Q2 2022 American Vanguard Corp Earnings Call
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Greetings. Welcome to the American Vanguard Corporation's second quarter 2022 financial results conference call and webcast. 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 0 on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host, Bill Kusser, Director of Investor Relations. Thank you. Good afternoon.
Thank you very much, Alex, and welcome everyone to American Vanguard's second quarter and mid-year 2022 earnings review.
Our speakers today will be Mr. Eric Wintemute, Chairman and CEO of American Vanguard.
Mr. David Johnson, the company's chief financial officer and also assisting in answering your questions. Mr. Bob Tragel
the company's chief operating officer.
Before beginning, let's take a moment for our usual cautionary reminder.
In today's call, the company may discuss forward-looking information.
Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations.
Those 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, we turn the call over to Eric.
Thank you, Bill. Moving on to slide 3 on the agenda, but.
Before we begin, I wanted to address our 10-Q filing, which we did yesterday afternoon, last evening, and then we did our earnings release this morning.
We have in the past been asked to file
our 10-Q and give people a chance to read it before the conference call so that they could have more in-depth questions.
And we also had in the past filed our earnings release.
prior to the market opening and doing our call after the market.
we had advice particularly in times when we had unusual earnings that
that we should do them simultaneous after the market closed.
And so this year we met, this quarter we met expectations or exceeded expectations. We had our queue ready yesterday. Today is our last day.
to file the queue timely and we have had some glitches in the past with with getting the filing through the system. So, obviously, we did not expect the kind of reaction that's happened today. We apologize in hindsight. It's definitely a mistake. We will not.
pre-do our 10Q in the future, unless we have some other...
reason and will advise people of that.
So with that said, I'm going to make a few comments, turn it over to Bill. I'll touch base on our growth initiatives and then we'll open up for questions.
So moving on to slide 4.
The revenue growth, these are just reiterating the targets that we've stated back in March. Revenue growth in that 8 to 11 percent, gross profit margin 30 to 38 to 40, operating expenses in that 31 to 33, interest expense similar to 21, tax in the mid-20s, EBITDA, debt to EBITDA ratio without acquisitions at year end and below one. The right hand side is the Expand
But with that, the positions could be up as high as two and a half. Net income, we said the target would be in that 60 to 70 percent increase. What we have gone ahead and done here on EBITDA is translated that 60 to 70 percent increase into an EBITDA percentage growth and that would be 24 to 28. For real numbers, that would come into the EBITDA percentage growth rate.
79 to 81, which coincidentally 79 was our top EBITDA of all time and that was in 2012.
So just where are we at at the halfway point? Our revenue growth obviously going faster than than we had given initial.
Target 4, gross profit margins are up above the profit margin range that we gave. Operating expenses are right in line with Target.
Interest expense down 40% and at this point, I think unless we had some rather high acquisitions before the balance of the year, we expect to be below our 21. Tax rate, we're at 30%. I think now we're expecting to be kind of at the higher the mid range, right around 27% is what we're expecting for a full year. Um.
debt to EBITDA currently at 1.33. We would expect to be below that 1 again without acquisitions. Net income for the halfway point were up 104%, which.
exceeds our target and IBITDA right now we're up 40%, which again is ahead of our target.
on to slide five just a couple of highlights to talk about again revenues up 47 million people have asked okay how does that relate to price increases versus volume of that 47 million forty five percent or twenty one million dollars is related to price increases and fifty five percent or twenty six million is a result of volume increases
Our gross margins, as mentioned, is up from 39 to 41, a 2% increase. The key driver for that is factory performance, which is about 1.5% of that 2% gross margin increase. So, factories are running well. It is a scramble that I'll talk about a little bit later, but we're doing well at this point.
Moving on to slide six.
So we've talked about supply chain challenges in each of the past calls because it continues to be something top of mind. We talked about the availability of even finding the resources, the cost of those resources if you can find them, and then the actual logistics of trying to get them delivered to the plant on time for manufacturing or for the entity for actual sales.
So one of the things that we did and we have
we did and we have...
schedules that we've laid out and we have schedules for production that are laid out in advance of the year. We're working on the 23 schedule right now. And in that process we basically kind of know generally when we're going to be manufacturing certain different products. But as we went through and I listened to peers having all kinds of problems, packaging, bottles, caps, pallets, woman-made River
all the inerts, some of the solvents, and the intermediates. And again, any one of those issues, any one of those inputs that you don't have can cause delays and missing actual demand. So what we stated is we were going to place orders for all of the raw materials we needed for the balance of the year. And I'll give different delivery dates that were out just the concept of we're just not going to do.
And.
intend to take those as needed. So I mentioned before about forecasting cost and timely price increases. I think we've done very well at that, particularly as you look at what our cost increases have been for this first half of the year. And in addition, those increases have been in advance and therefore
our margins are being held maintained well. You know, with a number of oddities, a lot more air freight, ocean freight being, you know, 10x the cost, and just calculating all of that by SKU, building that into the cost of, and again, this is inbound freight, we're not typically doing deliveries by air freight, but the inbound freight, getting that built in so that we understand what our true cost is.
ahead of demand because people are pushing for products sooner than they actually need it just because of scarcity. But making sure that we're sticking with the demand.
Moving on to slide...
7, I just I've got this in there just to kind of show kind of the effect as we as we entered the the 23 season which I'm 22 season which really kind of kicks off in September October of
2021, we had very high demand from our customer base in the United States domestically. People looking to get ahead of materials and as such, we carried quite a backlog going into Q1 of this year. So, I think we did a very good job at I'll say, managing the products that we had.
to our customer base, making sure that no one customer over purchased what their needs were and therefore put a situation where we couldn't deliver to other customers. So we managed that well, our customers in the US were extremely happy. We have been told by several customers that we have done the best job of all the suppliers in the US, so we're very proud of what we accomplished there. Q2 Subsequently, domestic...
was flat with the previous year. But then you see international kicking in in Q2 as we're seeing kind of the, I don't call it, people trying to buy ahead but a little bit of making sure that they've got product inside and meeting the demands that they have.
So moving on to slide 8, kind of looking out as kind of our core products and where we are, this is kind of targets I think for where we believe we'll end up at the end of this year.
herbicides, which is the number one crop input, had been a weakness area for us. Very strong in insecticides, so fumigants, like with regulators, new kind of biologicals, but our herbicide market was kind of more to the corn market with with our impact product line, but we made a concerted effort to expand that base and as such over the last four years we've added ten new products.
Largely through through acquisition, but we've expanded outside of corn to cotton, rice, sugarcane, soybean and canola. We're up quite a bit in the 1st half and expect year end to be up about 40%. So. Um, kind of growth in our in our core segment, our soil insecticides, I expect about about 17%.
it could have been it could be bigger except
We've had to push our factory in Alabama to produce our cotton to foliant folex.
for an additional four weeks of production to meet a kind of excess demand from what we originally thought.
the market would do. So we have that ability to shift. In so doing we're pushing back Aztec from a November start date to a December start date. And so we will position the Aztec that we have produced in December , but we're going to go into 23 with pretty significant...
back orders on our soil insecticides. Cotton, I mentioned the Folex, also Baidrin, very strong and so we're looking this year to be up about 29% there. So that's kind of the...
The highlights.
One of the things that we wanted to make sure of and let you know was with all the sales that we've done, what kind of in-channel inventories we're looking at. And so we have...
And we won't know for sure until we get, you know, first, second week of September , but we did go out. We know basically what's sitting at the distributor level that we've got track of, but the key retailers, we went out and physically spoke with them and talked through theirs. There are some retailers that have more inventory that they say they're going to keep, that they do not want to return it. We don't really know the numbers yet for them.
They're happy to have the inventory going in, but therefore that's not going back to distribution. So we do the overall calculation. Our best guess is that inventories in channel will be less going into 23 than they were going into 22. And obviously that overall inventory being down signals a strong 23 season.
Okay, so with that, David, I'm going to move on to you for your comments about about our finances.
Thank you, Eric. With regard to the continuing pandemic, a small number of employees around our global business have experienced COVID infections during the last few months.
It's good to report that all have followed appropriate safety protocols and isolated, have worked remotely where possible and have recovered or are recovering.
Further, these isolated cases have not interfered with our operations.
Moving to slide 10, with regard to our sales performance for the second quarter of 2022, the company's net sales increased by 10% to $148 million as compared to $135 million this time last year. Within that overall improvement, our US sales were comparable to the prior year, and our international sales increased by 26% to $64 million. International net sales accounted for 43% of total net sales.
as compared to 38% this time last year.
to 38% this time last year. Turning to slide 11.
With regard to gross profit performance, our US crop business recorded an 11% increase in absolute gross profit on approximately the same level of sales as this time last year. This performance was largely the result of price increases that we implemented as inflation was taking hold and in anticipation of both higher costs of goods and increased inbound and outbound freight costs.
In addition, as a result of strong sustained global demand, we were able to run the factories closer to capacity and achieved better overhead recovery than in the same period of 2021.
Overall, US crop gross margins improved from 43% to 47%.
Our non-crop sales absolute gross margin improved by 3% on sales that were approximately flat quarter over quarter.
The main driver for the improvement was related to better factory efficiency, which I just mentioned.
With regard to our second quarter international sales, we saw increased sales of 26% and an associated 28% improvement in gross margin.
The main drive for this performance were strong sales of both the company's products and sales of third-party products through our international distribution businesses in Latam and Australia.
Our international businesses experienced similar increases in the cost of goods that we saw in the US and at the same time absorbed the adverse impact of a strengthening US dollar.
The international sales team worked hard negotiating with customers to raise pricing where they thought it was possible and consequently maintain margins in comparison to the prior year.
Overall, gross margin percentage was at 31% for both the second quarter of 2022 and for the same period of the prior year.
The graph on slide 12 shows the impact of the factory performance on our overall gross margin. You can see that in Q2 of 2021 the factory cost us 3.3% of sales.
Whereas, as already mentioned, we've been able to run the factories at close to maximum capacity during the second quarter and have as a result achieved better overhead recovery.
For Q2 2022, factory under-recovery amounted to 1.1% of sales.
On to slide 13 which shows operating expenses for the quarter that increased by $5.9 million compared to the same period of the prior year.
Our expenses were 33% when compared to sales.
As we disclosed in our public filing, the company spent $1.8 million on proxy defense activities, which we regard as a non-recurring cost. Absent those costs, our operating expenses would have been $47.2 million.
or 32 percent of sales. That is an underlying increase of 10 percent on net sales up about the same percentage.
The main driver for the increased operating expenses, in addition to the proxy contest costs, were $1.3 million in freight costs, which is primarily volume.
logistics inflation and destination driven.
Further, we have made some headcount additions in critical areas and have also incurred spending on various activities that support our growing business.
Thank you.
As you will see in slide 14, our Q2 2022 operating income was 21% higher than the level reported for the same period of 2021.
We recorded lower interest expense in the second quarter of 2022 as compared to the same period of 2021. There are two factors. First, we have generated cash in the intervening 12 months, while spending very little on fixed assets and other acquisitions, and have used the funds to manage working capital needs, continue the development of our precision application systems, and have used the funds to manage working capital needs.
investing in our manufacturing assets and in paying dividends.
Secondly, we have benefited during the last three months from the tail end of the 2021 annual early pay program, which results in getting cash earlier than the due date for accounts receivable.
From a tax perspective our effective tax rate improved from 31.9 percent last year to 28.5 percent this year. This positive change was primarily impacted by a mix of jurisdictions where profits were recorded plus the impact of the vesting and exercise of stock that happened during the second quarter of 2022.
All these factors came together in the bottom line. We are reporting $6.8 million in net income as compared to $5.1 million last year, a quarter over quarter increase of 33%.
On slide 15 you can see that for the first six months of 2022 our sales are up 90% and gross margins in absolute terms are up 24%. Both our US and international businesses have contributed to this exciting performance.
Operating expenses increase primarily as a result of the proxy contest expenses.
the growth of sales affecting freight costs, the adverse impacts of a strengthening US dollar on purchasing inventory for our foreign subsidiaries.
increased incentive compensation reflecting improved business performance, and increased accruals associated with deferred consideration related to our Australian business that was acquired at the end of 2020.
That business has performed very well during the first two years, which was the performance period for deferred consideration.
Those costs will not be incurred going forward.
Overall operating costs were up 13% as compared to sales that increased 19%.
Operating costs were 32% of net sales.
net sales, which is a significant improvement in performance when compared to the 34% we reported for the first six months of the prior year.
Furthermore, absent the proxy contest expenses, the increase would have been 11% and our operating costs as compared to sales would have been 31%.
Interest expenses reduced by 40%, the tax rate improved from 31.4% to 30.1% in 2022, reflecting mix of income in different jurisdictions and tax benefits for investing and exercise of stock. Overall, net income increased by 104% for the first half of the year.
Now I want to turn my attention to the balance sheet. Note on slide 16 that during the second quarter we increased cash generated from operations by 6% as compared to the same quarter of the prior year. On the other hand, we increased working capital primarily as a result of making conscious decisions to bring key raw materials and finished goods into the business earlier than previous years to ensure continuity of supply for the balance of this year and into 2023.
During the quarter, we continued to follow several aspects of our capital allocation strategy, including investing in our next generation packaging systems, Simpass, investing in our manufacturing assets, and making dividend payments.
Turning to slide 17, at the end of June 2022, we have reported inventories at $182 million as compared to $175 million this time last year.
We are working hard at managing inventories in the face of strong demand growth and as I just noted made decisions to procure inventories earlier to secure product for the rest of this growing season and into the next.
The graph shows inventory expressed as a percentage of trailing 12-month sales.
Even though inventory increased in the second quarter of 2022, when expressed compared to sales, you can see that we continue to make long-term progress on this important business metric.
As you will see in slide 18 with regard to liquidity, under the terms of the credit facility agreement, the company uses consolidated EBITDA as defined in the agreement to determine borrowing capacity.
Our consolidated bank EBITDA for the trailing four quarters to June 30th 2022 was $75 million as compared to $59 million for the four quarters to June 30th 2021.
At June 30th, 2022, our debt is $101 million as compared to $149 million this time last year.
The combination of higher bank adjusted IBDAR and lower debt results in a significant improvement in availability under the credit line to $163 million this year as compared to $57 million last year.
Turning to slide 19, here we show our progression on adjusted IBDAR from $31 million in the 12 months ended June 30th 2015 to $76 million this year.
That is a compound annual growth rate of 16%.
It is pleasing to note that we are close to achieving the company's all-time high, which was $79 million in 2012.
In fact, based on our performance against the targets Eric has detailed, we expect to meet or beat that 2012 performance this year.
summary on slide 20. For the first half of 2022 we have increased sales by 19%.
This includes having had early conversations with our customers about the near-term impact on finished goods of raw materials and logistics expense and as a result secured price increases across our global markets. We've been able to raise output from our factories in the face of strong demand year-to-date and for the forecast for the balance of this growing season and into next and thereby improved overall the factory costs.
These efforts have enabled us not only to maintain but to improve margins, notwithstanding the inflationary and foreign currency pressures we are all experiencing.
We have managed operating expenses which increased in absolute terms but declined when expressed as a percentage of sales from 34% last year to 32% this year. Our interest expense is down 40% compared to the first half of the prior year and our tax rate has improved. All these factors have come together to deliver a net income that has improved by 104%.
From a balance sheet perspective, accounts receivable increased, driven by strong sales. Inventories increased primarily as a hedge against what we see as a mid-term challenge for supply chain. And debt is $49 million lower than this time last year.
From a balance sheet perspective, accounts receivable increased, driven by strong sales. Inventories increased primarily as a hedge against what we see as a mid-term challenge for supply chain and debt is $49 million lower than this time last year with improved availability under the line.
With that, I will hand back to Eric. Thank you, David.
Moving on to slide 21, with SIMPAS and 22, at 81 new systems, one of those being in Ukraine, believe it or not, that were put into use this year.
We're waiting.
results of yield to show what kind of improvements we've done in the fields with the materials that were applied both prescriptively and full but certainly more accurately with the new systems and meters. For this upcoming year we are targeting somewhere between 150 and 200 new systems in the operations into operation for the upcoming year and of course that tacks on on top of the 81.
we had some systems a few of the year before. We've looked at our forecasts and right now it looks like we're still on target to achieve the previously stated forecasts and we'll discuss that a little bit more in a moment.
Moving to slide 22, again, a lot of what's going to drive the success of SimPass is the availability of different products that can go through the system. And you can see 23 will be pretty robust as we add in a number of new products that can go through the system. I will say in 22 we're very pleased to get Invigorate and Azotic from Avita and have those available.
We think in 23, the use of those untreated acres is going to be up pretty substantially. One of the reasons I think driving these are these are both nitrogen fixing plant stimulants. And as such, I think the whole carbon piece has moved, it continues to move forward. Carbon reduction, there's going to be higher incentives..
growers to show less nitrogen being put on their on their fields and as such we've said before we believe that SimPass plus the Ultimas system allows the grower to be able to measure record and validate and will be a key part of them being able to collect those carbon credits.
Moving on now to Green Solutions.
So we had a good Q2, up 62% from where we were in 21. The strong performance, Central America, India, Australia, and Mexico all did well. We've targeted going from 40 million last year to 52 million this year, and that looks to be on track. And again, this is with basically organic growth, we had no new acquisitions in that area.
forward to announcing progress there in the near future.
I mentioned the exotic Evita and Invigorate. We're going to be filling those at our factory in Clackamas, Oregon, and making those available for this season, this upcoming season in 22, I mean in 23. Our Amgard Envance technology that we've got for specifically our bio herbicide trials, the consumer trials are underway right now. We're going to be filling those at our factory in 22, and we're going to be filling those at our factory in 22.
The professional trials have been completed, the initial ones, and look very positive. So we're very excited by this non-select bio herbicide that we think can be a big part of not only consumer, but professional use, and we're even comparing this now for crop use as well.
And finally on green plants, which is our micro...
micro fertilizer stimulants. We've had sales in China. We've got kind of registrations completed in Spain and we've got more growth initiatives scheduled for 23. So all in all, Green Solutions looks to be on track. Moving on to our final slide, and we measure out our 2023 to 25 targets look to be on track from our core business.
We are tracking well, certainly, versus...
that targets that we've got for 23 and 25. For our green solutions again, we're reiterating that we feel comfortable that we are going to hit that 70 target next year and be able to double that.
to 140 by 25 given the pipeline that we've got. And then.
Finally, our SimPass piece again looking next year for approximately 28 million in sales, growing that dramatically to 113 over the next couple years after that.
So with that, that's kind of reiteration of our strategic objectives. And Alex will open up to any questions that may be from our audience.
Thank you. At this time we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Jerry Sweeney with Ross Capital. Please proceed with your question.
Good afternoon and thanks for taking my call.
Hi, Jerry.
Just in your prepared remarks, and actually I do apologize because I did drop for a minute.
But it sounds like you have some pretty good confidence in your targets for this year and looking into next year.
Maybe you can talk about your visibility that gives you confidence and then the areas that you think you're most excited about and then check the post that maybe some of the areas that you might be a little bit concerned about just so we have a little bit better view of the playing field for the next six to 18 months per se.
Yeah, so.
You know, the things that I think make us feel bullish.
We made good market share gain in a higher demand market and we delivered well. So we think we're going to have good momentum going into 23. I mentioned the inventories and channel. At this point, we're not aware of any issues there, which again, I think bodes well for the upcoming season. Our belief is that.
commodity prices and therefore demand will continue to be robust.
So, I feel confident, I guess at this point as we're getting closer to drilling down on Q3 and Q4, much better level of confidence as we've gone through each of the skews and kind of making sure that we've got adequate supply to meet those demands. It hasn't been easy. I mean, we've been shifting back and forth between packaging of certain products and manufacturing of certain technicals I mentioned earlier that are...
plant and access is is behind in our corn soil insecticides, but we we feel confident we're going to be able to meet the demand for 23. So, you know, those are kind of the drivers that make us, you know, have more confidence than you know in our final numbers for the year-end.
Concerns.
Yeah, there's the economy, interest rates.
Political positions, so I think, I mean, people out there have some nervousness about where things are going, but with...
you know these are not
These are not luxury goods that we're supplying. We're supplying for food supply. And so we don't see commodity prices dropping dramatically. So we think that growers will continue to do their job. Even in Ukraine, I mean, I think they're expecting 65% of the crop to be harvested and exported or used internally.
So the wars are not being fought in the farms and that's obviously the extreme of what we're dealing with elsewhere in the world. So I think farmer health should be strong and so overall I guess that's my pluses and minuses.
So the wars are not being fought in the farms and that's obviously the extreme of what we're dealing with elsewhere in the world. So I think I think farm farmer health should be strong and so overall I guess that's my pluses and minuses. Gotcha.
The other thing is things are going well. It sounded as though maybe capacity for utilization potentially getting tight.
You know Two questions or a question around that that What it sounded like I was hearing was you know, there's some tightening some capacity are you at a point where you need to expand capacity and
Really, the follow-up to that question at the chest and say, how much does it really cost to drive additional utilization or capacity in the mayor's facility?
Are we talking big numbers or is it relatively manageable?
And so,...
We have tightness in some areas. Our granule capacity at Access, the formulation and packaging there, you know, we're...
We're not able to make everything there that we would like, but we're going outside for it. So there is outside capacity. We are looking at going from a batch process there to a continuous process, which would expand capacity about 25%. That's looking at that, that would be maybe a couple of million dollars of gap bags to do that. Our...
soil fumigant we're fine with. You know, we've got additional capacity there. That's our, you know, single biggest product both from revenue and from from volume. On the technical side at AXIS, you know, we bought the plant, it manufactured a product called fortress was kind of the main ingredient that was done there. We've added six other
other AI synthesis components there, but we're having to make some decisions between our most profitable products there and so we do need to look do look at expanding. I think the original product Fortress was a granule, 5% granule. We have a 15% granule, but the real growth opportunity there is for our product called Index, which is a liquid formulation of the Fortress or Chlorothoxyphos.
That is probably the biggest squeeze point we have. The capacity is not particularly large running through the unit and therefore we're better off from overall profitability on running products like like Aztec and the Fowl Lifes through those facilities. So our counter and thiamet, which again are growing.
really well. Brazil has has gone off in a big way, and they're awaiting their soybean registration, which will take even further. So that's that's probably the number one performer for nematodes in Brazil, and so we expect that to grow quite a bit. It could get to the point where where we're at capacity. I think we're maybe about 75% this year.
So we still got room to grow, but those are kind of the overall pieces, but I can tell you as a manufacturing guy I love this kind of challenge. I'm much happier where we are today than where we were in 14 when all the inventory was sitting in the channel and and and you know we were having to deal with two three-year plans to get that down into into a reasonable position, so sure, I mean good problems good problems. Yeah, exactly right. Yeah.
I'll jump back to you. I appreciate it. I'll jump back to you.
I'll jump back at you. I appreciate it. Thanks.
Our next question comes from the line of Chris Kapsch with Loop Capital. Please proceed with your question.
All right, good afternoon. A couple questions. So the gross margin improvement that you showed I guess in the quarter also year to date.
Just curious if you could parse out how much of that is from the benefit of better factory.
overhead absorption because you're also I think getting pricing that's ahead of raw materials so I'm wondering how much that contributed and if there's anything else that we should be aware of mixed or some other nuance that's contributing to the gross margin left.
Yeah, I think from a pricing standpoint, we've done a very good job at staying ahead and I think what we're looking at on that slide that showed we got about a percent and a half gross margin lift from factory performance. And so that's 75% of it, the balance coming from pricing and mix combination.
So, you know, we had some, I would say, some of our products, again, inbound freight, and some of the things that we did to get products in certainly added to cost. So, I don't know that we got 100% of that covered, but, you know, if you look at where we are versus some of our peers, I think we did a really remarkable job at...
getting through the price increases that we needed. We did not, we were not, it was a much more difficult position in some of the international markets. There were, there were inventories of products, I'll call them competitive products, not necessarily the same active ingredients, but competitive products that were kind of long in some countries. So for those areas definitely more delayed at pushing through price increases, but
overall, as you can please with what we've been able to do. Okay, that's helpful. And I think you, in one of the slides you said year-to-date revenue is up 47 million versus first half of 2021. And you parse that out roughly half volume, half pricing. So that looks like, you know, just rounding out around 9%, volume 9% price.
If it is 9% volume growth year-over-year and you expect channel inventories to be lower than they were last year, lower than normal, then it might even suggest that the application volume growth year-over-year is better than that. My question is that seems like it is definitively above market growth even in a robust year. And what is contributing?
What's contributing to that above market growth if that's an accurate characterization? Are you gaining share in what areas? And just what do you think the abilities of some of that perceived market share growth is looking forward? Thanks very much.
Yeah, so your assessments are correct in the way we see it. You know, I kind of highlighted, you know, one area was the herbicides that, you know, were up 40%. There was a lot of shortage of herbicides in the market this year, globally, and a lot of shifting around. And that's where, again, it turned out to be very prudent, the acquisitions we made 18 through 21, and.
we're in the right place, right time to deliver herbicides.
these are not the glyphosate and the glufosinate although our one of our 10 products is taking our topramazone impact and putting it with glufosinate. So
I think our customer base was very pleased with our ability to deliver herbicides to them. I think also
These products are unique in their performance and as such you know, we think we've earned kind of a longer market share. In fact, we believe we can grow them very nicely going forward. So that's going to be a big upside for us is herbicides that we've invested in and you know, some of these are investments and some of them are, you know, through our core growth message, what we call a, you know, IRC program.
where we've identified opportunities to take our current compounds and marry them with other active ingredients to build out another niche market that separates us from our competition.
Just to follow up on that though, the demand for the herbicides is partly because of shortage of conventional herbicides. I'm thinking, it's pretty well known that glyphosate was kind of short this year, at least earlier in the season. Are you benefiting for demand for these herbicides solely because of the market being short some of these conventional herbicides? Or is it really the...
efficacy of a differentiated offering that you have that's helping drive kind of above market growth.
Yeah, I think what we've been able to do is we've been able to accelerate the penetration with these products that so, you know, our, our, our, our, sure. Uh, to, um, we, you know, expanded Canada greatly. We expanded the US greatly. Um. You know, we, we've with our. Um, invoke product that we, that we took over the 2nd, half of 21 from.
They had kind of some limited, they'd watch the kind of market kind of diminish as they weren't focused on it. And as I said, you can probably do a better job with it than we can. We're down to a few million. Well, we've not only expanded the sugarcane piece, but our team did a really good job of getting this reintroduced back into cotton. And so the results were stunning, the people were thrilled. So I think the shortage of herbicides has helped us.
move forward the program that we think we'll get to anyway with penetration, but it's just it's just accelerated which the momentum of that we think will carry well into 23 even with better availability of some of the normal herbicides.
Got it. And then sort of last topic for me.
So I appreciate you.
taking the time but the
So you mentioned SimPass plus Ultimas as a potential for growers to kind of monitor, track their
I guess the ability for them to decarbonize, I guess. So I was just curious, the Build Back Better 2 bill, or I guess what they call the Insulation Reduction Act, I peruse, I mean there's 750 pages, but I peruse what I could. There's some buckets that look like they're targeted towards the ag market and obviously there's an addressing climate change theme to the...
to the legislation and one bucket referred to as climate smart ag. There's a 20 billion they're talking about for farmers for various things, but one of the areas is incentivizing sustainable practice. So long way of getting to my question, which is, is there a play through this legislation that you see where somehow you could accelerate adoption?
SimPass plus Ultimas as a means for farmers to adopt that practice.
Yeah, I kind of hit that a little bit when I mentioned the Aveda and invigorate that help the uptake of nitrogen. Again, I think there...
People always have different mindsets on this, but generally...
Most of them feel their land is their most important asset.
there's certainly going to be a lot of upsides.
to reducing carbon footprint and I'm not just
from a social standpoint, but actually from a financial standpoint.
So I saw that as well, that 20 billion, and I thought, okay, that's another kickstart.
again to farmers is you know what can you demonstrate and with the high cost of the fertilizer inputs you know it's really a win-win for the grower. If he can reduce his nitrogen by 50% by putting biologicals that help with nitrogen uptake in the root system and get paid for it on top of it you know that's a strong incentive. And so yeah, we believe Simpass can be a big part of that not just from being able to apply the products.
correctly and judiciously and again, they have most farmers have maps of they're applying somewhat prescriptively now with their nitrogen, but they have areas where they know they've got nitrogen deficiency areas and if you apply the biologicals that will help with nitrogen uptake in those areas and reduce your nitrogen.
That's a totally different approach than just putting these products out across the whole field. So again, prescriptive application, I think can give a much higher return on investment for people looking to reduce their carbon footprint.
Just to follow up on that, nitrogen reduction given the carbon intensity of manufacturing synthetic fertilizers, I assume that's a low hanging fruit in terms of decarbonizing the ag and market. You mentioned a couple, obviously prescriptive application of nitrogen, the biologics that improve the efficiency of the uptake. I'm curious, across the broader industry, what are some of the alternatives? I seem to remember years ago, maybe there was some...
genetics that were going to help the plant consume nitrogen more efficiency. I don't know if that got anywhere. But what are the other sort of mouse traps that you would be competing with in terms of helping farmers achieve that goal if that's something that kind of gains momentum? Thank you.
Hi Chris, I think you're going to see what you're saying there. Are some of the seed companies breeding for better nitrogen uptake? Yes.
It depends on how successful you are. But I think it's gonna be a combination of both breeding and input, primarily either in-furrow, like through a sub-pass application. I think some companies are also posting foliar application, but get to see how effective that is.
About, you know, I calculated a 20% reduction depending on what you take as the price of nitrogen at a given period of time is around a $5 billion market that could essentially become available. I just wanted to share the details of Mother's Day, how my career came about.
So everybody is racing to that. You see companies, some of our strategic competitors are launching products. We feel SimPass is the optimal device to not only deliver the nitrogen fixation solution, but also to measure the effect of the nitrogen fixation solution in that you correlate it with yield. We feel SimPass is the optimal device to measure the effect of the nitrogen fixation solution
We have a model which basically calculates that out for the farmer and it's quite unique. And I think we're gonna see some good things there for our company.
On top of that, just to give you a little color, we've submitted 2 grants to the USDA. We'll be submitting further grants. There are also state grants.
And our strategy here is to have them either subsidize the adoption rate of SimPass as a tool, but also perhaps give money to the grant universities to utilize SimPass for more biological product development.
Yeah, and I think also our team shared with us what I hadn't quite understood. One was measuring the inputs going in for nitrogen uptake products, but also using Ultimas to measure the amount of nitrogen that goes through the field or fertilizes. So putting that on so you can actually go from rail car or bulk storage tank going through and actually measuring how much.
fertilizer, of what fertilizers are going through the farm. So one is, hey, we're doing this and that's reducing our nitrogen, but then you can also confirm it with the amount of nitrogen or phosphorus or any of the other synthetics going into the into the field. So kind of a double edge of verification. So it's really exciting.
Great color, thank you.
Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment please while we poll for questions.
Thank you. Our next question comes from the line of Andrew Lester with Harla Capital. Please proceed with your question. Hi, thank you for taking the question. I'm relatively sorry, but some questions like what percentage of the business is represented by Ukraine?
Oh, very small, I think we've got.
We were about a million for looking to get to two and a half this year and last herd I think it was right about a million eight is what we thought we were going to do this year. So not a big piece, but we do have people there. We think it's a good market for SimPass and as mentioned, we did have a system that got up and used for planting and planting time this year. So.
So not a huge exposure but you know I think we've got six to six of them.
It's also, I mean, you know, sort of due respect, the stock sort of got crushed today, down 25%. And I didn't see any, I went through the queue and obviously the slides and everything. I didn't see anything glaring. My guess is that in light of the global dislocations, some investors might have thought this was the time to let's say crush it in terms of earnings beat or sales beat or whatever, and to have a more moderate debate into sort of under capitalize the opportunity.
So if the world becomes somewhat more normal, how do you deliver sort of an exciting upside going forward? And I know you have about six or 700,000 shares left under your buyback that you can now take advantage of. Is there any thought to increasing that in light of what the level of the stock right now?
Yeah, so we have, as you mentioned, you're correct, we had about 670,000 shares available under that buyback. We purchased about 48,000 shares today. So we've got about 620,000 shares left and that will continue as long as we're at or below $20 a share. I think, given the situation, I mean, we're not, I mean, I'm not, I don't think we clearly understand what
is performing. So the only thing that you know we saw that was unusual again that we can point to is that we released our our Q and our earnings before we did our conference call. So we'll see what happens tomorrow but as you rightly pointed out there's nothing in there that would cause alarm from our standpoint. Well I just think it as a
As an old-time investor, I think it catches certain people offsides. They were looking at your emails. They understood that you were going to have the call after the close. And although, as you explained, you had the best of intentions, letting people read things, process it, and sort of be more prepared, I think it sort of behooves you to conform to convention like others and sort of get it all out there at the same time. And maybe that could avoid some confusion and help things next time. So, thank you very much.
Yeah, no, I just I mentioned it won't be it won't be a movable mic again. Thank you for your time.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call back over to Eric Winton Mute for closing remarks.
Okay, well again, apologize for the activity in the market today. I've been at this a while and it never ceases to amaze me how things happen. I don't think this is a, you know, an overall market reaction of the industry or anything along those lines because we're clearly standing out here versus our peers.
Again, my best guess is people were taken by surprise by having the queue out in advance. And it triggered some concerns, so hopefully those, those concerns are now answered and alleviated. We'll be following up with with investors after this call and talking through any concerns that are there. So, very appreciative of having we had a large cloud today, which would be.