American Vanguard Corp (AVD) 2013 Q3 法說會逐字稿

Greetings, and welcome to the American Vanguard Corporation third-quarter 2013 conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Bill Kuser, Director of Investor Relations. Thank you. Mr. Kuser, you may begin.

Thank you very much. And once again, welcome everyone to American Vanguard's third-quarter and 9-month year-to-date earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard, and Mr. David Johnson, the company's Chief Financial Officer.

Before beginning, let's take our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks 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'll turn the call over to Eric.

Thank you, Bill. Good afternoon, everyone, and welcome. 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 9-month results demonstrate, American Vanguard continues to post double-digit sales growth, achieve high profitability, and maintain a strong, under-leveraged balance sheet. Year-to-date sales have risen $43 million, or 17% over 2012's first 9 months. Gross margins were a healthy 46% and net income rose of $8.5 million, an increase of 33%. 12-month rolling EBITDA is up 34%, to $94 million, with shareholders' equity up 15% year to date.

As you recall from our last conference call, second-quarter sales of our Thimet insecticide for peanuts, Bidrin foliar cotton insecticide, and Folex, cotton harvest defoliant were all restrained by lower plantings of cotton impeded acres. By contracts, in the third quarter, we recorded stronger sales of both Bidrin and Thimet, and the last-season cotton harvest is driving increased demand for Folex in the current fourth quarter. We also benefited from strong demand for our corn soil insecticide, particularly Force, sold in our SmartBox closed-delivery system.

This is a particularly good sign of the overall soil insecticide demand that we expect will continue to expand in upcoming years.

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

Thank you, Eric. Rather than walking through the numbers, which are in both the earnings release and the 10Q, which will be filed tomorrow, I want to focus on certain matters that I think are of particular importance to our investors.

First, we have achieved new records with year-to-date sales of $305 million, and third-quarter sales of $97 million, despite weather-related issues early in the season affecting certain crops and regions and the fact that this year growers have made decisions to reduce planted acres of some of the crops that are important ones for us, like cotton, peanuts, and sugar beats.

We continue to achieve excellent gross margin performance. Year to date, we have recorded 46% as compared to 44% last year. Our third-quarter performance was inline with the same period last year, also 44%. These levels are towards the top end of our historical performance range.

Our operating expenses are tracking at 28% of net sales year to date, and 29% for the third quarter, both of which are inline with the respective periods of last year. Within operating expenses, selling expenses are up 22% year to date, driven by a few things. For example, we have made strategic increases in the size of both our domestic and international field sales, marketing, and product management teams to better serve our key growth market. Second, we have increased our promotional expenditure supporting our brands. And third, we have nearly doubled our field stewardship activities, making sure our products are handled appropriately and safely in the field.

Our spending in Q3 was up 10%. General and administrative expenses are up 30% year to date, driven by headcount in support of our growing business, incentive compensation driven by our improving net income performance, consulting costs related to the expansion of our international business, higher amortization, and, finally, the cost associated with our Envance business, which were not present this time last year. Our G&A expenses in the quarter were up only 1% as compared to the same period last year.

Research, development, regulatory expenses are up 3% year to date and 8% in the third quarter, as we carefully manage product development and regulatory compliance.

Freight was up at 6% both year to date and in the third quarter, on sales activity at 17% and 8% respectively.

Finally, we continue to see improvement in our overall tax rate, which is at approximately 35.1% year to date, as compared to 36.1% for the same period of 2012. The main driver is the domestic manufacturing tax credit that we receive as a result of our strong US manufacturing presence. In addition, we are starting to see some benefit from our international structure.

For Q3, we have reported an increased tax rate. This is primarily driven by our US-based businesses, which continue to perform very strongly, and, as a result, has caused us to change the balance of domestic versus international income used to estimate our full-year tax rate, from 34.1% to 35.1%. As a consequence, we have made an appropriate adjustment in Q3.

Overall, we have recorded net income of $34.2 million year to date, which is up 34% on our performance last year and results in $1.18 earning per share for the 9 months. Our net income in the quarter is up 10% on this time last year, ending at $8.9 million and $0.31 earnings per share.

Looking at the balance sheet, our receivables were at $109 million at the end of the third quarter of 2013. This is pretty much inline with the same time last year when we reported $105 million. This profile reflects the startup of the new growing season.

As we discussed on our conference call, distribution channel inventories of products that were not applied this year due to unfavorable weather conditions are somewhat higher than normal. To put this in perspective, the normal level of inventory of corn product in the channel at the end of any given season is around 20% to 25%. This year we estimate that, on average, our products in the channel stand at about 31%. As a result, we will be working through both our on-hand inventory and the estimated [in-channel] inventory as we forecast our business for the rest of this year and the first half of 2014.

Our inventory at the end of September is flat in comparison with June 30, 2013. Last year, our inventory levels increased 16% between the end of Q2 and the end of Q3. Increasing inventory is the normal profile at the start of the growing year. This year, we have scheduled our factories in such a way that much of our quarter's output has moved through to sales within the quarter. We expect to be working through our inventory for the next several quarters, focused on bringing back inline with levels we have historically achieved.

With regard to our debt position, I reported on our new credit facility during the second quarter conference call. That is working well. With regard to debt levels, it is pleasing to report that our debt has decreased by 25% in Q3, and that at the end of Q3, we have debt of only $39 million, as compared to $54 million this time last year.

I think that one of the really important metrics that our bank lender group tracks is our EBITDA performance. In the first 9 months of 2013, we generated more than $71 million in EBITDA, as compared to $55 million in the same period of 2012, which is a 29% increase.

In summary, we have weathered a challenging period of unfavorable weather to post a new record Q3 sales performance for the company. Our margin performance is at the higher end of our historical operating range. And at the net income level, we achieved 9% of sales for the quarter and 11% of sales 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 for the next several periods.

Finally, it is pleasing to report that our stockholders' equity is up nearly 15% year to date.

With that, I hand back to Eric.

Thank you, David. This strong performance reflects the quality of our core business as we have often mentioned and as our industry has come to embrace, AMVAC's proven crop protection products are critical components of the integrated pest management practices that allow modern agriculture to feed the world. Combined with our proprietary closed-delivery system, American Vanguard's expanding portfolio of yield-enhancing solutions, allows growers to achieve maximum results with precision, efficiency, and reliability.

Now I want to tell you about some of the innovations and new directions that will contribute to our future performance. Over the last several years, AMVAC has placed considerable emphasis on our product development and technology capability. Our ability to modify existing products and create new product formulations has been enhanced by the addition of several experienced chemists and a new research facility that provides them with the latest technology to expand and accelerate such work.

As a result of this focus, we expect to commercialize for the 2014 planting season, a new corn soil insecticide branded Expedient in a liquid form that can be used in conjunction with liquid fertilizers.

Our granular soil insecticides provide the gold standard for protection against soil insects in acres that have significant pest pressure. But in acres where the intensity of such soil insect pressures is lighter, many growers prefer to add an insecticide to their liquid fertilizers at time of plant.

AMVAC has not participated actively in this adjacent market segment, which we call secondary acres. But with the introduction of this new product, we will expand our offering, our geographic coverage, and could nearly double the adjustable market acres for our corn soil insecticide business.

In future years, we plan to offer new versions of both liquid and granular insecticides in order to provide corn growers a broader range of tools to meet ever-challenging changing challenges. We are very excited by this initiative, and it will strengthen our market-leading position in this arena.

As we announced earlier this year, AMVAC has secured registration for our potato sprout inhibitor, SmartBlock in both the US and Canada. This product represents a major technological improvement over those currently used, and we believe that it can capture a significant share of the 45 million global market in coming years.

With our traditional Vapam, K-Pam soil fumigant product line, our Blocker fungicide, MOCAP nematicide, Thimet insecticide, and our newly introduced Rejuvenate, an early growth yield enhancer, AMVAC offers the industry's strongest potato portfolio.

We continue to make progress on our consumer pest control initiative. Envance Technologies will be positioning its Terminix ultimate protection product line in several more US major retail outlets during the first part of 2014. We expect that this broader market coverage, along with new, more attractive packaging will give these products the market traction they need to succeed in a highly competitive consumer marketplace.

The total global market for such spray treatments that kill crawling, flying, and stinging insects is several billion dollars per year, and we believe that this highly effective breakthrough technology can successfully penetrate that segment by addressing the growing demand for effective solutions that are safe for families and pets. Indeed, independent testing of these formulations demonstrate that they are as or more effective than the leading brands on the store shelf today.

Additionally, our roughly 30% stake in TyraTech will allow us to participate in the personal care and animal health markets. Commercialization of a safe and highly effective head lice treatment and an outstanding mosquito repellant that does not contain DEET is expected to occur during the first part of 2014.

We continue to build our new international management team in the Netherlands with the addition of regulatory, technical, and marketing personnel. In addition to our solid base of business in Western Europe and Central America, we are targeting expansion in Eastern Europe, South America, and various sections of Asia. We are confident that this branch of our company will grow sales of our own products and through collaboration with other industry peers.

As we look at our 2013 fourth quarter, we see strong demand across our product portfolio and are preparing the introduction of our new fertilizer-ready liquid insecticide formulation Expedient. This year's late cotton harvest has shifted sales of our defoliant, Folex, so that we expect that product to contribute to our fourth-quarter results.

As we look forward to the 2014 planting season, next year's first quarter will be driven by continued strong demand for soil insecticides in corn and other crops, and building demand for our post-emergent corn herbicide IMPACT.

We are actively pursuing accretive product acquisition and licensing opportunities while maintaining strict investment criteria. We will continue to focus on the quality of our balance sheet and evaluate proper balance of growth-oriented investments with shareholder returns in the form of dividends and share repurchases.

I will now be happy to entertain any questions you may have. Operator?

Thank you. (Operator Instructions) Brett Wong, Piper Jaffray.

Just wondering with the higher levels of inventory that you guys have, can you talk to the capacity utilization in the second half of the year, specifically at the access facility?

In the second half of 2013 --

Yes.

-- you mean? Yes. It was a little slower in the third quarter, until it started picking up in September. And we're looking forward to a pretty strong period during Q4. So I don't know whether that answers the question. But not -- it was slightly slow, but not materially.

And then kind of moving over to the new product launch, Expedient. Can you talk a little bit more on kind of the approvals received and expectations of volumes (inaudible)?

We have registration currently. We're working on the packaging and we've produced material and put samples out to the customer base. Initially, we're looking in the 30,000-gallon range. It's a much bigger market, but our initial launch we're, I'll say, treading more lightly. And that translates in the $5 million range as far as sales.

Daniel Rizzo, Sidoti and Company.

You indicated on the last call that you were anticipating the granular corn soil insecticide sales to potentially be strong toward the end of the year here because people will make preorders in front of the end of the year for tax purposes. I was just wondering if your assumptions and your expectations are still the same, if you're expecting orders for the granular product to be strong here in the fourth quarter and to kind of pull a little bit from next year.

I think we're anticipating growth in the corn soil insecticides. I think we mentioned somewhere in the 30% range. We're seeing -- again we saw strong demand and people pushing on Force, which is a license from Syngenta, that had the lowest inventory in channels, probably less than 10% across an average. And we've kind of traditionally, we sell Force in the third quarter.

But Aztec looks very strong. SmartChoice is solid. Counter, we did not see as strong a demand, actually use - the demand was fine last year, but use last year, and that's probably got the most challenge that we have.

And then with the new product, Expedient, is that something that's applied through SmartBox? Or am I thinking about that wrong, they're not compatible together?

Currently we're not putting liquid products through SmartBox. This would go with the planter just mixed in with the fertilizer and going in. It's a less-expensive per-acre treatment, doesn't quite give you the -- doesn't give you the treatment that you would get from the granular insecticides that we have in our portfolio. But as I said, we've kind of, in our minds, segmented the corn market into primary and secondary and participated 90% of our granular insecticide businesses in the, what we call the primary market. The secondary is not focused so much on the corn root worm, but on secondary pests. And they're -- some of the liquid product can perform [fairly] well.

And one final question. On the cotton, with the defoliants with Folex, I was under the impression, and I'm certainly surprised, with that -- well, that I thought you said, or maybe I misheard you that time, that a lot of cotton planters switched to soybeans because of the late planting season, and you probably [weren't] expecting that back. I guess that's not turning out to be the case, true? I mean, is things coming much stronger in that segment than you had anticipated as little as 3 months ago?

Yes, the acres are definitely down. Cotton defoliant business varies depending on the weather pattern. And so the longer the cotton is in the ground before it's harvested and you start getting more milder conditions as far as heat, the cotton plant itself can continue to generate foliage. And that's the foliage that has to be knocked off. And so the kind of wheelhouse for Folex is kind of the later.

So even though acreage was down, and I think we forecasted and we were not expecting based upon that much opportunity, it's also driven by the weather and harvest time. And so that's why we're kind of pleasantly surprised to see sales in October and November, as we see coming up.

And is that highly unusual? I mean, I guess was this just a very unique year with strong sales in October and towards the end of -- and fall, basically, versus greater sales in the end of the second quarter?

We've had sales in October before. But typically what happens is, our customer base is buying in kind of end of the second quarter and into third quarter. So they take material in the second quarter to kind of make sure they've got material available, and then, as the market starts actually going and harvest does occur in September a lot of times, but this year, because harvest was pushed later into October, our distribution, not knowing how the conditions would be, kind of hung off until they moved through their inventory. And so once they moved through their inventory, we got into the October time frame before they started purchasing to take care of the actual demand.

So they don't know any better than we do exactly how big that market will be. But given what we talked about I think in the last conference call where our channel inventories in our distributors, not just with our products, maybe as much as some of the other products, particularly the pre-plant herbicides and the strong inventory positions have kind of forced them to look at managing their inventory levels just as we do. So I think they kind of held back, said, we can wait until the demand, we know you've got the product. And so that was fine with us.

Andy Cash, SunTrust.

Thanks for taking my question. I have a few of them. First one if you could help me out with is understanding the inventory situation a little bit better. I heard you mention 20%, 25% is sort of the normal channel inventory. It's now around 31%. So is the way to think about that is there's about 5% or so excess inventory out there?

That's correct. And we just are talking about the corn products, which is essentially SmartChoice, Aztec, Force, Counter, and IMPACT.

So it's strict -- that's channel inventory. That's not your inventory. Is that correct?

That's correct.

So what I should do is take an estimate of your corn insecticide sales and take 5% or something like that and this can be headwind for next year. Is that right?

That's correct, yes, 5% to maybe 8%.

Got it. All right. At first I was thinking that was your entire product line. So I'm glad you clarified that was just the corn. So that'll make the headwind a little bit smaller.

Secondly, BSF, they've probably taken notice of how well IMPACT is doing. So I'm just curious, from your perspective, why would they sit around and let IMPACT take potential business from [Amazin]? And then kind of along those same lines, how are you preparing, or if you can prepare for Callisto coming off patent the middle of next year?

So with regard to BSF, I think I mentioned last time, I mean, and I, obviously, when you've had an exclusive position on a product and you've got a competitor in place, you've got that to deal with. But BSF is strong. They've got a lot of good salespeople and they're building that awareness of the product at a greater level. So the growth of [tilpramazone] as a molecule is gaining market share in a way that maybe us by ourselves wouldn't quite be able to get there.

That being said, we've had great success just last year with Monsanto as their exclusive partner with Roundup for the corn resistance market. And we're excited by it. We've extended that out through the 2017 season. That's been a solid piece for us that we think we'll continue to build.

As far as Callisto and generic, Syngenta is very good at understanding how to manage it. They're building their Callisto around combinations and segmenting in the various markets. I don't see generic impact of Callisto hitting in any major way the next few years. But it is a very good question. It's something we've thought about a lot, and we don't see that impact on IMPACT in any major way over the next few years.

If I could be so bold as to ask you, in terms of IMPACT corn acres, do you have maybe some guidance as to what you think in terms of percentage growth and acreage you might see in 2014 versus 2013?

Well, I think we're projecting, again, across our corn portfolio, let's put it this way, 30% kind of in that range. And I think IMPACT we're projecting to be higher than the average.

Chris Kapsch, Topeka Capital Markets.

Just one follow-up on the expectation that [you can] grow, I think corn sales, not volume's roughly 30% next year. Does that reflect the 5% to 8% headwind in the -- the channel inventory headwind?

Yes, it does.

So net acreage growth would actually be higher than that?

That's correct.

And then just on following up on Expedient. You said the target might be 30,000 gallons. Just what's the sort of application or how many acres does that really result -- translate to?

Jim's not here. Let me think about that for a second. So I think we're looking at about, I think it's 5 -- let's see -- [8, in tenths] -- I'm sorry. I'm going to have to -- I'll have to post that. I don't want to give you an incorrect number.

Okay. And then just as you prepare to launch that commercially, just wondering if there's anything different in terms of marketing the liquid variance of your insecticide, corn insecticide versus the granular one in terms of the channel partnerships? Or what other sort of barriers that you might see to adoption in that secondary acreage market for that Expedient product?

Our current customer base is very active. It's the same customers that we currently service into the primary market. So identical customers.

And then I did have a follow-up on that comment about the capacity utilization being a little bit lighter picking up here into the end of the year. Just I don't know if you guys are on a FIFO cost accounting basis. But I'm just wondering if there's any implications for margins looking into ramp into the 2014 growing season in terms of product sales getting burdened with the utilization rates? Or did that start to -- would that start to be reflected in the third-quarter results? Or to the extent that there is a little bit of an extra burden going forward, is that -- when will we see that, if at all?

You wouldn't see it reflected in any of our current inventory, because we're on a standard cost basis. So any unabsorbed -- [we] have unabsorbed overhead and we measure at each facility. And any unabsorbed overhead that occurs, actual cost that doesn't get absorbed by the production, goes into an expense in that period. So we don't see our inventory --

-- building in --

Yes, building in that manner. And we kind of moved to that system in 2009, because we'd seen other companies that -- and as we saw, the increase of our volumes and the fact that we went from one plant to we then had four plants, it gives us better granular visibility of even month to month of month of absorption and, in that matter, each plant manager has that visibility. David, I don't know if you want to [say a little about] --

Yes, that's true. And July and August tend to be slightly slower months, grow's at the end of the season. It starts to pick up in September. And this year, just like last year, we did see some underutilization in August and September and July and August, and a relatively better period in September.

But you would see that, I mean, that under-absorption is reflected in the income statement that you see for the third period. So that's [what I think] --

In other words, fourth quarter won't be sort of penalized by any lag effect related to cost accounting?

No, it won't. No.

And then --

[It's] activity-driven.

And then finally, just going into the 2014 season, just if you could comment on sort of the thinking in terms of pricing strategy, particularly against a backdrop where corn prices are obviously sagged quite a bit. And just wondering what the thinking is and when you would sort of introduce that pricing strategy into the channel.

Pricing has already been laid out --

Right.

-- to our customers. And we continue to believe that the value is dramatically there when we first started this message before there was any [trait] concern, the price of corn was in the $4-per range, and we were showing return on investment just on the enhancement aspect of it. So since then, we now have some potential issues with our performance of traits and the refuge in a bag concept as well. So we think we're a much better value than we were back then. As such, we have been successful at positioning our products to capture what we think is a portion of that value.

Well, is the pricing up, that you introduced, up for the corn products year over year for the --

It is.

-- corn insecticide, at least?

It is.

But can [you, any] order of magnitude?

In the 5% to 7%.

Jay Harris, Goldsmith and Harris.

Eric, the quarter was, I would gather, considerably better than one would have guessed after the last conference call. What products were particularly responsible for what I would term this favorable variance?

Well, we had mentioned that at the time we weren't sure where Bidrin would fall out with the lower acreage. Thimet rebounded for us. And demand for Force was strong. And again, that was probably a little easier because inventories of Force were really pretty low. So those are probably the biggest, really drivers of differential. Of course, our product line as well overall performed well.

And when -- is it reasonable to assume that these channel purchases are not part of the headwinds for next year?

I'm not sure what you're talking about. So the headwinds --

Well, in other words, you sold -- as the distributor inventories were drawn down, they placed orders with you for these products. And --

I got --

-- is there any way of knowing whether their holdings of these products post the usage period would be higher than they were last year, for instance?

So on Thimet and Bidrin, those are products where those were replacement -- those are [NCs] and kind of replacement of product demand, as is Folex. It's just Folex is occurring in this quarter. Force did not have a headwind because inventory was lower than what might be a normal-type inventory for a corn product.

So for these products, the slate's sort of clean as far as demand for next year?

That's correct, yes.

I have a weekend place in northwestern Connecticut and I've seen stinkbugs there this summer. Is there an opportunity to attack the stinkbugs with any of our products beyond just the cotton crop?

Yes. So Bidrin, we're working with the agencies to position Bidrin in soybeans, which is a, it's a big issue there. And we were unsuccessful in getting that done for this last season. We're still hopeful that we would be able to expand into that for this upcoming year.

And [does] that require an issuance of a label specific for the soybean crop?

Yes, it would.

Turning -- well, let's go back to corn insecticides. It seems to me that as this market grows, it's because of an adoption rate by growers that didn't use corn soil insecticides last season and there'll be more growers this season. Are there any statistics that you can share with us in terms of how that adoption rate is proceeding?

Well, I think you can kind of track our sales and you'll have a pretty good -- see the percentage growth that we have in our corn insecticide business and you can kind of track and say, okay, well, that's the adoption rate that's occurring.

And how long into the future do you see a positive slope to that curve?

Well, for the next, I think at least the next 3 years, I think we'll be projecting greater acceptance. But on top of that, we'll be offering a variety of different products and enhancements for that market to help demand continue to grow. So obviously it's a major initiative with us. We're in a great, great position versus other people, other companies in the space or in lead position, and we're going to take advantage of that.

And do we promote a certain yield improvement with this adoption?

We have. I mean, we've continued to --

What are those numbers?

Well, we've talked about just on a standalone basis, 7 to 10 bushel-per-acre increase with the use of the corn soil insecticide. And, but that's become -- well, that's definitely there. Just the enhancement of the trait is something that we hadn't really forecasted until after the 2011 season and there started to see some resistance developing.

Change the subject. As I look at the P&L statement, it looks like capital spending was significantly lower in the third quarter than it had been earlier in the year. What kind of profile should we think about going forward?

David?

We're progressing through some capital investments that we started at [first half] of the year, and getting towards them, for instance, the manufacturing one of the products that we purchased earlier in 2010. So those projects are coming to an end. We've got some capital spending in the final quarter, but it's mainly individually smaller amounts.

That'd be the production of Nemacur and MOCAP that we are in position, manufacturing now as opposed to being supplied by [buyer].

And where do you think that the capital spending will end up for the full year?

I don't have the final number for the full year. But I think before last quarter we said somewhere in the region of $16 million.

Right.

Which I still think is a reasonable estimate. We might be a little lower than that. I haven't got the numbers in front of me at this moment in time.

And what kind of profile are you thinking of for next year?

We're just beginning to look at the budget for next year.

Right now, it's probably less than --

-- on the current year.

-- this year, yes.

We don't have any major, major projects on hand --

Right.

-- in mind right now.

Brent Rystrom, Feltl.

Just couple quick questions on Expedient. That can go through existing liquid applicators that farmers have, correct?

That's correct.

And do you know offhand, have you looked into how it might be used also by co-ops as far as all the knifing applicators that they have, the farmers typically rent [them there]. Would it also work with those, typically? So when a farmer rents a applicator for a co-op, [of course, the] knife's in that application? So is yours knifed in or is it broadcast and you could say (inaudible).

It can go either way.

And so from a simplistic perspective, when you talk about the market being this roughly doubles your total addressable market, our survey suggests that farmers either own or have access, 80-plus percent of them have access or own liquid applicators. Only about 10% own granular. So even though the markets are similar size, this gets you the much more accessible market for the typical farmer. If he's having a problem, he can use this product much, much easier than he could the granular, simply because he's already got usually something to use it with?

That's correct. We were talking about double as taking the current sales of the granular insecticides, or the number of acres, I'll say, because we're not talking dollars, because the liquid is a considerably less-per-acre treatment.

Yes.

And what we've, I'll say really pounded hard for every acre from 2006 through 2010, and we've seen a nice upswing, the liquid growth actually has grown at a faster rate than our granular has. So you're right, it's easier. They don't have to buy a SmartBox system, and it's something that's less expensive for them.

And then one final question. This is going to be a little complicated - I apologize for it - to get back to the previous questions about the scope and size of the market and growth opportunity. When we piece together our surveys in the four states in particular where rootworm is a major problem and we kind of work that backwards to a national [lesson], we figure there was corn soil insecticides purchased in [2004], 2013 use for 16 million acres. And we think that maybe a million acres didn't get used. And then when we look and talk to basically people in the USDA and then also talking to some people at the state level, we're anticipating that you, this year, will be someplace between 20 and 21.

So if I take the 16, take a million off, I'm at 15. To get to the midpoint of that, 20.5 million, that's 37% growth in acres applied. And then, if I assume that a million of that 20.5 million is out there in use, that's more like a 28% growth rate. Does that kind of [sit] with how you're thinking about the market? So total acres would be 37%, purchase of new corn soil insecticides beyond the existing inventory would be about 28%?

That's really good numbers.

(Operator Instructions) Andy Cash, SunTrust.

Just another question with Expedient. Is that going to compete head on with FMC's Capture, or can Capture not incorporate the fertilizer?

Well, the Capture LFR does incorporate with fertilizer, and that's though our material, our label is a little bit stronger, I think we're around 20 -- I'm trying to think. It's 24%, 25% versus 19%. But, yes, we would be in the same space.

Just to clarify, when we were talking about the channel inventory, the excess, that was strictly corn insecticides, correct?

That's correct. Well, corn insecticide and our corn herbicide IMPACT.

And the corn herbicide, okay, IMPACT. All right. So that's why you explained it the way -- okay, got it. And then finally, so 120 inventory that you have, I mean, that's up 29% year over year, and your sales were up what, 8% year over year. Do you feel like you have a little bit excess inventory at your level?

Yes, we do.

And then, so that's exclusive of working down the channel inventory. Is that correct?

Yes, that's correct. And I think that's what we were talking about. We've kind of plotted that out to and have scaled back production, particularly as David mentioned, in July, August, particularly at our Hannibal facility where we make Thimet and Counter. So Counter, we're long and we're working to kind of move that. But that's a product that we not only sell domestically, but we sell internationally as well. So, but Thimet, we experienced a little better sales than we had thought.

So would you say that 105 million, 110 million would be kind of a normal -- would be the right level of inventory for you at the end of the third quarter?

Yes, I think we've got some kind of special inventory situation. But, yes, I would say that we would target to try to get ourself down into that range then.

Thank you. There are no further questions in queue at this time. I'd like to turn the floor back over to management for any additional remarks.

Okay. We'd like to thank everybody for joining us this afternoon, and Happy Halloween.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.