American Vanguard Corp (AVD) 2013 Q2 法說會逐字稿

Greetings, welcome to the American Vanguard Corporation second-quarter 2013 conference call. At this time all participants are in a listen-only mode. A 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, Mr. Kuser. You may begin.

Thank you very much, we appreciate that. Good afternoon everyone, and welcome to American Vanguard's 2013 mid-year earnings review. Our speakers will be Eric Wintemute, Chairman and CEO of American Vanguard; and Mr. David Johnson, the Company's Chief Financial Officer.

Before beginning we'll 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 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 we turn the call over to Eric.

Good afternoon, everyone and thank you for joining us as we report on our recent performance and talk with you about some of the significant growth opportunities that we see in our future.

As our mid-year results demonstrate, American Vanguard continues to post double-digit sales growth, achieve high profitability, and maintain a strong under-leveraged balance sheet. Sales rose $36 million or 21% over 2012's first half. Gross margins were a healthy 46%, and our net earnings rose nearly $8 million, an increase of 45%. However springtime weather conditions in the US have caused our year-over-year second quarter revenue growth to slow and our net income for the quarter to be slightly below the prior year. A number of factors hampered us from achieving more robust second quarter sales.

First, over 1 million corn acres in key parts of Iowa and Minnesota flooded and did not get planted. In other areas weather related planting delays caused growers to plant soy beans. A limited planting time also caused fewer crop protection applications. Overall acreage of corn, cotton and peanuts declined from 2012. Consequently, our sales of THIMEX insecticides for peanuts, Bidrin polar cotton insecticide and Polex cotton harvest defoliant declined. And finally, elevated channel inventories have slowed distribution purchasing patterns.

As I said, despite challenging conditions, we doubled both our corn herbicide impact and our corn soil insecticides in the quarter.

David will give you a few important financial highlights. David?

Thank you, Eric.

On this call we're going to do things a little differently. Rather than walking through the numbers, which are available to you in both the earnings release and in the 10-Q which we will file tomorrow, I want to focus on matters that will likely be of particular interest to our investors.

You have heard and read about the weather conditions affecting some of our major crops, particularly corn and cotton. Despite that news we have achieved a new record in net sales for the Company's second quarter, which include a continued robust demands for our corn products. On the positive side, we continue to drive improvements in gross margin performances. Year to date we've recorded 46% as compared to 43% last year. Our quarter-over-quarter performance is even stronger at 48% in Q2 of 2013, as compared to 46% last year.

Looking forward our margins tend to be generally lower in the second half based on product mix. For the first half the key dynamics were; first, our pricing continues to be firm, reflecting strong sustained demands we have been reporting. And, second, during the first six months of this year factory activity has been consistently good driving recovery of our fixed overhead. This is particularly true in our access plants where we manufacture and/or package many of our corn products. We continue to invest in our plants for the future including personnel, factory capability, capacity, automation and excellent handling so that we can ensure a reliable supply of high quality made in America products delivered in an on-time manner that meet or exceed our customers' needs.

Further, we continue to see improvements in our overall tax rate, which is at approximately 33.8% year-to-date, as compared to 36.1% for the same period of 2012. As a finance team we work hard on this aspect of our Business. The main drivers for this improvement continue to be associated with successfully manufacturing in the USA.

When looking at working capital we are very pleased to have completed our new credit facility. As we have reported the facility has been upsized to $200 million with an additional $100 million accordian feature and all of it is revolving debt. This facility is intended to enable us to meet growing working-capital needs, including servicing the kind of business levels we have seen in the first half of 2013. In this new agreement we have added our international subsidiaries as borrowers so that they can operate in new markets and grow that part of our Business. Furthermore the facility gives us ample resources for acquisitions and licenses, which as you know have been an important element of our long-term growth.

As part of the process of refinancing our debt, we retained all of the same lenders that have been with us in some cases for more than a decade. It was pleasing to note that several new banks asked to be included in this new structure. And, despite the increase in the size of the facility, all of our lenders -- existing lenders, stepped up, demonstrating long-term steadfast support for the Company.

I think the one of the really important metrics the lender group tracks is our EBITDA performance. In the 12 months to the end of June 2013 we generated more than $90 million as compared to $66 million in the 12 months to the end of June 2012. This trend is something that the Company is highly focussed on.

Speaking of working capital, we have eliminated short-term indebtedness as part of this new credit facility. Which as I mentioned a moment ago is entirely revolver-based. At the end of Q2 2013 we have $41 million in debt, as compared to $56 million this time last year. Our receivables were at an all-time high of $147 million at the end of the first quarter of 2013. Those payments all came in on schedule with the biggest part being paid in mid June. You will see in our 10-Q statements that during the quarter we borrowed from our revolving credit line for a short period. While customer payments started to come in on schedule we paid down all that we had borrowed, and more.

Not all aspects of this quarter were positive. You will note that our inventory increased from about $88 million at the end of 2012 to $127 million at the end of Q2, 2013. During the first half of 2013 we built inventories for a very significant increase in demand in what we expected to be a record season. While we did hit strong numbers for our key corn products, as Eric mentioned the weather slowed the sales in late Q2 leaving us with inventory.

At the same time the inventory of goods, particularly for corn is reported to be higher than normal in the channels. To put this in perspective, the normal level of inventory in the channel at the end of any given season is around 20% to 25%, although channel inventories at the end of 2012 season were lower than usual. This year, we estimate that our corn products on average are probably 5% to 10% above normal levels.

We are working through both of our own inventories and the estimated in-channel inventories of our products. And we are mapping those inventories in comparison with sales forecasts for the rest of this year and through 2014. From this exercise we will update our manufacturing plan, which is a normal procedure that happens regularly throughout the year. At the end of June, our inventory of some corn SKUs is higher than we would like, and we are planning to work down inventory levels of certain specific SKUs over the next several quarters. By taking this pragmatic approach we expect to continue to operate our plants at near normal levels going forward.

Another area of focus for us is operating expenses. In comparison to the first half of 2012, our performance year-to-date in 2013 remains exactly in line at 27% of sales. You will see that quarter-over-quarter these cost increased from $24 million to $29 million on slightly higher sales. The two biggest drivers are administrative costs that increased $2.2 million, and selling costs that were up [$2] million.

Within administrative costs we have additional non-recurring costs of about $1.2 million in legal expenses incurred in a data compensation case. The majority of the costs associated with this matter have been incurred during the second quarter. We also have advisory costs associated with putting in place our international subsidiary structure. These are still being incurred but should be at the lower level going forward. In part, this expense is driving some of the tax-rate improvements I mentioned earlier.

Our selling expenses ended at $8.5 million for the quarter as compared to $6.4 million for the same period of 2012. Driving this increase we have expanded our field sales team, which is key to driving long-term sales growth, increased our field support for product sales in SmartBox unit, and expanded training and community outreach activities in support of our Fumigant business.

Finally we continue to drive on building and maintaining grand awareness and loyalty through advertising and promotional spending. We believe that these dollars are money well spent for the future success of the business and though there is some strong seasonality, there are no real one-up costs included here.

Finally on capital spending we have so far spent $8.4 million, which is significantly lower than our spend last year. Looking towards the rest of the year we estimate that we are more than 50% of the way through our 2013 spending. During the balance of the year we will be completing on a large project to manufacture one of the products we purchased in 2010.

In summary, while having recorded a very strong first half-year performance, we have weathered a challenging quarter and have recorded a new record Q2 sales performance for the Company. Our margin performance is at the higher end of our normal operating range and that the net income level we achieved 10% of sales performance for the quarter and 12% year-to-date.

Overall, our working capital continues to track in a reasonable range, though we are very focused on inventory at this time and will continue to be focused over the next several periods. Finally, it is pleasing to report that our stockholder equity is up over 10% year-to-date.

With that I will hand back to Eric.

Thank you, David.

Now I'd like to discuss a few questions that have surfaced over the last six months. The first relates to the commodity price of corn. Beginning in 2007 we demonstrated a healthy return on investment for corn growers for the simultaneous use of both traded seed and our corn soil insecticide. This best-of-both-worlds message gained momentum through 2010 and really took off in 2011. It was reinforced by several university reports of insect resistant developments, and was further fueled by escalating commodity prices. Increased acceptance has grown dramatically each year and we expect that trend to continue.

With regards to the corn price itself, we believe that USDA estimates of both planted acres and yields are overly optimistic. If actual acreage and yield proved to be lower than USDA estimates, then corn commodity prices will likely strengthen. Regardless, however, of commodity price the message is clear. As we have been saying since 2007, even with the commodity price below $4 a bushel, we provide a strong return on investment to growers for use of our products.

The next area I would like to discuss concerns competition in our key corn markets. Our corn soil insecticides continue to be the gold standard as the time-tested tool and program of integrated pest management. As I just mentioned, use of our products gives the grower the best of both worlds. Other companies have offered liquid insecticides and while they have their uses, our granular products lend themselves to much broader application and greater efficacy for hard to control tests.

[Straight] Companies will continue to offer new traits in their corn seed. Again, this is helpful but as history has shown, there is no single solution for pest control. You either mix it up or pests will adapt. A sustainable pest control will remain a key part of the solution. In anticipation of continued growth of this market, we are developing a number of new formulations of our corn products which we expect will give growers even more tools from which to choose.

A third topic I want to cover, relates to our post-emergent herbicide Impact and our ability to remain a market leader in weed management. Our Impact post emergent herbicide effectively controls glyphosate resistant weed. And has been selected by Monsanto based on efficacy and crop safety to participate in the Roundup ready incentive program. This co-marketing arrangement has simulated a much stronger demand, earlier supply ability constraints have been alleviated, and we have extended this collaboration through 2017. Despite weather related reduction in corn acreage, we have already doubled the sales of Impact over the prior year and expect to see this product continue to increase this market position in future seasons.

Finally I would like to address the key drivers for the second half of 2013. As we mentioned in the press release, key products during the second half of the year include our fumigant products Vapam, our mosquito adulticide Dibrom, our cotton products Bidrin for pest control and Folex for harvest, and corn products positioned for next season. On Vapam, bear in mind that these are not the Midwest corn customers. These are largely potato growers and others in the Pacific northwest, California, and midwest. So we're not expecting the Midwest weather and market dynamics to affect these sales.

Bidrin. This has been a very successful product for us. It is FEMA approved for effective disease control and can be used more heavily in wet conditions. If we continue to get wet weather in the south we should have a good second half. For cotton products, the crop did go in, even though acres declined as compared to 2012. Growers still need pest control from Bidrin and a time of harvest if they want to optimize yield and that's done with Folex.

Finally as I mentioned, we continue to see strong demand for your corn products leading into the 2014 planning season. I'd like to discuss a little bit about Tyrotec. As we explained in our last call, while exploring avenues for growth in non-agricultural applications. We became familiar with technology developed by Tyrotec using essential oil derived from various plant materials.

A number of these oil blends possess the unique ability to inhibit the pyromine G protein coupled receptors of invertebrates, while having no effect on vertebrates. Consequently such oils can be formulated to repel or kill insects while having no human toxicity concerns. We immediately recognize that this technology could be a valuable compliment to our existing portfolio of synthetic chemistries, and we engaged Tyrotec in discussions about collaboration.

As a result, last December we announced the creation of AMVAC technologies which we utilized Tyrotec technology to formulate pest control products primarily for the consumer marketplace. The enterprise is 60% owned by American Vanguard and 40% owned by Tyrotec. And has began commercialization of its Terminex ultimate protection product line with an initial nation-wide launch through The Home Depot.

The total global set market for such spray treatment that kill crawling, flying and stinging insects is estimated to be several billion dollars per year, and we believe this highly effective, safe, non-chemical technology can successfully penetrate that segment. Indeed, independent testing of these formulations demonstrates they can be as effective or more effective than the leading brands on the shelf today.

Additionally, in March we announced we have invested $3.7 million to acquire 29.46% stake in Tyrotec. This equity share will allow us to participate as an owner in the personal care and animal health application that Tyrotec is pursuing. I am a member of five-person Board of Directors and will be actively involved in oversight of the Company's progress. Target markets include head-lice control, mosquito and other insect repellents, and various animal health treatments. As you are aware, we know a good bit about mosquitoes and Tyrotec's repellant looks very good. We'll keep you posted on developments in this exciting endeavor.

Next I'd like to talk about SmartBlock. We announced during recent months we have secured registrations for our potato sprout inhibitor, SmartBlock, in both United States and Canada. This product represents a major technology (inaudible) improvement over the current -- what we currently use. And we begun sealed applications and expect commercial sales to begin in the fourth quarter of 2013. We believe that we can capture significant share of the $45 million global market in years to come. After we receive a European registration.

Also we would like to talk a little bit about our international subsidiary. We built management team in Netherlands with addition of regulatory, technical and marketing personnel. We have a solid base of business in Western Europe and central America and we seek to expand our involvement in Eastern Europe, South America and various sections of Asia. As we indicated, this will be a steady, gradual process of securing registration for current AMVAC products, acquiring the licensing and existing registry products from other parties, and introducing new products like our SmartBox and (inaudible) products to international markets. We are confident that this branch of our Company will grow through its independent efforts and through collaboration with other industry peers with whom we will ally.

So in planning our future we spent have considerable time in the last year defining a multi-year strategy for the remainder of this decade. The focal point of this blueprint are revenue growth, high profitability, organizational excellence, customer intimacy, responsible stewardship and risk management. We have set lofty goals and I'm proud to say we have made significant progress towards achieving them.

We will keep you informed as this enterprise broadens its reach, strengthens its position and increases its value. In closing, the bottom line of our performance is that we are on a solid footing, have tremendous growth potential, excellent profitability, and our organization that can capitalize on the many appealing opportunities.

We'll now be happy to entertain any questions you may have. Operator?

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Andy Cash from SunTrust. Please proceed with your question.

Thanks for taking the question. Did you guys mention your insecticide/herbicide sales? Do you have those figures, would you pass them along?

I will be in the queue with you tomorrow. Don't have it right there.

While you look for that I'll go ahead and ask my other question. In the corn soil insecticides, could you say how many acres American Vanguard was on or do you think will be on in 2013? And then what is the potential with inventory carryover to 2014?

So just on the first one I think you asked me net sales for the quarter?

Insecticides and herbicides.

39,218 million and herbicides was 24.699 million.

And my other question is having to do with corn soil insecticides. How many acres do you think you will be on this year? I know given your financial al inventory carryover what impact might that have on 2014 sales?

So, you know, somewhere in the 6 million to 7 million acres. And 2013, you know, we -- you know, we forecasted strong growth for 2014 as I mentioned. I think we said we've got an extra 10% in channels. So maybe growth in 2014 in the 30% to 40% range, with the net effective inventory.

Okay. Thank you very much.

Our next question comes from the line of Daniel Rizzo from Sidoti & Company. Please proceed with your question.

Hey, guys, with the SG&A expense for the quarter, was it roughly I think $3 million that was kind of a unique thing, one time for this quarter? Is that what you said David?

I said $1.2 million in administrative costs where really the one that definitely won't recur at the same level next quarter. And I did say that we had some advisory costs that were expected to go down but I didn't quantify exactly the numbers on that.

That is more related to international?

Yes.

Okay. But expenses should be little bit elevated as -- continue to be elevated as you guys continue to roll out or strengthen the international business, correct?

Yes, we also had some costs mature-- you know, annual costs that come more heavily in the first quarter--first two quarters of the year. But then freight costs for our business in the second -- in the second half of the year tends to be higher, so there is a kind of a balance out there.

Thank you.

Next question comes from Michael Cox from Piper Jaffray, please proceed with your question.

Thanks for taking my question. With the channel inventories elevated and corn prices off their highs here, I would be curious how your channel partners are approaching the fall season? I guess, by comparison to what we've seen in the past couple of years where very tight supplies led to very early ordering, I guess? I was just wondering what your thoughts are on how the fall shapes up in the current backdrop?

And so, you know, I mean, I just visited with a few of the customers this past week and talking with them, I think they remain strong optimism for our corn products, all of the -- all of the reasons that drove in the first place. Again, we've -- and we've discussed -- we built models out and tried to see how sensitive the growth is to commodity prices. And, you know, there is obviously growers that would look and say, you know, gosh, if I'm making X per bushel, and do I need to trim costs? But our feeling is the return investment story is solid that, you know, when we delivered the message and starting gaining traction with this when it was $3.80 and so with -- it's $4.80 or $4.50 or $5, we think it is an excellent return.

So from our customer's standpoint I think they view this as, again, a long-term solution, whereas before people thinking, okay, traits may be -- may be the solution. At this point I think going forward most people accept the fact it is got to be a combination. And so it is just going bare, as I said, we're seeing a lot of fields out there right now that are experiencing significant damage and just continues to buzz around universities and, you know, through the grower communities.

Okay. That is helpful. And in terms of your own inventory position, how should we think about manufacturing utilization over the next two to three quarters?

Well, in looking at the factories, you know, we've kind of analyzed that Los Angeles we've definitely trying to trim our sails on PCMB as we let demand catch up with the inventories that we have there. At the Hannibal facility, couple of SKUs that Dave was talking to, THIMET and Counter, we're going to--both of us on a global basis so we're going to flow a little bit and let that catch up. Axis, which is uniquely been our Achilles, so to speak on client absorption looks very strong going forward in the years.

So -- so it's, you know, it is down on one side and up on the other. So I think overall we don't see a significant impact.

Okay. And my last question is on the Impact herbicide, I was hoping you could discuss capacity plans for 2014, product categories since you work through a -- third party on the manufacturing?

So contractually we have the ability to order what we -- what we will need, you know, for the next year, and we're making that assessment now, and we'll be placing that order by the end of this month.

Okay. Thanks a lot.

(Operator Instructions)

Our next question comes from the line of Richard O'Reilly from Revere Associates. Please proceed with your question.

Thank you, good afternoon gentlemen. Near the end of the press release there is a statement that talks about some working capital controls. I'm just wondering, is that what David was talking about with the inventory build in the channel? Or is that something else" Because controls would imply that the inventories in the channel would be lower.

[multiple voices quietly conferring] Okay. That is with regards to our distribution -- so our customer base, sorry. So our customer base is working through -- I think I heard from one customer that we were close to 100 different products that they had that were on, you know, some sort of distribution plan from the basics as people kept trying to ramp up to meet demand. And with that they took significant positions and are sitting most of them fairly strong.

And we mentioned that pre-emergent herbicides is a big factor and a number of different products. So from their standpoint they're taking more of a -- let's take as needed. And that is kind of what we experienced in the second quarter. We saw orders that might normally come in, in the second quarter, maybe move to third or fourth quarter and that's -- that is something that happens when their inventories fall.

Okay, fine -- so you'll see more of that impact in the latter half of the year, and earlier in the year. Okay, fine. Okay. That 's it. And tell Bill-tell him the Jersey shore is looking good this year.

All right. Thank you, Richard. [laughter]

Our next question comes from the line of Jay Harris from Goldsmith & Harris. Please proceed with your question.

Eric, when you look at the reduced cotton acreage this year, are there opportunities for us to grow market share in use of VycRin and the defoliants, or will our business be down in line with planted cotton?

Yes, both of them, you know, it's hard to pick that and on a definitive basis. Certainly the more acreage you have the better volume chance you have. But it's probably driven even more by insect pressure providence. So, if it's strong bug pressure, particularly which comes into play over the next 30 days, then that is an opportunity.

And Folex follows behind that and it is more related to the weather. If it's hot and, you know, as you get into the September -- September months, and into October, if it's hot, then there is less defoliant needed. If there are mild--more mild temperatures, then the plant will continue to green and, you know, you have to use multiple applications of Folex.

I mean, certainly it would be more bullish if there were more acres but whether it's going to be up or down from last year is too early to tell at this point.

All right. And if -- if you can talk a little bit more about Advance. Are we likely to see more retail outlets than just Home Depot? And if so, in what type of time frame?

Are we talking about just the US? And then I'd like you to comment on any developments outside the US that you can share with us.

All right. So there are at least two major distributors that are signed up that will begin in tail end of fourth quarter and more predominantly in first quarter of 2014. There are several others, you know, that expressed interest.

I think the two that fall in line, you know, along with Home Depot would capture significant part of the market. And then it becomes a matter of others that, you know, just say, okay, we don't want to be locked out. So getting those two are key to moving forward.

Outside of the United States, you know, we have been meeting with various retail chains and distributors. We do not have anybody signed up I think in Europe where we think there is great opportunity in France, UK and Germany. Unlike-- I have registrations approved, unlike the US where these are EPA exempt from registration, they do require government registrations in those three countries there and that's where we're talking. The expectations are to begin sometime in 2014, but we don't have any concrete contract at this point.

All right. Where do you expect -- David, what was the receivable at the end of March? Could you remind us?

$147 million.

So we're down $27 million -- $20 million, I mean.

No, we're down much more than that, we were at $67 million at the end --

I must have misread the--

$80 million.

Yes, down $80 million.

Okay. And so -- you have no short-term borrowings and are there any plans to prepay any of the long-term debt?

Not at this stage. We'll see how the next few quarters materialize.

And I think you understand, Jay, that essentially, you know, the term debt is eliminated and so what we have is around $40 million. [multiple voices] $40 million of I think it's-- I would call it might have been term debt and it is now revolving debt.

Oh, all right.

We were at $50 million in term at the end of March so now $41 million in total debt.

So absent any acquisition activity, your cash will exceed debt by the end of the year.

Well, we have program liabilities that need to get paid.

Fair enough. Thank you.

Sure.

Our next question is a follow-up question from Andy Cash from SunTrust. Please continue with your question.

Just to follow up on Advance. Can you talk about any repeat sales with the existing retailer? And can you talk about advertising budget, shelf space, things like that, give us some confidence that, you know, consumers are going to see the product?

Well, one of the things that -- and this was not the strongest, robust year for home insect. Just kind of late season starting, but Home Depot was very thrilled with what they saw in relation to other people on their shelf space.

From a promotions standpoint, one of the things that we've -- we had launched with was, and this kind of carries to when it was basically going to be more under Terminix, it is really an industrial-looking package. So if you haven't been to the shelf and seen it, it is mostly gray. And what we will be launching when we move into the next year's sales will be colored packaging that looks much more robust and will stand out much better in the shelves.

A lot of, you know, a lot of social media type approach we have not laid out large-scale kind of mass advertising. I think initially we would like to gain shelf space and then try to work with the various retailers on targeting specifics, you know, within their market. And so that's kind of where our approach is for now. I don't think you'll see us launching 20 million type ad complains in the near future.

So it's going to be in part a professional pest management product as well as a consumer-oriented product. Is that right?

Well, it is. You know, Terminix has -- has been moving us into that market. You know, we will -- we will probably look to supplement them in some fashion there. But I think our biggest drive because of, you know, the safety of the -- and the need for an efficacious product that people don't have to worry about toxicity from, as far as animals and humans will be the kind of drive that consumer market.

Okay. If I could just add one other question. It looks like, you know, the competition sort of taking note of your strength with Impact.

And I was just curious if you have enough data where you could look at how you guys are doing relative to BSF. And do you think you're maintaining your lead relative to those guys? Or do you think they're sort of catching up to you?

Well, I mean, we have the advantage of, you know, of our agreement with Monsanto and they are the drivers of Roundup, so we're promoting that piece. BSF obviously has a lot more feet on the ground than we do. We would like to think about our brand impact that sold very nicely over the years carries a lot of strength within the growers.

But this product is a superior product and it, frankly, we're -- you know, we appreciate having some help and support in building awareness for the molecule. Because we have done a good job but we didn't have anywhere near the resources that sometime the size of BSF has and putting more effort behind the product will only fuel our sales.

Okay. Thank you very much.

Our next question is a follow-up question from the line of Daniel Rizzo from Sidoti & Company. Please proceed with your question.

Just one more question, in terms of competition for the corn soil insecticide, there really is nobody else that has granular insecticide as effective as yours, is that accurate?

Well, Syngenta has Force, which they sell in bags. We sell it in the Smartbox system, and, you know, it is an excellent product. It is a pyre-40. It works very well.

A smart choice that we have is both an OP combination pyre-3 as is--Encounter is an OP that has specifics for nematodes. There is a certain strength for nematode. We certainly have the leading robust tools for that market.

Okay. Is there any indication that somebody is coming with more products to the market that you're aware of?

Not -- not in the -- not in the, you know, that have the granular form. There is more interest in the liquid. Syngenta has a liquid Force, but the market is led by FMG's Capture.

We also have same chemistry that we have not moved into that market. But we are looking at expanding and we talked about some formulations that we're looking across our portfolio of corn insecticides. So as this market grows, we will as well.

Thank you.

Our next question comes from the line of Bruce Winter, private investor, please proceed with your question.

Yes, thank you. In the soil fumigation market, is that mainly in the cash combo where it goes up and down with underlying crops and the weather, or is there some external factors that are driving it like there used to be Methyl bromide.

Secondly, you were working on a granular form of that. Is the granular form better or different or what is the difference?

That is a good question, Bruce.

What?

I said good question.

I got some more but why don't you do those.

Let me answer those two and then you can come back.

All right.

So, you know, the product line continues to do well as more and more other alternatives become limited. Methyl bromide that has really squeezed out. Methyl iodide, which launched a little bit ago and Roundup pulling the registration, so there are less and less alternatives moving forward.

Now, stewardship, improvement is something that we embrace working with EPA. There is the concerns always about, you know, kind of inhabited areas within. So the buffer zones kind of grow into how close you can get up to when there are inhabited places and that sort of thing. And we train thousands of people each year on all of the new regulations and it is an ongoing process.

Bayan disinfectant tool, it does, you know, it provides itself as an insecticide and herbicide and fungicide and then it disappears into inert substances that have no concerns. So that is its real advantage. And as far as the, you know, whether there are other factors, water can be limiting if they were in areas where there is limitation of water or drought in a particular region, at the time it is applied, that can limit the number of acres.

But, you know, I just came back from potato--top potato growers in the world come together and talk about this product and other products that we have. Potatoes are such a major impact of inputs into -- into potatoes, particularly with the SmartBlock coming on, too. That, you know, they -- most of them fumigate virtually every acre and with, you know, with Bayan. S o that is -- it is key for them growing water strength, that sort of thing.

But with regard to [Dazmit or Bazmit] product we've taken on that is a solid form. It's a more expensive form but it is something that we feel might be able to be controlled better from any sort of off gassing. And we would look to position that maybe in the buffer zone areas that currently do not have a treatment.

And the limitation you have there is we do not have the data to show what that off gassing is and how safe it can be used as opposed to the buffer zones that are well understood for Vapam. So we have been gathering that information and we're hoping that next year the EPA will look for reduction of buffer zones for that product so that we can make that as a compliment to our current product.

Good. What percent of the final installed cost for a farmer is in your chemical, and what percent is for all of the other applications that he has to do?

Are you talking potato?

Yes -- let's -- yes.

Lot of crops.

Yes, potato.

Potato, I was kind of surprised because I was thinking potatoes runs $400 an acre, but they told me it is up to $800 an acre now. You know, significant portion of that--or good portion of $400 was the soil fumigation and which was, you know, several hundred dollars an acre.

On top of that what I learned is -- depends on the area -- but got issues with fungus and some of them are spraying quite often for fungus. That is something that we're looking at to see whether we can do something maybe with Smartbox where we can start delivering products into the ground at time of plant with the seed and to -- something that would hold for a longer period of time. So the chemical part of the $800 -- I mean, if you -- are you talking just the chemical or chemical waiver of the application of the way putting the stuff down, as opposed to fertilizers and that nutrients and that sort of thing?

No, just the chemical part.

Just the chemical. I'm not real sure with the new economics of -- I don't know how much of that is the cost of getting the stuff out versus the chemical itself. But so I'm not really, I just would be guessing but probably, you know, somewhere in the 30%, maybe a third, or something like that, the application and then fertilizer and all of those sort of things.

Weren't you working on putting it in with water, spraying it with water under the ground?

It does go in with water. It can go in a variety of ways. There's the center pivot, it can go in injection, it can go through irrigation lines.

Oh, and finally with the fumigant, weren't you working on the Florida vegetable crop in the wintertime?

We do go -- that's a strong growing market for us, particularly with potatoes, and I mean, with peppers and tomatoes. That has been a market that historically has been methyl bromide and that has been switching over to -- to Metam and growing in that area.

There is also [Telon and Corcoran] that get used and sometimes in combination and sometimes there are solo uses. But, yes, the Florida market continues to grow each year, which, you know, is part of the reason why we, you know, put our plants down there in Alabama and Axis. It is a great position for us, because our competition is in Idaho or in Belgium.

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

And, well, appreciate the opportunity to update you. We'll keep you informed. If you have any questions, you know, that you would like to take off-line, contact Bill Kuser and we can set a time and kind of go through and handle any thoughts you might have. Appreciate it and good night and good evening.

Ladies and gentlemen, this does conclude today's tell conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.