Q4 2022 American Vanguard Corp Earnings Call
American Vanguard will be filing our Form 10-K with the SEC in the next day or two.
It should provide additional detail with respect to the results that we are discussing on this call before beginning lets take a moment for our Safe Harbor reminder, and.
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 Eric Lin to mute, Eric. Thank you, Tim and welcome everyone. I'm pleased to report that as I had noted on our February call. Our full year 2022 performance exceeded that of 'twenty, one and nearly all material respects.
I am extremely proud of the work our global team delivered net sales of growth.
One, 9% and growing our net income by 47%.
<unk>. This result, despite a flat fourth quarter during which we were unable to sell our leading soil insecticide Aztec due to a supply chain disruption, which has improved during the first quarter of this year.
Here on slide four I'll highlight a few important points about our 2022 performance in 'twenty three outlook.
First our core business is strong on track to meet or exceed our 25 targets. Similarly, our green solutions business is growing at a fast clip and is also on target.
With respect to <unk>, we are moving a bit slower than expected due largely to delays from supply chain disruption and regulatory approvals. The work we're doing to grow precision application in agriculture is complex, but we felt strongly that the long term benefits of simple play a critical role maximizing the global farm economy.
In short regulatory design and formulation changes that slowed us down.
We're working on.
Our initiatives to accelerate our progress.
For example, we are applying additional resources to expand our portfolio and ensure broader adoption by growers.
I would like to conclude.
The 2022 strategic review by noting that we have also strengthened our balance sheet, while returning significant value to our investors through increased dividends and share repurchases. This sets up a path to target greater growth and profitability for 'twenty three.
Just a few quick notes on market conditions highlighted on slide five.
As we outlined in our 10-K 22 was the second full year of an up cycle in the AG sector, featuring high commodity prices and a strong farm economy.
Our corn cotton soybeans, and fruit and vegetable products all recorded stronger sales during the year.
Our non crop business was about even with the prior year, despite a 30% drop in the domestic consumer product market.
We did see a rebound in the commercial non crop segment as the professional pest control market began to regain its footing.
Our international business recorded its highest sales increase up 13% year over year as we enjoyed significant increases in sales of our green solution products higher demand for our soil fumigant in Mexico, and Australia, and the benefits of our new soybean registration for calendar in Brazil.
Also I am proud to report that our Latam business had a record $100 million milestone in sales.
Look forward to building on this platform in the future.
At this point I thought it'd be helpful to review, our actual 22 performances versus our 22 financial targets.
As you can see on slide six.
Within the targeted range for net sales.
Gross profit margin of 40% was at the high end of the target as were operating expenses.
As a percent of net income or net sales at 33%.
Our interest expense was only slightly above our target, which is noteworthy given how many times the fed increased interest rates during the year.
The tax rate came in at 24%, which is consistent with the target mid twenties.
Debt to EBITDA came in significantly better at.
One <unk> target.
Our better than one exit target net income ended up 47% and adjusted EBITDA was up 15% as compared to 21.
While these were short of our targeted increases they represent significant year on year improvements.
Before continuing I want to take a moment to credit our global team for those results.
We continue to show strong sales growth and increased profitability, while expanding our global footprint offering climate friendly solutions and commercializing leading edge precision application technology.
Business success requires not only hardware, but also high caliber people.
On today's call. We wanted to feature two of our key executives for a leading important growth initiatives at the company.
To support me and.
And revisiting our 2025 performance targets, Jim Thompson, our director of portfolio strategy and business development will report, how we are successfully growing our green solution businesses, including expanding into huge markets, such as China and India.
Scot Hendricks, our senior VP of sales in the Us and Canada.
Sales technical and application technology will describe the focused measures that were taken to ensure <unk> remains the vanguard of prescriptive application technology.
At the end of the call I will cover our 2023 outlook and then leave time to answer any questions you might have but first let me turn the call over to David Johnson, our CFO for his financial analysis.
Thank you Eric.
As you can see on slide seven the 2022 year has seen a strong sales performance for the company with overall revenues up about $52 million or nine 3% as compared to 2021.
Within that improvement our U S crop business increased by 9% to $289 million in 2022.
Non crop business.
With slightly down and our international business grew by 13%.
To $244 million.
Okay.
Turning to slide eight for the full year 2022, despite some movements by category gross margin performance improved by 2% to 40% as compared to 38% in 2021. This underpins the fundamental strength and stability of the business as we have managed to implement.
Successful pricing actions in the face of significant inflation cost pressure, particularly as regards to the supply chain.
Yes.
Yes.
On slide nine you will see that our operating expenses increased by nine 5% to $201 million on sales up nine 3% operating expenses expenses as compared to sales remained at 33% of sales in 2022 in line with the prior year.
Included in operating costs outbound freight amounted to 8% of sales in both 2022, and 2021, selling G&A and R&D accounted for 25% of sales.
Turning to slide 10, with the increases in sales and gross profit and operating costs remaining flat at 33% of net sales operating income increased by 31%.
Our cash management performance has been strong throughout the year average debt is down even though we acquired $34 million.
Of the company's stock during the year interest expense is up 7% as expected driven by federal policy, resulting in increased interest rates aimed at inflation control and reduction.
Finally, our effective tax rate was 24%, including the race the release of certain uncertain tax positions.
This compared to an effective rate of 30% in 2021, the 2021 rate was higher primarily because of the onetime noncash charge to establish a valuation allowance against the deferred tax assets in Brazil that I discussed this time last year.
Our net income at $27 $4 million was up 47% and EPS.
Was it not 92 per share as compared to 61 cents per share last year.
On slide 11.
Our adjusted EBITDA improved by 15% compared to 2021, and our EBITDA margin improved to 12% of net sales as compared to 11% in 2021.
2022, adjusted EBITDA amounted to $73 million as compared to $63 million last year.
Over the last eight years adjusted EBITDA has improved it's a compound annual rate growth rate of 10% a year.
Looking at Slide 12, I want to digress, a moment and talk to you about to change we are planning to make we have spent some time considering the statement of operations of our peers and have determined that our business performance would be most more closely comparable and therefore more easily understood. If we made.
A comparatively simple change in the company's statement of operations in its public filings, we plan to move outbound freight costs from operating expenses to cost of goods.
This will have the impact of reducing operating expenses and at the same time, increasing cost of goods sold by the same amount.
These costs on average amount to 8% of sales this change.
Will impact ratios, such as gross profit and operating costs when compared to sales, but will not impact either operating income or net income.
Changes such as this require a public filers such as avid American vanguard to get prefer ability lesser from its registered public accountants in order to be able to proceed with with the change.
We will give investors notice once we have received the necessary documents.
As you can see on slide 13, we've had another very strong performance strong cash performance for 2022 and 2021 combined we have generated a total of $144 million of cash from operations.
Yes.
Yeah.
Now I want to turn my attention to the balance sheet and the company's focus on capital allocation.
Slide 14 lays out the company's capital allocation model that drives many of our actions.
We focus on managing debt under our credit facility arrangement with a group of six banks that have been our partners for many years.
We have a credit facility because our business is a strong cycle with working capital at the expense during the first six to nine months and reduces at the year end as you can see on this slide our leverage was extremely low at year end, which is a typical position for the business each year.
In addition, we have historically grown by acquisition and dependent depend on the availability under the line to fund such acquisition activity. This has worked extremely well for the company over the history of our partnership with our bankers at the end of 2022, we could borrow up to $200 million on our credit line.
We focus on paying a sustainable dividend and have historically paid approximately 10% of net income during 2022, we've increased our dividend per share by 31%, reflecting our strong financial performance and have paid out about $3 million to investors as a result.
We have a strategy to manage our shares outstanding and have invested $34 million in 2022 to repurchase a total of one 7 million shares.
And ended the year with a fully diluted share count of 24 point $29 4 million shares which was significantly below the $39 million. This time last year.
Our activity is to invest to grow our business is a constant focus for the company. We focus on the development and full commercialization of our Sim pass Ultimate technologies for example, with the introduction of our proprietary product counter on soybeans in Brazil.
In 2022, we have self funded $6 $8 million in these exciting technologies comprised of R&D expenses and capital spending.
We are growing our green solutions portfolio with for example, our green leaf partnership and with the New Bioware <unk> acquisition, we announced at the start of the new year.
During 2022, we invested $1 $2 million supporting these activities.
The company has become adept at carefully assessing acquisitions that bolt on products and increasingly international distribution businesses.
During the last eight years, we have acquired more than 20, such assets, which has helped us grow our sales at a compound annual growth rate of nine 4% and.
And finally, we continue to strive to ensure our factories, a safe efficient and capable of supporting our growing business and we have spent $13 million in that regard.
In addition to all of these actions we were able to reduce debt net of cash at the year and by 14% to $31 million.
With regard to making acquisitions, which as I mentioned is a key part of our capital allocation strategy. We considered a significant number of opportunities during 2022, but passed on all if they did not meet our criteria.
We are finding that some buyers are paying excess multiples of EBITDA or sales in the acquisition market and.
In the first few weeks of the new financial year. However, we've closed on a small biological asset acquisition and are currently involved in diligence on a small international acquisition.
I create our criteria for proving acquisitions remains disciplined as we make critical capital allocation decisions.
One final comment on this slide during the March Board meeting the board authorized the company to continue the program to repurchase stock up to $15 million during 2023.
Okay.
With regard to debt as per slide 15, we saw a decrease at the end of 2022 in comparison to 2021.
Is even more significant for debt net of cash, which improved by 14% ending at $31 million as compared to $36 million last year.
With regard to liquidity as you can see from this chart, we have been constantly consistently working down debt from a high in the first quarter of 2022, which is the normal rhythm for the company to a low at the end of the year.
As noted above we recorded improved EBITDAR in 2022 versus prior year and at the same time reduce debt as a result available Lilly availability under the company's credit line has improved $200 million.
As compared to $178 million at the end of 2021, the strong liquidity position and shows that we can continue to invest in the company's future.
With that I'll hand back to Eric.
Thank you, David and now I'd like to turn to Slide 16, our 2025 performance targets. We've been covering these targets regularly over the past eight quarters. This is a chance for our investors to get a sense of how our three growth platforms from the core business Green solutions and precision application.
Our expected to trend through 2025.
This curve is from our earnings call for Q3 of 2022.
Let's focus first on our core business, which includes multiple conventional products within clock non crop.
Both domestic and international.
Our current outlook is that we are on track to achieve our 2025 target of $694 million in revenues.
The trajectory is driven by a continued strong demand for our legacy products.
Expansion of product lines through innovation mixtures and formulations for example impact core summit and impacts.
And new market access for example in the new registration for calendar in Brazil.
The third component component of our core businesses acquisitions, and although we expect these to continue to occur. We believe that we are on track to achieve our targets for core revenue without additional acquisitions.
Next up.
As our green solution.
Segment for that discussion I will turn the call over to Jim Thompson.
Thank you Eric.
As we've described in the slide 17, the Green solutions business within Ambac has experienced a very strong growth here with growth with growth in both top line revenue and gross margin.
Revenues net of licensing grew from $37 million in 2021% to $49 million in 2020, a year over growth of 32%.
Additionally, gross margins on our product revenues, excluding the licensing grew from 40% to 41%.
Geographically, we saw strong growth in our Asian business as our Indian and Chinese markets grew above expectations, our Latin American biological business is the largest contributor to revenue.
Which grew over 60% in 2022.
We will continue continue to expand the business by securing product registrations in several new countries and by expanding the portfolio with products from new partners.
These results reflect a dedicated focus on green solutions as a critical pillar to Amdocs growth strategy. In 2022, we establish dedicated commercial teams in the U S and Latin America and also established a global team focused on growing our specialty nutrition business.
Two of the key acquisitions made by Ambac Green plants and greenhouse have formed strong product portfolios within ambac.
Both acquisitions brought unique product portfolios strong intellectual property and personnel with expertise to grow the biological portfolios.
In 2022, we also signed on new partnerships with new Leafs, and Biotics and with <unk>.
And launched our bioware products for corn and soybean at plant treatment in the U S.
In early 2023, we completed our transaction with American Biosystems, and our non crop business.
Turning to slide 18.
As part of our Green solutions business growth, we are further analyzing the various product categories and the biologicals marketplace.
As you can see we have three primary categories driving the business bio stimulants bio pesticides also known as bio controls and specialty nutrition products.
The bio stimulants classes, driven by sales of the greenhouse products.
But also include several other third party biosimilar products.
The bio pesticides market has a large component from our <unk> non crop business as well as several partnerships.
And lastly, the specialty nutrition business is led by the sale of our Green <unk> products.
Okay.
And lastly on slide 19.
We are expecting 2023 green solutions revenues to grow to nearly $70 million or 43% increase in revenue over 2022.
And we're expecting product revenue margins to grow to 44%, which is a 3% increase over 2022.
Over the past few years, we've strengthened our internal expertise and the green solutions business in all areas of the company.
This in turn has led to a very robust business development pipeline of new opportunities that will fuel growth in 2023 and beyond.
Lastly, the capital markets are more challenging than ever for early and mid stage companies.
Which increases the number of potential M&A targets for larger players in the market such as Amdocs.
We will continue to seek third party relationships and selective M&A opportunities to achieve our $140 million revenue target in 2025.
Thank you Jim.
At this point I'd like to ask Scot Hendricks to takeover Scott.
Eric I'd like to build upon Jim's comments.
By elevating our U S focus on Green solutions and in particular, so it will help as we continue to conduct research where theyre green solution portfolio of assets. We are seeing very promising results from our micro organism library that is commercially available our brand invigorate is comprised of multiple micro organism.
That is demonstrating very positive results and broad acre crops, such as corn by making solar nutrients more readily available optimizing the plant performance through the growing season as.
As seen in the performance graph on slide 20, we are demonstrating significant route and tissue growth versus the check in corn production are.
Our objective to bring sustainable Green solutions has been on an accelerated path for multiple segments in the last 24 to 36 months. So youll health solutions that enable nutrient efficiencies and optimization by the crop will be a key to achieving the maximum potential for that crop through our platform syntax.
Yes.
Turning to slide 21.
The year 2022 was another exciting and challenging period for our fantastic technologies platform.
Had over 110 <unk> technology systems are treated at approximately 160000 acres that covered geographies from North Dakota to Georgia in the United States, which resulted in a number of key learnings.
As precision AG retailers innovative growers and our technology partners continue to evaluate new and exciting avenues to create value through this digital space our commitment to this segment is unresolved.
Our application technology team annually reviews, our <unk> platform to ensure that we're meeting our customers' needs today and most importantly tomorrow.
2022 was no different as we debrief with our technology partners to ensure we deliver this fantastic experience to our customers moving forward in 'twenty three and beyond.
This resulted in upgrades to hardware and software for the 23 same pass system such improvements were made to our valve assembly cartridge brackets and software to ensure the durability across all production practices for the future.
As we look at slide 22.
We will highlight how digital agriculture is transforming our industry in the United States. One of the questions. We frequently get is where does the data come from that drives us in paas platform.
According to a recent economic research information Bulletin released by the USDA U S. Agriculture digital technology adoption is generally increase since 1996 key components of this adoption curve range from yield monitoring sold mapping yield maps variable rate technologies guidance.
Systems et cetera. This repository of data that has been collected contains the power of digital agriculture, and U S Army variable rate technologies and Sam pass.
Variable rate technology continues across the United States broad acre crop production as you can see in the recent USDA economic research information Bulletin significant expansion has occurred in the United States across these crops.
Data mining from data generation will be the enabler for precision AG retailers and innovative growers to break their yield barriers.
Power of <unk> is reflected in slide 23 puts.
Put simply the continued adoption of variable rate technology has and is the driver behind our sandblast technology as a result of the data generation through data mining our sand pass ecosystem can deliver powerful results.
<unk> are one of the most damaging pests and AG production across the U S.
They are also one of the most difficult to treat as historical predictability methods have demonstrated until now.
As seen in the example of the performance data has shown.
<unk> has enabled this grow or to increase their yield by 'twenty, one bushels precision AG retailers ability to write prescriptions from their data repositories for our sand pass applied solution counter enables their growers target treatment zones and their fields that minimises the yield robbing affair.
<unk> <unk> <unk>.
A key capability of our <unk> platform that combines precision AG technology with some past applied solutions is a powerful combination that will enable customers to drive profits for their operation.
Prescriptive ability to apply the right product at the right rate at the right place at the right time with syntax.
As per slide 24, our revenue projections for <unk> technologies have been revised to align with our team's current outlook.
We are projecting the 'twenty three revenue to grow to $12 million, a 33% increase in revenue and we're expecting a 49% growth in margin year over year. This is down from the previous forecast of $28 million in total revenue for 2023.
We are strengthening our focus on <unk> technology platforms by restructuring and transitioning our application technology team to a business unit that will be solely focused on creating demand and <unk> research and development. This will enable a dedicated unit that will have a centralized focus on precision agriculture and the.
Future of Santana technology, enabling us to achieve our target of $125 million in revenue by 2026.
Thank you Scott.
Let's let's pull it altogether.
As you can see from our graph on slide 25.
Our consolidated net sales target for 2025 downward to $907 million from 947.
This reflects maintaining the original trajectory for both our core and grid solutions, while reducing our Sim past target to $75 million in 2025, and adding 26 impasse target of $125 million.
Okay.
We will continue to report an update where appropriate our.
Our progress for each of our key growth initiatives.
So now let's.
Turn our attention to 2023 on slide 26.
We are seeing positive conditions for the company's continued strong financial performance.
With high demand for our corn and soybean products.
And improved supply chain for raws and intermediates.
Comparatively low freight costs and a low level of ambac products within the distribution channel we are targeting net sales to grow between eight and 12%.
Our profit gross profit margin of 38% to 41% and operating expenses as a percent of sales at 32% to 33%.
Our interest target is between six.
Six five and $7 5 million.
Our tax rate is targeted at $27 million to $29 million.
On slide 27% to 28%.
Our debt to <unk>.
EBITDA remains the same as last year's target.
And we are aiming to achieve a net income increase of between 25% to 35% and adjusted EBITDA growth of between 20 and 45%.
In summary, we recorded an excellent performance in 'twenty to strengthen our balance sheet delivered substantial value to our investors and expect to achieve significant growth and further profitability improvement to 2023.
We thank you for your continued support of American Vanguard and with that I'll turn the call over to the operator.
Taking any questions you may have diego.
And ladies and gentlemen at this time, we will.
We will conduct a question and answer session.
You'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue to remove yourself from the queue Press star two on your telephone keypad.
Once again to ask a question press star one on your telephone keypad.
Our first question comes from Chris Capps with loop capital markets. Please state your question.
Yes, hi, good afternoon, Joe.
It's about the just the market conditions currently a couple of things one.
Obviously, we've gone through this.
Supply chain disruption inflationary costs.
That's now <unk>.
<unk> a bit I've heard some.
Larger crop protection peers have talked about that and.
But I'm curious in the context of <unk>.
To the extent that you've had.
Pricing actions to help offset inflationary cost how do you see that playing through this year, where you will you.
Will you more than make up for any cost inflation pressures via pricing and how is that against the backdrop of some.
Sequential.
Yes, diminishing of inflationary costs in various areas.
Okay.
Well I think I think we've done a very good job of implementing price increases we've gone through the last couple of years, we've had multiple price increases during the course of the year.
If we look at some of the commodity products that we sell that are not.
A major focus for us we have seen some softening in prices coming out of China and competitors may may bring pricing down.
In order to compete in that market.
For our core products.
The vast majority of what we do.
We don't have a lot of generic pressure and as such I think we're in pretty good shape too.
Cheap.
<unk> that we have in raw materials and freight.
<unk>.
So I don't know Bob if you have any.
To add to that I think it's a mixed bag, Chris Hi, Chris.
So on the the biological range I don't see any any issues. There I think the market is growing it is accepting the value proposition.
We don't have any major cost issues that we see there in the supply chain.
On the chemical front, it's very mixed.
Not in certain markets like glyphosate, which were the prices coming down.
Some distributors are upside down or fertilizers were distributors also having.
<unk>, so we're playing in niche segments.
<unk>.
Doing quite well I think the team is.
Executing extremely at a high level like Eric said.
And we will continue to.
Do so because that's what's good for our shareholder.
That's helpful and a follow up if I could.
Just on the <unk>.
The supply issues that impacted.
You are available and therefore your sales in the fourth quarter are those fully resolved.
Just how do you.
There was discussion about either recouped.
<unk> by offering an alternative.
Product or.
We're just deferring some of those sales or wasn't really clear do you have more clarity on.
How that plays out here.
This year's growing season.
Sure. So we are going to NASDAQ was the product that we had challenges of.
We weren't able to produce entered Q4.
Producing inherent in the tier one.
As we mentioned before we have three other corn soil insecticides force.
Counter <unk>.
<unk> choice that we are substituting we.
Ken I think I think we're probably.
We're probably not from a sales standpoint going to hit 100% of what we were looking to accomplish.
However.
From Scott standpoint is kind of happy with that.
We'll be looking at an extremely low inventories in the channel as we come to the Q3 Q4 period.
We will we will start production of <unk>.
Continue to run Aztec through.
Through the end of April and into mid March I think part of how I met.
Part of this will depend on planting season.
As to win when people.
When people.
We will have to.
Can no longer be purchasing on our corn soil insecticides, but scott as far as timing any outlook as to I mean, I think the <unk> is pretty well there, but as you go to mid south.
In the mid <unk>.
The upper Midwest area.
What are people Simon as far as planning activity.
So today, we've been very fortunate we've received a number.
Rain events, and really I'd say precipitation advanced that's moved across the geography, where.
With much needed at a number of arid regions too.
Therefore, it's put us in a position where spring planning and production activities have been delayed.
Where we are.
Certainly looking at the potential for a elongated planning window that certainly environmental cancellations are subject to change, but at this point the outlook is pretty positive.
And I think also.
We're experiencing here in California.
Coming out of a three year drought situation where last year.
People.
Foregoing a lot of their annual crops in order to protect the tree crops.
That issue is not is not going to be a factor this year and I think we're already starting to see some of our pure mega another other products being pushed into that into that position yes.
Yes, absolutely, California, specifically going into 2022, we had most of the state was in a severe drought.
As we enter to that same period of 2023.
We have actually moved away from that signaling too.
And maybe some areas or slight drought areas, but for the most part moisture has been.
Significantly higher than the previous really last three seasons.
And in some cases, we do need these conditions to subside. So we can get into field and actually plant crops for the 23 seasons.
I appreciate that color and then if I could just one follow up on.
Well, it's a big subject, but your growth platforms.
In your update in terms of visibility through 2025, if I understood. What you said so.
Youre basically sticking with your targeted green.
Green solution. The Sim pass target was may be protracted out by a year, if I understood correctly.
Yeah.
Help me clarify hopefully if that's a mischaracterization, but on the Green solutions there was still.
It looked like what you referred to.
Have the slide deck in front of me, but.
And growth initiatives.
In order to reaffirm that.
Trajectory to achieve the Green solutions.
Sales expectation by 20 to 25. So can you just remind us what what comprises that growth initiatives and the visibility around that thanks.
Now I'll comment and then turn it over to you Jim.
So yes.
Yes within that within that math, if youre projecting out a 20% increase across the normal business.
Quite a few.
I alluded to we have quite a few companies that are talking to us about different products that they would like to.
But through our distribution system.
As well as we continue to have kind of what seems to be driving our our M&A activity is more.
Green solution space.
So I think those two components I think we're feeling pretty comfortable that those targets is going to be there and also you mentioned <unk> mentioned in the <unk> and maybe agenda can you just kind of elaborate on that or Scott if you'd rather have it go ahead, Jim sure. Yes, first so theres a number of factors that we think will drive that growth to.
$140 million target in 2025.
Mergers and acquisitions as a bucket to get there and thats one of the faster ways to get there, but as we mentioned.
A lot of the multiples, we're seeing are really high and we have a very disciplined strategy around that.
Second we do see a really robust pipeline of third party companies that want to work with Ambac can take advantage primarily of our expertise in this space as well as a market access that we have around the world.
Strong in the U S. But also very very strong in Latin America and Asia. So we plan to continue to work with growing our portfolio through through licensing or distribution or M&A.
And all of those look very active in the coming years.
Scott maybe I know you are kind of excited about <unk> in a totally new market for us to enter.
But maybe some of the initial.
Doesn't that youre seeing and what what what.
Within our distribution partners.
As we look at the opportunity this technology brings to our organization and really our customers downstream. This is a new space for our retail partners for <unk>.
Growers as they look at how theyre going to innovate and continue to drive profits to their farming operations.
And it also aligns with our focus as a U S crop team on App plant solutions, and how we deliver it and this particular technology combines.
Two elements one it's a it's a great story as the <unk> agent is actually a <unk>.
<unk> soybean research check off funds and Thats, something thats needed and required for a number of crops.
The planners as they used to plant those crops and then the technology itself.
It is something that allow us the.
The plants to optimize and nutrients.
Nutrients that would be really a are not readily available.
In the first days of germination and emergence and so we're really excited about the consistent win rate that this particular combination delivers its over 80%.
And it's $4 five bushels of corn and around two and a half on soybeans. So very exciting so what this is Chris.
Basically feed lubricant alright so.
Virtually all the corn seed a number of other crops.
Have have either.
Graphite.
Or a talc added to them in order to help it because it goes through the <unk>.
Yes.
Delivery system in the soil.
This is a natural occurring.
Kind of extract from soybean and works extremely well to the idea of being able to do something other than put in.
Let her talk into the soil.
Is attractive to the space.
In addition by adding a biological to it.
Scott was alluding to that not only with this movement.
<unk>.
Strong lubricant, but also get some bio activity at the same time so yes.
We're real excited about it our again our distribution that's a segment where they have not been.
And in fact that the lubricants.
<unk> been sold by the equipment companies right. Today. So this is a whole new space for the.
That sector.
Thank you.
Thank you. Our next question comes from Wayne <unk> with Gabelli funds. Please state your question.
Hi, Thanks for taking my question.
Sure.
You guys mentioned.
The extremely low channel inventories for Aztec obviously due to the supply disruptions you had could you just speak to more broadly channel inventories across the portfolio by region.
How much visibility you have there.
Sure Scott do you want to.
If you want to talk to us.
As the North America piece is concerned I'd be happy too so certainly coming out I give you some context coming out of 'twenty, one going into 'twenty. Two we were at all time low channel inventory rates and then we saw a shift really a change in the cadence of purchasing behavior based on what was needed and required to drive the op.
Opportunities in 2022.
A lot of that supply depending on the segment that did come in either in season or late so as we started into the second half of 2822 for some of the larger molecules such as glyphosate Glucosamate and others.
Came in after the use season or in the middle of the season. So some of those inventories carried over now for the 2023 season. So our customers are managing through that today and there's two elements to that one is the inventory itself. The other one is the valuation associated with that inventory as it.
Gains to our products, we actually came into the 2023 season.
At relatively low inventory levels comparatively speaking as being one of those that was at one of our all time lows, even with the four skus, we sell today and so you combine that with the current supply position we're in now.
The second half so as we look at preparing for the 24 season should put us in a very strong position to sell into that segment.
Yeah, and I think our globally I can't think of an example, Bob where we have.
The supply chain issue I know.
With some of our factories were running $24 seven trying to keep up with demand.
And so there are a number of less profitable markets at.
Globally.
Elected not to supply in order to keep up with those segments, which which were more profitable.
So unlike the examples you gave.
Glyphosate grew fast.
<unk>.
Nutritional fertilizer products, where there is some glad I think.
We've been we've been struggling to keep up with demand so I don't see that.
That's one of the reasons why we're so optimistic.
For the for this season coming up because of course that includes.
The restart and that will happen in Q4 of this year that's correct.
Eric.
We also if you look at the statistics that day.
David showed you as far as inventory levels as a percent of sales we would.
Keep in a pretty good line.
<unk>.
Where we're currently at.
So I don't know if David showed at this time, but normally show the show's about.
28% to 30%.
Inventory levels right to net sales and.
We've been pretty consistent with that so as we grow.
Our inventories are in line with our growth rates.
But as Erik States demand is really outpacing.
Our factory utilization right now so it feels.
It feels good.
Alright, that's very helpful. Thank you.
And then.
Just on Green Green solutions, you guys are talking a lot about that.
Obviously.
Fast growing growing area.
But you mentioned that you'd be disciplined.
With M&A there can you just talk to some of the metrics as you look at some of these you know morning Nathan.
Early technologies.
Okay.
And the metrics we use to decide.
Or <unk>.
Yes, so we use the.
The same model.
Sure.
And frankly the investments.
Which essentially does a 10 year P&L.
We forecast where sales are.
Cost of goods, all the way down to earnings per share and then have a hurdle rate.
15%.
On each individual situation.
For a five year payout.
And one of the things that we.
Strategy strive for.
Is to have the deal will be accretive from day one.
So there are exceptions to that but generally.
That's what we look for.
So I don't know if that.
Answer to your question.
Alright, that's helpful. All right. Okay. Thanks, a lot and look forward to the thinking is.
Thursday.
Okay, great. Thanks, Mike.
Our next question comes from Gerry Sweeney with Roth and Cam. Please state your question.
Okay.
Hello, This is Brandon Rogers on for Jerry Sweeney.
Got a question on margins.
This past quarter were all do you see the gross margin being maintained through price actions.
Inflation cost.
Yes.
I feel very strong about it.
And we talked about that.
The price increases we put in place.
We haven't had pushback, particularly here in the us.
And so.
Then from.
Products.
More in the niche space.
And so.
I think we feel very positive about our maintain our margins.
Okay. Thank you and then just a follow up switching over to some Pos side.
You feel good.
<unk> has sufficient resources to drive broad adoption of some costs both in the U S and in Brazil as well.
Yeah.
Yes, So I think as Scott mentioned, we've decided to break out as a separate business unit, we do have.
We do have people that.
That system that have been dedicated but we havent had a dedicated salespeople. So Scott it is in the process of getting people that have.
Kind of precision AG background.
That will just focus 100% on <unk> and I think that's going to be a key difference because again asking our existing team who has a full play to start with trying to trying to service.
The us market.
It was a difficult task and I think we probably overestimated what our retail partners.
And.
And our equipment partners, we're going to be able to accomplish as far as pull through so we're going to call on.
The customers that have the strongest footprint in precision AG.
And we really.
It didn't really focus hard on that I think we spent.
Two of the two of the 10 biggest players in that field, where people that we work with them.
Nutrient and Helena, So we're going to we're going to focus more on that.
Internationally, we're pretty pretty excited we've got.
<unk> systems, I think we've got 19 that or.
Going down there for this plant season in September .
And.
It's led by a calendar.
For soybeans, but also in corn and cotton.
Bringing a team of Brazilian growers.
Up to the United States to written as planned to in here and there.
States and sure that technology, and then we'll be taking our <unk> down to Brazil to help with installation on any questions. They have in getting this often go in with these first 19 systems.
Awesome. Thank you guys just for me.
Yeah.
Thank you and just a reminder to the audience to ask a question at this time press star one on your telephone keypad will pause for a moment to see if there are any additional questions.
Yes.
Okay.
Thank you there appears to be no additional questions at this time I'll turn the floor back to our management for closing remarks. Thank you.
Thank you Diego and thank you all for joining us.
Large crowd today, which we're pleased to have.
We will be giving you updates on <unk>.
Pictures on the 23 year.
First quarter results, which will be sometime in the <unk>.
First or second week of May so we're not all that far away. So anyway I look forward to updating you as we move through the course of the year and thank you very much for joining us today Goodbye.
Thank you and with that we conclude today's conference all parties may disconnect have a great day.