Q3 2022 American Vanguard Corp Earnings Call
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Yes.
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Yes.
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Welcome to the American Vanguard Corporation third quarter, 2022 financial results conference call and webcast.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to Mr. Tim Donnelly Chief administrative officer.
You may begin Mr. Donald.
Thank you, Rob and welcome everyone to American Vanguard's, 2022, third quarter and nine month earnings review.
Our speakers today will be chairman and Chief Executive Officer, Eric went to mute.
Our Chief Financial Officer, David Johnson and to assist in answering questions. Our Chief operating officer. Bob <unk> is also on hand also by way of housekeeping. The company is filing its Form 10-Q later today with the SEC, which will provide additional detail on our financial performance that we will be discussing.
In this call.
Before beginning let's just take a moment to go to our Safe Harbor reminder, on slide two.
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 differ from management's current expectations such factors can include weather conditions.
Changes in regulatory policy competitive pressures and various other risks as detailed in the company's SEC reports and filings.
All forward looking statements represent the company's best judgment as of the date of this call and such information will not necessarily be updated by the company with that I turn the call over to Erik <unk> Erik.
Thank you Tim and thank all of you for joining us today.
Moving to slide three we have listed the agenda for today's call, but first I'd like to start off by acknowledging the terrific work of the Ambac team to take care of our customers increased prices to manage inflation safely operating our factories at very high levels and continue to drive our.
Precision agriculture innovations forward.
We have delivered excellent financial results and expect to maintain our momentum in the fourth quarter.
Additionally, we repurchased one 2 million shares of our stock during the third quarter, indicating our confidence in the strength of our business.
Simply put we are managing our business well in challenging times.
Let's move on to slide four to discuss our top line performance for the first nine months of the year.
Generally speaking continued high commodity prices for corn, soybean and wheat are supporting a strong farm economy.
With respect to domestic crop, we're up 20% year to date led by <unk>, which is used for weed control on high value crops, and our cotton product <unk>.
<unk> for pest control and <unk>, our harvest aid due to increased cotton acres and favorable weather.
We experienced higher sales of Aztec for the nine month period, despite an inventory shortage during Q3 and.
In addition, we recorded strong sales of our soil fumigant products in spite of the drought conditions in the west due largely to price increases.
With respect to non crop sales were down 11% year to date due primarily to reduced U S consumer demand for lawn and garden products.
On the positive side sales to professional applicators rose with more consumers returning to work.
We are well positioned with our mosquito adult decided following hurricane in.
Also we are tracking tropical storm, Nicole which is expected to make landfall late tomorrow night.
While forecasted to have lower wins than in Nicole is predicted to travel at nine miles per hour, which should result in considerable partis precipitation in Florida, Georgia and the Carolinas.
Our international business was up 14% year to date led by our greenhouse which recorded sales growth of 55% gross profit up 60% and Brazil, which grew by 42% due in part to sales of our Nevada site counter.
Further our net sales in Mexico grew 26% and gross profit grew 22% with strong sales of our proprietary soil fumigant.
Further our central American business recorded sales growth of 11%.
Led by products used on pineapples, and bananas, and finally, our Australia business recorded sales up 11% and gross margin improvement from 35 to $30.
Before revisiting our full year outlook.
<unk> taken our first clients at 23, let's first focus on current conditions as they will have an impact on both short and mid term performance.
As I mentioned earlier high commodity prices arising from scarcity and global food supply coupled with strong demand are driving a strong farm economy.
Turning to slide five we note the upward trend of corn prices over the past two years.
As you can see two years ago before the 'twenty one season corn was at $4 five per bushel.
One year ago rose to $5 59 per bushel and now it is at $6 80 per bushel, that's a 68% rise over the past two years.
We see a similar trend with soybean prices over the same period.
At this time in 2020 soybeans were $10.86, a bushel one year ago, They rose to $12 five per bushel and now they're at $14 52 per bushel.
This is a 34% increase over two years.
Higher commodity prices tend to drive procurement activity for both crop inputs and planting and harvesting equipment. However, procurement trends by distribution channel appeared to be evening out over the course of 2022, which began at a torrid pace in the first quarter and returned to greater normalcy over the second and third.
Quarters. Despite this level of investment at farm Gate channel inventories for <unk> products are at low levels and our distribution partners are bullish on the prospects for the <unk>.
'twenty threes planting season.
Let me show you a slide six.
Which will further highlight this point.
As you see here, we're experiencing very.
Very high profits.
And the state of Iowa, and this is a calculation of of revenues cost and profitability tracking.
Tracking back to $19 70.
Sure.
At the high point in 2012, we are currently about $200 an acre better than that which was our previous best year that translates into about $2 $5 billion.
Above 2012, and nearly $7 billion in profits and for Iowa corn growers.
Again, illustrating why I think our team is very bullish on U S farm economy.
Is nevertheless useful to consider other factors and forecast them in the market inflation becomes a significant driver in global economy and is affecting near all industries. As you can see on slide seven the fed has been raising interest rates aggressively over the past seven months.
Because the fed took comparatively early action to raise those rates. The dollar had enjoyed a favorable exchange rate against many currencies. However, many other countries followed suit and we are seeing certain currencies regain lost ground against the dollar.
With a strong dollar and high commodity prices to date. The farm economy has been able to withstand inflation largely through price increases.
At American Vanguard, we are enjoying a second straight year of strong demand for which we have been able to build and sell sufficient inventory at improved margins having.
Having six north American factories as to speak.
<unk> on slide eight.
We have been able to make in season adjustments to manage fluctuating demand. These.
These manufacturing assets have been essential and our ability to operate with autonomy further while the supply chain has not fully returned to the stable state of three years ago, we have seen a drop in freight prices and the availability of both shipping containers and vessel vessels.
Our improving however, some raw materials that originate in countries affected by pandemic restrictions or GOP geopolitical considerations. For example, phosphorous are affecting the availability and price of some of our key intermediate products.
We are taking all available measures to ensure that we can order and receive our necessary inputs in time to meet demand, but I can tell you that this is much as much an art as it is a science.
In short the up cycle for the agricultural sector that began in 2021 is expected to continue through 'twenty three geopolitical activity is lifting and commodity prices given growers added incentive to procure both crop inputs and equipment further our positioning of products in the distribution channel should enable us to maintain.
Strong brand value.
While there may be a countervailing factors such as inflation record low water levels on the Mississippi River and potential clutches and the supply chain. We believe that we're poised to continue our strong performance in short term, we're targeting 2022 full performance to be unchanged from our prior call.
Yes.
So let's turn to slide nine this is R 22 performance targets scorecard.
<unk> seen this before and over the last.
Nine months.
We have seen our revenue growth at 13% gross margins at 41% operating expenses at 32%.
Interest, 23% below 21, however, we are expecting with interest slides that we just showed to have higher interest cost in Q4 tax.
Tax rate for the nine months at 30%, we're expecting that that ticked down 2% to 3%.
To 27% 28 at the.
End of the year.
Debt to EBITDA.
Currently at one nine we are expecting that to decrease for.
Toward the end of the year.
Funds.
Any further acquisitions.
We have I should say.
Between the stock repurchase and dividend spent about $35 million so far this year.
Net income is up 71% for the year and EBITDA is up 30%.
So with that.
David ill turn this over to you for financial analysis. Thank you Eric.
Let's move on to slide 11. Please.
Moving to slide 11 with regard to our sales performance for the third quarter of 2022.
<unk> net sales increased by three 4% to $152 million.
As compared to $147 million last year.
Within that overall improvement our U S sales were comparable to the prior year and our international sales increased by 9%.
International sales accounted for a 42% of total sales versus 40% last year.
Hello.
Turning to slide 12 with regard to gross profit performance our U S crop business recorded a 14% increase in absolute gross profit.
On the sales that increased by 4%.
This performance was largely the result of focusing on improving gross profit on lower margin products by timely implementation of price increases to cover inflation for both higher cost of goods.
Increased inbound and outbound freight and interest expense.
Overall.
Margins improved from 45% to 50%.
Non crop sales absolute gross margin reduced by 1% on sales that were down approximately 12%.
The company was successful in implementing price increases aimed at improving gross profits, particularly on comparatively lower margin products in order to recover raw materials logistics costs across a range of products.
With regard to our third quarter International sales, we saw sales increased by 9% and an associated 1% improvement in absolute gross margins the international.
The business has contended with significant cost pressure as a result of strong U S. Dollar impact on cost of goods. They have been effective at implementing price increases where possible given global competitive conditions.
Moving the.
The graph on slide 13 shows the impact of the factory performance on consolidated gross margin you can see that in the third quarter of 2021 factory costs amounted to one 2% of sales.
Our performance this year was stronger.
They were both excellent factory activity periods.
On Slide 14, we show operating expenses for the quarter that increased by $1 7 million compared to last year.
Our expenses with 33% of sales for both the third quarter of 2022 and 2021.
We are seeing cost increase as the business is returning more and more to face to face meetings with counterparties and the concomitant travel expenses.
Further we spent more on advertising and marketing and in Brazil, where we had a very strong quarter, we incurred higher third party agent Commission expenses and finally, we spent more on a range of administrative support costs.
As an offset freight expense was lower primarily primarily as a result of lower volumes associated with our U S sales of our metal product line.
As you will see on slide 15.
Third quarter 2022, operating income was 26% higher than the level reported for the same period of 2021.
We recorded slightly higher interest expense on lower average debt in the third quarter of 2022 as compared to last year. There are two factors.
First we have generated cash from operations during the last 12 months, while continuing to develop our precision application systems.
Managed working capital in the face of both inflation and strong growth invested in our manufacturing assets pay dividends and executed on the biggest stock repurchase program in the company's history.
Offsetting these factors we are seeing the impact of rising interest rates.
From a tax perspective.
Effective income tax rate increased to 35% this quarter compared to 27% for the third quarter of 2021.
The increase was primarily driven by the mix of jurisdictions of our domestic and international businesses, where our taxable profits were generated and one time international tax benefits in the third quarter of 2021 that did not reoccur in 2022.
All these factors came together to generate $6 7 million in.
And net income as compared to $5 $5 million last year, a quarter over quarter increase of 23%.
On Slide 16, you can see that for the first nine months of 2022, our sales were up 13% and gross margins in absolute terms are up 18%.
Both our U S and international businesses have contributed to this exciting performance.
Operating expenses increased primarily as a result of the proxy contest expense the growth of sales affecting freight costs increased regulatory and registration costs as our international business grows strongly increased accruals for short term incentive compensation, reflecting improved business performance and increased accruals.
Associated with contingent consideration related to our Australian business that was acquired at the end of 2020.
Overall operating costs, which include outbound freight and warehousing were up 9% as compared to net sales, which increased 13% operating costs improved to 32% of net sales in the first nine months of 2022 as compared to 33% in the prior year.
Interest expense has reduced by 23% and the tax rate increased from 27, 4% in 2021% to 32% in 2022, mainly due to jurisdictions, where taxable profits were generated.
Overall net income has increased by 71% for the third.
First nine months of the year.
Now I don't want to turn my attention to the balance sheet and the company's focus on capital allocation Slide 17 shows the company's capital allocation model that drives many of our actions.
We focus on managing debt under our credit facility agreement with a group of banks that we've worked with for many years. We aim at an average level of debt to bank adjusted EBITDA of between 1% to two five times the higher end of the range is generally driven by the impact of acquisitions the.
The credit facility allows us to manage through the strong annual cycle with working capital debt expense during the first six to nine months and reduces at the end of the year in.
In addition, we have grown through acquisition and depend on availability under the line to fund such acquisitions. This has worked extremely well for the company over the history of our alliance with our bankers.
We are focused on paying a sustainable dividend and have historically paid approximately 10% of net income.
We have diverged from that record only when faced with extenuating circumstances, such as Covid.
We have been committed to managing the number of shares outstanding and invested $34 million year to date 2022 to repurchase approximately one 5 million shares we expect to complete the current accelerated share repurchase arrangement.
During the fourth quarter of 2022, and we'll provide final share count at the next conference call.
Investments in the growth of growth of our business is the key to our future success. We're working hard on the development of full commercialization of our <unk> Ultimate technologies, and recently announced that we have achieved the registration of our proprietary product counter on soybeans in Brazil.
We're also drilling a green solutions Port Folio with for example, our new leaf Alliance.
And at the same time, we continue to take actions to ensure our factories, a safe and efficient and capable of supporting our growing business.
On slide 18, we show our progression on adjusted EBITDA from $38 million in the 12 months ended September 32000, $15 million to $78 million for the 12 months ended September 32022 that is a compound annual growth rate of 11%.
It is pleasing to note that we are close to achieving the company's all time high annual EBITDA, which was $79 million.
In 2020 in 2012.
On Slide 19, you can see that at the end of September 2022, we reported inventories at a $192 million as compared to $167 million last year.
Inventory management is a significant focus in this year, we have made prudent decisions to hold higher levels of inventory than the past year past years, as we monitor lead times, continuing logistics challenges and the strong AG cycle demand conditions procuring inventory earlier than in prior years to secure product.
The 2022 23 growing season.
The graph shows inventory expressed as a percentage of trailing 12 months sales you can see that our long term trend line for this important business metric is good notwithstanding short term market conditions that have impelled us to make the decisions just discussed.
As you can see on slide 20 with regard to liquidity under the terms of the credit facility agreement. The company uses EBITDA consolidated EBITDA as defined in the agreement to determine the borrowing capacity our consolidated bank EBITDA for the trailing four quarters to September 30th 2020.
Two with $77 million as compared to $66 million for the full quarters to September 32021.
At September 32022, our debt was $149 million as compared to $136 million last year. This included the $34 million used to repurchase stock over the last 12 months.
Availability has improved notwithstanding the higher closing debt and ended at $121 million as compared to $95 million. This time last year.
Okay.
In summary on slide 21 for the first nine months of 2022 sales have increased by 13%.
GAAP net income has increased by 71% adjusted EBITDA has increased by 30%. Adjusted EBITDA has also increased from 12% of sales in the first nine months of 2021% to 14% in the first nine months of this year.
<unk> Aps has improved by 30, 73%.
We have acquired $1 5 million shares during 2022 as compared to 300000 in the same period of the prior year.
With that I will hand back to Eric.
Thank you David.
Moving on to slide 22.
Which is our three element growth strategy.
Core includes the growth of our traditional portfolio, our new product innovation and our M&A activities are.
Green solutions initiatives consist of a portfolio of more than 120 regional products that we will focus to expand used globally. In addition through advanced technology, we've begun basic R&D molecular discovery to create new green solution pest management products.
And with regard to our precision application innovations through <unk>, we offer the entire industry the ability to prescriptive way apply multiple crop inputs simultaneously.
We are working diligently to expand our <unk> product portfolio to offer growers a wide variety of solutions. Additionally, we are developing multiple applications for ultimate documentation software.
Yes.
As per slide 23, with respect to our core products. We are on track to meet our growth targets through 2025, we will accomplish this growth through both internal development and acquisition.
For instance, our impact herbicide mixture products, which.
Once we developed as part of our innovation review process are generating revenue growth.
Command and good margins and are enabling us to expand our share of the post emergent herbicide market.
With respect to acquisition the markets remain robust.
Year to date, we have looked at over 30 potential acquisition targets of which we are still evaluating 10.
As we have mentioned in the past, we are selective strategic and rigorous in ensuring that new products or businesses meet or exceed our acquisition hurdles.
Turning to Green solutions as you can see on slide 24, we are poised to achieve our multi year growth targets. In addition to our portfolio of over 120 biological and Green products. We recently announced our alliance with <unk>, which has developed a line of soil health products microbial that produce.
<unk> enzymes, which improve a plant's ability to take up nutrients.
Okay.
One of the key new leaf products called terrorism appears on slide 25.
Here, we can discuss and brief how tariffs I'm works.
Focus is on this special group of bacteria <unk> that can use methanol efficiently as a carbon source to survive thrive and sequester methanol preferentially over bacteria.
As the plant's roots to establish itself spin.
Specific microbes start to form a symbiotic relationship with the bacteria.
The association between plant and bacteria forums.
And finally methanol, it's consumed as a food source by the bacteria to build bacterial population and release plant beneficial molecules and nutrients, which enhanced the plant's response.
As we present on slide 26, terrorism is especially well suited for use in corn, where it serves to enhance route structure and plant health.
In fact, we had been tracking the <unk> technology for some time with that use in mind ultimately we plan to make terrorism available through our Sim pass system.
Okay.
Okay.
This brings us to slide 27, the third element of our growth strategy presently we have 81 systems <unk> systems in use including one in Ukraine and one in Brazil.
As you can see from slide 28, we remain on track to meet our multiyear growth targets for <unk>.
Bear in mind that this is U S only.
We are currently testing a Sim pass unit in Brazil, which is the largest AG market in the world as we recently announced we have obtained a new label that permits the use of counter on soybeans in Brazil.
This should double or triple our sales in Brazil of this proprietary matter side within a short time.
On a relative note one of the largest growers in Brazil with over 550000 sectors has come into the U S to observe the prescriptive application of counter through some pass and this upcoming planting season.
In addition, as shown on slide 28, 29, Rabobank rabobank and its leading as a leading <unk>.
<unk> and the carbon credit market.
John Deere financial and Ambac have joined together to offer 265 financing.
With harvest terms on new some pass equipment.
This alliance should enable us to gain even greater traction and market acceptance of Sim paths.
Okay.
And finally on slide 30, we summarize the financial targets of our three growth pillars core solutions and precision.
I am pleased to say that our entire Ambac team has both contributed to and embraces our three year growth targets.
As I mentioned at the start of the call. We are performing strongly and consistently in the face of variable conditions.
We are well poised to address demand in the AG upcycle as the AG up cycle continues into 2023.
Further we are maintaining a strong balance sheet and high borrowing capacity.
While our self investing in innovation and total shareholder return.
With that wed like to open up to any questions you may have Rob.
Thank you.
We will now be conducting a question and answer session.
If you'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Let me first start Tuesday 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.
One moment, please while we poll for questions once again Thats star one thank you.
Thank you and our first question is from the line of Gerry Sweeney with Roth Capital. Please proceed with your questions.
Good afternoon, Eric David Bob Thanks for taking my call.
Yes.
Pleasure.
Just wanted to start at the top obviously sounds like increasing bullishness on 2023.
Wanted to get your thoughts, where we are where you think we may be in the cycle and how.
2023 plays out maybe a little bit after that since you've been through this cycle.
Several times.
While of course, there is no way of predicting exactly how how long up cycles happen, but right now I am not hearing from.
Any of our customers that they can see.
A downward move people obviously the more years you go out the more.
Variables, there are and hard to peg.
But certainly I think for 'twenty 'twenty four is certainly looks very good 25, I think of it strong.
Bob any color you want to add to that well I think Jerry there are.
Of course challenges on there.
We see strong.
U S AG commodity through the next <unk>.
<unk>, meaning to October harvest time.
The Big factor, which is unknown is really.
What will the China demand look like for South America and for North America.
It will.
Play out in the first and second quarter.
I think one other.
Major issues, where energy prices going to be as the.
Replenishment happens with the U S strategic reserves.
The Russia conflict. So those are kind of little bit of unknowns, but as Eric stated, we have a strong pipeline of technology. So we feel very confident to grow.
Whether we have those headwinds or not so as we penetrate the market more with our technology I think we'll be in good shape.
Speaking of technology that was actually a good segue into.
And my next question.
You call it core business from new growth I call it sort of the old kids New kids right.
But when Youre looking at.
Green solutions.
Some degree surpass at ultimate.
Maybe just probably.
Different routes to market right.
When you look at those two businesses is there anything you need.
Internally to drive growth.
Are you going to leverage the same channel, but have some different education with the end users are with distributors I guess overseas anything.
We can think about or youre thinking about that could enhance growth or.
And sure growth et cetera.
So it's a question we've been asked before and it's a good one it's one way to think about as well.
Yeah, we are bringing in lighting.
Our our teams.
Tristan.
Whether it's marketing or.
<unk>.
Expense or capital or adding people so definitely those too.
Units are being said I think.
The resources that they have asked for.
I have looked at.
John Deere and seeing how they are.
CN spray has gathered so much attention.
It is.
It's really good technology, but it is one input and that's that's herbicides.
Not kind of a time of plant those are going through and.
So.
I guess exposure is one part of it it's one of the reasons why we worked with.
With our peers and their products that were adding to the portfolio.
I would think probably the.
It's just getting our message out we've been.
Handicap some through through.
Through the Covid, where we could not meet in person with people, but that activity has stepped up dramatically and I think that's why we're pretty bullish on what we can accomplish both in and those two both in Green solutions and.
Some pass which again each quarter.
Through with the team and say all right any adjustments up or down.
And right now everybody feels confident with those targets, which we've achieved those in over the next three years.
I think we're going to have a lot more notoriety out there.
Got it.
Switching gears I think you mentioned, maybe 10 potential acquisitions or is that sort of the funnel I'm not sure.
Exactly what.
What you said on that front.
Market strong.
Sure.
There is this shift focus obviously you have your core business, but then you maybe even a shift in focus or more attention to the greener solutions.
Some of those businesses are probably getting much more attention.
I imagine multiples and prices are going up.
How do you look at.
Prices.
Biologicals long lead.
Long runway type growth business.
Acquirer, but may be more expensive than what you've paid historically.
Yes.
I think thats where were being fairly prudent.
No pain.
12% to 15 times and of course, a lot of the biological company's R. R.
Are not profitable.
And so the acquisitions, we made with our greenhouse obviously.
We paid under just.
Just the assets.
Yes.
Licensing or.
During distribution partner alliances with.
Really.
Great companies like <unk>.
New lease.
As a good good ability for them to not have to invest.
And building our market access platform.
A lot of overhead.
Can.
<unk> from from.
The structure that we've got set up there so those types of arrangements.
Enable us to grow.
Meaningful in this space without.
US us having to put up.
A multiple like what you were talking about.
Got it.
And of those 10 acquisitions.
More core more green solutions.
Hi.
Does that look like I guess the funnel.
Yes, I mean, it's across the space, Bob I mean.
Okay.
Or as you mentioned Theyre Green solutions.
Companies that are looking to cash out on the on the.
Hence enhanced.
View of quite Green solutions.
Offer in.
A potential growth.
We see some some what we would consider more core products.
They are available that can be kind of bolt ons that make sense for us.
So.
Overall.
There's plenty of opportunities and I guess from our standpoint, we want to want to make sure we've got.
Adequate resources to develop our two initiatives to defend our existing.
Our products.
<unk>.
But also look opportunistically at these acquisitions and again some somewhat we see here.
We're kind of on an exclusive basis on those types of deals that we've done several over the last few years.
Generally are more accretive to us upfront.
Got it.
One more question, then I'll jump back in queue.
Sales up 13% do you know how much.
This is maybe volume versus price.
And yes, so I think yes.
At the last fall I think we were looking at was more 50 50.
We're now at 85 to <unk> 80, 2080, 20, 80% price and 20% we had some really hefty increases.
We put that we've put in place.
For the third quarter that.
Drove particularly particularly our soil fumigant.
A big part of that we had significant increases in that and it's a big product for our third and fourth quarter.
Okay perfect I appreciate it thank you.
Sure.
Thank you.
Reminder, if you'd like to ask a question at this time you May press star one from your telephone keypad.
We'll pause a moment to assemble the queue.
Thank you.
The next question is from the line of Duane <unk> with Gabelli funds. Please proceed with your question.
Hi, Thanks for taking my call.
My question.
So just on back to that.
80% price, 20% volume can you just was that for the year to date.
And just looking at the quarter like a lot of comparisons with the quarter versus.
You put out the quarter today, and then a lot of talk about year to date numbers can you just discuss sort of.
Pricing, what you're getting through now volumes and how it's looking in the quarter and sort of the seasonality of your business. If you could just go over that.
Yes, so I think your <unk>.
Question was I'm, sorry, I didn't quite understand so the first piece is about.
The 80 20, that's for the year.
And I think that was your first question again can you remind me what your second question was.
Yes, if you could go over sort of what.
What the pricing and volume was in the quarter.
And then.
Third question I guess is if you could just discuss the seasonality because.
We're talking a lot year to date on the call.
And just looking at the quarter quarterly numbers.
You discussed the seasonality of your business too.
85% in the quarter.
Okay, 85%.
And was price in the quarter.
And so from yes from the seasonality again are.
Our.
Imogen business <unk> K Pam are.
Biggest biggest products and.
What we're seeing is the market grow outside of the United States in the U S.
Probably about 10.
10 million gallons in that range, but we've got about two and a half million gallons now they've grown into Mexico, Australia Central America.
Those markets are growing strongly for us as.
As I mentioned, we had we had.
We had drought conditions.
In U S and some up in the Pacific Northwest.
Volume overall.
Was down in the U S but internationally.
Cancel each other out.
And then but as I've said, we had significant increases in costs going into the quarter and there were pretty hefty price increases. So that's probably what drove the most we also had our.
I mentioned our cotton.
Two products both of those had high cost increases and they had substantial 25% type price increases.
And that led.
This lead to.
I think some of it.
Skewing more towards towards price rather than volume.
Alright, Thanks, and then.
Just in addition to that.
Well looking forward.
As mentioned farmer economics are in great shape going into 2023, how much.
<unk> do you think you can push through in the <unk>.
<unk> fourth quarter and into 2023, and how do you think that's shaping up.
Okay.
So far we're not having price pushback.
Which is good.
We made good progress in 'twenty, one I think.
Kind of.
Ahead of our peers on that regard I think they've caught up in 'twenty two.
We've got for the.
The U S season, we've put through price increases.
In the September timeframe.
Fine going forward.
Internationally, we've had delayed increase results in.
<unk>.
In Mexico.
And that has now kicked into place and they've increased.
Their prices Similarly in Central America. They were they were not quite as far behind Mexico.
And in Brazil as well.
Australia.
They've been able to in most of the products being able to put through price increases, but it has been a little slower internationally than domestically, but I think right now we feel pretty good about where our margins are going to be.
Based on the cost increases that we've had.
Yes.
Okay. Thank you.
Our next.
Is from the line of Chris <unk> with loop capital markets. Please proceed with your question.
Yes, hi, good afternoon, I had some follow ups on some of the discussion that's already taken place, but just on the pricing dynamics in the industry. One of the one of your peers your larger peers talked.
<unk> talked about.
Pricing also but juxtaposed against a.
Cost inflation.
Seem to be moderating at least looking forward into 2003. So I'm just wondering if you see any of that.
Cost inflation moderation happening and how do you think.
And the stickiness of your pricing increases that you've had.
Cost of course, we'll hang in.
Fact.
Cost inflation moderates over the course of the next I don't know 12 to 18 to 20.
Four months.
Yeah. So so certainly within our proprietary products and we've got a good portion of the products that we sell.
We're kind of kind of it certainly but most of the organophosphate.
And so.
We are we are seeing phosphorus.
Costs, improving we are seeing freight.
At least inbound freight improving.
And so I think they are.
We have I guess your question may be.
If costs improve our we're going to need to trim, our increases and I don't think so.
I mean based upon that.
The farm economy today.
I think it's robust I think people are making money.
We tend not to play in the commodity markets. So we certainly have some products where we are.
Yes.
We've got generic competition.
And there could some of those products that that.
That that do fluctuate downward.
And but again those are those areas that we don't emphasize sales so.
If we're in a mode, where it's not going to be profitable to our liking and we just we just step aside.
So I think I think I guess to answer your questions I think we feel we're in pretty good shape to maintain our margins.
Great.
If we were to look at.
No granularly at the price increases that you have.
Achieved you pushed through would it be sort of across the board.
Magnitude for all the product lines or is there certain areas, where you're more tactically pushing more price because of either.
Some differentiation or because of some more acute cost associated with that particular product line or is it just kind of like a blanket price increase can you just say that Gary.
Yeah absolutely.
I'll just speak domestically and I think they were they were looking at.
Somewhere in the six 6% to 20% depending on the products. So there is wide variation I think a lot of that is driven by cost.
So when we.
We've done we've talked about before.
Although the marketing managers know each used cost by what we have in inventory what replacement cost is what we expect cost to be 90 to 180.
270, and 360 60 days out so.
So based upon that.
I think I think our our team is.
Looks at that and with the aspect that they want to make sure. They do not have margin deterioration.
And so I think we have seen some price increases and eventually maybe with our <unk> product line.
Sure.
Going up maybe cost is going up but a couple of hundred dollars an acre.
To fumigate.
Our people are saying, well, maybe I'm not going to apply quite as much. So there is there has been a little sticker shock with that but that being said.
Net sales of the product are increasing.
It's more on price than then.
Then in volume.
That's helpful. Thanks, and then.
Talking about the what looks like a favorable backdrop and relative bullishness about the agri.
Agricultural market going into next year one.
Peel that back a little bit it looks like early indications are that there'll be in North America.
Let's shift a preference towards corn versus sorry last year the opposite so just wondering if.
Based on the channel demand at this stage, if youre seeing that.
Likely shift to corn acreage or maybe an increase in corn acreage relatively speaking.
Manifesting.
Demand pull for your soil.
The slides or is it too early to say how do you feel about that particular product line.
Into 2013.
And do you think that the.
Competitive landscape for your products are payments.
Team as they've been or evolving.
Yes, so with regard to corn.
Slide that Bob furnace.
This morning on Iowa.
Certainly.
If I was appointed growers and planting soybeans and I didn't see the economics of the soybeans, but we'll have that shortly but but the corn.
Good morning profitability, obviously looks strong.
I agree with you that.
That people are gonna look strong corn.
That being said.
All of it I mean, if you use point as the barometer that just puts pressure on everything else, which again increases the costs.
<unk>.
Commodity price on those other products is our other crops as you.
Yeah on acreage.
So thats just kind of a feeding cycle that I think will help keep commodity prices up for for.
For some period of time.
So with regard to.
Our products I mean, our corn corn soil insecticide.
Look look strong.
We did see a fair amount of corn rootworm damage this year.
If commodity prices stay at this high level people are going to want to protect that corn the investment and return on the investment are strong. So yes, I think we feel we feel.
Well certainly for this year and that being said on soybeans again, we are building our soybean crop input line as well.
So we look to benefit whichever way.
Growers decided to go.
Got it.
If I could just do one follow up on the sort of the intended acquisition.
On the funnel you might have.
Are we more likely to see.
Something akin to biologics acquisition.
With those sorts of I don't know.
Green solutions, the right terminology, but something along those lines.
It's something we're obviously.
Core Teva for example, recently at their Investor Day in Iowa.
<unk> talked about rationalizing.
A bunch of products.
Over time.
Sharpen their portfolio so well.
So wood.
Are those the kind of things you would look at it that's certainly been in play in the past.
And so what's more likely and what would be the criteria for those different buckets of potential acquisition.
Thank you.
Yeah, So I'll, let Bob elaborate but I would just say.
Accretive nurses as we're looking at deals and trying to figure out what what are the best.
Best acquisition opportunities for us.
<unk>.
No.
I'd like to say, we're sometimes agnostic.
As to.
As to the product we are searching for a certain pieces to fill out our portfolio gaps, but we're not going to pass on opportunities.
To add to existing strengths.
And as you mentioned.
Our bigger peers. They go through every three to five years in terms of sales and so that's part of what's driving this.
And.
And so.
Bob maybe some color on just in those 10.
How does that breakout as far as.
Market access screen solutions more traditional type.
Chemistry, we've got kind of a blend or not yes fairly balanced Chris and Eric.
Okay.
We've got a couple of small deals medium size deals and a couple of large deals.
And.
We're trying to do.
Strength in all three pillars or strategy.
Strategy, whether it's core business with.
We chemistry Green solutions.
But I would say, it's probably more focused on those two.
Not looking for anything in the precision AG arena.
And as Eric said.
We're looking at being accretive for the shareholder.
Turn on investment EBITDA growth.
And also earnings per share so.
We rank them accordingly.
We look at the.
The complexity the execution.
Acquisitions is all about integration and execution that we do that extremely well.
That's how we prioritize.
Thanks for that Bob maybe if I could just one last one.
As you mentioned.
<unk>.
I don't know if the partnership with the right word but the financing.
Package or for some clients.
In alignment with John Deere.
Finance.
Yes.
Hi, guys.
Okay.
Rabobank, yes, so curious, though because obviously John Deere equipment franchise.
Some focus on you can mentioned one of the precision AG.
Is there anything to read into their interest in and your and pass those.
Animals.
Arm for John Deere.
No not necessarily.
Working with the equipment side of that business and looking at solutions.
This is Mac world.
Yes, I think your word of autonomous the financing arm of John Deere is very economist to the equipment side.
You have also internal interactions as far as financing their own equipment, but the John Deere financing works with all major companies.
Growers are looking for financing options. This is an option, it's a competitive option for the surpassed line of product, but really a alignment with John Deere.
Youre asking it's way too early.
The process I think.
Right now we're really focused in on.
Getting as many systems into the hands of farmers Theres a lot of education there too.
To do it.
Up to now we've seen excellent results.
Like I had mentioned we were slowed down one year, maybe even 18 months through the pandemic, but.
Things are picking up very nicely for us and the results the economic results for the growers are excellent.
And just on that.
This harvest that youre going to.
A bigger sample that youre going to be able to kind of share quantify some of that.
The yield benefit associated with the return.
I don't know if its too early.
Sure any of that thank you guys.
Yes. It is it is early.
Generally we look at kind of latter part of <unk>.
Of November into December before.
Before we start with yield results.
And of course it depends on.
When we do studies it depends on how.
How fast the researches sometimes that goes into into January before we get the reports, but yes.
Yes.
<unk>.
Sharing that as it becomes available.
Thank you.
Okay.
Thank you.
A reminder, you May press star one to ask a question.
Thank you.
At this time I will turn the floor back to management for closing remarks.
Okay, well again, thank all of you for for.
Listening on the call great questions from from the <unk>. Thank you very much.
Look forward to.
Reported in our Q4 results.
Over the next call, we'll give a kind of our outlooks.
With some targets for 2003.
So with that thank you very much.
Again.
Your time.
Alright.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.