American Vanguard Corporation (AVD) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the American Vanguard Fourth Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Tim Donnelly Chief Administrative Officer. Mr. Donnelly you may begin.

Thank you, very much and welcome everyone to American Vanguard’s fourth quarter and full year earnings review. Our speakers today will be Eric Wintemute, our Chairman and CEO; David Johnson, our Chief Financial Officer; and during the Q&A session we have Bob Trogele, our Chief Operating Officer as well. Before beginning, let’s take a moment for our usual cautionary reminder. In today’s call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company’s management and are subject to various risks and uncertainties that may cause actual results to differ from management’s current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks as detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call and such information will not necessarily be updated by the company. With that, we'll start with Eric Wintemute.

Thank you, Tim. Good morning and thank all of you who are on the phone for joining us today. We welcome your interest in American Vanguard and are pleased to have this opportunity to report to you on our recent performance as well as on the initiatives that we are pursuing to achieve even greater success in the future. Supplemented in our earnings release and conference call comments, you will see that we filed our Form 10-K last evening which will provide you with additional insight into our results. We are speaking to you today from Mobile, Alabama since this week we are holding our quarterly Board of Directors meeting near our Axis, Alabama manufacturing facility. As you know from our previous discussions, Amvac is proud of its historical commitments to U.S. manufacturing and we operate four outstanding and highly productive facilities employing 100s of workers in California, Alabama, Missouri and Idaho. Before moving on to company matters, I want to note that since our last earnings call, we've experienced a change in administration. On first blush they seem responsive to the interest of agriculture and business generally. We have already seen an executive order to reset and possibly reduce the number of burdensome regulations across federal agencies. Further USDA has vocally recommitted themselves to the defensive growth. As a domestic manufacturer we're optimistic about the political climate and we'll follow the change of the guard with interest. With regard to our financial performance, thanks to the efforts of our entire employee base, in 2016 were able to post an 8% increase in revenue and 94% increase in earnings. By contrast, revenues in the Ag industry have on average declined by about 7% amid recovery in the market conditions. We are proud of our team's ability to deliver these results despite obvious headwinds. Now I'll take some sales review. Our solid base business continues to expand with the steady use of our traditional products and the introduction of a number of new products. Our U.S. corn business which now accounts for approximately 19% of our total sales grew by 10% in 2016 led by strong demand for our impact post emergent herbicide. Our crop business grew slightly in spite of extremely light folio cost pressure in the Southeast United States. Our potato business remained stable with slightly lower annual sales of our soil fumigants due to excessive moisture in the Western part of the United States which affected our fourth quarter sales performance. We expect pre-plating use of these products in 2017 to make up for some of the post harvest applications that we nursed in 2016. In our other U.S. crop business including fruits, vegetables, peanuts and sugar crops, sales remained relatively stable during 2016, while we were able to penetrate the soybean market for the first time with our new Scepter herbicide. We experienced excellent growth in our non-crop business up nearly 28% driven by our various pest control products, our pharmaceutical ingredients and license in revenues attributable to our advanced consumer test grades. We achieved 8% growth in both our U.S. and international business with international benefiting from strong insecticide demand for our Mocap and Nemacur products as well as expanding sales of our Bromacil herbicide products acquired from DuPont in 2015. Our commitment to international expansion will be a subject of further discussion later in this call. I will now ask David to provide comprehensive financial overview. David?

Thank you, Eric. Good morning everybody. As Eric mentioned yesterday evening we filed our Form 10-K for the 12 months ended December 31, 2016. Everything I'm going to cover here in brief is including in more detail in that document. Furthermore, you will notice that we have again added a table of sales to our earnings release so that you have key numbers immediately at hand. With regard to the financial results, as Eric just detailed, the company's sales for the fourth quarter of 2016 increased by 4% to $87 million as compared to $84 million last year. Our fourth quarter gross margin improved 42% as compared to 37% last year. Operating expenses increased from 31% of net sales to 35% driven by higher spending on marketing at the start of the new season, continued spending on our SIMPAS Precision Application System, higher operating costs driven by destinational product mix compared to last year and some additional incentive compensation growth. Overall net income ended at $3.9 million or $0.13 per share in Q4 of 2016 as compared to $3 million or $0.10 a share last year. Year-to-date sales were up 8% to $312 million as compared to $289 million this time last year. Within that number our crop sales were up 5% and our non-crop sales up 28%. From my perspective, the key financial issues remained consistent with the last several quarters. First, we continue to carefully manage our factory activity as we balance recovery of overhead costs with demand and inventory levels. In 2016 our factory costs were up about 1% [ph] and at the same time our factory output increased by approximately 7%. This resulted in a 6.7% improvement in unabsorbed overheads. The next cost of our factories amounted to 5.6% of sales or put another way the factories contributed $1.5 million to the pretax improvements for the year. Second, gross margin for the year ended up 41.1% as compared to 38.7% last year. This 2.4% improvement included about 1.4% from managing the selling products, volume and mix of our year-over-year sales, 0.6% from improved factory performance and 0.4% overall reduction in raw material pricing. On the subject of raw materials we saw solid price reductions domestically which were partly offset by one Chinese manufacturer who decided to take some short team profits by significantly raising the price on one key raw material in the second half of the year. We have spent capital in the second half to put alternative manufacturing capability in place and expect to return to a lower cost of goods by mid 2017. Third, as I've mentioned in the past, our factory performance is linked very closely to inventory levels. If you look back to this time last year, we had inventories about $136 million. This year we are $15 million lower at $121 million. We followed through on the same discipline sales and operation planning process that we have followed for the last three years, during which time we achieved a reduction from a high of $175 million in early 2014 which was $121 million today. We believe there is more to achieve and are targeting to get to $110 million in 2017. Fourth, during 2016 we continued to exercise tight control over our operating expenses, while we recorded year-on-year increase in sales of 8% our operating expenses increased by 7%. The increase in costs was mainly driven by our continued investment in two key longer term business drivers, our patented delivery systems including on our new SIMPAS system and the development of our international footprint. Towards the end of the year we increased spending on marketing ahead of the start of the 2017-2018 season and finally, we increased accruals for incentive c compensation reflecting the stronger financial performance. Fifth, our effective tax rate ended the year 29.3% as compared to 22.4% last year. Our tax rate is driven by the balance of where we make our profits, specifically U.S. or international and the level of those profits. For 2016 our domestic financial performance improved significantly whereas our foreign business grew sales, but the bottom line was negatively impacted by the aforementioned raw material pricing issue. Additionally, the international incurred higher operating expenses associated with continuing to develop the business for the long term including for example establishing the new venture in Hong Kong. Looking at the bottom line for the year our net income improved by 94% to end at $12.8 million or $0.44 per share as compared to $6.6 million or $0.23 per share last year. Finally, with regard to balance sheet management and liquidity, we continue to carefully manage cash and working capital. In 2016 we generated $46 million from our operating activity. In 2015 we generated $79 million. So we're very pleased we're able to say that we have generated a total of $125 million from operations over the last two years. We have used that cash to invest in our business and to pay down debt. In the latter part of 2016 we made decisions to increase capital spending as we decided to purchase equipment to manufacture key raw material for which as I mentioned earlier the supplier had applied a major price hike. The above depreciation capital spending for 2016 should be seen as an anomaly. We expect the CapEx spending will return to approximately depreciation levels in 2017. Interest expense is down 37% as compared to last year reflecting a strong year on cash management. In 2016 we succeeded in reducing debt from $68 million at the start of the year to $41 million at the end of December. This improved overall financial performance plus our success in achieving a further year-on-year debt reduction of $27 million drives increased liquidity. A year ago we had the capacity to increase borrowings by $68 million. In comparison today, we could increase borrowings by $105 million. In summary, when looking at the year just closed we see the sales grown well despite market conditions. Our margins have strengthened. Net income has increased strongly. Inventories are down. Debt is down and the increasing liquidity allows us to be optimistic about opportunities that are likely to occur in 2017. With that, I will hand back to Eric.

Thank you, David. Now I want to touch on our early views of the 2017 business conditions and our strategic initiatives. In 2017 we expect to see our business grow in several areas. Over the course of the past three seasons, challenged inventory of our corn products in the Midwest has dropped to historically normal levels. In addition, temperate weather is leading the favorable planting conditions and a likely increase in test pressure. In light of these conditions demand for our soil insecticides and impact closed emergent herbicide should rise in 2017. With our recent introduction of new Scepter herbicides and our crop list fungicides for soybeans we are confident that we will capture incremental sales of our Midwest region. With cotton prices rising to the $0.70 per pound price and plentiful water allocations to cotton growers, planted acres are expected to rise about 10% in 2017. Additionally, we believe that historically like full year insect pressure experienced in 2016 should normalize leading to stronger demand for our BIDRIN insecticide as well as a robust harvest demand for our Folex defoliantion aid. In potatoes we see relatively flat underlying demand as recent low commodity prices for this crop should slightly dampen [indiscernible] news. But as previously indicated, there is potential for increase reflecting soil fumigant applications this spring to compensate for the applications that were not accomplished in the post harvest period of 2016. Many other fruit and vegetable crops are likely to remain fairly steady in 2017 with a possible upside in the time of sales on peanuts due to greater interest in Nemacur control. We expect solid performance from our non-crop business driven by our Dibrom mosquito control franchise, our wide range of commercial pest control insecticides and continuing licensing of the [indiscernible] consumer test spray technology. Our international business has continued to show growth with steady market share positions for our Mocap and Nemacur insecticides, the continued market penetration of our HYVAR [ph] and Crowbar [ph] herbicides and our global collaborations in Asia Pacific and elsewhere. In summary, our outlook for 2017 is positive. Now, I'd like to speak about our growth initiatives. One of our most promising initiatives is that of technology development. As you know, we are among the leaders in closed delivery systems in this industry. We have focused our development efforts towards the SIMPAS Precision Application System which we believe could place us at the leading edge of precision agriculture by maximizing yield, minimizing input costs and leaving an optimal environmental footprint. You can view a short video about SIMPAS on our website at amvac-chemical.com. To bring you up to date on our recent development efforts, last fall we completed 200 plus hours of field testing our new SIMPAS system demonstrating that we can dispense product from 216 individual meters simultaneously from a wireless gateway all with a stunning plus or minus 1% accuracy. The system will be self calibrating which is a significant improvement over our market leading SmartBox technology. This planting season we will be taking our SIMPAS system to several key growers to validate system functionality and the results of our field testing work last fall. We are also working on securing the appropriate insecticides, fungicides, nutrients, biological and other components which will give agronomists a variety of inputs from which to tailor Ag plant prescriptions for growers. In addition to in-house development we are looking outside of the company for both technology and market access. Mindful of the fact that international markets are forecasting to grow more quickly than domestic, we have placed great efforts and emphasis on expanding our global footprint through multiple means. For example, in 2015 we completed the acquisition of HYVAR [ph] and Crowbar [ph] product line which took us into new markets, particularly into Asia. Then as we reported in August we entered into a joint venture with Huifeng Agrochemical, one of China's most successful crop protection companies. Huifeng focuses on the development, manufacture, and distribution of multiple Ag chem products in the Asian region. This is a low risk alliance designed to help us gain access into the third largest Ag market in the world and to obtain both rights to both existing and new technology from Asia. Yesterday, the Board of our Hong Kong joint venture met here in Mobile to expedite product development and commercialization efforts. Also principles from Huifeng will meet later today with our Board of Directors and senior management to discuss our plans for addressing markets in Asia and elsewhere. I am encouraged by how quickly this enterprise is moving and the number of promising initiatives we already have begun to pursue. In addition, Bi-PA our technology pipeline for biologicals has recently attained rights to develop and market globally a promising plan extract active ingredient with a favourable toxicity profile and a new mode of action. AMVAC will have the market rights to this technology in the Americas when necessary registrations are secured. In addition to technology development and market access we continued to grow the business through acquisition and licensing. As many of you know, purchasing and/or licensing of proven branded products has been an essential part of our growth strategy for many years. We are encouraged at the acquisition opportunities that we are now seeing as a consequence of our industries, consolidation. With our strong balance sheet and alliances with light minded acquires we report to take advantage of these offerings and are evaluating several currently. With that I’ll leave you with the few closing thoughts. We entered 2017 with financial strength and a disciplined organization that is equipped to grow through portfolio additions, geographic expansion and technology leadership. We’ve shown the ability to succeed through the cyclical market trends that are typical of this industry. While continuing to invest in our future. Now I’d like to turn it over to operator for any additional questions you may have. Rob?

Thank you. [Operator Instructions] Thank you. Our first question is from the line of James Sheehan with SunTrust Robinson. Please proceed with your questions.

Good morning, thanks for taking my question. In terms of potential product acquisitions you might make, could you comment on where you see valuations in the market today do you see them as attractive and unattractive and also on the timing of when you think some of this might come to profusion is it something that, is in the coming weeks or might take better part of 2017 to play out?

As far as valuation, it would seem that, that peak levels are probably - and I think we’re seeing it may be off or it may be down some from some of that historical 10 plus times EBITDA numbers that we’ve seen. The question I have is deals have closed yet, so it is still yet to be seen. With regards to timing, if you look at the three major acquisitions or mergers that are on the plate I believe that [indiscernible] China are getting very close and it could occur second quarter and I think Dow and DuPont and is likely to be after that may be early as through the third quarter may be fourth quarter and I think what we’re seeing from Bayer and Monsanto is target to try to achieve by the end of the year, so that will be fourth quarter, that’s what we’ve read in the process.

Terrific and with respect to your European business are you seeing any shift of that business out of the first quarter into the second quarter due to weather conditions?

I don’t think so.

James, as of now our forecast is based on our current budget so no… Q - James Sheehan Okay, and then you mentioned at the beginning of your call changes in the regulator structure for crop protection, could you be more specific about changes you are seeing at the EPA and how these changes might impact your business?

Well, honestly the appointment of administrator Scott Put ph is a pretty major shift from what historically has been EPA appointment generally within the agencies that the staff people are hardworking do towards science based decisions, but often political appointees could come in and have come in and pushed for different agenda and so we’re pleased with that piece. There are a couple of key initiatives that have been long term issues to deal with and one is the Endangered Species Act, which I think we along with the agency, the problem is the, is the Fish and Wildlife which has not been quick to really to deal with that issue as well, but they have to sign off and so that’s become kind of an issue. Under the last administration for water, waterways there is the lotus piece that was put together for by the last administration that has now been basically checked and we’ve got recent decisions say that navigation of waterway has to be year around so you cannot just have a temporary end so you can’t just add the temporary area that says, okay now you've got to, go through along permitting process in order to allow it to spray and so that’s been very disruptive over the last number of years. So, incurred by that the other initiatives underway which have not been announced yet, also I think we're very encouraged by what we see USDA becoming more engaged and we think that relationship with USDA and EPA will reach may be the best level since inception of the EPA. So that’s a little bit of the regulatory climate that makes us feel more optimistic about the upcoming years.

Thank you.

Next question is from the line of Tyler Etten with Piper Jaffray. Please go ahead with your questions.

Thanks and good morning guys.

Good morning.

I was wondering if we could may be dig into channel inventory a little bit more, just on details of which products are much leaner now and what other ones might still need a little bit of work and particularly if you could give any details on granular insecticide?

Well, at this point I mean the issue had been our corn soil and insecticides I think for sure impact as well and impact came out in the 17 year, so I don’t think we’re dealing with, we have been dealing with empathy. Granular soil and insecticides we’re something that took some time to work through down at historical what was there across the restaurant portfolio and were probably at low levels that we’ve seen over the last number of years. And that’s been a purposeful effort on our part to not push our material through the channel and working more on a cool approach which is part of the initiative that Bromacil started with our organizations so, it's something that has been received by our distribution partners on a favourable position as they’ve had to deal with their balance sheet as well and other companies may be pushing to try and move their products into the channel. So, with this I mean there is always the concern that if you don’t push your products in that, that’s you are not getting your shares because sales follow somebody else's product, but we haven’t seen that occur and so we’ll continue I think are fairly conservative disciplined approach towards market fair.

Okay, so if the, if you are going to keep doing a conservative approach to market sale, when would you expect that the manufacturing capacity would be lower than market demand or essentially when you would start taking up production in the factories?

Well we have production has increased over the last two years. I think as David reflected our unabsorbed overhead has continued decline and in addition I mean we are, we right in more products in house and I think David mentioned one product, this was our Nemacur product which, we’ve been making overseas, but the intermediate was one that we initially had marked from Bayer they just continued. We had a source of supply that stopped and another that is caused it quite a bit. So we invested in capital to manufacture that product and then we’ve also invested in robotics for our SmartBox and what will be SIMPAS feel lines and so I think our, at our Alabama facility which is the largest piece as far as constant annual basis and the side of the facility we’ve got two trends of SIMPAS are pretty well fall for this upcoming 17 season we’re running seven days, 12-hour shifts on our insecticide, granular insecticide still allowing for the SmartBox, like loads that will increase as we get start ramping up for SIMPAS, but for right now I guess she will say that it's, say that a 50% capacity. So I think we’re optimistic. I mean we’ve and we’ve generally have coasted our plants at a basis that are unobserved overhead would be about $11 million and I think it is whether typical has been and we’re going to very close to that number. So, we’re pleased with that output as well and we love having the ability to manufacture to demand again we’re looking corn insecticide market right now that we think may have upside given the weather conditions, the mild winter I think there are a lot of products out there that test pressures is going to hit the some higher levels from what has been over the last two, three years.

Thanks, all that detail was really great and two last questions for me one the followup on all of the detail, how should we be thinking about the margins as you continued to build up that operating capacity and then any thoughts on the recent Midwest freeze on how that would affect past pressure . Thanks.

Margins, David?

If you look back at the history of the company we’ve generally operated with a gross margin somewhere between 40% and 45%. It does go up and down a little bit with the different mix of sales we’ve in any one year and certainly improving manufacturing performance does tend to add to the margin percentage. And I think 41.1% I think we work for this year we’re in that zone and we’re anticipating the similar sort of year in 2017.

Bob?

Yes, so Midwest freeze would affect mainly the wheat markets and we’re not in the wheat market, so very little effect on us in that regard. The other piece of that might be just may delay planting, I mean the work the only work that’s really been done up to now is may be some fertilizer applications but it's too early for planting so there is nothing really in the ground to be affected and so it's too early to make a call. If that continues into the spring it would delay planting, but most of the corn goes in I would say starting mid April, so a good few weeks out and soybean is going afterwards, so its way to early to predict any negative from that.

I guess I was referring to past pressure?

Well, I would say that’s depends on where in the country and that's really mix, so it is very difficult to predict how that will affect pest pressure at this movement in time.

I’d would say that I was at a recent industry conference and generally people were fairly optimistic on where test pressure weakness looking to be for this year, and so, we’ll see it is obviously always a guess, but at least both peers and customers seemed to be somewhat part of where pest pressure would be this year.

Alright, thank you very much.

Our next question comes from the line of Chris Kapsch with Aegis. Please go ahead with your question. Q - Chris Kapsch Yes, good morning. Hey Eric, I want to follow up on the discussion about possible acquisitions for AMVAC as a result of the consolidation amongst the majors. One just some sense of magnitude or scale of the acquisitions that you might be willing to pursue? I mean you mentioned the liquidity and the borrowing capacity under the current capital structure, but curious, what the company might be willing to do if some more substantial or compelling acquisition became available? And then consistent with that question just what might compelling look like for American Vanguard given your vision for the company, would you want to add products that are niche in nature or would you consider substantial grow crop kind of chemistries or inputs that might be weighted to leverage impact on the road, so any more color along those lines would be helpful? Thanks.

Sure and from a leverage standpoint I mean, I think – if we didn’t make acquisitions, I mean we’d likely be out of debt by the end of the year somewhere around there. And so, I mean we're currently our debt to equity ratio is 0.14 so, we really we could leverage the company with what we call traditional type plans and certainly to $200, $300 million range as we start looking and we have participated in the negotiations in the range of $750 million to $1 billion. Obviously at those levels we look for partners, preferred very strategic partners. We’ve got a very strong track record of acquisitions, certainly and companies as they look to divest we’re definitely in the mix. So then we would take a look at what would, what makes the best strategic alliances for us and so that we bring on additional partners and making these acquisitions. So I think as far as what we look for we run a model that looks over a 10-year horizon of revenue, cost of goods, the operative expenses in terms of regulatory product development and sales that would take place and we boil it down to payback and that present value and so we’re a little bit agnostic on what the opportunities are because if we’re not strong in a particular area we need to increase our strength in order to do that. That’s just build into the model, so I would say we look at all opportunities. We don’t say no to at least what's been put into our plate more over the last few years, but then things like if it was, if we were able to do manufacturing side or if it fits with our current portfolio of products or complements those are all certainly pluses, but I guess to answer to your question Chris we’re not, we are not saying geographically or as far as the crops or that sort of thing no to any of these opportunities.

Yes, that’s helpful. I mean, you mentioned that the willingness to go pretty substantial I guess even if something like that I guess would require more of a partnership approach, but just the scale that you are talking about somewhat would be transformative for the company. Now if you look at the majors that could be divesting there all, they’re global in nature. So, can you may be at least follow up with comments on how imperative would it be for you to increase your global presence via acquisition or would you look into strengthen the breadth of your portfolio focused on the existing geographies which you address? Thanks.

Yes, and I think if we were, if we were looking into acquire product lines that had strength outside of our existing area and we’re talking about major type of acquisitions then we would looking to partner with strategic players that have that strength already in that particular region because if we can demonstrate that we can be strongly competitive with the acquisition then the regulatory bodies would not approve us as a viable competitor. So that would be the way we do that smaller, if they are smaller acquisitions then they don’t, they are not going to be kind of a major stress from regulators, so that we can certainly handle ourselves.

Yes, thank you.

[Operator Instructions] The next question comes from the line of Francesco Pellegrino, Sidoti and Company. Please go ahead with your question.

Good morning guys.

Good morning.

Good morning.

Good morning.

So I just wanted to stay on the industry inventory channel conversation a bit and I Just have your press release up here and in here. You say that you guys are focusing on a practice of systemically reducing inventory to meet true demand. You said that on the inventory reduction during the year to a $121 million exceeded your expectations and then I heard David say if you are looking to further improve the efficiency of just your inventory that you have on hand and you are willing to bring that number down to $110 million which I actually thought inventory would be building into 2017. So, I’m here thinking to myself, look they are looking to better manage couple, looking to better manage their in-house inventory was where the demand is and they’re telling us that the demand that their inventory should be going down even further. I’m just wondering what the read through is just collectively for your end market users because just trying to put all the pieces together it’s a little bit confusing?

Yes, I’m sorry. I think what we’re or maybe not communicating as well as there are two different inventories. There is inventory that sits within our customers hands of our products and that is down to historic levels and is the normal type level with regard to the 121 from a 130 say especially that’s the inventory that we have in-house both finished product and raw materials. So what happened during the 2013 years we’d had three years of strong growth particularly in the Midwest market in the United States and 14 became a period where not only was demand down dramatically, but also there was all this inventory sitting in the channel and we’d ordered lot of raw materials to manufacture all these product so that’s really what we are talking about when we repeat that the 175. At the time, I think we looked at 2011 and 2012 when we are hitting low levels we were selling out of most of the products. So it is kind of an inventory level in the $80 million or $90 million range. I think for now we looked at what our inventory levels to be at a more normal with more recent acquisitions and licenses to be somewhere about 110 and that’s where we’re shooting for, for this year. Is that kind of…?

Yes, I know that helps the second tier, but are we still looking to deplete that second tier with the customers just because you are looking to better manage your inventory with the customers inventory and I just thought this was something that we were totally passed and that all the efficiencies that are realized in 2016 that was little bit concerned about just were free cash flow is going to be in 2017 I was looking for an uptick in inventory on year end. Year book it doesn’t seem like we’re going to be get in that and it just seems that we could still get a little bit of a tailwind from better inventory management and it just something that I didn’t expect to be carrying over into 2017. It’s a benefit for the company. I just did not think it would continue to benefit you guys in 2017 I guess - yes, go ahead.

I’ll just say, I mean we’ve - it's about balance sheet excellence and if we can turn our inventory over faster by reducing and bringing into the market on an as needed basis that just improves our cash flow and as David mentioned, I mean from I think came in through about $37 million in cash in 2014 I think to over the last two years to generate $125 million, that’s a trend that we’d like to do continue if we can – we focused the team we need every month on our objectives managing inventory and its work well and I don’t think we want to stop at this point.

Let me phrase it a different way then. It's nice to see that you guys will still be getting benefits from better inventory management in 2017 and may be that is the way to look at it, but just to switch gears a bit, so your international business, like I know you are focused on Mocap and Nemacur and Eric you've even rattled off a lot of the things that you're doing abroad. But all the joint ventures that the company has been getting into recently like those probably aren't even generating any type of revenue just yet and when I consider the fact that you guys did 5% topline growth abroad in 2015, 8% topline growth in 2016, before these joint ventures, before these partnerships really started to contribute it almost seems as if we're on the verge of double-digit topline growth for sales abroad?

Well, yes, I think you are correct in your analysis that some of the initiatives that we have put in place that we're talking about now, yes, there is a timeline of when these things will start flowing through. But they take the registration time we're doing product development work, fieldwork, yes, that's the obvious work is to expand market access on a global basis and we are investing in that process in the same time we're improving our balance sheet. So yes.

Okay, and just a last question from me is, I think David had rattled off some of the price and volume mix dynamics for the company like on a consolidated basis, but when I looked back at the performance of herbicides, soil, fumigants, and fungicides, margins have bounced back really nicely and I'm talking gross margins and they've actually been pretty nice for the last three quarters and I would even probably throw in the first quarter of 2016 into that number as well. Is a lot of this pricing or is it going to be benefits from like volume mix perspective?

I'm sorry, you are talking about, you said fungicides or…?

So when you break up your crops, you break up your crops into insecticides and the herbicides, soil, fumigant, fungicides, and the others, and when you're sort of just focusing on what the herbicides, soil, fumigant and fungicide product platform has been doing the margins have been really impressive and I'm just wondering if it's more from a volume mix benefit or if it is from greater pricing for that product segment?

I mean I think fumigants continues to improve both from a pricing standpoint and raw materials standpoint and Bromacil. Right, so Bromacil and Scepter have been nice additions. Some of the Bromacil sales that we have in the transition are DuPont actually making the sale and us collecting the margin. So that – the revenue that you will see on that one some of those sales is 100% revenues also margins. So that's the part of it is it is a transitional thing, but from that we will see higher revenues for the same type growth margin net dollars. And then in the other we've had some [indiscernible] in our Folex cotton defoliant that was the start of the year for us this last year and that is a pretty good margin and I think those – that trend I think looks good to continue as we think that we should have another strong year with that will start kicking in.

I guess, so the herbicides grew a little stronger than the fumigants in the year and I feel it is slightly high margins. So I think that's the reason why is mix that's affected it, plus the manufacturing improved during the year, so the product lines benefit a little bit from that.

Okay, okay, that makes sense. That's it from me, thanks again guys.

Sure.

Thank you. [Operator Instructions] At this time I will turn the call back to management for closing remarks.

Okay, well, thank you all for joining us this morning. We appreciate your interest and we look forward to updating and giving you highlights over the next quarter. Thank you very much.

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