Q3 2020 American Vanguard Corp Earnings Call
Thank you for your patience your conference will begin shortly once again. Thank you for your patience and please continue to standby.
[music].
Greetings and welcome to the American Vanguard third quarter 2020 conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we'll conduct a question and answer session and at that time. If you have a question you can press. The one followed by the four on your telephone if at any time during the conference you need to reach an operator, you can press star zero and.
And as a reminder, this conference is being recorded Monday November nine 2020, and I'd now like to turn it over to Mr. Bill Kuser director of Investor Relations. Please go ahead Sir.
Thank you very much capex and welcome everyone to our third quarter and nine month earnings call.
A few orders of business before we proceed we are providing.
Providing to the FCC, our 10-Q report today, there's been some delays on the part of the FCC, but we will get that done today.
Also in our press release, you took note of the fact that we are providing some slides to accompany our conversation today, they deal with the quarter and they deal with our strategic growth initiatives.
So if you're online you will see them scrolling across your screen. If you are on audio telephone only you can see such slides by going to our website. There is an icon on the very front page that allows you to see those slides.
Our usual cautionary reminder.
Which we will do before be getting in today's call. The company may discuss forward looking information such.
Such information and statements are based on estimates and assumptions by the Companys management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations such.
Such factors include weather conditions changes in regulatory parana policies competitive pressures and other risks that are identified in the company's FCC reports and filings all forward looking statements represent the company's best judgment as of the date of this call such information will not necessarily.
Really the updated by the company in today's call. We will first be starting with our Chief Financial Officer, David Johnson, who will review the quarter and the nine months, followed by Mr., Eric Wintemute, The chairman and CEO of the company, who will talk about our strategic growth initiatives. We also had mr. Bob Trogele PRASM.
To answer any questions you may have so with that I will turn the call over to David Johnson.
Thank you Bill.
For a change of pace. During this call I will lead off with my remarks on our financial performance during the reporting periods and my analysis on issues of greatest interest to our investors financially speaking.
I will then turn the call over to Eric who will give you his thoughts on all three to five year targets for growth.
Going forward, we intend to keep you apprised on how we're doing against these targets just as I do with respect to matters that are that are key to investors.
Just standing up business performance.
And such as inventory and borrowing capacity.
With regard to our public filings as Bill mentioned, our 10-Q document for the three and nine months ended September Thirtyth 2020 is presently in Q to be filed today I do understand that the agency that assesses without filing as a large number of Oh.
The documents are in the queue at this time.
Everything I'm covering here is included in more detail in that document.
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, our customers and our suppliers have all operated more or less without disruption during the pandemic.
This has continued through the third quarter.
Having said that the pandemic has impact to that in a few ways, including our ability to present, new sales and marketing ideas such as new products.
Face to face with customers in the field.
We have also seen customer buying patterns that appear to have been moderated in the face of pandemic related uncertainties.
On the other hand, the same restrictions of course this the spend less on operating expenses.
These marketplace changes have been challenging to manage however, we have succeeded in maintaining a profitable performance throughout this difficult period.
With regard to our financial performance for the three months ended September 32020, the company's net sales decreased by 6% to $117 million as compared to sales of $125 million. This time last year.
Within that overall decline.
Our U.S. sales were down about $7.5 million and our international sales were flat.
International sales accounted for 43% of net the total net sales as compared to 41% of net sales. This time last year.
The main factors driving our third quarter sales performance are as follows.
In our used truck market sales were affected by reduced cotton acres, which according to U.S.D.A. statistics are down about 11% or 1.5 million acres in 2020.
Acres were impacted by the by caught in commodity prices that are down driving gross to plan so to us it crops.
Our market performance has also been impacted by extreme drought conditions in west, Texas and frequent hurricanes in the southeast USA, both affecting grow our ability to apply our products.
On the plus note, we saw stronger than expected demand for our fumigant products, which are sold into the potato market.
The better than expected performance is attributed to cautious reopening on schools and restaurants across the United States.
In our domestic non crop market that was small quarter over quarter changes with some decline on a pest strip products, which are used in bars and restaurants that were impacted by pandemic restrictions.
With regard to international sales, which were overall flat there were really three factors.
First we had a very strong performance in Mexico Central America and Australia.
By contrast, our Brazilian sales were down in real terms as a result of reduced insect pressure and challenges getting in front of customers because of pandemic restrictions.
In addition sales translated from local currency to U.S. dollars. We're further negatively impacted by a decline in local currency exchange rates quarter over quarter.
Finally, whereas we saw Mocap and Nemacur sales lower in Europe, both products recorded significant sales increases in other parts of the world.
As you can see from the table the U.S. truck market was where we recorded reduced sales.
This is pretty much in line with other market participants as reported Q3 results.
Our international business increased as a percentage of consolidated net sales and our comparatively low exposure to foreign currency rate movements was a strength for the quarter.
With regard to the nine month performance the various market dynamics described for the quarter up broadly the same.
Our U.S. truck business was impacted by reduced cotton acres and by grow as making cautious decisions with regard to input as the pandemic gradually revealed its impacts.
As an offset we have done a bit better than expected. Good fumigants schools in restaurants reopened and in addition, we've had the benefit of sales of products acquired in the fall of 2019.
Our non crop business in mosquito control has been a little lower than we hoped given the storm intensity impacting on may markets.
Mainly due to vector control districts using existing inventory.
Finally, our international sales have performed well given the challenges with currency devaluation and some of our key markets.
Moving now to cover our gross profit performance for both the quarter and the year to date the trends are fairly similar.
In a U.S. truck business the drop in gross profit was driven by a lower sales of cotton products and partially offset by strong fumigant sales.
In non crop the impact of reduced sales of die Broom Petritsch were negative for the quarter and were somewhat offset by strong sales in our multi cultural business, which has slightly lower margins.
During the quarter. We also recorded higher royalty income on the inbound technology business.
For the international business the decline in foreign exchange rates was offset entirely in the three month period and to a lesser degree in the nine month period by strong performances in Central America, Australia and Mexico.
As a result of these various dynamics gross margin performance in the quarter reduced from 38% to 37% and for the nine month period from 39% to 38%.
For the quarter, our manufacturing performance was strong with factory operating costs, well controlled and activity improved as compared to 2019.
Generally speaking over the long term, our net factory cost amount to about 2.5% of net sales, reflecting some latent capacity in our plants.
Should the need arise.
This kind of available capacity as necessary to help manage output.
Our production planning effectively.
In the third quarter, our factories cost approximately 2.4% of sales as compared to 2%. This time last year.
The third quarter is typically a strong manufacturing period for the company.
For the first nine months, the net factory costs amounted to 1.6%.
As compared to 2.4% of net sales for the same period of 2019.
For the three months ended September 32020, our operating expenses decreased as compared to the same period of the prior year.
The underlying performance is greater than the parent from the published statement because in 2019, we benefited from an adjustment to earn out liabilities on past acquisition.
That benefit did not recur this year.
On the other hand, we did record a benefit of approximately $1 million during the third quarter, because we completed an update to our environmental risk assessment related to the Brazilian business, we acquired at the start of 2019.
Which led to a decrease in our liability in this regard.
As we have reported for prior periods. This year operating expenses were reduced because travel and entertainment costs were lower as a result of pandemic restrictions in all jurisdictions in which we operate.
Our costs were also reduced because of the translation effects caused by devaluation of currencies that are important to the company, including the Mexican Brazilian and Australian currencies.
With regard to the nine month period ended September 32020, and compares the same period of 2019, our overall expenses have reduced the reported reduction actually understates the real improvement because in 2019, we benefited from adjustments to earn out liabilities related to pass that.
Positions in the amount of $3.5 million that did not recur this year.
As a result, our underlying costs are down approximately $5.5 million or 5% for the nine months.
The drivers of the reduced costs are similar to the quarter, we spent less on travel and entertainment because of pandemic restrictions, both short and long term incentive compensation is tied to financial performance and has reduced in 2020 compared to 2019.
Finally operating expenses incurred in currencies other than the U.S. dollar are reduced as a result of the devaluation of those currencies I've already mentioned.
I've mentioned adverse exchange rate movements in three key currencies for the cut from the company's perspective, I want to put some color on that comment if we use the 2019 exchange rates for both the three and nine nine month periods of 2020, our reported net sales would have increased for the three months by three.
Million dollars.
And for the nine months by $7 million.
When looking at gross margin, we would have recorded additional gross margin of $700000 in the three month period, a $1.7 million year to date.
Notwithstanding these impacts we have effect been effective at putting in place. Some natural hedges that is that the majority of our operating expenses for the businesses in territory are also in local currency.
That mitigates the impact on sales and gross margin, leaving relatively immaterial differences at the bottom line, resulting from translation exposure.
The company experienced some significant transactional related exposures during the first quarter of the year. This has reduced to act as exchange rates have settled at new levels during the second and third quarters.
During the third quarter, we recorded lower interest expense than this time last year.
Our average debt was lower than the prior year and we got a benefit from reduced borrowing rates in the U.S.
In the nine month period, our average debt was a little higher than the prior year, but we gain the benefit for the lower federal base rate, resulting in significantly lower interest expense.
Finally, our effective tax rate continues to decline in comparison to the prior year as we are having a stronger international performance in jurisdictions with lower rates this year as compared to last year.
In the three month period, we earned 10 cents per share as compared to 11 cents per share in the same period of the prior year.
The nine month period, we earned 25 cents per diluted share as compared to 34 cents per share last year.
From my perspective, the operating and financial focus of the company remains as follows we continue to follow a disciplined approach in planning our factory activities balancing overhead recovery with demand forecasts and the inventory levels.
At the end of September 2020, our inventories were at $176 million as compared to $186 million. This time last year.
During the intervening periods, we have made acquisitions and the added inventory as a result.
The underlying period over period improvement in our base inventory before the impact of recent acquisitions amounted to approximately $14 million or 7.5%.
We are highly focused on our balance sheet as we navigate through this pandemic period than having lower inventories at this point of the year is pleasing to be to report.
As we look at the final quarter of the year and our target. The December 31st 2020 inventory Erik will comment in a moment about acquisitions that we closed in the first and second week of the final quarter of this year as a consequence, our inventory forecast will now be amended to incorporate these new businesses.
In previous conference calls, we expected to end in the region of $145 million.
Given our latest operations planning is the assessment, we are expecting that our underlying inventory will increase a little from our prior forecast. In addition, the new acquisitions that Derek will mention in a moment are expected to add approximately $15 million at December 31st 2020.
Accordingly, our latest forecast is to end the year at approximately $160 million to $165 million effectively flat with 2019, but including the addition of inventory from recent acquisitions.
Our business has a distinct annual cycle and we continue.
To experience expansion with them, we routinely experience expansion in working capital in the first part of the year and the reversal in the second part.
Drilling 2020, we like most businesses have been highly focused on working capital and its impact on debt levels.
During the period of the year when we typically expand working capital we have contain the increase to only $5 million as compared to adding $49 million in the same period of 2019.
This careful management of working capital is driving the improved cash generated from our operating activities.
In the first nine months of 2020, we have generated $19 million from operations.
As compared to using $21 million in the first nine months of 2019 compare.
Comparatively that amounts to a positive change of $40 million period over period.
At September 32020, net indebtedness ended at $149 million.
As compared to $165 million this time last year.
During the last year in addition to paying down $16 million in debt, we have funded more than $27 million in investments, including fixed assets product acquisitions and technology investments from the cash generated from operations.
These investments are focused on developing our consolidated business for the future.
With regard to liquidity at the end of the third quarter availability under our credit line was $45 million, which compares to $30 million at the same point in 2019.
In summary for the third quarter and for the nine month period, though our sales were down selling price selling prices and gross margins in each territory remain good we are seeing a stronger international performance than this year and the mix of U.S. sales generally higher gross margin and international sales generally.
The lower gross margin is tending to bring the average down slightly.
Our factory performance improved compared to 2019, and our expenses for operating costs interest and tax are all lower in 2020 than in the comparable periods of the prior year.
From a balance sheet and cash perspective, we're doing very well managing working capital and our debt is lower than this time last year, notwithstanding our investments in long term growth of our business.
Finally available availability under our credit line has improved.
With that I will hand over to Eric.
Thank you David.
Many of our investors have expressed an interest in our strategic direction and longer term prospects.
Particularly in light of our increased emphasis on technology innovation.
In that spirit.
Rather than getting into the weeds on market conditions over the past reporting periods I would like to look forward to where we hope to be in the next three to five years.
We have three primary growth platforms within our business our.
Our core business, our green product lines.
And our precision application technology led by some past.
There are synergies between these platforms. For example, some passes with market access tool for both core products and Green solutions, such as agro knows biologicals.
Also there is some overlap between these platforms, but for directional purposes.
It is useful to take each platform in order.
Our core business consists largely of our synthetic chemistries.
Using 2019 numbers as reference, let's build the model using a baseline of the annual sales of 468 million.
We have grown our core business in three ways first organically that is through additional market penetration.
Second.
Our new product pipeline.
Sales, making new formulations or getting new year says.
Do you have.
And third through acquisitions.
If we were to grow at a rate of only 2% per year.
We should be at 100 or 507 million by year, three and 527 million by year five inorganic growth.
Let's add to that our new product pipeline.
We regularly introduced several new products per year.
For example in Twentytwenty alone, we launched five new formulations.
As these new products get traction.
And we continue adding new introductions.
Expect that we will add another 37 million by year, three and 109 million by year five.
Core business, plus new pipeline products.
Puts us at 544 million by year three.
636 million by year five.
But now let's add acquisitions.
It's hard to predict the acquisition market, but I can say that it is extremely active today.
As you May have read we just completed two acquisitions Agra knows Biologicals company that I will talk about further in a moment and AG, Nova an Australian company that gives us greater critical mass and market access and Australia and the surrounding region.
So establish our forward looking target, we look backward over the past five years and the term that on average we added 40 million.
Hours per year in sales of newly acquired products.
Yes out of conservatism, we cut that number in half to 20 million per year and extrapolate. It forward, we find that our incremental acquisition growth put us at 60 million by year, three and 100 million by year five.
So core business, plus new product pipeline acquisitions.
Puts us at a three year top line target of 600 and.
4 million.
And a five year target of $736 million.
Now, let's turn to our Green solutions platform.
Before we get back to the model I would like to bring you current on a recent acquisition.
In early October we acquired the shares vibrant those eggs and its sister companies at a very favorable price.
As they were being sold at an auction by the Norwegian parent liquidation process.
Agrifos makes and markets unique blends of biological products into many markets and operates three factories.
The first located on Oregon for mens a 22 species consortium of bacteria into an end years product sales enhances soil and plant growth by for example, increasing nitrogen uptake.
Second located in Mexico produces a micro we enhanced heightened based products.
The Titan.
Oh suffers substance.
From the shells hope.
Oh shrimps that are locally grown.
That has similar applications.
Third locator to India produces biologicals for that region, including sales.
The government of India.
With this investment we have created a biological team to manage these green product offering globally.
That effort will also include our management of the Unbalance Tyratech business.
So let's get back to the model.
Now admittedly some of the Green solution businesses are already included in our core business.
For purposes of this discussion we will focus on the incremental addition.
Through the end of the third quarter of Twentytwenty, we had already been on track to sell approximately $22 million in green products. This year, including biologicals five nutritional products through both our domestic and international businesses.
And essential oil products through unbalance, which are the active ingredients and.
Procter and Gamble vivo line of consumer products.
So let's use that number as a baseline for our green product platform.
And as mentioned we are already in the consumer pest control space through the PNG is zero product line.
And we are expanding our essential oil product line into other areas, including lawn and garden crop.
Crop.
Dan.
In animal health.
We expect that with the addition of Agrifos growth of our other biologicals and the expansion of Inbounds Tyratech, we should say incremental revenues in year three of 48 million engineer five of 118 million.
So lets take our prior graph of core including product pipeline and acquisitions and now add green products.
That would take us to about $70 million in your 340 million in year five.
Now for the third platform, namely precision application.
We have been reporting regularly about our season pass technology.
Which we believe is that.
Leading edge of prescriptive application systems.
We know of no other system that enables a grower to take on agronomists.
Scripts run for multiple crop inputs based upon field conditions and prior yield results and apply those products variably and multiple rows automatically and one perhaps for.
Further with our ultimate technology, we can trace product from factory to field and as important we can measure precisely what was used in any given application.
And now we are enhancing this technology to permit seed treatment at time of plant.
After seeing positive results from field trials by growers in many states a number of our peers are performing their own test with the goal of making their products available and smart cartridges through some pass.
That said some investors are asking that we give them a better idea of course impacts could be in three to five years.
In order to answer the question, we would consider the following elements first revenues from our existing portfolio of products.
And I'm talking about increased usage.
Oh, which would dramatically enhanced by applied Prescriptively.
Second.
Revenues.
From the sale of active ingredients license from other basin producers to be sold under our name.
Third royalties from third parties for marketing their products through our smart cartridges under their name and force a share and the growers incremental yield benefits.
Using conservative estimates of market penetration and domestic markets only.
We are targeting topline contribution on the order of 35 million and your $331 million and you're fine.
In addition, we're confident that same path will be well received outside the U.S. and or are you planning to host some past field trials in Brazil and Twentytwenty one.
Also these figures do not include the potential for additional revenues from our seed treatment innovation.
In other words.
These are conservative domestic infertile, some past targets only.
So lets put all of the platforms together.
If we add core plus screen plus some fast.
We're in the neighborhood of 687 million in year, three and $985 million and near five ads.
The topline.
Which is roughly double where we are today.
There are many moving parts to the equation we.
We will continue to control the things that are within our control for example, exercising strict discipline on managing working capital and operating expenses.
Further we are committed to maximizing our consolidated profit margin.
While our expansion into distribution within international markets has tended to lower our gross margin percentage.
We expect that the introduction of newer technologies across these markets will create an updraft on profitability.
In future calls I will be updated you on how we're progressing against those targets.
Finally, let me pull our focus to the present and the near term.
Twentytwenty has been an unprecedented year for this industry.
In spite of the pandemic weather effects and farm economy as David mentioned, we have kept pace with Q3 of 2019 in terms of profitability.
Even with modestly lower sales.
Looking forward into the fourth quarter were already seeing greater optimism in the domestic agriculture sector.
Third party.
Rising crop commodity prices for corn, and soybeans and cotton.
Which would tend to contribute to improve grower profitability.
In the mid west with less crop rotation and more continuous corn over corn planting.
We are beginning to see a resurgence of soil insect pressure.
In addition demand for ours soil fumigant products continues to rise.
Based upon these trends and current sales activity. We are encouraged by our prospects for the balance of this year and into the 2021 season.
Well now take any questions you may have.
Yes.
Just like to register for a question you can press the one followed by the four on your telephone and you'll hear three ton prompt to acknowledge your question. If you need to withdraw you can press one three.
And again, it's 140 Q1 moment please.
The first question is from the line of Joseph Reagor from Roth Capital Partners. Please go ahead.
Hi, guys. Thanks for taking my questions.
Sure.
I guess first thing thanks.
Thanks for providing this.
Longer term outlook.
I know a lot of us been asking a lot of these questions anyway.
But.
Kind of like just a base question on it.
When the world returned to normal what what would be.
You know your expectation for an annualized number you know like ex Covidien packs.
Without all the gross.
So you're talking about our core business.
Yeah like currently the core business if it wasn't for.
For covert impacts around the world what do you think annualized 2021 revenue might be.
Yeah, I think so probably in the range of five to 10 million and I would say kovacs correct corporate related.
The the the growth part, where we have identified as part of our core business, where we have.
Our our products that expanded again a lot of the products that we were looking to develop in the markets. This year.
We weren't able to accomplish because of not being able to go face to face in the field.
So a lot of our product development and customer work was was remote.
So I think also what I see is that we have really been in a commodity down cycle since since prices.
Justin and 14.
Although you know they've stabilized this is really kind of the first uptick that we're we're really seeing pricing.
I think with.
With more normalizations and particularly the idea of you.
You know this vaccine does indeed work.
So much so many of the.
Restaurants and that's.
That that area of food consumption than more normalcy.
Bill will increase the demand for.
Crops overall so.
I think we're on an upswing.
As we go into this into the 2021 years.
Okay.
Fair enough.
And then kind of looking backwards a little bit you guys can give us a ton of a what I would call Mark your commentary on the quarter it.
It seems like there was a lot of impact in Q3 related to weather.
And then a related crop pricing.
Is there any way you or David could quantify that you know what on a sales number what do you think that wasn't an impact.
Well I think if we just look straight at corn.
David we were looking at.
So [noise].
I'm not going I'm, sorry caught.
[music].
So I think for the quarter.
On costs.
Sorry, just from this segment.
So that was.
That was about a six my brilliant.
I've got three three into five so yeah, just about six months.
So that's probably kind of the biggest the other.
We had.
Probably stronger.
Stronger push in and died from last year as a lot of companies or lot of the parishes were.
Placing orders for fourth quarter.
This year, there so far they've been kind of chewing through some of those pre orders that they placed with.
With our our main distributor.
So we see inventory drawn down.
Look probably be under this year to have lower inventories UBS.
[music].
So those are probably the three products, but that contributed the most.
I also mentioned pest trips with down a little bit not was pandemic related because of the use in bars and restaurants.
All right Okay.
Okay.
And then a one topic at any time.
Concept of you know how much revenue you might pick up in Q4 that was lost in Q3 for timing reasons or whatever and then.
Kind of like a brief outlook on how Q4 is going so far it seems like prices are up and maybe demand is up too.
Yeah, we're we feel good about Q4.
For for a variety of reasons. One is as you mentioned there are some.
Some carryover just timing that didnt happen in Q3.
The soil fumigant business has been very strong for us we're fortunate not to have.
Much in the way of snow so a lot of a lot of ground got treated.
Although we did we've got snow capped mountains here in southern California to the but then.
As we looked into the 2021 season.
We did we did here during the course of 20 corn rootworm pressure.
Hasn't increased I think people are little more bullish now on on the concept of treating.
Treating for corn rootworm, So I think we'll see see an increase in our in our corn activity.
Okay. Thanks, I'll turn it over.
Your next question is from the line of Chris cash from loop capital markets. Please go ahead.
Yeah. Good afternoon, I'm, sorry, one follow up on the impact of cotton this.
Season.
[music].
Just curious if this will translate into a headwind for 2021, not unlike what happened in the corn belt. When you have weak season, and then sort of an overhang from excess inventories in the channel. Given you know that you then I guess couldn't apply they couldn't apply.
Yeah in the southeast Didnt need to apply your products and in West Texas is that are we going to see an overhang headwind from channel inventories in that key product line next year.
Yes, I don't think so as we mentioned earlier I think the we saw.
Orders being placed during this really since the pandemic started.
Where you might get a half the truckload or truckload ordered palette of time. So we got a lot of orders, but they were generally smaller as we saw everybody and trying to preserve cash and watch their inventories levels levels. So so the sales.
We see that Didnt occur we don't we don't see an increase in challenging Tory we have more inventory than ER.
And then what we would like to have but yes.
Yes, I don't we don't see a headwind going forward.
Okay, and then you spreads.
Brett some optimism about the fourth quarter and certainly into 2021, largely on well, there's a lot of cross currents, but largely on.
From our AG commodity prices.
So in terms of the channel.
Channel.
Demand that you're starting to materialize in the fourth quarter could you just talk about which product lines is where's that most pronounced is it really.
Products tied to corn.
Corn or good.
More across the board just a little bit more color on that would be appreciated.
Yes, I think it's across the board I mean, you know we were struggling for supplier bone muscle and that has has resolved itself. We've we've had a.
You know some tightness in a couple of the couple of the product lines, but yeah, I think I think generally.
Let's say if the AG.
Industry thing that back to a more normalized approach here.
And again if we're.
If people don't mean, if today's reaction is any.
As any sign of that I, just I think across the board.
Not just domestically but globally.
Gonna see people.
Pushing them to meet the demand that should should be up for this next year.
Okay.
It's Tom I appreciate your comments about.
The possibility that theres, increasing corn rootworm pressure and you're citing the maybe the absence of.
Crop rotation more recently.
That seemed to be contributor Bakken.
Oh in court when corn prices Spike was that 12, or I guess 2012, or 13 that that big drop that one year. So.
I mean, it has are you, suggesting that they're they're basically.
Farmers.
Generally you had.
Good to hear too good.
Prop rotation practices say between then and up until now that so thats diminish crop protection is there anything else that's contributed to diminish as protection men pest protection MACRA.
Yeah, I mean, obviously, there's the the traits as you know as they advance or don't don't bounce or.
The weather conditions, certainly ER can be conducive I.
I think all estimates or the.
Corn will be of a probably a couple million acres. This year. This season versus last season, and it was pretty strong last season.
So I can't go those are the factors.
Bob I don't know if you've got any more color just lucked out on that.
Yeah can you hear me.
Yep.
Okay. So.
Good I would look at a sort of soybean market driving a little bit the corn market.
Maybe to start can use ratios that are so at a 23 year low.
So the market is very tight in soybeans.
So many corn, maybe up a little bit.
Depending on the men coming out of China.
China.
But you know the Big news really is that this year you know farm income is much more profitable than it was.
20 million team 2020.
So going into the spring and I think you might see a little bit more of a loosening of the belt by the farm community, but I think you know that's a that's a that's a plus going into the season I think.
Uh huh.
And I would say that.
You know there are those right now, Brazil, Southern Brazil is a drought.
We're just going to earn a little bit their production capabilities.
I think the Chinese are coming back online with their purchases.
So.
Unless we really have a another COVID-19 effect. We all hope that is not the case I think I think next year, if things are shaping up nicely.
Yeah, I would just add right.
Was down in Brazil, or a couple of weeks ago.
And one of the things they told me was that.
The Brazilian government is there was opening up import lines.
Of corn from the U.S. this year, because they're they're out there.
The Chinese really wipe them why some claim as they shifted away from from us.
And so they don't they don't have enough corn to me, they're just they're demand. This this year given the drought and they are expected to yield.
Interesting and.
Ken just one last one on the corn rootworm the.
You guys have.
Probably.
Maybe the.
Most efficacious I guess that the.
The soil applied insecticides, but then there's the liquid very.
Variants that are maybe less robust than that but there is also the possibility that monsanto was going to have a and r. and they are.
Our in AI technology that was approved and relevant in that market can you just sort of talk about what the competitive landscape looks like today for if in fact, we do see this intensifying.
Corn rootworm pressure, what the landscape looks like for the for your product. These are the year competition.
Yes, and then just one thing to just before I turn it over to Bob for those.
We are we are expecting to get.
And into the prescriptive level I mean, we did it on a beta testing last year, but for sure.
Well actually hub.
Well quite a few more systems out there and also we'll have what's called the what we call Smart Fox plus which is essentially some pass system with.
With a 50 pound smartbox on it.
That would be able to apply prescriptively.
Corn soil insecticide.
So I think we'll get a lot a lot more attention in that prescriptive field, so anyway, but Bob you want to.
Terminal so.
Yeah, So I'd like to just confirm what you said that Ambac has the best technical solution for high corn rootworm pressure that's.
It's also the most expensive.
Solution in the market. So we're the market leader in.
The market has really broken down into two sectors granted or liquid.
I would say that the granular market is holding both on the.
On price and volume we've increased I would say in the last two years or share marginally in the market.
Good work it seems to be more competitive and.
Then looking to be a little bit more price sensitive.
I hope that answers your question.
Right.
And do you know any visibility on VR and I checked are in a high technology.
So yeah, Oh, sorry.
Turning the clock back to 2015, I think it was supposed to be launched in 2020.
And we haven't seen any progress there seems to be the case that there's still a long way off from the market. If it comes to the market at all.
Thank you.
And as a reminder, if there is any other questions. Please press one for.
There's a fall from line of Chris cash. Please go ahead.
Yeah and I appreciate your.
The.
Trying to provide.
Bigger picture longer term.
Snapshot of what your growth factors might look like I'm curious on the organic piece of it.
What do you anticipate sort of the you know the mix and Martin and therefore margin profile look like and to the south.
If I understood you correctly on and off to go back in and look closely at the numbers you provided but.
You said.
The so the products the new formulations that you.
Hey, you've launched that you anticipate I think just you said just five new products alone might contribute 37 million in revenues by year 309 million by year, five and so that looks like you know a pretty steep hockey stick kind of adoption for those products. So I'm just wondering.
What the basis for.
That belief is and does that does the math that you provided in that piece of the three buckets did it right.
Correct.
Yes, some of the new formulation might cannibalize some of the core sales.
Thats baked into that 2% through your your core core sales. Thank you.
Yeah, so the the the.
The five new products were just what we what we launched in 20 I think we did.
10, or 12 previous year, we've got several on target for 21 22. So.
It's kind of the cumulative effect of of these new products that we're launching each year. So its not based on on five it's based on.
More than 20, I would think at this point so.
So that's one piece and then can you can you refresh me again with what your other question was.
The worker does your <unk> growth expectation there reflects some cannibalization from those new introductions of your.
Your existing legacy products in them and this sort of bucket of the three different vectors that you discuss what what what is sort of the the gross margin or mix profile expected from the aggregate of.
That tranche of sales.
Yeah. When we did this we tried to we tried to pull the the but growth core the core products out from.
The growth that we're talking about with the with the product and new products.
I don't.
I think we're anticipating.
Cannibalization cannibalization, we're we're looking a better market penetration.
So I'm sorry, the last question, but doesn't was was.
Sure any expectation on the gross margin.
Profile of the mix of the products in that first bucket of sales. They described as core with new products.
Oh I'm sorry, I think you know were where are our margins, let's say you have gone from I mean, our margins in the U.S. still are in the.
You know mid upper upper Fortys have stayed pretty consistent.
Our international.
Sales as they've grown has brought our.
Our overall.
Margins down.
As we mentioned that we were.
Expanding our market penetration through acquisitions or distribution, but.
But as we take.
Kind of a new products and particularly the biologicals, they have very high margins and as we position modes globally.
We see a perfect in that Green line area that our margins should should increase.
Well across across the.
Cool.
Okay, and then one last one just.
In terms of.
Funding this ambitious growth that you're you envision.
So.
What sort of.
You just envision the company being completely self funding that you'll be able to.
Drive this.
These growth.
Opportunities solely from free cash both from the from the core portfolio. Thank you.
Yeah, it's as it stands now that's certainly the case obviously.
Obviously, if there was.
A major.
Acquisition, we're talking hundreds of millions so that sort of thing.
The jump that would that would probably require you know maybe partnership type type approach.
But nothing certainly nothing in this model reflects anything in that arena.
Thank you.
Sure.
There are no other questions in queue.
Okay.
Well out.
Appreciate the again you guys have given a put and asked for.
Sales for us to to put together a model than I guess, what we'll be doing each quarters, we'll we'll pull off different pieces and you kind of give updates as we move through.
Our quarterly growth expectations. So.
Thank you all for joining us and.
We'll no.
Next call will be sometime in early March.
Thank you very much.
That will conclude the conference call for today, we thank you for your participation and you can now disconnect your lines.
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