Greetings, and welcome to the American Vanguard Second Quarter 2020 Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host today, Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Well, thank you very much, Latania, and welcome, everyone, to American Vanguard's Second Quarter and Midyear Earnings Review. Speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; and also Mr. David Johnson, the company's Chief Financial Officer. Also assisting in answering any of your questions, Mr. Bob Trogele, the company's Chief Operating Officer. American Vanguard will file our Form 10-Q with the SEC tomorrow. This document provides additional detail to the results that we will be discussing in this call. Before beginning, we should take a moment for a 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 turn the call over to Eric.

Thank you, Bill. Good afternoon, everyone. We appreciate your continued support of American Vanguard. In our last call, we gave you our first impression of the coronavirus pandemic, which had begun to spread into the United States partway through the first quarter. As part of the critical infrastructure, we were permitted, indeed, expected to continue operating in the midst of a global pandemic, the likes of which we had not seen in over a century. In order to operate without disruption during the first quarter, we had to adapt. Where we could do so, we shifted from in-person to remote work. Where we had to maintain physical operations as in our factories, we implemented COVID protocols to keep the workplace safe and healthy. At the same time, we learned to do business remotely while constantly checking on supply chain stability, logistics and customer demand. Fast forward to the second quarter, the pandemic has become the norm. We, and our suppliers, peers and customers, have become more accustomed to doing business through Zoom meetings, webinars and e-mail. We continue our efforts to ensure that internal communication was frequent and continuous. In fact, I continue to hold weekly 2-hour state-of-the-company calls with over 40 of my key managers during which I solicit input on operational challenges, sales opportunities and regional developments to ensure that we are all moving in the same direction. In addition, on a daily basis, our pandemic working group advises the workplace regarding COVID-related news, government orders, research and company protocols. During the second quarter, the pandemic shifted from Asia and Europe into the Americas, where we do most of our business. In spite of that shift, I am pleased to report that we have had a low - very low incidents of coronavirus infection within our workforce. That…

Thank you, Eric. Good afternoon, everybody. As Bill mentioned, we will be filing our Form 10-Q for the 3 and 6 months ended June 30, 2020, tomorrow. Everything I'm covering here is included in more detail in that document. As Eric indicated, the company is fortunate to participate in industries that are considered part of critical infrastructure in all countries in which we operate. As a result, our customers and suppliers have all operated more or less without disruption during the pandemic. Having said that, the pandemic has impacted us in a few ways, including our ability to present new sales and marketing ideas, such as new products, face-to-face with customers in the field. On the other hand, you will see in our financial statements the same restrictions have caused us to spend less on operating expenses. Furthermore, the company has been able to operate normally throughout the first half of 2020 without the need to apply for any COVID-related federal stimulus package loans. Looking forward to the balance of 2020, we do not expect to need to seek such loans or assistance. With regard to our financial performance for the 3 months ended June 30, 2020, the company's net sales decreased by 8% to $105 million as compared to sales of $113 million this time last year. Within that overall decline, our U.S. sales were down about $6 million and our international sales were down about $2 million. International sales accounted for 44% of net sales as compared to 43% of net sales this time last year. Eric has already discussed the main factors that have affected our second quarter sales performance. In addition, the sales and expenses of our businesses in Mexico and Brazil were affected by the devaluation of the related currency exchange rates with the dollar…

Thank you, David. I would now like to focus on the key strategic initiatives that will define and enrich our enterprise. First, we continue to expand our product portfolio through core growth. That is taking existing products and developing new formulations and mixtures tailored for use on new crops or providing greater views of application. As we've reported in the past, at any given time, we are launching some of these solutions while several are in the pipeline. We expect that these core growth products will generate over $100 million in high-margin revenues per annum within the next 5 years. Beyond core growth, Envance Technologies continues to broaden market opportunities with their insect receptor-targeting technology. As we've reported Envance technology and products are being commercialized by Procter & Gamble for their emerging, safe and effective Zevo brand consumer pest control products. We are pleased that the Chief Executive Officer of P&G, David Taylor, mentioned Zevo in his recent earnings conference call last Thursday. We see this as another positive sign for Envance's innovation partnership with P&G. In addition to Envance's superior technology for households, we believe that this patented nontoxic alternative to traditional pesticides will be successfully leveraged into numerous consumer, commercial and agricultural markets to meet the increasing demand for low-impact solutions. The Envance R&D team has also developed a new technology for - a new application for their technology to kill weed pests. The company's new herbicide platform delivers broad spectrum efficacy that is safe for people and pets. We intend to pursue all potential market applications to fully exploit the superior safety, functional performance and environmental sustainability of these herbicide solutions. Of course, the capstone of our technology innovation is SIMPAS, and I am pleased to announce that the launch of this game-changing prescription application technology has…

[Operator Instructions]. Our first question comes from Joseph Reagor with ROTH Capital Partners.

I guess, first thing on SIMPAS, obviously, a big deal for the company. But could you walk us through how you foresee your future revenue stream from this? Let's say, it's 1 unit. Is it guaranteed that your items go through there or a royalty out of anybody else's? Or is it that you're going to get paid for the unit or a combination thereof?

Yes. It's the combination thereof. So the unit itself, we intend to make money on the sale of those systems. It would not be, obviously, the major part of what we're looking for. We're looking at revenue from the sale of product that goes through the system and that margin obviously depends on the product. If - also if it's a product that we have a proprietary position on, that would be different than one that maybe we're taking a license to sell under our brand. And then there would be a royalty stream from a party that would be selling their brand under our smart cartridge system through SIMPAS. We're also looking at a revenue stream as a royalty per acre of product use from the farmer standpoint. And so that's kind of the various components which will make up - some of which would be from a royalty and some will be from margin.

And do you guys have like a solid number, even if you're not willing to provide it yet, on what you're going to get per unit on that end of the revenue stream?

Yes. So that's complex. If you look at the SmartBox system, we can pretty well figure each system goes out, we get an average of how many acres each system will do or gets utilized. For instance, on the SmartBox system, we say it's an average of 18 rows. Then we look at the products that go through there, and we're going to essentially kind of calculate the range of per acre of how much gets used so we can calculate or estimate our total revenue per system. When you get into SIMPAS, it's very complex. Each system is dependent on whether if they're utilizing, let's say, 3 granular products that would be kind of 1 area. And then depending on what they're treating, if they're using - going for insecticides, they're probably treating most of the field. If they're doing nematocide, they're probably doing anywhere from 25% to 50% of the field. If they're doing micronutrients or biologicals, those will vary field to field. And then, of course, when we look at how many units go in there. We're thinking, with liquids, we may go much more concentrated than we're able to do with granules. And so with that, we're looking at potential of just treating the seed as opposed to - prescriptively as opposed to putting in furrow - in the soil. So all those things add up to a very complicated answer to your question, which is - no, we can't tell you. What will happen is, over time, we're going to be able to develop what trends and averages, and we'll have to - we will say: okay, on average, we get this much from each component that goes through a system, and then we can basically project going forward kind of - well, on a retro look is we know how many systems are out being utilized, what's the revenue generated and come up with a number. But as long as we've got this evolving move, it's difficult to say. I will say that, obviously, we see it will be significantly higher than what we're generating today from a SmartBox system.

Okay. Just one more, if I could. So far, year-to-date revenue is tracking a little below last year. I know you guys kind of were reluctant to give guidance given the pandemic and everything else going on in the world. But any color you can give us, even if it's just comparison to what we saw the second half of last year, things to think about, so we can have a reasonable forecast for the remainder of this year?

So fourth quarter looks very strong for us. And again, we're not giving guidance, but I think, overall, I think we're on track with where estimates are. And I think we've - there'll be - again, we - the channel has drawn down - continues to try to draw down inventory, and we saw in the season, a lot of very small orders right towards the end which typically people would order half truckload or a truckload of volume. And so it was obvious to us, and we've got that message loud and clear from our customers that not just in the U.S. but globally, that they are watching their inventory extremely tight. And as we see our EDI sales exceeding our actual sales, it shows that it has been drawn down. That can only happen for so long. Sooner or later, you have to - so we think fourth quarter looks like a good set, particularly for us and another big piece to us. As you may recall, Bromacil was a product that we lost our supplier in China, too. And we have - we're basically tripled a good part of the last 12 months. That going forward, we've been getting good volume of product just in the last couple of months. And it looks good going forward. So that will help us to some degree as well.

[Operator Instructions]. Our next question comes from Jim Sheehan with Truist Securities.

Just on Zevo, what kind of penetration are you seeing with that product? And also, could you just describe what contribution you expect that to make for 2020?

So as far as the concentrate or the penetration, that's something that we're not allowed to discuss. Any conversations we have with P&G are confidential. So the only thing we can do is refer you to their website on Zevo. They have various discussions, but they're fairly tight on what percent of the market they're penetrating, what their specific market plans are and we have to respect that. We believe the product is doing very well. I certainly go - when I go and look at Home Depot or Target, I see it's often out of stock or very little left in inventory, looking a little like the initial in supply shelves. So I take that as a positive sign. But again, so for us to give you color on that. So we have - as far as 2020, we have basically [indiscernible] that we haven't published what we get from them, and we get a certain percent of the sales. So at some point, that minimum goes into a different room. So I know that's not all the specifics that you'd like to hear, but that's the best we can give you at this point.

Okay. And then regarding your tax rate, if there were some changes after the next election, resulting in a 28% U.S. corporate tax rate, which is the new proposal on the table, what would that do to your effective tax rate?

I haven't really had time to study that, but I imagine it would go down a couple of points.

If what happens?

Jim says if the new tax rate was 28% from 21%. Yes. Yes. It will be a direct increase.

I mean we have - I mean, the international piece, which is, what, 40% of our revenue.

Yes, but some of the tax rates there are kind of high, right?

Well, the trends on what we're to be in, right? So - but. yes...

I wasn't prepared for that question. So I'm going to have to go study that.

And right now, there is the international product or international earnings that gets taxed at 8%, right?

Yes. State rate is about 9%. So that's where we get to around about 30%.

For domestic.

Yes. So we'll probably increase close to 6% to 7%.

Right. Well, not overall. I mean if it's total of 7% increase for domestic. So maybe 4.5%.

That's a bit there.

Yes.

[Operator Instructions]. At this time, there are no questions in queue. I'd like to turn the call back over to management for closing comments.

Okay. Well, thank you, everybody. Look forward to our next call, and we can report on our first sales of SIMPAS systems. All right. Thank you very much for joining us today. Bye-bye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day.