American Vanguard Corp (AVD) 2011 Q2 法說會逐字稿

Greetings and welcome to the American Vanguard Corporation second-quarter 2011 earnings 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. Thank you. Mr. Kuser, you may now begin.

Thank you very much. Welcome, everyone, to American Vanguard's second-quarter and midyear earnings review. Our speakers today will be Eric Wintemute, Chairman and CEO of American Vanguard, and Mr. David Johnson, the Company's Chief Financial Officer.

Before beginning, let's take a moment for 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 as 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 turn the call over to Eric.

Thank you Bill. Good morning everyone, and welcome. Thank you for joining us as we report on a very successful second 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 second-quarter sales revenues increased over the prior year by 54%, an increase of $28 million. At over $80 million, this is an outstanding second-quarter performance for the Company. Approximately 40% of this gain came as a result of increased sales of our existing products. The other 60% came as a result of our 2010 acquisitions from Bayer CropScience of four key products -- Def, Mocap, Nemacur and Aztec 2.1.

Our traditional US agriculture business has benefited from strong end-use demand this year. Our international business expansion is progressing well.

As you will see in the MD&A section of our 10-Q which will be filed with the SEC tomorrow, we achieved very strong sales in herbicides and soil insecticides, solid increases in soil fumigants, somewhat lower drought influenced sales in our non-soil insecticides, and as expected, a sharp decline in fungicides due to the continued limitation on PCNB.

In the Insecticide category, our existing granular soil insecticides collectively showed an 83% increase. Thimet sales doubled, largely due to continued sales of this product as the preferred alternative for another traditional insecticide that has been withdrawn from the market. Counter gained over 10%, continuing market penetration in the sugarbeet and increasing use as a nematicide in corn.

Aztec sales were considerably lower this quarter since this year's demand for Aztec was fulfilled during the first quarter. This drop was counterbalanced by a healthy increase in our SmartChoice product, which is a rotational alternative to Aztec. Our newly purchased nematicides, Mocap and Nemacur, sold well on a variety of different crops in both the domestic and international markets despite some continuing production and supply difficulties.

Our sales of non-granular insecticide products declined by 29% as a reduced emphasis on our generic product lines and a drop in our Dibrom mosquito control business due to channel inventories. Sales of Bidrin, our premier cotton [fuller] insecticide, grew slightly in the quarter. Despite the negative impact of the drought, significant spraying is currently underway to deal with this year's ongoing stink bug infestation. Dibrom applications have also accelerated in recent weeks and we anticipate a fairly solid annual performance of this high-margin product.

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 58% surge in sales of a post-emergent herbicide Impact, as wet Midwest weather conditions at planting time caused lighter use of pre-emergent herbicides and accentuated demand for post-emergent products like Impact. We noted this possibility in our last conference call to you in May and that prediction was borne out in the marketplace.

In fungicides, we continue to experience low sales activity of our popular and effective PCNB product line as the result of EPA's stop-sale order that was issued in August of 2010. While we have been unable to serve the cotton, potato and other vegetable markets which began seasonal purchasing during 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.

In our Others product category, sale of our cotton defoliant Folex increased dramatically as a result of increased planted acreage, early-season product availability, and the incremental business added to our books by the acquisition of the Def defoliant business last July. As a result of the second-quarter surge, the impact of recent drought conditions on cotton, we expect somewhat reduced sales of Folex in the third quarter. With that overview, we generated this excellent 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 additional comments on several important developments and reiterate some of the key drivers that will influence our full-year performance. David?

Thank you Eric. As Eric as already mentioned and as you will read in our earnings announcement, sales for the second quarter of 2011 increased by 54% to $80 million as compared to $52 million in the same quarter of 2010. Within this number, our crop sales were up 61%, or $28 million, and our non-crop sales were up 7% or $420,000.

In our 10-Q filing scheduled for tomorrow, you will see a detailed description of sales by product groups and Eric has already given you the highlights. However, in summary, insecticides recorded sales up $6.6 million or 24%. This group includes the newly acquired products Mocap, Nemacur and Aztec 2.1.

Our herbicides were up $5.3 million, or 37%, with strong performances from our herbicides and fumigants offsetting reduced sales of PCNB. Within crop, our other sales were up $16 million which represents a substantial increase versus last year, primarily driven by our cotton defoliant product, Folex.

Our non-crop sales were up mainly as a result of an increase in sales of our industrial [Tribufost] product. I am pleased to report that, in addition to growth from new product acquisitions, organic sales from our long-established brands increased by $11 million which amounted to a 21% increase over and above the sales recorded this time last year.

Our cost of sales for Q2 were 60% of net sales as compared to 63% of net sales for 2010. This is essentially a sales mix effect coupled with close attention to margin performance. In particular, 22% of our sales were newly acquired products that generated overall a better-than-average gross margin percentage.

As a matter of interest, you will see we have included a new table in the 10-Q giving the split between domestic and export sales. In that table, you will see that export sales have increased by 34% in comparison to this time last year.

We experienced a dramatic increase in our Thimet product sales primarily because of the withdrawal of the competitive product.

Our Counter products also performed extremely well as the market recognized its value as a leading nematicide. Our Impact product line experienced 58% higher demand as conditions in the field suited the product.

On our generic product lines, as previously reported, we have not placed emphasis on gaining volume but rather have focused on opportunities to sell where customers value the particular product attributes more highly. The second quarter is usually a strong manufacturing quarter for the Company, and this year, like last year, we achieved a very high overhead recovery performance. As a result of these factors, our gross margins ended at 40% this quarter versus 37% for the same period last year.

Operating expenses increased by 36% as compared to last year, supporting the 54% increase in sales mentioned a few moments ago. Included in this cost increase, we have increased amortization expenses associated with the newly acquired products, higher product defense costs. We have focused on further expanding our field based product stewardship activities. We've added some new people, primarily to sales and technical teams, to improve resources focused on building both organic sales and sales of new products.

We've increased freight costs in absolute terms. However, as a percentage of sales, these costs have come down from about 6% to 5%. This improvement is mainly driven by two factors, the mix of sales this quarter and secondly, better coverage of the fixed portion of our logistics costs across the substantially increased reported sales; increased incentive compensation accruals reflecting the substantial improved financial performance.

The key metric we track is operating expenses as a percentage of sales. I'm pleased to report continued improvement to 27% of sales as compared to 30% for the same period last year. The net result of these dynamics is operating income up $7 million at $10.76 million.

Our interest expense as a percentage of average debt was flat with last year at 4.8%.

The executive team spends time focused on working capital drivers, which include inventory, receivable terms and collection performance, and payables. We have continued to perform well in this area of our business, and coupled with a very strong trading performance year-to-date, we've managed our cash position very well. Indeed, as you will have seen in the financial statements attached to the earnings announcement, as at June 30, 2011, we have a cash position of $10 million. This has been achieved despite the significantly increased Accounts Receivable position, driven primarily by sales in the quarter just closed. This condition has continued on through to the end of July.

The Company's internal forecasts on borrowing leads developed as part of the renegotiation of our credit facility at the start of this year have proved so far to be conservative. Having a substantial cash balance is an unusual experience for the Company. We anticipate some cash utilization during the balance of this quarter as a result of timing on Accounts Receivable due dates. In addition, we are preparing detailed cash flow forecasts for the short and midterm before making a final determination about how best to use this cash position. Consideration is being given to loan pay-down, dividend payments, potential funding for future acquisitions, and other corporate purposes.

Income before tax improved from $2.7 million to $9.7 million, an increase of 262%. Our effective income tax rate improved by 0.5%. This resulted in much improved net income performance which ended at $6 million or $0.22 as compared to $1.6 million or $0.06 per share last year.

Now, I would like to turn my attention to a brief review of the financial performance for the third six months. Year-to-date, our sales were up 49% or $148 million versus $99 million this time last year. Of this 49% growth, 30% is related to acquisitions concluded in 2010 and 19% is organic growth of our established brands.

Our manufacturing performance in the first six months has improved with a 30% improved recovery of our factory expenses, which, combined with the overall improved volumes, has resulted in a 2% improvement in gross profit performance.

Our operating expenses have increased, but as a percentage of sales have reduced from 31% to 27%.

Interest expense is slightly reduced, and income before taxes improved from $5.7 million to $17.6 million. Our income tax rate has also improved from 39% to 37.4%, which reflects the effects of R&D credits and state apportionment elections.

Net income is much improved at $11 million, or $0.40 per share, as compared to $3.5 million or $0.13 per share this time last year.

I'm also pleased to be able to report that, given all the factors I have detailed, our liquidity is looking very strong. Under the most restrictive bank covenants, we could currently borrow up to the limit of our revolving line, in other words $75 million. The additional cash on hand increases the liquidity position to $85 million at the balance sheet date.

Looking forward to the second half, our latest sales forecast indicates continued reasonable overall sales performance, but probably not quite to the degree of improvement we have so far reported.

There are a few key drivers that I would like to comment on as we look at the rest of the year. Dibrom, our mosquito adulticide, is extremely weather dependent. If we have a lot of precipitation in some of the Southern states, then sales could increase dramatically in the short period.

On PCNB, as you will read in our 10-Q legal section, our discussions with the EPA are proceeding in a positive manner, but to date the stop-sale use and removal order has not been lifted. Timing is critical for the turf season. We've had some initial supply issues with the newly acquired product lines, and that will likely impact our Q3 sales performance.

With respect to our cotton products like Bidrin, sales were shaping up to have an incredible year, but the intense drought affecting key growing regions in the Southern states is likely to affect second-half sales.

With that, I'll pass back to Eric.

In our first-quarter conference call, we talked about two of our main crop markets, cotton and corn. I'd like to give you an update on the status of each.

As you recall, after a steady decline to less than 9 million acres in 2009, US cotton acreage rose to nearly 11 million acres in 2010 and grew again to 13-plus million acres in 2011. The driver for these recent increases comes from worldwide cotton inventory depletion, resulting in global supply and demand tightness that has strained production and lifted cotton commodity prices to record highs. This demand for additional cotton production appears to be a continuing need, not just a cyclical phase.

Amvac benefits from this trend with its strong product offering in cotton insecticides and harvest aid defoliants. Our specialized insecticides Bidrin, Orthene and Discipline are well-positioned to combat foliar infestation and our Folex cotton defoliant product line has seen and will continue to see strong demand prior to each cotton harvest.

As we've indicated, our sales of Folex this quarter were significantly higher than prior year. In our last quarterly conference call, we acknowledged that Bidrin sales had exceeded our first-quarter expectations as cotton growers purchase significant quantities in anticipation of the larger planted acreage.

As you no doubt have heard, extensive drought conditions throughout the southeastern states and Texas in recent months have had a severe impact on this year's US cotton crop. Current estimates indicate that as many as 3 million acres may not be harvested. As a result, our late-season third-quarter Bidrin sales are now expected to be somewhat below earlier estimates, and additional third-quarter Folex sales will be influenced by the drought impact and our extensive second-quarter sales.

Now, let's move on to corn. As you know, Amvac is a major player in US corn. With half a dozen soil insecticide products for customers to choose from and an array of closed delivery systems to safely and efficiently dispense these products, Amvac is without question the most capable foreign soil insecticide supplier in the United States. Most of our 2011 planting soil insecticide business was completed in the first quarter with modest second-quarter sales meeting our estimate.

In corn, we also provide one of the most effective post-emergent herbicides for glyphosate resistant weeds and grasses with our product Impact. As mentioned earlier, given the wet Midwest weather planting this past spring, use of the pre-emergent herbicides tended to be lighter than normal, and the need for subsequent post-emergent application increased. This allowed us to sell a significantly larger volume of Impact during the second quarter. We have achieved steady market penetration with this product since its introduction in 2006. As we indicated in our last conference call to you, we have been exploring opportunities to expand its use. As a result, on June 21, we announced that Amvac has entered into an agreement with the Monsanto Company to co-market Impact as part of the Roundup Ready PLUS weed management platform. Under this multiyear agreement, Impact will be listed as an endorsed product in the Monsanto program and promoted by the sales and marketing forces of both companies. This collaborative engagement provides us with the opportunity for expanding future sales of Impact. It provides Monsanto with more comprehensive herbicide control for its market-leading Roundup brands. Most importantly, it positions the Partnership to provide a more complete and cost-effective herbicide solution. As a result, the demand for Impact should expand over the next few years. We are very excited about this.

Now let's discuss our commercial and consumer pest management opportunities. Over the course of the last several years, we've been building a growing franchise in general pest management. For commercial pest control operators, we have marketed the NUVAN pest strip as a residual deterrent to the treatments that they apply to commercial and residential buildings in response to infestation. This business continues to grow and we plan on introducing additional products that will broaden our current offering.

We have also expanded the market for our NUVAN® PROSTRIPS product line with a new initiative to sell these highly effective pest control devices through our agricultural distribution and retail channels. We are offering a specially packaged version of the product branded the Amvac Insect Shield for use in numerous on-farm applications such as barns, storage enclosures, equipment sheds, etc. This product line extension been introduced over the last two months, has enjoyed an enthusiastic reception from our vast retail customers, and we believe that this market niche could result in several million dollars of incremental sales per year as it builds momentum. All components of this system are made in the United States, and as with many of our product lines, proudly displays the Made in America symbol. This is another example of the entrepreneurial spirit of American Vanguard.

We have spoken before about the bedbug epidemic that continues in the United States with no clearly efficient economical solution readily available. We continue to explore a number of consumer and professional opportunities involving bedbug remediation now that our pest strips have secured a consumer bedbug registration. Amvac has been working with universities and the EPA to develop several aerosol formulations as an expedient, inexpensive, highly effective solution.

Additionally, field trials are currently underway to validate the efficacy and safety of a new method for using our pest strips with heat and air circulation that could result in a fast, safe, easy and economically economical remedy for the persistent bedbug problem. The results should be determined in the coming months and a modification of our existing registration incorporating this new method of application could be issued in the near future.

Let me conclude by reiterating the drivers that we feel will be keys to our success during the second half of 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. Securing adequate product supply remains our biggest challenge.

Second, we need to capitalize on our market leadership in Metam soil fumigant products which are traditionally sold during the pre-winter months ahead. We are confident in our ability to achieve this objective.

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

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

Fifth, we need to continue to exploit marketplace opportunities such as capturing additional business by using our Thimet to replace a competitive offering that has been withdrawn from the market. Being well-positioned with proven products like our Counter, Mocap and Nemacur to combat the growing pressures of nematodes and other secondary insects, and expanding products like pest strips into new market applications.

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

We have produced excellent results in the first half without the benefit of PCNB and despite the product supply difficulties that we've experienced with some of our newly acquired products. Strong demand should allow us to continue ramping up production volumes and improve our manufacturing efficiency. We will also continue to enhance our organizational effectiveness, and we will maintain the financial discipline that has strengthened our balance sheet over the last two years.

We have great confidence in our ability to identify and position ourselves to capitalize on many growth oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success.

We will now be happy to entertain any questions you may have.

(Operator Instructions). Daniel Rizzo, Sidoti & Co.

You did a multiple achievement with the operating expenses dropping so low. Is this sustainable going forward around 27%?

We work tirelessly to ensure that.

So there's no seasonality or anything in that? It's just that's what you're looking for?

We've been dropping it down below the 30% for the last few quarters, so that's the aim. It depends. A lot of those costs are fixed costs, so if the sales volume falls back, it will have an immediate effect. But that's the driving ambition.

Okay. Then you indicated that part of your growth strategy is price increases. How does that work with (inaudible) getting price increases through. Is it contracted? Is it spot price?

What do you mean by contracted? (multiple speakers)

You sell into the market and just (inaudible) higher prices is something that's negotiated, or how does it work?

The product managers are reviewing the position. Obviously, we look at where raw materials are as well, where the value is, what competition does also. But we look at the value and return on investment to our customers. If there's opportunity, we're certainly going to take advantage of that.

Thank you.

Jay Harris, Goldsmith and Harris.

Eric, it's been a long time since we've had a wow quarter.

Thank you Jay.

The three labels that you acquired back in December, how are the revenues being produced by those products going relative to what those products did in the first six months of last year?

I think you're asking how did the previous owner perform in the first six months last year versus how we did.

I want to know whether they're flat, they're up, or whatever.

I would say they're down some because of supply position on Aztec that had already been produced. And effectively that was an inventory transfer. We sold virtually all of that in the first quarter.

With Nemacur and Mocap, we did acquire some small -- well, we acquired some inventories of Nemacur, but Mocap had been pretty well drained as far as inventory. We, frankly, have not been able to acquire as much inventory or as much product as we had liked. So I would say those were not meeting our expectations in the first half of the year.

Are the expectations on those products in the last half similar to what you produced in the first half?

I think that's probably reasonable. I think production is relatively steady at this point. So, I would say that's probably accurate.

Then do you hope to do better next year with better supply?

We certainly do. We're working with the supplier to try to improve that position and also looking at opportunities within our own facilities for manufacturing.

Switching to Impact, did the alliance with Monsanto reflect itself in any volume in the June quarter or in the current quarter?

No.

So that will be a significant plus for next year?

Certainly over the next period of time. We're excited about it. We see -- I think as you know, we've had discussions on expansion in this regard for a while. I think that Monsanto choosing Impact as its post-emergent partner will bode well for us in the next coming years.

Does your hesitancy have to do with crop acreage or some other factor?

We are looking at kind of a long lead time in supply, and so we are currently forecasting significant increases. Whether or not we'll have that supply in place for the 2012 new season or not remains to be seen.

The comments that were made about a -- looking forward to a continued growth at a more moderate or more modest pace in the last half of the year, what should we be thinking of? Revenue gains closer to 10%, or half the kinds of revenue gains we've seen in the first six months? Can you provide some color to that?

As far as absolute numbers, I think we've got a long relationship, so I think you know answer on that one. I think we've kind of reiterated what some of the key drivers are. We are looking for PCNB to be back in sales in this quarter. We need to have the availability prior to snowfall, and I think golf courses that had snow on them in this last year experienced significant damage despite trying all alternatives. So there certainly is a lot of pressure from consumer uses to get that back growing as well. So that's a function.

Dibrom obviously is always a seasonal or a weather issue. The more recent storms in Florida have had a fairly strong effect. I was down there a couple of weeks ago and one of the mosquito districts that we visited had said that, without the hurricanes, the way these storms are hitting and thunderstorms dropping large amounts of water in little spots here and there all over the place are leading him to what he expects to be a record all-time year of Dibrom. That's not necessarily a reflection of all the districts; it was just one that I happened to visit, and it's the only one I did.

But right now, Bidrin is being sprayed at a fairly high rate for stink bug. The season will be longer than anticipated due to the fact they're way behind, and so it will trail into September, so that's still kind of a driver for us. I'll say those are maybe three kind of key unknowns or potential variables driving through the balance of the year. So -- and as mentioned, the --

I presume the Metam sodium on potato acreage could be a plus.

Yes. We expect to execute well on Metam.

Then I have one question for David. Unless I am reading the source and application of funds -- which I want to thank you for including in the press release -- wrong, it looks to me like the cash provided from operations fell short of $1 million of -- from capital expenditures and dividends. So, I'm reaching a conclusion which may be improper, that you borrowed $20 million [on] $10 million or $8.5 million net to in effect end up with more cash on the balance sheet. If that's the case, what were you planning for? If it's not the case, correct me.

I think that, as I said in my remarks, we made a conservative estimate of both the trading performance and our ability to manage our working capital. I think we've done better than that. So yes, we've got a better cash position. We renegotiated our loans at the start of the year, and we've been managing cash very carefully since that time. As I said also in the remarks, we're looking at what we should now (multiple speakers)

I understand, why did you borrow $20 million instead of $10?

So we, basically, we had a fixed loan which -- at the renegotiation of the new term we expanded both the revolver capability and the --

(multiple speakers) the size of the term loan has increased (multiple speakers)

Correct.

(multiple speakers) Understood. Thank you.

Brad Evans, Heartland Funds.

Well done gentlemen. Thanks for taking the question. The last few years, second-half sales have been roughly 56% or 57% of annual sales. Is there any reason why that seasonality should change this year?

The comments that we made earlier on cotton, I think that's the only area, and of course the PCNB. I think those are the two pieces that could influence. Of course (multiple speakers)

Those are [lockharts].

I think it's true to say that our big quarters have moved slightly earlier in the year, so we've had a very strong second quarter this time.

Can you just speak to the demand environment and your ability to raise prices to offset the raw material cost inflation?

Yes, I think we've seen this in competitors where they have proprietary positions. Certainly in the generic area, that market I'll say continues to slide with intense competition. But again, we don't participate much in that arena. As such, again, the proven brands that we have very strong value. As such, we've been able to manage through increases. One of the most significant was our Metam sodium, which did increase July 1 across the market, so that was an important one for us.

So do you generally feel like you're maybe either in-line or ahead of raw material cost inflation now with where your pricing is?

Yes, I think we've -- there are some key -- or intermediates in phosphorus, basic elements, phosphorus and potassium. I think we're seeing increases, but generally I think we're in pretty good shape. We've got a system now where we've got good forecasting with the key indexes. That's being put out over the next several months and our not only management but product managers have access to that so they can see the effect or potential effect on their costs and therefore margins a little more prospectively than they had in the past. So I think it's a discipline that will bode us well over time.

Okay. Eric, may ask you this? Your personal thoughts on there's been a lot of varying opinions on the government statistics relative to the crop report for corn in terms of the quality and the health of the current crop. Do you have any thoughts as to what you're hearing in terms of where stocks will end this -- after this harvest and what it might imply for acreage planted next year?

I think the corn -- certainly, I went through the South recently and unless there was irrigation, virtually everything was fried. Again, this is Florida, the southern part of Georgia, and Alabama, those not being particularly great corn acreage to begin with. But it was amazing to see. I also went into the Heartland, into our plant in Missouri, and the corn there looked very strong. Again, just a couple of months earlier, it hadn't even been planted, so it was amazing to see how tall.

There is certain variability, and you can see where normally you might have corn looking pretty consistent across. It looks a little bit more like waves as some areas were so wet that maybe response hasn't been as strong in some parts of the field. But I think corn acreage or corn yield overall my guess will be down from last year a few bushels per acre. I think the outlook for the next several years is going to be fairly strong because I think the demand for all these crops is going to continue. I think there's going to be a shortage of land. The value of land in some areas has increased fourfold over the last couple years.

So in looking at peanuts this last year, normally that's contracted largely certainly vastly over 50% by the time of plant, and this time there was only 25% contracted. So peanut -- the actual peanut farmers that deliver aren't going to make a great deal of money.

Looking at -- in the sugar side, there's a new variety of cane that's going to be introduced that will also look to try to build on ethanol. So I -- bean, there's a limited amount of acres and the demand I think is just going to continue to grow.

Okay, thank you very much. I appreciate it.

Steve Roberts, NorthPointe Capital.

Hi guys, great quarter. Just wondering, you talked about the cotton and the corn products and how all these different products should (inaudible) variation here in the second half of the year. What kind of dollar range, say from worst-case to best-case, type of revenue swing are we talking about?

I don't know that we've really fixed that. But PCNB could vary several million, maybe pushing upwards of close to $10 million. The Bidrin and Folex might come (inaudible) combined maybe in that range. Dibrom is a pretty big swing. We've had hurricane years where volume has tripled in September and October. So that could push maybe close to that. But I think those are extreme swings.

Total revenue swing, worst-case to best-case, $30 million (multiple speakers)?

That's probably a reasonable number.

Okay, thank you.

(Operator Instructions). James Bartlett, Bartlett Investors.

Yes, you mentioned that you might need a modification of your application, existing application, on methods of delivery for bedbugs. Could you expand on that?

Sure. Our current product is the pest strips. It's registered for bedbug use on our NUVAN strip. What the University of Florida has kind of come up and looked at how could they increase the efficaciousness or the time, really, of the pest strip use. What they found is that by -- I think one of the methods that has been used is heating a room to 140 degrees for eight hours, very expensive, also can be very destructive to the room itself, wallpaper and paint and that sort of thing. So by maybe just doing a space heater with a fan for circulation, they've been able to increase the effectiveness in a more timely manner to complete the effectiveness with the bedbug population. So, they've been working on this for a while. They are now doing more intensive studies, and the results look fabulous. So it is -- the use isn't spelled out specifically of taking the strip and also say kind of putting heat and air circulation, it doesn't prohibit that use, but we would, from a stewardship standpoint, we would like to focus on professional use and we'd like to create a training video that would be used by professionals to make sure they're doing this correctly.

Also, could you comment on what you see in terms of possible legislation on reducing ethanol subsidies?

I'm not the expert on that, and I try to stay out of politics as best as I can. I think the demand -- subsidies over a long period of time I think can be destructive to a marketplace. So I think that ethanol has a strong place going forward with our energy supply. But I guess if you're asking me do I see a decrease in corn prices or planting because of potential long support, again most of the corn gets used for feed for livestock and poultry. That's an area that I think will just continue to grow.

Thank you.

Harvey Stober, Axiom Capital.

Yes, Eric, in light of the improving cash position and fortunes of the Company, can you spend a minute or two talking about the Company's appetite for acquisitions and criteria for doing so, and how you expect that to evolve over the next year or two?

Well, we see, we continue to see opportunities I think in the 2008, 2009 time frame. The opportunities we felt were -- didn't hit our criteria, and we do have criteria that we want to pay back the investment within a certain period of time. We certainly want it to be accretive and contribute to the profitability of the Company. There are acquisitions that we continue to look at as part of our ongoing position. As David said, we're fairly conservative. We've got what we consider a lot of dry powder right now. But we're going to exercise discipline over the acquisitions. We have a fair amount on our plate right now, as seen by the expansion that we've had, and we think there is the opportunity to take our now existing portfolio and increase that fairly dramatically over a period. But we will continue to continue to get packages, take a look at them, and assess their viability within our portfolio.

Okay, thank you.

At this time, we have no further questions. I'd like to turn the call back over to Mr. Kuser for any closing comments.

This is Eric Wintemute. Anyway, I appreciate your support and attendance and participation in this call. We look forward to updating you with further news as we go along, and of course certainly we'll talk to you about our third-quarter results in October -- no, November 1, right. Okay, thank you very much everyone.

This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.