide. Accordingly, we are following the matter closely and are keeping our workforce apprised of travel and hygiene recommendations…

Thank you, Eric. Good afternoon, everybody. As Bill mentioned, we will be filing our Form 10-K for the 12 months and the December 31, 2019 tomorrow. With regard to the quarterly financial results, the company’s sales for the fourth quarters of both 2019 and 2018 were approximately flat at $131 million. Our fourth quarter 2019 gross margin was 36% as compared to 40% for the same period of 2018. There were two factors driving this change. First, our sales mix included highest sales of low margin products from both our Brazilian and Central American businesses. And second, our manufacturing output was down approximately 28% and we incurred a corresponding decrease in factory cost recovery, as we manage inventory for the year end and the start of the New Year.Our operating expenses improved to 31% of net sales for the fourth quarter of 2019 as compared to 32% of net sales for the same period of 2018. Additional expenses associated with businesses and products acquired in 2019 and late 2018 were offset by reduced legal costs, accruals for incentive compensation and expenses for both regulatory and product development.In the fourth quarter of 2019, interest expense was higher than the prior year, primarily because of the acquisitions completed in the last 12 months and at the end of 2018. On the plus side, we incurred a loss in 2018 related to the settlement of derivative instruments that was not repeated in 2019. We closed the quarter with net income of $3.4 million or $0.12 per share, which was in line with the analysts' consensus.When considering our 2019 full year financial performance, the key financial matters remain consistent with last year. First, sales were up 3% to $468 million, as compared to $454 million in 2018. This improvement was driven primarily from businesses…

Thank you, David. A key component to our growth in 2020 and beyond will be our introduction of new products and technology innovations. At the Commodity Classic, the agriculture tradeshow that was held just last month, we highlighted our new product development pipeline, citing an accelerated process that we call innovation with speed and discipline. Through combination of internal formulation skills and selective product acquisitions in 2020, AMVAC will add 10 new offerings to our existing strong product portfolio. These include the four herbicides that we recently acquired from Corteva, namely Classic, First Rate, Hornet and Python. In addition, as we commercialize SIMPAS, we are offering three high concentration product formulations of AZTEC, Counter and Zinc packaged in smart cartridges.Further, we'll be expanding our herbicide portfolio with Impact CORE, Summit both used on corn and Surepyc IQ for use on turf. Our plans over the next three years involve the introduction of more than a dozen additional formulations and herbicides, insecticides and fungicides for use on corn, soybeans, canola, peanuts, rice, cotton, and turf applications. Many of these products will be tailored formulations, specifically designed to have differentiated applications that provide excellent financial profitability. We expect that taken together, these new products could contribute incremental revenue of more than $10 million this year, $25 million in 2021 and $65 million by 2022, with gross margins in the 50% range.Now let us turn to technology innovation. Before getting into the subject, I think it's useful to reflect upon the fact that unlike startup companies, we have been generating profitable results for decades through the manufacture, distribution and sale of multiple products. Our stockholders’ equity now stands at $344 million. In short, we fund and commercialize our own innovative technologies, while running a growing business.Consequently, it is very exciting when we develop…

This is Pete Osterland on for Jim. On your 2020 guidance for sales growth, could you break out what you're expecting for U. S. versus non-U. S. sales? And kind of along the same lines, do you expect that product mix will be a tailwind for margins this year as volumes in the U. S. recover?

Yes, I mean we’re forecasting 38%, which you could paint a picture and say well, if we do more U. S. which we intend to, those sales are profitable. Although, we do have some lower margin products for the U. S. that we acquired in the Syngenta deal. But I think we will see a rebound for U. S., while at the same time. So I would expect -- David or Bob weigh in, that we’ll probably [Technical Difficulty] more than 60% domestically. But I think the 60-40 split, I think both are poised to grow, so that may stay similar along those lines.

And then at your current debt levels, are you willing to continue pursuing additional bolt-on M&A opportunities near term if you identify something accretive?

We are. Obviously, we look at the deals that are there and if they're attractive bolt-ons that we think we've got accretive from day one then, yes, we definitely want to continue that process.

Our next question comes from Joseph Reagor with Roth Capital Partners. Please state your question.

So you guys mentioned that you haven't had any supply interruptions yet related to coronavirus. Are there any key ingredients that you guys are stockpiling extra large supply of just to in case there is future supply interruptions, are you giving any thought to that?

No, again, I think we've got some more eloquent, say commoditized type products that we've got inventory that is greater than what we'd like to see where we're hopeful that these interruptions will actually give us a better window for profitable sales with those inventories this year. But at current time, we're not getting any feedback that we're not going to be able to continue with the plan and budget that we've laid out.

And then both, considering both the coronavirus situation and the oil price, is there any key areas you see there are benefits or risks in the event of continued overall stock market pullback and potential global recession?

I was looking today to see what happened to the commodity prices, corn and soybeans and seeing that they relatively unaffected by this, I know when the 2008 year hit, we and the industry and the ag sector looked at and said, gosh we’re recession free but then 2009, factories got flipped back on in China and there was a flood of cheap prices that caused people that were sitting on high inventory levels, particularly the products like glyphosate took a real hit. So I can't say that where this industry is void of that but on the other hand people do have to eat. And so it's from that standpoint of a financial hit, I think our industry is poised that is then some.

And then just kind of seasonality this year, should we expect to return to normal seasonality of, call it, a lower Q1 with a buildup to a stronger H2?

Yes, that's correct. I think we're seeing good orders right now for our Midwest products on a daily basis, which give some optimism that we are seeing a rebound from 2019.

Our next question comes from Chris Kapsch with Loop Capital Markets. Please state your question.

So curious about -- in the terms of the guidance for 2020, with that sales growth, presumably you're going to have some better factory overhead absorption variances. So I'm wondering how that influences your flat gross margin guidance for the year.

Actually, I mean what we've got down currently is its fairly similar to 2019, again, keeping in mind that we're looking to move inventory levels down further in this year.

So you mentioned that I think you're looking to reduce inventory levels by around $13 million. So are you suggesting that based on that and the utilization rates at the factories it’d be comparable to 19?

That's correct. That and keep in mind that we don't make all of our products.

And then so curious about the new products introduction that you mentioned and the new formulations. Just wondering just in terms of commercializing those products, have you -- just the nature, was it more of a market pull or is it something that you felt like there's a need for the sort of formulations and you wanted to push them into the market. So just wondering what's kind of behind the plan to see those great or, I think it was $65 million over a couple of years? And are those products, you mentioned the gross margin profile pretty attractive. Are those cannibalizing existing product, or is this kind of expanding the market opportunity that you address?

So first, the 10 for this year, we mentioned was the four herbicides we purchased from Corteva. And we feel, I mean, so these are existing sales, we think that would certainly weren't a focus for Corteva and our people are excited about being able to rebuild them in the higher volume. So that's a start of it. Then the other three as we mentioned, the Counter, the AZTEC and the Zinc formulations, will be for SIMPAS, that will minimal sales this year as far as the season, but we'll start making fourth quarter sales of those products.And then the last three, one is -- and I'll say these three are a result of what we call our idea review committee, which we bring in what we think are kind of expansions or needs that we don't currently have in our portfolio that we think are good leverage points for us. And the idea is that, that we would be adding to the existing piece and filling holes in our portfolio. And for those, they're given kind of a six year window or whatever time we think it'll take to get to maturity and so there's is a game plan for each year from introduction through those six years.So, I don't think we're cannibalizing in that and at least what was laid out here, these are kind of making improvements. I know we added Impact atrazine to our regular and we call it Z to our current Impact, and we've seen kind of an expansion of our position there. I think gives you, to stay and flat and don't differentiate, sooner or later you're going to lose market share from what you currently have. So it’s a fact to kind of build upon what we have and kind of offer new innovative solutions to our customers.

And then, Eric, you mentioned the competitive dynamic back in, I guess 2009 over the course of the financial crisis. I'm just wondering, and I totally appreciate ag has its own cycle and we're coming off of a very difficult year at least in North America, given the weather disruptions. And there is some anecdotal that different crop chemical companies have different channel inventories, I guess maybe even by region. But can you just comment on given that as we're going into the growing season in North America this year? Just the competitive dynamic, any sense for any change in behavior in terms of discounting or motivation to move product through the channel as it relates to your visibility around your sales and your products? Thanks.

So I don't know that we saw anything extraordinarily unusual, Bob, from our competitors. And I’ll let you comment on that after. But I think there certainly is a fair amount of pre herbicides, emergent herbicides left in the channel from last year, probably seed maybe a bit of an issue too, so some of the seed carryover from that. But for our products, again, we didn't force or try to push people, which is why we're pleased to report that we're starting this year with lower inventory than what we started for the 2019 growing season. So I don't know, Bob, any color you've got on an unusual activity out there.

Most of the channel last year lowered inventory, so the market was at the retail farm-gate level at about flat to maybe up 1% that means they lowered channel inventories that was the general trend. I would say with the exception of one company, most companies are entering the year with low channel inventory.

Thank you [Operator instructions]. Our next question comes from Bruce Windsor with -- Mr. Windsor, please go ahead.

The involvement of Helena, Simplot, Nutrien and WinField, seems to me a very positive development for SIMPAS. Can you detail more of their involvement this spring in terms of delivering the system to the farm, telling the system what to do, delivering the chemicals, taking away the chemicals, go through that in a little more detail, please?

So, yes you're right. We do think it's significant. It's part of, if we're going get buy in on SIMPAS, obviously, we want our peers and our customer base to be excited by and that's what we've seen. So Simplot as you may know, this is the third year of them working with the system. They did everything last year as far as using three products prescriptively and felt very good about that. Nutrien tested the system just with AZTEC and didn't as a single product and then we're pleased that Helena and WinField will be joining this year as well. And so with -- and we expect them all three to be using the three products prescriptively. We've got the excitement also that our RFID tag system is working. This last week, we started filling the smart cartridges with our refill setup that we've put together, and that seems to be going very well.And so when these get used and we will have the containers read and have them set up for resale for this next year. So I think for each one in them different geographic area, so we'll have four different regions that are at least states that are having use of this and we expect with this to make sure that we don't have any glitches with the system so that when we go out to really commercialize this kind of probably starting a little bit in fourth quarter that growers and retailers will have a very rewarding experience with the product. We're also working, we've got individuals that are, have been writing prescriptions for SIMPAS that are working with those four customers. And with their agronomists to make sure they understand how to go ahead and write the prescription that will incorporate into the SIMPAS system. So yes I think right now everything is looked and on target.

So it sounds like each of these distributors have numerous local sites and they're going to start doing a few this year and then maybe hopefully more next year, and then roll it out to their whole system. Is that the plan?

Yes, I think we're hopeful that we'll see a much broader use starting in 2021. Assuming we've been reluctant to take orders for systems until we're sure that this is going to do everything that we say it’s going to do, we don't need to make any corrections. But when we get through April, I think we'll be able to understand if there's any change to the final production that that occurs or we just start taking orders and going out there full speed and trying to encourage as many people as possible.

Ladies and gentlemen, there are no further questions at this time. I'll turn it back to management for closing remarks. Thank you.

Okay. Well. Again, thank you everybody for the session. I guess we'll be back to within two months. So again, thank you for your participation and talking to you soon. Bye.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.