American Vanguard Corp (AVD) 2017 Q1 法說會逐字稿

Welcome to American Vanguard Corporation's First Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Tim Donnelly, Chief Administrative Officer. Thank you, please go ahead.

Thank you, very much, and welcome, everyone, to American Vanguard's First Quarter Earnings Review. Our speakers today will be Eric Wintemute, Chairman and CEO; and David Johnson, Chief Financial Officer. Also Bob Trogele, our COO, is available from Europe to help with the Q&A later on.

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.

As one more introductory item, as you may know, earlier today, we filed our Form 10-Q for the period ended March 31, 2017. You will find greater detail on the company's financial performance for the reporting period in that filing. I now turn the presentation over to Eric.

Thank you, Tim. Hello, and welcome everyone. And thank you for your continued interest in American Vanguard Corporation.

First, I am pleased to report that our full year 2017 expectations are looking very positive. This is due to a number of factors, including trends in our 3 primary markets, which are U.S. crop, non-crop and international; our growth initiatives; and our operating efficiencies. I plan to cover these topics, allowing David to comment in more detail on financial metrics. And then, I will wrap up before taking questions.

As we cited in our press release, our first quarter net sales increased by 2% and our net income improved by 24% over the comparable period last year. I'm pleased to say that our participation in diverse crops and other applications continues to support solid financial performance.

Our quarterly improvement was driven primarily by increased sales of our insecticide products and to cotton, peanuts, fruits and vegetables, sugar crops and pest control.

I will give some color on these and other markets that we serve both with respect to first quarter and over the balance of the year.

Let's start with cotton. During the quarter, we experienced very strong sales of our cotton insecticide Bidrin. This was due to the anticipated increase in cotton acres and pest pressure. As you may know, cotton acres had been forecast to increase by 10% this year, and we've built our operating plan based upon that forecast.

However, USDA is now forecasting an increase of more than 20%. With the USDA outlook, we are producing more Bidrin and Folex for the additional planted acres. We expect the demand for both products to continue through Q2 and for Folex to show further increased sales over Q3 and Q4.

In addition, the uptick in cotton acres within California should drive demand for our insecticide Dibrom in the second half of the year.

During the first quarter, we also experienced increased sales of our non-corn insecticides, particularly, Thimet, for use on peanuts and sugarcane and, expect that this trend will continue. Peanut growers are turning back to Thimet as the most effective way to control tomato spotted wilt virus, a disease that made a resurgence last year.

Also during the quarter, we enjoyed stronger sales of Counter, particularly for nematode control on sugar beets and corn.

In fruits and vegetables, which are typically high-value crops, we enjoyed stronger sales of our herbicide Dacthal in the quarter.

Also in the non-crop segment, sales of our pest strips improved as did those of our mosquito adulticide, Dibrom, in light of public health concern for vector-borne disease prevention. We expect that strong demand for Dibrom will continue for the balance of the year.

These top line improvements were offset by lower quarterly sales of our soil fumigants arising from wet weather conditions in the Western states that delayed application.

However, we expect that we will make up these sales in the second half of 2017. We should see increased demand for use on potatoes and fruits and vegetables, particularly in California, as growers who could not treat in the spring will need to treat by year end. Further, there's plenty of water in the West to support growers in these regions.

With respect to our corn products, sales of our corn soil insecticides, or CSIs, to both our customers and retailers were flat year-over-year, despite reduced corn acres and commodity pricing. By contrast, sales of Impact, our post-emergent herbicide, declined due to delayed wet planting from wet weather and competitive pricing for similar classes of chemistry.

However, we remain optimistic about the prospects for the corn market on a go-forward basis. We note that channel inventory of our CSIs is well below the normalized level at this time last year.

Also through today, sales of our CSIs during Q2 are even with those at the end of Q2 last year.

Further, we recently published a 2-year study that was conducted in concert with 7 universities and 3 independent firms at multiple locations across the Corn Belt that once again showed significant yield increases with our soil-applied insecticides. The study shows increases of 7 bushels per acre when used on top of Bt corn and 20 bushels per acre when used on top of non-Bt corn. These results are consistent with the hundreds of similar studies that had been done over the past 10 years.

This, coupled with low channel inventories and anticipated increases in corn rootworm pressure, should set the stage for stronger sales in Q4.

With respect to Impact, during the current quarter wet weather is preventing many growers from applying a pre-plant herbicide. Thus, we expect to see stronger demand for post-emergent herbicides such as Impact over the next 2 months.

Similarly, while our international performance during Q1 declined due in part to supply constraints related to high bar and [crow bar], we expect that we will see upside activity in the near term related to sales of Aztec into both Mexico for use on corn and Korea for use on vegetables.

Also, internationally, we did post strong sales of our leading Mocap and Nemacur brands during the first quarter, and we expect that this trend will continue for the balance of the year.

All told, we expect to build on Q1 performance as we move further into 2017.

Now I'll turn the presentation over to David, who will give us more color on our financial performance for the period. Then, I would like to review a few key growth initiatives before taking questions. David?

Thank you, Eric. Good morning, everybody. As Tim mentioned, we filed our Form 10-Q for 3 months ended March 31, 2017 at market close today. Everything I'm going to cover here in brief is included in more detail in that document.

With regard to the financial results, as Eric just detailed, the company sales for the first quarter of 2017 increased by 2% to $70.7 million as compared to $69.5 million last year. Our first quarter gross margin improved to 43% compared to 40% last year. Operating expenses increased from 33% of net sales to 35%, driven by higher spending on marketing for the 2017 season, some increased long-term incentive compensation cost and continued spending on the development of our SIMPAS precision application system.

Overall, net income ended at $3.5 million or $0.12 per share in the first quarter of 2017 as compared to $2.8 million or $0.10 per share this time last year.

From my perspective, the key financial issues remain consistent with prior periods. First, we continue to carefully manage our factory activity as we balance recovery of overhead costs with demand forecasts and inventory levels.

In the first quarter, while both our factory activity and factory costs increased, activity outpaced costs, which had the impact of adding $1 million to the pretax income line.

Second, as I mentioned, gross margin for the quarter was 43% as compared to 40% last year. This 3% improvement included about 0.7% from managing the combination of selling price and mix of our quarter-over-quarter sales, 1.5% from improved factory performance and 0.8% overall reduction on raw material pricing.

Third, as I have mentioned in the past, our factory performance is linked very closely to inventory levels. If you look back to this time last year, we had inventories of $144 million.

This year, we are $22 million lower at $122 million.

We continue to follow a disciplined approach to managing demand, factory output and raw material purchasing. We are pleased with this first quarter performance, which was slightly better than we anticipated when we last spoke to you. We believe we are on track to achieve a $110 million level at the end of 2017, excluding the effect of acquisition activities during the course of the rest of the year.

Fourth, our effective tax rate ended the quarter at 28.5%, as compared to 26.5% last year. As we had noted in the past, our tax rate is driven by the balance of where we make our profits, specifically, the U.S. or international, and the level of those profits. For the first quarter of 2017, while our international operations had a slightly soft quarter, our domestic financial performance improved.

Finally, with regards to balance sheet management and liquidity, we continue to carefully manage cash and working capital. We ended the first quarter effectively out of debt domestically, with the remaining debt of $30 million related to international acquisitions in mid-2015. When it comes to cash, we generated $17 million from operating activities in the quarter as compared to $10 million last year. This is the ninth straight quarter during which we have generated cash from operations, which, over the period, has amounted to $142 million.

At the end of the first quarter, availability under our line of credit has increased to $120 million as compared to $65 million this time last year. This further improvement in our liquidity position results from reducing debt and improved financial performance in the first quarter of 2017 versus the same period last year.

Improving liquidity leaves the company well positioned to take advantage of divestment opportunities from consolidation activity that is currently ongoing in the global ag chem market.

In summary, when looking at 2017, we can reflect on our a solid start to the year with improved sales, factory performance, gross margin, net income and liquidity. This strong start positions the company well to take advantage of the opportunities that we expect, will occur in 2017.

With that, I will hand back to Eric.

Thank you, David. Now, I would like to touch on a few of our key growth initiatives. Let me start with growth by acquisition. And note that in my 40-year career in this industry, I've never seen more consolidation activity or more potential divestments.

When mergers began in earnest several quarters ago, we predicted that there would be many opportunities for American Vanguard either in anticipation of or in response to merger control agencies. That has become a reality. As reported by both the FTC and American Vanguard, last quarter, in light of the ChemChina-Syngenta merger, the FTC required the Adama Group to divest 3 product lines, namely paraquat, abamectin and chlorothalonil to AMVAC. These products fit well into our extending specialty crop portfolio, and our sales and marketing teams stand ready to take over these high-performing products.

This deal is subject to closure of the merger, which we expect to take place in this quarter. We will tell you more about the transaction when it closes.

Further, this is one of several acquisition opportunities that we are reviewing in various stages. We expect that we will close a number of deals in addition to the Adama divestment by year end.

As many of you know, growing by acquisition has been a key strategy for American Vanguard. Over the course of the past 40 years, we have acquired 3 dozen active ingredients. We are pleased to see the current opportunities before us, particularly at a time when, as David noted, we have ample borrowing capacity.

I hasten to add, however, that we are always judicious about how we spend our acquisition dollars and consistently apply rigorous acquisition criteria when valuing and bidding on new products. The idea here is that we seek to add products and/or businesses that will be accretive, that will grow and that will give us improved market access. Again, we are encouraged by what we are seeing.

In addition to acquisition activity, we are seeking to grow through the development and practice of precision application technology. As you're aware, we're developing a new industry standard for prescriptive planting with our SIMPAS system. This cutting-edge technology will enable the grower to take (inaudible) prescriptions for treating a field and automatically apply multiple inputs at varying rates per row.

SIMPAS will not only facilitate growth of our own product sales but also become a medium for delivering all manner of third-party products including plant nutrients, biologicals, insecticides, fungicides and (inaudible) onto many crops and to many regions in which AMVAC does not have coverage today.

In other words, we believe that SIMPAS will be a gateway for improved market access both at home and abroad.

To bring you up-to-date on development efforts, we are presently running field trials of the SIMPAS system with a dozen growers and are planning a demonstration to take place at the Farm Progress Show at the end of August this year.

Simultaneously, we are collaborating with leaders in geopositioning and software systems to make prescriptive application into a practical reality. And we're also building a broad portfolio of products to allow cost-effective, yield-enhancing at-plant application prescriptions.

In addition to acquisition and technology development, we continue to seek growth through market access. As I just mentioned, SIMPAS is an excellent example of market access through technology. I also want to note that we are giving special emphasis to market access as a part of our acquisition strategy.

In other words, we are actively looking to expand our footprint both globally and with respect to the U.S. into new markets. By having local representatives in various key geographical areas, we can lower our cost of distribution and leverage existing customer relationships. I will have more to report on this when we bring these deals to a close.

We also seek to grow through expansion of existing products through new use patterns. For example, just this month, we took $1 million order for our plant growth regulator NAA and entered the pomegranate market with that product.

Further, we just obtained a registration to expand NAA's label to include mandarin oranges, which we expect to be a much larger market.

At this point, I would like to leave you with a few closing thoughts. With participation in diverse crops and diverse regions, we are starting to exhibit a certain degree of resiliency. That is, we're able to show overall improvement despite variability in some markets.

In addition, we continue to exercise financial discipline while investing in initiatives for our future growth.

As I said at the start of this call, we feel confident about the balance of the year. Based upon domestic and international market trends, we expect solid top line performance for the rest of 2017. These upsides should generate additional factory activity, especially during Q2 and Q3, which in turn should benefit bottom line performance.

In addition, deal activity is at record levels and should help to augment overall financial performance over the next 3 quarters.

Now, we'd be happy to respond to any questions that you may have. Brenda?

(Operator Instructions) Our first question comes from the line of James Sheehan with SunTrust.

With respect to the acquisition opportunities that you're expecting in this consolidated ag market, does that depend on the closing of deals that are in progress now? Or are there other deals that you think you might be able to execute? And can you also just give us a flavor for what kind of multiples you're expecting to pay for those acquisitions?

Well, on the first comment, as far as the number of deals and what we're -- which are tied to closures, I say about half of -- we've got about 7 that we're looking at a right now. About half of those are tied to closure. The others are outside of that realm. With regard to the multiples we're seeing or looking to pay, I really can't comment on that. Obviously, some of these are early stage. Some of them, price has been determined. Some others, we're still in the negotiation process. So at this point, it wouldn't be prudent for us to comment on that. So I don't know, Jim, if I answered your question, but I have to be evasive on that one. I'm sorry.

Got it. And on the Adama acquisition, can you give us a sense for how many -- what's the size of this business? I figure it's probably around $20 million to $25 million in sales per year. Is it significantly higher or lower than that guess?

No, I wouldn't say it was significantly one way or the other. We're under again a position where we can't comment on the size until such time. And I think we're -- we feel we're only a couple of weeks away and we'll be able to make announcements then.

Okay, great. And then on your gross margin, you previously commented that it should be flattish in 2017. It looks like it's up pretty significantly in the first quarter. Do you -- still maintain that flat outlook for gross margin for the year? Or is it moving higher now?

I think, we're optimistic it might move a little bit up, but we are seasonal. We do have heavier manufacturing periods and lighter ones. Particularly, the final quarter tends to be lighter, so it tends to even out towards the end of the year.

But I think we said last time at the end of the quarter -- the Q4 last year, we were asked. I think we were at 42%.

42% for the final quarter and 41% over the year.

I think the question came up, do we believe that this is a trend that will move forward? And I think we commented, yes, we're feeling good about that where our margins are moving to, and you can see that in the first quarter at 43%. I think we're -- given the output of the plants going forward, I think that drag that we've seen in the past will be de minimis. So I think we feel good about where we are.

Okay. And then on Dibrom, you saw an uptick in sales this quarter and you indicated that should flow through the rest of the year. Why do you think that improved demand for Dibrom will be sustainable?

Well, one of the main reasons, and this is overall in our business, is that we've allowed inventories in the channel to come down to, I'll call it, low possible levels, and Dibrom was no exception. So within our primary mosquito business, the companies that we sell to, their inventories are kind of at historically low. So that's kind of the, I think, primary reason why we see an uptick.

Our next questions comes from the line of Tyler Etten with Piper Jaffray.

Maybe building off that last question and underselling the market demands to try to bring inventory levels down. I feel like you guys are pretty comfortable with the way channel inventories are now. Do you think about underselling the market again in the second quarter or start producing a little bit more towards an even market demand?

Well, I think -- I mean, I think we see -- I mean, it's really up to our customers. They are managing cash. I think they like the fact that we are helping them manage their cash position and working capital with regard to our product lines. With -- I mean, the only danger you get to is if the well gets too dry, do they have product in time to take care of the demand? I think we saw with cotton where, I think, the areas that service the cotton market are very bullish on the market. They are stepping up and pushing to make sure that they are not cut short. So our position has been we do not want to take any discounts in a quarter that in order to move inventory. That tends to also be something that over time our customers don't get to keep, and it just results in deterioration. So we're also mindful that we're trying to steward our products and the market opportunities for our customers as well. So I think -- I mean, I think we said within the corn soil piece -- I mean, I looked at the numbers of what's sitting at our customers' level, and it's less than 10% of the sales at this point. So it just puts us, I think, in a good position moving forward.

Got it, thanks. Okay. And then maybe moving on to the herbicides, fumigants and fungicides segment. I was a little surprised to see it down year-over-year. Can you just talk about the moving pieces within that segment that's caused -- I'm assuming, it's more of a timing issue. But can you just expand on the segment a little bit and what happened in the quarter?

Yes, with regards to the soil fumigants, the big months are second -- I mean, third and fourth quarter. But the fourth quarter, as you get into November, that pretty well dies down, with the exception of California and certainly Florida, too. But for California, it was wet and it never got dry. And so it stayed wet through the first quarter. And so a number of areas did not get [material]. But we expect that in fourth quarter that those acres will pick up. In addition, any applications in the Pacific Northwest that don't get done in the spring will get done in the fall. So I think we feel our team is -- is looking, and is on top of it and feel that we will make up the volume over the balance of the year. With regards to the corn herbicide, Impact, yes, we've seen slower-than-anticipated sales driven by 2 factors. One, due to the wetness, the planting season is delayed at least 2, maybe 3 weeks, which people are pushing back and taking their herbicide because, again, this is a post-emergent herbicide market, which does bode well for us because once their fields get dry, they may not have time to get their pre-emergent herbicide down. And therefore, they'll go straight to planting, which means the post-emergent market will be much stronger. So that we've got some higher expectations for. I did mention that there are competitive similar chemistry issues that have occurred. Syngenta's product has come off patent, and that has resulted in a price decrease in some segments of their market. So that certainly has an effect as well.

Got it. And just a couple more, if I could. Building off of the outlook for Impact, does the increase in expend acres have any sort of adversity to Impact's business? And then are you seeing any pricing pressure from competitors in post-emergent herbicide space?

Yes. So as I mentioned on the post-emergent, so the loudest is Syngenta's brand, (inaudible). And we do note that, that has experienced pricing pressure and caused growers to kind of consider okay, what are their options? That being said, we feel that Impact is superior certainly in grass control and in plant safety. The Impact name is a very strong brand, and we feel that usage will continue. Within the extend, no, we have not predicted that we will -- that, that market will suffer. Again, we have grown this business every year, and it's too early to call how we're going to wind up this year as we'll be able to see probably strong sales picking up in the second half of May and running it through June and even into July. And Impact is one of the few molecules which you can spray right up until close to harvest. So overall, I think, that's an area, let's say, of potential softness. It's been soft so far. But on the other hand, the last time we had a strong post-emergence, we moved a great deal of material in the latter part of the season.

(Operator Instructions) Our next questions come from the line of Chris Kapsch with Aegis Capital.

A question about the upward revision in cotton acres. Can you just talk about where you see those acres geographically? And then depending on the answer to that, I just want to understand, presumably that like, for example, if it's in Mississippi Delta that it's going to be in areas that generally doesn't impact your business, for example, for corn. In other words those acres transitioning from some other crop presumably. I just wanted to understand if there's all upside but no negative effect because of the focus of the application of your corn products.

Sure. I'll start of and, Bob, you may want to kick in on this as well. I think -- I mean, we do see increase in the Southeast and the South. And again, we do have good use of Bidrin and Folex in those areas. And as I mentioned, even California is going to be up, which we've used Dibrom instead of Bidrin in that area. With corn products, those tend to be stronger in the Midwest areas, Iowa into the Dakotas and Indiana, Illinois and not as strong in the South. Although, we do have -- Counter tends to be stronger in the South. And there are nematode issues that are stronger that they do a little more treatment in corn with. Bob, if you're able to kick in, do you have comments on this as well, on this question?

Yes, Chris, I would just say that the cotton expansion is good for us. The upside would be of course, insect pressure. But the fact that the acreage is looking good for our defoliant business. Prices are good, which is probably the key factor. And demand is strong for our U.S. quality export cotton. And those are the drivers that people will -- farmers are going to invest in the cotton -- to the cotton crop. So having said that, that's a positive. I don't -- as Eric said, I don't see any negative effect on our corn or soybean portfolio. Does that answer your question, Chris?

Yes, that's helpful. And then just a follow-up on you called out some increased competitive pressure in the Impact business. And that's -- if I understand right, the post-emergent herbicide. So just wondering if your -- the competition you're seeing, is it solely in like products, in other words, other conventional chemistry? I think you mentioned the Syngenta one coming off patent. Is that the sole source of sort of increased competitive pressures? Or is there additional pressure like from GMO solutions?

No, the is issue is strictly that there's HPPD class of chemistry and (inaudible) was the first one that came out into the market. And so there are a couple of other HPPD chemistry products. And so that's the kind of the sole competition that we're looking at.

Okay, and then just a follow-up on the acquisition opportunities, it sounds exciting. When you characterize the fact that you are looking at 7 different opportunities, are you talking about 7 different product lines or is it specific transactions? For example, like this Adama acquisition. I guess it's one transaction but it's 3 product lines. So does that count as 3 of those 7 or does that count as 1 of those 7?

It counts as 1. No these are -- a number of them have multiple product lines associated with them.

Okay. And then I guess, I appreciate you can't discuss sort of multiple and something that's potentially being negotiated. But can you just talk about the characterized like what sorts of products you feel that are strategically complementary to your portfolio and your company's growth strategy. Some of these are being forced to be sold because of competitive antitrust issues associated with the consolidation in the industry but may not necessarily fit with the strategic imperative of your company. So just if you could reconcile, are these just opportunistic because some consolidations forcing their sale or do they also strategically fit, what you're looking to do?

All of these are strategic for us. There are others that we've elected not to participate in that we did not feel would be as strategic. We put together what we think is a very strong upside, where we'd be successful with all of these. But I think in my comments, I made the statement that we look very judiciously at our dollars and we look through the financial models to assure that these will be accretive from day 1. So maybe that could kind of give you an idea about what we're paying for these molecules.

And then maybe just the nature of the process itself, is there, I mean, there's sort of 4 sellers in a way. Is there other buyers at the table, private equity, other strategics? Or is it just -- yes, is it sort of tilt in your favor in terms of being at the table here?

Well, I mean, we have a long track record of being successful with these acquisitions. And I think as much as anything as well that I think we're considered a strong steward and competitor in the marketplace. We also have the ability to close the deals very quickly because most of these companies we have had done other contract with them. So the language is pretty much resolved. So when we get into the divestments that are required divestments, there are a number of things that the divester is looking for. One would be somebody that has the ability to market the product and has the coverage to do so. So that to some degree, limits equity play. I mean equity play needs some market access with somebody strategic. I think also, as I mentioned getting the deal done quickly, that there's not a long drag out of negotiations. I think they feel comfortable with that aspect of it as well. But I should mention that some of these deals have nothing to do with the acquisitions -- I mean with the consolidation that's going on. These are opportunities for us that have come along the way as well. It just happens to be at the same timeline.

That's helpful. And then just one last follow-up on the process because one thing you didn't mention is I guess typically these products are going to come with some responsibility to keep the data current. And how -- just -- what's the sort of cost? Is it a capital cost or an operating cost needed to maintain registration data? And how do you bake that into your sort of accretion analysis?

Sure. At the time of the acquisition, I mean, we do capitalize (inaudible) and tangibles and (inaudible) and goodwill. Obviously, there's inventory that's involved also. But as we go forward maintaining registrations, that's all expensed in the period that it occurs. With regards to the Adama compound, obviously, Syngenta is the brand -- original brand holder and data holder. Adama is part of the -- a task force to maintain those registrations along with Syngenta. So it's normal business for us, I guess. We look at -- when we do these valuations, we do look at -- there are specific spends that we're going to need to make that might be unusual outside of what we would put down as a normal level, and those get baked into our model at the time we make our initial bid. And of course then, we refine that as we go through due diligence to make sure that our assumptions are correct before we submit our final binding offer.

Our next questions come from the line of Aaron Steele with Feltl and Company.

I just wanted to get your kind of take on gross margins for the rest of the year. Will you see a benefit in the second quarter from lower raw material pricing? And then on the plant side, the manufacturing performance you hinted at the performance there improving gross margin. Just wondering how that continues? And does that grow as -- into that second quarter and for the year?

So currently, I guess we'd anticipate the current trend of raw material prices to hold. These are prices that have been negotiated either last year or earlier in this year. So I think we feel good about that aspect of it. As you mentioned, the plant factories look strong at this point. And basically we've gone through our game plan through the balance of the year, we do see improvements that will be material versus last year's performance. And then, of course, the other piece is that we do have sales mix each quarter, and we do have a material depending on when it goes, the margins vary on each of our product lines. And so that's also the mix. So those 3 things really kind of make up our margins.

Okay. And then on the herbicide business, what was the impact from the wet weather? And then how -- how much of that catch-up could we or should we expect in the second quarter?

Yes, it's a little early to call that pick-up. I mean, well certainly by the end of June, I think we'll have a real good vision of what that looks like. As far as quantifying the number at this point, yes, I don't think -- I mean we're in the midst of it right now and so I mean, it was in the nature of a couple of million dollars I think, was where we were off.

Okay. All right. Understandable there. And then looking for -- looking at the R&D expense, a slight pickup here in the first quarter. Is that kind of all related to additional investments at SIMPAS? And then how do we view that going forward as well? Are we likely to see kind of similar increases for the rest of the year? And then how -- can you give us a little more color on the field trials that are going on right now with the SIMPAS system?

Some of those increases were regulatory spend. We have also probably -- I think, our budget this year is, in terms of field trials and product development, is up significantly from what we've done in the past as we feel that we've got some very nice growth initiatives within our existing product lines. And then we have combination products that we're looking to bring out as well that we're looking to do more field development work just to verify that what we think we've got is strong. With regards to SIMPAS, I think we -- through the balance of the year, I don't know, David, that we've got forecasted anything highly unusual. I mean, we're -- we are doing these field tests, I think we've got, what is it 4 planters of whatever, we rented just to go out in these growers, and I think they're like $50,000 a piece or whatever, so that's an expense of $200,000 to do these (inaudible) trials. But these are not huge numbers. But we are going to continue to invest in bringing SIMPAS to where it needs to be. And also, as we look to bring other products into this mix, then of course we're going to be doing field testing with other products to verify their performance, some of which may be borne either all or in part by the current registrant as they look to get access into this market. So I don't know if that -- and you were asking about the development of the field trials. I'll relate to just the one anecdote that I remember is that we had -- we had delivered a system to one of the growers but had not given him his planter. And we have -- we're going to go on out and work with him. And he came back and sent back a report about how it was like a kid at Christmas. He opened up the boxes, said it was really easy to hook up and it's wireless. He used it. He used his own planter. He used his own little iPad. And he said the thing worked just perfectly and was thrilled to death. So I think we're anticipating no problems at this point as because, again, we did in the fall 216 different meters going through the field and really saw no issues. So, yes, we're expecting some solid performance out of this planting season right now to tee up for a more marketing and commercial approach this summer.

All right. Excellent. That's great color there. And then just on your appetite for acquisitions. You had previously commented on a range of values maybe in that -- by yourself kind of in that couple of hundred million dollar range and partnering maybe with another strategic partner, that value increasing. But has your kind of range of values narrowed at all considering the acquisition you previously made with Adama, or is that kind of those ranges still intact?

No, I think we feel good about what we've said in the past that on our own in that couple of hundred range with strategic partners up into that billion dollar range. And this -- what we've laid out has the color of both. So we're excited about what we've got in front of us.

Our next questions come from the line of Bruce Winter, Private Investor.

Following on SIMPAS, this summer you're going to do a more marketing and commercial approach. Does that mean that farmers are going to be using this next planting season?

Yes, that's the plan that we'll demonstrate it during this summer. We'll expand it certainly the 12 farmers. We'll probably be some control and kind of monitor how each of the farmers that do wind up with the system do to make sure that we're there in case we see any issues. We do want to make sure that this is a very positive experience for each of our -- of the people that do use it. And as I said, we get a good sampling with these 12 growers, through -- and have videos and demonstrations to show people so they can touch it, feel it and they can just sit with the iPad and move the thing and down and they'll be able to see the material going through the system. And I mentioned -- I may have mentioned before that for demonstration purposes, we've made the meter clear so you can actually see the auger, the granules coming through and the speed or volume that's going through, going up and down as you're -- just touching the keypad, that it would simulate. But we'll also have -- we'll have a simulated prescription so that they can -- they'll be able to see on the iPad what's moving up and down as this is being applied at the tradeshow. So it will have a ability for them to participate and experience it firsthand. And we'll see again kind of what we generate from that and then we'll make assessments on 2018 how big of a push we can make at that point.

Are you going to sell it or include it in the cost of your product?

No, it will be sold. One of the things that we do see much bigger value here than the SmartBox system alone. From a costing position, I think we feel very good about what our cost position is, which is even though we've got multiple meters, the fact that we are not doing any hard wiring, which is pretty expensive, brings down the cost. And we may wind up with something more sturdy than an iPad down the road. But basically, all -- virtually, all farmers out there have an Ipad at this point. And so all they do is just download the app, push it and go. So yes, it's much simpler. As mentioned, it's self-calibrating. There are additional pieces that we're bringing forward, which will be the RFID tag inputs on the containers themselves. So again, we're thinking good progress on all aspects.

And are other chemical companies lining up to license spots in your program there?

What we've done with each of the companies is we've talked with them about, do they have a product that could benefit from being prescriptively applied? And they virtually all do. And so we're working with those where they're interested on having market access. As I mentioned, we do want to test. We've got this down pretty well with -- based upon density and size of the granule. We have not done the testing with liquid material at this point. But I think, we're confident we'll get to that pretty quickly. But we want that to be a good experience for the grower, and we want to make sure that whatever material we put through there winds up coming out to the performance of that plus or minus 1% accuracy and we don't have any clogging due to variability in size of the granules or anything with the thickness of the liquid.

And where does the farmer get the map for where to put each little pixel, what to put on each little pixel in the whole map of the field?

Right. So agronomists are definitely going to be involved. And our customers, particularly at the retail level, have a wide variety of agronomists. Some of the bigger farms certainly have their own agronomists. But they have field mapping -- has been done for years on harvest. So they've got all that information on where every square meter of their field is historically -- what the yields are in that particular spot. So then interpreting the data as far as okay, we've got strong yields in this section and weak over here. Then it start getting into why are we getting better or worse? You can sometimes see a disease in particular areas of the field, might be related to lower levels in the field that might have higher moisture contents where it might breed more disease. There's ph levels, which might affect where pockets of nematodes would be. So this is -- it will be an evolving process from the beginning, from the information they have now. I think they're very far advanced as far as understanding nutrition in the field for micronutrients. So I think that's a fairly low hanging fruit piece that we can get after. So that's -- it's not that these prescriptions are sitting there today. It will interpreting. I mean, they do have prescription certainly for micronutrients, and they know how to do that. But this is -- this will be an evolving process for agronomists, and I think they're very excited about the opportunity of being able to do that because then it does tie them closer with the farmer themselves.

A different topic. Probably a stupid question. But why do California cotton farmers like Dibrom rather than Bidrin?

Bidrin was never registered in California. California has additional registration requirements and for whatever reason, Shell never registered it in California or Arizona. We do have registrations in Arizona. But it's just historic, Dibrom works well for the same bugs that they -- I mean, the bugs that are in California. Plant bugs are bigger and stink bugs are bigger issue down in the South, and Dibrom works a little better there. So it's just historic.

(Operator Instructions) It seems we have no further questions, I would like to turn the call back to Eric Wintemute for closing comments.

Okay. Well, thank you very much and thank you all for joining us. It's an exciting time for American Vanguard, and we look forward to reporting continued growth as we go throughout the year and talk about specific acquisitions as we close them. Thank you.

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