American Vanguard Corp: Form 10-Q for the period ended Sep 30, 2024

FORWARD-LOOKING STATEMENTS/RISK FACTORS:

The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Annual Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; transformation initiatives and related expenses; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission (the “SEC”). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 3, Quantitative and Qualitative Disclosures about Market Risk, and Part II, Item 1A., Risk Factors, in this Quarterly Report on Form 10-Q.

Three Months Ended September 30, 2024 and 2023:

Overview of the Company’s Performance

Persistently low commodity prices and high input cost remain a challenge for the agricultural economy, however the supply chain has started to normalize and the recent decrease in interest rates should help to improve demand. Some pockets of strength have emerged, in areas such as biofertilizers, biostimulants and biochemicals, from which the Company has benefited. Notwithstanding these encouraging indicators, significant inventories of agricultural commodities remain in the supply chain that will need to be worked through before commodity prices can improve, thus a gradual recovery over several quarters is the most likely outcome for the agricultural economy.

Against this backdrop, overall sales for the third quarter of 2024 declined 21%, as compared to the third quarter of 2023. Domestic sales were down 33%, while international sales decreased by 4%. Our reported sales performance was negatively impacted by the voluntary product recall of our Dacthal product line, and lower sales of both granular soil insecticide and growth regulator products used on cotton accounted for the bulk of the sales decline. Other insecticide products and green solutions sales were relatively strong compared to the third quarter of 2023, but these areas of strength were not enough to overcome weakness in the previously mentioned categories.

The Company recorded a gross profit amounting to 15% of net sales, as compared to 29% in the same period of the prior year. The decline was driven primarily by the effect of the Dacthal recall (which amounted to a total value of $16,191) and generic price pressure on certain products - one key defoliant product in the U.S. crop market and a herbicide in Mexico. Further, the Company recorded additional inventory valuation reserves primarily associated with Dacthal inventories on hand.

Operating expenses, increased by 17%, as compared to the third quarter of 2023. Operating costs in the three months ended September 30, 2024 included non-recurring charges in the amount of $8,139, related to the on-going transformation activities.

Interest expense increased to $4,378 from $3,384 in the same period of the prior year, due almost entirely to higher interest rates as average debt was approximately flat with the same period last year. The increased interest rate was impacted by the terms of our credit facility agreement, by our overall financial performance and by costs associated with the recent modification.

The Company recorded an income tax benefit of $7,024, as compared to an income tax expense of $885 in the same period of last year.

These factors yielded a net loss of $25,742, or $(0.91) per share, compared to a loss of $325, or $(0.01) per share, in the prior year. Further details of our financial performance are set forth below.

RESULTS OF OPERATIONS

Quarter Ended September 30, 2024 and 2023:

Our domestic crop business recorded net sales during the third quarter of 2024 that were 48% lower than those of the third quarter of 2023 ($35,533 as compared to $67,749). The reduction in sales compared to the same quarter of the prior year is driven primarily by the reversal of sales associated with the voluntary product recall of Dacthal, which amounted to $11,783. In addition, in comparison to the same quarter of the prior year, we recorded lower sales of our granular soil insecticide Aztec. That product had not been available in the marketplace in the periods prior to the third quarter of 2023, and industry participants used availability in the third quarter of 2023 to rebuild inventory. In 2024, buying patterns have now normalized. Furthermore, sales or our granular soil insecticide Thimet were down as compared to the year ago period, as demand for this product emerged earlier than normal this year. .

Our domestic non-crop business posted a 17% increase in net sales in the third quarter of 2024, as compared to the same period in the prior year ($22,454 as compared to $19,250). Non-crop insecticides and OHP distribution sales were particularly strong during the quarter. OHP benefited from addition of sales from a new distribution agreement, including biologicals products.

Net sales in our international business declined by 4% during the period ($60,320 in 2024, as compared to $62,517 in 2023). Our granular soil insecticide business was supply constrained in Asia, where demand exceeded our supply and Brazilian sales were negatively impacted by a weakening currency.

On a consolidated basis, gross profit for the third quarter of 2024 decreased by 60% ($17,293 in the three months ended September 30, 2024, as compared to $43,084 in 2023). During the three months ended September 30, 2024, the Company commenced a product recall arising from our voluntary cancellation of Dacthal registrations. The Company recorded charges associated with the product recall from distribution, retail and growers and has recorded a liability in the amount of $16,191. The overall gross margin percentage ended at 15%, including the impact of the product recall, as compared to 29% in the second quarter of the prior year.

Operating expenses, including transformation costs, increased by 17% to $45,681, as compared to $38,893 in the same period of the prior year. Including in this increase, the Company incurred expenses in the amount of $8,139 related to on-going transformation activities. There were no comparable costs in the same period of the prior year. The changes in operating expenses by department are as follows:

• Selling expenses decreased by $1,977 for the three months ended September 30, 2024, as compared with the same period of the prior year. This included decreased costs associated with employee wages and travel and reduced advertising and marketing spending.
• Other general and administrative expenses decreased by $849 for the three months ended September 30, 2024, as compared to the same period of 2023, primarily driven by reductions in costs associated with stock compensation.
• Amortization increased slightly during the three months ended September 30, 2024, as compared to the same period of the prior year, resulting from the addition of intangible assets in connection with the acquisition of Punto Verde.
• Legal reserves are contingencies related to certain labor and employment matters. This matter was settled during the third quarter and the adjustment of $780 is to adjust the reserve amount to the agreed settlement.
• Transformation costs related to the Company’s digital and structural transformation project amounted to $8,139. The digital transformation effort is intended to ensure that business process owners have access to current and complete data that has been generated through standardized systems and processes. The structural transformation effort is intended to improve operating leverage by applying business analytics to current operations, structures, products and services and identifying process improvements. The Company has engaged a third-party consulting firm to assist it in navigating the project to gain the maximum benefit at the earliest possible time. Severance costs relating to the Company’s former CEO, which were incurred in connection with the staffing and execution of the Company’s transformation initiatives, are included in the transformation costs.
• Research, product development costs and regulatory expenses increased by $2,097 for the three months ended September 30, 2024, as compared to the same period of 2023. The main drivers were increase in costs associated with regulatory and product development studies.

On April 1, 2020, the Company made a strategic investment in Clean Seed Inc., in the amount of $1,190. The Company did not record a fair value adjustment for the three-month period ended September 30, 20204. During the same period of the prior year, the Company and recorded negative fair value adjustments in the amount of $247 during the three months ended September 30, 2023.

Interest costs net of capitalized interest were $4,378 and $3,384 during the three-month period ended September 30, 2024 and 2023, respectively. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

20

The Company’s average overall debt for the three-month period ended September 30, 2024 was $209,840, as compared to $200,247 for the same period of the prior year. Our borrowings increased primarily as a result of higher inventory levels. As can be seen from the table, the effective bank interest rate on our revolving line of credit was 8.1% and 7.1% for the three-month periods ended September 30, 2024 and 2023, respectively.

Income tax benefit was $7,023 for the three months ended September 30, 2024, as compared to an income tax expense of $885 for the three months ended September 30, 2023. The effective income tax rate for the three months ended September 30, 2024, was computed based on the actual effective tax rate for the year-to-date period ended September 30, 2024 which is approximately 4.3%, excluding discrete items and entities subject to full valuation allowances against related net deferred tax assets. The Company’s subsidiaries in Brazil incurred losses during the period. These losses did not result in any tax benefits as the Brazilian subsidiaries maintain full valuation allowances against their net deferred tax assets. With the inclusion of discrete items and entities subject to full valuation allowances against related net deferred tax assets, the Company’s overall effective tax rate for the third quarter was 21.4%. During the three months ended September 30, 2024, the Company gained a tax benefit from transformation costs incurred as part of evaluating the current business structure, which resulted in a decrease in the effective tax rate. Additionally, refer to the table below for details comprising the income tax benefit of $7,024 and the overall effective tax rate of 21.4% for the three months ended September 30, 2024.

We generated a loss before provision for income taxes of $32,766 and income $560 for the three months ended September 30, 2024 and 2023, respectively. Our net loss (after income taxes) for the three-month period ended September 30, 2024, was $25,742 or ($0.91) per basic and diluted share, as compared to $325 or ($.01) per basic and diluted share in the same quarter of 2023.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2024 and 2023:

Overview of the Company’s Performance

Agricultural commodity prices steadily trended lower in the first nine months of 2024. The pace of the downtrend slowed during the third quarter, leaving prices near a two-year low. Corn and soybean prices have been particularly weak, with corn prices down more than 10% and soybean prices down more than 20% year to date, wheat prices have fared somewhat better but are still down approximately 5% year to date. These factors have led to procurement practices remaining conservative, despite a recent easing in interest rates.

On a consolidated basis, sales were down 6% over the first nine months of the year, compared to the first nine months of 2023. Domestic sales were down 9%, while international sales were down 2%. Our reported sales performance was impacted by the voluntary product recall of our Dacthal product line, and by granular soil insecticides and plant growth regulators in the U.S. and by a herbicide in Mexico.

The Company generated a gross profit margin of 26% in the first nine months of the year, as compared to 31% during the same period of last year. Included in this performance, during the first nine months of 2024, the Company voluntarily recalled all Dacthal product globally, and recorded $16,191 in liabilities as a result.

Operating expenses increased by 14%, as compared to the same period of 2023. Operating costs in the three months ended September 30, 2024 included non-recurring charges in the amount of $16,636, related to the on-going transformation activities.

Interest expense increased to $11,988 as compared to $8,282 in the first nine months of 2023, due to higher interest rates.

The Company's income tax benefit during the nine months ended September 30, 2024 was $7,093, as compared to an expense of $2,066 during the similar period of 2023.

The Company recorded a net loss of $35,911 or ($1.28) per basic and diluted share, as compared to net income of $540 or $0.02 per basic and diluted share in the first nine months of the prior year.

Nine months ended September 30, 2024, and 2023

Our domestic crop business experienced a 17% decrease in net sales for the first nine months of the year (to $155,075 versus $185,823). This included the impact of the voluntary recall of our Dacthal product, and lower granular soil insecticides including our Aztec product which experienced higher sales in the first nine months of 2023, as the market restocked after a period of supply difficulties.

Our domestic non-crop business recorded a 18% increase in net sales for the first nine months of the year (to $59,241 from $50,041). OHP recorded sales up 30% as a result of newly implemented distribution agreement, and a surge in demand for biological products. In addition, our non-crop segment performed well as a result of weather and pest pressure in the south-east following storm activity in the south-eastern U.S.

Net sales of our international businesses were slightly weaker than the first nine months of 2023 down 2% ($167,343 versus $171,327 in 2023). Two products, Mocap, a granular soil insecticide, and Assure II, a herbicide, account for virtually all of the weakness in international business. Weakness in Mocap can be attributed to a lack of inventory to service customer demand, while Assure II sales were pressured by generic competition.

On a consolidated basis, gross profit for the nine months of 2024 ended at $97,474, as compared to $124,529 for the same period of 2023. During the period, the Company assessed the liability associated with the global voluntary cancellation of the Dacthal registrations and has recorded a liability in the amount of $16,191. In addition, as noted above, the Company recorded lower sales in both the domestic and international crop businesses.

Gross margin performance in 2024 decreased to 26%, as compared to 31% during the same period of the prior year.

Operating expenses increased by $15,686 to $129,003 for the nine-month period ended September 30, 2024, as compared to the same period in 2023. The changes in operating expenses by department are as follows:

• Selling expenses decreased by $2,266 to end at $39,022 for the nine-month period ended September 30, 2024, as compared to the same period of 2023. The main drivers were decreased employee and associated travel costs and reduced advertising and marketing spending.
• Other general and administrative expenses increased by $2,545 to end at $36,660 for the nine-month period ended September 30, 2024, as compared to the same period of 2023. The main drivers were additional audit and tax advisory services, increased other outside services, increased potential credit losses and changes in transactional foreign exchange gains/losses.
• During the nine-months ended September 30, 2023, the Company spent $541 in fees associated with Proxy activities. There were no similar expenses during the same nine-month period this year.
• Amortization increased slightly during the nine months ended September 30, 2024, as compared to the same period of the prior year, resulting from the addition of intangible assets in connection with the Punto Verde acquisition, largely offset by completely amortized assets.
• Legal reserves represent the expected settlement related to certain labor and employment matters.
• Transformation costs related to the Company’s digital and structural transformation project amounted to $16,636. The digital transformation effort is intended to ensure that business process owners have access to current and complete data that has been generated through standardized systems and processes. The structural transformation effort is intended to improve operating leverage by applying business analytics to current operations, structures, products and services and identifying process improvements. The Company has engaged a third-party consulting firm to assist it in navigating the project to gain the maximum benefit at the earliest possible time. Severance costs relating to the Company’s former CEO, which were incurred in connection with the staffing and execution of the Company’s transformation initiatives, are included in the transformation costs.
• Research, product development costs and regulatory expenses decreased by $1,881 to end at $25,482 for the nine-month period ended September 30, 2024, as compared to the same period of 2023. The costs were reduced by lower spending associated with related to the commercialization of our SIMPAS proprietary delivery systems.

During the nine-month period ended September 30, 2024, the Company recorded an increase in the fair value of our equity investment in Clean Seed in the amount of $513, as compared to a decrease of $324 during the nine months ended September 30, 2023. These changes in fair value of our investment directly reflect changes in the stock’s quoted market price.

Interest costs net of capitalized interest were $11,988 in the first nine-month period of 2024, as compared to $8,282 in the same period of 2023. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

The Company’s average overall debt for the nine-month period ended September 30, 2024, was $200,187, as compared to $149,009 for the same period of the prior year. Our borrowings increased as a result of higher inventory levels. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 8.0% for the nine months ended September 30, 2024, as compared to 7.0% in 2023.

Income tax benefit was $7,093 for the nine months ended September 30, 2024, as compared to an income tax expense of $2,066 for the nine-months ended September 30, 2023. The effective income tax rate for the nine months ended September 30, 2024, was computed based on the actual; effective tax rate for the year-to-date period ended September 30, 2024 which is approximately 4.3%, excluding discrete items and entities subject to full valuation allowances against related net deferred tax assets. The Company’s subsidiaries in Brazil incurred losses during the period. These losses did not result in any tax benefits as the Brazilian subsidiaries maintain full valuation allowances against their net deferred tax assets. With the inclusion of discrete items and entities subject to full valuation allowances against related net deferred tax assets, the Company’s overall effective tax rate for the nine months ended September 30, 2024 was 16.5%. During the nine months ended September 30, 2024, the Company gained a tax benefit from transformation costs incurred as part of evaluating the current business structure and beginning to develop options for alternative, more efficient, operating structures and the result was a decrease in the effective tax rate. Additionally, refer to the table below for details comprising the income tax benefit of $7,093 and the overall effective tax rate of 16.5% for the nine months ended September 30, 2024.

We incurred a loss before income taxes of $43,004 for the nine months ended September 30, 2024, as compared to income before taxes of $2,606 for the nine months ended September 30, 2023. Our net loss (after income taxes) for the nine-month period ended September 30, 2024 was $35,912 or ($1.28) per basic and diluted share, as compared to income of $540 or $0.02 per basic and per diluted share in the same period of 2023.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s operating activities utilized net cash of $29,402 during the nine-month period ended September 30, 2024, as compared to $145,854 during the nine months ended September 30, 2023. Included in the $29,402 are a net loss of $35,911, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $17,143, and provision for bad debts in the amount of $1,278, change in deferred income taxes of $9,110 and changes in liabilities for uncertain tax positions or unrecognized tax benefits of $106. Also included are stock-based compensation of $3,887, change in fair value of an equity investment of $513, and net foreign currency adjustments of $121. These together provided net cash outflows of $22,889, as compared to a net cash inflows $23,793 for the same period of 2023.

During the nine-month period of 2024, the Company decreased working capital by $1,725, as compared to an increase of $160,094 during the same period of the prior year. Included in this change: inventories increased by $29,429, as compared to $58,163 for the same period of 2023. While increases in inventories are normal for the Company’s annual cycle, this year the Company has been successful at adjusting manufacturing output to better reflect customer changing buying patterns and have seen inventories rise at a slower rate as a result. We are now positioned to see inventories decline towards our year-end target.

Customer prepayments decreased by $38,375, as compared to a decrease of $104,590 in the same period of 2023. This included customer decisions to make prepayments amounting to $57,000 during the three months ended September 30, 2024, and by purchase orders received from those customers during the first nine months of 2024 and the product mix and payment terms on those purchase orders. Our accounts payable balances increased by $6,141, as compared to $1,240 in the same period of 2023, reflecting both the timing and terms of the related purchase orders. Accounts receivables decreased by $33,475, as compared to an increase of $29,055 in the same period of 2023. This is primarily driven by the amount of customers prepayments (which reduced), and the timing of customer demand and the geographic location for the sales. Prepaid expenses increased by $4,107, as compared to $633 in the same period of 2023. Income tax receivable increased by $6,216 as compared to an increase of $4,046 in the prior year. Accrued programs increased by $17,721, as compared to $29,779 in the prior year, driven by changes in mix of sales (products attract different program arrangements) and lower sales in our US Crop business (which is the main driver from programs). Finally, other payables and accrued expenses increased by $13,878, as compared to a decreased of $4,406 in the prior year.

Accrued program costs are recorded in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30th of each year. During the first nine months of 2024, the Company made accruals for programs in the amount of $55,455 and payments in the amount of $37,866, resulting in a net increase in accrued program costs of $17,721. During the first nine months of the prior year, the Company made accruals in the amount of $62,248 and made payments in the amount of $32,469, resulting in a net increase of accrued program costs of $29,779.

Cash used for investing activities for the nine-month period ended September 30, 2024, and 2023 was $6,828 and $9,148, respectively. In 2024, the Company spent $6,106 on purchases of fixed assets primarily focused on continuing to invest in manufacturing infrastructure, as compared to $8,589 for the same period of prior year. The Company made a payment of $788 for a product acquisition for the nine-month period ended September 30, 2024, as compared to $759 for the same period in prior year. In addition, the Company received proceeds from disposal of property, plant and equipment in the amount of $66, as compared to $200 in the prior year.

During the nine months ended September 30, 2024, financing activities provided $36,824, as compared to $146,680 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $39,849 during the nine-month period ended September 30, 2023, as compared to $165,700 in the same period of the prior year. The Company paid dividends to stockholders amounting to $2,510 during the nine months ended September 30, 2024, as compared to $2,550 in the same period of 2023. During the nine-month period ended September 30, 2023, the Company paid $15,539 for the repurchase of 885,290 shares of its common stock. The Company did not repurchase shares during the nine-month period ending September 30, 2024. The Company received $901 for the issuance of ESPP shares and exercise of stock options for the nine months ended September 30, 2024, as compared to $980 for the same period in prior year. Lastly, in exchange for shares of common stock returned by employees, the Company paid $1,416 and $1,957 for tax withholding on stock-based compensation awards during the nine months ended September 30, 2024 and 2023, respectively.

The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023. These are summarized in the following table:

As of September 30, 2024, by virtue of Amendment Number Seven to the Third Amended Loan and Security Agreement, the Company is deemed to be in compliance with its financial covenants.

At September 30, 2024, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $44,716, compared to

$115,002 as of December 31, 2023. The Company may not repurchase shares, pay cash dividends to shareholders or make Permitted Acquisitions without Lenders’ consent.

We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.

RECENTLY ISSUED ACCOUNTING GUIDANCE

Please refer to Note 13 in the accompanying notes to the condensed consolidated financial statements for recently issued accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2023, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period, except to the extent stated below, there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2023.

Certain of the Company’s policies require the application of judgment by management in selecting the appropriate assumptions for calculating financial estimates. These judgments are based on historical experience, terms of existing contracts, commonly accepted industry practices and other assumptions that the Company believes are reasonable under the circumstances. These estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period that revisions are determined to be necessary. Actual results may differ from these estimates under different outcomes or conditions.

***Goodwill—***The Company reviews goodwill for impairment utilizing either a qualitative or quantitative assessment. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs a quantitative assessment, the Company compares the fair value of a reporting unit with its carrying value and recognizes an impairment charge for the amount that the carrying amount exceeds the reporting unit’s fair value. The Company annually tests goodwill for impairment at the beginning of the fourth quarter, or earlier if triggering events occur. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and changes in estimates and assumptions regarding revenue growth rates, gross margins, expenses, capital expenditures, working capital requirements, tax rates, terminal growth rates, discount rates, and synergies available to market participants. As of October 1, 2023, the Company conducted its annual impairment test by quantitatively testing goodwill assigned to its domestic and international reporting units. Based on the results of the quantitative test, the Company concluded that the fair value of both the domestic and international reporting units exceed their respective carrying value by 18% and 9%, respectively.

On April 9, 2024, out of an abundance of caution, the Company voluntarily suspended sales of Dacthal pending review and potential approval of a significantly narrower label submitted to the USEPA (refer to Note 12 to the condensed consolidated financial statements for further details). The Company performed an interim test for goodwill impairment in April 2024, excluding all Dacthal sales from its projected net sales. Based on the results of this quantitative test, the Company concluded that the fair value of both the domestic and international reporting units still exceed their respective carrying value by 11% and 6%, respectively.

The carrying value of both reporting units is mainly sensitive to discount rates, the projected net sales growth rates, gross margin improvements, and terminal growth rates. Negative deviations from the Company’s projections and assumptions used in its quantitative impairment test may result in an impairment. As of September 30, 2024, goodwill related to the domestic and international reporting units amounted to $9,132 and $38,880, respectively.

The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2023.

The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.

Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.

As of September 30, 2024, the Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of September 30, 2024, the Company’s management, including the Company’s Acting Chief Executive Officer and Chief Financial Officer, has concluded, based on their evaluation, that the Company’s disclosure controls and procedures are effective to provide reasonable assurance of the achievement of the objectives described above.

There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

The Company was not required to report any matters or changes for any items of Part II except as disclosed below.

The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 27, 2024. The following disclosure amends and supplements those risk factors and, except to the extent stated below, there are no material changes to the risk factors as so stated.

Public statements made by USEPA regarding their preliminary findings in connection with the registration review of DCPA could expose the Company to future claims for personal injury which, in turn, could adversely affect the Company’s financial performance. In connection with USEPA’s review of the registration of DCPA products (herbicides used on high-value vegetables), based upon a single comparative thyroid assay study (which is comparatively rare and complex), the USEPA found an adverse effect upon neonate rodents. Consequently, in June 2024, the agency published preliminary findings, noting its concern that based upon current, permitted use patterns, the product could have an adverse effect upon human health. Accordingly, out of an abundance of caution, the Company submitted a significantly narrower label and voluntarily suspended sales of Dacthal pending review and potential approval of that label. Nevertheless, on August 6, 2024, the agency issued an emergency suspension of DCPA products, which prohibits their distribution, sale and use. On August 19, 2024, the Company filed a notice of voluntary cancellation of DCPA registration. In the course of this chronology and in spite of the Company’s voluntary efforts to mitigate risk, EPA has published multiple press releases in which it has repeatedly warned users of potential risk in using the product. Due to EPA’s public statements, the Company was unable to obtain product liability insurance coverage for claims relating to DCPA for the period postdating the renewal date of September 15, 2024. There is no guarantee that the agency’s statements will not result in future claims and/or lawsuits arising from alleged exposure to DCPA. Further, such claims and/or lawsuits could have a material adverse effect upon the Company’s financial performance.