American Vanguard Corporation (AVD) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the American Vanguard Corporation Second Quarter 2013 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, Don. We appreciate that. Good afternoon, everyone, and welcome to American Vanguard's 2013 midyear earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; Mr. David Johnson, the company's Chief Financial Officer. Before beginning, we'll take a moment for the usual cautionary reminder. In today’s call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company’s management, and are subject to various risks and uncertainties that may cause actual results to differ from management’s current expectations. Such factors include weather conditions, changes in regulatory policy, competitive pressures and various other risks as detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call, and such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Good afternoon, everyone. And thank you for joining us as we report on our recent performance and talk with you about some of the significant growth opportunities that we see in our feature. As our midyear results demonstrate, American Vanguard continues to post double-digit sales growth, achieve high profitability and maintain a strong under-leveraged balance sheet. Sales rose $36 million or 21% over 2012's first half. Gross margins were a healthy 46% and our net earnings rose nearly $8 million, an increase of 45%. However, springtime weather conditions in the U.S. have caused our year-over-year second quarter revenue growth to slow and our net income for the quarter to be slightly below the prior year. A number of factors hampered us from achieving more robust second quarter sales. First, over 1 million corn acres in key parts of Iowa and Minnesota flooded and did not get planted. In other areas, weather-related planting delays caused growers to plant soybeans. A limited planting time also caused fewer crop protection applications. Overall, acreage of corn, cotton and peanuts declined from 2012. Consequently, our sales of Thimet insecticide for peanuts; Bidrin foliar cotton insecticide and Folex cotton harvest defoliant declined. And finally, elevated channel inventories have slowed distribution purchasing patterns. As I said, despite challenging conditions, we doubled both our corn herbicide, Impact, and our corn soil insecticides in the quarter. Now David will give you a few important financial highlights. David?

Thank you, Eric. On this call, we're going to do things a little differently. Rather than walking through the numbers, which are available to you in both the earnings release and in the 10-Q, which we will file tomorrow, I want to focus on matters that will likely be of particular interest to our investors. You have heard and read about the weather conditions affecting some of our major crops, particularly corn and cotton. Despite that news, we have achieved a new record in net sales for the company's second quarter, which included continued robust demand for our corn products. Also, on the positive side, we continued to drive improvements in our gross margin performance. Year-to-date, we've recorded 46% as compared to 43% last year. Our quarter-over-quarter performance was even stronger at 48% in Q2 of 2013 as compared to 46% last year. Looking forward, our margins tend to be generally lower in the second half based on product mix. For the first half, the key dynamics were: first, our pricing continues to be firm, reflecting strong sustained demand we have been reporting; and second, during the first 6 months of this year, factory activity has been consistently good, driving recovery of our fixed overheads. This is particularly true in our Axis plant where we manufacture and/or package many of our corn products. We continue to invest in our plants for the future including personnel, factory capability, capacity, automation and effluent handling, so that we can ensure a reliable supply of high-quality, made in America products delivered in an on-time manner that meet or exceed our customers needs. Further, we continue to see improvements in our overall tax rate, which is at approximately 33.8% year-to-date as compared to 36.1% for the same period of 2012. As a finance team, we work hard on this aspect of our business. The main drivers for this improvement continue to be associated with successfully manufacturing in the USA. When looking at working capital, we are very pleased to have completed our new credit facility. As we have reported, the facility has been upsized to $200 million with an additional $100 million accordion feature, and all of it is revolving debt. This facility is intended to enable us to meet growing working capital needs, including servicing the kind of business level we have seen in the first half of 2013. In this new agreement, we have added our international subsidiaries as borrowers so that they can operate in new markets and grow that part of our business. Furthermore, the facility gives us ample resources for acquisitions and licenses which, as you know, have been an important element of our long-term growth. As part of the process of refinancing our debt, we retained all the same lenders that have been with us in some cases for more than a decade. It was pleasing to note that several new banks asked to be included in this new structure. And despite the increase in size of the facility, all of our lenders, our existing lenders, stepped up demonstrating long-term steadfast support for the company. I think that one of the really important debt metrics the lender group tracked is our EBITDA performance. In the 12 months until the end of June 2013, we generated more than $90 million as compared to $66 million in the 12 months until the end of June 2012. This trend is something that the company is highly focused on. Speaking of working capital, we have eliminated short-term indebtedness as part of this new credit facility which, as I mentioned a moment ago, is entirely revolver-based. At the end of Q2 2013, we have $41 million in debt as compared to $56 million this time last year. Our receivables were at all-time high of $147 million at the end of the first quarter of 2013. Those payments all came in on schedule, with the biggest part being paid in mid-June. You will see in our 10-Q statement that during the quarter, we borrowed from our revolving credit line for a short period. Once customer payments started to come in on schedule, we paid down all that we had borrowed and more. Not all aspects of the quarter were positive. You will note that our inventory increased from about $88 million at the end of 2012 to $127 million at the end of Q2 of 2013. During the first half of 2013, we built inventory for a very significant increase in demand in what we expected to be a record season. While we did hit strong numbers for our key corn products, as Eric mentioned, the weather slowed the sales in late Q2, leaving us with inventory. At the same time, the inventory of goods, particularly for corn, is reported to be higher than normal in the channel. To put this in perspective, the normal level of inventory in the channel at the end of any given season is around 20% to 25%, although channel inventories at the end of 2012 season were lower than usual. This year, we estimate that our corn products, on average, are probably 5% to 10% above normal levels. We are working through both of our own inventories and the estimated in-channel inventories of our products and we are mapping those inventories in comparison with sales forecast for the rest of this year and through 2014. From this exercise, we will update our manufacturing plans, which is a normal procedure that happens regularly throughout the year. At the end of June, our inventory of some corn SKUs is higher than we would like and we are planning to work down inventory levels of certain specific SKUs over the next several quarters. By taking this pragmatic approach, we expect to continue to operate our plants at near-normal levels going forward. Another area of focus for us is operating expenses. In comparison to the first half of 2012, our performance year-to-date in 2013 remains exactly in line at 27% of sales. You will see that quarter-over-quarter, these costs increased from $24 million to $29 million on slightly higher sales. The 2 biggest drivers are administrative costs that increased $2.2 million and selling costs that were up $2 million. Within administrative costs, we have additional non-recurring costs of about $1.2 million in legal expenses, incurred in a data compensation case. The majority of the costs associated with this matter have been incurred during the second quarter. We also have advisory costs associated with putting in place our international subsidiary structure. These are still being incurred but should be at the lower level going forward. In part, this expense is driving some of the tax rate improvement I mentioned earlier. Our selling expenses ended at $8.5 million for the quarter as compared to $6.4 million for the same period of 2012. Driving this increase, we have expanded our field sales team, which is key to driving long-term sales growth; increased our field support for our product sold in SmartBox units; and expanded training and community outreach activities in support of our fumigant business. Finally, we continue to drive on building and maintaining brand awareness and loyalty through advertising and promotional spending. We believe that these dollars are money well spent for the future success of the business. And though there is some seasonality, there is no real one-off cost included here. Finally, on capital spending, we have so far spent $8.4 million, which is significantly lower than our spend last year. Looking towards the rest of the year, we estimate that we are more than 50% of the way through our 2013 spending. During the balance of the year, we will be completing on a large project to manufacture one of the products we purchased in 2010. In summary, while having recorded a very strong first half year performance, we had weathered a challenging quarter and have recorded a new record Q2 sales performance for the company. Our margin performance is at the higher end of our normal operating range and, at the net income level, we have achieved a 10% of sales performance for the quarter and 12% year-to-date. Overall, our working capital continues to track in a reasonable range, though we are very focused on inventory at this time and will continue to be focused over the next several periods. Finally, it is pleasing to report that our stockholders' equity is up over 10% year-to-date. With that, I will hand back to Eric.

Thank you, David. Now I'd like to discuss a few questions that have surfaced over the last 6 months. The first relates to the commodity price of corn. Beginning in 2007, we demonstrated a healthy return on investment for corn growers for the simultaneous use of both traded seed and our corn soil insecticides. This Best-of-Both-Worlds message gain momentum through 2010 and really took off in 2011. It was reinforced by several university reports of insect resistance development and was further fueled by escalating commodity prices. Increased acceptance has grown dramatically each year and we expect that trend to continue. With regards to the corn price itself, we believe that USDA estimates of both planted acres and yields are overly optimistic. If actual acreage and yield proved to be lower than USDA estimates, then corn commodity prices will likely strengthen. Regardless, however, of commodity price, the message is clear. As we have been saying since 2007, even with the commodity price below $4 a bushel, we provide a strong return on investment to growers for use of our products. The next area I would like to discuss concerns competition in our key corn market. Our corn soil insecticides continue to be the gold standard as the time-tested tool and program of integrated pest management. As I just mentioned, use of our products gives the grower the best of both worlds. Other companies have offered liquid insecticides and while they have their uses, our granular products lend themselves to much broader application and greater efficacy for hard-to-control pests. Trait companies will continue to offer new traits in their corn seed. Again, this is helpful but, as history has shown, there is no single solution for pest control. You need to mix it up or the pest will adapt. For sustainable pest control, we remain a key part of the solution. In anticipation of continued growth of this market, we are developing a number of new formulations of our corn products, which we expect will give growers even more tools from which to choose. A third topic I want to cover relates to our post-emergent corn herbicide, Impact, and our ability to remain a market leader in weed management. Our Impact post-emergent herbicide effectively controls glyphosate-resistant weeds and has been selected by Monsanto based on efficacy and crop safety to participate in the Roundup Ready incentive program. This co-marketing arrangement has stimulated a much stronger demand, earlier supply ability constraints have been alleviated and we have extended this collaboration through 2017. Despite weather-related reductions in corn acreage, we have already doubled the sales of Impact over the prior year and expect to see this product continue to increase its market position in future seasons. Finally, I would like to address the key drivers for the second half of 2013. As we mentioned in the press release, key products during the second half of the year include our fumigant products, Vapam; our mosquito adulticide, Dibrom; our cotton products' Bidrin, for pest control; and Folex for harvest; and corn products positioned for next season. On Vapam, bear in mind that these are not the Midwest corn customers. These are largely potato growers and others in the Pacific Northwest, California and Midwest. So we're not expecting the Midwest weather and market dynamics to affect these sales. Dibrom, this has been a very successful product for us. It is FEMA approved for vector borne disease control and can be used more heavily in wet conditions. If we continue to get wet weather in the South, we should have a good second half. For our cotton products, the crop did go in. Even though acres declined as compared to 2012, growers still need pest control from Bidrin and at time of harvest, want to optimize yield, and that's done with Folex. Finally, as I mentioned, we continue to see strong demand for our corn products leading into the 2014 planting season. Now I'd like to discuss a little bit about TyraTech. As we explained in our last call, while exploring avenues for growth in nonagricultural applications, we became familiar with technology developed by TyraTech using essential oils derived from various plant materials. A number of these oil blends possess the unique ability to inhibit the tyramine, G protein-coupled receptors of invertebrates while having no effect on vertebrates. Consequently, such oils can be formulated to repel or kill insects while having no human toxicity concerns. We immediately recognize that this technology could be a valuable complement to our existing portfolio of synthetic chemistries and we engaged TyraTech in discussions about collaboration. As a result, last December, we announced the creation of Envance Technologies, which will utilize TyraTech technology to formulate pest control products primarily for the consumer marketplace. The enterprise is 60% owned by American Vanguard and 40% owned by TyraTech. And it has begun commercialization of its Terminix ultimate protection product line within initial nationwide launch through the Home Depot. The total global market for such spray treatments that kill crawling, flying and stinging insects is estimated to be several billion dollars per year. And we believe that this highly effective, safe, nonchemical technology can successfully penetrate that segment. Indeed, independent testing of these formulations demonstrates that they can be as effective or more effective than the leading brands on the shelf today. Additionally, in March, we announced that we have invested $3.7 million to acquire a 29.46% stake in TyraTech. This equity share will allow us to participate as an owner in the personal care and animal health applications that TyraTech is pursuing. I'm a member of the 5-person Board of Directors and will be actively involved in oversight of the company's progress. Target markets include head lice control, mosquito and other insect repellents and various animal health treatments. As you are aware, we know a good bit about mosquitoes and TyraTech's repellents looks very good. We'll keep you posted on developments in this exciting endeavor. Next, I'd like to talk about SmartBlock. We announced during recent months, we have secured registrations for our potato sprout inhibitor, SmartBlock, in both the United States and Canada. This product represents a major technology break improvement over the currently used and we have begun field applications and expect significant commercial sales to begin in fourth quarter of 2013. We believe that we can capture significant share of the $45 million global market in years to come after we receive a European registration. Also, we'd like to talk a little bit about our international subsidiary. And we've built as management team in Netherlands with the addition of regulatory, technical and marketing personnel. We have a solid base of business in Western Europe and Central America and we seek to expand our involvement in Eastern Europe, South America and various sections of Asia. As we indicated, this will be a steady gradual process of securing registration for current AMVAC products, acquiring or licensing existing registered products from other parties and introducing new products like our SmartBox and Envance products to international markets. We are confident that this branch of our company will grow through its independent efforts and through collaboration with other industry peers with whom we will ally. So on planning our future, we have spent considerable time in the last year defining a multiyear strategy for the remainder of this decade. The focal points of this blueprint are: revenue growth, high profitability, organizational excellence, customer intimacy, responsible stewardship and risk management. We have set lofty goals and I'm proud to say that we have already made significant progress towards achieving them. We'll keep you informed as this enterprise broadens its reach, strengthens its position and increases its value. In closing, the bottom line of our performance is that we're on a solid footing, we have tremendous growth potential, excellent profitability and an organization that can capitalize on the many appealing opportunities. We'll now be happy to entertain any questions you may have. Operator?

[Operator Instructions] Our first question comes from the line of Andy Cash from SunTrust.

Did you guys mention your insecticide, herbicide sales? If you have those figures, could you pass them along?

It will be in the Q issued tomorrow.

So do you have it right there?

Yes.

So while -- if you have that, I mean I'll go ahead and ask my other question. In the corn soil insecticides, could you say how many acres American Vanguard was on or do you think they'll be on in 2013? And then, what's the potential with inventory carryover to 2014?

So just on the first one, I think you're asking net sales for the quarter?

Yes, insecticides and herbicides.

Yes, it's $39,218,000 and herbicides was $24,699,000.

Okay. And then my other questions having to do with corn soil insecticides, how many acres do you think you'll be on this year? And then given your potential inventory carryover, what sort of impact might that have on 2014 sales?

So somewhere in the 6 million to 7 million acres for 2013. We forecasted strong growth for 2014. As I mentioned, I think we have said we've got -- David mentioned, we've got an extra 10% in the channel, so maybe growth in 2014 in the 30% to 40% range with the net effective inventory.

Our next question comes from the line of Daniel Rizzo from Sidoti & Company. Daniel D. Rizzo - Sidoti & Company, LLC: So with the SG&A expense, that jumped in the quarter, so that's -- was it roughly, I think, $3 million that was kind of a unique thing, that was only one time for this quarter? Is that what you said, David?

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

And that's more related to international?

Yes, right. Daniel D. Rizzo - Sidoti & Company, LLC: Okay. But SG&A expenses should be a little bit elevated as -- I mean should continue to be elevated as you guys continue to roll out the -- or strengthen the international business, correct?

Yes. We also have some costs which are annual costs that come more heavily in the first quarter -- the first 2 quarters of the year. But then freight costs in our -- for our business in the second half of the year tend to be higher, so there's a kind of the balance out there.

Our next question comes from the line of Michael Cox from Piper Jaffray.

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

So I, I mean, just visited with a few of the customers this last week. And talking with them, I think there remains strong optimism for our corn products. All the reasons that drove in the first place again, and I think we've discussed, we've built the models out and tried to see how sensitive the growth is to commodity prices. And there is obviously growers that would look and say, "Gosh, if I'm making x per bushel, do I need to trim cost?" But our feeling is the return investment story is solid that when we delivered the message and started gaining traction with this when it was at $3.80. And so with -- at $4.80 or $4.50 or $5, we think it's an excellent return. So from our customers' standpoint, I think they view this as, again, a long-term solution, whereas before people thinking, "Okay, traits may be the solution." At this point, I think going forward, most people accept the fact that it's got to be the combination. And so it's just going bare. And as I said, we're seeing a lot of fields out there right now that are experiencing significant damage, and that just continues to buzz around universities and through the grower communities.

Okay, that's helpful. In terms of your own inventory position, how should we think about manufacturing utilization over the next 2 to 3 quarters?

Well, in looking at the factories, we've kind of analyzed it at Los Angeles, we've -- we're definitely trying to trim our sails on the PCNB as we let demand catch up with the inventories that we have there. At the Hannibal facility, we are -- there's a couple of SKUs that Dave was talking to, Thimet and Counter, we're going to let that -- both resolve on a global basis, so we're going to slow a little bit and let that catch up. Axis, which has uniquely been our Achilles, so to speak, on plant absorption is -- looks very strong going forward in the year, so it's down on one side and up on the other. So I think, overall, we don't see a significant impact.

Okay. And then my last question is on the Impact herbicides. I was hoping you could discuss the capacity plans for 2014 in that product category since you worked through a third party on the manufacturing?

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

[Operator Instructions] Our next question comes from the line of Richard O'Reilly from Revere Associates.

Near the end of the press release, there's a statement that talks about some working capital controls. I'm just wondering is that what David was talking about with the inventory build in the channel or is that something else because controls would imply that the inventories in the channel would be lower?

Okay. That's with in regards to our distribution, so -- our customer base, sorry. So our customer base is working through -- and I think I heard from one customer, there were close to 100 different products that they had that were on some sort of distribution plan from the basics, as people just try to ramp up to meet demand. And with that, they've -- took significant positions and are sitting -- most of them fairly strong and we mentioned the preemergent herbicides was a pretty big factor, but a number of different products. And so from their standpoint, they're taking more of a, "Let's take as needed," and that's kind of what we experienced in the second quarter. We saw orders that might normally come in, in the second quarter, maybe move to third or fourth quarter. And that's something that happens when their inventories swell.

Okay, fine. Okay, so we'll -- you'll see more of that impact in the latter half of the year than early in the year. Okay, fine.

Our next question comes from the line of Jay Harris from Goldsmith & Harris. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Eric, when you look at the reduced cotton acreage this year, are there opportunities for us to grow market share in use of Bidrin and the defoliants or will our business be down in line with planted cotton?

So both of them -- it's hard to pick that on a definitive basis. I mean, certainly, the more acreage you have, the better volume chance you have. But it's probably driven more by insect pressure for Bidrin. So if it's strong bug pressure, particularly which comes into play over the next 30 days, then that's an opportunity, and then Folex follows behind that. And again, it's more related to the weather, if it's hot and as you get into the September months and into October; if it's hot, then there's less defoliant needed. If there are mild -- more mild temperatures then the plant will continue to green and you have to use multiple applications of Folex. So we have -- I mean, certainly, it'd be more bullish if there were more acres. But pegging weather, it's going to be up or down from last year, is too early to tell at this point. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: Fine. If I -- if you could talk a little more about Envance. Are we likely to see more retail outlets than just Home Depot? And if so, in what type of timeframe? We're talking about just the U.S. and then I'd like you to comment on any developments outside the U.S. that you can share with us.

So there are at least 2 major distributors that are signed up that will begin in tail end of fourth quarter and more predominantly in first quarter of '14. There are several others that have expressed interest. I think for these 2 that fall in line with -- along with Home Depot, would capture significant part of the market. And then it becomes a matter of others that just say, "Okay, we don't want to be left out." So getting those 2 are key to moving forward. Outside the United States, yes, we've been meeting with various retail chains and distributors. We do not have anybody signed up, I think, in Europe where we think there's great opportunity: France, U.K. and Germany. Unlike -- I have registrations approved. Unlike the U.S. where these are EPA-exempt from registration, they do require government registrations. And again, those 3 countries are there and that's where we're talking. The expectations are to begin sometime in 2014, but we don't have any concrete contract at this point. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: All right. Where do you expect the -- David, what was the receivable at the end of March? Could you remind us?

$147 million. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: So we're down $27 million -- $20 million, I mean?

No. We're down much more than that because we're $67 million, I think, at the end of... Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: I must have misread the...

Down $80 million?

Yes, we're down $80 million. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: All right. And -- okay. And so you have no short-term borrowings, and are there any plans to prepay any of the long-term debt?

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

I think you understand, Jay, that essentially the term debt is eliminated, and so what we have is around $40 million.

Yes, $41 million.

$40 million of, I think, it's -- I would call it, it might have been term debt and it's now revolving debt.

Yes. We were at $50 million in term debt at the end of March, so now $41 million in total debt. Jay Richard Harris - Goldsmith & Harris Incorporated, Research Division: So absent any acquisition activity, your cash will exceed debt by the end of the year?

Well we have program liabilities that need to get paid.

Right.

So it will be a balance.

Yes.

Our next question is a follow-up question from the line of Andy Cash from SunTrust.

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

Well, one of the things that -- and this was not the strongest, robust year for home insecticide sales, just kind of late-season starting. But Home Depot was very thrilled with what they saw in relation to other people in that shelf space. From a promotion standpoint, one of the things that we've -- we had launched with was -- and this kind of carries to that, that when it was basically going to be more under Terminix, it really is an industrial looking package. So if you haven't been in the shelf and seen it, it's mostly gray. And what we'll be launching when we move into the next year's sales will be colored packaging that looks much more robust and will stand out much better in the shelf. A lot of social media type approach, we have not laid out a large-scale kind of mass advertising. I think, initially, we'd like to gain shelf space and then try to work with the various retailers on targeting specifics within their market. And so that's kind of where our approach is for now. So I don't think you'll see us launching $20 million type ad campaigns in the near future.

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

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

Okay. If I could just add one other question. It looks like the competition sort of taken note of your strength with Impact. And I was just curious if you have enough data where you could look at how you guys are doing relative to BASF? You think you're maintaining your lead relative to those guys or do you think they're sort of catching to you?

Well, I mean, we have the advantage of our agreement with Monsanto and they are the drivers of Roundup, so we're co-promoting that piece. BASF, obviously, has a lot more feet on the ground than we do. We'd like to think that our brand Impact, that we've built very nicely over the years, is -- carries a lot of strength within the growers. But this product is a superior product. It -- frankly, we appreciate having some help and support in building the awareness for the molecule because it's -- we've done a good job, but we don't have anywhere near the resources that somebody the size of BASF has, so them putting more effort behind the product, I think, will only help fuel our sales.

Our next question is a follow-up question from the line of Daniel Rizzo from Sidoti & Company. Daniel D. Rizzo - Sidoti & Company, LLC: Just one more question. In terms of competition for the corn soil insecticide, there's really nobody else who has the granular insecticide that's as effective as yours, is that accurate?

Well, Syngenta has Force, which they sell in bag. We sell it in a SmartBox system, and it's in excellent product. It's a pyrethroid, again, it works very well. The Smartchoice that we have is both an OP-pyrethroid combination as is Aztec, and then Counter is an OP that has specifics for nematodes -- or certain strength of nematodes. So we certainly have the leading, robust tools for that market. Daniel D. Rizzo - Sidoti & Company, LLC: Okay. And is there any indication that somebody is coming with more products to the market that you're aware of?

Not in this kind of the granular form. There is more interest in the liquid. Syngenta has a liquid Force but the market is led by FMC's Capture. We also have the same chemistry that we have not moved into that market, but we are looking at expanding. And we talked about some formulations that we're looking across our portfolio of corn soil insecticide. So as this market grows, we will as well.

Our next question comes from the line of Bruce Winter, a private investor.

In the soil fumigation market, is that mainly in the cash kind of mode where it goes up and down with the underlying crops and the weather or there are some external factors that are driving it like there used to be methyl bromide? And then secondly, you were working on a granular form of that. Is the granular form better or different or what's the difference?

Yes, good questions, Bruce. I've got short retention, so let me answer those 2 and then you come back. So the Vapam product line continues to do well as more and more other alternatives become limited. Methyl bromide is -- you're right, that's really squeezed out. The methyl iodide, which Arysta launched a little bit ago and wound up pulling the registration, so there are less and less alternatives moving forward. Now stewardship improvement is something that we embrace. Working with EPA, there is -- the concern's always about kind of inhabited areas within sort of buffer zones kind of grow into how close you can get up to, whether inhabited spaces or that sort of thing. And we train thousands of people that first year on all the new regulations and it's an ongoing process. Vapam's such an effective tool, it does -- it provides itself as an insecticide and a miticide [ph], an herbicide and a fungicide. And then it disappears into inert substances that have no concern. So that's its real, real advantage. And as far as whether other factors -- water can be limiting if you're in areas where there's limitation of water or drought in a particular region at the time that's applied, that can limit the number of acres. But with -- I just came back from a potato -- top potato growers in the world coming together, to talk about this product and other products that we have. Potatoes are such a -- we have such a major impact of the inputs into potatoes, particularly with SmartBlock coming on too, that most of them fumigate virtually every acre and with Vapam. And so that's -- it's key for them growing, water strengths, that sort of thing. But with regard to Dasamid -- or Basamid product we've taken on, that is a solid form. It's a more expensive form, but it is something that we feel might be able to be controlled better from any sort of off-gassing. And we would look to position that maybe in the buffer zone areas that currently do not have a treatment. And but the limitation we have there is we do not have the data to show what that off-gassing is and how safe it can be used as opposed to the buffer zones that are well understood for Vapam. So we've been gathering that information, we're hoping to submit next year to EPA and look for a reduction of buffer zone for that product so we can make that as a complement to our current product.

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

Are you talking potato?

Yes, let's -- yes.

Well, there are a lot of crops.

Yes, okay, potato.

All right. So potatoes, I was kind of surprised because at this conference -- I was always thinking potatoes run about $400 an acre but they told me it's up to $800 an acre now. A significant portion of that, or a good portion of the $400, was the soil fumigation and which was several hundred dollars an acre. On top of that though, what I learned is -- and it depends on the area, but there's -- they've got issues with fungus and so some of them are spraying quite often for fungus, so that's something that we're looking at to see whether we can do something, maybe with SmartBox, where we could start delivering products into the ground at time of plant with the seed. And the kind of -- something that would kind of hold for a longer period of time. But -- so the chemical part of the $800, I mean, if you're -- are you talking just the chemical or chemical labor, the application of putting the stuff down as opposed to fertilizers and that nutrients and that sort of thing?

No. Just the chemical part.

Just the chemical. Yes, I'm not real sure because with these new economics of $800 in that, I don't know how much of that is the cost of getting the stuff out versus the chemical itself. But -- so I'm really -- I would -- I'd just be guessing, but it's probably somewhere in that 30%, maybe 1/3 or something like that, the rest would be in application and then fertilizer and all those sort of things.

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

Yes, it does go in with water. It could go in a variety of ways, there's a center pivot, and it could go in injection, it can go in drip through the irrigation lines.

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

We do go -- that's a strong growing market for us, particularly with potatoes -- and I mean, with peppers and tomatoes. That's been a market that's historically been methyl bromide. And that has been switching over to metam and growing in that area. There's also Telone and Chloropicrin that get used in -- sometimes in combination and sometimes, there's solo uses. But that -- yes, the Florida market is -- continues to grow each year, which is part of the reason why we put our plant down there in Alabama, in Axis. It's a great position for us because our competition is in Idaho or in Belgium.

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

Well, I appreciate the opportunity to update you. We'll again keep you informed. If you have any questions, that you'd like to take offline, contact Bill Kuser and we can set up time to kind of go through and handle any thoughts you might have. I appreciate it. And good night and good evening.

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