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Conference Calls

Thursday, May 5, 2011
American Vanguard Recent Product Acquisitions Review Conference Call

Click here to download a PDF version of the conference call transcript

Bill Kuser

Welcome everyone to the 1st quarter 2011 American Vanguard earnings review. Our speakers today will be Mr. Eric Wintemute, President and CEO of American Vanguard and Mr. David Johnson, CFO.

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 managements 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 report and filing. All forward looking statements represent the Company’s best judgment as of the date of this call and such information will not necessarily be updated by the Company.

With that said, we will turn this call over to Eric.


Good morning everyone and welcome. Thank you for joining us as we report on a very successful first quarter of 2011 and talk a bit more about our business and our prospects for the rest of the year.

As reported in our earnings release this morning, our first quarter sales revenues increased over the prior year by 44% or $20 million. At $67m this is a record first quarter for the Company. Approximately 1/3 of this gain came as a result of increased sales of our existing products. The other 2/3’s of the increase came as a result of our fourth quarter 2010 acquisition of three key products…Mocap, Nemacur and Aztec 2.1 from Bayer CropScience. So it is fair to conclude that our traditional agricultural business had a very healthy start to the year and that our international business expansion is underway.

As you will see in the MD&A section of our 10-Q, we achieved very strong sales in insecticides; solid increases in soil fumigants; somewhat lower sales in herbicides; and as expected, a sharp decline in fungicides due to the continuing limitation on PCNB.

In the insecticide category, our existing granular soil insecticides collectively showed a significant percentage increase.

  • As I already mentioned – Aztec sales including the new product line acquisition was up strongly
  • Counter® gained additional sales in corn and sugar beet acres, in response to building pest pressure.
  • As we mentioned in our last conference call, Thimet® is selling briskly in peanuts as the preferred alternative for another traditional insecticide that is being withdrawn from the market.
  • We also saw a threefold increase in Smartchoice which is a rotational alternative to Aztec

Our newly purchased granular soil insecticides Mocap and Nemacur sold reasonably well on a variety of different crops, despite some initial production and supply difficulties.

Rounding out the highlights in insecticides, sales of Bidrin®, our premier cotton foliar insecticide, doubled in the quarter — as growers expand cotton acreage and seek to maximize yield, to take full advantage of record cotton commodity prices.

Our Metam soil fumigants performed well – achieving a 20% increase over the prior year period. We have a leadership position in the domestic fumigant market and work hard to maintain that position.

We experienced a 25% reduction in sales of our post-emergent herbicide Impact® due to hesitant early season purchasing by growers & distributors as they take time to determine the appropriate mix of pre-emergent and post-emergent needs for the 2011 season. We should note that current weather conditions suggest a reduced need for pre-emergent and increased demand for post-emergent products - which should strengthen our second quarter sales of Impact.

In fungicides, we continue to experience low sales activity of our popular and effective PCNB product line, as the result of the EPA’s Stop Sale Order that was issued in August 2010. We have been unable to serve the cotton, potato and other vegetable markets, which begin seasonal purchasing in the first quarter. We remain optimistic that the Stop Sale order will be lifted in time for the critical autumn selling season for turf & golf course applications.

With that overview of how we generated this record revenue performance…I will now turn the call over to David who will cover the financial and operating details of the quarter. I will then return with comments on our primary crop markets and some of the key issues that we are concentrating on.

Thank you, Eric.
As Eric has already mentioned, sales for the first quarter of 2011 have increased by $20m or 44%, as compared to last year.  Within this number, our crop sales were up 58% while our non-crop sales were down 10%.
Net income is up at $5m or 18cents per share as compared to $1.9m or 7cents per share this time last year.
This is undoubtedly a strong start to the year and is the strongest first quarter sales and profit performance in the Company’s history.
In our 10-Q filing later this week, you will see a detailed description of sales by product groups – and Eric has already given you the highlights, however in summary:-
Our Insecticides recorded sales up $23m. This includes sales of the new products acquired in December 2010,
Our herbicides, fumigants and fungicides were down $1m with a strong metam performance offsetting much reduced PCNB sales and lower herbicide sales.
Our other crop sales were down about 6% compared to last year with strong sales of our granular snail bait products offset by lower sales of our growth regulators. Furthermore, in 2010 we recorded some revenue from data compensation that did not repeat in this first quarter of 2011.
Our non-crop sales were down about $1m mainly as a result of reduced sales of our mosquito products. Here we believe that the 2010 dry season left inventory in the distribution pipeline. As a partial offset, we experienced strong sales of our pharmaceutical products.
It is good to be able to report that, while we have had a great immediate boost to sales from our new acquisitions, 30% or $6m of the increased sales activity is attributed to organic sales growth of existing products.
Our factory performance is something we have talked a lot about in public statements and filings during the last 12 months. This remains a high focus item for the Executive team and the Board. In the first quarter of 2011 we have recorded an improved overall manufacturing performance as compared to the same period of the prior year, with under absorption reduced by approx. $1m.
As a result of sales volume, mix and the improved manufacturing performance, our gross profit ended at $28m or 42% of sales for the quarter, as compared to $19m or 41% of sales last year.

Operating expenses increased by 26% or $4m, quarter on quarter. This increase is large however; it supported a 44% increase in sales. One key metric we track is whether our operating expenses are reducing as a percentage of sales. This indicates whether we are catching the incremental or synergy benefits of growing sales on our established operating expense structure. It is pleasing to report that operating expenses to sales ended at 28% vs. 32% last year.

The main increases were
1.    Costs directly associated with new products increased by approx.$1.7m including intangible amortization, product defense and costs associated with the changing value of certain euro based liabilities
2.    Freight costs up approx.$1m – primarily driven by volume. Here the good news is that as a percentage of sales, our logistics costs ended at 5.7% of sales vs. 6.3% last year. These costs are substantially variable with sales volume and mix, but also include some fixed expenses associated with our warehouse distribution system across the country. However, it should be noted that we expect to see significant increases in fuel costs in the next few months.
3.    Because of this very strong quarter we have substantially increased accruals for bonuses and charged an additional $700k
4.    Finally, we spent about $600k more than last year on focused advertising in support of our brands.

The net result of these dynamics is operating income at $9m vs. last years $4m
Our interest expense overall was about flat with last year. However, you will see in the detailed description in the 10-Q that our bank interest costs were down substantially, as compared to last year. This was because:-
1.    We managed our revolver debt carefully and in early January paid down to zero. We have had three months with no revolver debt. We will have revolver borrowings in Q2
2.    During the quarter, our term debt interest rate which is based on Libor was very low. On March 31, we executed a fixed interest swap (which we are required to do under the terms of our credit agreement). For your information, we swapped 75% of our term debt (rather than the required minimum of 50%) because Libor is just so low at the moment. So in Q2 and forward you can expect to see interest rate about 1.2% higher.

The Company’s average overall debt for the three months ended March 31, 2011 was $72 million as compared to $67 million for the three months ended March 31, 2010. As noted above, during the quarter we eliminated revolver debt as a result of continued control on trading working capital including inventory, receivables, payables and programs. Furthermore, we collected $5m primarily from the IRS related to our 2009 tax return.

Also included in interest costs was a charge of $335k related to amortizing discount on future liabilities, related to the deferred payments on product line acquisitions. This will continue at this level during 2011 and will reduce over the next few years.

Our effective interest rate was 4.2% for the three months as compared to 4.8% for the same period of 2010

You will see in our financial statement attached to the earning announcement that in the quarter we took a one-time non-recurring charge in the amount of $546 related to the extinguishment of the old debt and replacement by the new debt. These costs are deferred loan fees that would have been amortized to income over the next couple of years had the credit facility not been renewed.

The effective tax rate for the quarter is 36.5% as compared to 39% in the same period of the prior year. The decrease in effective tax rate is driven by

  • an improved overall financial performance
  • a lower effective state tax rate and
  • R&D tax credits (last year these were not yet extended).

The amended and restated credit agreement that was executed on January 10, 2011 was detailed in our 8-K and 10-K filings and is covered in brief in the 10-Q. There are a number of covenants to the credit facility. Under the most restrictive of those covenants, the Company could borrow about a further $70m at this time. So liquidity is looking good at this point

In conclusion, I see this as a great start to the year. Looking forward to Q2, our latest sales forecast indicates continued strength. However, as you can read in our 10-K section on risks, the Company does business in a market that benefits from favorable weather and specific pest pressure, both of which are notoriously difficult to predict. Furthermore, the Company operates in a heavily regulated environment. Eric has already mentioned PCNB and of course obtaining relief from the current stop sale order affecting that product line, in time for the turf season in the second half of the year would give us a boost in our performance. As a consequence of these uncertainties, the second half of the year and beyond tends to be tougher to forecast. 
Now back to Eric


Thank you, David. Let me take a moment to talk about two of our main crop markets and reiterate our position to serve them.

Let’s talk cotton! US cotton acreage reached 15 million acres in 2006…then began a steady decline to less than 9 million acres in 2009. This was followed with a quick rebound - rising to nearly 11 million acres in 2010 – and is expected to grow to 13+million acres in 2011. The driver for these 20% per year increases comes from worldwide cotton inventory depletion; resulting in global supply/demand tightness that has strained production and lifted cotton commodity prices to record highs. As a result, the profitability of growing cotton in the Mississippi Delta region - exceeds alternative crops such as corn & soybeans by a significant margin. While there will inevitably be variability in such market conditions, this demand for additional cotton appears to be a continuing - not just a cyclical - need.

Amvac has a strong product offering in cotton insecticides and harvest aid defoliants. When acreage was declining – we felt the pain. With acreage increasing – we feel the gain! Our specialized insecticides …Bidrin, Orthene® and Discipline® are well positioned to respond to the increase in demand. Our position was enhanced with our 2010 acquisition of Def® from Bayer CropScience, our Folex/Def cotton defoliant product line continues to see strong demand from cotton growers. As we indicated in our last call…”Cotton is back – and that is great news for Amvac”! This year’s first quarter results for Bidrin…and expected sales of Folex/Def later in the season…will validate that enthusiasm.

Now, let’s move on to corn! With the purchase of the Bayer CropScience Aztec 2.1 business, Amvac has the strongest portfolio of products available for the domestic corn soil insecticide market. With a half-dozen products for customers to choose from; and an unmatched array of “closed delivery systems” to safely and efficiently dispense the products…Amvac is the most capable “solution supplier” in the industry.

  • We help growers boost yields - whether they are using genetically modified or traditional hybrid seeds.
  • We offer the best defense against secondary insect root damage - with nematicidal products like our Counter.
  • We provide the only proven closed delivery systems - that ensure safe handling and the most efficient application of product to the soil.

We also provide one of the most effective post-emergent herbicides for glyphosate resistant weeds and grasses with our Impact. We have achieved steady market penetration with this product since its introduction in 2006 and we are exploring opportunities to expand its use. The demand for Impact herbicide use should remain strong as corn commodity prices encourage increased yield

In short, we are a major player in corn…and we are intent on expanding our presence in this vital market.

Now let’s discuss our Bed-Bug / Pest Strip Opportunities:

As we all recognize, the Bed-Bug epidemic has continued in the US with no clearly efficient, economical solution readily available. As we have previously disclosed, Amvac has been seeking an aerosol formulation registration from the EPA – to offer an inexpensive, highly effective solution to this dilemma. To date the agency has not approved our request and we will keep you posted on the progress of this effort.

We are expanding the market for our Nuvan ProStrips product line with a new initiative to sell these highly effective pest control devices through our agricultural distribution/retail channels. We are offering a specially packaged version of the product branded the “AMVAC INSECT SHIELD” for use in numerous on-farm applications such as barns, storage enclosures, equipment sheds, etc. We will report on the progress of this product line extension as it builds momentum.

We are also exploring a number of consumer & professional pest control opportunities including several that involve Bed-Bug remediation now that we have secured our Consumer Bed-Bug registration. As these programs take shape, we will be able to elaborate further.
Let me conclude by reiterating the key drivers that we feel will be keys to our success in 2011.

  • First: We need to continue the integration of recent product acquisitions…a process successfully begun both domestically & internationally… and a focus of constant managerial attention.
  • Second: We need to capitalize on the strong cotton & corn markets…using our excellent portfolio of products, proprietary closed delivery systems and experienced “customer-focused” sales & service personnel.
  • Third: We need to optimize the utilization of our manufacturing facilities…with additional production thru-put and improved operational processes.
  • Fourth: We must maintain or expand profitability…thru skillful raw material purchasing, efficient operations, operating expense control…and where appropriate price increases for our valuable crop protection & public health products.
  •  Fifth: We need to exploit marketplace opportunities…such as capturing additional business by using our Thimet to replace a competitive offering that is being withdrawn from the market…or…being well-positioned with proven products like our Counter, Mocap,& Nemacur…to combat the growing pressure of nematodes and other secondary insects that genetically-modified plant defenses do not (yet) address.
  • Sixth: We need to regain market access for our PCNB fungicide…to provide the crop & turf protection that our customers require. We are working tirelessly to secure this goal.

We need to do all of these things, we are doing them, we will continue to do them, and more.

We have produced record setting results in the first quarter without the benefit of PCNB, and despite the product supply difficulties that we have experienced with some of our newly acquired products.

We will continue to improve our manufacturing efficiency; we will continue to enhance our organizational effectiveness and we will maintain the financial discipline that has strengthened our balance sheet over the six quarters.

In our annual report to shareholders, we embraced the theme…”Expanding the Possibilities”!

We have great confidence in our ability to identify, analyze and act on current tactical opportunities … and to position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success.

I now turn the call over for questions. 

Jay Harris (Goldsmith & Harris)
<Q – Jay>: What type of expansion do you see on the newly acquired products?
<Eric>: Our initial goal as it is with the acquisition of any product is to make sure we transition the existing business. We usually do not go in with any sort of dramatic alteration, but we assure the customers that ongoing supply and quality are going to continue and of course we put more effort into it potentially that what might have already been happening in the past and look for growth opportunities whether it be positioning the product at a higher value or expansion of label or better penetration or what we are excited about with these products expanded use of our closed delivery system.
<Q – Jay>: Well, that requires training.
<Eric>: Correct.
<Q – Jay>: 5 people sounds modest in turns of getting out in the field to train somebody to train growers.
<Eric>: We mentioned in the press release that on Mocap in parts of Europe, the Netherlands and UK, there is another closed delivery system that we acquired, called Ultima. We are currently training larger growers in Central America with our team on use of Counter and Phorate with the closed delivery system. Bayer’s focus has not been as strong so we see this as expanding on our existing training program that we have. We definitely need some additional people to make that happen. In South America at least for now we will probably be utilizing one of the more household name companies that has considerable feet on the ground. The same will be true in Europe.
<Q – Jay>: It sounds like you have a great opportunity. In conjunction with the acquisition of these labels and the contribution of these profits that are expected in 2010 you mentioned you wanted to license new active ingredients from a few Japanese companies and prosecute labels in the US? One is this new sprout inhibitor, are you tempted in respect to this incremental contribution of profit to come out of these label acquisitions to become more aggressive in licensing active ingredients and spending more money on building a pipeline of your products?
<Eric>: As we mentioned the third leg of the stool so to speak. Those efforts are ongoing and we are putting focus and effort into that; however there is a limit to how many projects we can handle at any given time. A good portion of this is developing efficacy trials and demonstration trials within the North American market. That is a different group of people: they continue to focus on that arena and we are very enthused about the opportunities that exist. Acquisition hits a sweat spot that we really did not have for the 2008-2009 season. We are enthused about continuing the efforts on all three fronts.
<Q – Jay>: It seems to me that these label acquisitions give you an expanded resource to go heavier into label generation on new active ingredients. What kind of budget do you have for 2011 for label development?
<Eric>: By label development, I presume you mean increased field studies on the licensing of the product to be added. I’m not going to get specific, but the SmartBlock launch this year did not hit 7 digits. The field trials for the existing portfolio that he have may be in that million dollar range for product development field trials in 2011.
<Q – Jay>: Does this provide a greater resource to tap to move that million dollars a year of incremental label development to 2-3 million dollars a year at some point?
<Eric>: I think you are right on with the “at some point.” I would like to see what we have on our plate in 2011 and make sure that we have incorporated these products. We will start to in early third quarter to drill down on the specifics of 2012.
Norman Heyman (Technological Investment Horizons)
<Q – Norman>: I am a very, very long time investor in the company and I am very happy to see the evolution of where we are now. It is very gratifying. I have two very quick questions. In some of our presentations you describe your existing manufacturing or production capabilities and there was a reference to possibly increased tolling. Tolling on an existing facility with its own cost can be very profitable can you describe if this is a contributor to some of your profitability outlook or if over time it is going to become less important to you. The second question is a follow on to Jay’s. Your model has been to take existing molecules and existing labels and expanding on them, but what is the possibility as the company matures to actually dealing with academic institutions of people that are doing work on new molecules that may have superior profitability or efficacy?
<Eric>: The tolling activity is looked at for utilizing any amount of unabsorbed overhead or free time that we may have at the facility. I mentioned that these products that we are looking at integrating potentially integrating those of the next 1-3 years. The plant is complete and we know for sure that we will be taking Tribufos, the Def / Folex molecule, in house in 2011. We have made Mocap before, in 2006 on a tolling basis for Bayer, and Nemacur is very similar. We do currently toll for Bayer the intermediate for Aztec and plan to produce completely is certainly the plan. We do toll products and will continue and look towards it if we have ability to utilize our plant better as we strive to drive down the costs of our current production at our facilities. Tolling has also been used as a precursor for acquisitions, so they are what I might call strategic tolling products versus those that maybe do not have any long term incentive other than the year-to-year absorption that we get from them. We are proud of the fact that we have some really good factories in the US, we feel much more in control of our future, we feel we are in position to handle surges that occur in the marketplace. We think that 2001, given the commodity prices and where things are moving boasts well for companies who are in a position to control their destiny of supply. With regard to your second question on the academics of new chemistries coming out, we have indicated that the effort and dollars going into new chemistry has shrunk dramatically over the last number of years. This is primarily due to the investments that have been made in genetically modified crops. Although we believe genetically modified crops are a critical tool to helping reach the demand for food and fiber that will continue to grow at very fast rates over the next 20-40 years, that is not an arena that we are currently set up to participate in. There are new chemistries available that may or may not be block buster products that would exceed well over 100 million dollars a year and those are pretty good fits for us. We have been working this over the last 4-5 years and now have a pretty good portfolio of products that have a good opportunity. These are longer range projects, from a couple years if already registered in the North American market, but maybe have not been registered on a particular crop to products that may not have current registrations or registrations outside of North America where the effort and dollars of developing a market may not be attractive to the current patent holder. In those areas we do think we can expand to develop a portfolio of new chemistry that enfold over the next several years. We did take over the molecule for IMPACT at the very tail end on license from BASF and it has become a very strong product for us. The other example is SmartBlock which because of its status of being a food/favor enhancer we were able to get that through in a 6-year time frame. We need to drive all three fronts. We need to drive our existing product portfolio to look for expansion of that. We can continue to drive on acquisition and we continue to drive the license of new chemistry that we think can offer us a different front for our customers who have typically looked for us to take over existing molecules and better position for them. The idea of introducing new chemistry is even more exciting to our customers. We think it is a very good model, coupled with our domestic production which enables us to handle surges in the marketplace. We are very enthused about the developing outlook of American Vanguard.
<Q – Norman>: You have been more than adequate with your answer. Thank you very much.
Jim Bartlett (Bartlett Investors)
<Q – Jim>: Give me some kind of estimate going forward on the newly acquired products, if they will increase market share or not. If not, please give me an idea of why.
<Eric>: On tribufos, the volume of that market certainly has declined over the last 5-10 years and much of that has been a result of an ever decreasing cotton market. With the current growth of cotton there is some potential growth for tribufos. On Aztec, genetically engineered corn seed has decreased the overall market; however our market share, particularly with the portfolio that we have has increased fairly dramatically. The increase in Aztec’s potential is going to be linked to how well genetics perform and how good we are at convincing growers that yield enhancement is important to them. The higher corn goes the more growers will consider the investment. With regards to Mocap and Nemacur, those have been relatively stable over the last several years. That is particularly encouraging for us because we will put a stronger focus on these products. We are seeing expanded use on certain markets for Counter and phorate, new products that we acquired from BASF, as other products are being phased out. We are optimistic and we will draw on the success of our past efforts and the changes we have made internally personnel and structure of our organization.
Jay Harris (Goldsmith & Harris)
<Q – Jay>: Three things Eric. These acquisitions will take you to the point of reaching 300 million dollars, as we look into 2012 and 2013, do you see a higher than historical growth rate of organic growth for the company?
<Eric>:  After the first full season of a product the next year it becomes organic growth, so technically these acquisitions will be able organic in 2012. We have three year product plans for each of our existing products and we do have some that have flattened or may decline and we have those that we see strong growth in. We are a strong long term solution yield enhancement of crop with our focus on organic growth, looking at replacements of products that are being phased out, label expansions, and increasing commodity prices. Our focus on bed bugs, which is growing nicely, could grow at a much greater rate if we can convince EPA to approve the registrations they currently have. We have three driving growth areas and our challenge in integrating these products, we have 36 product lines now, will be to make sure we are focused on all the opportunities of all the products, particularly those with a high profit margin.
<Q – Jay>: The acquired sales opposed to organic growth, how will that number change in subsequent quarters. Do you see a quarter where it will be significantly higher or significantly lower than this first quarter number?
<Eric>: The domestic piece is Aztec 2.1 and Mocap has seasons. Aztec 2.1 sales are first and fourth quarter, so there won’t be sales in second and third quarter. Mocap has a couple of seasons so there will be some in the fall again. International sales however, are spread relatively evenly through the year.
<Q – Jay>: The tax rate was 36.5%, where is that going for the year? That is a little lower than you had been reporting.
<David >: Yes, I believe I was conservative in my forecast, let’s see how it goes for the rest of year.
 <Q – Jay>: Does it change with the percentage of international sales in each quarter?
<David>:  I don’t think so materially. We are just starting to look at our international sales.
<Q – Jay>: I noticed your operating expenses in the third quarter of last year where $19 million, and $20 million in the fourth quarter, with revenues up about $5 million from the fourth quarter. How will operating expenses change?
<David>:  A lot of our operating expenses are staff and fixed logistical costs across the US, but then we have some variable elements. For instance we expect to see substantial increases in oil based costs and freight. We do not know where that is going to go yet, but we are seeing notices from carriers that those will be going up. We also have some variability in product defense with kick of projects.
<Q – Jay>: Several years ago the operating expenses had dropped to about 27% of revenue. We are closer to 30% now.
<David>:  We are 28% for the quarter. We are constantly working on keeping our operating costs down, however we work in an environment where we have regulatory defense costs. I expect we will be between 28-30% for the balance for year.
<Q – Jay>: Thank you.
Brad Evans (Heartland Fund)
<Q – Brad>: Congratulations to the team on an outstanding quarter. Can you speak to your efforts to raise prices in front of some of the cost pressures you’re facing?
<Eric>:  We did have some increases that started in the beginning of the year and we have not had any retraction from that. Our soil fumigant Vapam traditionally has increased in the June/July period which is between the two seasons, which is very freight dependent. We have also had increases in sulfur, caustic soda, and energy involved in any business. As you pointed out this year farms are going to have a record year of profits. I think it is an opportune time for us to look at our mix. Price increases on an international basis can be a little more difficult, but it is a focus for us.
<Q – Brad>: It would appear that for the next quarter or so that gross margins of 40-42% are sustainable?
<Eric>:  We believe so, yes.
<Q – Brad>: Will we see the normal historical seasonally this year within the top line?
<Eric>:  As we sit today, historically we have had fourth quarter as our largest quarter, but again as distribution and retailers have made a little shift to taking more in-season we are seeing some greater strength in the beginning of the season as opposed to prior to.
<Q – Brad>: Can you update us on your costs for capital spending this year?
<Eric>:  $7 million, I think we were a little higher than that last year. We have a new lab that we spent a million dollars on completed in Axis. Beginning this last quarter we started running Tribufos, which is our Folex, around the clock at Axis. This production schedule will continue through August. We are looking at the manufacturing of a couple of other product lines that we have purchased and there will be some capital involved in that. I don’t know that we will have significant capital in those this year.
<Q – Brad>:  After working capital expenses for the year do you expect to pay down debt with the free cash flow?
<David>:  We are controlling the revolver payment, making sure that we make our scheduled loan commitments and then capital spending.
Adam Peck (Heartland Fund)
<Q – Adam>: Congratulations. Eric you said one of your drivers for 2011 was to optimize utilization. Did you manufacture any of the acquired products this quarter?
<Eric>:  No, not in the first quarter.
<Q – Adam>:  So how will that pan out for the rest of the year?
<Eric>:  As I mentioned, the plant should be near capacity for the balance of the year. We are looking at a 2012 schedule that is beyond capacity, so we are having to make some decisions. We are looking at how we can improve the output to go beyond what our current capacity is. Hannibal, with the increased demand in Thimet and Counter, is operating at a very high level now. Utilization of the facilities for this year and beyond looks strong. The down part of that is we are running PCNB at roughly 60% of capacity and look to continue at this rate once the SURO is lifted until inventories get more in line with optimal position.
<Q – Adam>: Are you currently trying to debottleneck the plant.
<Eric>:  I don’t know that you want to call that, but with the situation in front of us we have more demand for manufacturing than we have time. We are focusing on trying to improve the output of the facility and at the same time focusing on just yield output, but turnaround time. Our technology team and the plant engineering are looking at some changes that allow us to move more quickly from one product to another.
Walker (Morgan Stanley / Smith Barney)
<Q – Walker>: Can you reiterate the status of SmartBlock for the second half of this year.
<Eric>:  SmartBlock is a potato sprout inhibitor that we took license to 5-6 years ago. We were looking to have registration, based on EPA guidelines, to occur in this second quarter. However, we now look at a launch of sales in the US in the second half of the year. The agency has requested an additional 10 months to complete their review for registration, so our launch of this product will be delayed until 2012. As I mentioned the efficacy trial results continue to exceed our expectations. We are very thrilled with the potential for this compound when we finally get our registration.
<Q – Walker>: After receiving the registration I see the potential is $45 million in additional sales. What is the time frame on that once the registration hits?
<Eric>:  The market that we would be participating in is $45 million. What percentage of the market we obtain will be a function of how well the product is received versus the competitive product. We have many benefits over competitive products, as this is a naturally occurring compound and we will be seeking organic status.
Jim Bartlett (Bartlett Investors)
<Q – Jim>: Could you explain the historical dynamics of how the current corn market prices have affected sales of Impact?
<Eric>:  We perceive a very strong post emergence corn market. They are very late in planting and when that happens they will plant with out getting pre-emergent’s down, which means a very strong post emergent market, which is the sector we participate in.
<Q – Jim>: How will that affect the quarterly revenues?
<Eric>: I mentioned earlier that we were below last years first quarter Impact as growers where trying to figure out that mix between pre and post. Our people are forecasting strong sales in this quarter.
<Q – Jim>: The aerosol version of Nuvan has been held up for sometime. What are some of the reasons for the hold up and your prognosis of when you might be successful?
<Eric>:  Initially, we were looking for pest control operator applications focused on hotels. The agency has now classified hotels as residential. We are focusing that we want professionals to make this application so the question is whether we have a stewardship program in place to prevent aerosols from being used by home owners themselves versus EPA putting some sort of restriction or violation imposed on the product for home owner use. It is a little shift from our original focus. We have been retooling with EPA and conducting testing at the University of Florida that the Agency wants us to verify rates and the process that the pest control operator would go through. Right now it is definitely more a matter of months than weeks. We have made good inroads with our strips, which can service a good portion of the aerosol market.
<Q – Jim>: What were the sales of the competing product, Thimet that has been withdrawn?
<Eric>:  It was in the $80-90 million dollar range in the US. Markets were strong are: in citrus and we are positioning Dibrom as a replacement for that, in peanuts we shared the market with Thimet and are now enjoying that market exclusively, in cotton and potatoes we are positioning our Mocap.
<Q – Jim>: This is a permanent withdrawal?
<Eric>:  It is. However there is some discussion about a potential generic that may come into that marketplace.
<Q – Jim>: What would the timeline on the generic be?
<Eric>:  It is difficult to say. The Agency has an accumulative risk assessment to do on that particular group of chemistry.
<Q – Jim>: Is there anything else you can share with us on the stop sale order for PCNB?
<Eric>:  The Agency is being extremely thorough as this is the first time they have done such an analysis. Although I can appreciate that it is obviously frustrating from our side and our customer’s side.  Snow mold took a big chunk out of a number of golf courses this year as a result. I believe we are making progress and I do see the light at the end of the tunnel and it is our belief that we will have this product available for the turf market for this next year.
Matt Haggerty (Pennant Capital)
<Q – Matt>: Is there any reason to suspect your prior discussion of 25% growth in your top line is either high or low given the performance of Q1 and what you are seeing now?
<Eric>:  We are certainly well on our way, however 25% may not strictly come from our acquired products, but overall it looks pretty optimistic.
<Q – Matt>: Was Def recorded as acquisition revenue in the quarter?
<Eric>:  Sales of Def, actually we are not going to be using the Def name, we will be using it as Folex. We are looking for revenue from that product in the second and third quarter of this year.
<Q – Matt>: What percentage of your revenues in Q1 was tied to the domestic cotton market in?
<Eric>:  10%
Eric Wintemute
I would like to thank everyone for joining us and as I mentioned we are pleased with our results and I look forward to giving you further development on our next conference call.   

Thank you very much.