Q4 2020 American Vanguard Corp Earnings Call
Greetings, ladies and gentlemen, and welcome to the American Vanguard fourth quarter, 2020, and full year earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our first speaker.
Bill Kooser director of Investor Relations. Thank you you may begin.
Well, thank you very much Diego and welcome everyone to American Vanguard's fourth quarter and full year 2020 earnings review today's presentation includes a number of Powerpoint slides and two very informative videos.
For those of you who may be on the phone and audio only if you would wish to see these materials. During the presentation you can access by going to our corporate website Www Dot American dash Vanguard Dot com.
At which time you would simply click on the clearly marked webcast section and connect with this visual content.
Are these materials following the presentation will be posted to our website and available for your future reference.
With that said, let's have 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 Companys management and are subject to various risks and uncertainties that may cause actual results to <unk>.
Differ from managements current expectations 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 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, let me introduce today's speakers.
Mr. Eric <unk>, the chairman and CEO of American Vanguard.
Mr. David Johnson, the company's Chief Financial Officer.
And to assist in answering your questions Mr. Bob <unk>, the company's Chief operating officer.
With that said I'll turn the call over to Eric Thank.
Thank you Bill.
Good afternoon, everyone.
First let me start by.
Thinking.
Yeah.
Our entire workforce for dedicating themselves to high performance during the global pandemic.
<unk> was a year that was fraught with changing demands and conditions and our people whether 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.
All regions.
I would like to thank all of you our stakeholders for your continued support of American Vanguard.
As you will have seen in today's earnings release, despite a slight decline in our top line. Our net income increased by 12% during the period.
By comparison, the top five public companies in our sector were on average flat on both the top and bottom line.
Well, 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 am pleased to report that we succeeded in doing so.
<unk> generated a nine fold increase in cash from operations versus the prior year.
Due in part from inventory and factory management.
<unk> operating expenses and record high customer early pay participation.
This in turn enabled us to pay down debt.
And improve borrowing capacity.
We were able to make these improvements while at the same time, concluding two key strategic acquisitions had nova for market access in Australia, and a greenhouse 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 a 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 David.
Thank you Eric.
Okay.
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 of 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 and 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 enough 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.
At this time last year.
Within that overall improvement our U S 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.
As compared to 37% of total sales.
This time last year.
The main factor factors driving our sales performance are as follows.
In our U S crop market sales increased by approximately 19% as a result of strong sales of products sold into the Midwest row crop market.
As a small box counter as tech brands as.
As growers reacted to increase book pressure and.
And 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 dive growth products in Tibet to 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 <unk> 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 U S 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.
Fourth quarter non crop gross margin declined from 42 percentage in Q4 of 2019% to 35% in 2020, driven primarily by the reduced market demand for di from already discussed and by the lower factory activity rate.
International margins improved with the addition of businesses acquired in the fourth quarter as strong sales of bromine sales, 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 periods 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.
As you will read.
As you will read in our earnings release, you can see that during the fourth quarter.
We recorded a bargain purchase gain of $4 $7 million. This relates to a business that we purchased out of bankruptcy when the opportunity presented itself. We moved quickly and got to 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 as the difference between the purchase price consideration paid and the fair value of the net assets acquired.
Also during the three months 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 a couple of reasons for this first the bargain purchase just discussed as 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 in 2019.
As a result of these various factors net income for the three months period was more than twice the level reported in the same period from 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 and a period that has been marked by widespread closure of many businesses during the prolonged period of the pandemic.
Within that revenue decline U S crop business increased by 1% to $223 million in 2020, our U S. Non crop business sales declined by 21% to end at $49 million and our international business remained approximately flat with new business revenue of <unk>.
Netting the effect of foreign exchange rates.
Great.
Our 2020 manufacturing performance ended the year very close to our average long term performance as you can see from the chart next net factory cost per the year amounted to approximately two eight percentage of sales. This compares to two 6% for 2009.
<unk> and our target of two 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%.
Yeah.
For the full year of 2020, our operating expenses increased by 2% to end at 140 per $154 million or.
33% of sales as compared to $151 million or 32% of sales last year.
In 2020, we have several dynamics affecting our operating expenses. These include pandemic related reductions in travel activities the impact of lower FX rates affecting translation to U S dollars of operating costs recorded in other currencies and finally, the addition of new businesses.
And 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 for uncertain tax positions related to prior acquisitions.
In summary for the full year 2020, we're 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 from factory performance have 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.
We made a good deal to inquire to acquire an exciting biologicals business from a bargain price out of bankruptcy.
And at the bottom line, we have 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 years, but had been focused all year on working capital and as 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.
In average for the prior two years.
The cash generated was used principally for 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 us in past 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 our 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 for unexpected participation in our annual standard early pay program with strong indicating that our customers that the customers we deal.
It had a good year.
The end result to 2020 resulted in consolidated accounts receivable of $119 million in 2020 as compared to $136 million. This time last year, notwithstanding the highest 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.
Yeah.
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 the 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.
As you will see from our earnings release, our EBITDA for 2020 is very much in line with 2019, but nevertheless availability has has 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 multiplier 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 of that together availability at December 31, 2020 is $85 million as compared to $27 million from the same time last year.
In summary, then in 2020 from a balance sheet and cash perspective, we have continued to be acquisitive for the long term benefits 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 Thank you David.
As you May recall from our earnings call in November last year, I began to turn our attention to our strategic.
Direction in <unk>.
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 some past and ultimate.
I also gave you a view into how much we think these platforms will grow over the next three to five years.
Today, I would like to revisit these.
Platform 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 AG chem offerings.
Let's start with a quick update on our core business as I mentioned earlier in Q4, we closed on the acquisition of egg Nova.
An Australian based company headquartered in Melbourne, as sources develops and distributes specialty crop protection and protection solutions.
For the agriculture, horticulture and non crop markets.
The addition of AG, Nova improves our market access in the region, including with respect to Sim pass a greenhouse and green plant solutions and gives us greater critical mass and an important territory.
Furthermore, AG 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 foreign wide are increasingly being called upon by investors.
So just blackrock happens to be our largest shareholder.
Institutional shareholder services like ISS.
And regulators such as the FCC to report upon their commitment to ESG.
We had American Vanguard have a great story to tell and 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 publish our statement under the tab ESG on our website.
As we stayed on that page, we are committed to the principle of sustainable agriculture, which to us means that all people should have the right to 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 enterprise wide progressive and measurable efforts towards helping to arrest the trend of global warming.
With respect to environmental at quality, we seek to lead the planet and a better state than we found it.
And as a key supplier of crop inputs, we're essentially involved in food equity.
In order to advance. These three agenda is a crop input companies such as ourself with focus on products or application technology that promote carbon sequestration improved plant and soil health.
Of an environmentally friendly profile and improve yield.
As an example, you can see from this slide courtesy of our greenhouse business.
Bio stimulants can advance all of these considerations.
They reduce carbon dioxide, thus improving air quality and climate and.
Improved yield per acre, making food more affordable.
Improved food quality, helping growers to succeed.
Conserve water advancing environmental equity and.
<unk> improved the soils microbial community.
Yeah.
We have many such ESG friendly products within our Green solutions platform.
For example, OHP provide several bio solutions to domestic nursery and ornamental customers.
And Green and Central America offers a range of tailored biologicals to customers like Chiquita.
Okay.
And we continue to see consumer acceptance of our low impact from insecticides from advanced technologies that are safe for children and pets.
These.
This technology forms the basis of our innovation partnership with Procter and Gamble specifically.
<unk> brand of consumer insect control products.
After having achieved success in 2020 with home depot and target.
Zabows 10 store test in Tampa is Walmart stores has exceeded expectations and will enable the PNG team to aggressively sell to full chain distribution for calendar 2021.
Let me share with you a short video posted on P&G venture Capitals website, our venture capital Adventures website that positioned zebra well.
I played a video.
Sure.
But adventures, we're setting up new businesses and one of the businesses that I am proud to share is evo and <unk> is getting into the non toxic homes and the index space.
The challenge with current synthetic insecticides.
They're great at killing Bugs, they introduced another half which is the toxic chemicals that are being used are.
Company was founded to address this growing unmet need from globally with concerns about certain chemistries are omission was to bridge that with new technology and do things in a completely different way.
And our line of our consumer interviews there was a relief for the folks that want to take care of their family and I now have a solution to this age old problem.
Do I get rid of the bugs without endangering my family and just to see.
Their faces when they knew Wow. This is really true. It really works you can see it because were broken that dilemma with a whole new technology brings a totally unique a new mode of action without the partnership I don't think we could achieve changing the market, it's just not marketing and getting into retail.
It's just not technology that really works is the marriage of to two per.
Partnership is about taking the best of both.
The best of an entrepreneur and best of TMT and matching that together to create great things one of the things that <unk> done is intentionally bringing on this DNA of our entrepreneurial go get it knocked it down move fast, but also with discipline and know how to be able to take the brand forward in a R.
Sponsel way, but also in a very large and global and serious way and so who better than a team like this with their proven track record of saying these products Zebra brand on the shelf at home depot and target is really meaningful and rewarding.
Okay.
Okay.
Okay.
Okay.
Are you moving back.
Thanks, Joe.
Okay for any of you who have not tried any of the <unk> products.
To go out and.
Or just give them a try.
In addition to Zeebo 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 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 130000 active ingredients in our lab and have identified a manageable number of promising candidates for further development and possible commercialization.
Similarly under our advanced technologies Dragon Fire research platform, we are developing patented bio herbicide 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 fires bio herbicides and Thats technology continues to range of bill for environmentally responsible solutions.
Now, let's spend a few minutes on our greenhouse.
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 a foreign holding company in Norway was in liquidation.
From its three operations in the U S, Mexico, and India, a greenhouse produces a line of high yield technology.
<unk> applied solutions that it markets into eight regions across the globe.
These products promote carbon sequestration nitrogen fixation and soil health.
Okay.
It's invigorate line is an armory approve consortium of 22 bacteria that have been developed to promote multiple benefits including soil.
Include improvement of the soil microbial community on many global crocs and soil conditions.
<unk>, facilitating nitrogen absorption and nutrient uptake, while supporting root biomass and plant health.
It's uplift products, which are derived from biologically extracted chiton have similar effects.
And there be sure nutrient solution provides time released nitrogen, which in turn improve soil health and helped to reduce the need for nitrogen laden fertilizers.
With nearly 150 pending and issued patents in multiple countries.
<unk> 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 greenhouse came last year, when we were seeking distribution rights for putting their solutions through Sim pass.
The opportunity for greenhouse 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 to market access they deserve.
Let's now turn our attention to some pass.
Okay.
For some time now we have been reported on the exciting development and commercialization of our Sim pass precision application system.
Let me now elaborate on Sim path as an ESG technology.
Put simply <unk> is the ideal tool for advanced in both climate and environmental equity and for that reason food equity as well.
With respect to climate <unk> 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 and one paas and.
In addition, because it applies inputs only where they're called for as per the agronomic prescription Sim pass 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 runoff is that much more reduced.
But there's more to the story in addition to efficiency and lowering of the environmental input footprint.
<unk> is designed to apply not only chemical inputs, but also biologicals.
Types of products that we have been described as promoting carbon sequestration nitrogen uptake and soil health.
Even as I speak we are testing multiple green technology solutions for use in some past smart cartridges and.
In short we are supplying not only the product solutions, but also the application of technology with which to advance climate.
Environmental equity.
And the icing on the cake is that with our ultimate <unk> 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 MTN, partially used smart cartridges.
So on top of environmentally responsible products and application of technology.
We offer unrivaled measuring and tracking.
Capability for multiple inputs.
With this functionality ultimate 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.
And to our knowledge no technology does this better than ultimate.
Or is this just conjecture on our part in this slide we show the results from an actual Sim past 2020 beta system application in which we demonstrated that we could apply counter 'twenty G precisely as per agronomist prescriptions.
Friction and it's important that we could measure that application after the fact.
This will be.
Sunday mental importance and 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 Sim past growers they were all very impressed.
Now for an update on <unk> systems.
As of this call, we placed 70 systems, which.
Which includes 900 rose, which should cover about 85000 acres.
Our team. This morning told me that number might be closer to the 65 to 70000 acres.
But we are targeting more systems for this planting season.
And we expect or hope that we will get into that 100000 acre target, which is the target that we set for ourselves.
Now, let me share our latest Sim past video illustrates key advantages.
Okay.
[music].
Thank you.
[music].
Okay.
Hence ESG has now taken center stage in the public eye we.
We believe that <unk> is truly come of age as the most comprehensive solution for our industry.
With that let me now turn to our 2021 outlook.
We see an AG industry that is generally optimistic for 2021.
Reopening of schools and businesses following 2020, lockdowns and the potential for less volatile international trade disruptions promises.
Fresh AG sector demand.
The increase in crop commodity prices for corn, soybeans, corn and other crops.
It has improved the prospect for growth profitability and with that a more normal purchasing pattern versus the very conservative procurement behavior that we witnessed during the 2020 pandemic.
We.
And low double digit year over year revenue increase for American Vanguard.
We expect profit margins to remain steady with recent history.
Net operating expenses will increase somewhat due in part to newly acquired businesses and the <unk> 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 two to two five times range.
And note that at the end of 2020, our debt to EBITDA ratio was two two.
With that we'll take any questions you may have diego. Thank you.
Yeah.
At this time, we will be conducting our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate that your line is in the question queue.
Press Star followed by the number two if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for questions. Thank you.
Our first question comes from Gerry Sweeney with Roth Capital. Please state your question.
Good afternoon, gentlemen, thanks for taking my call.
A little newer to the story I've been working with Bill but.
Just curious.
On the revenue guidance that you gave low double digits.
Revenue growth for this fiscal 'twenty one.
Is there any chance you can give a little bit of granularity maybe where some.
From a segments are going to come into play with that.
With that projection then secondarily does that include any potential acquisitions.
How does that how does that factor.
Yeah. So thanks, Gerry welcome welcome to us per.
Growth for years.
So.
Yes, I guess I guess across our businesses I think we see the business units.
OHP advance Agro center.
Australia and Brazil.
And of course in <unk>.
Mr.
Greenhouse as well so we see upside certainly there I think we're also seeing.
Pretty healthy increase in our herbicide area.
Particularly around our impact molecule as we've added combination products. There that we think will do well in the marketplace.
Our <unk>, we had we had.
Some bringing down of inventories that we see that kind of rebounding back.
Similar with our true.
Cotton products <unk> and <unk>.
In the U S.
We see we see a rebound there was a particularly low year this year.
Sure.
And then with <unk>.
<unk>.
Again demand seems to just keep continuing.
Certainly in in Mexico for the Gaba market, but also in Japan for kind of home right away and other right away business.
So thats kind of in general.
So we'll see we'll see corn certainly increase mentioned cotton.
Soybeans thats another growth area for us we have.
Several herbicides.
Net will be marketing into that sector for this year. So.
That's kind of the upsides.
Got it.
And.
A question about Sim pattern.
Apologize I'm sorry, this is the right environment for it but.
After seeing the video in.
Reading about it I mean, the video assets put it a little bit better perspective, but I just couldn't help but notice that the AD said powered by Trimble.
And how that comes into play.
Also notice that the equipment was that a green and yellow who's maybe a.
A large AG company, how do you go to market with some of the equipment do you have to partner with some of the.
The agricultural companies or distributors I was just curious as to what the process is to get some more systems out into the market.
Right so with.
With smart box, we did all of the sales ourself.
We inherited that from Dupont back in 2000.
We have sold as many as 200 systems in a given year.
But it's.
That's direct sales to the farmers.
With <unk>, we have aligned ourselves with Trimble.
So trimble dealers will be handling the distribution of it and as you mentioned, you've got John Deere in there and Theres other videos where.
We're basically able to go with recall with any any color.
<unk> <unk>.
Adoption is very simple.
And so trimble will will.
Handle the actual sales to the farmer and servicing because again. This this will be something we believe is a lot bigger than what we've done with the smart box perfect got it and then final question.
Coming up this question has come up quite a bit and just I'm actually getting from clients is across the board.
Inflationary pressures are you seeing anything do you have.
Our ability to manage that if they start to rise due to free that.
My presentation and I know that's been an area that I think thats been popping up.
Recently, so thank you.
Yeah, Hi, this is Bob yes, we are keeping an eye on that.
We're not that in our own portfolio, we're not that oil.
We have our own factories, we've had inventories in place.
David described so I think in the short term.
For our owned portfolio not too much.
In other parts of the World, where we buy from third parties. We are seeing that they are starting to raise prices.
We'll pass those on where we can.
I mean, we have experienced I think it was back in.
2012 was really Europe.
That.
Prices in our industry started really generic control and there was so many products coming into 13 that were on allocation.
And so we did see some pretty pretty major.
Hikes at that time so.
We've.
We've kind of condition or people that.
Everybody would like to just put out a price going into the season and maintain that through the whole year.
But we can't I mean, we have I mean, you can even.
Take.
The tariff situation to go from 5% to 35%.
A drop of a hat.
You've got to be able to put that through so I think I think our customers are the conditions of that.
I mean, I think the currency swings are a little bit more difficult to do and particularly as we get down into Brazil, we're seeing some changes there.
But it is top of mind for us.
Got it.
Very helpful and I appreciate you, taking my call, especially.
There may be a little bit.
There were or rehash, but thanks a lot.
Okay.
Thank you and just a reminder to ask a question press star one on your phone to remove yourself from Q you can press star followed by the number too.
Our next question comes from Chris cash with loop capital markets. Please state your question.
Hey, good afternoon.
Apologies I joined this call late owing to some other obligations they had but so it may have.
Missed most of your formal.
Commentary, but I did have question about the industry and I'm curious if you're seeing any.
Effects in your business, but there was one major AG Chem company talked about disruption.
Inability to supply their customers because of.
You know tolling being disrupted by Covid.
You guys manufacture I believe most of your own and blend most of your own materials show.
Guessing that not impacting you, but Conversely was this something that somehow may translate into a commercial opportunity for you to the extent that other suppliers may have been.
<unk>.
In sourcing product during going into this growing season.
Well I think.
I would say within regards to to the United States certainly.
There was <unk>.
Our expectations and.
In 19, and 20 that occurred and there was a lot of inventory of products that were brought over from China.
Pete.
The duties.
And so with the market is not strong I think theres been some lagging inventories there.
From from raw material wise.
We have we have had some some tightness here and there where we've had shipments.
Sure.
Close to long Beach Harbor would go down there.
<unk> went down I counted over 100 freighters that were stacked up in the harbor.
And so we do have raw materials for our.
Our <unk>, our fungicide that we've just started manufacturing again.
Sitting on a container there that we're waiting for.
But I would say overall, we've been in a better position as you might as you kind of alluded to.
Than others.
And a good portion of our of our raws do come from from United States. So we're able to service our our manufacturing facilities. Okay.
Okay and then.
Some of you.
Certain product line do you compete with.
Alternative sources out of Europe in the Euro has been relatively strong call. It I don't know over the last seven months from is that.
Has that affected that.
With that or just the overall, a more favorable environment with stronger commodity prices is that.
Affected the pricing dynamic at all.
And he cover there for you to for.
For pricing entitlement or is it is it as competitive as ever any changes in the competitive dynamic from a pricing standpoint for your core products.
Well.
Certainly seen.
Chemical companies not specifically on the AG side, but signaling price increases.
Particularly the company over in Germany.
Chemistry.
Like every day I am seeing that.
Announcing new price increases, which certainly is favorable.
But.
With oil going up we do have some ethanol linked.
Products going into R. R R.
So a few of them again.
But we're watching it closely.
And.
As I mentioned Adzharia.
Top of mind, and we have continual meetings.
On it and just to make sure that the whole team is linked together.
Okay and then.
I know you guys are diversified away from corn.
Judiciously and you have some growth innovation platforms that are are.
Starting to get traction that's great but.
You still have this core franchise of soil applied insecticides.
You know could benefit in this environment and I'm just curious if there is you guys brought up the trade Greg talked about.
You know the corn corn rootworm resistance resurfacing again because of the.
Absence of <unk>.
Rotation so.
Just wondering if that if you're.
Don't know if you comment on this but are you seeing that in your.
And your order patterns.
Any any.
Signs from growers out there.
Given the strong pricing backdrop that their intent on using that protection this year as they grow corn and the corn belt.
Yes.
I mean, it seems like each day, we see whether its nematodes or or corn root worm.
Our nutrition.
Particularly focus towards.
Corn and soybean market.
So there's certainly a lot of awareness out there more than I've seen really since 2013.
So.
Yes.
We've got we've got nice nice potential upside certainly certainly in corn and as Allison mentioned soybeans zone.
Bob.
Yes, Chris I think I think we're going to have a good assuming assuming weather plays I think we're going to have a solid.
Maybe an up.
At plant insecticide control.
We see two margin to margins of emerging business is more of a 2022 factor.
One the soil health market.
It looks like it's going to expand at about 12% to 15% clip.
If the by the administration incentivized that Youll see that grow.
Rapidly we are well positioned as Eric had said on the call call with our surpass systems to.
To take advantage of that in conjunction with the.
Our portfolio from a greenhouse we're doing all the testing this year on our product line and other.
Company's products lines looks very positive.
Then the second effect, which was just announced by Mexico's that day.
We will not allow any <unk>.
CMO corn.
And Theyre also banning glyphosate.
And of course, they have been traditionally the number one export market for corn out of the United States.
That would then result in.
U S growers going back to conventional traditional corn and of course, that's positive for us in our product lines.
But thats a 28 day.
When when when would that.
Come into effect for Mexico, right because that day.
Well that would be 2022 right.
Okay.
Right because then.
So right now for example, if you're growing.
Traditional corn for non GMO youre getting over $6 a contract right. So it's about $40 50 higher than.
Jim O corn, so it is attractive and the cost of actually producing it at about the same.
So your bottom line.
Yeah.
Got it interesting.
Okay.
Let somebody else take question I'll circle back if there's time.
Okay. Thank you Chris.
Thank you. Your final reminder, if you'd like to ask a question at this time press star one on your telephone keypad.
Cost per a moment to poll for questions. Thank you.
We have a question from Mr. Chris Capps loop capital markets. Please go ahead.
Hey.
The follow up was.
So, let's just say a year from now we're looking back at 2021, so relative to the setup that you guys envision currently what what sort of top two or three things.
They've been negative do you think that could be a pause.
Positive surprise.
2020, and suits for 2021 we're all trying to forget 2020 interest me.
2021, and twos or some things that could end up being a source of negative surprise.
Well lets see from the top side.
Mentioned, we're looking at.
Our impact in diagram normalcy in corn moving forward.
<unk>.
<unk>.
Our continue.
Supply line for bromine sales looks good now but.
There is.
Theres always the chance that we do did interruptions starting up our <unk> facility.
We've had.
Different different true.
Transmitters.
Valves that Havent worked price so we're running behind there but.
We are only planning on running that.
At about <unk>.
60% of capacity in ways that will catch up but Eric.
Sales right now, but it's not it's not a huge number.
So I don't know I mean, you brought up the concept of inflation Super hyperinflation.
That certainly could happen but.
We're we're poised for it.
The exchange rate.
Certainly it could be significant.
It could go either way plus or minus.
<unk>.
But I think as far as.
Our assets are in utilization.
Right now things things look pretty good.
That's great. Thank you so much.
There are no further questions at this time I'll turn it back to management for closing remarks. Thank you.
Okay, well. Thank you very much for those of you that didn't get to watch all the pretty pictures and videos.
But we're on the phone.
That will be posted on our website and you can you can go from through them briefly.
The experience and.
Look forward to updating you not all that long from now.
Maybe a month and a half away something like two months two months, yes, so anyway, well be in touch soon and I will note that.
We've.
I think some of you probably noticed as well that we've traded well over the last.
This last month.
Hitting highs that we have.
<unk> had an.
Two five years.
So happy to be back on the right track.
And with that.
Thank you very much bye thank you.
This concludes today's conference you may disconnect at this time. Thank you all for your participation.