Q2 2021 American Vanguard Corp Earnings Call
Greetings and welcome to American Vanguard Corporation's second quarter, 2021 conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Bill Kooser Director of Investor Relations. Please go ahead.
Thank you very much Brock and welcome everyone to American Vanguard's second quarter and mid year earnings review.
The speakers today Lee Mr. Eric Wintermute, Chairman and CEO of American Vanguard the.
Mr. David Johnson, the Companys Chief Financial Officer.
And to assist in answering your questions Mr. Bob together all of the company's Chief operating officer.
Before beginning lets take a moment to review of excuse me our cautionary reminders in todays call all of the company May discuss forward looking information such information and statements are based on estimates and assumptions lie of the company's management and are subject to various risks and uncertainties than the.
The cause actual results to differ from management's 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.
The information will not necessarily the updated by the company that said, we turn the call over to Eric. Thank you Bill and thank you everyone on the phone and webcast for joining us today.
I'd like to.
Talk a little bit about the 'twenty.
'twenty 1.
Forecast that we've given kind of update where we are at the house. So I think at the.
In the March forecast outlook, we gave.
On the top 6 items is the outlook and then.
2020 on.
May we added debt net income would grow at a faster rate than revenue.
What I'd like to do is Oh.
The kind of show, where we said, we would be and where we wound up for the for the first half.
So.
With regards to revenue, we said that we would be low double digit increase and at the half now we're looking at a rate of 25% increase of our revenue.
We said gross profit margins, we were forecasting to be similar to recent years and at the half where were the same 39%.
Operating expenses are some increases driven by our growth initiatives and the percent of sales of 4 net.
As a percentage of sales were down 1%.
Interest expense, we felt there would be similar to the 2020, but in fact, our interest is down by 30% our.
Our tax rate, we expect for the year to end up at the mid <unk>.
Mid twenties range per cent were actually up 31% versus the 20.
23, but we are still thinking we will wind up as we have some tax.
Benefits of will see coming for us in the fourth quarter.
The debt to EBITDA ratio and we're saying we're targeting 2 the 2 and a half times as we're preparing building inventories for the season.
We are at the 2 and a half time.
On this level, but in the second half, we expect to to move that down.
And the short of acquisition, we'd probably expect to maybe even be below the 2 number.
And then on net income growing at a faster rate.
Yeah actually were ordered 86 vs versus the 25.
For those of you that the focus on EBITDA.
We're now saying that our EBITDA for the year will wind up growing at a faster rate than revenue.
Well and for the half we've got a 29% increase so at this point.
On the things are rolling along well.
We still have our tail wins, we're looking.
Pretty strong in cotton right now as we hit our both our insecticides Byron is doing doing very well we've got.
Plant bugs that are out there and active so we're we expect the very good year with Biogen in addition, particularly the west Texas.
Hitting we expect our default in full lakes will do also very well.
Of corn soil insecticides look well going into 'twenty, 2 so that will have some sales in this quarter.
And additionally, in the fourth quarter and first quarter next year, but we are seeing our customers.
Looking to secure product I think of.
Many of us when customers, telling us 300 different products that are on allocation in United States right now we're in pretty good position with our 6 plants here in North America.
So I think where we are.
Pretty good we do have we do have some headwinds in inbound freight from from the Pacific.
Coming across from Asia.
Unfortunately, we're not very dependent on that just maybe tend to 10% to 12% we have come over but the cost per container has has moved from about $3500 of container up to $20000 of containers out of it.
It's a huge huge increase and I counted.
That generally of freight are coming across has about $73 million of of revenue that now has moved up to $420 million of revenue. So.
Quite a big increase and so far we've done reasonably well.
The putting through price increases but.
We're working on this every every month to put out to the team where what cost changes we have with the understanding that we're gonna true.
Try and recover as best we can.
Okay. So.
With that David ill turn this over to you.
Eric.
With regard to our public filings, we intend to file our form 10-Q today.
And as we have noted in previous calls the company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate.
As a result throughout 2020 and now during the first half of 2021.
Our customers and suppliers on their employees and operations of all continued more or less without disruption during the pandemic.
With regard to our sales performance for the second quarter of 2021 of the company's net sales increased by 29% to $135 million as compared to net sales of $105 million. This time last year.
Within that overall improvement on our U S sales increased by 44% to $84 million and our international sales increased by 10% to $51 million.
International sales accounted for 38 percentage of total net sales as compared to 44% of net sales. This time last year.
With regard to gross profit performance.
U S crop business recorded improved absolute gross profit on increased sales, which were up about approximately 40%.
Offsetting the strong sales growth performance of factory performance was impacted by short term challenges, including the day late startup of the production cell and on L. A facility and some mechanical integrity testing at our excess plant.
These issues were substantially behind us.
Overall gross margin percentage to net sales remained strong at 43%.
Our non crop absolute gross margin increased by 39% on sales that increased by 55% as compared to the same quarter of the prior year.
Within this change we had improved improved sales of both of our U S. Dod Brown products on the pest strips on the other hand, while we have substantially higher in both the technology license income in the first half of 2021, we recorded lower licensing income during the second quarter.
Furthermore, we experienced lower factory recovery in the second quarter of 2021 for the reasons already discussed.
Overall gross margin percentage remained strong at 46%.
With regard to our Q2.2021 international sales we saw on increased sales of 10% on a strong increase in gross margin, which were up 35 per cent.
More than half of the improvement was driven by the newly acquired businesses I can over in Australia.
And the a greenhouse biologicals business, which both generate margins above our international average.
Overall gross margin improved to 31% as compared to 25 per cent for the same period of the prior year.
I thought that would come on for a moment on overall cost of goods, which remained flat at 61% of net sales we have seen some upward pressure on cost affecting certain products in our portfolio because of where the associated raw materials of source. We are also seeing significant increases in inbound ocean freight, particularly from Asia.
Eric Bosch is there is not significant we have made selective price increases to offset this cost inflation.
This graph shows the impact of the factory performance on our overall gross margin you can see that in the second quarter of 2021. The factory cost of 3.3 percentage of sales, whereas in Q2 of 2020. The performance was such that we only had 1.
6 net cost 6% net cost.
Despite the factory performance on <unk>.
<unk> percentage remained flat for both quarters.
Operating expenses for the quarter increased not by $9.5 million or 28% as compared to the same periods of the prior year.
Despite the increase expenses when compared to net sales remained level at 32% of sales.
The increased cost included the addition of activities of 2 newly acquired businesses, which together accounted for approximately a third of the increase this included taking a charge of $1 million in additional deferred consideration on the Australian business that we acquired in the fourth quarter of 2020.
That business day has exceeded expectations in its first year and consequently, the company's liability associated with the announced agreements has increased.
Our outbound freight costs are almost purely volume driven and were up 34% as I noted earlier during the same period net sales were up 29% in.
In addition to volume, we had some mix of customer destination and products and some freight inflation the.
The freight increase accounted for a quarter of the increase.
Other increases included leave the legal expenses and higher incentive compensation accruals linked to business performance.
As you can see from this slide our operating income was 33% higher than the level of reported for the same period of 2020.
We recorded lower interest expense in the second quarter of 2021 as compared to last year.
There are 2 factors first the rate on the alone is down as a result of the U S policy to stimulate the economy and second we have low of borrowings due to debt repayment from 12 months of cash generation from our businesses offset by some acquisition activity.
From a tax from a tax perspective, our effective price increase to 32 per cent for the second quarter of 2021 as compared to 29%. This time last year.
The main reason for the increase in the effective rate is the E&S expense on the Australian acquisition, which is not deductible for tax purposes.
All of these factors came together and the bottom line, we are reporting $5.1 million of net income as compared to $3.9 million last year of quarter over quarter increase of 32%.
For the first 6 months of 2021 of our sales were up 25%.
The gross margins in absolute terms of 24% all of our main activities of U S crop U S. Non crop and international of all contributed to this exciting performance.
Operating expenses have increased primarily as a result of the new businesses acquired in the final quarter of 2020 increased performance link incentive compensation expenses and costs associated with the volume changes such as freight and warehouse costs.
Overall operating costs were up 21% as compared to net sales that increased 29%.
And operating costs compared to sales improved to 34% in 2020 as compared to 55% last year.
Yeah.
Interest expense is reduced by 30% as the result of cash generated over the last 12 months.
Tax expenses increased driven by financial performance overall, net increase and net income increased by 86%.
Now I want the turn my attention to the balance sheet.
As you can see on this slide during the second quarter of 2021, we increased cash generation from operations by 41% as compared to the same quarter of of the prior year.
Firstly, you can see that working capital really didn't move very much as we got into the middle of the annual cycle and this performance includes the expanded scope related to the businesses acquired in the fourth quarter of 2020.
During the quarter, we continued to follow our strategy of buying attractive assets that fill white space in our portfolio. Accordingly, we paid the deposit of $10 million for private the acquisition.
And took control of that asset at the start of the third quarter.
At the end of June 2020 of our inventories were $175 million as compared to $181 million. This time last year.
If for a moment, we exclude the impact of products in entities acquired since December of 2019.
This inventory is reduced by 11% from $177 million at that time to $158 million this year.
So we feel that we have controlled inventory well during this phase of the company's annual cycle.
Our current inventory targets at the end of the financial year is $150 million that compares with $164 million at the end of 2020 that target is obviously dependent on a few things, including a continued low impact from the pandemic normal weather patterns and does not take acquisitions into account.
With.
Got to liquidity under the terms of the credit facility agreement. The company uses consolidated EBITDA as defined in the agreement to determine the leverage.
Consolidated EBITDA for the trailing 4 quarters to June 30 of 2021 was $59 million.
As compared to $52 million for the full quarters to June 30 of 2020.
As a result availability under the credit facility amounted to $57 million at June 30 of 2021 and $49 million at the same time last year.
As you can see from the chart, we've been controlling debt well, even as we work through the annual cycle and as we continue to invest in the business.
As I mentioned at the last call our credit facility was scheduled to expire in June of 2022.
And at the time of the call we were already in discussions with our lead bank regarding a reset on the facility we needed to execute the new agreement at this time to ensure debt remained long term.
We are pleased to report that we have executed that in your credit agreement with a slightly larger capacity and greater improved generally improved covenants.
As a consequence, we are feeling positive about liquidity looking forward for the balance of the year of this year on beyond.
Yeah.
In summary, then in the second quarter of 2021, and we have increased sales by 29% on despite higher levels of net factory cost of kept overall margins.
Remained in the normal range for the company.
We have managed operating expenses, which increased in absolute terms, but declined when expressed as a percentage of sales and on net income increased by 32%.
For the first half of 2021, we increased sales by 25% gross margins by 24% on operating expenses of reduced when compared to net sales our interest expenses down and net income has improved by 86%.
From a balance sheet perspective accounts receivable increased driven by strong sales inventories have been well controlled working capital has been held flat during the quarter on debt is lower than this time last year.
Despite the 3 acquisitions.
It was completed in the intervening 12 months and finally, we have of new credit facility and availability has improved with that I will hand back to Eric.
Thank you David.
What I'd like to do now is.
Go back to November of 'twenty.
At our third quarter conference call, we gave some.
Some 3 to 5 year.
Forecasts as far as where we expected the wind up in 'twenty 3 'twenty 5 and you may remember there were kind of 3 major tranches.
Within our core business, we also of.
Have 3 and the target with our existing.
Existing products.
Was going from a kind of a of $4.68.
2.5 O 7 of 23.
2 of 5.
27 in the.
The 25. So this is kind of reflects the just kind of the standard 2.5% increase.
On an annual basis, some of our existing products.
The second area was with regard to our new product pipeline of by new product not this is not the acquisitions. These are these are products that we've come together with our team and talk about the ability for us to differentiate our products by adding maybe 2 molecules or even 3 molecules together.
To create kind of some unique properties.
And with that we looked at.
The growing that added about 37 in 3 years.
The $109 million over the 5 year and then finally acquisitions, we kind of basically.
Looked at we've been averaging a little over 40, a year, but I think what we're looking at.
Starting on the smaller level on that but overall climbing that true to about $100 million over a 5 year period.
So again at this point no reason to differentiate.
With our initial forecast for our existing product line.
But we are seeing.
Kind of a <unk> of <unk>.
Reset with our new products. So what we've done is where they meet.
Quarterly and take a look at the projects are.
There are projects that that got canceled their new projects that come on and so with this we're running about a year behind on our schedule.
So looking at maybe.
Somewhere in that in the <unk>.
96 level between 26, and 27 will will be hitting.
Target of 100.109.
And then with regards to our acquisitions again, we feel comfortable at this point that we can.
The continued to make those the targets that we laid out in November of last year.
When we go to our Green solutions.
We've got a fairly aggressive growth.
You remember that this is about a 10% CAGR expected.
Globally.
We think we're in a much stronger position than most.
And so we have.
On the additional initial 22 of that.
We've got growing by 48.
And on a 3 year period.
Go into.
Actually 118 in growth by 2025.
And so for the first half.
Of 2021, we're right at $17 million and expecting target to be somewhere in the 32 to 35.
So we're not.
That's about a 50% increase from where we currently are.
Looking at.
Of 40% increase per annum to get the that 70 on the $1.40.
We could have.
Acquisitions of fall into that space, but certainly we've got acquisitions kind of covered and the other.
And the the core operations.
But our team is feels good that this is the best forecast at this time.
So why you might ask.
When we pulled together our portfolio.
All of that we had we had 80.80 different biological solutions globally, which is a big number broken down into <unk> microbial biochemicals and bio stimulants, but since that time, we're now over 100 different.
Solutions that we have in that space and by this we're not talking different geographical labels of different pack sizes, we're talking about unique.
Differentiation differentiated products, that's a big number.
And within the biological space.
At the very very robust portfolio of products.
So just a little color on us with.
Within the U S. Just on the agreement with products that we acquired.
We're planning to do we are doing this year 14 different crop try all of a sudden youll see theres less than 14 crops, there, but we've got kind of multiples on corn on a couple of of the other products and.
In addition, 4 and guard nonprofit business.
We've got 9 turf trials. So when we talk about trials that's not individual applaud. Those are those are the scope of the direction of a particular.
Particular project, but when you talk about actual plots.
We're talking about above.
About 500 total test plots and Thats within our Green solutions. This is just a greenhouse.
In the U S.
Yeah.
Moving on to Sim pass.
We had we had looked at it.
Achieving about $35 million of incremental sales by 23% of 130 by 2025.
Our team.
The saying okay.
Within the U S and this doesn't include international.
On and nominated to 4 crops.
We're looking at a little bit behind.
When we were so we're kind of running a year behind this and.
And so let me kind of move on to kind of explanation for why that is.
So there are kind of 3 main areas that we.
Look to as far as of this.
This hitting its stride and of course was the equipment itself needs needs to perform and we feel like all aspects of it whether it's the the tracking of the cartridges with refilling the actual applications the ability to put prescriptions and all of those all of that well beta tested it and we think we can.
Wish that the.
The second area is building that toolbox of products that are or our SaaS customers buy the soil applied solutions.
<unk> solutions.
The they've got ability to to use multiple products and if you look at this last year, we really had our kind of core core products available.
Uh huh.
Our are generally linked to either kind of nematode or or.
Or.
Insect control. In addition, then we have our micronutrient and zinc.
And so for this year, we did have.
Several people the applied multiple.
And did a multiple of 3 different products and did very well, but a lot of growers looked at it and said okay, let's let's.
Let's wait on that investment until we get to the 'twenty 2 season. When you when you add more so we haven't given the good visibility of.
What the.
The future looks like for our toolbox.
But what we're excited about in 'twenty 2.
For the first time, we'll have we'll be able to include both soybeans and cotton to solution is being applied by.
By our our growers.
And so up until now.
Corn growers just applied corn.
But the corn growers generally growth soybeans as well and then the southern market the.
The corn growers and the addition of soybeans also many of them are of cotton. So this is of greater utilization of and really kind of for the design of what <unk> is about and then as you see in 'twenty 3 our portfolio of grows even more so.
We get into that 'twenty 3 season, we're talking about 42 different products in that in that platform and this will continue to grow over time and as we talk with growers.
And distribution of retailers.
We will see kind of what what they really want in addition, though we have an up there on the board. We have we have third party products from a number of different companies that really would like us to get their products registered.
Registered and approved and into the <unk> system.
So highlights that we've seen here from from.
From our last years of experience here of.
What we've seen generally is that our Sim pass users are twice twice the size of our smart box users Gen.
Generally our of smart box users kind of average treating about half of their field. It goes the full rates, but if they are doing.
They've got 1000 acres and they do 500 acres of corn theyre going to apply 500 with insecticides of the amount of side, but the soybeans and the other 500 arent getting in touch, but what we are seeing though is that.
The farmers farms are twice the size and as such just with the 3 products. We have there they're purchasing 3 I'm, sorry, 4 times, the amount and as far as revenue.
So that's that's what we really envision that this would be of big Big upswing from what we've seen in the smart box with utilization of multiple multiple solutions.
And then finally, we've done the math on at the current corn prices. All we're looking at in order to pay for a Sim pass system over of over a 5 year period is just the half a bushel per acre increase so it's not a major investment when you look at it that way and I think we expect.
With <unk> solutions to be.
More than double digit increases.
The increases in there.
And they are.
Their yield.
And then so for the 22 year, what we've done again.
Even with the <unk>.
Delta strength that we're seeing there have been a number of.
The of.
The operations that we've been able to place and still expect to do on where we can do field demos and.
And actually bring in people from all over.
The 2 and even bring in people from from Brazil, as well, bringing people in to see the system work.
And its performance and in addition, they are being able to demonstrate the return on investment.
And lastly.
What we've got is our for our team our sales.
Sales wise, we've outfit of them with what I call of soups in the soup to nuts.
8 of Z on the Sim pass basically giving them the ability to see.
And be able to.
The 2.
Explain that to everybody in the chain, whether its of third party of whether it's.
The distributor, how they make money whether or not it's a.
<unk>.
Our retail or trying to figure out how he writes a prescription.
How you guys see the drawn on this information in there or how he shows return on investment with the growers.
So what we've done is we've created this iPad that basically covers 5 major areas. So theres the Sim pass solutions the cartridges, what really the <unk> past experience is all about.
And logistics and and so from each 1 of those topics the breaks out into additional tabs. So basically there are as I call of this agency essentially 32 different tabs for which our sales team can do and on download this for our retailers.
So if you take a look at 1 of these.
We're talking about the Sim pass solutions when you pull that up then you can type of you can hy Bon into any 1 of the products that we're currently.
Currently offering. In addition, then you can hit the coming soon and you can see the table that I provided.
Just just before this.
And then similarly, if you go to.
2 of the business builder.
Retailer can kind of get a lot of questions answered around the.
The scope of <unk>.
What's the prescription like what's the business model.
And can provide him with much better comfort that what he is promoting an impasse is a win win for everybody.
So if you put all 3 of these together.
Essentially we're looking at tracking to about just on just under $700 million by 2023 and <unk>.
On that 900 of over 900 by 2025.
So that's that's where we are with our update and we will continue to provide this as we go through.
Pushing the team to continue to sharpen their pencil.
And provide.
The updates as to where we're going to be.
Yeah.
So before we switched the questions I have a couple of.
We had a couple of questions that were brought up in this last quarter that I wanted to address here in front of everybody. So 1.1 question was about our acquisitions.
What what kind of return are we getting on those that we've talked about we make acquisitions in the in the 5 to 6 times EBITDA, which for the industry is generally.
10 to 12 times EBITDA and we plan on that space, where we look for what we think are going to be.
Nice nice wins for us and we pass on those where we think it's the low too expensive, but you've seen by our.
Over 50 products on an <unk>.
<unk> manufacturing sites.
The 3 closed delivery systems.
And <unk> businesses that we are successful and operate in that space.
So what we did is we said okay. We just took a look at this 14% to 20, which is kind of the down cycle the accrued from 13 to.
Do today.
And we've looked at what the actual cash that we paid for these we've got a mix there of businesses and product line.
And when we looked at the kind of incremental.
Benefit.
Took the 21.
The current projection, which looks pretty solid to us and we calculate out of that incremental EBITDA and it comes out in that in the <unk>.
5 to 6 times range.
And kind of return on capital employed.
At 10%.
And if we were to take these incremental businesses and the sign in addition, our current.
Overheads that are with our existing business if we if we.
Put that proportionately on to these businesses it kind of moves that number 2 and between 7 and 8.
So the second question had to do within our working capital.
How do we make the determination of how do we measure of what metrics do we use and it kind of goes into into.
3 different areas, so with the external acquisitions, we've got of a very robust.
Our model that we use that takes the product with sales cost of goods opex assigned to it.
Any interest in exciting excited to it as far as the working capital and we actually do build too.
On the EPS over over each of the 10 years.
Once we once we do that and then we measure kind of an internal.
Rate of return of pay.
Payback period on the acquisition already mentioned the 10 year P&L.
That's the basis for how we measure.
Making making our acquisitions.
With return to internal investments.
Such as of what I've mentioned in the new product pipeline or some pass or or the green solutions.
We do look at a similar concept as to what we do with with the acquisitions, we build out.
What it looks like at maturity generally that's in the in the 5 to 7 year period.
Looking out kind of where we build out again over over a period until we hit maturity and measure of what the short term midterm and long term returns are going to be and Thats, how we prioritize.
Our.
Basic and internal growth initiatives.
And then lastly, we have decisions to make about how the regionally the deploy our working capital.
And with regards to.
Our existing.
Business and I would say the more mature businesses have a better return on capital when we look at at our domestic business or even our Mexico businesses. We've had for 2020. Some years those tend to have higher return rates, but when we go into.
The newer territories.
And try to establish a beachhead and grow.
Particularly as you get into central and South America the.
The credit terms tend to be longer, although we're trying to offset that with with longer payment terms to our suppliers.
Generally we.
We have to make strategic decisions, there and let's take Brazil for instance, we have not we have not participated much in Brazil in years past.
<unk> thousand 19, we acquired of business and we're building that business today and that does not meet the same standards or the same levels of return, but overall, we look at we look at whats in the best interest of the.
Firm on on.
All of these for what's on the short term return midterm and long term return.
So.
What's that.
I think.
Brian will open up to any questions the audience might have.
Yes, Sir at this time, we'll be conducting a question and answer session.
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Our first question today is from Gerry Sweeney of Roth Capital Partners. Please proceed with your question.
Hey, good afternoon, thanks for taking my call.
Just I had a couple of questions.
I wanted to start on maybe the green business the Biocidal.
Believe you mentioned you are at 80 products don't you on kind of products you mentioned a series of field tests.
Going on as Youre looking at that expansion of products is there anything sticking out get.
It gets you excited further excited about the business of any maybe.
Breakthrough products or anything like that just curious on.
On that front.
Sure.
So again, the greenhouse products just with the.
150 patents around them.
Is it is very very exciting we're getting.
We've got 1 customer that was generally ordered about.
Half of truckload and already this year. He started several of truckloads of thanks.
Thanks, that's great. So we get we're getting some very nice feedback on the greenhouse products. There were some projects that were that had been started with some of the major companies that debt.
Kind of kind of.
Lost focus during the bankruptcy, but as soon as we brought this on and then the builds came on and they said, okay. We need to we need to kind of move forward. So.
Companies.
Are looking and you'll see I mean syngenta made of.
Big acquisition.
But.
All of the majors are looking at that growth and saying Hey, we've got to we've got a step step into this and grow with that and so we're starting off with a very very nice portfolio.
I will say also.
What we have where we're at with <unk> bands.
And we've got on products that were end of the consumer market with Procter and Gamble.
We're very enthused by.
On a non selective herbicides that we've created.
Also of potentially for the lawn and garden in the commercial commercial use that.
Is very fast acting.
So it's it's a matter of hours, you'll you'll see the effect and by the next day, the weeds are don or the vegetation whatever it is.
And particularly in light of.
Bears decision to exit that market with the round out interest rate.
Yes.
So this is a product that we can move straight into the market with the does not require.
EPA registration there are state registrations of generally are very very quick.
But just like with our our zero product line.
The Procter and Gamble.
Has launched.
This is this is a quick quick fixes.
So we think in this upcoming year, we will do a lot of.
Of market market.
The.
Work and be in a position 4 of.
The launch in 2023.
Gotcha.
And then shifting gears obviously.
Pass ultimate the another big growth the opportunity for you. It did sound like maybe the timing I don't want to use the word pushed back a little bit, but a little bit of maybe a little bit of elongated some of your partners.
Moving to multiple different crops I think in the next season or 2 but.
Do you have everything in place around the intellectual property side do you need to.
Filled out any pieces of that product a little bit further either internally or externally to help the growth side.
Yes, I mean, the intellectual property, we feel very very good about.
We've we've added.
Some other pieces, which are as seed synchronization and on.
And actually being able to paint the sea at time of plant. So those are kind of additional.
The additional pieces that will not part of our projection of that you've seen there.
But those are pieces that we think will.
We'll add quite a bit too to the.
To the success of the product the.
The equipment itself, but yes, no the the.
On the equipment the equipment the software.
All of the IP around that we've secured debt well.
And so we're fine there.
So I think what we what we're doing now.
Focused on building that building that.
The product offering the SaaS products, so that we can get.
Later utilization across multiple crops and I should say to I mean again. This does not include.
International and of course, we.
We have systems.
Mexico, Ukraine, Australia and.
And Brazil that were working with this year to try to build that market and so our international team.
Looking at.
Kind of.
Got it.
Number, but they really want to hold off until they see kind of how things unfold here in the U S because there'll be trailing by.
1 to 2 years, what we do here in the U S.
And so shortly probably by the end of the year, we will probably give it.
At year end, we'll probably give an update on that as well.
Gotcha, and then maybe just say.
Quick question on for David.
Operating expenses up a little bit some of it obviously comes with growth.
I was curious of any of it would be transitioning some of the crisis.
<unk>.
Traits on logistics or anything like that just curious since.
Some of the roll off and we see a little bit.
The incremental improvement.
I think the.
Yes.
The freight costs pretty much straight in line with sales.
Apart from the present temporary.
Hopefully temporary increase in.
Freight from Asia, and I don't actually know how long that is going in the last year.
It's Scott.
<unk>.
I don't I don't know that we're going to go back to the rates we were.
I think theyre talking about.
Kind of a year, maybe before the things might move start moving down, but we're really looking back maybe a year before it hits the nu.
Maybe a new norm.
But if you look at fuel costs.
And inflation.
I mean.
Better at forecasting those sort of things that we are but where does where does cost of oil go over the next.
A couple of years.
If I had no debt I know that I wouldn't be on the call.
Yeah exactly.
I Gotcha I understand but.
That's helpful. I appreciate it thank you.
As a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.
1 moment, please while we poll for questions.
There are no additional questions at this time I'd like to turn the call back to Eric <unk> for closing remarks.
Okay. Thank you Bracken.
Thanks to each of you for listening in.
We founded informative.
And again, we'll keep you updated.
With our gross of initiatives and everything else within the company as we move forward so off to a great start here in the first half of.
Things look good at this point looks very solid for the line.
Not only the second half, but things are lining up well for 'twenty, 2 certainly as well so thank.
Thank you and appreciate you attending.
Have a good evening.
This concludes today's conference.
You may disconnect your lines at this time, thank you for your participation.
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Yes.
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Yes.
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Okay.
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