American Vanguard Corporation (AVD) Q1 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the American Vanguard Corporation First 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.

Well, thank you very much, and welcome, everyone, to American Vanguard's First Quarter 2013 Earnings Review. Our speakers today will be Mr. Eric Wintemute, the Chairman and Chief Executive Officer 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 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 that are 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 will turn the call over to Eric.

Thank you, Bill. Good afternoon, and welcome. In the past, we have cautioned you about looking at the quarter in isolation, and that still holds true. As we have grown, quarter results are driven more and more by customer demand and our ability to supply it. This can lead to some quarter-to-quarter shifts in numbers, which is why it's important to look at us year-over-year. Our growth over the past couple of years is remarkable and has put us in the top levels of our industry. That being said, this past quarter illustrates the fruits of our overall strategy and game plan. Historically, Q1 has been our weakest quarter, but that is clearly no longer the case. The results are dramatic on several levels. To give some perspective, if this quarter were measured against prior years, it by itself would be our sixth most profitable year. As we review certain metrics, we realize that the targets we have set are not only achievable but probably too conservative. We have built this company one brick at a time. And as a result, we have a very solid infrastructure. What we are seeing now are the benefits of these efforts. We are focused on operating expense as a percent of sales. I remind you that freight and warehouse expense are part of our OpEx. As we have grown, we have moved down from the 30% range to the range of 28%. In this past quarter, we were at 23%. 2005 was our peak historic level of net income as a percent of sales. We had an internal goal to return to that level of 10%. And in 2012, we achieved that goal ahead of our projections. In this past quarter, we hit 14%. We had targets of 15% return on shareholder equity, and in 2012 hit 20%. In the first quarter of this year, we achieved 7.4%. I would love to simply replicate Q1 3 more times and call it a year, that is not likely to happen. What it does show, however, is what can be achieved in future years. With that preamble, I would like to turn this call over to David for further financial detail. I will then return for some additional comments. David?

Thank you, Eric. As you will read in our earnings announcement, our first quarter 2013 sales increased by 39% to $122 million as compared to $87 million in the first quarter of 2012. Within this number, our crop sales were up 45% to $116 million and our non-crop sales were down 19% to $6 million. In our 10-Q filing scheduled for tomorrow, May 3, you will see detailed description of sales by product groups. Let me give you a brief summary. Insecticide sales increased 41% to $79 million. This group includes both our granular products or below ground packs, and our foliar insecticide used for above ground packs. The strong demand for our soil insecticide in corn was the driving force in this product category. Our herbicides, fungicides and fumigant product group recorded $33 million in sales, an increase of 68% when compared to the same period in 2012. These sales were driven by much improved product availability and strong demand for our Impact post-emergent herbicides. Our other product sales were down 16% to $4 million due to increased sales of our niche growth regulator products, offset by lowest sales of our international toll-manufactured products. Our non-crop sales performance included strong initial sales of our new bug spray products that are sold in large-scale consumer retail outlets under the Terminix brand, offset by limited early-season weather driven demand for our mosquito product Dibrom. Finally, our international sales increased by 6% to nearly $19 million for the quarter, driven by gains in granular insecticide sales, offset by the reduction in tolling sales I mentioned a moment about. As a result of these dynamics, our gross margin for the quarter was 44% of net sales, as compared to 43% for the first quarter of 2012. Within this performance, our crop products improved by 2%. And as a result of mix dynamics mentioned a moment ago, our non-crop products declined by 13%. Operating expenses increased by 20% as compared to last year. This increase supported our overall sales gains of 39%. In summary, the main drivers of this increase were selling related expenses, which increased by 27%, reflecting the inclusion for the first time of our new bug spray business; increased levels of advertising; and the cost of building our domestic and international sales and marketing teams to support our growing global business. General administrative expenses, which increased nearly 69%, were driven by incentive compensation accruals, legal costs associated with certain data compensation matters, expenses related to establishing our international structure, certain tax-related activities and additional staffing infrastructure to support our business growth. Product development and regulatory cost declined by 17% as a result of deferral of commencement of studies, which will be then laid until later this year or early next. Price and logistics-related costs remained essentially flat with the prior-year quarter. However, as a percentage of sales, our cost reduced from 6.5% this time last year to 4.6% for the first quarter of 2013. There is a scale aspect to the change in percentage with our fixed costs of this activity shared by a greater body of sales. The balance of the reduction is driven by a change in mix and demand patterns this quarter as compared to last year. We anticipate somewhat higher levels during the rest of the quarters of 2013. As a result of these factors, operating expenses as a percentage of sales is 23%, which is substantially below the 26% recorded in the first quarter of 2012. We need to understand those other quarters of 2013, less strongly driven by our corn business, will likely see operating expense levels in a target range of between 27% to 29%. Interest expense continued at a low level, as a result of continued control of working capital drivers that has enabled us to operate for 8 quarters without accessing our working capital revolving credit lines. The interest expense is actually down 50% in comparison to last year's first quarter. This is driven by continued amortization of our term loan and paying off a substantial deferred debt related to product acquisitions in December of 2010. As a result of this lower interest expense, coupled with strong operating income performance, our income before tax improved by 88% from $14 million last year to $26 million this year. Our effective income tax rate is 34.81% as compared to last year, 36.2%. The main factor in this improvement is the overall growth of our business, which generated greater benefits primarily from our domestic manufacturers credit, as a result of taking benefit for our research and development activities incurred in 2012 and finally, from our work on our international structure. This all resulted in improved net income performance, which ended up nearly 94% at $17 million or $0.59 per share, as compared to $9 million or $0.31 per share during last year's first quarter. As Eric mentioned, our first quarter performance was extremely exciting with recorded sales of $122 million. This is the company's best-ever quarterly performance and continues the trend year-over-year quarterly performance improvements since the start of 2010. Our balance sheet remains in strong condition. Our cash position of $10 million is very reasonable for this time of year. Last year, we had $14 million. Our receivables ended at $147 million, which is 48% higher than last year and consistent with last's years -- and consistent with last year, include significant receivables that are due in mid-June. At the same time, our inventories ended at $109 million, which is 47% higher than last year, and is focused on short to midterm demand. Our payables were up 262%, primarily driven by raw materials received and substantially used during the first quarter, with payment terms in the second quarter. Finally, our programs were up 62% as a result of sales growth and the specific mix of those sales in comparison to last year. All this resulted in working capital that ended up $118 million -- ended at $118 million or 29% of sales as compared to 30% of sales last year. This continues to underlined management's focus in this area, despite the very strong growth we are currently recording. With respect to liquidity, I am pleased to be able to report that under the most restricted covenants to our loan facility, we could borrow up to the maximum limit of our revolving working capital line. In other words, $75 million. However, the current rapid growth rate we are managing will cause us to have recourse to our revolving debt facility for some periods during the second quarter of 2013. Finally, I am pleased to round out the financial review of this first quarter by reflecting that we made a dividend payment of $0.07 per share in April. And, as Eric mentioned, we are pleased to reflect that our stockholders' equity has increased 7.4% during the quarter, continuing the company's very strong long-term performance in this area. And with that, I will hand back to Eric.

Thank you, David. I spoke earlier of the solid infrastructure that we have built in American Vanguard. I would like to highlight a few enhancements to our structure that have occurred this past quarter. We recently celebrated the completion and opening of our new laboratory at Los Angeles, named after my father, the Glenn A. Wintemute Research Center. This was designed to expand our capabilities in formulation, synthesis and GOP practices. March 31 saw the retirement of Alfredo Pelaez, who built a strong international team over his tenure. As previously mentioned, we have organized our international business under the newly formed Dutch entity headed up by Ad de Jong. Recent key hires in finance, regulatory, technology and sales have occurred, which will support this key growth initiative. We recently hired Mark Feberish [ph] to head our newly formed fourth region in the United States. Dramatic growth in the Midwest over the past couple of years and in anticipation of the continuation of that growth, resulted in a decision to have 2 Midwest regions. Both regions are being driven by our corn soil insecticides, our unique delivery systems and Impact, our corn herbicides. This new structure will allow us to better serve the needs of our highly valued customer base and to capitalize on our future growth objectives. Speaking of corn, let me make a few comments. Since the introduction of genetically engineered corn, we have continuously promoted the use of our soil insecticides in conjunction with genetic seeds. At first, our Best of Both Worlds platform was not widely accepted, although year after year, we continue to see confirmation in our university and grower trials across the corn field. Our integrated test manager message is now being widely understood, and I would like to encourage you to read a very good article written by Dr. Michael Gray of the University of Illinois, in which he discusses increased corn soil insecticide used in Illinois this spring. There are many important points Dr. Gray makes, but one is the strong demand during both dry and wet conditions. This article could be found on our company website. Looking forward, this season, we will be testing higher concentrations of our soil insecticides. This, coupled with the unique delivery technology that we would look to implement through our SmartBlock systems, could allow us to add partner products to deliver optimum seed treatment at time of planting. Let me shift now to comment on our recently registered potato sprout inhibitor, SmartBlock. AMVAC has typically grown by acquiring our licensing products in their mature life cycle and rejuvenating them to achieve record results. In Impact, we took a product in its last trimester, assisted in its first and participating in raising a truly remarkable child. SmartBlock is our first example of taking a product from conception to birth. Several commercial applications of this unique tolerance exempt potato sprout tool have already been made, which should lay the foundation for significant sales in the future. Lastly, let me comment about our exciting investment in TyraTech. In November last year, we partnered to form the new enterprise Envance to focus on delivering safe and efficacious insecticides across the specialty and crop markets. The initial product lines hit the retail market throughout the United States in January this year under the Terminix brand. We expect to reach wider penetration of this market in the balance of this year resulting in more significant sales over the coming years. We are also looking to add additional products to the line and are selecting our retail partners on a global basis. So what's different about these EPA-exempt naturally-occurring insecticides? It's the mode of action. Most of our insecticides in AMVAC works as a cholinesterase inhibitor. By blocking the synapse, the insecticide causes a systemwide shutdown to the target pest. The minute levels needed to be efficacious on invertebrates do not have a toxic effect on vertebrates, but both invertebrates and vertebrates are susceptible to cholinesterase inhibitors. TyraTech's technology blocks the tyramine receptor and causes the same systemwide shutdown to the target pests. The difference is, tyramine receptors are unique to invertebrates and are not present in vertebrates. This makes the technology uniquely safe for household use. We see multiple opportunities to build on this platform both as standalone and as a partner with existing chemistries. TyraTech also has excellent opportunities in animal health and personal care. Due to these factors, we made a strategic investment to acquire about 30% ownership of TyraTech. And with that, we'll be happy to do our best to answer any questions you may have. Danny?

[Operator Instructions] Our first question is from Brett Wong of Piper Jaffray.

Wondering if you can first talk about second quarter seasonality relative to last year, and how Impact affects the seasonality?

Well, last year, we have not had any Impact to sell in the second quarter and this year, we do. So we expect a significant part of our second quarter will be sales of Impact.

Okay. Any ideas around providing -- should we expect kind of a similar growth as in the first quarter in your herbicide segment?

For the herbicide section, I think, that's probably in that range. We don't -- we've included in what we've shown you there our fumigant sales. And I think, second quarter, is a little lower in fumigants. Also, in second quarter, you will see more sales of our -- the starting position of our cotton, both our defoliant, Folex, and our insecticides, Bidrin, and our Discipline products. So that's kind of the focus, I think, for Q2.

Okay. And then can you maybe talk about how the increased moisture, I mean, your extended winter affect corn insecticide application?

Well, I'll give you 2 parts. One on the corn, again, we see -- on one side, we have the opportunity because we've been still manufacturing corn soil insecticides. And so hadn't been a very early season, we probably would have seen less of our products used, so that certainly bodes well for us. As far as the herbicide use, the pre-emergent herbicide needs some time to go down before plant and so if it's a late plant, there probably will be less pre-emergent use, so that would mean a stronger post-emergent market, which is the market that we participate in. So we've had, in longer year sales -- or the longer year planting or late year planting, we've had sales of Impact even in -- through July. So this would probably promise to be a strong year for Impact.

Okay. And then can you -- just staying on Impact, can you talk at all or quantify at all how the Monsanto co-marketing agreement is going?

It's gone extremely well. I mean, I think, we have talked -- we were disappointed in our supply for the first year, last year of our agreement with them. Yes, this year, both teams have teed up well. The product is a great product to begin with, but the brand is strong. And having Monsanto promote this, along with their Roundup, is leading us to very, very strong results.

Can you, by any chance, quantify the share that you believe you're gaining, if you are?

Well, this is really kind of a new market because the promotion of this product is a practice that has not been historically there, although we have been participating in this -- using this product with glyphosate and Roundup since we've begun the product. However, the different shift here is that Monsanto is promoting the use of Impact on all acres, not just selected acres. So that's the distinction that's occurring. So it's a -- the market itself is growing fairly rapidly.

The next question is from Daniel Rizzo of Sidoti & Company. Daniel D. Rizzo - Sidoti & Company, LLC: I think you said that the Dibrom sales were down in the quarter because of the cold weather. Would that suggest that there should be some catch-up in the second and third quarters then?

Yes. I think the inventory levels with our biggest customer, are fairly low. And there had been times when they have taken material in advance. And so, yes, we would probably see stronger sales from them in second quarter. And then third quarter is always a reflection of what tropical storms line up, which takes us into super demand is what I call it. Daniel D. Rizzo - Sidoti & Company, LLC: And then would the cold weather also have affected PCNB or PCL there?

No. PCNB, 2 markets that we're trying to reestablish, and one being the potato market, and sales should be going in this coming quarter. And then the snow mold market is typically kind of the -- the turf is kind of starting in August and running kind of into November. Daniel D. Rizzo - Sidoti & Company, LLC: So that's like a pre-winter thing?

Right, correct. Daniel D. Rizzo - Sidoti & Company, LLC: And I'm sorry, did you guys -- you mentioned something about Terminix. Could you just elaborate on that, is that something that's relatively new? I don't remember that one before.

It is. So what TyraTech has is a license to use the Terminix name and has created a brand, which is we're now -- we have released under our new enterprise with TyraTech called Envance. So the products that you would see on the shelf will say Terminix flying insect, there's stinging insect and there's crawling insect, so those 3 brands are out there today. So we're very excited about it. This is the first time Terminix in its 100-plus years has put its name on a product. And these are products that work extremely well. I think, a number of what might be considered kind of natural chemicals have lines that have not performed well. But I can tell you this products performance, as well as the products that we have seen historically that are synthetic chemistries. So we're very excited about it. We think we're getting a lot of excitement from other retail outlets. And as I mentioned, we expect a number of new retail outlets to be signed up over the balance of this year for in line of what we hope to be a very strong 2014. That's in the United States side, and as I said internationally, we're now looking to take these products even though they're exempt in -- from registration at EPA. Other countries do require registrations for these in their regulatory bodies. But we do have registrations in a variety of countries that have come through and we're looking to position those products now. Daniel D. Rizzo - Sidoti & Company, LLC: Okay. And then just one final question. Just looking at the cash flow, I know receivables I think was, unless I read wrong, was relatively -- yes, it was high for the quarter. Is that just -- it's just something that will work out, it's a seasonal thing that is in relation to be presales for your insecticides and herbicides?

Yes. It's for the corn market. And so sales in the fourth quarter or first quarter, generally, of our corn products have due dates of June 15. So we've got huge amount of money that will be coming in, in June, so we're kind of excited for that.

The next question is from Chris Kapsch of Topeka Capital Markets.

I had some follow-ups on -- first on just on Impact corn insecticides. I'm just curious, based on your internal expectations of this year's sales into the channel or sell-through or however you want to look at it, just wondering how many corn acres you anticipate your product touching side-by-side with the Roundup molecule based on the recommended ratio of usage?

Good question. Let me -- if you've got another question, let me try to do a quick calculation while you're doing that.

Yes. Point being just wondering is it the function of just -- the growth there a function of the strength of the relationship with Monsanto or is it just that with the resistance issue to Roundup is becoming so pronounced that it's just creating the demand across a broader number of acreage, that's what I'm trying to get at. And then, I guess, the other thing is that you talked about the availability. You have talked about in the past, even with the increased availability of the active ingredient, that you're being -- running your factories 24/7 and sold out. I'm just wondering if there's -- you'd talked in the past quarters, I think, about maybe not having all your operational efficiencies in the factories. I'm wondering if that's being worked out as you're now running this particular product 24/7 to meet the demand?

Okay. So on the acreage, just kind of looking at maybe somewhere in that 7 million-acre range, what might be the levels. The amount for -- I think your question was on, yes, why is the demand going there. Again, I think, Monsanto, with this product reaches out into the 40-, 35-, 40-plus, maybe 45 million acres somewhere in near 35 million, 45 million acres of products. So we seem -- we have great growth opportunities to move forward in that arena. And I think the shift is from -- not every grower is going to use the product, but Monsanto is promoting it, whether there is resistance in that field or not. So as kind of an integrated pest management practice, if you will, for weeds, that's a shift that they have made. With regard to supply, this product we do receive from a third party. And so that's not an impact on our -- Impact has not and impact on our plant utilization. We are running the plants, as you mentioned, 7/24 at several of the units. Those are largely related to our corn soil insecticide, probably the biggest driver there, and that's part of what the efficiency, I think, you're seeing.

Okay. Got you. Just on Impact, then -- I guess, in this quarter, I imagine that the sales are going into the channel where as the sell-through to the users is more second quarter, I guess, even into the third quarter. I mean, is there a risk that the strength we're seeing now is a channel fill that, if for some reason there's a hiccup in the growing season that were not, might not completely sell-through? Just wondering how your -- if you have a way of monitoring that ultimate end-use demand?

Good question. EDI is a system that we use to measure what's going into the channel. I mean, from the channel out to the grower and those sales would reflect that all of this assume good demand. Now keep in mind last year, growers were scrambling trying to get Impact to be part of the program, and we weren't able to satisfy that demand. So a lot of growers, whether it was in soil insecticides or Impact, were trying to grab what they could as fast as they could. And when we had almost no sales in fourth quarter, so really all this growth is occurring in the first, second and then we'll have some sales, I would expect even in third quarter.

Okay. I had also just a follow-up on the Terminix brand. I assume what you're saying is that the natural-occurring TyraTech technology is what's been used for that? And I assume that's part of the -- in promoting that brand, leveraging that selling angle. I'm just wondering if you have -- just sort of what the market opportunity is for those, I guess, household insecticide that you're targeting? And where has the success been so far, like which big box retailers do you shelf space at and how do you see that playing out going forward like increasing shelf space with whatever big boxes you're with now or broadening to multiple big box retailers? I want to understand some parameters and how that -- how you're going to promote that growth of that product going forward.

Right. So the Terminix brand is on a license and they have an agreement to utilize their name with that. And I think the advantages of Terminix's name is synonymous with efficacy. The strongest pest control brand in the United States. And so by taking what is called very safe product line, but marrying that with a brand that says, hey, we work, that's where we're seeing all the excitement. So getting people to try the product, because I think once people try it, they will be sold for life. So that's kind of that aspect of it and I'm just trying to remember what your...

Just putting some parameters around the market opportunity, how big is that little -- is that household insecticide category and which retailers have you had success with thus far?

Right, right. So the initial launch is with Home Depot. And so we've been somewhere between 1,500 and 1,800 -- that 1,800 stores, I think, nationally, and I think we're somewhere in that 1,500 range. So that's -- if you went up to your Home Depot you'll see there -- I encourage each of you on the call to make a purchase for $5 and bring it home. I think you'll be enthused. Other retailers, we're talking to each of the other retailers at this point and expect, we've had a couple of it have already signed up for use in third quarter and fourth quarter. But so far, nobody has said that they don't -- they wouldn't be really highly interested in this market. So we think we'll have great penetration there. The global market, I know the Chairman of TyraTech had put something out to say that globally, this is a $5 billion market opportunity, as far as that's the market that we would be participating in. I make that statement without having done that analysis myself, but I know it's a significant market. And as we would look to branch just from this home use market to the lawn and garden market, I mentioned also we're excited about taking this technology into the crops. And then taking a look at this technology with other chemistries, current existing chemistries that we think that we have, that we could marry together, that might create even a more efficacious product.

Okay. Well, the $5 billion that includes home use and lawn and garden or is it just the home use market opportunity?

I'm not sure. I don't know.

[Operator Instructions] The next question is from Jay Harris of Goldsmith & Harris. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Eric, that was an extraordinary quarter. Who would have thought back in, when, 2001, when the company bought a secondary corn soil insecticide, started down the path of owning proprietary application equipments would lead to this.

Yes. I remember we hadn't sold a $1 in corn in 2000 and it's just kind of gone through a nice level. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: It sure has. I've got several questions. On the Terminix business, I presume the equity and losses of the joint venture of 96,000, is all of that Terminix business. What kind of revenues do you need to really start to generate something significant for the company?

Well, I think we've kind of built this model out that shows somewhere in that $4 million to $5 million breaks us even, so that's a target that we're shooting for this year in kind of this initial launch here. As it kind of -- I think once we've got that, it's not like we have a whole much more infrastructure to build to move the needle forward. So we're -- I would hope that next year, we would see some significant contribution to our overall bottom line. But we've got, as I said, there are so many opportunities. We're just trying to focus and say, okay, what do we do first and how do we penetrate and do it properly in each of the markets? And since these products are there, there's a bus with the Terminix brand, I think we want to push that as hard as we can and as quickly as possible. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: What kind of gross margins are there in this business? Are we talking something comparable to 50%, very close to what the company does as a whole?

Yes. So initially, as we kind of break in, you can imagine not being -- being a brand-new product line we are not commanding quite as much market power as we're starting off. So they're down in the 30% to 35% range to start with. But as we move forward, we think we can, over time, move those into more profitable levels. Certainly, we saw -- we've seen with our pest trips a very healthy margin. So we know that the market will yield in specialty markets higher than in crop markets. So over time, we think we'll gain acceptance of who we are and what we're doing and we'll be able to gain some market power and increase prices. And I've got one other comment on that too, Jay, it's obviously starting out. This is a volume, this is -- aerosols are made by third party and that's a volume-driven business. So the larger volume we move, obviously, the lower the cost of goods. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: On the corn soil insecticide business, what -- describe what you think is likely to happen over a multiple-year period.

Well, we've sat down with consultants and built out a model, pretty complexed that ties in a whole slew of factors, crop prices, genetic improvements, other advancements in liquids. And we see this continuing to be a growing market. We like the position that we are in with our portfolio. We're, as I mentioned, we'll be testing both liquid and granular forms this year in higher concentration. So I think long term, this is a good, solid market with continuing growth. And I'm not real sure what level would start to hit peak. I think we've got growth through several years ahead of us. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: And what can you say about the SmartBox program in terms of the expansion of SmartBoxes available to growers?

So we've increased about 50% over last year, and last year was up almost double from the previous year. That's the exciting part is we think this growth will continue. The promotion and expanse of the use of SmartBox with that then, the program that I described, the idea of taking higher concentrated material, being able to deliver that into the soil with the seed and into that little seed area, could cause us to current use of our product that may be gone a 50-pound of box, you may really only need 5, 6 pounds to deliver the same amount to the field. So with that, that's where we'd look for partners of other products, nutrients, pro-builds, fungicides, that we could deliver in with that season and actually do seed treatment at the time of plant, rather than putting a small amount on coated on the seed. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: You've mentioned the liquid form. When will you start marketing liquid corn soil insecticide?

Well, it's probably 2 or 3 years out. We've got the -- we're doing those trials this year on both Aztec liquid and Smartchoice liquid. But we think -- depending on we'd like to offer growers choice of -- depending on their personal preference. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: And will you have a proprietary application system that the growers would use, factory filled?

Well, I don't know if we need to. I mean, we've -- our initial testing shows that the formulations we've come up with would not require any close type delivery system. That being said, we do have access to kind of closed liquid system, so those details haven't been resolved yet. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Coming back to Impact, there's a far more Roundup-ready corn seed planted than the 35 million or 40 million at Monsanto plants. Are we doing business with growers who are using competitive seed that is Roundup ready?

Well, the seed itself is -- has the trait and whether it's Roundup or somebody else's glyphosate. So Monsanto, certainly, all the seeds that they sell, the growers are not obligated to be using Roundup as opposed to somebody's generic glyphosate. That being said, we are promoting Roundup and we've offered the grower, certain incentives to marry the 2 together. But there's no obligation when the grower uses Impact to use Roundup. And it just -- if he doesn't match them up, and he can use Roundup for other purposes, you can put on that corn field, you can put it on soybean field. But that being said, we have our partnership with Monsanto for their Roundup, but it uses our Impact with somebody else's and that's fine, too. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Well, I understand that. Do you have any feel for whether the Impact you're putting into the channels ends up on Pioneer or Dow seed or...

No. We would have no vision of that. And again, they could use -- they could certainly use Pioneer or somebody else's seed and still, as long as they use Roundup, they would wind up getting -- with Impact, they get credit for that. The vice versa though, if they used Monsanto seed and didn't use Roundup, then they wouldn't get credit for using Impact with. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: When do you place orders for the active ingredients in Impact for 2014?

Well, we have a 3-year forecast that we've done actual, so we've got a number out there. The actual order I think is due in third quarter, but we've already kind of laid out what our demand is for '14. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Can you share with us a percentage increment, if any, that you're thinking of at this point?

Yes. I'd probably not like to give that information out at this time. I'd like to get through the season first.

The next question is from Chris Kapsch of Topeka.

Just following up on the soil insecticide discussion. Eric, you mentioned a couple of times that you're testing higher concentrations of your product. I'm just trying to understand what the rationale would be. I've seen increased efficacy but is it a form factor sort of thing? Or also just wondering if it was determined that higher concentrations were desirable, would that need -- would you need to get additional registration for growers to use that product at a higher concentration?

Yes. Anytime you change your formula, you need to get additional -- you need to apply for a registration. Increasing the concentration, you've got to look at if there's any additional worker exposure type work, but that gets negated with SmartBox. For the reason you would do this would say, let's say, you've got a 5% material and you increase it to 20% material. If you could go 4 times as long planting before you round up replacing the box. And so it's part of convenience. Growers were driven to genetics by a couple of reasons. One, that it's great technology; but two, the thought of ease of application. You just plant the seed. So the more area we can cover with the same container, the more the grower would like that. I mean, changing our boxes isn't a highlight of their planting day. And you will see as planting starts here, it's just amazing. I wish somebody could capture some of this in a film just to see how much -- how many acres you have planted in 10 days, but it's going to be really pretty phenomenal. So the idea of making it easier for the grower, I think that's one piece. And then the other side of that is can we then offer something more than just the soil insecticides. We can offer other benefits and into that -- with that seed, we can drop in other components that will help maximize the growth of the corn and the yield of the corn.

We have no further questions in queue at this time. I'm going to turn the floor back over to management for any additional remarks.

Okay. Well, we thank you, all, for joining us on this new format time. And we anticipate that we will probably continue with further conference calls in the future at this time slot. So again, thank you very much, and we look forward to reporting additional opportunities and objectives as we move forward. Thank you.

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