American Vanguard Corporation

Greetings. Welcome to American Vanguard third quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Bill Kruiser, Director of Investor Relations. Thank you. You may begin.

Thank you very much, Sherry, and welcome, everyone, to American Vanguard's third quarter and nine-month year-to-date earnings review. Our speakers today will be Mr. Eric Wintemute, the chairman and CEO of American Vanguard, and Mr. David Johnson, the company's chief financial officer. Also assisting to answer your questions, Mr. Bob Tregell, the company's chief operating officer. A little reminder for those of you who may be listening by phone, this conference call is being webcast live via the news and media section of the company's website. This approach would allow you to see the PowerPoint presentation that accompanies our commentary. To listen to the live webcast, go to the ABD website, register, download, and install any necessary audio software. If you are unable to listen to our entire call today, the conference call will be archived on the company's website for your review at a later date. Before beginning, let's take 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. Such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Thank you, Bill. Good morning and good afternoon to everyone. Welcome to American Vanguard. 2021 third quarter and nine months business update. We appreciate your continued support and interest in the company. Today, I want to give you a quick view of our financial performance supported by commentary on market conditions. Then I will turn to the global supply chain, which is a subject of strong interest to most industries. I will then ask David to cover financial and operational matters in great detail. After that, I will return with an update on our green solutions and precision application initiatives. So on slide four here, as we ended Q2's conference call, we presented a scorecard on how we did in the first half of 21 versus what we had given at the beginning of the year as our targets. So I'm gonna update that now through the third quarter and year to date through third quarter. And so with revenue, we were at 25% through the first half. Through three quarters, we're exactly still at 25%. With our gross profit margin, we were tracking right on at 39%. Through three quarters last year, we had slipped a little to 38%. We're still holding at 39% at this point. Our operating expenses, we said we would kind of maintain, hope to move down slightly if we could. As a percent of sales in the first half, we had dropped from 35 to 34, and year-to-date we're now at 33 versus 34. Our interest expense is down now at 23%, so we're tracking certainly below 2020. and I believe we'll outperform our initial forecast. On our tax rate, we were at 31% versus 23% through the first half. We're now at 27% versus 20% at this point last year. We do expect that rate to drop in the fourth quarter and certainly to meet or exceed our mid-20% forecast. On our debt to EBITDA, you can see we've dropped from 2.5 times to 2.1. As we look at it now, we expect to drop further and probably below the 2x target that we had thrown out. And as far as net income is concerned, pretty much the same. We were at 86%. For the three quarters, we're at 87% increase. Definitely a faster rate than our 25% revenue growth. And our EBITDA is moving up as we're now 39% increase from where we were at this time last year. Our strong performance was across all sectors, but our domestic crop business led the way. We benefited from a combination of factors. Let me just focus first on commodity prices. And I'll start with cotton. And what we've done is we've measured the price per pound. This is with MacroTrends. As of September 1st, 27th of 20, and then comparing that to September 27th of 21. Pretty dramatic increase. It's about 59% increase. And so this has prompted growers to invest more heavily in corn. We've benefited from our corn, I mean, from our cotton insecticide, Vidron, which had a very strong third quarter. In addition, we've had an increase in our cotton-to-foliant, Folex, which is very strong in third quarter, and we're still seeing orders, and we saw orders through October. So that's a big part of our benefit here so far. Let's get this back up to where we were. So soybeans were at 10.21 a bushel, have increased to 12.85 over that year period, 26% increase. You may recall that we have improved our soybean portfolio with several herbicides we've acquired over the last three years. And as such, soybeans are moving up as a crop for us. I think currently, or last week, we were around 7%, 8%. So it's looking positive for us in that sector. And then corn, moving from $3.79 a bushel up to $5.42. And with that, we've seen strong performance with Aztec and our number one corn soil insecticide and impact. which is our number one herbicide, corn herbicide. And we've launched off two new. We had Impact C, which was with atrazine. We've launched off now Impact Core, which is with acetochore, and Cinate, which is Impact plus glufosinate. And all four of these are performing well at this point. So our... Our increase overall in the ag sector was up 38% for U.S. crop. And so that certainly did lead the way for us. And this is despite us having logistics issues for our biggest product normally, which is our soil fumigant products. were large volume and certainly impacted by the supply chain disruptions. On the remaining sectors, OHP continues to see strong performance, particularly in the markets of the horticulture sector, in plants and in greenhouse activity. Amgard, again, a professional pest market that is also recovering well. Agnova, our Australian business, which has tripled where we were last year. Agrinos, which is adding incremental new business. Mexico is performing well, as are other two sectors, Brazil and Central America. Overall, these combine to increase 17% versus where they were this time last year. So I want to take a second to just talk about supply chain, and I was at an industry meeting last week where I was asked to talk a little bit about supply chain from a manufacturing side. And as I was driving from our plant in Alabama up to the conference in Memphis, I was listening to the radio and the COO of Toyota was talking about specifically the jam that's occurred in the Long Beach Harbor, which is where I grew up. And he was saying that There are currently 540,000 containers, and you're looking at boats here that have about 500 containers on them, and 540,000 that are sitting at the port today that are backed up, waiting to be unloaded. So that's about 100 vessels, and if you go down there, you can see them anchored all up and down the southern coast there. And The current ability to unload at that port is about 18,000 containers a day. So if you looked at it and said, well, I guess in 30 days we would be able to unload those 540,000 containers, which is true. But the problem is that 29,000 new containers are arriving each day. And so we're not going the right way, and there doesn't seem to be any real solution at the moment. So why is this happening? And I guess we talk about maybe a perfect storm that's occurred. We have a shift in buying pattern due to COVID. People got behind, they panicked on certain items, so things shifted around. Some items were plentiful, some were short. As you certainly were aware, as you hit your supermarkets or if you tried to get a car, anything with circuit boards, We've been operating with the same port capacity for years, and generally being able to kind of make it through, but we just haven't had this big a shift in buying power. Same thing with containers. There's a limited number of containers, and those containers are being delayed as they're sitting waiting to be unloaded. or in some cases, the empties, are having trouble getting back. And just as a word, we've had products that we've been trying to ship to Australia, and we can't get a truck to take it from 20 miles from our plant down to Long Beach Harbor. If they get there, they're going to wait eight hours and truckers don't particularly want to do that. As such, a lot of the empty containers are just winding up on residential streets throughout the harbor area as truckers are frustrated and they're just dropping the trailers anywhere and moving on. It's created quite a mess. Of course, we're dealing with somewhere in that 60,000 to 80,000 truckers short. which makes even once those containers do get offloaded, it gets difficult to actually move them out of the harbor. So, what's to be done? How do you deal with it? And I really kind of boiled this down to three key factors. First is production itself. got to decide if the product that you're searching for, whether it's intermediate or finished good, is going to be produced and when it's going to be produced. I'll talk a minute about us dependence on China, but for instance, China has shut down a number of factories for environmental, not necessarily that factor, but production sites. Also, the government is kind of prioritizing energy and certain high energy products are not getting permitted to continue for production so that's putting a squeeze that goes across the across the world so first first is you know can you you know is the product can you make that purchase order we've had products that we've ordered and they've come back and said you know you've got it you've got to pay more And so we say, okay, and then it's like, well, we're not going to be able to ship anything. So that's certainly the first thing that you've got to identify. Are you going to be able to produce or get the product itself? The second is on logistics, which we talked a little bit about. But those containers that you saw that have come over last year were running – about $2,500 to $3,000 per container. This year, they've peaked up to $26,000 per container, and that's just bringing them into the U.S. Once they're here, then you've got to get it moved from there to your factory or your production site, and then from that standpoint, you've got to get it delivered, and you've got this shortage of truckers, and you've got to try to figure out how how you're going to get it, and then how much you're going to pay. So it gets to be sometimes a bidding war. If you want the product to get to point A, how much will you pay to do it, rather than kind of standard fares. So that kind of all boils down to maybe the most important point is let's assume you do get your goods. You clearly need to do quick calculations to understand exactly how much those goods are costing. We're also seeing costs and rises in factories as labor wages are going up. And so we're working with our finance team to look at all SKUs and do an analysis in real time of what our costs are and making sure that we present those to our commercial product managers so that they have a vision of what their cost of goods that they're selling. So I think the companies that can go through this process will fare the best. There's no real clear vision as to when this disruption, I think, will cease. It will hit other areas harder than others and will be cyclical, and so I think you've just gotta be nimble to understand where this is going. Okay, so On the positive side, again, we're sitting here with six production sites here in North America. That gives us the ability to produce and be in a stronger position to handle the disruptions. I mentioned with China, about 8% of our production of our portfolio is dependent on materials from China. A few years ago, we started a process of second sourcing, if we could, outside of China due to the tariffs, which were pushing up to 31%. Second, we manufacture 46% of our portfolio within our six North American factories. Having these manufacturing facilities gives us both greater independence and the ability to respond quickly to market conditions. Third, we order goods from overseas on a comparatively sporadic basis. By contrast, many of our consumer businesses, or many of the consumer businesses, that being computing goods, clothing, that sort of thing, rely upon a steady stream of imported goods. Nevertheless, we're working closely with our logistics partners to ensure that we can get goods from point A to point B, and we're ordering goods from overseas further in advance and looking at lesser congested ports. Through that means, you know, we have been able to manage through the supply chain conditions and at this stage are optimistic that we will be able to continue to do so without material interruption. So with that, David, let me turn it over to you for financial and operational analysis.

Thank you, Eric. With regard to our public filing, I understand from my controller that we are in the queue to file, and so I expect that we will file within the half hour or 45 minutes. As I've mentioned in previous conference calls, our industry is one that's considered critical in all jurisdictions in which we operate. And during the pandemic in 2020 and now throughout the nine months of 2021, our business, our customers, our suppliers have all operated without major disruption throughout. So, you know, it's been a good place to be during this difficult time. This is our quarterly sales performance. You can see that our sales have increased, as Eric mentioned. since the third quarter of 2020. Overall, our sales are up about $30 million to $147 million. That's about a 25% increase over the prior year. Our U.S. sales are up about 33%, or $22 million, and our international sales are up about 16%, or $8 million. Because of the very strong U.S. performance, despite the strong international performance, Our international sales reduced to about 40% of total sales, whereas this time last year they were at about 43%. With regard to our gross profit performance, when we spoke at the end of Q2, we acknowledged that we'd had some production delays, but indicated that that issue was temporary and substantially behind us. the third quarter of 2021, our production performance has been much better, just as we expected. And that has an impact on our gross margin performance. And when I look at the crop business, our gross margin performance improved by about 50%, including the impact of the recovery of overhead costs in the factory. Our non-crop business had significant mix changes in 2021, in comparison to the prior year, with some higher margin business happening earlier in the year in 2020 as compared to this year. And as a result, our margins have remained comparatively flat in the quarter. For international sales, gross margin improved as compared to the prior year, and it's primarily the result of the addition of businesses acquired late in 2020, which generate margins higher than our pre-existing business performed. Moving on. I particularly like this graph because I think it gives a quick way of visualizing the impact of factory performance has on our results. And you can see that in the third quarter of 2021, on the far right of the graph, our factories cost us about 1.2% of net sales. in under recovery and that compared, if you look back a couple of quarters to the third quarter of 2020, you'll see that the cost amounted to 2.5% and that's just a reflection of the kind of activity that we've managed to record in the factory in this third quarter. Operating expenses increased by about 24%, and that amounted to $9 million. Our newly acquired businesses accounted for about 14% of the increase. Freight accounted for 17%. And then the balance was incentive compensation linked to financial performance, some legal expenses, and increased marketing costs. Overall, our OPEC the percentage of sales remained steady at 33%. Our operating income in the third quarter was up 112% versus last year. In addition, we made some immaterial adverse changes in the value of two investments we've had for some time. As Eric mentioned, our interest expense continues to track about 24% below the prior year. Our tax rate is a little higher than last year, primarily as a result of the strong taxable income in comparison to the prior year. And finally, our bottom line is about 5.5 million, which is up 88% in comparison to the prior year. For the first nine months of 2021, our sales were up 25%. Gross margins and absolute terms are up 27%. All our main activities in US crop, US non-crop, and international contributed to this exciting performance. Our operating expenses have increased primarily as a result of the new businesses acquired in the final quarter of 2020. Increased performance-linked incentive compensation, legal costs, Some increases in travel and costs associated with the volume changes such as freight and warehouse costs. Overall operating costs were up 22% as compared to the net sales increase I mentioned a moment ago of 25%. And operating costs compared to sales improved to 33% in 2021 as compared to 34% last year. Interest expenses reduced by 23% as a result of cash generated over the last 12 months. And overall, our net income has increased by 87%. Now I'd like to turn my attention to the balance sheet. As you can see from this slide, during the third quarter, we increased cash generated from operations by 56% as compared to the same quarter of the prior year. Further, you can see that the movement on working capital was in line with the prior year, and this performance includes the expanded scope related to the businesses acquired in the fourth quarter of 2020. Overall, net cash from operations increased by 34%. At the end of September 2021, our inventories were about $167 million as compared to $176 million this time last year. If, for a moment, we exclude the impact of products and entities acquired since December 2019, which accounted for $10 million of inventory at the end of Q3, our base inventory decreased by 11% from this time last year. So we feel that we have controlled inventory well during this phase of the company's annual cycle. Our current inventory target for the end of the financial year remains at $155 million. That compares with $164 million at the end of 2020. That target is obviously dependent on a few things, including a continued low impact from the pandemic, normal weather patterns, and no more acquisitions this year. With regard to liquidity, under the terms of the credit facility agreement, the company uses consolidated EBITDA, as defined in that agreement, to determine leverage. Our consolidated EBITDA for the trailing four quarters to September 30th 2021 was $66 million as compared to $49 million for the four quarters to September 30th, 2020. This taken in conjunction with outstanding indebtedness translates to borrowing availability amounted to $95 million at the end of September 30th, 2021 as compared to $45 million at the same time last year. As you can see from this chart, we've been controlling debt well, even as we work through the annual cycle and as we continue to invest in the business for the future. Overall, in summary then, the third quarter of 2021, we have increased sales by 25%, improved overall margins. We have managed operating expenses, which increased in absolute terms, but declined when expressed as a percentage of sales. Our net income increased by 88%. We have a similar story for the first nine months of 2021. We increased sales by 25%, gross margins by 24%, operating costs have reduced when compared to net sales, our interest expense is down, and net income has improved by 87%. From a balance sheet perspective, accounts receivables increased driven by strong sales, inventories have been well controlled, working capital has been held flat during the quarter, and debt is lower than this time last year. despite three acquisitions in the intervening 12 months. And finally, our liquidity position has improved significantly. With that, I will hand back to Eric. Thank you, David.

In recently quarterly earnings calls, we've provided updated information on our two strategic growth initiatives in green solutions and prescriptive application technology. So let me just go into... green solutions. So we mentioned last time that we have kind of grown our technology on the green solutions, and we now see that we've got 100 different products in our expanding portfolio. So in this slide, we break out the functional categories of our offerings. As you can see, it's a balanced range of solutions. with a strong emphasis on biofertilizers, biostimulants, biopesticides, and micro-macronutrients. These products allow us to offer not only our traditional crop protection kind of defensive products, but beneficial plant nutrition and soil health amendments as well. And so we've developed quite a balanced and growing portfolio. So Green Solutions has posted steady recent growth as seen on this slide. For Q3, we increased about 10 million, which is 26% increase from Q2. And I think most of, a good portion of that growth anyway, was attributed to increased sales in LATAM, Brazil, India, and Australia. Year-to-date, our revenue is just at $27 million. And for the full year, we're upping our forecast from the 32 to 35 range. We're now thinking somewhere in that 35 to 37 range. And of that, about $10 million is coming from LATAM, which is our largest so far. So when you look through what we're focusing on and keeping eyes on the targets of what we're trying to do in expansion, we've got registrations underway in LATAM. The Columbia business has been transitioned over completed and working well. We've got a pipeline building for further distribution in Europe and Africa. We've got our U.S. group that's looked at opportunities now for some significant increases in 22. And part of that's the result of the 1,500 spot trials we mentioned last time that we were doing in 21, which are basically looking to benefit in the 22 period. We've also linked this with our CIMPAS trials where we're introducing Invigorate, which again is a nitrogen fixation product that looks extremely promising. We've got Interferonamental. Our trials are near completion at this point. We've got large-scale customer demo plots that we're doing. Again, looking for a pickup for next year. With Envance AmGuard, we mentioned before our bio herbicide product that we are looking for both consumer and professional pest use on our way to potentially developing for agricultural use. This is significant given Bayer's decision to exit the consumer market through, at least domestically, through Scotts with Roundup the kind of leading herbicide in that space. So we see demand for solutions, strong, and we think we're well positioned there. Within green plants, which we acquired as part of AgriCenter in the latter part of 2017, we knew we had some strong products with which to expand, but it has taken us a while to We'll work that into our other areas. We recently moved product into China, into Columbia, and we've got other areas down in Australia where we think we've got some strong growth potential. BIPA, which is a consortium in Belgium that we became part of six, seven years ago maybe, David, And we've got really our first product that's come out of that. It's a bio fungicide called Vintek, originally developed in Europe for grapes. So try this on grapes. But we've seen some very strong activity in almonds. And we received our registration in California recently. There's over a million acres of almonds in California. And we think we've got a nice fit for a bio-treatment for canker, a particular disease that hits almonds. And we're also doing testing in bananas in Central America. that also is looking promising, and we're hoping to get registrations there as well. So I guess what we're saying here is it's a modest change, just that we're looking, kind of moving the NELA a few million dollars up in 21 on our target, which basically we're looking to double that in the next couple years, and then double that in the next couple years as well. So it's an aggressive growth, but given all the products that we have and the development work we're doing, the high demand for solutions in that space, currently we're feeling that our forecast is looking good. Shifting over to Sympath. Again, you guys have seen how this graphic demonstrates how the system works. During our last call, we've updated our forecast revenue for CIMPAS through 25. At this point, the forecast remains unchanged. What we did do since our last call is we talked about that we were going to be reaching out to progressive retailers to then focus on their precision farmers, begin that shift to prescription application of crop inputs. And so with this, we've identified a number of retailers that fit this. We've got over a dozen retailers so far that have entered into agreements. for distribution of CIMPAS with us. We expect that number to double over the next few months, and we've identified, I think there's 26 here, mostly in the Midwest, but also we've got five retailers in the South. So I guess one question is, what's in it for a retailer?

Sorry about that.

So these retail partners can provide agronomy and prescription software capabilities needed for targeting CIMPAS inputs of crop protection, plant nutrition, and the soil health fertility enhancements. With this on-the-ground template, CIMPAS can dispense and deposit ingredients that will give the grower maximum yield, minimum cost, elevated return on investment, and beneficial environmental outcomes. These precision ag services help build a strong bond between the grower and the retailer, creating a long-term business loyalty. One final point that I want to make is we showed this slide before about the attention of the Ultimis software data retention that's part of CIMPAS, which allows concrete documentation through MVR to beneficial agricultural treatment practices. As we pointed out in the emerging carbon credit market, The ability to authoritatively validate such beneficial practices can facilitate securing financial compensation that could substantially offset the investment outlay in adopting technologies such as SIMPAS. So we're working with USDA on sharing this technology, which they were very excited about. And they asked us or invited us to apply for a grant, which is under the Agriculture Innovation Center for Program of USDA. And we did get the grant in at the end of September. The decision-making process is somewhere in that two to eight months. So we expect a decision by Q2 of 22. But this is, This grant that we submitted is for nitrogen reduction by using a Sympath Ultimis system, decreasing the use of synthetic fertilizer and, in its place, applying soil health products. Ultimis gives the carbon credit program a way to verify, measure, and validate what the grower is doing to qualify for the credits. When linked to the permanent ledger, such as blockchain, Ultimis makes an immutable record of everything that was applied to the field by volume and by location. As I've mentioned before, we know of no one else in our industry that has climate-friendly technology as comprehensive as our Sympath Ultimis system, particularly when used to dispense our green solutions. So let me end these comments by letting somebody else have the last word. This quote is from Jason Orr, who's the owner of Orr Farms in Iowa, and a happy user. I think he's the last year or two with SimPass. And so his words are, the opportunities are endless. I can foresee in the future dozens of SimPass applied solutions being applied this way. This is going to change the way we producers look at in-furrow application. So with that, I'd like to open it up to any questions you may have. Sherry?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jerry Sweeney with Roth Capital Partners. Please proceed.

Good afternoon. Thank you for taking my call. Sure. Eric, you went through the supply chain. I actually learned a little bit about the unloading of vessels in this, you know, the speed at which it's done and the amount of ships coming in. But as we look forward to 2022, do you foresee any issues with maintaining your profitability or do you expect your multiple sourcing relationships as well as factories, et cetera, to be able to manage demand and everything going forward?

Yeah, again, I think the key to that is, I mean, so far, at least domestically, we haven't had real pushback in putting forward increases, but it is so dynamic that unless our commercial team knows where their costs are, and generally, you know, we have inventory, so when we know what the cost is kind of going forward or what it's happening in real time, we're not at the point now where we're manufacturing just to order, and in fact, our our customers are kind of placing orders kind of in advance. And so we're trying to stay ahead of the game. But the key is to truly understand what our costs are. And I think if we can do that and get that information, we can discuss where we need to be with our product. So I think if that was your question about are we going to be able to pass through increased supply, that will be the key for that. As far as disruption, we definitely saw disruption in our soil fumigant I mentioned. We produce about 12 million gallons a year, and so rail and trucking that through all over the United States, Mexico, Australia, Central America, Mexico, it's quite a logistic issue. And you can think about if there's 12 million gallons of product being produced, we've got a similar amount of raw materials coming in. And we have seen disruptions in trains and getting those raw materials in on a timely fashion, particularly when we get into crunch time, which we saw third quarter. I think about 70% of our volume happens probably between August and November. And so it puts quite a strain. And even though we've got a fair amount of storage around, you know, the demand was high. And so I don't know if that was your question. And then, you know, as far as other products, you know, we meet, our whole team meets every month and we talk about all of the issues and if there's something that comes up in between, we do. But we get about 20 29 or maybe 30 of our people, somewhere in that range, globally on each month to kind of walk through it.

That is helpful. Yeah. Actually, more than my question, which is actually perfect. I appreciate that. Then the other question was just on acquisitions. I was focusing a little bit on green solutions. You have 100 different products, as you outlined. As you look at the playing field and opportunities you're looking at. Is there anything that you're looking at in terms of green solutions opportunities or places that you feel as though that you would want to add to that portfolio? Or do you still remain just opportunistic on opportunities across the board?

Well, I think we're seeing more opportunities than we have historically. I mean, the industry has been consolidating. There's a lot of shifting going on. You know, we obviously look for bargains like what we did with the Greenos. You know, we've laid, you know, a lot of foundation to get to this point. And I think we're now looking at putting a number of these solutions through SEMPASS. You know, we have our product like our soil fumigant that basically kind of sterilizes the soil. You know, we now have the opportunity to come back and introduce, you know, beneficials into the soil that, again, promotes uptake of the various nutrients. So, you know, our team and Bob, you know, heads it up, so I don't know if you want to comment on that, Bob, as far as are we looking, you know, opportunistically or strategically? I think the answer is yes to both, but go ahead.

Yeah, so, hi, Jerry. Hey, Bob, how you doing? Good, good, thank you. Yeah, so we're, of course, always, I mean, letting anybody know who's in the selling side that we're interested in acquisitions. You know, the EU would be a target as far as regionally, simply because of all the environmental headwinds for chemistry in Europe. would be a good place maybe to invest if the price was right. But we're actually very much into a lot of licensing in discussions, distribution agreements, because we have such a great team and footprint to market green solutions. Then we acquired a microbial library from the Agrinos acquisition, so we're looking at how do we develop that further. But last but not least, I would say we are looking for strategic partnerships. When you combine the green solutions with CIMPAS, there are areas around the globe where we don't have a structural footprint, so we're talking to some folks about that. So there's lots there to do besides acquisitions, and I think we'll continue to take advantage of those opportunities.

Okay, great. Very helpful. That's it for me. I appreciate it. Thank you. Sure.

Our next question is from Chris Kniepsch with Loop Capital Markets. Please proceed.

Hi, good afternoon. Thanks for taking my questions. So, focused on the green solutions portfolio, given that it's an important growth factor for the company, Just curious about your confidence in those numbers that you have for 23 and 25. In other words, are those something that should be considered as guidance or projections, or are those more aspirational in nature?

Well, at this point, this is our best estimate of where we're going to be. If we think we're going to be Missing at some point. Again, we'll make that adjustment. I think, you know, we felt we could get to the 70 and the 140 based on what we currently have in our portfolio. There's no acquisitions that we're putting on top of that. And, you know, the fact that we're up a few million, we think, we believe this year versus what we had originally put out just kind of breeds a little more confidence that we can get there.

Okay, and just in that upside that you referenced, what was the driver of that, just out of curiosity? A couple of different product lines or one specifically?

No, it was a variety. I think we said that our Central American piece was the strongest product. You know, we did have a truckload of product, green plants product go into China. Our Greenos people, when they looked at it, they said, oh, this is great, and they immediately went out and got a truckload order for product. India is performing well. So I think, you know, it's a collective effort. I think we've, you know, I may have mentioned, you know, we had our meeting with our team the first part of 19 after we acquired the Brazilian business, and the biggest enthusiasm for the bio products was outside the United States. But the United States is now picking up. I mean, when our guys go in to make their sales calls now, if they mention anything about bio, ears pop up because there's kind of mandates throughout most of our customers that they need to look at bio solutions in a totally different light. So I think the willingness for people to get into the space and try different products that maybe haven't been tried before, that's, I think, kind of leading as to why we said that's the second fastest growing segment in crop inputs today.

Got it. And out of curiosity, do you have a sense for what percent of that growth that you're sort of forecasting from green solutions that you believe will come from your advanced essential oil technologies?

Right. So we're not kind of giving a percentage. I would say, you know, obviously we've got a movement that we're looking to get beyond the minimum royalty space. We're not getting specific targets as to as to where that's going to be. But as you've mentioned in your report, it is straight margin as well. But I don't think we're being any way aggressive on that level.

Hey, Eric, if excluding the margin benefit from those royalties that you just referenced, Do you have a sense for, like, so the green solutions bucket, if you will, excluding NBAN, would those be margin accretive to the overall company, or do they come currently with lower than corporate average margins, again, excluding the benefit from the NBAN's royalty structure?

Yeah, I mean, I think across the portfolio, particularly since these are These are used also well outside of the United States. I think the bioproducts for them represent kind of the higher end, if I'm correct, Bob.

That's correct. So the Greenos, of course, we're a basic manufacturer. And green plants, we're also basic. Those are very good creative margin areas. Of course, we'd like to grow those at a higher rate. But We also get good licensing possibilities from those who want to market, for example, through Sympath in future or want to market through our direct-to-market organization in Central America, AgriCenter. So we're in a very good position to get good training margins also.

Yeah, I mean, I think, again, since The products are not all households that have been tried and proven. Many of them are differentiated. I think the margins are higher because there is a higher degree of effort that goes into them as far as the field trials that you have to do, you've got to be able to prove that they work, and with that comes higher margins, and so I think that's kind of, I mean, this is, I don't want to say it's new, because it's been around for quite a while, but it hasn't gathered strength like this until more recently, and so I think, at least for now, the foreseeable future, it's not so much you're just sitting, oh, this is, generic, they're all the same. There's a lot of uniqueness to this and performance, you know, is, is differentiable.

Okay. And then I had a question just on the core business. And also given your comments about supply chain, which are obviously disruptive across most industrial markets these days, but so are there just the strength of your core business in terms of sales? Are there any instances where you think that your relatively lower exposure to sourcing from China or given your domestic manufacturing or just your proactive management of all the challenges has led to any instances of share gains or outsized demands for your products? Or is this really just a function of a healthy ag market, healthy commodity prices? you know, farmers or growers feeling pretty good. Thank you.

Yeah. So, I mean, I do think it's a combination of both. I think certainly we're seeing from our customers, you know, one side being the markets look strong. We want to, you know, we want to make sure we can secure our product lines. But also, there's a lot of products that are short right now. And so, our customers are wanting to make sure they've got products that, one, are available, and two, can fit into a space and potentially replace products that are not. And I would say certainly within our herbicide lines, there's some real shortages that are occurring in herbicides. We're seeing some big uptakes in our herbicide business And these are some of the more niche products that maybe haven't had the resistance develop, or as the herbicides prices are going up dramatically in some of the bigger herbicides, just because of lack of supply. it opens the door for us to step in and take a much stronger role. So, you know, the soybean prices certainly help, but some of the boost that we're getting is definitely because we're replacing other harder-to-get or higher-priced products.

So if I could just follow up on that last point, Eric, thanks. So you referenced a couple of herbicides where you're more – Recent introductions, Impact-Z, Impact Plus Glutacinate. So just to be clear, the strength for those products is, do you think it's a function of resistance to sort of the, you know, the one-trick pony herbicides, or is it a function of just a surge in prices and or a lack of availability for those sort of, you know, mainstream herbicides? Thank you.

Yeah, it's more of the latter, that we're seeing concerns over getting products that will work. And so we're benefiting by the supply or tightness of some of the other herbicides.

Thank you.

As a reminder to star one on your telephone keypad if you would like to ask a question, we will just pause for a brief moment to see if there's any final questions. As there are no more questions, I would like to turn the conference back over to Eric for closing comments.

Okay, thank you Sherry and thank you everyone for joining us today. Again, it's our pleasure to report on the quarter. We're looking positive as we go into fourth quarter, and things seem to end up well for the 22 season. So, again, we'll keep you updated. And next call, we're out a little ways until probably the first week of March. So, okay. But, again, thank you for joining us, and have a good evening.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.