American Vanguard Corp (AVD) 2011 Q1 法說會逐字稿

Greetings, and welcome to the American Vanguard Corporation's first quarter 2011 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bill Kuser, Director of Investor Relations for American Vanguard Corporation. Thank you. You may begin.

Thank you very much, Diego, and welcome, everyone, to American Vanguard's first quarter 2011 earnings review. Our speakers today will be Mr. Eric Wintemute, President and CEO of American Vanguard, and David Johnson, the Company's Chief Financial Officer.

Before beginning, let's take a moment for the 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 as detailed in the Company's SEC reports and filings, while 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, I'll turn the call over to Eric.

Thank you, Bill, and good morning and afternoon to everyone, and welcome. Thank you for joining us as we report on a very successful first quarter of 2011. David and I welcome this opportunity to tell you more about the trends in our business and the prospects that we see for the rest of the year.

As reported in our earnings release this morning, our first quarter sales revenues increased over the prior year by 44%, an increase of $20 million. At $67 million, this is a record first quarter for the Company, both revenue and profit.

Approximately one-third of this gain came as a result of increased sales of our existing products. The other two-thirds came as a result of our fourth quarter 2010 acquisition of three key products -- Mocap, Nemacur, and Aztec 2.1 from Bayer CropScience. So it is fair to conclude that our traditional agricultural business had a very healthy start to the year, and that our international business expansion is well underway.

As you will see in the MD&A section of our 10-Q, we have achieved very strong sales in pesticides, solid increases in soil fumigants, somewhat lower sales in herbicides, and as expected, a sharp decline in fungicides due to the continuing limitation on PCNB.

In the insecticide category, our existing granular soil insecticides collectively showed a significant percentage increase. Aztec sales, including the new product line acquisition, were up strongly. Counter gained additional sales in corn and sugar beet acres in response to building pest pressure. As we mentioned in our last conference call, Thimet is selling briskly in peanuts as the preferred alternative for another traditional insecticide that has been withdrawn from the market.

We also saw a threefold increase in Smart Choice, which is a rotational alternative to Aztec. Our newly purchased granular soil insecticides, Mocap and Nemacur, sold reasonably well on a variety of crops, despite some initial production and supply difficulties.

Among our non-granular insecticide products, sales of Bidrin, our premier cotton foliar insecticide, doubled in the quarter as growers continued to expand cotton acreage and seek to maximize yields to take full advantage on record cotton commodity prices.

Our Metam soil fumigants performed well, achieving a 20% increase over the prior year period. We are a leader in the domestic fumigant market and work hard to maintain that position through excellent service and product stewardship initiatives.

We experienced a 25% reduction in sales on our post-emergent herbicide, Impact, due to the hesitant early season purchasing by growers and distributors as they take time to determine the appropriate mix of pre-emergent and post-emergent needs for the 2011 season. We should note that current weather conditions suggest a reduced need for pre-emergent and an increased demand for post-emergent products, which should strengthen our second quarter sales of Impact.

In fungicides, we continued to experience low sales activity of our popular and effective PCNB product line as a result of EPA's Stop Sale Order, which was issued in August of 2010. We have been unable to serve the cotton, potato, and other vegetable markets, which begin seasonal purchase in the first quarter. We remain optimistic that the Stop Sale Order will be lifted in time for the critical autumn selling season for turf and golf course applications.

With that overview on how we generated this record revenue performance, I will now turn the call over to David, who will cover the financial and operating details of the quarter. I will then return with comments on two of our primary crop markets and reiterate some of the key drivers that will influence our full-year performance. David?

Thank you, Eric. As Eric has already mentioned, sales for the first quarter of 2011 increased by $20 million, or 44%, as compared to last year. Within this number, our crop sales were up 58%, while our non-crop sales were down 10%. In our 10-Q filing later this week, you will see a detailed description of sales by product groups, and Eric has already given you the highlights.

However, in summary, our insecticides recorded sales up $23 million. This includes sales of the new products acquired in December of 2010. Our herbicides, fumigants, and fungicides were down $1 million, with a strong Metam performance, offsetting much-reduced PCNB sales and lower herbicide sales. Our other crop sales were down about 6% compared to last year, with strong sales of our granular snail bait products offset by lower sales of our growth regulators.

Furthermore, in 2010 we recorded some revenue from base compensation that did not repeat in this quarter.

Our non-crop sales were down about $1 million, mainly as a result of reduced sales of our mosquito products. Here we believe that the 2010 dry season left inventory in the distribution pipeline. US PCNB turf sales in this quarter are routinely low; however, in 2011 we recorded no sales of this product line.

As an offset, we experienced strong sales of our pharmaceutical products. It is good to be able to report that. While we had a great immediate boost to sales from our new product acquisitions, about 30%, or $6 million of the increased sales activity, is attributed to organic sales growth of existing products.

Our factory performance is something we have talked a lot about in public statements and filings during the last 12 months. This remains a high-focus item for the executive team and Board. In the first quarter of 2011, we had recorded an improved overall manufacturing result as compared to the same period of the prior year, with under-recovery of factory costs reduced by approximately $1 million.

As a result of sales volume, mix, and the improved manufacturing performance, our gross profit ended at $28 million, or 42% of sales for the quarter as compared to $19 million, or 41% of the sales last year.

Operating expenses increased by 26%, or $4 million, quarter on quarter. This increase is large; however, as mentioned earlier, it supported a 44% increase in sales. One key metric we track is whether our operating expenses are reducing as a percentage of sales. This indicates whether we are capturing the incremental synergy benefits of growing sales on our established operating expense structure. It is pleasing to report that operating expenses to sales ended at 28% versus 32% last year.

The main increases were costs directly associated with new products increased by approximately $1.7 million, including intangible amortization, product defense, and costs associated with the changing value of certain Euro-based deferred liabilities.

Freight costs, up approximately $1 million, primarily driven by volume. Here the good news is that as a percentage of sales, our logistics costs ended at 5.7% of sales versus 6.3% last year. These costs are substantially variable with sales volume and mix, but also include some fixed expenses associated with our warehouse distribution system across the country. However, it should be noted that we expect to see significant increases in fuel costs in the next few months.

Because of this very strong quarter, we have substantially increased accruals for bonuses and charged an additional $700,000. Finally, we spent about $600,000 more than last year on focused advertising in support of our brands.

The net result of these dynamics is operating income at $9 million versus last year's $4 million.

Our interest expense overall was about flat with last year. However, you will see in the detailed description in the 10-Q that our bank interest costs were down substantially as compared to last year. This was because we managed our revolver debt carefully and, in early January, paid down to zero. We have had three months with no revolver debt. We will, however, have some revolver borrowings in Q2.

During the quarter, our interest rate on term debt, which is based on LIBOR, was very low. On March 31, we executed a fixed interest swap, which we are required to do under the terms of our credit agreement. So in Q2 and forward, you can expect to see interest rates about 1.2% higher. Our effective interest rate for the quarter was 4.2% as compared to 4.8% for the same period of 2010.

The Company's average overall debt for the three months ended March 31, 2011, was $72 million as compared to $67 million for the three months ended March 31, 2010. As noted above, during the quarter we eliminated revolver debt as a result of continued control on trading working capital, including inventory receivables, payables and programs. Furthermore, in January 2011, we collected $5 million, primarily from the IRS, related to our 2009 tax return.

The amended and restated credit agreement that was executed on January 10, 2011, was detailed in our 8-K and 10-K filings and is covered in brief in the 10-Q. There are a number of covenants to the credit facility. Under the most restrictive of those covenants, the Company could borrow about one-third of $17 million at this time, so liquidity is looking pretty good at this moment.

You will see in our financial statement attached to the earnings announcements that in the quarter we took a one-time nonrecurring charge in the amount of $546,000 related to the extinguishment of the old debt and replacement with the new debt.

The effective tax rate for the quarter is 36.5% as compared to 39% in the same period of the prior year. The decrease in effective tax rate is driven by an improved overall financial performance, a lower effective state tax rate, and R&D tax credits. These had not been extended at this time last year but have been extended this year.

Net income is up at $5 million, or $0.18 per share, as compared to $1.9 million, or $0.07 per share, this time last year.

In conclusion, this is the strongest first quarter sales and profit performance in the Company's history and is undoubtedly a strong start for the year. Looking forward to Q2, our latest sales forecast indicates continued strength. However, as you can read in our 10-K section on risk, the Company does business in a market that benefits from favorable weather and specific pest pressure, both of which are notoriously difficult to predict. Furthermore, the Company operates in a heavily regulated environment. Eric has already mentioned PCNB, and of course, obtaining relief from the current Stop Sale Order affecting that product line in time for the turf season in the second half of the year would give us a boost in our performance.

As a consequence of these uncertainties, the second half of the year and beyond tend to be tougher to forecast.

Now back to Eric.

Thank you, David. Let me take a moment and talk about two of our main crop markets and reiterate our strong position to serve them. Let's talk first about cotton.

US cotton acreage reached 15 million acres in 2006, then began a steady decline to less than 9 million acres in 2009. This was followed by a quick rebound, rising to nearly 11 million acres in 2010, and is expected to grow to 13-plus million acres in 2011.

The driver for these recent 20%-per-year increases comes from worldwide cotton inventory depletion, resulting in global supply-demand tightness that has strained production and lifted cotton commodity prices to record highs. As a result, the profitability of growing cotton in the southern region now exceeds alternative crops, such as corn, soy, and soybeans, by a significant margin. While there is inevitably, will be some variability in market conditions, this demand for additional cotton appears to be a continuing need, not just a cyclical phase.

AMVAC has a strong product offering in cotton insecticides and harvest aid defoliants. When acreage was declining, we felt pain. With acreage increasing, we now feel gain. Our specialized insecticides -- Bidrin, Orthene, and Discipline -- are well positioned to respond to this increase in demand.

Our cotton franchise was further enhanced with our 2010 acquisition of Def from Bayer CropScience. Our Folex Def cotton defoliant product line continues to see strong demand from cotton growers.

As we indicated in our last call, cotton is back, and that's great news for AMVAC. This year's first quarter results for Bidrin exceeded expectations, and Bidrin sales for the balance of the year, along with expected sales of Folex Def later in the season, will validate that enthusiasm.

Now let's move on to corn. With the purchase of the Bayer CropScience Aztec 2.1 business, AMVAC has the strongest portfolio product available for the domestic corn soil insecticide market. With a half dozen products for customers to choose from and an unmatched array of closed delivery systems to safely and efficiently dispense the product, AMVAC is the most capable solution supplier in the industry.

We help growers boost yield. Whether they are using genetically modified or traditional hybrid seeds, we offer the best defense against secondary insect root damage with nematicidal products like our Counter. We provide the only proven closed delivery systems that ensure safe handling and the most efficient application of product to the soil.

We also provide one of the most effective post-emergent herbicides for Glyphosate-resistant weeds and grasses with our Impact. We have achieved steady market penetration with this product since its introduction in 2006, and we are exploring opportunities to expand its use. The demand for Impact herbicides use should remain strong as high corn commodity prices encourage growers to purchase our product to increase their yields. In short, we are a major player in corn, and we intend on expanding our presence in this vital market.

Now let's discuss our bedbug pest strip opportunities. As we all recognize, the bedbug epidemic has continued in the United States, with no clearly efficient, economical solution readily available. As we've previously disclosed, AMVAC has been seeking an aerosol formulation registration from the EPA to offer an inexpensive, highly effective solution to this dilemma. To date the Agency has not approved our request, and we will keep you posted on the progress of this effort.

We're expanding the market for our pest strip product line with a new initiative to sell these highly effective pest-control devices through our agricultural distribution retail channels. We are offering a specially packaged version of the product line called AMVAC Insect Shield, produced in numerous on-farm applications, such as barns, storage enclosures, equipment sheds, et cetera. We're expecting to launch this product line next month, and we will keep you advised of the progress as it builds momentum.

We are also exploring a number of consumer and professional pest-control opportunities, including several that involved bedbug remediation. Now that we have secured our consumer bedbug registration, and as these programs take shape, we will elaborate further.

Regulatory agencies are a hurdle for us as we push the registration for bedbugs. In addition, as mentioned earlier, we are working hard to lift the Stop Sale on PCNB. And the Agency has asked for an additional 10 months to complete their review of our potato sprout inhibitor, SmartBlock. You may recall, we expected to launch SmartBlock in the second half of this year. The positive side of this is efficacy trials continue, and the results are exceeding our expectations.

Let me conclude by reiterating the key drivers that we feel will be important to our success in 2011. First, we need to continue the integration of recent product acquisitions, a process successfully begun both domestically and internationally, and a focus of constant managerial attention.

Second, we need to capitalize on the strong cotton and corn markets, using our excellent portfolio of products, proprietary closed delivery systems, and experienced, customer-focused sales and service personnel.

Third, we need to optimize utilization of our manufacturing facilities, with additional production throughput and improved operational processes.

Fourth, we must maintain or expand profitability through skillful raw material purchasing, efficient operations, operating control successes, and where appropriate, price increases for our valuable crop protection and public health products.

Fifth, we need to capitalize on marketplace opportunities, such as capturing additional business by using our assignment to replace a competitive offering that has been withdrawn from the marketplace, or being well positioned with proven products like our Counter, Mocap, and Nemacur, to combat the growing pressure of nematodes and other secondary insects that genetically modified plant defenses do not address.

Sixth, we intend to regain market access to our PCNB fungicide to provide the crop and turf protection that our customers require. We are working tirelessly to secure this goal.

And last, as always, some good rains in the South always help out our Dibrom sales. We are tracking ahead of last year, as early applications have already begun. But, as David mentioned, there is inventory carryover from 2010.

Finally, we have produced record-setting results in the first quarter without the benefit of PCNB and despite the product supply difficulties that we've experienced with some of our newly acquired products. We will continue to improve our manufacturing efficiency, we will continue to enhance our organizational effectiveness, and we will maintain the financial discipline that has strengthened our balance sheet over the last six quarters.

In our annual report to shareholders, we embraced the theme, "Expanding the Possibilities." We have great confidence in our ability to identify, analyze, and act on current tactical opportunities and to position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share the confidence and benefit from our continued success.

And now I'll be happy to entertain any questions you may have. Diego?

(Operator Instructions.) Jay Harris, Goldsmith & Harris.

Eric, first may I congratulate you on understating expectations. That was a hell of a quarter. What percentage of your revenues came from international sales in the first quarter?

We don't have that number.

Okay. Yes, we've been breaking it out by --

We focus on crop and non-crop, and I don't have it on an immediate basis.

Is that in your 10-Q?

No, it's only required in the K, and we don't put it in the Q.

Can you give me an approximate number?

As I said, Jay, I don't have that number, so I'd be guessing, and I have no idea right now.

International business is obviously up, but it's a good point, Jay. We'll go ahead and get it together.

The acquired sales as opposed to organic growth sales were about $14.5 million, based on the numbers in your press release.

Yes.

How will that number change in subsequent quarters? In other words, do you see a quarter where it's going to be significantly higher or significantly lower than this first quarter number?

You're talking about the new product acquisition?

Yes, and I presume most of that is international.

Well, the Aztec 2.1 was first quarter. There will be sales in probably fourth quarter. But there won't be sales in the second and third quarter. Mocap has a couple of seasons, so we'll have some in the fall again. So those are the two domestic pieces. But the balance, you're right, is all international. And it's spread relatively evenly through the year.

All right. And the tax rate was 36.5%.

Yes.

Where is that going for the year? And that's a little lower than you had been reporting. Is that --

Yes, I guess I was being conservative in my forecast. The advisors who help us on our tax are saying is a reasonable rate, so let's see how it goes for the rest of the year. I said 37%, I think. So I'm hoping 36.5% will be it.

Does that change with the percentage of international sales in each quarter?

I don't think so, materially.

All right. All right. So that means you're repatriating all the cash that you're generating overseas?

Pretty much, yes. The sales -- the marginal difference between rates in the jurisdictions in which we also pay tax is not great. We're starting to look at our international tax positions, but --

I think Mexico is fairly similar.

Yes, it's very similar, yes.

Okay. And then I noticed that your operating expenses in the third quarter of last year were $19 million, in the fourth quarter were $20 million, and then with revenues up about $5 million from the fourth quarter, they've slipped to $19 million. What are the reasons?

For instance, the final quarter of the year sees a lot of large volume shipments then, and that drives high freight costs. So some of our operating expenses are variable with sales and mix.

About what percentage? 10%?

I haven't got that number in front of me. I prefer to actually go and look at it and comment back later.

All right. And how will those operating expenses change in subsequent quarters?

A lot of our operating expenses are fixed, obviously, because of the staff pool that make up the body of that. We've got some fixed, as I said in my comments this morning, we've got some fixed logistical costs across the US. But then we've got some variable elements. For instance, the actual variable elements of freight.

And I made the comment that we're expecting to see substantial increases, oil-basing, price increases in freight costs in the next few quarters. We don't know where that's going to go yet, but we are seeing notices from carriers saying those are going up. We also have some variability in product defense, where we get certain kickoff of projects that cost substantial sums of money. We have some variability, for instance, in terms of bonuses that are dependent on the results of the quarter. And so those are the variable elements of those costs.

Several years ago, the operating expenses had dropped to about 27% of revenues. We're closer to 30% now.

Well, we're 28% in the quarter.

All right. So should one assume that this is a reasonable percentage of revenues going forward?

I would say at the moment we must be between 28% and 30%. I can't say that we're going to be substantially below that. We're working constantly to grow sales and capture those incremental benefits from growing sales on a restrained growth in operating expenses. But we operate in an environment where we've got regulatory compliance costs. And, for example, and so those can be quite expensive.

Thank you.

Brad Evans, Heartland Funds.

Yes, congratulations on an outstanding quarter. A lot of hard work finally paid off, so congratulations to the team. Can you just speak to your efforts to raise prices in front of, I imagine with demand seemingly as strong as it is, it would seem to be conducive to be able to raise prices to offset some of the cost pressures you're facing. Is that an accurate statement?

I think it is. We did have some increases that started in the beginning of the year, and we have not had any retraction from that, so that's favorable. Our soil fumigant, Vapam, traditionally has increased in the June and July period, which is before -- in between the two seasons. So we've looked to see if we could, looking at freight, because that is so freight-dependent, and we've also had increases in sulfur, caustic soda, and energy that is involved in the amine business. So we do have increased costs there. But, as you pointed out, this year farmers are going to have a record year in profits, and I think it's an opportune time for us to look at our mix. Price increases on the international basis can sometimes be a little bit more difficult, but it is a focus for us.

I know you don't like to give formal guidance. But it would appear that, for the next quarter or so, that gross margins of around 40% to 42% are sustainable?

We believe so, yes.

Okay, that's great. In terms of normal seasonality, if you just look back over the last several years, revenues go from the first quarter to the second, the third, and then historically the fourth quarter comes back down. I assume we should continue to see the normal seasonality within the top line. Is that accurate?

That's a good projection as we sit today. As we said, we have historically had fourth quarters as our largest quarter. But again, as distribution and retailers that have made a little shift to taking more in season, we are seeing a little more strength during the season as opposed to prior to. So I think your assessment is probably accurate.

Okay, and then let me just take one more and I'll cede the floor. Could you just update us on your thoughts for capital spending this year?

David?

We haven't previously declared what that is, but it's somewhere in the region of $7 million.

Yes, $7 million. I think we were a little higher than that last year. I think we were in the --

We haven't decided on some aspects of some of these new products we're going to move forward.

Right. Yes. We have a new lab that we spent $1 million on that's complete in Axis. We are currently running Tribufos, which is our Folex. That's being run around the clock at Axis. And we just started that up in this last quarter. We'll be running that through August. And then we're looking at the manufacturing of a couple other product lines that we purchased, and when we actually start the capital, there's some capital involved in that. I don't know that we're going to have significant capital on those in this year, but obviously, we've got engineering costs and that sort of thing. But I don't know that construction will start in this year.

I guess the otherwise positive here is that if not for the working capital builds that you'll be required to fund, the Company would be generating a lot of free cash flow, so working capital is probably going to be the biggest use of cash. Is that an accurate statement as well?

Yes, it's always an important factor in our business. Usually, the first quarter is the time when we see the working capital expansion. We can't control this in this quarter. I haven't started to fine-tune the numbers for the end of Q2 yet, but we're getting right onto that.

Just, you would expect to generate free cash flow after working capital needs for the year? Is that a fair statement as well?

Yes, I think so, yes.

Definitely.

And you apply those cash flows to paying down debt in the short term?

We're controlling the revolver payment, making sure that we meet all our scheduled loan commitments, and then capital spending.

Okay, thank you very much.

Adam Peck, Heartland Funds.

Congratulations again. Eric, you had said one of the key drivers for 2011 was to optimize utilization. Did you manufacture any of the acquired products this quarter?

We just started at the tail end with the Tribufos, which is the Folex manu that I've had. I think we were just -- okay, yes, I guess the answer is no. You didn't see it in the first quarter results.

Okay. So how would that pan out for the rest of the year?

As I mentioned, the plant should be near capacity for the balance of the year. Certainly, the technical is there. We're looking at a schedule in 2012, which is beyond capacity, so we're having to make some decisions. We're obviously looking on how we can improve the output and go beyond what current capacity is. And, of course, in Hannibal, the increased demand in Thimet and Counter, that's operating at a very high level right now.

And utilization for the facilities for this year and beyond looks strong. The one down part of that is we're running the PCNB at about 50% of capacity, and though we would expect some robust sales when the SSURO gets lifted, we'll probably continue to run at half rates until inventories get more in line with where we'd like to see them in the optimal inventory position.

Okay. Was there any tolling in the quarter?

Yes. There was some manufacturing, some tolling manufacturing and sales.

So there would be some capacity from that sampling, correct?

That's correct.

Okay. And then are you currently trying to de-bottleneck the plants?

Yes, I think that's fair to say. I don't know whether we'd call it de-bottlenecking, but with the situation that's in front of us, where we have more demand for manufacturing than we have time, we are focusing on trying to improve the output of the facility, looking at ways to improve batch times, et cetera. And at the same time, focusing on not just yield output, but turnaround time. So that is a little bit of what you might call de-bottlenecking, is here we have maybe a two- or three-day turnaround between actives, and our technology team, engineering and the plant itself, are looking at some changes that will allow us to move from one product quicker to the other.

Okay. That's all I have. Thank you.

Walker Shiflet, Morgan Stanley Smith Barney.

Hey, guys, congrats again. My question comes to SmartBlock. Can you just reiterate what the status of SmartBlock is? I missed that in the call. Is it still second half of this year?

Yes, SmartBlock is, again, a potato sprout inhibitor that we took license to back, I think it was about 5.5 to 6 years ago, that we were looking to have registration. They said under the guidelines with EPA, it was to occur in this second quarter, but they've now asked for, and which would lead us to launching sales in the United States in the second half of the year.

They've come back, the Agency has, and has requested an additional 10 months to complete their review for registration, and so that's going to delay our launch of this product until 2012. So again, as I mentioned, the efficacy trials that we continue to do, the results of those just continue to exceed our expectations. So we're very, very thrilled about the potential for this compound when we finally get our registration.

Once you do get the registration, I saw on the presentation, it has a potential of around $45 million in additional sales? What is the timeframe on that, once registration hits?

That's a $45 million market that we'd be participating in. What percent of that we obtain will be a function of how well the product is perceived versus the competitive products. So we haven't forecasted annually what we think, from the time we start, what we're going to see. Because it will be a function, once this is available and going, what percent of the existing market shifts over to our product. But there are some benefits, a number of benefits, not the least of which is this is a naturally occurring compound, and we'll be seeking organic status.

Thank you.

Jim Bartlett, Bartlett Investors.

Could you give us more of the dynamics of the current corn crop and how that's affecting how you see it will affect the sales of Impact?

Okay, Jim. You said what effect the corn price is?

The current, yes, the rollout of the corn crop.

I think the biggest effect on Impact is going to be what we perceive as a very strong post-emergent corn market. They're very late in planting; they're way behind. When that happens, it becomes difficult to get the pre-emergents down. When they're late, they've lost the time to do that, and they'll plant the corn without the pre-emergents getting into the soil, which means a very strong post-emergent market. And that's the sector that we participate in.

So could you talk about how that would affect the quarterly revenues that you would get from Impact?

I mentioned earlier that we were below last year's first quarter Impact, as we've indicated that growers are trying to figure out that mix between pre- and post. Our people are forecasting strong sales in this quarter, and we'll see as those develop for our next report. We'll let you know how that materializes.

And a little bit more color on the aerosol version of Nuvan. This has been held up for some time. What are some of the reasons for the holdup, and what's your prognosis on when you might be successful?

The benefit -- I think we initially were looking at this as a pest control operator application focused on hotels and that segment of the park, at which the Agency has now classified hotels as residential. So what we're looking at is -- again, we're focusing that we want professionals to make this application. So I guess the question is whether we have a stewardship program in place to prevent the aerosols from being used by homeowners themselves versus EPA putting some sort of restrictions on the use of the product so that it would be a violation to use this by homeowners. So that's part of what we're working with today.

So it's a little bit of shift from what we were originally focused, so we've gone back and retooled it with EPA. I think there's also testing that's underway that the Agency wants us to verify. Tests are being done at the University of Florida to show the efficacy at which rates, and with that, then we can calculate the time and the process that the pest control operator would go through.

So right now, it's definitely more a matter of months than week. But as we said, we are making inroads for bedbug control with the strips, belts, and those can service a good portion of the market that we were looking at with aerosols. So that's the focus that we're doing with the State of Florida currently. And depending on the outcome of the results for the pest strips, we'll see what kind of markets we can obtain at that point.

Also, on the withdrawal of the product, which has benefited Thimet, what were the sales of this withdrawn product?

Of the competing product?

Yes.

The competing product was in the $80 million to $90 million range in the United States. Markets were strong in citrus and for [Silidin], we are positioning Dibrom as a replacement for that. In peanuts, the product shared the market with Thimet, and we're now enjoying that market ourselves. In cotton, currently Thimet is also is being used in cotton there. And in potatoes, where the product was used some, we're benefiting from our Mocap and, again, Thimet sales there as well.

And this is a permanent withdrawal, is that correct?

It is. However, there is some discussion about a potential generic that may come into that marketplace. But that remains to be seen.

What will be the timeline on the generic?

It's difficult to say. The Agency has some accumulative risk assessments to do on that particular group of chemistry. It's separate from the Thimet chemistry. So we're not sure. I think I've failed to predict the EPA approval process in the past, and so it's probably not prudent for me to comment on another company's progress.

And is there anything, talking about the regulatory problems, anything else that you could share with us on the Stop Sale Order on PCNB in terms of the timeline for you?

I want to tell you that the Agency, this is the first time they've done such an analysis. They're being extremely thorough, which I can appreciate. It's obviously frustrating from our side and our customers' side as we understand that there was some pretty mass destruction in golf courses across the snow belts of the US this year, as snow mold took a big chunk out of a number of courses. So it's a pressure situation between us certainly wanting to comply, our customers wanting the products, and EPA wanting to make sure that they've considered all possibilities before they lift the SSURO.

So I do believe we're making progress. I do see the light at the end of the tunnel, and as I think we've stated, it's our belief that we will have this product available for the turf market for this next year, which is the largest segment of the PCNB pipeline.

Right. And that really starts when? In the fall?

It's third quarter. It starts in third quarter, yes.

All right, thank you very much, Eric.

Matt Hagerty, Pennant Capital.

Nice quarter. I just wanted to ask -- I know that there was a question on the seasonality of the acquired products earlier. I wanted to ask it a different way. Is there any reason to suspect your prior discussion of 25% growth in the top line is either or low, given the performance in Q1 and what you're seeing right now?

Well, we're certainly well on our way. I mentioned some keys that we're focused on. But it may not exactly come from 25%, strictly from our acquired products, although they've been performing very well. But obviously, we're seeing upside growth from organic that we may not have forecasted. But overall, I think it looks pretty optimistic right now.

Okay. And just one follow-up on that. It sounded, Eric, from your comments, that Def was not included as an acquisition revenue in the quarter? Or was it?

No, that's correct. Sales of Def, and we're not going to be using the Def name. We're going to be using it as Folex. But that being said, we are looking for revenue from that product in second and third quarter this year.

Okay. So that will be -- if it's incremental, I guess it's hard to flesh out if it's marketed as Folex, whether -- I guess, just in trying to get at your organic revenues versus your acquired, maybe you'll call that out in Q2 or Q3?

Yes. It will certainly be up from last year. Last year we were the only supplier, but we had limited supply of what we -- we managed it, but it was right to the end. This year, because of the, one, the high price for cotton and the increased acres, we do expect a much greater supply this year. And as I said, we're manufacturing today, and we'll go through into the middle of August in production for this product.

Yes. Last question, if I may. Could you speak to what percentage of your revenues are tied to the domestic cotton market, say, in Q1, for example?

I'm sorry. Could you repeat that, Matt?

I'm just looking for a ballpark percentage of your revenues that are tied to the domestic cotton market. It's obviously very healthy. Just trying to see if I can break that down a little bit.

We've got Bidrin and Def, Orthene and Bifenthrin. So you're talking about for the quarter?

Yes.

Oh, yes. So we didn't have the (inaudible). So it's about $6.5 million. 10%, yes. 10%.

Okay, great. Thanks so much. Good luck.

There are no further questions at this time. I'll turn the conference back to management for closing remarks. Thank you.

Thank you, Diego. Again, thank you, everybody, for joining us, and as we mentioned, we're pleased with our results here in the beginning of 2011 and look forward to giving you further developments in our next conference call. Thank you.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.