American Vanguard Corporation (AVD) Q1 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the American Vanguard Corporation First Quarter 2012 Conference Call. [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.

Well, thank you very much, Rob. And good morning, everyone. Welcome to American Vanguard's First Quarter of 2012 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 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 the 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, let me turn the call over to Eric.

Thanks, Bill. Good morning, everyone, and welcome. Thank you for joining us as we report on a very successful start to 2012. David and I welcome this opportunity to tell you more about our first quarter performance and the prospects that we see on our horizon. I'm going to let David give you all of the operating and financial metrics, but I want to start by providing an overview of this outstanding quarter. Revenues were up 32%. Gross profit margins expanded to 43%. Operating expenses were held to 26% of sales. And the all-important bottom line, net income, grew 74% over last year's first quarter. As David will describe, our balance sheet remains very strong, and shareholders equity in American Vanguard increased nearly 5%. The main themes of these quarter are: excellent top line growth and outstanding profitability, fueled by renewed confidence in traditional chemistry as part of a comprehensive integrated pest management approach to modern agriculture. Revenue growth was driven by general ag sector demand and particularly by our strength in granular soil insecticides for corn and other crops as well. As we will discuss, this is our wheelhouse where we have the industry's most comprehensive product offering, the most efficient dispensing equipment and in-house production capabilities to satisfy growing demand. It is noteworthy that 100% of our quarterly revenue growth came from existing products without the benefit of any new acquisition sales. Our increasing profitability is being driven by improving gross profit margins and operating expense control. In the quarter, gross margins benefited largely from the efficiencies of higher volume manufacturing. While our expanding business required some rising operating expenses, we have seen such expenses decline as a percent of sales. Together, this gross margin gain and operating expense restraint have contributed to our significant net income acceleration. With that overview, I will now turn the call over to David, who will cover the financial and operating details. I will then return with additional comments about the factors that we see shaping a bright future in 2012 and beyond. David?

Thank you, Eric. As Eric has already mentioned, and as you will have read in our earnings announcement, sales for the first quarter of 2012 increased by 32% to $87 million, as compared to $66 million in the first quarter of 2011. Within this number, our crop sales were up nearly 39% to $80 million and our non-crop sales were down 13% to $7.4 million. It is pleasing to report that our export sales have more than doubled to end at approximately $18 million versus $8 million this time last year. In our 10-Q filing scheduled for tomorrow, you will see a detailed description of sales by product groups. In summary, insecticides recorded sales of approximately 43% over the prior year. This group was driven by very strong demand for our corn insecticides into the Midwest, offset by lower Bidrin sales, which last year occurred in Q1 and are expected to occur later this year. Our herbicides, fungicides, fumigants product group was up about 39%, with strong performances from each of these product categories. Within crop, our other sales were essentially flat. And as mentioned previously, our non-crop sales were down 13% mainly due to elevated channel inventories of our mosquito adulticide product Dibrom as a result of last year's drought conditions in the southeastern and south central regions of the U.S. Our gross margin in the quarter was 43% of net sales, as compared to 41% of net sales during the first quarter of 2011. This was driven largely by better manufacturing performance, resulting in fuller absorption of fixed overhead costs. Operating expenses increased in the quarter by 30%, as compared to last year. This supported an overall increase of 32% in sales and is largely attributable to regulatory expenses and the increase in freight costs associated with higher overall volumes and our expanding international business. Having said that, one key metric that we track is overall operating expenses as a percentage of sales. This year, we posted 26% compared to 27% in last year's first quarter and a 28% average for the full year 2011. The net result of these dynamics is operating income of $14.4 million versus $9.2 million this time last year, an improvement of 57%. Our effective interest rate for the period is 4.6%, as compared to 4.1% last year. The main driver for the increase is that, this year, we have a fixed interest derivative as required by our credit facility agreement. The advantage is having a stable interest rate for the 5-year term of the loan. The disadvantage is that, in comparison, short-term floating rates last year were lower. When you look at the 10-Q, you will see that the fixed rate derivative cost is approximately 0.8%. Income before tax improved from $7.9 million to $13.7 million, an increase of 73%. Our effective income tax rate is 36.3%, which is flat as compared to last year. As noted by Eric in our earnings announcement, our net income has increased 74% and our earnings per share has increased to $0.31 per share, as compared to $0.18 this time last year. Our balance sheet remains in strong condition, with shareholder equity up approximately 5% in the quarter. Certain elements of working capital increased in the period, which is quite normal for our business at the start of the growing season. The key elements that we focus on daily are inventory, which remained quite low driven by strong demand, and a very strong manufacturing performance, which resulted in fuller recovery of manufacturing overhead costs for the quarter. Receivables. The sales team spends a lot of time in the field with customers, but they're also very careful to collect receivables as they become due. Our performance in this area is a matter of great importance for the company and our success is the result of great customers and a lot of attention to detail across the organization. Payables. This reflects the fact that we pay our bills in a timely manner and we are carefully managing our inventory levels. Programs reflect the significant volume of our sales growth as well as our expanded product range. As you will see from the cash flow statement, we are spending capital in the early part of the year. This is focused on equipping our manufacturing sites to produce additional steps in certain products acquired in 2010. Because of this careful management of cash, even during the early part of our annual cycle we have been able to cover the growth in working capital, invest significantly in our manufacturing facilities, declare a $0.05 dividend, all without looking to revolving debt for short-term financing. Finally, because of our overall financial performance, we continue to be in position to borrow up to the maximum allowed under our credit facility. With that, I hand back to Eric, who will close with some comments about our sales and marketing initiatives.

Thank you, David. Since the quarter was heavily influenced by Midwest demand, let's talk a little about corn, where we see substantial growth opportunities. Mild temperatures throughout the winter months have facilitated an early and robust corn planting season. It is estimated that around 95 million acres of corn will be planted this year, and growers have had the opportunity to plan and execute that planting without the rushed pace the inclement weather has caused in recent years. As we have previously discussed, the tendency for farmers to plant corn on the same acreage year after year has given rise to much greater primary and secondary pest pressure perception [ph]. For several years, we have maintained that, by using both traded seed and our granular insecticide products, it is possible to achieve yield enhancement beyond which can be achieved by using genetically modified seed alone. AMVAC's "Best of Both Worlds" message is gaining real traction in the Corn Belt, and the use of our corn soil insecticides continue to expand as corn growers choose to supplement their use of ever-improving genetically modified seeds. AMVAC has 4 primary granular corn soil products for customers to choose from: Aztec, SmartChoice, Force and Counter, allowing growers to rotate these defensive measures, which helps mitigate the development of potential insect resistance. As a result of the groundswell of demand for our soil insect solution, we are ramping up our production capacity for each of these products and the delivery systems. Our access plant has expanded its operations to accommodate necessary production. Our Hannibal, Missouri plant, which is ideally positioned in the center of the U.S. corn market, will become the hub of our Midwest corn initiatives. And our production of SmartBox systems will significantly increase in 2012. Paralleling our corn soil insecticide program is our post-emergent corn herbicide initiative with Impact. As we have discussed previously, with each passing year of widespread glyphosate herbicide use, weeds and grasses tolerant to that chemical proliferate, increasing the need for complementary herbicide use. Our Impact herbicide, which addresses the glyphosate-tolerant weed challenge, has been selected by Monsanto based on efficacy and crop safety to participate in the Roundup Ready PLUS platform. This co-marketing arrangement holds the promise of a much wider use of AMVAC's Impact. Together, these 2 corn initiatives are part of AMVAC's yield enhancement solution, YES, which we are promoting throughout the Corn Belt. Increasing yield is a critical objective of corn growers, and these corn initiatives are a prime example of how preserving existing chemical and equipment technology can contribute significantly to that effort. In crops other than corn, our granular soil insecticides had solid performances as well. Our primary, Thimet, continues its strong presence as a preferred insecticide in peanuts, sugarcane and potatoes. On nematicide, Counter grew significantly in the quarter in corn, sugar beets and bananas. With stronger supply availability, our Mocap and Nemacur posted first quarter sales considerably higher than the prior year on potatoes, bananas, pineapples and a number of other vegetable crops. Our fungicide PCNB returned to the U.S. marketplace and we look forward to reestablishing the preferred position of this product in 2012. We remain very excited about the market prospects of our potato sprout inhibitor SmartBlock despite the delay in commercialization until next year. Our international business more than doubled in the first quarter versus a year ago, with our insecticide and nematicide products leading the way. As David described, our non-crop business declined somewhat in the quarter as channel inventories of Dibrom reduced first quarter shipments. We expect that this segment of our business will continue its multiyear growth pattern with the resumption of PCNB sales in the United States for turf application, the steady growth of our Nuvan commercial and consumer pest management franchise, as well as an expanded mosquito control offering. So to conclude, what is the near-term takeaway message for American Vanguard? These results demonstrate that we are experiencing volume-driven revenue growth. We are achieving gross margin expansion as a result of greater operating efficiencies. We are managing our operating expenses to a smaller fraction of sales, and we are bringing significant additional profits to the bottom line. We expect to be able to continue this positive trend throughout the coming periods. As we have mentioned before, American Vanguard finds itself in a great place. In a world that must double farm production in the next 2 decades, in an industry that must adapt to the ever-changing challenges of mother nature, American Vanguard has positioned itself to be a significant part of the solution. We have great confidence in our ability to identify and position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success. I'll now be happy to entertain any questions that you may have. Rob?

[Operator Instructions] Our first question is from the line of Michael Cox with Piper Jaffray.

My first question is on the capacity expansion plans. I was hoping you could give us a progress update on the BASF constraints on the Impact herbicide, where that stands on building that out for next season.

Yes, so we've had communications with the demands that we're looking for, for the 2013 season. And I think we're fairly confident that we will meet our expectations. Whether we've projected right in the market is -- it's still a question, but we do see a very strong collaboration with Monsanto in growing that market segment.

Is it something that we should look for from -- hearing from you in the next, say, 3 to 6 months? Or what sort of lead time would you need to have that deal inked to be prepared for the 2013 application season?

Well, as I said, I think we're confident that we will receive the material that we're looking for, for the -- I'll call it the '12, '13 but basically the '13 growth season.

Okay, okay. Considering the demand that you saw this year for corn insecticides and the likelihood that we'll have another big corn planting season next year, how are you sizing up capacity expansion plans for next year's application? Is there a particular acreage target that you're working towards to have in place? And then, I guess, what sort of flexibility would you have to further expand capacity if the demand proves to be higher?

So this year, we had input from our customers that ranged anywhere from, "This will be up nicely," to, "Don't ever shut off your equipment." And so that becomes -- overall, we survey in trying to get a feel for it. We talk with each of our customers and kind of laid out what we thought their needs would be. I think they were appreciative. We're continuing to get input for this upcoming season, but we are positioning ourselves to have considerable gain over what was put on the ground or what we put on the ground for this 2012 season. Like you, we do see also strong corn season for 2013. But I think, more importantly, it's the acceptance of using our corn and soil insecticide products as part of a supplement to genetics. And so I think, regardless where this goes, we see that -- a resurgence of that market. We don't have -- I mean, we have some internal targets for production that we're working on. We've -- we're expanding the plan. We put in actually a separate unit in our Axis facility to manufacture Tribufos, which is our cotton defoliant Folex, so that we could expand the use of our existing product for more corn products, both Aztec and our SmartChoice. We have capacity at Hannibal for Counter, and that would be -- manufactures Counter and Thimet. We're -- we have the ability to expand production there. I think, when we took over the facility, it was running about 4 or 5 months out of the year. We're getting close to running round the year, but we haven't gone to -- that can increase very dramatically if we go to 24 hours instead of just single shifts. So we've got, I think, considerable upside there. As far as formulation, we have gone to 24/7 at our facility in Alabama. We are in the process of putting a system in Hannibal to do formulation and packaging of the SmartBox systems' Lock 'n Load and that will be a primary driver for the corn market really more for the '14 season as we'll probably start that production in the second quarter of 2013.

That's great. One quick follow-up on the SmartBox side. Do you have a sense for the number of systems that are in the field today? And you had mentioned stepping up your capacity to manufacture those delivery systems. Could you maybe quantify what that increase might be?

We -- it isn't -- we don't have exact numbers on how many systems are in use today. What we are seeing is that the size of the units is growing. I think a number of people who had been using SmartBox systems were using those to manage their refuge acres. And that shift is now starting to go into total acreage rather than a 20% or 10% of their corn acreage. Our SmartBox systems that we sold this year were approximately double. We expect that to be more than double that number in 2013. Correlating that to expanded use isn't easy because as, I mentioned, it's a matter of utilization. Growers, as they are adopting more towards total acreage, that just means they will be using their SmartBox system more than they might be using as if they were using it for refuge. So it's -- there's not a direct correlation between the number of systems that we put out there and translating into actualness. Now we do know, with the volumes that we're doing, we also are going to be purchasing a considerable more SmartBox containers themselves to facilitate this upside and that was a restraint for us. We did purchase quite a bit more for this season, for the 2012 season, but effectively, we saw demand was greater than what we could supply for that market. So we -- we're using our best estimates here for what we think 2013 will hold for us and we're producing and securing it accordingly.

Okay, great. One last question, on the gross margin. The 200 basis point improvement versus last year, how -- in just ballpark figures, how would you estimate the fixed cost absorption versus a more favorable product mix?

Well, I think that the absorption was the major part of that. When you look across, I think, our insecticide -- soil insecticide line, there was more favorable margins. We -- I think, in our fumigant line, we did not have the same margin that we had from prior years, so that was a little offsetting to growth in the soil insecticide base.

Our next question is from Brent Rystrom of Feltl.

A couple of quick questions. Out of curiosity, would you view -- your corn soil insecticide at this point, are they being used as a preventive measure or are the farmers using them more to react to what they're seeing in the field? So when we get out there, I'm assuming they're looking at beetle counts or something like that to give them an indication of the rootworms coming in. But I'm just curious how you view the farmer's approach to this.

I think it's a preventative approach. I mean, traditionally, farmers are very sophisticated. They go through -- they've got a yield map that tells them exactly what their harvest is by every sector of their fields. They pretty much know year to year whether they're in a high-pressure area. They have the ever-increasing corn-on-corn acreage of greater than 30 million acres. 1/3 of the acres are being corn on corn. And that non-rotation certainly builds pressure. I think the majority -- to answer your question, I think the majority of the people are viewing a $20, $25 an acre investment in their protection of a corn market that is so strong, coupled with the yield benefit that we've shown now for 7 consecutive years at the universities. It's a strong message. And more importantly, I think we're not seeing, contrary to when trades came into the market in, I'll say, the 2006 season where trade companies were looking to displace insecticides, now I think there's greater acception of the thought that we need all the tools in order to continue to drive yields. And so the trade companies are working on great technology that will continue to improve the yields, and our position is that we're there as a supplement to help grow those yields as well.

And from a -- you mentioned the -- some of the studies. When you look at, like, the University of Minnesota study and you look at the 4 best-performing plots they had, all 4 of them were your individual 4 products, as far as what I can see. That's got to be a pretty effective marketing tool for you, to go out and use that, I would imagine?.

It is. And as I mentioned, we're a small company in AMVAC and we were pushing the message largely on our own. I think finally having some greater talk about at some point it hit the tipping point, and I think that's where we are today. I know there are not too many people out there at this point that are saying insecticides are a waste of time. The initial push, again, is about convenience. And at this point, given where corn is, it's a return on investment. And so if you're in an area that has pest pressure, just from our standpoint, it just makes complete sense to supplement your planting.

Who would you say your biggest partner is in the field, would it be agronomy centers? Would it be your agronomists that's working with the farmers? Or would it be some of the larger companies you're marketing with?

Yes, I think it's our customers. Our customers have grabbed a hold of the messages. They're talking through with farmers. We're -- I think a difference from previous seasons is the seeds of the trade companies are no longer -- I mean, they're in fact recommending that, if you're in a heavy-pressure area, you need to look at adding a soil insecticide. So I think part of it is we don't have that force kind of in a negative position. In fact, they are enhancing our message. But our customers have taken this -- take it to retailers. It's certainly supported by all the studies that we've done and the universities have conducted, as well, on their own. And I think it's just a weight of evidence at this point that makes it a pretty easy decision.

Did you take any price increases on the CSIs compared to last year?

We did.

Can you characterize the range?

In the 7% range.

Okay. And I would imagine, given the growth you're seeing, there's very little resistance, so clearly, this product is very important for those who need it. Do you anticipate that pricing increases could be something not necessarily annual but a regular part of the package over a couple years cycle?

Every year, we look at the opportunity to -- for price increases. I mean, it's not about looking specifically at our margins. It's what's the value of the product in the market. And we see there this is -- at the cost of the farmer today, it's a very strong return on investment.

Okay. From a -- you mentioned corn on corn. I was looking at some of the studies coming out of Iowa here just a couple of weeks ago, qualifying, they believe, corn on corn acreage in Iowa last year yielded 8 -- 28 bushels less per acre than rotating corn. And that was up, I believe, from, what, 20 bushels the year prior. I'm curious if your farmers or your agronomy centers have gotten back to you and said how your corn-on-corn treated fields have fared compared to the averages.

We did have the results for 2011, and again, we saw a considerable upside. The '12, of course we won't know that until the end of the year. By the time...

Yes. They were --- the numbers that I'm talking about were just released [indiscernible].

Right, right. But I don't know that we had specific -- but I've seen the breakout of corn-on-corn. We certainly if it was corn-on-corn or not, but that's a good point and one that I'll bring up with our sales and marketing team.

All right. And then final kind of an oddball question, but do you guys have any play for the spread of HLB out there from the Asian citrus psyllid? Is that something that you guys could participate in? Or is there just really no hope for that?

Citrus psyllid [indiscernible] Dibrom.

Yes, yes. So we initiated last year Dibrom in Florida. And if you pull up on our website, on our video and this next segment with a grower -- puts juice out under a Noble [ph]. But he's a significant grower in Florida, and he talks about the change that happened in his production from about $1,200 an acre production cost to now $2,400 an acre because of the Asian citrus psyllid. And with that, the primary treatments have been pyrethroids and mix. Dibrom offers a completely different class of chemistry and is highly effective. So yes, we did participate to a small degree in 2011, and we see upside here in 2012. We are -- there are issues down in Mexico and our group down there is working with that. It's also expanded over into Texas, and I think here in...

Just found in LA, yes.

Yes, here in California, there's a scare in that because it was found in a residential area. Those diseases can be devastating. And when the vector hit the oleanders that were so big on the drive entrance [ph] totally decimated the oleander market I know along the highways. That wasn't so much a commercial issue, but certainly from a cost standpoint, the concern with -- that hit the grape industry that didn't expand into Napa in any great way but certainly a devastating effect down in the Northern San Diego county area. This disease can go rapid and can be completely destructive. So yes, we are participating with Dibrom. We think it's a very good solution as part of a rotation of a number of tools to help control that pest pressure.

[Operator Instructions] Our next question is from the line of Jay Harris with Goldsmith & Harris.

Now my question is, how should -- over the decades, your business has -- I remember when you couldn't report $0.01 a share of earnings in a March quarter, but because of corn, we now have a very heavy revenue capacity during the first 6 months of the year. What are the factors that are going to be the principal vehicles for the June quarter and the September quarter? And can you give us some insights as to the growth undulation, the quarterly revenue profile that we should be looking towards as you penetrate more of the corn opportunities?

Well, I guess you're right up until the last: It depends in corn opportunities that I was going to talk a little about, the second and third quarter, fourth quarter, the flow. When the 2009 period hit, and all of a sudden our customers were faced with considerable write-downs of glyphosate and fertilizer, there was pretty big shift, at least, within our business of moving product more towards actual use. And I think part of what's happened here with corn is it's allowed us to shift our business to more at the time of need than stocking programs. And there's nothing wrong with stocking. There's a lot of concept to the "loaded is loyal" position. If you don't get your products in and somebody else does, then you may have missed out on an opportunity. But I think the pressure from the customer base has been more towards, let's try to get product -- I won't say just in time, but let's make sure the product's available, but let's also try to manage their inventories as well. So what we've -- our cotton insecticide Bidrin, which was really largely a fourth quarter and first quarter sales period for a second quarter and third quarter use, is now moving towards a second quarter, definitely third quarter sales and use period, so I think that's certainly part of it. Our fumigant business is going to remain the same. I mean, it's driven by a third quarter and fourth quarter usage in such big volume that storage being the issue. Our -- most of our customers don't have ability to take you to twice, anyway, even if we wanted to move that forward. So -- and with corn, there's production in schedule. We are going to be producing -- we're going to need to produce in third -- start in the third quarter particularly the soil insecticides. And I don't know that, that will necessarily -- it doesn't necessarily have to translate into sales because we can warehouse the material. But we're not even with the production at Hannibal, which would start maybe in -- not in time for next season but for the following season. We're still going to need to produce maybe 9 months out of the year to meet that demand. So I just -- I think, overall, that we are more balanced and I think that's a good thing. But again, we are -- there are always timings of various things that can fall in one quarter or another. Also, on the international side, we're seeing some considerable growth opportunities there. A lot of that is sold in the other side of the hemisphere, so that will also help average things out.

When -- what is the principal quarter this year for Impact?

We'll have material in December, there will be some sales there. First quarter will probably -- of 2013 will probably be a pretty good number in that, so between the first -- I mean, the fourth and the first quarter. This year, we had certainly good sales in fourth and first quarter, but we're -- yes, we are looking for a considerable upside from that as we have supply builds ready for the upcoming season.

And with the corn cropping earlier, will the remaining part of your Impact sales show up all in the June quarter this year?

I think we're probably pretty close to done with our Impact sales, David. I don't know if you know where we are inventory-wise, but I think it's got to be...

We [indiscernible].

We've really had -- we have nowhere near the demand that was there. So we did sit down with our customers and lay out a volume by customer. And I know they committed to everything. I don't know whether everything got billed in...

I don't think it did.

Yes, there's probably some materials still left for the second quarter, yes. Okay?

So what will be the products that will dominate the June quarter?

Well, we're finishing up on -- we had some soil insecticides that we're finishing for corn in April. We had -- we've got other -- certainly, Bidrin will be -- should be strong for us. The Thimet will be strong for us. I think those are going to -- Counter certainly on the international side, and Counter being positioned as well, so...

And Dibrom.

Yes, and there'll be some Dibrom, right.

[Operator Instructions] We have -- ladies and gentlemen, we have a follow-up question from Jay Harris of Goldsmith & Harris.

So I'm looking at the balance sheet. I see that there was a considerable amount of -- what do you call it? Bear with me for a second.

While you're thinking about Jay, I just want to supplement one other product, the Folex in which we're just -- the plants is just going to be starting. We're doing it in the original unit, but we'll be starting that up here first part of June. But we'll have some pretty strong sales in the second quarter and even stronger third quarter, that being the cotton defoliant.

The program of -- somewhere in here, I read about reserves for program expenses. That number is up $20 million in the March quarter. Is that a reduction in revenues? Is that how you record it?

Yes. And in fact, all the program -- and Jay, you may call that, prior too, we had some -- some amount was in expenses and some is in revenue reduction, but this is now 100% revenue reduction. And...

Both comparable quarters, and they quoted [ph] the same way.

Right. And the program with Monsanto has increased the program dollars as a percentage as it relates to Impact.

What's the likelihood that you'll have some acquisition cost this year and versus a very material reduction in your debt levels?

Well, we're always in the throes of negotiating various acquisitions and that's part of our business model. And we -- it's not something that we can predict and say, this deal is going to close and this deal isn't. We really don't know that until we sign an agreement, so -- but yes, we'll continue to look for those opportunities. Obviously, if we don't, cash at the end of the year will be pretty strong. And that -- also, we said that we are making considerable capital investments in our expansion of our plans. But we're probably void of making material acquisitions. We're probably not going to go into our revolver. So that could kind of give you an idea.

And capital spending this year will be?

Significantly higher than last year.

Yes, yes. Yes, I mean, the plants -- the plant, it should be first plant of [ph] -- where you can see there that our -- well, you haven't seen it yet. But I...

Yes. No, the capital spending in the first quarter is primarily on that.

Right. So the figure...

$5.7 million. Not exclusively, but it's primarily on that. I mean, we're also reequipping the laboratory space...

Good. Refresh my memory: What was the capital last year?

For the full year? It was about -- $6 million?

$6 million.

And where could we be this year, triple that?

We could be 4x that.

There are no further questions at this time. I will turn the floor back to management for closing comments.

Okay. Well, again, thank you, everybody, for listening in and the great questions. We're very optimistic about the future and not just the balance of 2012 but through the balance of the decade. And so I look forward to reporting to you at -- in our next conference call. Thank you.

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