American Vanguard Corp Q3 FY2022 Earnings Call

Welcome to the American Vanguard Corporation's Third Quarter 2022 Financial Results Conference Call and webcast. I would now like to turn the conference over to Mr. Tim Donnelly, Chief Administrative Officer. You may begin, Mr. Donnelly.

Thank you, Rob, and welcome everyone to American Vanguard's 2022 third quarter and nine months earnings review. Our speakers today will be Chairman and Chief Executive Officer, Eric Wintemute; our Chief Financial Officer, David Johnson; and to assist in answering questions, our Chief Operating Officer, Bob Trogele, is also on hand. Also, by way of housekeeping, the company is filing its Form 10-Q later today with the SEC, which will provide additional detail on our financial performance that we will be discussing in this call. Before beginning, let's just take a moment to go to our safe harbor reminder on Slide 2. 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, I turn the call over to Eric Wintemute, Eric?

Thank you, Tim, and thank all of you for joining us today. Moving to Slide 3. We have listed the agenda for today's call. But first, I'd like to start off by acknowledging the terrific work of the AMVAC team to take care of our customers, increase prices to manage inflation, safely operate our factories at very high levels and continue to drive our precision agriculture innovations forward. We have delivered excellent financial results and expect to maintain our momentum in the fourth quarter. Additionally, we repurchased 1.2 million shares of our stock during the third quarter, indicating our confidence in the strength of our business. Simply put, we are managing our business well in challenging times. Let's move on to Slide 4 to discuss our top line performance for the first nine months of the year. Generally speaking, continued high commodity prices for corn, soybean, and wheat are supporting a strong farm economy. With respect to domestic crop, we're up 20% year-to-date, led by Dacthal which is used for wheat control on high-value crops and our cotton products Bidrin for pest control and Folex, which are harvested due to increased cotton acres and favorable weather. We experienced higher sales of Aztec for the nine-month period despite an inventory shortage during Q3. In addition, we recorded strong sales of our soil fumigant products, in spite of the drought conditions in the west, due largely to price increases. With respect to non-crop, sales are down 11% year-to-date due primarily to reduced U.S. consumer demand for lawn and garden products. On the positive side, sales to professional applicators rose with more consumers returning to work. We are well positioned with our mosquito adulticide following Hurricane Ian. Also, we are tracking tropical storm Nicole, which is expected to make landfall late tomorrow night. While forecasted to have lower winds than Ian, Nicole is predicted to travel at 9 miles per hour, which should result in considerable precipitation in Florida, Georgia, and the Carolinas. Our international business was up 14% year-to-date, led by Agrinos, which recorded sales growth of 55% and gross profit, up 60%; and Brazil, which grew by 42% due in part to sales of our nematicide counter. Further, net sales in Mexico grew 26% and gross profit grew 22% with strong sales of our proprietary soil fumigants. Further, our Central American business recorded sales growth at 11%, led by products used on pineapples and bananas. And finally, our Australia business recorded sales up 11% and gross margin improvement from 35% to 39%. Before revisiting our full year outlook and taking a first glance at '23, let's first focus on current conditions as they will have an impact on both short and midterm performance. As I mentioned earlier, high commodity prices arising from scarcity and global food supply, coupled with strong demand are driving a strong farm economy. Turning to Slide 5, we note the upward trend of corn prices over the past 2 years. As you can see, 2 years ago, before the '21 season, corn was at $4.05 per bushel; 1 year ago, it rose to $5.59 per bushel; and now it is at $6.80 per bushel. That's a 68% rise over the past 2 years. We see a similar trend with soybean prices over the same period. At this time in 2020, soybeans were $10.86 a bushel; 1 year ago, they rose to $12.05 per bushel; and now they're at $14.52 per bushel. This is a 34% increase over 2 years. Higher commodity prices tend to drive procurement activity for both crop inputs and planting and harvesting equipment. However, procurement trends by distribution channel appeared to be evening out over the course of 2022, which began at a torrid pace in the first quarter and returned to greater normalcy over the second and third quarters. Despite this level of investment at farm gate, channel inventories for AMVAC's products are at low levels. And our distribution partners are bullish on the prospects for the 2023 planting season. Let me show you Slide 6, which will further highlight this point. As you see here, we're experiencing very high profits in the state of Iowa. And this is a calculation of revenues, cost, and profitability, tracking back to 1970. At the high point in 2012, we are currently about $200 an acre better than that, which was our previous best year. That translates into about $2.5 billion above 2012 and nearly $7 billion in profits for Iowa corn growers. Again, illustrating why I think our team is very bullish on the U.S. farm economy. It's never less useful to consider other factors in forecasting in the market. Inflation becomes a significant driver in the global economy and is affecting nearly all industries. As you can see on Slide 7, the Fed has been raising interest rates aggressively over the past 7 months. Because the Fed took comparatively early action to raise those rates, the dollar had enjoyed a favorable exchange rate against many currencies. However, many other countries followed suit. And we are seeing certain currencies regain lost ground against the dollar. With a strong dollar and high commodity prices to date, the farm economy has been able to withstand inflation largely through price increases. At American Vanguard, we're enjoying a second straight year of strong demand for which we've been able to build and sell sufficient inventory at improved margins. Having 6 North American factories as depicted on Slide 8, we have been able to make in-season adjustments to manage fluctuating demand. These manufacturing assets have been essential in our ability to operate with autonomy. Further, while the supply chain has not fully returned to the stable state of 3 years ago, we are seeing a drop in freight prices and the availability of both shipping containers and vessels are improving. However, some raw materials that originate in countries affected by pandemic restrictions or geopolitical considerations, for example, phosphorus, are affecting the availability and price of some of our key intermediate products. We are taking all available measures to ensure that we can order and receive our necessary inputs in time to meet demand. But I can tell you that this is as much an art as it is a science. In short, the upcycle for the agricultural sector that began in 2021 is expected to continue through '23. Geopolitical activity is lifting commodity prices, giving growers added incentive to peer both crop inputs and equipment. Further, our positioning of products and the distribution channel should enable us to maintain strong brand value. Thus, while there may be contravalent factors such as inflation, record low water levels in the Mississippi River, and potential glitches in the supply chain, we believe that we are poised to continue our strong performance. In the short term, we are targeting 2022 full performance to be unchanged from our prior call. So let's turn to Slide 9. This is our '22 performance target scorecard. You've seen this before. And over the last 9 months, we have seen our revenue growth at 13%; gross margins at 41%; operating expenses at 32%; interest 23% below '21. However, we are expecting with the interest slides that we just showed to have higher interest costs in Q4. Our tax rate for the 9 months at 30%, we're expecting that to decrease by 2% to 3%, to 27% to 28% at the end of the year. Debt to EBITDA, we're currently at 1.9x. We are expecting that to decrease for the end of the year since there will not be any further acquisitions. We have, I should say, between stock repurchase and dividends, spent about $35 million so far this year. Net income is up 71% for the year, and EBITDA is up 30%. So with that, David, I'll turn this over to you for financial analysis.

Thank you, Eric. Let's proceed to Slide 11. In the third quarter of 2022, the company's net sales rose by 3.4% to $152 million, compared to $147 million during the same period last year. In detail, U.S. sales remained steady compared to the previous year, while international sales saw a 9% increase, making up 42% of total sales, up from 40% last year. Moving to Slide 12, our U.S. crop business achieved a 14% increase in absolute gross profit, with sales increasing by 4%. This improvement largely stemmed from strategic price increases on lower-margin products to mitigate inflation impacts related to increased costs of goods, freight, and interest. Overall, our crop margins improved from 45% to 50%. In contrast, non-crop sales saw a 1% reduction in absolute gross margin, with sales down approximately 12%. We successfully implemented price hikes to enhance gross profits, especially on lower-margin products to recover costs associated with raw materials and logistics. Our third quarter international sales grew by 9%, with a corresponding 1% improvement in absolute gross margins. The international sector faced significant cost pressures due to the strong U.S. dollar's impact on costs, but managed to raise prices where feasible amidst global competition. Slide 13 illustrates the influence of factory performance on our consolidated gross margin. In the third quarter of 2021, factory costs represented 1.2% of sales, and this year showed stronger performance despite both being excellent periods for factory activity. Slide 14 presents our operating expenses, which increased by $1.7 million compared to last year, maintaining 33% of sales for both the third quarters of 2022 and 2021. Rising costs are associated with a return to face-to-face meetings, travel expenses, increased advertising and marketing expenditures, and higher third-party commissions in Brazil following a strong quarter. Additionally, we incurred higher administrative support costs, although freight expenses were lower due to decreased U.S. sales volumes of the Metam product line. According to Slide 15, our operating income for the third quarter of 2022 climbed by 26% compared to the same period in 2021. We recorded slightly higher interest expenses with lower average debt this quarter than last year. Two factors contributed to this: cash generated from operations over the past year, while continuing our investments in precision application systems and managing working capital amidst inflation and strong growth, as well as conducting the largest stock repurchase program in our history. However, we are also facing rising interest rates. On the tax front, our effective income tax rate rose to 30.5% this quarter from 20.7% in the third quarter of 2021, primarily due to the mix of jurisdictions generating taxable profits and one-time international tax benefits that did not recur in 2022. These factors resulted in a net income of $6.7 million, compared to $5.5 million last year, reflecting a quarter-over-quarter increase of 23%. Slide 16 shows that for the first nine months of 2022, our sales grew by 13%, with gross margins in absolute terms up by 18%. Both our U.S. and international sectors contributed to this strong performance. Operating expenses rose, mainly due to proxy contest costs, increased sales leading to higher freight expenses, regulatory costs from our international growth, and higher incentives reflecting improved business performance. Overall, operating costs, including outbound freight and warehousing, grew by 9% while net sales rose by 13%. Operating costs improved to 32% of net sales in the first nine months of 2022 from 33% the prior year. Interest expenses dropped by 23%, while the tax rate increased from 27.4% in 2021 to 30.2% in 2022, primarily linked to the jurisdictions generating taxable profits. Overall, net income surged by 71% for the first nine months. Now, I will address the balance sheet and our focus on capital allocation. Slide 17 outlines our capital allocation model, which informs many of our decisions. We prioritize managing debt under our credit facility with our long-time banking partners, targeting an average debt to bank-adjusted EBITDA ratio between 1 to 2.5x, with the upper range often tied to acquisitions. The credit facility supports our working capital cycle, which expands in the early months and contracts at year-end. We've also seen growth through acquisitions and depend on our credit line for such funding. This approach has historically served the company well. We aim to pay a sustainable dividend, historically around 10% of net income, with deviations only in exceptional circumstances like COVID. Year-to-date, we've invested $34 million in stock repurchases, aiming to finalize the current accelerated share repurchase arrangement in the fourth quarter, with the final share count to be disclosed in the next conference call. Investing in business growth is crucial for our future. We are diligently working on developing and fully commercializing our SIMPAS and Ultimus technologies, and we recently registered our proprietary product counter on soybeans in Brazil. We're also advancing our Green Solutions portfolio through initiatives like our NewLeaf alliance while ensuring our factories remain safe, efficient, and ready for our expanding business. On Slide 18, our adjusted EBITDA has grown from $38 million for the year ending September 30, 2015, to $78 million for the year ended September 30, 2022, reflecting an 11% compound annual growth rate. It is encouraging to see us nearing our all-time high annual EBITDA of $79 million from 2012. Slide 19 highlights our inventories at $192 million at the end of September 2022, up from $167 million last year. Inventory management remains a critical focus; this year, we opted to hold more inventory to navigate lead times, logistics challenges, and strong agricultural demand, procuring earlier to secure products for the 2022-2023 growing season. The graph displays inventory as a percentage of trailing 12-month sales, indicating a positive long-term trend despite short-term market conditions prompting our inventory decisions. As shown on Slide 20, regarding liquidity, we determine borrowing capacity under our credit facility agreement based on consolidated EBITDA. Our consolidated bank EBITDA for the four quarters ending September 30, 2022, was $77 million, compared to $66 million for the previous year. Our debt at that date stood at $149 million, up from $136 million last year, which included the $34 million used for stock repurchases over the past year. Notwithstanding the increase in closing debt, our available credit improved to $121 million from $95 million at this time last year. In summary, as per Slide 21, sales rose by 13% in the first nine months of 2022, with GAAP net income increasing by 71%. Adjusted EBITDA rose by 30%, from 12% of sales in the first nine months of 2021 to 14% in the same period this year. Our EPS improved by 73%, and we repurchased 1.5 million shares in 2022, compared to 300,000 during the same timeframe last year. With that, I will turn it back over to Eric.

Thank you, David. Moving on to Slide 22, which is our three-element growth strategy. The core includes the growth of our traditional portfolio, our new product innovation, and our M&A activities. Our Green Solutions initiatives consist of a portfolio of more than 120 regional products that we will focus on expanding globally. In addition, through advanced technology, we've begun basic R&D molecular discovery to create new green solution pest management products. And with regard to our precision application innovations through SIMPAS, we offer the entire industry the ability to prescriptively apply multiple crop inputs simultaneously. We are working diligently to expand our SIMPAS product portfolio to offer growers a wide variety of solutions. Additionally, we are developing multiple applications for Ultimus documentation software. As per Slide 23, with respect to our core products, we are on track to meet our growth targets through 2025. We'll accomplish this growth through both internal development and acquisition. For instance, our impact herbicide mixture products, which we developed as part of our innovation review process are generating revenue growth, commanding good margins and are enabling us to expand our share of the post-emergent herbicide market. With respect to acquisition, the market has remained robust. Year-to-date, we have looked at over 30 potential acquisition targets, of which we are still evaluating 10. As we have mentioned in the past, we are selective, strategic, and rigorous in ensuring that new products or businesses meet or exceed our acquisition hurdles. Turning to Green Solutions. As you can see on Slide 24, we are poised to achieve our multiyear growth targets. In addition to our portfolio of over 120 biological and green products, we recently announced our alliance with NewLeaf, which has developed a line of soil health products, microbials that produce enzymes which improve a plant's ability to take up nutrients. One of the key NewLeaf products called Terrasym appears on Slide 25. Here, we can discuss briefly how Terrasym works. Focus is on the special group of bacteria PPFMs that can use methanol efficiently as a carbon source to survive, thrive, and sequester methanol preferentially over bacteria. As the plant's root establishes itself, specific microbes start to form a symbiotic relationship with the bacteria, and the association between plant and bacteria forms. And finally, methanol is consumed as a food source by the bacteria to build bacterial populations and release plant-beneficial molecules and nutrients, which enhance the plant's response. As we present in Slide 26, Terrasym is especially well suited for use in corn, where it serves to enhance root structure and plant health. In fact, we have been tracking the Terrasym technology for some time with that use in mind. Ultimately, we plan to make Terrasym available through our SIMPAS system. This brings us to Slide 27, the third element of our growth strategy. Presently, we have 81 SIMPAS systems in use, including 1 in Ukraine and 1 in Brazil. As you can see from Slide 28, we remain on track to meet our multiyear growth targets for SIMPAS. Bear in mind that this is U.S. only. We are currently testing a SIMPAS unit in Brazil, which is the largest Ag market in the world. As we recently announced, we have obtained a new label that permits the use of counter on soybeans in Brazil. This should double or triple our sales in Brazil of this proprietary nematicide within a short time. On a relative note, one of the largest growers in Brazil with over 550,000 hectares is coming to the U.S. to observe the prescriptive application of counter through SIMPAS in this upcoming planting season. In addition, as shown on Slide 29, Rabobank as a leading lender in the carbon credit market, John Deere Financial, and AMVAC have joined together to offer 2.65% financing with harvest terms on new SIMPAS equipment. This alliance should enable us to gain even greater traction and market acceptance of SIMPAS. And finally, on Slide 30, we summarized the financial targets of our three growth pillars: Core, Green Solutions, and Precision. I am pleased to say that our entire AMVAC team has both contributed to and embraced our three-year growth targets. As I mentioned at the start of the call, we are performing strongly and consistently in the face of variable conditions. We are well poised to address demand as the Ag upcycle continues into 2023. Further, we are maintaining a strong balance sheet and high borrowing capacity while self-investing in innovation and total shareholder return. With that, we'd like to open up to any questions you may have. Rob?

Our first question is from Gerard Sweeney with ROTH Capital.

Just wanted to start at the top. Obviously, it sounds like increasing bullishness on 2023. Just wanted to get your thoughts on where we are, where you think we may be in the cycle and how 2023 plays out and maybe a little bit after that, since you've been through this several times?

Well, of course, there's no way of predicting exactly how long upcycles happen. But right now, I'm not hearing from any of our customers that they can see a downward move. People, obviously, the more years you go out, the more variables there are and it's hard to pick. But certainly, I think for 2024 certainly looks very good. '25, I think also looks strong. Bob, any color you want to add to that?

Well, I think, Gerry, there are, of course, challenges there. We see a strong U.S. Ag commodity through the next cycle, meaning until October harvest time. The big factor, which is the unknown, is really what will the China demand look like for South America and for North America that will play out in the first and second quarter. I think one other major issue is where energy prices are going to be as the replenishment happens with the U.S. Strategic Reserves, and the Russia conflict. So those are kind of a little bit unknowns. But as Eric stated, we have a strong pipeline of technology. So we feel very confident to grow whether we have those headwinds or not. So as we penetrate the market more with our technology, I think we'll be in good shape.

Speaking of technology, that was actually a good segue into one of my next questions. You called core business new growth. They called sort of the old kids, new kids, right? But when you're looking at Green Solutions and even, I guess, to some degree, SIMPAS and Ultimus, but maybe just third probably different routes to market. But when you look at those two businesses, is there anything you need internally to drive growth? I mean, are you going to leverage the same channel, but have some different education with the end users or with distributors, I guess, overseas? Anything that we can think about or you're thinking about that could enhance growth or ensure growth, etc.?

So it's a question we've been asked before, and it's a good one. It's one we think about as well. We are supporting our team's interest in whether it's marketing, expenses, capital, or adding people. So definitely, those two units are being provided with the resources they've requested. I've looked at John Deere and noticed how their see & spray technology has gained significant attention. It is impressive technology, but it is just one input, namely herbicides, and that's not related to the planting time. Those are already progressing. I suppose exposure is a part of it, which is one reason we've collaborated with our peers and included their products in our portfolio. I think the main challenge is just getting our message out. We've faced some limitations due to COVID, which prevented us from meeting people in person, but that activity has increased significantly. I believe this is why we're optimistic about what we can achieve in both Green Solutions and SIMPAS. Every quarter, I review with the team if there are any adjustments to our targets, and currently, everyone feels confident about those targets. If we meet those in the next three years, I think we'll gain much more recognition.

Switching gears. I think you mentioned maybe 10 potential acquisitions or that sort of the funnel. I'm not sure exactly what you said on that front. But market is strong. There's this shift of focus. Obviously, of your core business, right, but then maybe even a shift in focus or more attention to the greener solutions. Some of those businesses are probably getting much more attention. I imagine multiples and prices are going up. How do you look at prices biological has long lead, long runway type growth businesses that you can acquire, but may be more expensive than what you paid historically?

Yes, I mean I think that's where we're being fairly prudent, paying 12 to 15x. And of course, a lot of the biological companies are not profitable. And so the acquisitions we made with Agrinos, obviously, we paid well under just the assets. Licensing; like or in distribution alliances with really great companies like NewLeaf is a good ability for them to not have to invest in building a market access platform with a lot of overhead and can benefit from the structure that we've got set up there. So those types of arrangements enable us to grow meaningfully in the space without us having to put up a multiple like what you were talking about.

And of those 10 acquisitions, more core, more green solutions, how does that look like, I guess, the funnel?

Yes, there are companies focused on green solutions that are looking to capitalize on the potential growth in this area. We also see several core products that could complement our offerings. Overall, there are numerous opportunities available. From our perspective, we want to ensure that we have enough resources to support our two initiatives, protect our existing products, and strategically consider acquisitions. Some of these opportunities are exclusive deals we've engaged in over the past few years, which have proven to be beneficial for us initially.

One more question, and then I'll jump back in the queue. I think sales up 13%. Do you know how much this is maybe volume versus price?

Yes. So I think at the last call, I think we were looking at it was more 50-50. And I think we're now like 80-20.

80-20.

80% price and 20%. We had some really hefty increases that we put in place for the third quarter that kind of drove particularly our soil fumigant was a big part of that. We had a significant increase in that, and it's a big product for our third and fourth quarter.

The next question comes from Wayne Pinsent with Gabelli Funds.

Can you clarify if the 80% price and 20% volume breakdown refers to the year-to-date figures? Additionally, looking at this quarter, there has been a lot of discussion comparing it to previous quarters and the year-to-date numbers. Could you provide insights on the current pricing, volumes, and the seasonal trends within your business?

I'm sorry, I didn't quite understand your question. The first part about the 80-20 refers to the year. Can you remind me what your second question was?

Yes. If you could go over sort of what the pricing and volume was in the quarter? And then, third question, I guess, is if you could just discuss the seasonality because we're talking a lot year-to-date on the call and just looking at the quarterly numbers, if you can discuss the seasonality of your business too.

85% in the quarter.

85% was the pricing in the third quarter. Regarding seasonality, our soil fumigant business, which includes Vapam and K-PAM, are our largest products. We've observed market growth both domestically and internationally, with the U.S. volume around 10 million gallons. Currently, about 2.5 million gallons have expanded into Mexico, Australia, and Central America, which are experiencing strong growth for us. While we did face drought conditions in the U.S., particularly in the Pacific Northwest, resulting in a decrease in U.S. volume, international volumes increased, balancing out the overall numbers. However, we faced significant cost increases going into the quarter, which led to considerable price hikes. Our cotton products also saw high cost escalations with around 25% price increases, contributing more to price changes than to volume growth.

And then just in addition to that, looking forward, you guys mentioned farmer economics are in great shape going into 2023. How much pricing do you think you can push through in the fourth quarter and into 2023? And how do you think that's shaping up?

Yes. So far, we've not experienced any price pushback, which is positive. We've made significant progress in 2021 and were ahead of our competitors in this area. However, they have caught up in 2022. For the U.S. season, we implemented price increases in September that seem favorable moving forward. Internationally, we had delayed price increases in Mexico, but those have now been implemented. Central America was not far behind Mexico, and the same applies to Brazil. In Australia, most products have been able to implement price increases as well. Overall, it has been a bit slower internationally compared to domestically. However, we currently feel optimistic about our margins based on the cost increases we have experienced.

Our next question is from the line of Chris Kapsch with Loop Capital Markets.

I have some follow-up questions regarding previous discussions. Specifically, about the pricing dynamics in the industry, one of your larger competitors mentioned pricing, but compared it against a cost inflation that seems to be moderating as we look ahead to '23. I'm curious if you are observing any moderation in cost inflation? Additionally, how do you think the stability of your recent pricing increases, driven by cost pressures, will hold up if cost inflation continues to decrease over the next 12 to 24 months?

Yes. We have a significant portion of our sales coming from our proprietary products, especially in organo phosphates. We're experiencing improvements in phosphorus costs and inbound freight. Regarding your question about whether we would need to reduce our price increases if costs improve, I don't believe that will be necessary. The current farm economy is strong, and farmers are making profits. We generally avoid the commodity markets and have some products facing generic competition, which may see price decreases. However, we focus on products where we can maintain profitability. If a product no longer meets our profitability standards, we will simply refrain from selling it. Overall, I believe we are well-positioned to sustain our margins.

So if we were to look at granularly at the price increases that you have achieved or pushed through. Would it be sort of across the board in magnitude for all the product lines? Or is there certain areas where you're more tactically pushing more price because of either some differentiation or because of some more acute cost associated with that particular product line? Or is it just kind of like a blanket price increase. We just had a curiosity.

I’ll focus on the domestic market. They were looking at price increases ranging from 6% to 20% depending on the product, which shows considerable variation. Much of this is influenced by costs. Our marketing managers are aware of costs related to inventory, replacement costs, and anticipated costs over the next 90, 180, 270, and 360 days. With this information, they strive to avoid margin deterioration. We have observed some price increases, particularly with our Vapam product line, where costs have risen by a couple of hundred dollars per acre for fumigation. As a result, some customers may be applying less of the product due to this increase. However, despite this price shock, our net sales for the product are growing, driven more by price increase than by volume.

That's helpful. Looking ahead, it seems there is a favorable environment and optimism about the agricultural market for next year. If we examine this more closely, early signs suggest that North America may see a shift in preference towards corn as opposed to soy, which was the opposite last year. I'm curious if, based on current channel demand, you anticipate a likely increase in corn acreage or a shift toward corn production. Is this demand influencing your soil pipe insecticides? Or is it too soon to determine? How do you view that product line for the 2023 season? Additionally, do you believe the competitive landscape for your products remains the same, or is it changing?

Yes. Regarding corn, I had a slide this morning about Iowa. If I were a corn grower considering planting soybeans and didn't find the economics appealing, we will have that information soon. However, corn profitability appears to be strong, and I agree that there will be significant interest in corn. That said, using corn as a benchmark tends to pressure other products, which can increase commodity prices for those crops as acreage is adjusted. This dynamic likely supports higher commodity prices for a while. In terms of our products, our corn insecticide seems robust. We did notice considerable corn damage this year. If commodity prices remain elevated, growers will want to safeguard their corn, as the investment returns are solid. Thus, we believe we are well positioned for this year. Additionally, we are also expanding our soybean crop input line to benefit regardless of the choices growers make.

If I could follow up on the intended acquisition and the potential opportunities you might have, are we more likely to see an expansion into a biologics acquisition, or something similar? For instance, Corteva recently mentioned at their Investor Day in Iowa the need to streamline their product offerings to enhance their portfolio. Are those the types of considerations you evaluate, as that has certainly been a factor in the past? What do you see as more likely, and what would be the criteria for the different types of potential acquisitions?

Yes. So I'll let Bob elaborate. But I'll just say accretiveness as we're looking at deals and trying to figure out what are the best acquisition opportunities for us. I'd like to say we're sometimes agnostic as to the product. We are searching for certain pieces to fill out our portfolio gaps. But we're not going to pass an opportunity to add to existing strengths. And as you mentioned, our bigger peers, they go through every 3 to 5 years and trim the sales. And so that's part of what's driving this. And so Bob, maybe some color on just in those 10, how does that break out as far as market access, Green Solutions or traditional type chemistry? We've got kind of a blend. Do we not?

Yes, it's fairly balanced. We have a few small and medium-sized deals, as well as some large ones. We're aiming to strengthen all three areas of our strategy, which include our core business with chemistry and Green Solutions, although the focus is primarily on those two. We're not pursuing opportunities in precision agriculture. As Eric mentioned, our goal is to be beneficial for shareholders, with a focus on return on investment, EBITDA growth, and earnings per share. We prioritize these deals based on their complexity and execution, as successful acquisition relies on our ability to integrate and execute effectively, which we do very well.

And maybe if I could just add one last point. You mentioned the financing package for SIMPAS, which is in alignment with John Deere finance.

The Rabobank.

The Rabobank, yes. So curious, though, because obviously, John Deere with its equipment franchise and some focus on even mentioned on one of their precision Ag equipment. Is there anything to read into their interest in your SIMPAS or is this a completely autonomous arm for John Deere that's not necessarily working with the equipment side of that business and looking at solutions in the precision Ag world?

Yes, I think the financing division of John Deere operates independently from the equipment side. While there are some internal interactions regarding financing their own equipment, John Deere financing collaborates with all major companies. Growers are seeking financing options, and this is one of them. It's a competitive choice for the SIMPAS line of products, but regarding alignment with John Deere, it's still very early in the process. At this moment, our main focus is on getting as many systems into farmers' hands. There is a significant amount of education to be done. So far, we've seen excellent results. As Eric mentioned, we faced a slowdown of about a year or even 18 months due to the pandemic, but things are improving for us. The economic outcomes for the growers have been outstanding.

And just on that, because I think it was this harvest that you're going to have a bigger sample that you're going to be able to kind of share or quantify some of the yield benefit associated with SIMPAS and the returns. But I don't know if it's too early to share any of that.

Yes, it is early. Generally, we look at the late part of November into December before we start seeing yield results. It depends on how quickly the researcher works, as it can sometimes extend into January before we receive the reports. However, we will share that information as it becomes available.

At this time, I'll turn the floor back to management for closing remarks.

Okay. Well, again, I thank all of you for listening in on the call, great questions from some of you. Thank you very much. We look forward to reporting our Q4 results. And over the next call, we'll give kind of our outlook with some targets for '23. So with that, thank you very much and again, appreciate your time. Bye.

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