American Vanguard Corporation

Greetings and welcome to the American Vanguard third quarter 2020 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session, and at that time, if you have a question, you can press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, you can press star zero. And as a reminder, this conference is being recorded Monday, November 9th, 2020. And I'd now like to turn it over to Mr. Bill Kuser, Director of Investor Relations. Please go ahead, sir.

Thank you very much, Keith, and welcome everyone to our third quarter and nine-month earnings call. A few orders of business before we proceed. We are providing to the SEC our 10-Q report today. There's been some delays on the part of the SEC, but we will get that done today. Also, in our press release, you took note of the fact that we are providing some slides to accompany our conversation today. They deal with the quarter and they deal with our strategic growth initiatives. So if you're online, you will see them scrolling across your screen. If you are on audio telephone only, you can see such slides by going to our website. There's an icon on the very front page that allows you to see those slides. Our usual questionnaire reminder, which we will do before beginning. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors include weather conditions, changes in regulatory policies, competitive pressures, and other risks that are identified 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. Such information will not necessarily be updated by the company. In today's call, we will first be starting with our Chief Financial Officer, David Johnson, who will review the quarter and the nine months, followed by Mr. Eric Wintermuth, Chairman and CEO of the company, who will talk about our strategic growth initiatives. We also have Mr. Bob Tregell present to answer any questions you may have. So with that, I will turn the call over to David Johnson.

Thank you, Bill. For a change of pace during this call, I will lead off with my remarks on our financial performance during the reporting periods and my analysis on issues of greatest interest to our investors, financially speaking. I will then turn the call over to Eric, who will give you his thoughts on our three to five year targets for growth. Going forward, we intend to keep you apprised on how we're doing against these targets, just as I do with respect to matters that are key to investors, understanding our business performance, such as inventory and borrowing capacity. With regard to our public filing, as Bill mentioned, our 10Q document for the three and nine months ended September 30th, 2020, is presently in queue to be filed today. I do understand that the agency that assists us with our filing has a large number of documents in the queue at this time. Everything I'm covering here is included in more detail in that document. As we have noted in previous calls, the company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate. As a result, our customers and our suppliers have all operated more or less without disruption during the pandemic. This has continued through the third quarter. Having said that, the pandemic has impacted us in a few ways, including our ability to present new sales and marketing ideas such as new products, face to face with customers in the field. We have also seen customer buying patterns that appear to have been moderated in the face of pandemic related uncertainties. On the other hand, the same restrictions have caused us to spend less on operating expenses. These marketplace changes have been challenging to manage. However, we have succeeded in maintaining a profitable performance throughout this difficult period. With regard to our financial performance for the three months ended September 30th, 2020, the company's net sales decreased by 6% to $117 million as compared to sales of $125 million this time last year. Within that overall decline, our US sales were down about $7.5 million and our international sales were flat. International sales accounted for 43% of total net sales as compared to 41% of net sales this time last year. The main factors driving our third quarter sales performance are as follows. In our U.S. crop market, sales were affected by reduced cotton acres, which, according to USDA statistics, are down about 11% or 1.5 million acres in 2020. Acres were impacted by cotton commodity prices that are down, driving growers to plant alternative crops. Our market performance has also been impacted by extreme drought conditions in West Texas and frequent hurricanes in the Southeast USA, both affecting grower ability to apply our products. On a plus note, we saw stronger than expected demand for our fumigant products, which are sold into the potato markets. the better-than-expected performance is attributed to cautious reopening on schools and restaurants across the United States. In our domestic non-crop market, there were small quarter-over-quarter changes, with some decline on our pest strip products, which are used in bars and restaurants that were impacted by pandemic restrictions. With regard to international sales, which were overall flat, there were really three factors. First, we had a very strong performance in Mexico, Central America, and Australia. By contrast, our Brazilian sales were down in real terms as a result of reduced insect pressure and challenges getting in front of customers because of pandemic restrictions. In addition, sales translated from local currency to U.S. dollars were further negatively impacted by a decline in local currency exchange rates quarter over quarter. Finally, whereas we saw MoCap and Nemicure sales lower in Europe, both products recorded significant sales increases in other parts of the world. As you can see from the table, the US crop market was where we recorded reduced sales. This is pretty much in line with other market participants that have reported Q3 results. Our international business increased as a percentage of consolidated net sales and our comparatively low exposure to foreign currency rate movements was a strength for the quarter. With regard to the nine-month performance, the various market dynamics described for the quarter are broadly the same. Our US crop business was impacted by reduced cotton acres and by growers making cautious decisions with regard to inputs as the pandemic gradually revealed its impacts. As an offset, we have done a bit better than expected with fumigants, as schools and restaurants reopened. And in addition, we have had the benefit of sales of products acquired in the fall of 2019. Our non-crop business in mosquito control has been a little lower than we hoped, given the storm intensity impacting our main markets, mainly due to vector control districts using existing inventory. Finally, our international sales have performed well, given the challenges with currency devaluation in some of our key markets. Moving now to cover our gross profit performance. For both the quarter and the year to date, the trends are fairly similar. In our U.S. crop business, the drop in gross profit was driven by our lower sales of cotton products and partially offset by strong fumigant sales. In non-crop, the impact of reduced sales of dibrom and pest strips were a negative for the quarter and were somewhat offset by strong sales in our horticultural business, which has slightly lower margins. During the quarter, we also recorded higher royalty income on our advanced technology business. For the international business, the decline in foreign exchange rates was offset entirely in the three-month period and to a lesser degree in the nine-month period by strong performances in Central America, Australia, and Mexico. As a result of these various dynamics, gross margin performance in the quarter reduced from 38% to 37%, and for the nine-month period from 39% to 38%. For the quarter, our manufacturing performance was strong, with factory operating costs well controlled and activity improved as compared to 2019. Generally speaking, over the long term, our net factory costs amount to about 2.5% of net sales, reflecting some latent capacity in our plants should the need arise. This kind of available capacity is necessary to help manage our production planning effectively. In the third quarter, our factories cost approximately 2.4% of sales as compared to 2% this time last year. The third quarter is typically a strong manufacturing period for the company. For the first nine months, the net factory costs amounted to 1.6% as compared to 2.4% of net sales for the same period of 2019. For the three months ended September 30th, 2020, our operating expenses decreased as compared to the same period of the prior year. The underlying performance is greater than is apparent from the published statements because in 2019, we benefited from an adjustment to earn out liabilities on past acquisition. That benefit did not recur this year. On the other hand, we did record a benefit of approximately $1 million during the third quarter because we completed an update to our environmental risk assessment related to the Brazilian business we acquired at the start of 2019, which led to a decrease in our liability in this regard. As we have reported for prior periods this year, our operating expenses were reduced because travel and entertainment costs were lower. as a result of pandemic restrictions in all jurisdictions in which we operate. Our costs were also reduced because of the translation effects caused by devaluation of currencies that are important to the company, including the Mexican, Brazilian, and Australian currencies. With regard to the nine-month period ended September 30, 2020, in comparison to the same period of 2019, our overall expenses have reduced. The reported reduction actually understates the real improvement because in 2019, we benefited from adjustments to earn-out liabilities related to past acquisitions in the amount of $3.5 million that did not recur this year. As a result, our underlying costs are down approximately $5.5 million, or 5% for the nine months. The drivers of the reduced costs are similar to the quarter. We have spent less on travel and entertainment because of pandemic restrictions, Both short and long-term incentive compensation is tied to financial performance and has reduced in 2020 compared to 2019. Finally, operating expenses incurred in currencies other than the U.S. dollar are reduced as a result of the devaluation of those currencies I've already mentioned. I've mentioned adverse exchange rate movements in three key currencies from the company's perspective. I want to put some color on that comment. If we use the 2019 exchange rates for both the three and nine month periods of 2020, our reported net sales would have increased for the three months by $3 million and for the nine months by $7 million. When looking at gross margin, we would have recorded additional gross margin of $700,000 in the three month period and $1.7 million year to date. Notwithstanding these impacts, we have been effective at putting in place some natural hedges. That is that the majority of our operating expenses for the businesses in territory are also in local currency. That mitigates the impact on sales and gross margin, leaving relatively immaterial differences at the bottom line, resulting from translation exposure. The company experienced some significant transactional related exposures during the first quarter of the year. This is reduced as exchange rates have settled at new levels during the second and third quarters. During the third quarter, we recorded lower interest expense than this time last year. Our average debt was lower than the prior year, and we got a benefit from reduced borrowing rates in the US. In the nine-month period, our average debt was a little higher than the prior year, but we gained the benefit for the lower federal base rate, resulting in significantly lower interest expense. Finally, our effective tax rate continues to decline in comparison to the prior year as we are having a stronger international performance in jurisdictions with lower rates this year as compared to last year. In the three-month period, we earned 10 cents per share as compared to 11 cents per share in the same period of the prior year. For the nine-month period, we earned $0.25 per diluted share as compared to $0.34 per share last year. From my perspective, the operating and financial focus of the company remains as follows. We continue to follow a disciplined approach in planning our factory activities, balancing overhead recovery with demand forecasts and inventory levels. At the end of September 2021, our inventories were at $176 million, as compared to $186 million this time last year. During the intervening periods, we have made acquisitions and added inventory as a result. The underlying period-over-period improvement in our base inventory before the impact of recent acquisitions amounted to approximately $14 million, or 7.5%. We are highly focused on our balance sheet as we navigate through this pandemic period and having lower inventories at this point of the year is pleasing to report. As we look at the final quarter of the year and our target for December 31st, 2020 inventory, Eric will comment in a moment about acquisitions that we closed in the first and second week of the final quarter of this year. As a consequence, our inventory forecast will now be amended to incorporate these new businesses. In previous conference calls, we expected to end in the region of $145 million. Given our latest operations planning assessment, we're expecting that our underlying inventory will increase a little from our prior forecast. In addition, the new acquisitions that Eric will mention in a moment are expected to add approximately $15 million at December 31st, 2020. Accordingly, our latest forecast is to end the year at approximately $160 to $165 million, effectively flat with 2019, but including the addition of inventory from recent acquisitions. Our business has a distinct annual cycle, and we routinely experience expansion in working capital in the first part of the year and a reversal in the second part. During 2020, we, like most businesses, have been highly focused on working capital and its impact on debt levels. During the period of the year when we typically expand working capital, we have contained the increase to only $5 million as compared to adding $49 million in the same period of 2019. This careful management of working capital is driving the improved cash generated from our operating activities. In the first nine months of 2020, we have generated $19 million from operations, as compared to using $21 million in the first nine months of 2019. Comparatively, that amounts to a positive change of $40 million period over period. At September 30, 2020, net indebtedness ended at $149 million, as compared to $165 million this time last year. During the last year, in addition to paying down $16 million in debt, we have funded more than $27 million in investments, including fixed assets, product acquisitions, and technology investments from the cash generated from operations. These investments are focused on developing our consolidated business for the future. With regard to liquidity, at the end of the third quarter, availability under our credit line was $45 million. which compares to $30 million at the same point in 2019. In summary, for the third quarter and for the nine-month period, though our sales were down, selling prices and gross margins in each territory remained good. We're seeing a stronger international performance than this year, and the mix of U.S. sales, generally higher gross margin, and international sales, generally lower gross margin, is tending to bring the average down slightly. Our factory performance improved compared to 2019, and our expenses for operating costs, interest, and tax are all lower in 2020 than in the comparable periods of the prior year. From a balance sheet and cash perspective, we are doing very well managing working capital, and our debt is lower than this time last year, notwithstanding our investments in long-term growth of our business. Finally, availability under our credit line has improved. With that, I will hand over to Eric.

Thank you, David. Many of our investors have expressed an interest in our strategic direction and longer-term prospects, particularly in light of our increased emphasis on technology innovation. In that spirit then, rather than getting into the weeds on market conditions over the past reporting periods, I would like to look forward to where we hope to be in the next three to five years. We have three primary growth platforms within our business. Our core business, our green product lines, and our precision application technology led by Sympath. There are synergies between these platforms. For example, Sympath is a market access tool for both core products and green solutions, such as Agrinos, Also, there is some overlap between these platforms, but for directional purposes, it is useful to take each platform in order. Our core business consists largely of our synthetic chemistries. Using 2019 numbers as a reference, let's build a model using a baseline of annual sales of $468 million. We have grown our core business in three ways. First, organically, that is through additional market penetration. Second, through our new product pipeline, that is making new formulations or getting new uses for what we already have. And third, through acquisitions. If we were to grow at a rate of only 2% per year, We should be at $507 million by year three and $527 million by year five in organic growth. Let's add to that our new product pipeline. We regularly introduce several new products per year. For example, in 2020 alone, we launched five new formulations. As these new products get traction, and we continue adding new introductions, we expect that we will add another $37 million by year three and $109 million by year five. So core business plus new pipeline products puts us at $544 million by year three and $636 million by year five. But now let's add acquisitions. It's hard to predict the acquisition market, but I can say that it is extremely active today. As you may have read, we just completed two acquisitions, Agrinos, a biologicals company that I will talk about further in a moment, and Agnova, an Australian company that gives us greater critical mass and market access in Australia and the surrounding region. To establish our forward-looking target, we look backward over the past five years and determined that on average, we added $40 million per year in sales of newly acquired products. If out of conservatism, we cut that number in half to $20 million per year and extrapolate it forward, we find that our incremental acquisition growth put us at $60 million by year three and $100 million by year five. So core business plus new product pipeline acquisitions puts us at a three-year top-line target of $604 million and a five-year target of $736 million. Now let's turn to our green solutions platform. Before we get back to the model, I would like to bring you current on a recent acquisition. In early October, we acquired the shares of Agrinos Inc. and its sister companies at a very favorable price, as they were being sold in an auction by the Norwegian parent in a liquidation process. Agrinos makes and markets unique blends of biological products into many markets and operates three factories. The first, located in Oregon, ferments a 22-species consortium of bacteria into an end-use product that enhances soil health and plant growth by, for example, increasing nitrogen uptake. The second, located in Mexico, produces a microbially enhanced chitin-based product. The chitin, a calciferous substance, comes from the shells of shrimps that are locally grown. That has similar applications. The third, located in India, produces biologicals for that region, including sales to the government of India. With this investment, we have created a biological team to manage these green products offering globally. That effort will also include our management of the Envance TireTech business. So let's get back to the model. Now, admittedly, some of the green solution businesses are already included in our core business, For purposes of this discussion, we will focus on the incremental addition. Through the end of the third quarter of 2020, we had already been on track to sell approximately 22 million in green products this year, including biologicals, bio-nutritional products through both our domestic and international businesses, and essential oil products through Envance, which are the active ingredients in Procter & Gamble's ZEVO line, of consumer products. So let's use that number as a baseline for our green products platform. And as mentioned, we are already in the consumer pest control space through the P&G's Xevo product line. And we are expanding our essential oil product line into other areas, including lawn and garden, crop, and public and animal health. we expect that with the addition of Agrinos, the growth of our other biologicals, and the expansion of Envance TireTech, we should see incremental revenues in year three of $48 million and in year five of $118 million. But let's take our prior graph of core, including product, pipeline, and acquisitions, and now add green products. That would take us to about $70 million in year three and $140 million in year five. Now for the third platform, namely precision application. We have been reporting regularly about our SimPass technology, which we believe is at the leading edge of prescriptive application systems. We know of no other system that enables a grower to take an agronomist prescription for multiple crop inputs based upon field conditions and prior yield results, and apply those products variably in multiple rows automatically in one pass. Further, with our Ultimis technology, we can trace product from factory to field and, as important, we can measure precisely what was used in any given application. And now we're enhancing this technology to permit seed treatment at time of plant. After seeing positive results from field trials by growers in many states, a number of our peers are performing their own tests with the goal of making their products available in smart cartridges through SimPass. That said, some investors are asking that we give them a better idea of where SimPass could be in three to five years. In order to answer the question, we'll consider the following elements. First, revenues from our existing portfolio of products. and I'm talking about increased uses, which would be dramatically enhanced by applied prescriptively. Second, revenues from the sale of active ingredients licensed from other basic producers to be sold under our name. Third, royalties from third parties for marketing their products through our smart cartridges under their name. And fourth, a share in the grower's incremental yield benefits. Using conservative estimates of market penetration in domestic markets only, we are targeting top line contribution on the order of 35 million in year three and 131 million in year five. In addition, we are confident that CIMPAS will be well received outside the U.S. and are already planning to host CIMPAS field trials in Brazil in 2021. Also, these figures do not include the potential for additional revenues from our seed treatment innovation. In other words, these are conservative, domestic, in-furrow, CIMPAS targets only. Well, let's put all of the platforms together. If we add core plus green plus CIMPAS, we're in the neighborhood of 687 million in year three and 985 million in year five. at the top line, which is roughly double where we are today. There are many moving parts to the equation. We will continue to control the things that are within our control. For example, exercising strict discipline on managing working capital and operating expenses. Further, we are committed to maximizing our consolidated profit margin. While our expansion into distribution within international markets has tended to lower our gross margin percentage, we expect that the introduction of newer technologies across these markets will create an updraft on profitability. In future calls, I will be updating you on how we are progressing against those targets. Finally, let me pull our focus to the present and the near term. 2020 has been an unprecedented year for this industry. In spite of the pandemic, weather effects, and farm economy, as David mentioned, we have kept pace with Q3 of 2019 in terms of profitability, even with modestly lower sales. Looking forward into the fourth quarter, we are already seeing greater optimism in the domestic agriculture sector, spurred in part by rising crop commodity prices for corn and soybeans and cotton, which would tend to contribute to improved grower profitability. In the Midwest, with less crop rotation and more continuous corn over corn planting, we are beginning to see a resurgence of soil insect pressure. In addition, demand for our soiled fumigant products continues to rise. Based upon these trends and current sales activity, we are encouraged by our prospects for the balance of this year and into the 2021 season. We'll now take any questions you may have.

If you'd like to register for a question, you can press the 1 followed by the 4 on your telephone, and you'll hear a three-tone prompt to acknowledge your request. If you need to withdraw, you can press 1-3. Again, it's 1-4 to queue up. One moment, please. The first question is from Joseph Rager from Roth Capital Partners. Please go ahead.

Hi, guys. Thanks for taking my questions. Sure. I guess first thing, thanks for providing this longer-term outlook. I know a lot of us have been asking a lot of these questions anyway. But kind of like just a base question on it, when the world returned to normal, what would be your expectation for an annualized number, like X COVID impacts, without all the growth?

Um, so you're talking about our core business.

Yeah. Like currently the core business, if it wasn't for, for COVID impacts around the world, what do you think annualized, you know, 2021 revenue might be?

Yeah, I think so probably in the range of, uh, you know, in five to 10 million is I would say Kovac, Kovac, uh, COVID related. Um, the, uh, The growth part where we have, again, it is part of our core business where we have our products that expanded. Again, a lot of the products that we were looking to develop in the markets this year, we weren't able to accomplish because of not being able to go face-to-face in the fields. And so a lot of our product development and customer work was remote. So I think Also, what I see is that we've really been in a commodity down cycle since the prices collapsed in 2014. And although, you know, they've stabilized, this is really kind of the first uptick that we're really seeing. And I think with more normalizations and particularly the idea of, you know, if this vaccine does indeed work, I think so many of the restaurants and that area of food consumption and more normalcy will increase the demand for crops overall. So I think we're on an upswing as we go into this 2021 year.

Okay. Fair enough. And then kind of looking backward a little bit, you guys didn't give – ton of what I would call market commentary on the quarter. It seems like there was a lot of impact in Q3 related to weather and then related to crop pricing. Is there any way you or David could quantify that on a sales number, what you think that was as an impact?

Well, I think if we just look straight at corn, David, we were looking at this before. I'm not corn, I'm sorry, cotton. I think for the quarter on cotton, sorry, just give me a second. So that was 3.3. That was about 6 million. I've got 3.3 and 2.5, so just about 6 million. So that's probably kind of the biggest. The other, we had probably stronger push in Dibrom last year as a lot of companies or a lot of the parishes were replacing orders for fourth quarter. This year, so far, they've been kind of chewing through some of those pre-orders that they placed with with our main distributor. So we see inventory drawing down and would look probably at the end of this year to have lower inventories of Dibrom. So those are probably the three products that contributed the most.

I also mentioned pest strips were down a little bit, and that was pandemic-related because of the use in bars and restaurants.

All right. Okay. And then one final thing. Any... concept of how much revenue you might pick up in Q4 that was lost in Q3 for timing reasons or whatever. And then kind of like a brief outlook of how Q4 is going so far. It seems like prices are up and maybe demand is up too.

We feel good about Q4 for a variety of reasons. One is, as you mentioned, there are some some carryover, just timing that didn't happen in Q3. The soil fumigant business has been very strong for us. We're fortunate not to have much in the way of snow, so a lot of ground got treated, although we've got snow-capped mountains here in Southern California today. But then as we look into this 2021 season, we did hear during the course of 20 that corn rootworm pressure has increased. And I think people are a little more bullish now on the concept of treating for corn rootworm. So I think we'll see an increase in our corn activity.

Okay, thanks. I'll turn it over.

The next question is from the line of Chris Cash from Loop Capital Markets. Please go ahead.

Yeah, good afternoon. One follow-up on the impact of cotton this season. Just curious if this will translate into a headwind for 2021, you know, not unlike what happens for the corn belt when you have weak season and then sort of an overhang from excess inventories on the channel. Given, you know, that you then, I guess, couldn't apply, they couldn't apply, you know, in the southeast, didn't need to apply your products in west Texas. Is that, so are we going to see an overhang, a headwind from channel inventories in that key product line next year?

Yeah, I don't think so. As we mentioned earlier, I think we saw orders being placed during this, really since the pandemic started, where you might get half a truckload or a truckload ordered pallet at a time. So we had a lot of orders, but they were generally smaller as we saw everybody trying to preserve cash and watch their inventories level. So the sales that we see that didn't occur, we don't see an increase in channel inventory. We have more inventory than... than what we would like to have. But yeah, we don't see a headwind going forward.

Okay, and then you expressed some optimism about the fourth quarter and certainly into 2021, largely on, well, there's a lot of cross-currents, but largely on firmer ag commodity prices. So in terms of the channel demand that's starting to materialize in the fourth quarter. Could you just talk about, you know, which product lines is, where is that most pronounced? Is it really, um, products tied to, you know, to corn or is it more across the board? Just a little bit more color on that would be appreciated.

Yeah, I think it's across the board. I mean, we, you know, we were struggling for supply of gomacil, um, and that has, has resolved itself. Um, um, we've, we've had, uh, uh, some tightness in a couple of the product lines. But yeah, I think generally, if the ag industry can get back to a more normalized approach, and again, if people, I mean, if today's reaction is any sign of that, I think across the board, not just domestically, but globally, we're going to see people pushing to meet the demand that should be up for this next year.

I appreciate your comments about the possibility that there's increasing corn rootworm pressure, and you're citing maybe the absence of crop rotation more recently. That seemed to be a contributor back in Oh, when corn prices spiked, what was that, 2012 or 13, that big drought that one year? So are you suggesting that they're basically, you know, farmers generally have adhered to good crop rotation practices, say, between then and up until now, so that's diminished crop protection? Is there anything else that's contributed to diminished pest protection? and then pest protection, that crap.

Yeah, I mean, obviously there's the traits as they advance or don't advance, or the weather conditions certainly can be conducive. I think all estimates are that corn will be up probably a couple million acres this year, this season versus last season, and it was pretty strong last season. So I think those are the factors. Bob, I don't know if you've got any more color you'd like to add on that.

Yeah, can you hear me?

Yep.

Okay, so, you know, I would look at the soybean market driving a little bit the corn market. I mean, the stocks and use ratios that are at a 23-year low, so the market's very tight in soybeans. So maybe corn, maybe up a little bit, depending on demand coming out of China. But the big news really is that this year, farm income is much more profitable than it was in 2019, 2020. So going into spring, I think you might see a little bit more of a loosening of the belt by the farm community. I think, you know, that's a plus going into the season. I think, you know, then I would say that, you know, there are, you know, right now Brazil and southern Brazil is a drought, which is going to hurt a little bit their production capabilities. I think the Chinese are coming back online with their purchases. So, you know, unless we really have another COVID-19 effect, We all hope that is not the case. I think next year things are shaping up nicely.

I was down in Brazil a couple of weeks ago. One of the things they told me was that the Brazilian government is opening up import lines of corn from the U.S. this year because they're out. The Chinese really wiped them clean. as they shipped it, you know, away from U.S. And so they don't have enough corn to meet just their demand this year, given the drought and the expected yield.

Interesting. And, Ken, just one last one on the corn rootworm. You guys have probably, you know, maybe the – most efficacious, I guess, the soil-applied insecticides, but then there's the liquid variants that are maybe less robust. But there was also the possibility that Monsanto was going to have an RNA, RNAi technology that was approved and relevant in that market. Can you just sort of talk about what the competitive landscape looks like today for If, in fact, we do see this intensifying corn rootworm pressure, what the landscape looks like for your product vis-a-vis your competition?

Yeah, and one thing, too, just before I turn over to Bob for this, you know, we are expecting to get, you know, into the prescriptive level. I mean, we did it on a beta testing last year, but this year, you know, we'll actually have you know, quite a few more systems out there. And also we'll have what's called the, what we call SmartBox Plus, which is essentially a SEMPAS system with a 50-pound SmartBox on it that would be able to apply prescriptively a corn soil insecticide. So I think we'll get a lot more attention in that prescriptive field. So anyway, but Bob, you want to?

Yeah, so I'd like to just confirm what you said, that AMVAC has the best technical solution for high corn rootworm pressure. It's also the most expensive solution in the market, so we're the market leader in that. The market is really broken down into two sectors, granular and liquid. I would say that the granular market is holding both on on price and volume. We've increased, I would say, in the last two years our share marginally in that market. The liquid market seems to be more competitive and is looking to be a little bit more price sensitive. So I hope that answers your question.

And do you know any visibility on the RNAI technology?

So, yeah, if I turn the clock back to 2015, I think it was supposed to be launched in 2020, and we haven't seen any progress. That seems to be the case that that's still a long way off from the market, if it comes to the market at all.

Thank you.

And as a reminder, if there's any other questions, please press 1-4. There's a follow-up from line of Chris Cash. Please go ahead.

Yeah, and I appreciate your, you know, sort of the trying to provide a bigger picture, longer-term snapshot of what your growth vectors might look like. I'm curious, on the organic piece of it, what do you anticipate sort of the, you know, the mix and therefore margin profile look like? And two, the... If I understood you correctly, and I'll have to go back and look closely at the numbers you provided, but you said the products, the new formulations that you've launched, that you anticipate, I think you said just five new products alone might contribute $37 million in revenues by year three and $109 million by year five. That looks like a pretty steep hockey stick kind of adoption for those products. So I'm just wondering what the basis for that belief is, and does the math that you provided in that piece of the three buckets, does it reflect the idea that some of these new formulations might cannibalize some of the core cells that's baked into the 2% for your core cells? Thank you.

Yeah, so the five new products were just what we launched in 20. I think we did 10 or 12 the previous year. We've got several on target for 21 and 22. So it's kind of the cumulative effect of these products. new products that we're launching each year. So it's not based on five. It's based on more than 20, I would think, at this point. So that's one piece. Can you refresh me again with what your other question was?

Does your growth expectation there reflect some cannibalization from those new introductions of your existing legacy products? And in this sort of bucket of the three different vectors that you discussed, what is sort of the gross margin or mixed profile expected from the aggregate of that tranche of cells?

Yeah, when we did this, we tried to pull the growth of the core products out from the growth that we're talking about with the new products. And I don't I don't think we're anticipating cannibalization. We're looking at better market penetration. So I'm sorry. The last question again was what?

So any expectation on the gross margin profile of the mix of the products in that first bucket of sales that you described as core with new products?

So I think, you know, where our margins, let's say, have gone from, I mean, our margins in the U.S. still are in the mid-upper 40s and have stayed pretty consistent. Our international sales, as they've grown, have brought, you know, our overall margins down. As we've mentioned, that we were expanding our market penetration through acquisitions of distribution. But as we take kind of our new products, and particularly the biologicals, they have very high margins. And as we position those globally, we see, particularly in that green line area, that our margins should increase well across the globe.

Okay, and then one last one. Just, you know, in terms of funding this ambitious growth that you envision, so sort of do you just envision the company being, you know, completely self-funding that you'll be able to drive these growth opportunities Solely from pre-cash flow from the core portfolio?

Thank you. Yeah. As it stands now, that's certainly the case. Obviously, if there was a major acquisition, we're talking hundreds of millions, that sort of thing, that would probably require maybe a partnership type approach. But Certainly nothing in this model reflects anything in that arena. Thank you.

Sure. There are no other questions in queue.

Okay. Well, I appreciate, again, you guys have given input and asked for us to put together a model. What we'll be doing each quarter is we'll pull off different pieces and kind of give updates as we move through our quarterly growth expectations. So thank you all for joining us, and next call will be sometime in early March. Thank you very much.

That will conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.

Thank you.