American Vanguard Corporation (AVD) Q1 2023 Earnings Call Transcript

American Vanguard Corporation (NYSE:AVD) Q1 2023 Earnings Call dated May. 09, 2023

Corporate Participants:

Bill Kuser — Director of Investor Relations

Jim Thompson — Director of Portfolio Strategy and Business Development

Eric Wintemute — Chairman and Chief Executive Officer

Scott Hendrick — Senior Vice President

David Johnson — Chief Financial Officer

Robert Trogele — Chief Operating Officer

Analysts:

Chris Kapsch — Loop Capital Markets — Analyst

Gerry Sweeney — ROTH Capital — Analyst

Wayne Pinsent — Gabelli — Analyst

Presentation:

Operator

Welcome to the American Vanguard Corporation First Quarter 2023 Financial Results. I will now turn the call over to Bill Kuser, Director of Investor Relations. You may begin.

Bill Kuser — Director of Investor Relations

Thank you, Misty, and welcome, everyone, to American Vanguard’s First Quarter 2023 Earnings Review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; Mr. David Johnson, the company’s Chief Financial Officer; Mr. Scott Hendrick, Senior Vice President in charge of the U.S. and Canadian crop sales and our application technology initiatives, Mr. Jim Thompson, Director of Portfolio Strategy and Business Development the one who is guiding our green solutions initiative. Also available to assist in answering your questions, Mr. Robert Trogele, the company’s Chief Operating Officer.

Before beginning, let’s take a moment for our usual cautionary reminder. In today’s call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company’s management and are subject to various risks and uncertainties that may cause actual results to differ from management’s current expectations, such factors can include weather conditions, changes in regulatory policy, competitive pressures, supply chain disruptions and other types of risks as detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call, and such information will not necessarily be updated by the company.

With that said, we turn the call over to Eric.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, Bill. For those of you who are joining us for the first time, just a quick slide, we’re traded on the New York Stock Exchange as American Vanguard found in ’69. We’ve got about 800 employees. We’re fully integrated ag company, we do basic R&D as well. And our business model has largely been to acquire branded products from the majors. We have two growth initiatives on top of that, that we’ll be talking about in a moment.

As you will have read from our earnings release, and we have highlighted on that on the slide five, our Q1 sales of AZTEC and impact were lower than expected due to the supply chain delays in China in the case of AZTEC and a glut of large volume herbicides, specifically glyphosate and glufosinate U.S. market in the case of Impact. However, with unusually low channel inventory of our domestic crop products, we expect strong sales for the balance of the year. In fact, even with the Q1 performance, while well below our original forecast, our 2023 full year outlook will improve upon our ’22 year with the ranges of revenue up 5% to 7%; adjusted EBITDA of 14% to 18% and net income of 17% to 25%.

So let’s start with Q1 and move forward to the full year and beyond. There are two main reasons for our Q1 shortfall, AZTEC our leading insecticide and impact our leading herbicide. And in both cases, the drivers were unique. Let’s begin with AZTEC. There are several raw materials needed to make AZTEC, but our issues were with to.

Let me walk you through slide six. First is an intermediate called DAPRO that has been historically made by a European supplier. Last year, our supplier advised us that they would not be able to produce again until 2024. Accordingly, we successfully developed a DAPRO source in China, which successfully commenced production last year. DAPRO is used to make another key intermediate required for Aztec production called Sodium HP. Historically, we’ve relied upon a domestic producer of Sodium HP. However, since June of ’22, that supplier informed us that they could not produce until the end of the 23 years.

Since this would not be in time to meet our Q4 Aztec demand, we engaged our new Chinese DAPRO toller to convert the DAPRO that they produce in the Sodium HP. Initial production was to begin in October ’22, but due to a series of issues, people, equipment, shutdown and COVID, their production did not commence until the last week of December ’22. Steady production, however, did not really begin until the middle of February of ’23, and daily out levels did not optimize until April.

Adding to the issue, our domestic producer of sodium HP was unable to produce until March of ’23. As a result, we were able to produce only one-third of the Aztec demand in time for the ’23 season. We attempted to substitute our other corn soy insecticide, but had limited success. That said, we have positioned both suppliers for full production and plenty of lead time in advance of the 2024 season.

For additional color on Aztec, with respect to Q1 and market conditions for the coming year, I turn to Scott Hendricks. Scott?

Scott Hendrick — Senior Vice President

Thank you, Eric. On slide seven, you will see that our 2023 demand forecast for Aztec was approximately 7 million. As we assessed and prepare for the 2023 Aztec supply challenge, it was critical that we understood our supply position at distribution and retail. Through our analysis of grower point-of-sale data and distributor reported inventory, we calculated that we had over 2.8 million pounds of Aztec in customer inventories. We use this data to develop extensive supply planning by customer for the 2.28 million we sold to ensure historical asset users as much as possible.

Also, we were able to secure additional Force 10G that equated to approximately 430,000 pounds of Aztec. Therefore, through a combination of channel inventory, in-season production and product substitution, we were able to provide 5.54 million of Aztec 4.67 equivalent for the 2023 growing season. This was a very fluid and dynamic scenario as we had daily and weekly supply updates that our commercial team overlaid with geographic market dynamics to confirm proper product placement in the market. As we have continued to monitor the season, we calculate that channel inventory has declined to less than 5% of the annual demand, as compared to our historical inventory levels of approximately 30%. As a result, we anticipate strong demand for our customers in Q4 of 2023 in preparation for the ’24 growing season.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, Scott. To cap off this subject, it is worth noting in the effect that Aztec sales have had on our overall profitability. As you can see from slide eight, we estimate that missing Aztec sales of about $30 million in revenue is roughly equivalent to reducing the earnings per share by $0.38. That would largely have been recognized over both Q4 and Q1. In the first quarter alone, has caused a drop in EPS of about $0.20 a share.

Now Scott, let’s circle back to you for a better understanding of the impact.

Scott Hendrick — Senior Vice President

As Eric pointed out, and as you will see on slide nine, the market dynamics for the 2023 season are much different than 2022. It is important that we understand our customers’ buying behavior. Working capital over the last several years has not been a challenge as the cost of money was inexpensive and channel inventory have been running historically low as the supply team have been under stress.

According to early estimates, the US crop protection market surpassed $15 billion in 2022, which is $3 billion more than 2021. Eric previously mentioned, increased supply of glyphosate and glufosinate in 2022. The channel ended the 2022 season with higher inventories across all crop protection segments. If you combined increased in the inventories with increased prices at higher interest rates, customers had significant capital outlay in inventory entering the 2023 year.

Furthermore, those large volume molecules, along with a range of fertility products began devaluing as supply increase and demand decreased by all channel levels. Distribution and retail customers are now focused on reducing inventories and driving cash flow, which has influenced our impact sales in Q1 of 2023.

Turning to slide 10. Our lead impact brand drove our upside in 2022 and are used primarily in mid to late season applications by itself or combined with nonselective herbicides that are in trait enabled to manage difficult to control weeds. We anticipate retail agronomists will continue to exhibit best practices for weed resistance but they will have a focus on exhausting existing inventories as dictated by their current financial needs.

Impact inventories are normal and this puts us in a positive position for the 2023 season and full year performance. We anticipate this is a short-term performance challenge with our lead impact brand and will not continue as customers work through their surplus inventories of nonselective herbicides.

Lastly, I want to highlight our continued formulation innovation with our impact and family. We now have four brands that have expanded our historical used pattern in corn and across strategic customer bases. Furthermore, our innovation pipeline continues to grow in rice and soybeans. In fact, we launched our latest herbicide solution, RIDA that contains our Pro lease technology. The power of Pro lease optimizes re-control and stability. And to date, we are almost sold out of that brand.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, Scott. As you can see from slide 11, during the first quarter of 2023, impact sales were about $10 million less than those in Q1 of 2022. This shortfall loan would have accounted for another $0.12 on and earnings per share. Thus, taken together, the Q1 EPS effect on Astec plus impact was $0.32 a share.

In short, had we not had these two unprecedented conditions our quarterly EPS would have been $0.39 per share, not the $0.07 that we have reported. At this point, let me ask David to make a few comments, and then I will return give an update on our growth initiatives and to further talk about the balance of the year. David?

David Johnson — Chief Financial Officer

Thank you, Eric. With regard to our public filing, we plan to file our Form 10-Q later today. On slide 13, you will note the first quarter of 2023 has seen a challenging operating performance for the company, with overall revenues down about $25 million or 17% and as compared to the same period of 2022 for the reasons that Eric has already outlined. The other main sales drivers for our business performed in a more usual manner with quarter-over-quarter increases of 4% and in our non-crop business and 2% for the international business.

Moving to slide 14. As we indicated at the time of the last call, this is the first quarter that we are presenting our results in a manner that we think more closely parallels our market peers. We have moved our outbound freight and logistics costs, which are substantially variable and tracked closely with sales performance to cost of sales rather than operating expenses. This change results in an equal reduction of both gross margin percentage and operating expenses as a percentage of net sales. It has no impact on operating income or net income.

For the first quarter of 2023 under our new accounting approach for Freight and Logistics on slide 15, you see that our gross margin percentage ended at 31% of net sales as compared to 34% in 2022. The lower overall gross margin performance is driven by the reduction of the reduced sales of US crop products which are some of our best gross margin performance and by reduced factory overhead recovery driven primarily by our inability to manufacture — in the volumes we planned as a result of material shortages. As Eric detailed in his opening remarks, missing sales of these U.S. crop products had a direct and significant impact on our gross margin performance.

Further to my remarks regarding the new presentation of our statement of operations. On slide 16, you can see our operating expenses are presented here without costs associated with outbound logistics. Typically, those costs amount to about 7% to 8% of sales. For the three months ended March 31, 2023, operating expenses reduced by 4% from the same period of 2022. This was driven by lower administrative costs associated with short-term incentive compensation as a result of the lower financial performance and the benefit of some positive exchange rate movements across our global business. As something of an offset, the Board agreed to pay crews of capitals, proxy contest fees resolving all outstanding matters.

In summary, on slide 17, our net sales declined by 17% and gross profit ended at 31% versus 34% in the prior year. Operating expenses were reduced by 4%, mainly driven by lower accruals for short-term incentive compensation. Our cash management performance was good and we ended with debt at about the same level as this time last year, notwithstanding spending $27.3 million to repurchase approximately 1.4 million shares of the company’s stock during the last 12 months.

Interest expense is up significantly, driven primarily by interest rates, which averaged 6.8% during the quarter as compared to 1.9% for the same period of the prior year, a more than 3.5-fold increase. We continue to follow a disciplined approach to planning our factory activity, including balancing overhead recovery with demand forecasts and inventory levels.

On the graph on slide 18, you can see that at the end of the first quarter of 2023, our inventory increased to $219 million as compared to $168 million at the same point in 2022. This increase was driven by a few factors, including increased inventories of raw materials necessary to manufacture our debt. Comparatively higher inventories of impact and generally across our business, an expectation that we are looking at strong sales growth in the second half of 2023. And based on that forecast, we need to have higher inventories to meet related customer demand.

The graph on Slide 19 shows the debt ended at $97 million at the end of the first quarter of 2023 as compared to $98 million at the same point in 2022. Essentially, debt remained flat despite the fact that we’ve spent $27.3 million repurchasing the company’s stock over the last 12 months.

Moving to Slide 20. During the first quarter of 2023, we have made some additional share repurchases and as a result of shares outstanding have produced slightly. Per share price remained relatively flat during the period. Debt increased, which is normal for the start of the company’s annual cycle and cash remain about flat of December. Enterprise value increased by 7.6% during the period. Finally, leverage remains low but increased from 0.72 times bank adjusted EBITDA at December 31, 2022, to 1.63 times at March 31, 2023, reflecting the company’s annual cycle.

With that, I will hand back to Eric.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, David. Having heard Scott’s color on the major elements of our core business. Let me turn next to two other important business drivers: SIMPAS and GreenSolutions. This review will give us a foundation for our full year ’23 and ’25 performance targets. For an update on SIMPAS, I turn it back to Scott.

Scott Hendrick — Senior Vice President

Thanks, Eric. Our focus for 2023 has and is to continue to innovate within our SIMPAS technology platform by introducing several hardware and software upgrades to deliver the targeted SIMPAS experience. We launched our Phase 3 SIMPAS technology, which includes units that will be equipped with liquid sensors. This technology will enable the grower to monitor and measure how much liquid material is prescriptively implied by the equipment.

Further, we have enhanced our tracing capability by installing a dedicated modem that communicates all SIMPAS data points to our ULTIMUS platform. Taken together, these advancements will enable users to measure, record and verify what they are applying where and when, whether it’s granule or liquid.

We have sold 50 new SIMPAS systems domestically. We’re estimating that this will treat approximately 100,000 acres based on the prescriptions that have been defined. Our domestic total SIMPAS revenue outlook is unchanged at $12 million to date.

Slide 22 identifies the key financial drivers for SIMPAS commercialization. Our treated acre growth with our SIMPAS solo technology has grown almost 3x since 2021, while average revenue per use grew 56%. We now have 161 SIMPAS technology systems being used domestically that treat approximately 350,000 acres annually.

To that end, we are currently adding a dedicated sales and marketing team to identify the biggest players in precision Ag to forge alliances with those companies and to call upon distribution, retail and growers to embrace this technology. At the same time, we’re meeting with regulatory authorities to keep them apprised of the capabilities of this technology that we believe answers USDA’s call for digital agriculture. After having spent about $27 million over the past five years developing this technology, we are now focusing on attaining broader markets as well. In fact, we plan to sell 15 to 20 units in Brazil, which is the largest ag producer in the world.

With that, I’ll turn it back to Eric.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, Scott. And I’d say that 15 to 20 systems, is for the September ’23 season. So it’s still to come, yet. Next, let’s turn to our Green Solutions. To cover that business, we’ll have Jim Thompson, so Jim.

Jim Thompson — Director of Portfolio Strategy and Business Development

Thank you, Eric. As we move to slide 23, we wanted to highlight the key financial performance indicators and commercial achievements for Q1 of 2023. In terms of our financial performance for Q1, we generated Green Solutions revenues of $13.7 million, which was an increase of 39% as compared to Q1 2022, and in line with our growth estimates of 40%.

With a strong start to the year, we can reaffirm our Green Solutions guidance of $70 million for fiscal year 2023 with Q2 and Q3 generally being the highest selling quarters for biologicals throughout the year. The performance in Q1 was led by strong organic growth by our Latin American team and strong sales of our Beshar product in the U.S. market. On the commercial front, we successfully launched our BioWake brands for corn and soybean and the U.S. seed lubricant market. We view this market as an incremental value-add platform for AMVAC and its channel partners. And we will expand the BioWake product line into new crops in the future.

Our AmGuard team also executed a new supply agreement with NewLeaf symbiotics in the first quarter, where both parties will collaborate to launch new products in AMVAC’s non-crop segment. This further strengthens the relationship between NewLeaf and Ambac in the United States. Our AmGuard team also recognized first sales of the American Biosystems products in the first quarter, which stemmed from the acquisition made at the end of 2022.

We continue to grow our Green Solutions segment in our international markets. We received regulatory approval for the Greenhouse products via our Latin American team in Costa Rica which opens the door for increased sales of our proprietary family of products acquired from Greenhouse in 2020.

Lastly, the business development and M&A landscape continues at a feverish pace. The recent changes in capital markets have caused more companies to seek partnerships with larger companies, accelerated financing events or potential M&A transactions, all of which increased the potential for incremental growth in the Green Solutions business. AMVAC is working diligently to evaluate all new growth opportunities with an intense focus on bolstering our Green Solutions portfolio.

On slide 24, we wanted to tell a little bit more about our BioWake market opportunity. BioWake launched in Q1, and we view the market opportunity as very large, in excess of $150 million treatable acres for corn and soybean in the U.S. alone. We showed strong sales in Q1 and a good pace of sales in Q2. We’re happy with the progress on the line, given the accelerated launch window and the fact that BioWake is our first product in the seed lubricant space.

We developed a BioWake product pipeline that focuses on crop expansion into peanuts, cotton, wheat and other broad acre crops while also expanding the product line to include additional biological products, such as biobrosides, bio-insecticides and micronutrients. BioWake is showing yield increases of 4.4 bushels per acre for soybean and 5.3 bushels per acre on corn, providing a very attractive return on investment for our growers.

As we move to slide 25, we wanted to show a short video clip that demonstrates the ease of use of the BioWake products for our farmers. We felt that it would be very valuable for you to see our new product system at work. The video will follow shortly.

And lastly, slide 26 shows the continued strong guidance that we are targeting in our green solutions business. The bulk of the growth in 2023 will come from the organic growth of our existing portfolio, as we continue to integrate and market key products from our acquisitions. In addition, we’re adding new products such as BioWake and the American Bio Products. AMBAC’s International business continues to be a strong driver for growth in all of our geographic areas in 2023.

In 2024 and 2025, we expect to generate incremental revenue by new partnerships, geographic market expansion and M&A transactions.

Eric Wintemute — Chairman and Chief Executive Officer

Thank you, Jim. At this point, we can turn to our 2025 performance targets. As you can see on slide 27, with our revised Q1 performance, our upward trajectory has been moderated in the middle of the graph. However, the upward curve otherwise is otherwise unchanged for the year is 2024 and 2025. In other words, we remain on track to meet our midterm targets.

Our final important topic is the full year 2023 outlook. Even after factoring in lower-than-expected Q1, as you can see from slide 27, we are still expecting that our 2023 performance will exceed that of 2022 and are targeting the following. Net sales between $640 million to $652 million, which would be 5% to 7% above 22%.

Gross profit margins in that 33% to 35% range, which is similar to 2022. Operating expenses as a percent of sale of 25% to 27%, which is in line with last year. Adjusted EBITDA between $84 million and $86 million, representing an improvement of 14% to 18%. Net income of between $32 million and $34 million, which would be 17% to 25% improvement over 2022.

In closing, following a first quarter setback, I see strong performance for the balance of 2023. Given the conditions of our core business, the trend line for green solutions portfolio and our focused approach on gaining further adoption of SIMPAS, we are positioned to drive growth and profitability in both the short and midterm.

With that, I’ll turn it over to the operator to take any questions you may have. Misty?

Questions and Answers:

Operator

It looks like we have a question from Chris Kapsch from Loop Capital Markets. Your line is open.

Chris Kapsch — Loop Capital Markets — Analyst

Yes, ho. I have a couple of questions. But on the mix sales and let’s focus on maybe on let’s see, the Aztec insecticides. I’m just curious if — so the $0.20 in the quarter, was that fully attributable to revenues that you think you would have had orders for and delivered? Or is there also an impact from not having the inputs and therefore, getting adverse factory absorption variances and therefore, affecting the gross margins for the rest of the business? Or is that $0.20 is exclusively attributable to the mix sales?

Eric Wintemute — Chairman and Chief Executive Officer

That $0.20 is to the sales. There’s a factory performance. And then we’re running the factory at about 33% of capacity during that first quarter. And in fact, actually over the quarter, probably even less than that. But once we’re beginning manufacturing, we can’t shut down and do something else because we’ve got a three-week or four-week turnaround. So, we basically had a plant that was running well below capacity. And that’s the particular unit at axis. We have other units there, but that’s our main unit.

Chris Kapsch — Loop Capital Markets — Analyst

Okay. And then just so I understand that, obviously, you were not able to deliver to the channel. But as of the end of the quarter, I think corn plantings were only 2%, end of April, just 26%, maybe yesterday from the USDA, it’s up to half the acreage. But is — so the question is, are you — were you able to recoup any of this lost sales in the first quarter in the second quarter as corn plantings are progressing?

Eric Wintemute — Chairman and Chief Executive Officer

Yes. We did sell more in the second quarter than we did in the first quarter. And — but I think, Scott, we probably were done about April somewhere between April 15 and April 20. We did continue to produce, and we do have additional tech, and we’ve got some formulation. But basically, the channel really kind of shut down on us in that — by that third — end of the third week of April. Scott?

Scott Hendrick — Senior Vice President

Yes, I would confirm that, Eric, there’s an optimum planting window for most of the producers and as we were getting close to — middle to the end of April, understanding there is time, logistics to get product to the market, customers at that point, made a decision that it was going to be too late for the market.

Chris Kapsch — Loop Capital Markets — Analyst

Got you. And then on the — sorry, on the impact, so thought of this is not sort of post-emergent broad spectrum herbicides, but more one that complements some of those workhorse herbicides like obviously Glyphosate and Glufosinate, so I don’t — it’s a little counterintuitive that just the surplus availability of those. I get that there’s a downward pricing pressure on those molecules, given the normalization of the supply chain. But the extent that those are more available to the extent that your product was to complement those especially in areas where resistance was an issue, I would have thought that demand would be okay for those. So can you just reconcile that difference?

Eric Wintemute — Chairman and Chief Executive Officer

I’ll take the first swing at that, but I don’t know if Scott or Bob. But so what we saw and Scott alluded to was that both — I mean, distributors and dealers are sitting on good quantities of both Glyphosate and Glufosinate carried over. And each of them, they charge their units for cash management. And so from a buying standpoint, totally unlike what we saw in for the ’22 season, where people were just buying everything they could get their hands on. At this point, they’re saying, okay, we’re going to move through our inventory, some of which is upside down in terms of cost versus where the market is. And then we’ll — and then once we’ve accomplished that, then we’ll look to later, so Scott, maybe any color you might want to add on that.

Scott Hendrick — Senior Vice President

Yes, Eric, I’ll try to build upon it. ’22 performance was outstanding. We were able to position impact in substitute for a lot of the large nonselective molecules that were trade enabled Glyphosate and Glufosinate being primarily in two of them. Most of the supply that we’ve referenced in our commentary came in the second half — middle to the second half of last year, which was too late for the season, so a lot of the upside that we took advantage of in ’22 by increase in rates as the market prepared or was preparing for 2023. We still the best practices from a weed resistance management is going to take place. Impact is very complementary to both of those molecules. We just want to have the same opportunity because of the surplus that’s in the market today of both Glyphosate and Glufosinate that we had in ’22.

Eric Wintemute — Chairman and Chief Executive Officer

But as a brand, too, we’ve got the three other combination of products that we see the brand building and in addition to our overall herbicide portfolio with what we’ve got now in soybeans and. So we were really herbicides was a weak spot for us back three, four years ago other than impact. And since then, we’ve built out a nice portfolio.

Scott Hendrick — Senior Vice President

Well, let me just — last one on this subject and then I can jump back in the queue. But so given this normalization of the sort of these major herbicides, roundup in particular, is the pricing is way down for those products. Is that — to the extent that there is upward pressure on pricing as the supply chain was challenged and that provided an umbrella for other suppliers of herbicide to lift their prices with the normalization? Is that creating pressure on your sales of impact for your pricing for impact or other herbicides?

Eric Wintemute — Chairman and Chief Executive Officer

Go ahead.

Scott Hendrick — Senior Vice President

Yes, really good question. What I’d share with you, the complementary nature of impact and really the proprietary nature of what it delivers to help control some of the most difficult weeds in the marketplace today. So that’s palmer amaranth, waterhemp ragweed, those molecules are either resistant, meaning glyphosate glufosinate or resistant or the performance is very low. So the impact is complementary and helping manage and to control those difficult weeds. So the value proposition is completely different than right to say to gluconate. So we feel good about our current pricing position despite what’s happening with pricing dynamics on the other molecules

Chris Kapsch — Loop Capital Markets — Analyst

Thank you.

Operator

Our next question is going to come from Gerry Sweeney from ROTH Capital. Your line is open.

Gerry Sweeney — ROTH Capital — Analyst

Good afternoon and thanks for taking my questions. So I wanted to start with Astec, right, and actually take a step back. This sounds like with Astec, it was a long lead time sort of supply chain issue. It started it sounded though last year developed through December into this year. And then really the gist of the question is, does this change how you view your supply chain or how you can manage it or track it, so we don’t necessarily have issues like this in the future.

Eric Wintemute — Chairman and Chief Executive Officer

Yes. So again, when COVID hit, we shifted dramatically our focus on supply chain. And we looked at those areas where we were so sourced — we had a huge challenge in phosphorus. When Pakistan shut down, people clear force majeure, China was no longer going to export phosphorus and that put a monumental strain on us. But we were able to steer our way through that and really not miss sales in any material way. This one did kind of hit us. We — This product dapro, when we got hit with that, we said, okay, we set somebody up to manufacture — they did a good job at manufacturing, but we did have just one source of our sodium HP, and it was domestic, they had issues and were — and pushed back what we thought was going to be a June 22 campaign and it went to — as it started moving towards September. We engaged our Chinese supplier of dapro to convert the dapro into the sodium HP. And with that, we felt also that our domestic supplier was going to come on stream.

So even though we knew we were going to be — at some point, we figured we’d have some challenges making all the demand we needed for fourth quarter we were pretty sure we would have product available through first quarter to meet the demand, which was, again, seven million pounds is very, very strong.

As we kind of got through, they had startup problems at the Chinese producer in manufacturing this new product that had never made before. And it just got coupled with China with the COVID shutdowns. They had the New Year’s, they had part shutdown for the whole industrial part. There were a whole series of things that just kept going forward. And they initially had expected to be able to produce around 3,500 kilos a day, but for quite a while, it was down to 1,000 kilos per day. We were air freighting every three days, everything that we could get, our US producer who was going to be forth in December, then got pushed into March. And so each week, we just kept seeing it getting tougher and tougher.

So that being said, we did construct with the two manufacturers to make sure we have plenty of material going into fourth quarter when we’ll do our next campaign with Aztec. Overall, I would say, we have before, I think previously, as we got into the latter part of ’21 going into ’22, we talked about positioning in advance of needs to make sure that we didn’t get squeezed.

So we — if you look at our inventory, you see it’s gone up considerably over where it was first quarter last year, a number of those things are raw materials to use another whether it’s packaging, labels, intermediates. We did manufacture all of the campaign for the other half of the Aztec molecule, we made at the access facility. So I guess as far as changing, I think for the foreseeable future until we see something different, we will be bringing materials in advance to make sure that this doesn’t happen again.

Gerry Sweeney — ROTH Capital — Analyst

And then even taking a step further, I mean, not necessarily, I mean, maybe are there any other intermediary products that are sole source that are key ingredients or key intermediate ingredients that are larger revenue products, right? So outside of Aztec, maybe you give up a couple of points of margin, but you have — and go out to a couple of different producers or set up a couple of different producers. Have you reviewed the supply chain to understand what’s going on from that perspective?

Eric Wintemute — Chairman and Chief Executive Officer

Yeah, we have. And we’ve gone through our supply chain, Suneet has basically chartered out every product that we’re sole sourced on and the path on, and we’ve been doing that for the last 2.5 years, the path to dual source. And we’re pretty well complete on that. We have one herbicide that we have a second source that we’re able to use for outside the US, but we’re in the process of getting EPA to improve that source for US as well.

We’ve had our Bromacil herbicide was sole-sourced after we lost our supplier in China that got shutdown, but we have also back that up with the source out of Malaysia. So we’re pretty well-focused on that that we would not be sole-sourced on product again. And that being said, to your point, do we if to keep two suppliers alive, we have a blended cost that is potentially higher than one producer. Yeah, we’re going to do that. And so far, we’ve been able to factor those increases into our pricing program.

Gerry Sweeney — ROTH Capital — Analyst

Got it. That’s helpful. I appreciate that. What — do you have a sort of projection of maybe EBITDA to free cash flow conversion? Or what would potential free cash flow would be this year? And then the follow-up with that would be any changes sort of to your investment schedule with a reduced cash flow from this year extensively from the Q1?

David Johnson — Chief Financial Officer

We have given the forecasted range for EBITDA from a cash flow perspective, we are a little bit behind in the first quarter, but anticipate our annual cycle is to our working capital in the first three quarters or quarters and then start to come down at the end. And I don’t see any difference in our profile for 2023 at this time.

Gerry Sweeney — ROTH Capital — Analyst

Okay. Got it. Sorry, go ahead.

David Johnson — Chief Financial Officer

I don’t think there’s any change in our strategy with regard to investments. I mean we’re looking at all sorts of different things all the time. And yes, we’re not planning to change that.

Gerry Sweeney — ROTH Capital — Analyst

Got it. Perfect. That’s it for me. I appreciate it.

Operator

Our next question is going to come from Wayne Pinsent with Gabelli. Your line is open.

Wayne Pinsent — Gabelli — Analyst

Yeah. Thanks for taking my question. Most of my questions have been answered. But just to expand a little on the Aztec supply issue when you guys got back online with that, I thought that was pretty well resolved when you guys reported the Q4 in March, but then you mentioned the selling season going through late April. I know prior, you guys had mentioned that you were anticipating getting a lot of those missed sales from Q4 into the first half. Just if you walk through the cadence there just — is it just that those few weeks, it was just — it came on a little too late to be able to make those sales. And then you mentioned some going into Q2, like what percentage of that $0.20 miss in Q1, do you think shifted into Q2 and we might see recovered?

David Johnson — Chief Financial Officer

So as far as the shift, we did have higher sales in Q2 than Q1. And year-over-year, I think we were a little higher in Q2 than Q2 of ’22. But on the $0.20, if you take — I’m talking about what we actually did sell and at what Scott’s numbers reflected on the 2.3 million pounds out of the $7 million, that includes second quarter sales, which were about 1.3 and I think we had about $1 million in Q1 of Aztec equivalent. So that miss of $0.38 was I would say, the difference between the $2.3 million and the $7 million. So I don’t know if that was — did you have a second part of the question, I’m not sure if I answered it.

Wayne Pinsent — Gabelli — Analyst

Yeah. Just because that’s from the Q4 into Q1, like you said that sales have picked up into Q2. You may have sold a little more, but the selling season sort of ended there. Can you just quantify how much — was there any shift there from what you missed in Q1 into Q2?

David Johnson — Chief Financial Officer

Well, as I said, we were just — we were a little ahead of sales in Q2 of 23% versus Q2 of 2022. So, I would say those are kind of kind of more natural. But the bottom line is that of the 7 million pounds, which was a bigger demand than what we had for the ’23 season, of that — of actual sales of Aztec, we did about 2.3 million pounds. And this is equivalent to the 4.67% materially granular. So I mean, the $0.38 I’m reporting is the difference between the 7 million pounds and the 2.3. So there’ll be a marginal pickup in Q2 of what we missed, but the total combined leaves us 4.7 million pounds short on Aztec. But as Scott alluded, we did pick up additional sales of a substitute product, which was equivalent to another 400,000 pounds.

Wayne Pinsent — Gabelli — Analyst

Okay. And then, I know it’s different dynamics with the impact, but just the missed sales there, the ability to make those up? Or is it just that that inventories are looking good going forward, and we should just see more normalized demand.

Eric Wintemute — Chairman and Chief Executive Officer

It’s go to Scott.

Scott Hendrick — Senior Vice President

Yes. I think we’ll see more normalized demand. We’ve had growth in our Impact brand family for the last three years. ’22 was significant for the dynamics that we described earlier. We anticipate to continue to grow our portfolio through the four brands that I referenced in my comments, and then we’re continuing to innovate in this space. So you’ll see at least one, maybe two brands to come in that — within our pipeline.

Wayne Pinsent — Gabelli — Analyst

Okay. Fine. Thank you.

Operator

And it looks like we have a follow-up question from Chris Kapsch. Your line is open.

Chris Kapsch — Loop Capital Markets — Analyst

Yes. I have follow-up on — focused on Green Solutions and maybe just focused on biologics first. So when you sort of established a beachhead in that niche, if you will, sort of via M&A and it was a time when the rest of the industry, at least the big guys were sort of going through a wave of consolidation, so weren’t maybe as focused on. But now, fast forward to today, it’s viewed as a one of the — let me quote, Teva’s highlight is probably the single largest growth area within crop protection.

It seems like the big guys are more focused on this. They’re more development efforts, maybe committing more resources to developing the market, obviously, the sustainability characteristics more interesting. So just curious about how you’ve seen this effect your positioning there? Has it become more competitive? Or conversely, given the awareness that these big guys might be bringing to the marketplace and question is that beneficial to where you are with your product. Just wondering how do you see that playing out as we focus on delivering your growth goals in that sector?

Robert Trogele — Chief Operating Officer

Chris, Bob here. That question is a good question. It’s a space which is growing very fast, very profitable, better margins than the, I would say, mature crop protection chemical business. We feel that we’re outpacing the market today with a 40% growth rate versus the growth rate of, let’s say, 15% in most of the segments. We feel that — we have established good solid foundation in manufacturing with the two plants we acquired through the Agrinos acquisition. We have good research capabilities, both in RTP and also in India. So we’re — we’ve got an excellent pipeline — we’ve got great market access throughout the market access structure in the Americas, China and India. And we have dedicated people in selling that. I think so from a business model, we’re about as advanced as anybody in the business.

And therefore, as you were shown today that BioWake, for example, is an opportunity for us where companies are coming to us because they see that know-how. They see that structure. NewLeaf, which we also announced is another company, which is coming to us with their technology. So we have not only in-house technology, but we’re also getting licensing opportunities. So we’re actually — we feel we’re very well positioned to be competitive in that space. That space is only going to grow and we’re going to grow with it. So I don’t know if you have a follow-up question to that, Chris.

Wayne Pinsent — Gabelli — Analyst

I appreciate that color, Bob. And maybe the follow-up would also be maybe for you because I know SIMPAS is near and dear to you and when you joined the company, it was something that you were pretty enthusiastic about the progress that we — and the opportunity there. The question focused on SIMPAS is I think it was you that mentioned that the infrastructure around delivering that was also going to provide a data platform for — with which growers could measure and capture there or measure and keep track of, I guess, their carbon avoidance, if you will.

And given the momentum behind sort of decarbonizing our economy, it seems like Ag is certainly in focus in that regard. And this is a platform which may enable that. So I’m just wondering if if there’s still a play for SIMPAS in that regard? Or is it really just more focused right now on delivering the inputs in a more precision planting manner? Thanks.

Robert Trogele — Chief Operating Officer

Well, SIMPAS, as you say, is a perfect delivery mechanism for any bio rational products or nutritional products at plant. So we’re developing that range. You’ve seen the announcements that we — the partnership we have with Verdesian on the nutritional side. We’re delivering those products. The partnerships we have with other companies that are coming to us. We have actually more opportunities than we can process right now. The holdup is really the — getting those products registered through the EPA. You’re going to see a lot more announcements coming in the future. But we also, through the Agrinos range, I just want to just remind everyone that we bought four products and three of those were for soil health, with one of them that we’re seeing now that we’re getting good results in our trial work for nitrogen fixation, which goes right into the carbon market, and that’s a tremendous opportunity for us going forward as the soil health market develops.

Eric Wintemute — Chairman and Chief Executive Officer

And I think it’s, again, part of the system that we wound up developing because of wanting to be able to trace and measure what goes into the soil is the ultimate system, right, which is — which is where we’re talking about being a measure of validating record. And so that — as we’re implementing that through the SIMPAS system, that winds up giving the grower the ability to have a third-party validation of his practices. So what we’re really looking to do is capture his practices as far as nitrogen reduction, let’s say, and our — the biologicals that Bob mentioned, as far as that we’re going to help with nutrient uptake. So that’s the platform that we’ll be using that we talked about before.

Wayne Pinsent — Gabelli — Analyst

I appreciate the color. Thanks.

Operator

Okay. Doesn’t look like there are any more questions. I’ll turn it back over to our speakers for any closing remarks.

Eric Wintemute — Chairman and Chief Executive Officer

Okay. Well, I appreciate everybody that participated on the phone today and listened in. Obviously, we were disappointed with the first quarter, but we do see that we will have a strong recovery over the balance of the three quarters and ultimately report very positive results for the year. And more importantly, that we continue to be on track with our — our next two-year goals and targets. And also, we’re making good progress on all three of our growth platforms. So with that, thank you, and we will have another discussion with the shareholders meeting on June seven, I believe. All right. Thank you, everybody.

Operator

[Operator Closing Remarks]