Prompt:
Human: Before beginning, let's take a moment to -- review, excuse me, our cautionary reminders.
Such factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks that are detailed in the Company's SEC reports and filings.
I'd like to talk a little bit about the 2021 forecast that we've given and kind of update where we are at the half.
So, I think at the -- in the March forecast outlook, we gave the top six items as a outlook, and then in 2020 -- in May, we added that net income would grow at a faster rate than revenue.
So, what I'd like to do is kind of show where we said we would be and where we wound up for the first half.
So, with regards to revenue, we said that we would be in low double-digit increase, and at the half now, we're looking at a 25% increase in our revenue.
We said gross profit margins, we are forecasting to be similar to recent years, and at the half, we're right at the same 39%.
Operating expenses, some increases driven by our growth initiatives, and as a percent of sales, up -- for net as a percent of sales, we're down 1%.
Interest expense, we felt we'd be similar to 2020, but in fact our interest is down by 30%.
Our tax rate, we expect for the year to end up at the mid 20%s range, we're actually up 31% versus 23%, but we are still thinking we will wind up as we have some tax benefits that we'll see coming for us in fourth quarter.
Debt to EBITDA ratio, we were saying we're targeting 2 to 2.5 times as we were preparing building inventories for the season.
We are at that 2.5 times level, but in the second half, we expect to move that down and, short [Phonetic] of acquisition, we'd probably expect to maybe even be below that 2 number.
And then, on net income, growing at a faster rate, yeah, actually we're 86% versus 25%.
For those of you that focus on EBITDA, we're now saying that our EBITDA for the year will wind up growing at a faster rate than revenue as well, and for the half, we've got a 29% increase.
So at this point, things are rolling along well.
We still have our tailwinds.
We're looking pretty strong and cotton right now as we hit our -- both our insecticide.
Bidrin is doing doing very well.
We've got plant bugs that are out there and active.
So, we expect a very good year with Bidrin.
In addition, particularly with West Texas hitting, we expect our defoliant Folex will do also very well.
Corn soil insecticides look well going into '22, so that will have some sales in this quarter, and additionally, in the fourth quarter and first quarter next year.
But we are seeing our customers looking to secure product.
I think as many as -- when customers telling us 300 different products that are on allocation in United States right now, we're in pretty good position with our six plants here in North America.
So, I think we're really in pretty good.
We do have some headwinds and inbound freight from Pacific coming across from Asia.
Fortunately, we are not very dependent on that, just maybe 10% to 12% we have come over.
But the cost per container has moved from about $3,500 a container, up to $20,000 a container.
So, it's a huge increase when [Phonetic] accounted that generally a freighter coming across has about $73 million of revenue that now has moved up to $420 million of revenue, so quite a big increase.
And so far we've done reasonably well at putting through price increases, but we are working on this every month to put out to the team what cost changes we have with the understanding that we can try and recover as best we can.
So with that, David, I'll turn this over to you.
With regards to our public filing, we intend to file our Form 10-Q today.
And as we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate.
As a result, throughout 2020 and now during the first half of 2021, our customers and suppliers and our employees and operations have all continued more or less without disruption during the pandemic.
With regard to our sales performance for the second quarter of 2021, the Company's net sales increased by 29% to $135 million as compared to net sales of $105 million this time last year.
Within that overall improvement, our US sales increased by 44% to $84 million and our International sales increased by 10% to $51 million.
International sales accounted for 38% of total net sales as compared to 44% of net sales this time last year.
With regard to gross profit performance, our US Crop business recorded improved absolute gross profit on increased sales, which were up about approximately 40%.
Offsetting the strong sales growth performance, our factory performance was impacted by short-term challenges, including the delayed start up of a production cell in our LA facility and some mechanical integrity testing at our access plant.
These issues were substantially behind us.
Overall, gross margin percentage to net sales remained strong at 43%.
Our Non-Crop absolute gross margin increased by 39%, on sales that's [Phonetic] increased by 55% as compared to the same quarter of the prior year.
Within this change, we had improved sales of both our US Dibrom products and our pest strips.
On the other hand, while we have substantially higher Envance technology license income in the first half of 2021, we recorded lower license income during the second quarter.
Furthermore, we experienced lower factory recovery in the second quarter of 2021 for the reasons already discussed.
Overall, gross margin percentage remained strong at 46%.
With regard to our Q2 2021 International sales, we saw increased sales of 10% and a strong increase in gross margin, which were up 35%.
More than half of the improvement was driven by the newly acquired businesses, AgNova in Australia and Agrinos biologicals business, which both generate margins above our International average.
Overall, gross margin improved to 31% as compared to 25% for the same period of the prior year.
I thought I would come up for a moment on overall cost of goods, which remained flat at 61% of net sales.
We have seen some upward pressure on cost affecting certain products in our portfolio because of where the associated raw materials are sourced.
We are also seeing significant increases in inbound ocean freight, particularly from Asia.
So, our exposure there is not significant.
We have made selective price increases to offset this cost inflation.
This graph shows the impact of the factory performance on our overall gross margin.
You can see that in the second quarter of 2021, the factory cost is 3.3% of sales, whereas in Q2 of 2020, the performance was such that we only had a 0.6 net cost -- 0.6% net cost.
Despite the factory performance, our margin percentage remained flat for both quarters.
Operating expenses for the quarter increased by $9.5 million or 28% as compared to the same period of the prior year.
Despite the increase, expenses, when compared to net sales, remained level at 32% of sales.
The increased cost included the addition of activities of two newly acquired businesses, which together accounted for approximately third of the increase.
This included taking a charge of $1 million in additional deferred consideration on the Australian business that we acquired in the fourth quarter of 2020.
That business has exceeded expectations in its first year, and consequently, the Company's liability associated with earn out agreement has increased.
Our outbound freight costs are almost purely volume driven and were up 34%.
As I noted earlier, during the same period, net sales were up 29%.
In addition to volume, we had some mix of customer, destination and products, and some freight inflation.
The freight increase accounted for a quarter of the increase.
Other increases included legal expenses and higher incentive compensation accruals linked to business performance.
As you can see from this slide, our operating income was 33% higher than the level reported for the same period of 2020.
We recorded lower interest expense in the second quarter of 2021 as compared to last year.
There are two factors.
First, the rate on our loan is down as a result of the US policy to stimulate the economy.
And second, we have lower borrowings due to debt repayment for 12 months of cash generation from our businesses, offset by some acquisition activity.
From a tax perspective, our effective rate increased to 32% for the second quarter of 2021 as compared to 29% this time last year.
The main reason for the increase in the effective rate is the earn out expense on the Australian acquisition, which is not deductible for tax purposes.
All these factors came together in the bottom line.
We are reporting $5.1 million in net income as compared to $3.9 million last year, a quarter-over-quarter increase of 32%.
For the first six months of 2021, our sales were up 25% and gross margins, in absolute terms, were up 24%.
All of our main activities of US Crop, US Non-Crop and International have all contributed to this exciting performance.
Operating expenses have increased, primarily as a result of the new businesses acquired in the final quarter of 2020, increased performance linked incentive compensation expenses, and costs associated with the volume changes, such as freight and warehouse costs.
Overall, operating costs were up 21% as compared to net sales that increased 29%.
And operating costs compared to sales improved to 34% in 2020 as compared to 35% last year.
Interest expense has reduced by 30% as a result of cash generated over the last 12 months.
Tax expenses increased driven by financial performance.
Overall, net increase -- net income increased by 86%.
Now, I want to turn my attention to the balance sheet.
As you can see on this slide, during the second quarter of 2021, we increased cash generation from operations by 41% as compared to the same quarter of the prior year.
Further, you can see that working capital really didn't move very much as we got into the middle of the annual cycle.
And this performance includes the expanded scope related to the businesses acquired in the fourth quarter of 2020.
During the quarter, we continue to follow our strategy of buying attractive assets that fill white space in our portfolio.
Accordingly, we paid a deposit of $10 million for a product acquisition, and took control of that asset at the start of the third quarter.
At the end of June 2020, our inventories were at $175 million as compared to $181 million this time last year.
If, for a moment, we exclude the impact of products and entities acquired since December of 2019, our base inventory has reduced by 11% from $177 million at that time to $158 million this year.
So we feel that we have controlled inventory well during this phase of the Company's annual cycle.
Our current inventory target at the end of the financial year is $150 million.
That compares with $164 million at the end of 2020.
That target is obviously dependent on a few things, including a continued low impact from the pandemic, normal weather patterns and does not take acquisitions into account.
With regard to liquidity, under the terms of the credit facility agreement, the Company uses consolidated EBITDA, as defined in the agreement, to determine leverage.
Our consolidated EBITDA for the trailing four quarters to June 30, 2021, was $59 million as compared to $52 million for the four quarters to June 30, 2020.
As a result, availability under the credit facility amounted to $57 million at June 30, 2021, and $49 million at the same time last year.
As you can see from the chart, we've been controlling debt well even as we work through the annual cycle and as we continue to invest in the business.
As I mentioned at the last call, our credit facility was scheduled to expire in June of 2022.
And at the time of the call, we were already in discussions with our lead banker regarding a reset on the facility.
We needed to execute the new agreement at this time to ensure debt remained long-term.
We are pleased to report that we have executed that new credit agreement with a slightly larger capacity and greater improved -- generally improved covenants.
As a consequence, we are feeling positive about liquidity looking forward for the balance of the year -- of this year and beyond.
For the first half of 2021, we increased sales by 25%; gross margins by 24%; and operating expenses have reduced when compared to net sales; our interest expense is down; and net income has improved by 86%.
From a balance sheet perspective, accounts receivable increased, driven by strong sales; inventories have been well controlled; working capital has been held flat during the quarter; and debt is lower than this time last year despite three acquisitions that were completed in the intervening 12 months; and finally, we have a new credit facility and availabilities improved.
With that, I will hand back to Eric.
What I'd like to do now is go back to November of '20 at our third quarter conference call, we gave some three to five year forecast as far as where we expected to wind up in '23 and '25.
And you may remember there were kind of three major tranches within our core business, we also have three, and the target with our existing products was going from a kind of $468 million to $507 million at '23 to $527 million in '25.
So, this kind of reflects just kind of a standard 2.5% increase on an annual basis with our existing products.
The second area was with regard to our new product pipeline.
By new product not -- this is not the acquisitions, these are products that we come together with our team and talk about the ability for us to differentiate our products by adding maybe two molecules, or even three molecules together to create kind of unique properties.
And with that, we looked at growing that, adding about $37 million in three years and $109 million over the five year.
And then, finally, acquisitions we've kind of basically looked at -- we've been averaging a little over $40 million a year, but I think what we are looking at was starting at the smaller level than that.
But overall, climbing that to about $100 million over a five-year period.
So again, at this point, no reason to differentiate with our initial forecast for our existing product line, but we are seeing a kind of a reset with our new products.
So, what we've done is we meet quarterly [Phonetic] and take a look at the projects.
There are projects that got canceled.
There are new projects that come on.
And so with this, we're running about a year behind on our schedule.
So, looking at maybe somewhere in the '26 level, between '26 and '27, we'll be hitting target of $109 million.
And then with regards to our acquisitions, again, we feel comfortable at this point that we can continue to make the target that we laid out in November of last year.
When we go to our green solutions, we've got a fairly aggressive growth and I think you remember that this is about a 10% CAGAR expected globally.
We think we're in a much stronger position than most.
And so, we have an additional -- an initial $22 million that we've got growing, by $48 million in a three-year period going to actually $118 million in growth by 2025.
And so, for the first half of 2021, we're right at $17 million and expecting target to be somewhere in that $32 million to $35 million.
So, we're -- that's about a 50% increase from where we currently are.
Looking at a 40% increase per annum to get to that $70 million and that $140 million, this -- we could have acquisitions that fall into that space, but certainly we've got acquisitions covered in the other into the core operations.
So, our team is -- feels good that this is the best forecast at this time.
So, why you might ask?
When we pulled together our portfolio, we saw that we had 80 different biological solutions globally, which is a big number broken down into biofertilizers, microbials, biochemicals and biostimulants.
But since that time, we're now over 100 different solutions that we have in that space.
And by this, we are not talking different geographical labels or different pack sizes, we're talking about unique differentiated products.
That's a big number.
And within the biological space, has a very, very robust portfolio of products.
Just a little color on this.
Within the US, just on the Agrinos products that we acquired, we're planning to do -- we are doing this year 14 different crop trials, and you'll see there is less than 14 crops there, but we've got kind of multiples on corn and a couple of the other products.
In addition, for our AMGUARD Non-Crop business, we've got nine turf trials.
So, when we talk about trials, that's not individual plots, those are the scope of a direction of a particular project.
But when you talk about actual plots, we're talking about 1,500 total test plots.
And that's within our green solutions, this is just Agrinos in the US.
We had looked at achieving about $35 million of incremental sales by '23 and $130 million by 2025.
Our team saying, OK, within the US, and this doesn't include international, on -- and limiting it to four crops, we're looking a little bit behind where we were, so we're kind of running a year behind this.
And so let me kind of move on to kind of explanation for why that is.
So, there are kind of three main areas that we look to as far as this hitting its stride and it, of course, was the equipment itself needs to perform and we feel like all aspects of it, whether it's the tracking of the cartridges with refilling, the actual applications, the ability to put prescriptions in, all of those -- all of that looks well beta tested and we think we've accomplished that.
The second area is building that toolbox of products that our SaS customers might have, those are soil-applied solutions, they've got ability to use multiple products.
And if you look at this last year, we really had our kind of core products available, which are generally linked to either kind of nematode or insect control.
In addition then we have a micronutrient and zinc.
And so for this year, we did have several people that applied multiple and did a multiple -- three different products and did very well.
But a lot of growers looked at it and said, OK, let's wait on that investment until we get to the '22 season when you add more.
So, we haven't given you good visibility of what the future look like for our toolbox.
But what we're excited about in '22, and so for the first time, we'll have -- we'll be able to include both soybeans and cotton to solutions being applied by our growers.
And so, up until now, it's corn growers just applied corn, but they -- corn growers generally grow soybeans as well.
And in the Southern market, the corn growers in addition to soybeans also many of them are cotton.
So, this is a greater utilization of -- and really kind of -- for the design of what SIMPAS is about.
And then as you see in '23, our portfolio grows even more.
So that when we get into that '23 season, we're talking about 42 different products in that platform.
And this will continue to grow over time.
And as we talk with growers and distribution and retailers, we'll see kind of what they really want.
In addition, though, we have and -- up there on the board, we have third-party products from a number of different companies that really would like us to get their products registered and improved into the SIMPAS system.
So highlights that we've seen here from our last year's experience here, what we're seeing generally is that our SIMPAS users are twice the size of our SmartBox users.
Generally, our SmartBox users kind of average treating about half of their field and it goes at full rate, but they -- if they're doing -- they got 1,000 acres and they do 500 acres of corn, they're going to apply 500 with insecticide and nematicide, but the soybeans, the other 500, aren't getting touch.
But what we are seeing though is that if the farmers' farms are twice the size and as such just with the three products we have, they're purchasing three -- I'm sorry, four times the amount as far as revenue.
So, that's what we really envision that this would be a big upswing from what we've seen in SmartBox with utilization of multiple solutions.
And then finally, we've done the math and at current corn prices, all we're looking at in order to pay for a SIMPAS system over over a five-year period is just 0.5 bushel per acre increase.
So, it's not a major investment when you look at it that way.
And I think we expect with SIMPAS solutions to be more than double-digit increases in their yield.
And then, so for this '22 year, what we've done and again even with the Delta strain that we're seeing going, there have been a number of operations that we've been able to place and still expect to do where we can do field demos and actually bring in people from all over to -- and even bring in people from Brazil as well, bringing people in to see the system work and its performance.
And in addition, they are being able to demonstrate the return on investment.
And lastly, what we've got is our -- for our team, sales wise, we have outfitted them with, what I call, soup to nuts A-to-Z on SIMPAS.
Basically, giving them the ability to see and be able to explain that to everybody in the chain, whether it's a third party, whether it's a distributor, how they make money, whether or not it's a retailer trying to figure out how he writes his prescription, how he gets agronomists information in there, how he shows return on investment with the growers.
So, what we've done is we've created this IPAD that basically covers five major areas.
So, there is the SIMPAS Solutions, the Cartridges, what really the SIMPAS' experience is all about, and Logistics.
And so from each one of those topics, it breaks out into additional tabs.
So, basically there are, as I call this, A-to-Z, essentially [Phonetic] 32 different tabs for which our sales team can do and download this for our retailers.
So if you take a look at one of these -- we're talking about a SIMPAS Solutions.
When you pull that up, then you can type -- you can hop on into any one of the products that we're currently offering.
In addition, then you can hit the Coming Soon, and you can see the table that I provided just before this.
And then similarly, if you go to the Business Builder, a retailer can kind of get a lot of questions answered around the scope of what's the prescription like, what's the business model and can provide him with much better comfort that what he's promoting in SIMPAS is a win-win for everybody.
So, that's where we are with our update, and we'll continue to provide this as we go through.
And I'm keep pushing the team to continue to sharpen their pencil and provide continual updates as to where we're going to be.
So, before we switched to questions, I have a couple -- we had a couple of questions that were brought up in this last quarter that I wanted to address here in front of everybody.
So, one question was about our acquisitions and what kind of return are we getting on those?
That we've talked about, we make acquisitions in the 5 to 6 times EBITDA, which for the industry is generally 10 to 12 times EBITDA, and we play in that space where we look for what we think are going to be nice wins for us, and we pass on those where we think it's little too expensive.
But you've seen by our over 50 products and five manufacturing sites and three closed delivery systems and eight businesses that we are successful and operate in that space.
So what we did is, we said OK, we just took a look at this '14 to '20, which is kind of the down cycle that occurred from '13 to today, and we looked at what the actual cash that we paid for these, we've got a mix set of businesses and product lines.
And when we looked at the kind of incremental benefit, we took the '21 current projection, which looks pretty solid and we calculate out that incremental EBITDA and it comes out in that 5 to 6 times range and kind of return on capital employed at 10%.
And if we were to take these incremental businesses and the sign addition -- current overheads that are with our existing business, if we put that proportionately on to these businesses, it kind of moves that number to in between 7 and 8 times.
So, a second question has to do within our working capital.
How do we make the determinations?
How do we measure?
What metrics do we use?
And it kind of goes into three different areas.
So, with the external acquisitions, we've got a very robust model that we use that takes a product with sales, cost of goods, OpEx assigned to it, any interest assigned to it, as far as the working capital, and we actually do build to an earnings per share over each of the 10 years.
Once we do that and then we measure kind of an internal rate of return, a payback period on the acquisition, I already mentioned the 10-year P&L, and that's the basis for how we measure making our acquisitions.
With return to internal investments, such as what I mentioned in the new product pipeline or SIMPAS or the green solutions, we do look at a similar concept as to what we do with acquisitions.
We've build out what it looks like maturity generally that's in the five to seven year period.
Looking out kind of -- we've build out again over a period until we hit maturity, and measure what the short-term, mid-term and long-term returns are going to be.
And that's how we prioritize our basic internal growth initiatives.
And then, lastly, we have decisions to make about how to regionally deploy our working capital.
And with regards to our existing business and, I would say, the more mature businesses have a better return on capital.
When we look at our domestic business or even our Mexico business we've had for 20-some years, those tend to have higher return rates.
But when we go into newer territories and try to establish a beachhead and grow particularly as you get into Central and South America, the credit terms tend to be longer.
Although we're trying to offset that with longer payment terms to our suppliers, generally, we have to make strategic decisions there.
And let's take Brazil, for instance, we have not -- we had not participated much in Brazil, and years passed, in 2019, we acquired a business and we're building that business today, and that does not reap the same standards or the same levels of return.
But overall, we look at what's in the best interest of the firm on all of these for what's the short-term return, mid-term and long-term return.
So with that, I think, Brock, we'll open up to any questions audience might have.
 Assistant:

Chosen response: american vanguard corp - qtrly net sales were up 29% to $135 million in 2021, compared to $105 million in 2020.


Prompt:
Human: With that said, let's have our usual cautionary reminder.
Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the Company's SEC reports and filings.
2020 was a year that was fraught with changing demands and conditions, and our people weathered the storm admirably.
We met our critical objective of keeping the workplace safe and healthy for our employees with virtually no work-related transmission.
This, in turn, enabled us to operate continuously, and to serve our customers reliably in all regions.
By comparison, the Top 5 public companies in our sector were on average, flat on both the top and bottom line.
While David will be giving you more detail on this and other aspects of our financial performance, I would like to cover a few highlights.
Over the course of 2020, we committed to improving our balance sheet and I'm pleased to report that we succeeded in doing so.
We generated a nine-fold increase in cash from operations versus the prior year due, in part, from inventory and factory management, controlled operating expenses, and record high customer early pay participation.
This, in turn, enabled us to pay down debt and improve borrowing capacity.
We are able to make these improvements while, at the same time, concluding two key strategic acquisitions; AgNova, for market access in Australia, and Agrinos, a green solutions company.
Further, we defined an environmental, social and governance platform, which includes extremely promising products and technology solutions.
Now, I would like to turn to David for his comments on our financial performance, with the focus on matters of particular interest to our investors.
I will then give you my thoughts on our growth platforms, and a particular focus on green solutions and precision application.
I will then close with my 2021 outlook, and then take questions from our listeners.
With regard to our public filing, we plan to file our Form 10-K for 2020 within the next few days.
As we have noted in previous calls, the Company is fortunate to participate in industries that are considered part of critical infrastructure in all countries, in which we operate.
As a result, throughout 2020, our customers and suppliers, and our employees and operations have all continued more or less without disruption during the pandemic.
Having said that, the pandemic has impacted us in a few ways including, first, at the start of the year, we experienced a significant devaluation in a few key currencies, specifically, the Brazilian real, the Mexican peso, and the Australian dollar.
That negative currency effect has started to somewhat reverse as we reached the end of 2020.
Second, the pandemic prevented us from many of our normal infield activities, including face-to-face meetings with distributors, retailers or growers, or activities such as product development and defense.
On the other hand, as you will see in our financial statements, the same restrictions and foreign exchange rate movements have caused us to spend less on operating expenses, including travel.
With regard to our financial performance for the fourth quarter of 2020, the Company's net sales increased by 8% to $141 million, as compared to sales of $131 million, this time last year.
Within that overall improvement, our US sales were up 4% to $85 million, and our international sales increased by 15% to $56 million.
International sales accounted for 39% of total sales, as compared to 37% of total sales, this time last year.
The main factor -- factors driving our sales performance are as follows.
In our US crop market, sales increased by approximately 19% as a result of strong sales of products sold into the Midwest row crop market such as, our SmartBox, Counter, and Aztec brands, as growers reacted to increased blood pressure and on to increased commodity pricing for soybeans and corn.
Sales for our domestic non-crop market declined about 45% as a result of lower sales of our deep Dibrom products into vector control districts, primarily as customers worked to address slightly elevated channel inventory levels.
Finally, our international sales grew by 15%.
Approximately half of the improvement is associated with new sales related to the two businesses acquired at the start of the quarter.
The balance of the increase relates to strong sales of our bromacil herbicide, which has a much improved supply position this year and Counter sold into Mexico.
With regard to the underlying market performance of our products, during the quarter, our US crop business recorded increased absolute gross profit, but gross margin percentage declined slightly.
The decline in gross margin percentage was driven primarily by the lower manufacturing activity, which is typical for the Company's fourth quarter.
Our fourth quarter non-crop gross margin declined from 42% in Q4 of 2019 to 35% in 2020, driven primarily by the reduced market demand for Dibrom already discussed, and by the lower factory activity rate.
International margins improve with the addition of businesses acquired in the fourth quarter, and strong sales of bromacil, reflecting improved material supply.
Overall, gross margin performance for the final quarter of 2020 was in line with the prior year at 36%.
Operating expenses for the quarter increased by 11% as compared to the same period of the prior year.
This includes the addition of the activities of the two newly acquired businesses, which together accounted for approximately 40% of the increase.
Other increases include, additional marketing expenses, legal expenses, higher cash incentive compensation accruals linked to business performance, and some expense associated with the change in the fair value contingent liabilities associated with an acquisition.
This relates to a business that we purchased out of bankruptcy.
When the opportunity presented itself, we moved quickly and got a great deal.
We engaged outside valuation experts to assist management in the assessment of the fair value of the assets acquired.
The gain we recorded is the difference between the purchase price consideration paid and the fair value of the net assets acquired.
Also during the three-month period, we recorded lower interest expense, primarily as a result of lower federal base rates on our loans.
Finally, our effective tax rate was low in the quarter.
There are couple of reasons for this.
First, the bargain purchase, just discussed, is a non-taxable transaction.
And second, we were able to release some reserves associated with uncertain tax positions related to acquisitions we made in both 2017 and 2019.
As a result of these various factors, net income for the three-month period was more than twice the level reported in the same period of 2019.
With regard to the full-year performance, the overall business revenues reduced by about 2% in 2019, as compared to 2019 -- in 2020, as compared to 2019.
We consider that performance to be reasonably aligned with the prior year in a period that has been marked by widespread closure of many businesses during the prolonged period the pandemic.
Within that revenue decline, our US crop business increased by 1% to $223 million in 2020, our US non-crop business sales declined by 21%, to end at $49 million, and our international business remained approximately flat with new business revenue offsetting the effect of foreign exchange rates.
Our 2020 manufacturing performance ended the year very close to our average long-term performance.
As you can see from the chart, net factory costs for the year amounted to approximately 2.8% of sales.
This compares to 2.6% for 2019, and our target of 2.5%.
This says, that despite all the pandemic-related challenges, we were able to maintain our manufacturing activity at relatively normal levels.
For the full year 2020, despite some movements by category, gross margin percentage was in line with 2019, at 38%.
For the full year of 2020, our operating expenses increased by 2%, to end at $154 million, or 33% of sales as compared to $151 million, or 32% of sales last year.
In 2020, we had several dynamics affecting our operating expenses.
These include, pandemic-related reductions in travel activities, the impact of lower FX rates affecting translation to US dollars of operating costs recorded in other currencies, and finally the addition of new businesses acquired in the final quarter of the year.
Our interest expense is down primarily because of federal reserve base rates.
Our tax expense is down primarily because of the bargain purchase gain, which is non-taxable, and the release of reserves in certain tax positions related to prior acquisitions.
In summary, for the full year 2020, when looking at our income statement performance, we have operated close to normal.
Margins have remained very steady, indicating that prices have held up, raw material costs and factory performance has been well managed throughout this year of disruption.
Our operating costs have increased slightly, but do include additional businesses for both the quarter and the year.
We made a good deal to inquire -- to acquire an exciting biologicals business for a bargain price out of [Phonetic] bankruptcy.
And at the bottom line, we've seen a very strong finish to 2020 and reported net income, up 12% compared to 2019.
From my perspective, the operating and financial focus for the Company remains as follows.
We continue to follow a disciplined approach to planning our factory activity, balancing overhead recovery with demand forecasts and inventory levels.
As you can see on this slide, we've had a very strong year with respect to cash in 2020.
We generated slightly less from operations when compared to prior year, but have been focused full year on working capital, and this slide shows that has gone very well.
Including working capital, we generated $89 million from operations, which is about nine times what we have achieved on a -- in average for the prior two years.
The cash generated was used principally to two purposes.
First, we invested a total of $36 million, acquiring two businesses, making a strategic equity investment, continuing to develop our manufacturing capability, and advancing our SIMPAS delivery systems.
Secondly, we paid down debt by $43 million.
At the end of December 2020, our inventories were at $164 million.
This includes about $14 million of inventory related to acquisitions completed since late December 2019.
And adjusted or underlying inventory of $152 million is slightly better than the $154 million we indicated during the last call.
With regard to accounts receivable, as I noted earlier, our customers have continued to operate without significant disruption.
They are placing orders for our products, making payments when expected.
Participation in our annual standard early pay program was strong, indicating that our customers -- that the customers we deal with had a good year.
The end result for 2020 resulted in consolidated accounts receivable of $119 million in 2020, as compared to $136 million, this time last year, notwithstanding the higher sales in the fourth quarter.
Consequently, we can report that despite the pandemic, we have not seen any material change in the assessment of our credit risk exposure at the end of 2020 in comparison to the prior year.
With regard to liquidity, as you can see from this chart, we have been constantly working down debt from a high in the first quarter, which is a normal rhythm for the Company, to a low at the end of the year.
At the same time, after a challenging first quarter, which was impacted by the arrival of the COVID-19 pandemic, our quarterly financials have steadily improved.
There are three factors in the calculation of availability.
The first is our financial performance, which is broadly in line.
The second is the multiplayer under the terms of the credit facility, which is slightly higher this year than last, and accounts for about $15 million increase in availability.
And the third is the level of debt, which accounts for $43 million increase in availability.
Taking all that together, availability at December 31, 2020 is $85 million, as compared to $27 million for the same time last year.
In summary then, in 2020 from a balance sheet cash perspective, we have continued to be acquisitive for the long-term benefit of the Company.
We have carefully managed inventory and accounts receivable and, thereby, working capital, cash and debt.
At the end of the year, we believe we have improved our balance sheet and liquidity, and are well positioned to look at 2021 with a sense of optimism.
With that, I will hand back to Eric.
As you may recall from our earnings call in November last year, I began to turn our attention to our strategic direction and long-term prospects.
In the course of my comments, I described our three platforms for growth, namely, our core business, our green solutions platform, and our precision application technology, led by SIMPAS and Ultimus.
I also gave you a view into how much we think these platforms will grow over the next three years to five years.
Today, I would like to revisit these platforms with a particular focus on how our green solutions and precision application technology, both provide unique and compelling environmental -- what I'll call, ESG, environmental, social and governance solutions, and position us to grow our business at a faster rate than through conventional AgChem offerings.
Let's start with a quick update on our core business.
As I mentioned earlier, in Q4 we closed on the acquisition of AgNova, an Australian-based company, headquartered in Melbourne that sources, develops and distributes specialty crop protection and protection solutions for the agriculture, horticulture and non-crop markets.
The addition of AgNova, improves our market access in the region, including with respect to SIMPAS, Agrinos, and green plant solutions, and gives us greater critical mass in an important territory.
Furthermore, AgNova offers product lines that we can readily market in other regions.
Now let's turn to the other two platforms.
In doing so, it is first necessary to lay the proper groundwork.
I mentioned earlier, we have defined our ESG position.
Public companies, far and wide, are increasingly being called upon by investors such as, BlackRock happens to be our largest shareholders, institutional shareholder services like ISS, and regulators such as the SEC to report upon their commitment to ESG.
We at American Vanguard, have a great story to tell with regard to ESG.
As I take you through our green solutions and precision application technology platforms, you will see this more clearly.
At the close of 2020, we published our statement under the tab ESG on our website.
As we stated on that page, we are committed to the principal of sustainable agriculture, which to us means that all people should have the right to a stable, affordable food supply both now and into the future while, at the same time, maintaining and preferably improving soil health.
As an essential part of that commitment, we seek to promote three equitable considerations, climate, environment and food.
As per our Climate Change Commitment, also on our website, we are committed to making enterprisewide progressive and measurable efforts toward helping to address the trend of global warming.
With respect to environmental quality, we seek to leave the planet in a better state than we founded.
And as a key supplier of crop inputs, we are essentially involved in food equity.
In order to advance these three agendas, a crop input company such as, ourself, would focus on products or application technology that promote carbon sequestration, improve plant and soil health, have an environmentally friendly profile, and improve yield.
As an example, you can see from this slide, courtesy of our greenhouse business, biostimulants can advance all of these considerations.
They reduce carbon dioxide, thus improving air quality, and the climate; improve the yield per acre, making food more affordable; improve food quality, helping growers to succeed; conserve water, advancing environmental equity; and improve the soil's microbial community.
We have many such ESG-friendly products within our green solution platform.
For example, OHP provide several biosolutions to domestic nursery and ornamental customers.
AmGreen and Central America offers a range of tailored biologicals to customers like, Chiquita.
And we continue to see consumer acceptance of our low-impact insecticides from Envance Technologies that are safe for children and pets.
These -- this technology forms the basis of our innovation partnership with Procter & Gamble, specifically, under the Zevo brand of consumer insect control products.
After having achieved success in 2020 with Home Depot and Target, Zevo's 10-store test and Tampa's Walmart stores has exceeded expectations, and will enable the P&G team to aggressively sell to full chain distribution for calendar 2021.
Let me share with you a short video posted on P&G Venture Capital website -- Venture Capital -- Ventures website that positions Zevo.
For any of you who have not tried any of the core Zevo products, I encourage you to go out and purchase them, and give them a try.
In addition to Zevo for household use, we offer Guardian mosquito repellent, and are expanding these solutions into animal health and professional pest control.
At the same time, we are pursuing two novel development platforms.
Under our Maryland [Phonetic] research platform, we are using our patented screening process to discover and create novel insecticide compounds.
This is true R&D effort.
Over the past several months, we have screened over 130,000 active ingredients in our lab, and have identified a manageable number of promising candidates for further development and possible commercialization.
Similarly, under our Envance Technologies' Dragon Fire research platform, we are developing patented bioherbicide products and applications to help us address a global $18 billion market for non-selective herbicides.
These products will feature high efficacy and will give users eco-friendly solutions for weed control.
Between the Maryland research platform and Dragon Fire's bioherbicides, and that technology continues to ring the bell for environmentally responsible solutions.
Now, let's spend a few minutes on Agrinos.
First, let me note that I was very pleased with the fact that we were able to acquire this business at such a reasonable cost, as its parent of foreign holding company in Norway was in liquidation.
From its three operations in US, Mexico and India, Agrinos produces a line of high-yield technology, soil-applied solutions that it markets into eight regions across the globe.
These products promote carbon sequestration, nitrogen fixation and soil health.
Its invigorate line as an [Indecipherable] approved consortium of 22 bacteria that have been developed to promote multiple benefits including, soil -- include improvement of the soil microbial community on many global crops and soil conditions, facilitating nitrogen absorption and nutrient uptake, while supporting root biomass and plant health.
Its uplift products, which are derived from biologically extracted chitin have similar effects.
And their B Sure nutrient solution provides time-released nitrogen, which in turn improve soil health and help to reduce the need for nitrogen laden fertilizers.
With nearly 150 pending and issued patents in multiple countries, Agrinos is proving to be an excellent fit for American Vanguard.
We gained an established product line, considerable IP, and a specialized fermentation and manufacturing infrastructure.
In fact, our initial interest in Agrinos came last year, when we were seeking distribution rights for putting their solutions through SIMPAS.
The opportunity for Agrinos to be part of American Vanguard organization is so much the better.
After having owned the business for only five months, we have already realized a high percentage of the synergies that we had forecasted.
With our global reach, we can now give these products the market access they deserve.
Let's now turn our attention to SIMPAS.
For some time now, we have been reporting on the exciting development and commercialization of our SIMPAS precision application system.
Let me now elaborate on SIMPAS as an ESG technology.
Put simply, SIMPAS is the ideal tool for advancing both climate and environmental equity, and for that reason food equity as well.
With respect to climate, SIMPAS is designed to be far more efficient than single-product application systems.
It can apply multiple inputs at varying rates, only what is needed, precisely where it is needed, in one pass.
In addition, because it applies inputs only where they're called for, as per the agronomic prescription, SIMPAS enables the grower to use potentially far less full rate at his or her field with significantly less water.
Consequently, the growers' environmental footprint is much smaller and the potential for run-off is that much more reduced.
But there is more to the story.
In addition to efficiency and lowering of the environmental input footprint, SIMPAS is designed to apply not only chemical inputs, but also biologicals, the very types of products that we have described as promoting carbon sequestration, nitrogen uptake and soil health.
Even as I speak, we are testing multiple green technology solutions for use in SIMPAS SmartCartridges.
In short, we are supplying not only the product solutions, but also the application technology with which to advance climate and environmental equity.
And the icing on the cake is that with our Ultimus platform, we can trace all inputs from factory to field, and measure how much of each input is used in each area of each field.
This platform also permits the return of empty and partially used SmartCartridges.
So on top of environmentally responsible products and application technology, we offer unrivaled measuring and tracking capability for multiple inputs.
With this functionality, Ultimus is the ideal technology for measuring inputs in order to obtain carbon credits.
While many carbon banks are being formed and multiple sets of rules are being discussed, they all require a means to measure what the grower is adding to the field.
To our knowledge, no technology does this better than Ultimus.
Nor is this just conjecture on our part, in this slide we show the results of an actual SIMPAS 2020 beta system application, in which we demonstrated that we could apply Counter 20G precisely as per agronomists prescription, and its important that we could measure that application after the fact.
This will be a fundamental importance in the carbon credit market.
The picture on the left illustrates the prescription written for a field in North Carolina.
The picture on the right depicts the actual application.
And when we shared this with our SIMPAS growers, they were all very impressed.
Now for an update on SIMPAS systems.
But, we are targeting more systems for this planting season, and we expect or hope that we will get into that 100,000 acre target, which is the target that we set for ourselves.
Now, let me share our latest SIMPAS video that illustrates key advantages.
With that, let me now turn in to our 2021 outlook.
We see an ag industry that is generally optimistic for 2021.
Reopening of schools and businesses following 2020 lockdown, and a potential for less volatile international trade disruptions, promises to refresh ag sector demand.
The increase in crop commodity prices for corns, soybeans, corn and other crops has improved the prospect for grower profitability and, with that, a more normal purchasing pattern versus the very conservative procurement behavior that we witnessed during the 2020 pandemic.
We estimate a low double-digit year-over-year revenue increase for American Vanguard.
We expect profit margins to remain steady with recent history.
And operating expenses will increase somewhat due, in part, to newly acquired businesses, and the SIMPAS launch.
We expect interest expense will be similar to 2020 levels, and our overall tax rate should be in the mid-20% range.
Consequently, we are targeting a significant percentage increase in net income and earnings per share in 2021.
Finally, we are targeting a debt to EBITDA ratio in the 2 times to 2.5 times range.
And note, that at the end of 2020, our debt to EBITDA ratio was 2.2 times.
With that, we'll take any questions you may have.
 Assistant:

Chosen response: american vanguard corp q4 net sales were $141 million in 2020, compared to $131 million in 2019.


Prompt:
Human: For the third quarter, we achieved consolidated earnings of $0.76 per share versus $0.72 last year, an increase of $0.04 per share or 5.6%.
Included in the results for the third quarter of 2021 were minimal gains on investments held to fund one of the company's retirement plans, as compared to $0.02 per share of gains included in the third quarter of 2020.
Excluding these gains from both periods, adjusted diluted earnings for the third quarter of 2021 were $0.76 per share, as compared to adjusted earnings of $0.70 per share for the third quarter of 2020, an increase of $0.06 per share or 8.6%.
Eva will discuss the quarter in more detail.
The third quarter contributed to a strong 2021 year-to-date, where we've achieved 11.7% earnings-per-share growth over last year or 10.7% on an adjusted basis.
Regarding the pending general rate case covering rates for the years 2022 through 2024 at our water utility subsidiary Golden State Water Company, we're pleased to report that we have reached a settlement in principle with the public advocates office of the California Public Utilities Commission or CPUC for short, and nearly all of the items in the case.
I'll touch on this a little more after Eva's update.
On the electric side of the business, we were pleased that in September the CPUC approved Bear Valley Electric Services most recent wildfire mitigation plan, while also in September, the Office of Energy, Infrastructure Safety under the California Natural Resources Agency approved Bear Valley Electric Services latest Safety Certification filing.
The company remains in a strong position, we have successfully navigated the pandemic by continuing to deliver excellent service to our customers, while prioritizing the health and safety of our workforce and compliance with existing government guidelines.
We continue to invest in needed infrastructure that results in high water quality, reliable delivery, systems safety and a commitment to preserving the precious resources that are in our care.
Let me start with our third quarter financial results on Slide eight.
This slide presents our reported result before adjustments.
Consolidated earnings for the third quarter of 2021 were $0.76 per share, as compared to $0.72 per share in 2020.
As Bob mentioned, excluding the gains on investments held to fund, one of our retirement plans from both periods.
Adjusted diluted earnings for the third quarter were $0.76 per share, as compared to adjusted earnings of $0.70 per share for the third quarter of 2020.
This represents an increase of $0.06 per share or 8.6%, compared to the adjusted earnings last year.
Our Water segment's reported earnings were $0.62 per share, as compared to $0.57 per share last year.
Excluding the gains on investments, including both quarters adjusted earning at Water segment were $0.62 per share for the third quarter, as compared to adjusted earning of $0.55 per share for the third quarter of last year.
This adjusted increase of $0.07 per share was largely due to higher water operating revenue, less supply costs as a result of new rates for 2021 authorized by the public -- by the California Public Utilities Commission.
Our Electric segment's earnings were $0.04 per share for both periods, an increase in electric operating revenues, less electric supply costs was largely offset by higher operating expenses.
Earnings from our contracted services segment increased $0.01 per share for the quarter, due to a decrease in operating expenses.
Diluted earnings from AWR parent decreased $0.02 per share due to changes in state unitary taxes, as compared to the same period in 2020.
Our consolidated revenue for the quarter increased by $3.1 million, as compared to the same period in 2020, while the revenues increased $4.1 million, due to the third-year step increases for 2021 as a result of passing earnings test.
The increase in electric revenues was largely due to CPUC approved rate increases for 2021.
Contracted services revenues decreased to $1.3 million largely due to lower construction activity, partially offset by increases in management fees, due to the successful resolution of various economic price adjustments.
Turning to Slide 10.
Our water and electric supply costs were $33.3 million for the quarter, an increase of $1 million from last year.
Any changes in supply costs for both the water and electric segments, as compared to the adopted supply costs are tracked in balancing account.
Looking at total operating expenses other than supply costs.
Consolidated expenses decreased $800,000, as compared to the third quarter of last year.
This was primarily due to a decrease in construction costs at our contracted services segment.
Interest expense, net of interest income and other increased by $600,000, due to lower gains generated on investments held for retirement plan during the quarter as previously discussed.
The lower investment gains were partially offset by decrease in interest expense, largely due to the early redemption of private placement notes with a high coupon rates in May of this year.
Slide 11, shows the earnings per share bridge, comparing the third quarter of 2021 with last year's third quarter.
This slide reflects our year-to-date earnings per share by segment as reported, fully diluted earnings for the nine months ended September 30, 2021 were $2, as compared to $1.79 for the same period in 2020, included in these results were gains on investments, held to fund a retirement plan, which increased earnings by $0.04 per share and $0.02 per share for the nine months ended September 30, 2021 and 2020 respectively.
Excluding these gains from both periods.
Adjusted year-to-date earnings for 2021 were $1.96 per share, as compared to adjusted year-to-date earnings of $1.77 per share for 2020.
This results in a 10.7% increase in adjusted EPS.
Turning to liquidity, net cash provided by operating activities were -- was $81.9 million for the first nine months of 2021, as compared to $87.8 million in 2020.
The decrease was partially due to different timing of income tax instalment payments between the two periods.
In addition, there was a decrease in billed surcharges to recover under collections recorded in Golden State Water's, while the revenue adjustment mechanism and the modified cost balancing account.
The decrease in operating cash flow was also due to the timing of building off and cash receipts for construction work at military bases.
This was partially offset by an improvement in cash from accounts receivable related to utility customers, due to -- due in part to improved economic conditions, as compared to the first nine months of 2020, because of the COVID-19 pandemic.
Our regulated utility invested $105.4 million in company-funded capital projects during the nine months -- first nine months this year, and we estimate our full-year 2021 company-funded capital expenditure to be $130 million to $140 million.
At this time, we do not expect American States Water to issue additional equity for at least next three years to fund its current businesses.
I will now provide updates on the California drought and our recent regulatory activity.
Currently, the majority of California is considered to be an extreme drought.
The Governor of California has now proclaimed a state of emergency for all 58 counties within the state and signed an executive order asking all Californians to voluntarily reduce water usage by 15%, as compared to 2020.
CPUC has called on all California investor-owned water utilities to implement voluntary conservation measures to meet this goal.
In response Golden State Water has increased its communication with customers regarding the need for conservation, implemented voluntary conservation efforts in nearly all of its rate making areas and mandatory water reduction in a few small customer service areas on the coast.
We have also established a CPUC approved Water Conservation Memorandum Account to track incremental drought-related costs for future recovery.
As we discussed in our prior calls Golden State Water filed a general rate case application for all its water regions and the general office in July 2020.
This general rate case will determine new water rates for the years 2022 through 2024.
Among other things, Golden State Water requested capital budgets of approximately $450.6 million for the three-year rate cycle and another $11.4 million of capital projects to be filed for revenue recovery through advice letters, when those projects are completed.
Golden State Water and the public advocates office of the CPUC have reached the settlement agreement in principle on the majority of the items in this general rate case application.
The unsettled matters are Golden State Water's request for: one, a medical cost balancing account; two, general liability insurance cost balancing account; and three, the consolidation of two of Golden State Water's customer service areas.
The date to file a joint motion for approval of settlement agreement to the CPUC has been proposed for November 23rd, 2021.
As a result of this proposed timing a final decision in the case from the CPUC is now expected in 2022.
When a final decision is issued in 2022, the new rates adopted in the final decision will be effective retroactive to January 1st, 2022.
Since we are still in the process of drafting the settlement agreement with the public advocates office, we cannot share any further details at this time.
As a reminder, the administrative law judge assigned to this rate case has previously clarified that Golden State Water can continue using the water revenue adjustment mechanism or RAM.
And the modified cost balancing account, also known as the MCBA until our next general rate case application covering the years 2025 through 2027.
Regarding our cost of capital application, which was filed in May of this year, we requested capital structure of 57% equity and 43% debt, which is our currently adopted capital structure.
A return on equity of 10.5% and a return on rate base of 8.18%.
There was a pre-hearing conference held in September, but the scoping memo with an official schedule has not been published.
Final decision is expected in the first half of 2022 with an effective date retroactive to January 1st, 2022.
As part of the response to the COVID-19 pandemic, Golden State Water and Bear Valley Electric Service have suspended service disconnections for non-payment pursuant to CPUC orders.
On July 15th of this year, the CPUC issued a final decision on the second phase of the water utility low income affordability rulemaking, which among other things, extended the existing moratorium on water service disconnections, due to non-payment until the earlier of February 1st 2022 or pursuant to further CPUCs guidance on the matter.
On June 24th of this year, the CPUC issued a final decision to extend the moratorium on electric disconnections until September 30th of this year.
None of the terms of CPUC adopted payment plans, actual electric service disconnections for non-payment will not occur until approximately December 1st of this year.
For Golden State Water and Bear Valley Electric Service, we are tracking incremental costs, including bad debt expense in excess of what is included in their respective revenue requirements, incurred as a result of the pandemic and CPUC approved COVID-19-related memorandum accounts, which are to be filed with the CPUC for future recovery.
CPUC requires that amounts tracked in the company's COVID-19 memorandum accounts for unpaid customer bills be offset by any federal and state relief for water utility bill debt and customer payments through payment plan arrangements prior to receiving recovery from customers.
On July 12th of this year, the Governor of California approved almost $1 billion in relief funding for overdue Water Customer Bills and almost $1 billion in relief funding for overdue Electric Customer Bills.
Golden State Water and Bear Valley Electric Service intend to seek recovery of overdue amounts from all available funding sources.
Funds for both water and electric utility relief are expected to be distributed to utilities during the fourth quarter of 2021, for the first quarter of 2000 -- for the first quarter of 2022.
Turning our attention to Slide 18, this slide presents the growth in Golden State Water's rate base as authorized by the CPUC for 2018 through 2021.
The adopted weighted average water rate base has grown from $752.2 million in 2018 to $980.4 million in 2021, a compound annual growth rate of 9.2%.
The rate base amounts for 2021 do not include any rate recovery for advice letter projects.
Let's move on to ASUS on Slide 19.
ASUSs earnings contribution increased by $0.01 per share to $0.11 during the third quarter of 2021, as compared to the same quarter last year, largely due to a decrease in overall operating expenses.
For the year-to-date September 30th, 2021 ASUSs earnings contribution is $0.05 per share higher than last year, primarily due to an overall increase in construction activity and management fee revenue, as well as a decrease in overall operating expenses, including lower, legal and other outside services costs, labor cost and maintenance expense.
The increase in construction activity was largely due to timing differences of when work was performed, as compared to the first nine months of 2020.
We reaffirm our projection that ASUS will contribute $0.45 to $0.09 per share for 2021.
We continue to work closely with the US government for contract modifications relating to potential capital upgrade work for improvement of the water and wastewater infrastructure at the military bases, we serve.
However, the continuing volatility of prices for materials and slower than anticipated recovery in the supply of materials from the COVID-19 pandemic could cause delays in construction activity for existing projects.
And are likely to result in deferrals of government procurement to award new capital upgrade projects.
Given the uncertainties we project ASUS to contribute the same range of earnings $0.45 to $0.49 per share for 2022.
US government is expected to release additional bases for bidding over the next several years.
We are actively involved in various stages of the proposal process at a number of bases currently considering privatization [Technical Issues] continue to have a good relationship with the US government, as well as a strong history and expertise in managing water and Wastewater Systems on military bases.
And we are -- we believe we are well positioned to compete for these new contracts.
I would like to turn our attention to dividends, which is a compelling part of the company's investment story.
Last week, the Board of Directors approved a fourth quarter dividend of $0.365 per common share.
If you recall last quarter, the Board of Directors approved a 9% increase in the annual dividend from $1.34 per share to $1.46 per share.
Currently, our dividend policy is to provide a compound annual growth rate of more than 7% over the long-term.
Compound annual dividend growth rate for the quarterly dividend is 9% over the last five years and nearly 10% over the last 10-years.
Our log and consistent history of dividend payments dates back to 1931.
In addition to an unbroken 67-year history of annual calendar year dividend increases.
 Assistant:

Chosen response:
compname reports q3 adjusted earnings per share of $0.76 excluding items.
q3 adjusted earnings per share $0.76 excluding items.
q3 earnings per share $0.76.
final decision from cpuc on general rate case application is not expected by end of 2021.


Prompt:
Human: You can access this announcement on the Investor Relations page of our website www.
aam.com and through the PR Newswire services.
You can also find supplemental slides for this conference call on the Investor page of our website as well.
For additional information, we ask that you refer to our filings with the Securities and Exchange Commission.
Information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.
With that let me turn things over to AAM's Chairman and CEO, David Dauch.
Joining me on the call today are Mike Simonte, AAM's President and Chris May, AAM's Vice President and Chief Financial Officer.
To begin my comments today, I'll review the highlights of our first quarter 2021 results.
Next, I'll touch on some exciting recent business announcements with Ford and REE and lastly, we will discuss the challenges within the supply chain and our financial outlook.
After Chris covers the details of our financial results, we will then open up the call for any questions that you may have.
In the first quarter 2021, AAM delivered solid operating performance and strong cash flow generation.
Although the industry is facing continuity of supply issues, we continue to navigate through these challenges while delivering very strong results.
AAM sales for the first quarter 2021 were $1.43 billion, up approximately 6% compared to $1.34 billion in the first quarter of 2020.
The increase in our revenues on a year-over-year basis primarily reflects the recovery from COVID-19 related industry shutdowns that we experienced last year.
Although North American industry production was down 4% according to the third party estimates, light truck production was up 5% year-over-year and volumes on our core platforms increased 9% year-over-year.
Furthermore, light truck inventory and a number of the key platforms that we support remained extremely low.
Consumer demand for light trucks remained strong and our customers are building them as much and as fast as possible.
We believe the demand environment for these products will continue for an extended period of time.
AAM's adjusted EBITDA in the first quarter 2021 was $262.9 million or 18.4% of sales.
This margin performance is a first quarter record for AAM.
This compares to $213.3 million last year or 15.9% of sales.
In addition to benefiting from higher production level, our intense focus on optimizing the business and flexing our cost structure to align with the global market demand contributed greatly to our performance in the first quarter of 2021.
AAM's adjusted earnings per share in the first quarter 2021 was $0.57 per share compared to $0.20 per share in the first quarter of 2020.
Cash flow generation was strong in the quarter.
Our operating performance and commitment to reducing capital spending drove this high level of free cash flow.
Furthermore, we prepaid over $100 million of our term loan in the quarter.
As we have previously stated, we are committed to reducing our debt and strengthen our balance sheet throughout 2021.
On the business front, we are happy to announce that we are providing both air cooled and liquid cooled power transfer units, which are part of our EcoTrac product family, for the all-new Ford Bronco Sport.
This is a great new product offering from Ford that has been very well received in the marketplace.
And as for electrification, we are excited to announce today that AAM and REE Automotive have agreed to jointly develop an exciting new electric propulsion system for e-mobility.
As we shared in our last call, REE Automotive is a leading provider of e-mobility solutions.
The company's core innovation includes integrating traditional vehicle components into the wheel allowing for a flat and modular platform.
AAM's partnership with REE intends to incorporate our lightweight highly efficient next-generation electric drive units which feature fully integrated high speed motors and inverters into REE's highly modular technology that enables a fully flat EV chassis for multiple commercial vehicle applications.
The electric drive units will be developed at AAM's advanced technology and development center here in Detroit.
We are very excited to partner with REE Automotive to bring new e-Mobility technologies to the market.
This is an important step in growing AAM's electric propulsion business and expanding our addressable market.
In addition, our electrification data with multiple OEMs continues to intensify and our technology, engineering, and new product offerings are attracting strong global interest.
2021 will be an exciting year for us in this face.
Our engineering teams in collaboration with our technical partnerships with Inovance and offer engineering are quickly achieving technology advancements for our next generation of products.
On a separate but related matter, we are also pleased to announce today that AAM will receive a grant from the US Department of Energy in support of the development of our three-in-one electric drive unit.
This award further recognizes AAM' technology and innovation to support new energy vehicles.
As for our current generation of electric vehicle products, we are presently in the process of launching multiple new programs globally including components, sub-assemblies, and electric drive units.
These innovations and advancements are allowing AAM to compete to win business with our traditional customer base while also position AAM to win business with new OEM entrants in the space.
We're also very pleased to announce that we recently published our 2020 Sustainability Report.
I'm very proud to say we exceeded our initial sustainability goals this year-this past year and now are in the process of setting even higher goals.
AAM's sustainability program is set by our cultural values and strategic principles as a company that stress teamwork, diversity and inclusion, community involvement, and respect for the environment.
Our sustainability program has become more transparent in consideration of the interest of our shareholders, customers, suppliers, associates, and other stakeholders.
We are deeply committed to profitably growing our business in a way that is sustainable and socially responsible.
Before I transition to Chris, I want to talk about our current operating environment and our financial guidance.
In my 35-year career in the industry, I've never seen such stress on the value chain stemming from shortages in semiconductors, labor, steel, containers, and port delays and the rising commodity prices that we're experiencing.
We believe the second quarter 2021 will be the trough of the semiconductor shortage issue with improvement in the second half of the year.
However, we expect this issue will carry into 2022.
For AAM, we will continue to work with our customers and our extended supply base to protect continuity of supply.
Although there are significant high uncertainty, especially with the availability of semiconductors, we continue to maintain our current financial guidance.
In fact, based on what we know today and assuming our customers continue to prioritize full-size truck production with minimal disruption, we can see a path to the high end of our ranges.
Our current guidance remains as follows: From a revenue standpoint, $5.3 billion to $5.5 billion and an adjusted EBITDA basis, $850 million to $925 million and adjusted free cash flow of $300 million to $400 million.
Operation in our business is running extremely well.
We continue to manage our expenses to improve our operational efficiency and tightly control capital expenditures.
Even with all the pressures we face, we believe 2021 can be an outstanding year for AAM and this has AAM team both very motivated and excited.
I will cover the financial details of our first quarter results with you today.
I will also refer to the earnings slide deck as part of my prepared comments.
So let's begin with sales.
In the first quarter of 2021, AAM sales were $1.43 billion compared to $1.34 billion in the first quarter of 2020.
Slide 8 shows a walk of first quarter 2020 sales to first quarter 2021 sales.
First, we add back the impact of COVID-19 of approximately $169, then we account for the unfavorable impact of the semiconductor shortage which we estimate to be approximately $64 million inside the quarter.
On a year-over-year basis, we are impacted by GM's transition from a rear beam axle to a new lightweight and highly efficient independent rear drive axle for GM's new full-size SUV which impacted sales by about $38 million.
The first quarter of 2021 is the last quarter of this year-over-year impact to occur.
Other volume and mix were negative by $26 million.
Pricing had an unfavorable impact of $4 million on a year-over-year basis.
Metals and FX accounted for an increase in sales of $44 million.
During the last six months, we have continued to see an increase in the primary index related inputs to the metal based materials that we purchase.
You may recall, we hedged this risk by passing with our customers bypassing through the majority of index related changes.
The metal portion of this column reflects these elevated pass-throughs on a year-over-year comparison.
Now, let's move on to profitability.
Gross profit was $227.1 million or 15.9% of sales in the first quarter of 2021 compared to $195.3 million or 14.5% sales in the first quarter of 2020.
Adjusted EBITDA was $262.9 million in the first quarter of 2021 or 18.4% of sales.
This compares to $213.3 million in the first quarter of 2020 or 15, 9% of sales.
As David mentioned, this was AAM's highest first quarter adjusted EBITDA margin in our company's history.
You can see a year-over-year walk down of adjusted EBITDA on Slide 9.
We benefited from the contribution margin on the increase in net sales from last year, but most importantly, we continued our strong cost reduction actions reflecting a year-over-year benefit of $28 million.
Let me now cover SG&A.
SG&A expense including R&D in the first quarter of 2021 was $90 million or 6.3% of sales.
This compares to a similar amount in the first quarter of 2020% or 6.7% of sales.
AAM's R&D spending in the first quarter of 2021 was $32 million compared to $37 million in the first quarter of 2020.
AAM has been able to capture an increase in sales with no net increase in SG&A expense.
We will not only continue to focus on controlling our SG&A costs, but also further our investments in key technologies and innovations with an emphasis on electrification.
This emphasis includes an appropriate level of funding to be successful to meet our objectives.
But it also includes shifting resources from traditional product support to new technology development in a very cost effective manner.
Let's move on to interest and taxes.
Net interest expense was $48.2 million in the first quarter of 2021 compared to $48.7 million in the first quarter of 2020.
We expect this favorable trend to continue as we benefit from continued debt reduction.
In the first quarter of 2021, we recorded income tax expense of $8.8 million compared to $3.3 million in the first quarter of 2020.
As we continue into 2021, we expect our book effective tax rate to be approximately 20%.
We would expect cash taxes to be in the $30 million to $40 million range for 2021.
Taking all these sales and cost drivers into account, our GAAP net income was $38.6 million or $0.33 per share in the first quarter of 2021 compared to a loss of $501.3 million or $4.45 per share in the first quarter of 2020.
Adjusted earnings per share for the first quarter of 2021 was $0.57 per share compared to $0.20 per share in the first quarter of 2020.
Let us now move on to cash flow and the balance sheet.
Net cash provided by operating activities for the first quarter of 2021 was $179 million compared to $139 million last year.
Capital expenditures, net of proceeds from the sale of property, plant and equipment for the first quarter was $40 million.
Cash payments for restructuring and acquisition-related activity for the first quarter of 2021 were $23 million.
The cash outflows related to the recovery from the Malvern fire we experienced in September 2020 net of insurance proceeds were $11 million in the quarter.
However, we anticipate the Malvern fire to heavy neutral cash impact for the full year as timing of cash expenditures and cash insurance proceeds align over time.
In total, we would expect $50 million to $65 million in restructuring and acquisition costs in 2021.
This is no change from prior guidance.
Reflecting the impact of this activity, AAM generated adjusted free cash flow of $174.1 million in the first quarter of 2021.
From a debt leverage perspective, we ended the quarter with net debt of %2.8 billion and LTM adjusted EBITDA of $769 million calculating a net leverage ratio of 3.6 times at March 31st.
This continues the trend of a declining leverage ratio and keeps us on track delivering at least internal leverage reduction this year.
Based on AAM's strong free cash in the first quarter of 2021, we prepaid over $100 million on our term loans.
We continue to expect to strengthen AAM's balance sheet by reducing our gross debt and lowering future interest payments.
In fact, subsequent to the end of the first quarter, AAM paid an additional $89 million on our term loans.
Before we move to the Q&A portion of the call, let me close my comments with some thoughts on our 2021 financial outlook.
We are reiterating our targets that we provided on February 12 of this year.
Our outlook encapsulants the best information we currently have regarding customer production schedules, their prioritization of building full-size pickups and SUVs, and the uncertain backdrop related to semiconductors.
As David indicated, based on these inputs and assumptions, we can see a trend to the high end of the guidance ranges we provided.
The strong free cash flow number as a result of focused restructuring and cost reduction initiatives, year-over-year margin growth, working capital optimization, and reduced capital spending.
Our EBITDA in free cash flow generation, we used to fund our R&D programs, support our future growth and reduce leverage is we are very focused on improving our financial profile.
While we do not provide quarterly guidance, I would expect the second quarter impact related to semiconductors to be greater than the first quarter based on recent customer announcements and supply chain challenges.
AAM continues to lay a solid framework for long-term success in shareholder value.
We continue to invest in electrification to develop highly efficient electric drive units, some assemblies and components that are compelling value to OEMs that will drive our growth.
Our customers continue to award as Business on core platforms that will yield strong cash flows well into the future and AAM we are passionately focused on managing our cost structure, optimizing our performance, and delivering best-in-class results.
At the end of the day, the first quarter of 2021 was a fantastic start to the year.
We also understand there are near-term challenges and uncertainties related to the supply chain that we must manage and navigate, but this management team is confident in addressing these challenges.
We have reserved some time to take questions.
So at this time, please feel free to proceed with any questions you may have.
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Chosen response:
q1 adjusted earnings per share $0.57.
q1 earnings per share $0.33.
q1 sales $1.43 billion.
aam's previously stated full year 2021 targets remain unchanged.
co projects they are currently trending toward high-end of its 2021 fy outlook ranges.