Q2 2023 American Vanguard Corporation Earnings Call
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Okay.
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Welcome to the American Vanguard Corporation second quarter and year to date 2023 earnings call I will now turn the call over to Bill Keizer Director of Investor Relations you may begin.
Well, thank you very much Misty and welcome everyone to American Vanguard's second quarter and mid year earnings review.
Our speakers today will be Mr. Eric went to mute, the chairman and CEO of American Vanguard Mr.
Mr. David Johnson, the Companys Chief Financial Officer.
And also to assist in answering your questions today, we have Mr. Shane whether all the CEO of Amp Guard environmental technologies, which we referred to in our filings as the non crop business.
Mmm sales decline in the face of an industry declined in the face of an industry wide drop in procurement activity as a distribution channel destock their inventory.
Antley, we are seeing stable commodity prices are strong farm economy, and low channel inventory of our domestic crop products.
And as such we expect a strong recovery in the second half of the year.
The second half rebound will not likely be enough to bring us up to our original full year forecast.
Sales mix for the quarter and year to date is important to note as we continue to see strong growth and our green solutions product clients fur.
Further given current conditions, we are closely managing expenses across the board in order to improve operating leverage.
With that in mind are downward adjusted.
Performance targets for 2023 as compared to 22 are as follows.
Slightly elevated net sales between 615 on $625 million.
Similar.
Adjusted EBITDA between 70 and $75 million.
Lower net income between 20 and $24 million.
Much of the downward pressure and this metric relates to interest in tax expense.
Let's start with Q2, and then move onward.
To the full year and beyond.
And our last earnings call, we mentioned that customers were beginning more judicious.
Becoming more judicious about inventory control in light of increased interest rates and the associated.
Carrying costs.
Those early signs of hesitancy and procurement hitters and impact of the global AG Chem industry during the second quarter as distributors abruptly slowed purchasing activity in order to destock their inventory.
Like many of you.
You have been reading with interest the earnings report of our public peers and observe the industry as a whole experience a drop in the quarterly sales on average of approximately 20%.
Some particularly those who carry more generic products experience even more severe setbacks.
By contrast, you can see on slide five or overall net sales were down by only 10%.
We break that down further as follows net sales of our use crop business, we're down 11%.
And but for the unavailability of one of our high margin herbicides.
Would have done much better.
We have since source that herbicide and believe we will be able to serve our customers going forward.
Within the nonprofit sector, we have seen a similar trend.
That is retailers, whether big box stores nurseries or garden centres broke with the longstanding practice of having a full bond that contained 120 to 180 days of inventory and redefined it to mean 20 to 40 days of inventory.
This in turn led to a drop in demand as they exhausted existing stocks followed by smaller orders as they adopted the new approach.
In effect retail has pushed inventory carrying costs back onto the manufacturers. Consequently, net sales within our nonprofit business decreased by about 20% in the quarter.
Within our international business, while net sales in Mexico, and Australia were strong there were not enough to overcome the fact that China, China based suppliers were loading the markets within Central American, Brazil, with low price generic products.
Altered the market dynamics, resulting in reduced demand for higher margin products.
Despite this spike and supply of generic goods were able to maintain our brand value in these regions and on a consolidated basis or international sales dropped my own by eight on side by 6% and experience a 1% margin decline.
Before moving to David's presentation I wanted to cover some of the positive achievement achievements of the year to date as you see on slide six.
First after a major interruption in the supply of raw materials that we used to make Aztec. We now have two sources of both laws that are being delivered in advance of our manufacturing campaign set to start next month and run through November .
Similarly, the supplier of our high margin herbs.
Herbicides, <unk>, which had been unavailable for the past three quarters will commence production again in September in time for the fall twenty-three unfold 24 season.
Channel inventories of that herbicide are fully depleted. So we expect strong demand in Q4.
At this stage then we know of no supply chain issues that should prevent us from serving our customers for the balance of the year and into next planting season.
Second or Green solutions portfolio, which includes over 130 bio rational and soil health products continues to grow at a strong club.
Compared to Q2 of 22 sales of Green solution products, which we sell into global markets Rose by 21%. These products are largely immune from the cycles of the chemical supply market.
Further we continue to see higher adoption of these solutions by growers.
In addition, with respect to buy awake AC lubricant from Soya protein. We are expanding uses beyond soybeans and corn to include peanuts and cotton in 2024.
Third over the quarter, we continued to repurchase are common stock on the open market through our 15 million Tenby five one purchase plan that.
That plan concludes within the next two weeks and our board as authorize the company to enter into another repurchase plan.
For up to seven and a half million worth of common stock.
We continued to see value in our equity and find this to be a prudent allocation of capital.
Fourth we are happy to report that our proprietary precision application system. Some past is now operating.
On the ground in Brazil.
This represents a huge step forward in the global commercialization of this at plant technology.
With a Brazilian label for counter.
<unk> product that includes corn soybeans cotton sugarcane coffee and bananas. We are now providing the first end to end solution, both product and equipment for precision application in that country.
You can see on slide seven our first impasse unit in Brazil.
And is operated by a bomb material a large scale grower, who manages 500000 hector's of soy corn and cotton.
Been a loyal user of counter and in the past have found that our product gave them an average of 15% yield booths and corn.
In this photo you will see Bob <unk> 49 row, John Deere planter.
With some pass with our some pass system.
They have already tested seven different application rates at seven to eight kilometers per hour over 30 plus minute intervals we.
We are pleased to report that the accuracy has been exceptional much to the light of the bomb.
Zero team and.
American Vanguard.
Mmm.
Turning to slide aid the market potential for counter in Brazil is quite large.
With about 200 million acres planted across the six products.
The average.
Interference with yield is about 15%.
If we obtain only 5% of the acres that would translate into a 400 million dollar revenue opportunity in that country for counter alone.
The fact is we intend to register additional impasse applied solutions in Brazil.
That would increase the revenue opportunity all of them more.
At this point, let me ask David.
Our CFO to make a few comments and then will return to talk further about the balance of the year David.
Thank you Eric.
With regard to how public filing we planned to file a full 10-Q later today.
Moving moving to slide 10 is Eric mentioned the same quota of 2023 has seen continually challenging operating performance for the company with overall revenues down about $15 million or 10% as compared to the same period of 2022.
For the second quarter of 2023 under a new accounting approach afraid to logistics on slide 11, you see that gross margin percentage ended at 32% of sales as compared to 33% of sales in 2022.
The lower overall gross margin fullness was driven by the increased share of international sales and generic price competition in both Central America and Brazil for.
Manufacturing perspective factory proponents was broadly in line with last year.
On Slide 12, you can see that for the three months ended June 30th 2023 operating expenses increased by less than 1.5% despite significant inflation pressures.
There are several factors driving this result, including increased travel expenses and continued investment embarrass R&D activities in support of outgrowing business substantially offset by lower incentive compensation accruals, reflecting business performance.
As you can see from slide 13, we did make a small operating profit in the quarter. In addition, during the quarter, we incurred a one time tax expense in Brazil that did not relate to Q2 financial performance. The expense was associated with withholding taxes on into company loans granted to a Brazilian holding company.
To facilitate the purchase of operating entity in Brazil, we were required to commit the loans to equity in order to meet thing capitalization rules in Brazil.
Such a conversion requires approval from the Brazilian Central Bank, we submitted the necessary documentation to the central Bank in 2022.
May 2023 without notice the Brazilian Central Bank issued the approval and the company was required to execute the conversion of the loans immediately the one time expense is a current expected net cost.
With regard to the overall loss, it's worth noting that it was driven by the tax expense and this is only the second time. The company has recorded a loss in the last 55 quarters.
And comes more than 13 years since the last reported loss.
On Slide 14, you can see that for the six months ended June 30th 2023 operating costs decreased by $742000.
This was achieved despite strong inflationary pressure and as a result of careful focus on expense control the.
The main drivers with similar to those described for the second quarter.
As you can see from slide 15, it was a challenging first half of 2023 with sales down 13%.
Interest rates have increased more than three fold to six 9% versus $2, 2% last year and I'll use of working capital has increased about 17% as customers are transitioning from buying early to buying as late as possible driving interest expense up $3.7 million.
As a positive and as I have just discussed operating expenses were down for the first half of 2023 as compared to the same period of 2022.
On the graph on slide 16, you can see that at the end of the second quarter of 2023, our inventory increase compared to previous quarters.
$237 million at June 30th 2023, as compared to $182 million at the same point of 2022.
The company came into 2023 with a strong demand forecast and setup manufacturing plant in response, we had some challenges with supply chain in the first quarter in the second quarter that in now behind us.
We do have some elevated inventories of sit in products that we expect to sell in the final quarter of 2023 of the first quarter of the following year.
In addition, our inventories have been impacted by the abrupt U S market changed from buying early to buying late driven by customer decisions in the face of elevated interest rates and by aggressive actions by Chinese manufacturers in central and South America.
The graph on slide 17 shows that that ended at $161 million at the end of the second quarter of 2023 as compared to $101 million at the same point of 2022.
We anticipate our debt to seasonally declined by year end.
With that I will hand back to Eric Thank you David.
Our last substances topic is the full year 2023 outlook endure.
In doing so we focus first on things that are clearly within our view.
As we have listed on slide 18 channel inventory of our corn soil insecticides is down to 12% of the amount that was actually applied last year. In fact, Aztec are leading corn soil insecticide is down to only seven 5%.
Both of these numbers are historic lows.
We believe this creates significant headroom for demand over multiple product lines with respect to the 24th season.
Second the farm economy is relatively strong.
Given stable commodity prices and expected levels.
Planted acres of row crops.
In spite of incremental they hire U S interest rates growers should be poised for investing in 2024, particularly those who have minimized inventory of crop inputs.
Third one.
We are in close contact with our key accounts.
These are national distributors that market and sell the maid juruti of crop inputs within the us as.
As part of our usual planning purpose process, we mate with each of these customers and map out a plan for selling into the next season.
These are the same customers, who typically participate in early pay programs by which they commit cash to us before the season in exchange for discounts on our products.
These payments are indicative of customer commitment and help us to meet working capital needs at present, we anticipate normal prepay activity.
We expect that these factors taken together will support better demand in the second half of the year specifically.
Specifically, we anticipate that domestic sales will be approximately flat within the last year, while our international business will grow 3% to 5%.
Before turning to the full year targets, let me spend a moment on timing.
While our view into macroeconomic tons is limited we can safely assume that growers with new crop inputs in time to plant their crops next season.
Even if distributions continues to exercise fiscal austerity they.
They will eventually need to replenish their stocks, even if the orders come closer to the season.
Consequently at least with respect to the domestic markets, we expect the fourth quarter will likely be significantly stronger than the third.
Turning to slide 19 based on our best assessment of our markets.
Channel inventory and other factors, we are targeting 2023 performances swallows.
Net sales between 615 on $625 million, which would represent a modest growth of 1% to 3% over four year or twenty-two gross profit margin of 32% operating expenses as a percent of sales between 25, and 27% interest expense of nine to 10.
Tax rate of 27% to 29%.
To EBITDA targets are unchanged from last year.
Income between 20, and $24 million and adjusted EBITDA of between 70 and 75.
In short.
Following lower than expected performance in the first half of 23.
We see a rebound for the balance of the year <unk>.
Despite uncertainty within the sector, we are poised to meet customer demand and to take advantage of depleted inventory levels and a reasonably strong farm economy.
At the same time, we will continue to advance our other growth strategies Green solutions and <unk>, both here and in Brazil in keeping with prudent cat.
Capital allocation, we will be back into the market invest in our own stock.
Before closing and I want to leave you with a final thought as per slide 20, we have always placed a premium on financial discipline and operating inefficiency within current market conditions. It is especially important that we continue that imperative.
To that end, we have challenged multiple teams across all functions to focus on ways to increase operating leverage.
Both over the balance of 23 and throughout 24. These.
These projects include such things as cost of raw materials inventory days on hand accounts.
Accounts receivable and accounts payable timing.
Factory efficiencies discretionary spending.
And selling expenses to name, but a few.
We will report on the progress of these efforts and future calls.
With that I'll turn the call over to the operator to take any questions you might have.
Misty.
Thank you I think I'd like to ask you a question. Please pass star one on your telephone keypad again to ask a question star one on your telephone keypad.
And I'll just wait a few moments.
Okay.
Okay. Alright first question is going to come from.
Capital.
Okay.
Alright.
Hi, good afternoon.
Two.
A common theme for for global.
Chemical companies coming through the last I don't know.
Six nine months has been.
Inventory Destocking and add can specifically it's.
Feels like more like the mother of all.
Destocking cycles and.
But.
A lot of your peers have talked about it and.
Maybe there's different magnitudes in different.
Different geographies and.
Different product categories, but you added something that I hadn't heard was.
I mean, it's somewhat intuitive, but just the the.
The copious amounts of glyphosate that are.
You know kind of.
Entered certain regions I'm curious about it.
You know given the pricing quite the state is now you know.
Back to below pre pandemic are pre supply crunch levels, and that's kind of putting pressure on the overall crop protection chemicals market has that.
Change the competitive intensity anywhere to the extent that it.
Influencing are affecting your.
Market share physicians for any of your <unk>.
Core chemical products.
Yeah, that's a great question, Chris I am I am.
Remember years ago back in I think it was the eighties, we had our distributors telling US Hey, you guys want to get into glyphosate and I said no.
Secondly, you're good fit for us.
And I know a lot of people have made a lot of money over the years, but when you are getting into situations like this.
Similar to 2001, it's a pretty painful position.
Our number one herbicide impact.
Is a great <unk>.
Marriage partner with glyphosate grew fast.
It targets weaves that escaped both of those chemistries and so although.
There is such such a swing and so much pressure put on.
On the chain to take these surplus volumes of of glyphosate and grew fascinate.
We see we see the continued use of our products.
I won't say completely immune because.
It is a.
It is dependent on reed's escaping but.
We've we've we've seen a.
Good.
Hold of our market in those in those geographies.
So.
I guess.
I would.
There are broadcast wide spectrum herbicides in that arena I think that's a pretty.
Pretty tough market today.
But as far as kind of them and again I think I'll have to see it goes out of like 22 ounces per acre and we'd go out.
Three quarters of announced per acre.
You may recall, we were for years Monsanto's roundup partner for corn.
They're complementary.
Okay. Okay then.
Similar getting at a similar.
Question that the.
Just with the.
Broad.
Breath of the the inventory destocking across the industry.
And the impact it's had on demand and current current period, maybe last couple of quarters has or I guess, it's really been pretty abrupt and crop protection chemical so maybe this quarter has that.
Affected any.
Aspect of the competitive landscape is there.
Have any but as anybody sort of responded by just getting.
Much more aggressive.
You mentioned that obviously that the generic producers out of China for glyphosate, specifically, but that may be somewhat unique to that product line. Just wondering more generally if there's any more.
Any you know noticed.
Noticeable changes in competitive intensity across the board.
Yeah, So I mean.
Certainly as people were scrambling to get their products moved.
And through the channel there has been pricing pressure, which which we have seen in all of our entities.
Whether it's Mexico, Australia, all the Central American countries.
Brazil.
And even in the U S. I mean, certainly there are products that we sell that.
Have multiple.
Multiple registrants.
<unk> resolve a lot of pressure in our in our nonprofit business.
But that's that's really not a focus for us and our our focus has been just to to try to channel our energies on the products, where we do have stronger margins in those margins generally come with we've got some uniqueness whether it's the active ingredient itself or we've got mixtures.
That that are are are different.
I think you can kind of see that effect in our dreams or where.
We don't know exactly.
Where that market.
Is played out.
Given that there are very few.
Sure.
I'll call it green solutions companies or biological companies that are public.
And but.
I think Jim you might comment on that but I think.
We believe it's down some but.
We still grew that market by by 21% so.
I don't know if that kind of answer your question, but I'll ask Jim may be just as show some color on green solution. If that's okay.
Sure sure.
Yeah same same themes Eric in the Green solution side, we did see some buyer behavior that I think is is similar to what you saw on the chemistry side, but to a lesser effect. So we saw a little bit of pressure, but overall, it's really offset by.
Our two biggest geographies the us in Latin America growing at a very very fast clip and the growth is also driven by new products that are still being registered and further penetration of our existing products. So that's that's been able to offset any negative effects. We see we didn't quite go as fast as we thought we would this quarter, but nonetheless, it's.
Good acceleration of growth year over year. So we expect that to continue on.
Chris.
Yeah.
That's helpful and then just one other one.
You had mentioned historic low inventory levels for a couple of products and just.
Could you just remind us the method by which you gauge the inventory levels and the confidence level around.
The the normalization of demand as we exited this year headed into the growing seasonally for North America.
Okay.
So so we've got a check and balance system. There. So obviously, we keep track of the sales that go to our distributors.
We then are able through electronic that that index too too.
See the sales that they make to the retailers.
The retailers movement to the farmers.
Is is is one that we have an assumption for generally farmers at the end of the season returned their product to the retailers and the retailers return to two distribution.
So.
This year and of course.
Bolstered by the fact that we had we had.
Maybe 30, 30% of the Aztec that we wanted to get into the market available.
We we saw that there were virtually.
Oh no returns, it's a very returns, but again the total amount as a percent of our sales and 22 is down to 75% and.
And generally I think.
The rule of thumb has been if you can get down to 22.
22% Youre doing really good.
But it probably averages closer to the norm as in that 30% range.
So.
I think.
We checked that with.
With what goes out and what comes back and then we do have a balance of what the beginning inventory was and what now stated inventory is and so we're able to see if there's anything unusual we also do spot checks with our bigger retailers to just confirm the fees are the numb.
<unk> that we have can you confirm this is this is actually what you have and of course there are payment programs.
That that are associated with with with the sale of inventories. So it's it's it's a fairly honest system that.
That we'd have a high level of confidence.
Kind of helpful I'll leave it at that.
Alright next question is going to <unk>.
Okay line or something.
Hello, This is Brian Rogers on for Jerry Sweeney.
Hi, Brandon I, just had a few questions.
One was around the same posh solution.
Saw that you are operating now in Brazil, I was wondering if you could just comment on the multiyear targets that you indicated in private calls.
If there's any additional investment required or things are gonna go forward just as is.
Yeah. So so the targets that we've given.
Up to now I think.
Then.
Without any.
Thoughts towards Brazil, because we weren't sure how the adoption would go our target is to get 19 systems running with large farmers this year.
Based on their experience I think we will have a better feel for market adoption in Brazil.
Within the U S. Yeah, we had.
A beautiful 23 season.
Operating.
We're about.
Different systems that were out there.
Virtually no clients.
And and we were able to do R. R.
R R.
And field.
Kind of feel check system John .
It went well we also.
And that's kind of important to be able.
To develop or return on investment.
Story.
In addition.
We began initial with our liquid.
For for the first time.
It also.
That our first time.
A disposable.
All these bags, that's what we intend to use for biologicals.
Not going to be able to be returned and refill.
And so we have some some tweaking to do on that design.
The system didn't hold the bags quite as well as we as we had hoped.
So we've made a minor adjustment to that so that they will they will arrive steady under heavy.
Heavy work conditions were.
The unit the planters jumping around quite a bit so.
So we'll we'll.
We'll have a much better deal.
As we get [noise].
Our neck through this third quarter.
<unk>.
Is a very large orders.
In Brazil.
Better feel without that books.
And.
Silver and by the time, we get to our next conference calls and update.
And I think also.
Jim mentioned Q3 is a big.
Focus on.
Those targets at the next conference call.
Got it and then I just had one other question kind of around the cost reduction initiatives.
Considering the challenging market conditions, you mentioned, a few of the different initiatives that year.
Going to go forward with but can you give me any additional color around.
Some of the inputs within cost reduction initiatives.
Yeah, I mean inventory sticks out obviously.
Had.
We've reproduced in advance.
And where we were pain.
2.7.
Now we're paying $6.
And I've told our team look our customer deserves done a great job of.
It's our turn now so we're going to focus on bringing down just in order to prove are working capital inventory.
Given what we went through an Aztec.
That is one were said we're going to continue to buy Q.
Two raw materials until we've got 100% of what we need for the 24th season.
Mentioned, both start that campaign next next month so.
So we will we will have 100% of our of our technical needs won't have it all formulated but.
By the end of the year, but.
But some of the other other products.
We need to focus on.
Being a little bit more prudent on on when we bring inventory again again R. R.
Our suppliers in the various countries.
Pushed us to as they are trying to make their numbers.
To buy larger stocks in.
All of our team that's it we're not we're not going to be Mister nice guy to everybody.
We need we need to adopt a similar policy, where we're not bringing inventories in to cover six months.
There is ample supply of most of our.
Most of our products and as such and we need to be more.
So that that would be one area we had started.
It started a year ago, I guess about 12 months ago.
An initiative on fact deficiencies we've identified different factors.
Factors.
Different.
Fun times turnaround times, so we've got a team that's working on that.
With this project.
Vigil 25 years with Dupont.
Sigma Black belt.
And.
The chemistry operation standpoint.
You.
I was looking for him to help us as well developed better practice efficiencies kind of run with that but we've identified quite a few areas, where we think we can we can gain.
Issuances.
And of course.
Looking at all of the.
All of the metrics with operating expenses marches clients efficiencies Jesse fluffy too just.
Lower operating costs this environment.
[noise] awesome. Thank you I'll buy all the rest of my questions have been answered I appreciate it.
Oh.
Alright next question.
To come from Okay.
Capital.
A follow up question.
Is this your line account.
Yeah. So thanks for the update on some past, but I'm curious about I mean, that's obviously has a growth trajectory that.
Part of the.
You know the 2025.
Growth target framework that you put out now I'm just wondering how at this point.
Given where you are.
Resetting 2023 expectations do how how do you want <unk>.
Investors to think about those growth targets and what.
What what's the right way to think about progress towards those are you planning on recasting those or.
When would you communicate.
Something.
And update along along those lines and and what kind of visibility you have in terms of <unk>.
Continued progress towards those those sorts of numbers. Thank you.
Yeah. So.
Yes, we haven't we haven't come.
I mean on the on the same pass on the Green.
Green solutions at this point.
We don't have a slot that we would be.
Reset it knows but but a lot of that is going to depend on what we see over the next.
Next couple of months.
But with regard to the growth targets that we laid out of I think it was at 907 and the.
And the 140 by 25.
Yes, we expected to make a lot better progress this year moving EBITDA up into the into the.
And to the 90 range and the fact that we are going to be well short of that would kind of indicate that we're we're behind.
So.
I think we will have a pretty telling as we get through the balance of this year are we.
How are we going to leap forward 24, because if we've taken six months out of out of 23.
And if demand stays the same.
Then we should we should have a big jump in 24 with a four year of normalized mine.
But.
We're we're just we're just went through the last couple of weeks about 10 different.
Budget meetings for the 2004 season, and there are forecast for 25 and 26.
And so we haven't had time to digest that.
We need to obviously pull that together I think we want to have our our budget kind of figure it out here.
By next month, and then kind of drill down on the 2025 26 outcome.
So I would I would think by our next call that will have the ability to.
To upgrade.
Part of the address.
Okay.
Alright next question is going to come from John Smith.
Okay.
Hi.
Uhm. Thank you B, 6% volume declined that you saw an international that was less than the other volume declines you saw was it a similar inventory correction just off of higher growth rate, that's there or was it a much smaller inventory correction.
No I think I mean, we we.
Had initiatives for growth in Mexico. They continued to perform strongly Australia also did did well.
And as I said the greenhouse.
Greenough screen solutions.
P as in.
Did did also well.
I think we I mean, there was definitely generic price pressure in Mexico, I mean, we heard this from everybody that.
The people were sitting long on inventories and we're pushing things through.
And actually we had we had.
Usually this happens in that last couple of days of the month, we have.
Things that we think shipped and and.
Get out so we could bill.
But I I think it was it was.
We generally have a pretty.
Produces kind of specific portfolio of products and in our our counters doing well in in Brazil.
We have.
Our <unk>, our crowbar, which is Houston.
And the golf a market.
Performed well so.
So I think generally I mean, we had we had good supply physicians, where we were able to able to meet demand.
And so I think.
Yeah, I mean, I was I was pleasantly surprised I do think as I've looked at our peers.
As a broken out the various segments. It does seem like North America got hit.
As hard as any place.
We don't have much of a market and in Europe . So.
That is not there, but but I know I know a number of companies didn't have to have difficulty certainly in Brazil.
I think if you if you've got.
If you have countries where your products.
We're in tight tight supply and there was a flood of of orders and you filled those orders whether it was in time for the.
2002 season, or those were carried over into 23 I think those those are definitely an issue but.
We don't we don't play and a lot of the the big volume generic chemistry. So that's probably the main reason.
And then on slide 11, why was U S crop gross profit only down 9% when sales were down 11% normally we think about gross profit being down more than sales with began was that price Ross coming through as an option.
Yeah. We did we did have we did have some improvements in particular soil fumigant has as an improved and profitability.
That's our single biggest biggest product so I think it's largely product mix and again we have.
A good portion of the products that we saw in the U S. We are proprietary on.
But they have the healthiest margins.
Along both crop and nonprofit.
Okay.
Okay. Thank you.
And as a reminder, if you would like to ask a question. Please test star one on your telephone keypad to ask a question <unk> one on your telephone keypad.
Okay, that's all right.
I think anybody else and canceled turn it back over to you for any.
Okay. Thank you Mister and again really appreciate.
You people, taking the time to listen to the call today.
Great questions from the three of you. Thank you and we look forward to updating you was R Q3 unfolds and what's the balance of the year will look like for our two four and then the next call maybe some some thoughts about our longer range targets.
Thank you very much everybody.
Oh.
Okay.
<unk>.