American Vanguard Corporation

Greetings ladies and gentlemen and welcome to the American Vanguard fourth quarter 2020 and full year earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our first speaker Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Well, thank you very much, Diego, and welcome everyone to American Vanguard's fourth quarter and full year 2020 earnings review. Today's presentation includes a number of PowerPoint slides and two very informative videos. For those of you who may be on the phone and audio only, if you would wish to see these materials during the presentation, You can access by going to our corporate website, www.american-vanguard.com, at which time you would simply click on the clearly marked webcast section and connect with this visual content. These materials following the presentation will be posted to our website and available for your future reference. With that said, let's have our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as of the date of this call, and such information will not necessarily be updated by the company. With that said, let me introduce today's speakers. Mr. Eric Wintemute, Chairman and CEO of American Vanguard, Mr. David Johnson, the company's chief financial officer. And to assist in answering your questions, Mr. Bob Tregell, the company's chief operating officer. With that said, I turn the call over to Eric. Thank you, Bill. Good afternoon, everyone.

First, let me start by thanking our entire workforce for dedicating themselves to high performance during the global pandemic. 2020 was a year that was fraught with changing demands and conditions, and our people weathered the storm admirably. We met our critical objective of keeping the workplace safe and healthy for our employees with virtually no work-related transmission. This in turn enabled us to operate continuously and to serve our customers reliably in all regions. Second, I would like to thank all of you as stakeholders for your continued support of American Vanguard. As you will have seen in today's earnings release, despite a slight decline in our top line, our net income increased by 12% during the period. By comparison, the top five public companies in our sector were on average flat on both the top and bottom line. While David will be giving you more detail on this, and other aspects of our financial performance, I would like to cover a few highlights. Over the course of 2020, we committed to improving our balance sheet, and I'm pleased to report that we succeeded in doing so. We generated a ninefold increase in cash from operations versus the prior year, due in part from inventory and factory management, controlled operating expenses, and record high customer early pay participation. This, in turn, enabled us to pay down debt and improve borrowing capacity. We were able to make these improvements while, at the same time, concluding two key strategic acquisitions, Agnova, for market access in Australia, and Agrinos, a green solutions company. Further, we defined an environmental, social, and governance platform which includes extremely promising products and technology solutions. Now I would like to turn to David for his comments on our financial performance with a focus on matters of particular interest to our investors. I will then give you my thoughts on our growth platforms and a particular focus on green solutions and precision application. I will then close with my 2021 outlook and then take questions from our listeners. David? Thank you, Eric.

With regard to our public filing, we plan to file our Form 10-K for 2020 within the next few days. 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, Throughout 2020, our customers and suppliers and our employees and operations have all continued more or less without disruption during the pandemic. Having said that, the pandemic has impacted us in a few ways, including first, at the start of the year, we experienced a significant devaluation in a few key currencies, specifically the Brazilian real, the Mexican peso, and the Australian dollar. That negative currency effect has started to somewhat reverse as we reach the end of 2020. Second, the pandemic prevented us from many of our normal in-field activities, including face-to-face meetings with distributors, retailers or growers, or activities such as product development and defence. On the other hand, as you will see in our financial statements, the same restrictions and foreign exchange rate movements have caused us to spend less on operating expenses, including travel. With regard to our financial performance for the fourth quarter of 2020, the company's net sales increased by 8% to $141 million, as compared to sales of $131 million this time last year. Within that overall improvement, our US sales were up 4%, to $85 million, and our international sales increased by 15% to $56 million. International sales accounted for 39% of total sales, as compared to 37% of total sales this time last year. The main factors driving our sales performance are as follows. In our US crop market, sales increased by approximately 19%, as a result of strong sales of products sold into the Midwest row crop market, such as our Smartbox, Counter, and Aztec Browns, as growers reacted to increased bug pressure and to increased commodity pricing for soybeans and corn. Sales for our domestic non-crop market declined about 45% as a result of lower sales of our Dibrone products into vector control districts, primarily as customers worked to address slightly elevated channel inventory levels. Finally, our international sales grew by 15%. Approximately half of the improvement is associated with new sales related to the two businesses acquired at the start of the quarter. The balance of the increase relates to strong sales of our Bromacil herbicide, which has a much improved supply position this year, and Counter sold into Mexico. With regard to the underlying market performance of our products, during the quarter, our US crop business recorded increased absolute gross profit, but gross margin percentage declined slightly. The decline in gross margin percentage was driven primarily by the lower manufacturing activity, which is typical for the company's fourth quarter. Our fourth quarter non-crop business gross margin declined from 42% in Q4 of 2019 to 35% in 2020, driven primarily by the reduced market demand for Dibrom already discussed and by the lower factory activity rate. International margins improved with the addition of businesses acquired in the fourth quarter and strong sales of Bromacil reflecting improved material supply. Overall, Gross margin performance for the final quarter of 2020 was in line with the prior year at 36%. Operating expenses for the quarter increased by 11% as compared to the same period of the prior year. This includes the addition of the activities of the two newly acquired businesses, which together accounted for approximately 40% of the increase. Other increases include additional marketing expenses, legal expenses, higher cash incentive compensation accruals linked to business performance, and some expense associated with a change in the fair value of contingent liabilities associated with an acquisition. As you will read in our earnings release, you can see that during the fourth quarter, we recorded a bargain purchase gain of $4.7 million. This relates to a business that we purchased out of bankruptcy. When the opportunity presented itself, we moved quickly and got a great deal. We engaged outside valuation experts to assist management in the assessment of the fair value of the assets acquired. The gain we recorded is the difference between the purchase price consideration paid and the fair value of the net assets acquired. Also, during the three-month period, we recorded lower interest expense, primarily as a result of lower federal base rates on our loans. Finally, our effective tax rate was low in the quarter. There are a couple of reasons for this. First, the bargain purchase just discussed is a non-taxable transaction. And second, we were able to release some reserves associated with uncertain tax positions related to acquisitions we made in both 2017 and 2019. As a result of these various factors, net income for the three-month period was more than twice the level reported in the same period of 2019. With regard to the full year performance, the overall business revenues reduced by about 2% in 2019 as compared to 2019, in 2020 as compared to 2019. We consider that performance to be reasonably aligned with the prior year in a period that has been marked by widespread closure of many businesses during the prolonged period of the pandemic. Within that revenue decline, our U.S. crop business increased by 1% to $223 million in 2020. Our U.S. non-crop business sales declined by 21% to end at $49 million, and our international business remained approximately flat, with new business revenue offsetting the effect of foreign exchange rates. Our 2020 manufacturing performance ended the year very close to our average long-term performance. As you can see from the chart, net factory costs for the year amounted to approximately 2.8% of sales. This compares to 2.6% for 2019 and our target of 2.5%. This says that despite all the pandemic-related challenges, we were able to maintain our manufacturing activity at relatively normal levels. For the full year 2020, despite some movements by category, gross margin percentage was in line with 2019 at 38%. For the full year of 2020, our operating expenses have increased by 2% to end at $154 million, or 33% of sales. as compared to $151 million, or 32% of sales last year. In 2020, we have several dynamics affecting our operating expenses. These include pandemic-related reductions in travel activities, the impact of lower FX rates affecting translation to US dollars of operating costs recorded in other currencies, and finally, the addition of new businesses acquired in the final quarter of the year. Our interest expense is down primarily because of federal reserve base rates. Our tax expense is down primarily because of the bargain purchase gain, which is non-taxable, and the release of reserves for uncertain tax positions related to prior acquisitions. In summary, for the full year 2020, we're looking at our income statement performance. We have operated close to normal. Margins have remained very steady, indicating that prices have held up, raw material costs and factory performance have been well managed throughout this year of disruption. Our operating costs have increased slightly, but do include additional businesses for both the quarter and the year. We made a good deal to acquire an exciting biologicals business for a bargain price out of bankruptcy. And at the bottom line, we've seen a very strong finish to 2020 and reported net income up 12% compared to 2019. From my perspective, the operating and financial focus for the company remains as follows. We continue to follow a disciplined approach to planning our factory activity, balancing overhead recovery with demand forecasts and inventory levels. As you can see on this slide, we've had a very strong year with respect to cash in 2020. We generated slightly less from operations when compared to prior years, but have been focused all year on working capital. And as this slide shows, that has gone very well. Including working capital, we generated $89 million from operations, which is about nine times what we have achieved in average for the prior two years. The cash generated was used principally for two purposes. First, we invested a total of $36 million acquiring two businesses, making a strategic equity investment, continuing to develop our manufacturing capability and advancing our Sympath delivery systems. Secondly, we paid down debt by $43 million. At the end of December 2020, our inventories were at $164 million. This includes about $14 million of inventory related to acquisitions completed since late December 2019. An adjusted or underlying inventory of $152 million is slightly better than the $154 million we indicated during the last call. With regard to accounts receivable, as I noted earlier, our customers have continued to operate without significant disruption. They are placing orders for our products, making payments when expected. Participation in our annual standard early pay program was strong, indicating that our customers, that the customers we deal with, have a good year. The end result for 2020 resulted in consolidated accounts receivable of $119 million, in 2020 as compared to $136 million this time last year, notwithstanding the higher sales in the fourth quarter. Consequently, we can report that despite the pandemic, we have not seen any material change in the assessment of our credit risk exposure at the end of 2020 in comparison to the prior year. With regard to liquidity, as you can see from this chart, we have been constantly working down debt from a high in the first quarter, which is the normal rhythm for the company, to a low at the end of the year. At the same time, after a challenging first quarter, which was impacted by the arrival of the COVID-19 pandemic, our quarterly financials have steadily improved. As you will see from our earnings release, our EBITDA for 2020 is very much in line with 2019, but nevertheless, availability has improved. There are three factors in the calculation of availability. The first is our financial performance, which is broadly in line. The second is the multiplier under the terms of the credit facility, which is slightly higher this year than last and accounts for about $15 million increase in availability. And the third is the level of debt, which accounts for $43 million increase in availability. Taking all that together, Availability at December 31st, 2020 is $85 million, as compared to $27 million for the same time last year. In summary then, in 2020, from a balance sheet and cash perspective, we have continued to be acquisitive for the long-term benefits of the company. We have carefully managed inventory and accounts receivable, and thereby working capital, cash, and debt. At the end of the year, we believe we have improved our balance sheet and liquidity and are well positioned to look at 2021 with a sense of optimism. With that, I will hand back to Eric.

Thank you, David. As you may recall from our earnings call in November last year, I began to turn our attention to our strategic direction and long-term prospects. In the course of my comments, I described our three platforms for growth, namely our core business, our green solutions platform, and our precision application technology led by Sympath and Ultimis. I also gave you a view into how much we think these platforms will grow over the next three to five years. Today, I would like to revisit these platforms with a particular focus on how our green solutions and precision application technology both provide unique and compelling environmental, what I'll call ESG, environmental, social, and governance solutions, and position us to grow our business at a faster rate than through conventional AgChem offerings. Let's start with a quick update on our core business. As I mentioned earlier, in Q4, we closed on the acquisition of AgNova, an Australian-based company headquartered in Melbourne that sources, develops, and distributes specialty crop protection and protection solutions for the agriculture, horticulture, and non-crop markets. The addition of AgNova improves our market access in the region, including with respect to SIMPAS, Agrinos, and green plant solutions, and gives us greater critical mass in an important territory. Furthermore, AgNova offers product lines that we can readily market in other regions. Now let's turn to the other two platforms. In doing so, it is first necessary to lay the proper groundwork. I mentioned earlier we have defined our ESG position. Public companies far and wide are increasingly being called upon by investors, such as BlackRock, happens to be our largest shareholder, institutional shareholder services like ISS, and regulators such as the SEC, to report upon their commitment to ESG. We at American Vanguard have a great story to tell with regard to ESG. As I take you through our green solutions and precision application technology platforms, you will see this more clearly. At the close of 2020, we published our statement under the tab ESG on our website. As we stayed on that page, we are committed to the principle of sustainable agriculture. which to us means that all people should have the right to a stable, affordable food supply, both now and into the future, while at the same time maintaining and preferably improving soil health. As an essential part of that commitment, we seek to promote three equitable considerations, climate, environment, and food. As per our climate change commitment, also on our website, we are committed to making enterprise-wide progressive, and measurable efforts towards helping to arrest the trend of global warming. With respect to environmental equality, we seek to leave the planet in a better state than we found it. And as a key supplier of crop inputs, we are essentially involved in food equity. In order to advance these three agendas, a crop input company such as ourself would focus on products or application technology that promote carbon sequestration improve plant and soil health, have an environmentally friendly profile, and improve yield. As an example, you can see from this slide, courtesy of our Greenos business, biostimulants can advance all of these considerations. They reduce carbon dioxide, thus improving air quality and the climate, improve yield per acre, making food more affordable, improve food quality, helping growers to succeed, conserve water, advancing environmental equity, and improve the soil's microbial community. We have many such ESG-friendly products within our green solutions platform. For example, OHP provides several bio solutions to domestic nursery and ornamental customers. Amgreen in Central America offers a range of tailored biologicals to customers like Chiquita. And we continue to see consumer acceptance of our low-impact insecticides from InVents technology that are safe for children and pets. This technology forms the basis of our innovation partnership with Procter & Gamble, specifically their Zevo brand of consumer insect control products. After having achieved success in 2020 with Home Depot and Target, Zevo's 10-store test in Tampa's Walmart stores has exceeded expectations and will enable the P&G team to aggressively sell to full chain distribution for calendar 2021. Let me share with you a short video posted on P&G Venture Capital's website, or Venture Capital, Venture's website that positions Zivo well.

With Ventures, we're setting up new businesses. And one of the businesses that I am proud to share is Zivo. And Zivo is getting to the non-toxic homes and the insect space.

The challenge with current synthetic insecticides is They're great at killing bugs. They introduce another harm, which is the toxic chemicals that are being used.

Our whole company was founded to address this growing unmet need globally with concerns about certain chemistries. Our whole mission was to bridge that with new technology and do things in a completely different way.

In a lot of our consumer interviews, there was a relief for the folks that want to take care of their family that I now have. A solution to this age-old problem of how do I get rid of the bugs without endangering my family? And just to see their faces when they knew, wow, this is really true.

It really works. You can see it because we've broken that dilemma with a whole new technology that brings a totally unique and new mode of action.

Without the partnership, I don't think we could achieve changing the market. It's just not marketing and getting into retail. And it's just not technology that really works. It's the marriage of the two.

Partnership is about taking the best of both. Taking the best of an entrepreneur and best of P&G and mashing that together to create great things.

One of the things that PGV's done is intentionally bringing on this DNA of our entrepreneurial, go get it, knock it down, move fast partnership. but also with discipline and know-how to be able to take the brand forward in a responsible way, but also in a very large and global and serious way. And so who better than a team like this with their proven track record? Seeing these products on the Zevo brand on the shelf at Home Depot and Target is really meaningful and rewarding.

For any of you who have not tried any of the four Xevo products, I urge you to go out and purchase them and give them a try. In addition to Xevo for household use, we offer Guardian Mosquito Repellent and are expanding these solutions into animal health and professional pest control. At the same time, we are pursuing two novel development platforms. Under our Merlin Research Platform, we are using our patented screening process to discover and create novel insecticide compounds. This is true R&D effort. Over the past several months, we have screened over 130,000 active ingredients in our lab and have identified a manageable number of promising candidates for further development and possible commercialization. Similarly, under our Invenz Technologies Dragonfire, Research Platform, we are developing patented bioherbicide products and applications to help us address a global $18 billion market for non-selective herbicides. These products will feature high efficacy and will give users eco-friendly solutions for weed control. Between the Merlin Research Platform and Dragonfire's bioherbicides, And that technology continues to ring the bell for environmentally responsible solutions. Now let's spend a few minutes on agree notes. First, let me note that I was very pleased with the fact that we were able to acquire this business at such a reasonable cost, as its parent, a foreign holding company in Norway, was in liquidation. From its three operations in the US, Mexico, and India, Agrinos produces a line of high-yield technology soil applied solutions that it markets into eight regions across the globe. These products promote carbon sequestration, nitrogen fixation, and soil health. Its Invigorate line is an OMRI-approved consortium of 22 bacteria that have been developed to promote multiple benefits, including improvement of the soil microbial community on many global crops and soil conditions, facilitating nitrogen absorption and nutrient uptake while supporting root biomass and plant health. Its uplift products, which are derived from biologically extracted chitin, have similar effects. and their BeSure nutrient solution provides time-release nitrogen, which in turn improves soil health and helps to reduce the need for nitrogen-laden fertilizers. With nearly 150 pending and issued patents in multiple countries, Agrinos is proving to be an excellent fit for American Vanguard. We gained an established product line, considerable IEP, and a specialized fermentation and manufacturing infrastructure. In fact, our initial interest in Agrinos came last year when we were seeking distribution rights for putting their solutions through Sympaths. The opportunity for Agrinos to be part of American Vanguard organization is so much the better. After having owned the business for only five months, we have already realized a high percentage of the synergies that we had forecasted. With our global reach, we can now give these products the market access they deserve. Let's now turn our attention to SimPass. For some time now, we have been reporting on the exciting development and commercialization of our SimPass precision application system. Let me now elaborate on SimPass as an ESG technology. Put simply, SimPass is the ideal tool for advancing both climate and environmental equity, and for that reason, food equity as well. With respect to climate, SimPass is designed to be far more efficient than single product application systems. It can apply multiple inputs at varying rates, only what is needed precisely where it is needed in one pass. In addition, because it applies inputs only where they are called for as per the agronomic prescription. Sympath enables the grower to use potentially far less full rate at his or her field with significantly less water. Consequently, the grower's environmental footprint is much smaller and the potential for runoff is that much more reduced. But there's more to the story. In addition to efficiency and lowering of the environmental input or footprint, Sympath is designed to apply not only chemical inputs, but also biologicals, the very types of products that we have been described as promoting carbon sequestration, nitrogen uptake, and soil health. Even as I speak, we are testing multiple green technology solutions for use in Sympath smart cartridges. In short, we are supplying not only the product solutions, but also the application technology with which to advance climate and environmental equity. And the icing on the cake is that with our Ultimis platform, we can trace all inputs from factory to field and measure how much of each input is used in each area of each field. This platform also permits the return of empty and partially used smart cartridges. So on top of environmentally responsible products and application technology, we offer unrivaled measuring and tracking capability for multiple inputs. With this functionality, Ultimus is the ideal technology for measuring inputs in order to obtain carbon credits. While many carbon banks are being formed and multiple sets of rules are being discussed, they all require a means to measure what the grower is adding to the field. To our knowledge, no technology does this better than Ultimis. Nor is this just conjecture on our part. In this slide, we show the results of an actual CIMPASS 2020 beta system application in which we demonstrated that we could apply counter 20G precisely as per agronomist's prescription, and it's important that we could measure that application after the fact. This will be of fundamental importance in the carbon credit market. The picture on the left illustrates the prescription written for a field in North Carolina. The picture on the right depicts the actual application. And when we shared this with our CIMPASS growers, they were all very impressed. Now for an update on CIMPASS systems. As of this call, we've placed 70 systems, which includes 900 rows, which should cover about 85,000 acres. Our team this morning told me that number might be closer to 65 to 70,000 acres, but We are targeting more systems for this planting season, and we expect or hope that we will get into that 100,000-acre target, which is the target that we set for ourselves. Now, let me share our latest SimPath video that illustrates key advantages. As ESG has now taken center stage in the public's eye, we believe that SEMPASS has truly come of age as the most comprehensive solution for our industry. With that, let me now turn to our 2021 outlook. We see an ag industry that is generally optimistic for 2021. Reopening of schools and businesses following 2020 lockdowns and a potential for less volatile international trade disruptions promises to refresh ag sector demand. The increase in crop commodity prices for corn, soybeans, corn, and other crops has improved the prospect for grower profitability, and with that, a more normal purchasing pattern versus the very conservative procurement behavior that we witnessed during the 2020 pandemic. We estimate a low double-digit year-over-year revenue increase for American Vanguard. We expect profit margins to remain steady with recent history. and operating expenses will increase somewhat due in part to newly acquired businesses and the CIMPAS launch. We expect interest expense will be similar to 2020 levels, and our overall tax rate should be in the mid-20% range. Consequently, we are targeting a significant percentage increase in net income and earnings per share in 2021. Finally, we are targeting a debt to EBITDA ratio in the 2 to 2.5 times range. And note that at the end of 2020, our debt to EBITDA ratio was 2.2. With that, we'll take any questions you may have. Diego?

Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from Jerry Sweeney with Roth Capital. Please state your question.

Good afternoon, gentlemen. Thanks for taking my call. A little newer to the story. I've been working with Bill, but just curious on the revenue guidance that you gave low double-digit revenue growth for this fiscal 21. Is there any chance you give a little bit of granularity to maybe where some of the segments are going to come into play with that projection? Then secondarily, does that include any potential acquisitions, and how does that factor in? Thanks.

Yeah. So, thanks, Jerry. Welcome to us. I've appreciated Roth for years. So, yeah, I guess across our businesses, I think we see the business units, OHP, Envance, AgriCenter, Australia, Brazil, and, of course, and boosted by adrenos as well. So we see upside certainly there. I think we're also seeing a pretty healthy increase in our herbicide area, particularly around our impact molecule as we've added combination products there that we think will do well in the marketplace. Our dibrom, we had some bringing down of inventory, so we see that kind of rebounding back. Similar with our two cotton products, Folex and Bydrin in the U.S., we see a rebound that was a particularly low year this year. And then with Bromacil, again, demand seems to just keep continuing, certainly in Mexico for the agave market, but also in Japan for kind of home right-of-way and other right-of-way business. So that's kind of the general thoughts. We'll see corn certainly increase. I mentioned cotton. Soybeans, that's another growth area for us. We have several herbicides that we'll be marketing into that sector for this year. So that's kind of the upside.

Got it. And... I have a question about SimPath, and I apologize. Hopefully this is the right environment for it. But, you know, after seeing the video and reading about it, I mean, the video helps put it in a little bit better perspective. But I just couldn't help but notice at the end, you know, it said powered by Trimble, which I understand how that comes into play. But also notice that the equipment was that green and yellow, who may be a large ag company. How do you go to market with some of the equipment? Do you have to partner with some of the – The agricultural companies or distributors, I was just curious as to what the process is to get some more systems out into the market.

Right. So with Smartbox, we did all of the sales ourselves. We inherited that from DuPont back in 2000. We've sold as many as 1,200 systems in a given year. But it's direct sales to the farmers. With SimPass, we have aligned ourselves with Trimble. So Trimble's dealers will be handling the distribution of it. And as you mentioned, you've got John Deere in there, and there's other videos with it. We're basically able to go what we call with any color tractor. Adoption is very simple. And so Trimble will handle the actual sales to the farmer and servicing because, again, this will be something we believe is a lot bigger than what we've done with Smartbox.

Smartbox, got it. And then final question coming up. This question has come up quite a bit, and I'm actually getting it from clients across the board. Inflationary pressures, are you seeing anything? Do you have – to manage that if they start to rise. I mean, I did see freight in the presentation, and I know that's been an area that I think that's been popping up recently. So thank you.

Yeah, hi, this is Bob. Yeah, we're keeping an eye on that. We're not that, in our own portfolio, we're not that oil dependent. We have our own factories. You know, we've had inventories in place. as David described, so I think in the short term, for our own portfolio, not too much. In other parts of the world where we buy from third parties, we are seeing that they're starting to raise prices, and we'll pass those on where we can.

Yeah, I mean, we have experience. I mean, I think it was back in 2012 was really the year that prices in our industry started and were really getting out of control. And there was so many products coming into 13 that were on allocation. And so we did see some pretty major hikes at that time. So we've We've kind of conditioned our people that, I mean, everybody would like to just put out a price, you know, going into the season and maintain that through the whole year. But we can't do that. I mean, even, you know, you take, you know, the tariff situation. You go from 5% to 35%. and a drop of a hat, you've got to be able to put that through. So I think our customers are conditioned to that. I mean, I think the currency swings are a little bit more difficult to do, and particularly as we get down into Brazil, we're seeing such changes there. But it is top of mind for us.

Got it. Yeah, that's very helpful, and I appreciate you taking my calls, especially if they may be a little bit newer or rehashing, but thanks a lot.

Thank you. And just a reminder, to ask a question, press star 1 on your phone. To remove yourself from queue, you can press star followed by the number 2. Our next question comes from Chris Kapsch with Loop Capital Markets. Please state your question.

Hey, good afternoon. Apologies, I joined this call late owing to some other obligations I had, but so I may have, I missed most of your formal commentary. But I did have a question about the industry and curious if you're seeing any effects in your business. But there was one major ag chem company talked about, you know, disruption, inability to supply their customers because of, you know, tolling being disrupted by COVID and You guys manufacture, I believe, most of your own and blend most of your own materials. So I'm guessing that, you know, it's not something that impacted you, but conversely, was it something that somehow may translate into a commercial opportunity for you to the extent that other suppliers may have been struggling, you know, in sourcing product during going into this growing season?

Well, I think I would say within regards to to the United States, certainly. I think there was better expectations in 19 and 20 that occurred. And there was a lot of inventory of products that were brought over from China to try to beat the duties. And so with the markets not strong, I think there's been some lagging inventories there. From raw material wise, we have had some some tightness here and there where we have shipments. We live close to Long Beach Harbor. I go down there, and the last time I went down, I counted over 100 freighters that were stacked up in that harbor. And so we do have raw materials for our PCMB herbicide, our fungicide that we've just started manufacturing again that are sitting on a container there that we're waiting for. But I would say overall, we've been in a better position, as you kind of alluded to, than others. And a good portion of our raws do come from the United States, and so we're able to service our manufacturing facilities okay.

And then in certain product lines, you compete with – alternative sources out of europe and the euro has been relatively strong call it i don't know the last seven months so is that um has that affected the that or just the overall a more favorable environment with stronger commodity prices is that um affected the pricing dynamic at all is there um any cover there for you to to you know for pricing entitlement or is there is it Is it as competitive as ever? Any changes in the competitive dynamic from a pricing standpoint for your core products?

Well, I've certainly seen chemical companies, not specifically in the ag side, but signaling price increases. particularly a company over in Germany that's big in chemistry. It seems like every day I'm seeing them announcing new price increases, which certainly is favorable. But with oil going up, we do have some methanol-linked products going into our soil fumigant. But we're watching it closely. And as I mentioned to Jerry, we're top of mind and we have continual meetings on it and just to make sure that the whole team is linked together.

Okay. And then I know you guys have diversified away from corn judiciously and you have some growth innovation platforms that are growing. you know, starting to get traction, that's great. But, you know, you still have this core franchise of soil applied insecticides that, you know, could benefit in this environment. And I'm just curious if there's, you know, you guys brought up, there's the trade rec talk about, you know, the corn rootworm resistance resurfacing again because of the, you know, absence of rotation. So, Um, just wondering if, if that, if you're, I don't know if you commented on this already, but you're seeing that in your, um, in your order patterns or the, you know, the, any, any, um, signs from growers that they're, they're, um, you know, given the strong pricing backdrop that they're intent on using that protection this year as they grow corn in the, in the corn belt.

It seems like each day we see, whether it's nematodes or corn rootworm nutrition, particularly focused towards the corn and soybean market. There's certainly a lot of awareness out there, more than I've seen really since 2013. Yeah, we've got nice potential upside, certainly in corn, and as Allison mentioned, soybeans. Bob, do you want anything more?

Yeah, Chris, I think we're going to have a good, assuming weather plays, I think we're going to have a solid, maybe an up in, you know, at-plant insecticide control. We see two margins emerging, but this is more of a 2022 factor. One, the soil health market looks like it's going to expand at about a 12 to 15% clip. If the Biden administration incentivizes that, you'll see that grow rapidly. We're well positioned, as Eric had said on the call, call with our Sympath systems to take advantage of that in conjunction with the portfolio from Agrinos. We're doing all the testing this year on our product line and other companies' product lines. Looks very positive. Then the second effect, which, you know, was just announced by Mexico, is that they will not allow any GMO corn, and they're also banning glyphosate. And, of course, they have been traditionally the number one export market for corn out of the United States. that would then result in U.S. growers going back to conventional traditional corn. And of course, that's positive for us in our product lines.

But that's a 20... Sorry, is that... When would that come into effect for Mexico? Sorry, because I did miss that.

Well, that would be 2022, right?

Okay.

Right, because then... So right now, for example, if you're growing... traditional corn for non-GMO, you're getting over $6 a contract, right? So it's about 40, 50 cents higher than GMO corn. So it's attractive. And the cost of actually producing it is about the same. So you're, you know, it's bottom line.

Yeah, got it. Interesting. I'll let somebody else take a question. I'll circle back if there's time.

Thank you, Chris.

Thank you. Final reminder, if you'd like to ask a question at this time, press star 1 on your telephone keypad. We'll pause for a moment to pull for questions. Thank you. We have a question for Mr. Chris Kapsch, Loop Capital Markets. Please go ahead.

Hey, so the follow-up was just, you know, so let's just say a year from now, we're looking back at 2021. So relative to the setup that you guys envision currently, what sort of, I don't know, top two or three things, positive and negative, do you think that could be a positive surprise as the 2020 ensues or 2021? We're all trying to forget 2020, trust me. 2021 ensues or some things that could end up being, you know, a source of negative surprise?

Well, I see from the top side, I kind of mentioned, you know, we're looking at our impact in dibroma, normalcy in corn with Olex and hydrin. You know, our continued supply line for Bromacil looks good now, but there's There's always the chance that we do get interruptions. Starting up our PCMB facility, we've had different transmitters and valves that haven't worked properly, so we're running behind there, but we're only planning on running it... at about 60% of capacity anyway, so we'll catch up. But there are some sales right now, but it's not a huge number. So I don't know. I mean, you brought up the concept of inflation, super hyperinflation. That certainly could happen, but we're poised for it. The exchange rate, certainly could be significant or could go either way, plus or minus. But I think as far as our assets, our utilization, right now things look pretty good.

That's great. Thank you so much.

If there are no further questions at this time, I'll turn it back to management for closing remarks. Thank you.

Okay, well, thank you very much. For those of you that didn't get to watch all the pretty pictures and videos that were on the phone, it will be posted on our website, and you can go through and relive the experience. And I look forward to updating you not all that long from now. I mean, we're maybe a month and a half away, something like that. Two months. Two months, yeah. So, anyway, I'll be in touch soon. And I will note that, you know, we've – I think some of you probably noticed as well that we've traded well over this last month, hitting highs that we haven't had in, what, two and a half years. So happy to be back on the right track. And with that, thank you very much. Bye.

Thank you. This concludes today's conference. You may disconnect at this time. Thank you all for your participation.