Earnings Call Transcript - AVD Q3 2021

Operator, Operator

Greetings. Welcome to American Vanguard Third Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Bill Kuser, Director of Investor Relations. Thank you. You may begin.

Bill Kuser, Director of Investor Relations

Thank you very much, Sherry, and welcome, everyone, to American Vanguard's third quarter and nine month year-to-date earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard; and Mr. David Johnson, the company's Chief Financial Officer. Also assisting to answer your questions is Mr. Bob Trogele, the company's Chief Operating Officer. A little reminder for those of you who may be listening by phone, this conference call is being webcast live via the News and Media section of the company's website. This approach would allow you to see the PowerPoint presentation that accompanies our commentary. To listen to the live webcast, go to the AVD website, register, download and install any necessary audio software. If you're unable to listen to our entire call today, the conference call will be archived on the company's website for your review at a later date. Before beginning, let's take our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks 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. Such information will not necessarily be updated by the company. With that said, we turn the call over to Eric.

Eric Wintemute, Chairman and CEO

Thank you, Bill. Good morning and good afternoon to everyone. Welcome to American Vanguard's 2021 third quarter and nine months business update. We appreciate your continued support and interest in the company. Today, I want to give you a quick view of our financial performance supported by commentary on market conditions. Then I will turn to the global supply chain, which is a subject of strong interest to most industries. I will then ask David to cover financial and operational matters in great detail. After that, I will return with an update on our green solutions and precision application initiatives. So at the end of Q2's conference call, we presented a scorecard on how we did in the first half of '21 versus what we had given at the beginning of the year as our targets. So I'm going to update that now through the third quarter and year-to-date through the third quarter. And so with revenue, we were at 25% through the first half. Through three quarters, we're exactly still at 25%. With our gross profit margin, we were tracking right on 39%. Through three quarters last year, we had slipped a little to 38%. We're still holding at 39% at this point. Our operating expenses; we said we would kind of maintain and hope to move down slightly if we could. As a percentage of sales in the first half, we had dropped from 35% to 34%. Year-to-date, we're now at 33% versus 34%. Our interest expense is down now at 23%. So we're tracking certainly below 2020 and believe we'll outperform our initial forecast. On our tax rate, we were at 31% versus 23% through the first half. We're now at 27% versus 20% at this point last year. We do expect that rate to drop in the fourth quarter and certainly to meet or exceed our mid-20% range. On our debt to EBITDA; you've seen we've dropped from 2.5x to 2.1x. As we look at it now, we expect to drop further and probably below the 2x target that we had thrown out. And as far as net income is concerned, yes, pretty much the same. We were at an 86% increase. For the three quarters, we're at a 87% increase, definitely a faster rate than our 25% revenue growth. And our EBITDA is moving up as we're now at a 39% increase from where we were at this time last year. So our strong performance was across all sectors but our domestic crop business led the way where we benefited from a combination of factors. Let me just focus first on commodity prices and I'll start with cotton. And what we've done is we've measured the price per pound — this is with macro trends — as of September 27 of '20 and then comparing that to September 27 of '21, pretty dramatic increase. It's about a 59% increase. And so this has prompted growers to invest more heavily in corn. We've benefited from our cotton insecticide, Bidrin, which had a very strong third quarter. In addition, we've had an increase in our cotton defoliant, Folex, which is very strong in the third quarter, and we're still seeing orders through October. So that's a big part of our benefit here so far. Let's get this back up to where we were. So soybeans have — we're at $10.21 a bushel, having increased to $12.85 over that year period, a 26% increase. You may recall that we have improved our soybean portfolio with several herbicides we've acquired over the last three years. And as such, soybeans are moving up as a crop for us. I think currently, last week, we were around 7%, 8%, but it's looking positive for us in that sector. And then, corn; moving from $3.79 a bushel up to $5.42. And with that, we've seen strong performance with AZTEC, our number one corn soil insecticide and Impact, which is our number one corn herbicide. And we've launched two new products; we have ImpactZ, which was with atrazine. We've launched now Impact CORE, which is Impact plus glufosinate. All four of these are performing well at this point. So our increase overall in the ag sector was up 38% for U.S. crop. And so that certainly did lead the way for us. And this is despite us having logistics issues for our biggest product, usually our soil fumigant products, which is a large volume that is certainly impacted by the supply chain disruptions. On the remaining sectors, OHP continues to see strong performance, particularly in the markets of horticulture and plants and in greenhouse activity. AMGUARD, again, professional pest market that is also recovering well. AgNova, our Australian business, has tripled from where we were last year. Agrinos is adding incremental new business. Mexico is performing well as are our other two sectors, Brazil and Central America. Overall, these combine to increase 17% compared to where they were this time last year. So, I want to take a second to just talk about the supply chain. And I was at an industry meeting last week where I was asked to talk a little bit about supply chain from a manufacturing side. As I was driving from our plant in Alabama up to the conference in Memphis, I was listening to the radio, and the COO of Toyota was talking about specifically the jam that's occurred in the Long Beach harbor, which is where I grew up. He was saying that there are currently 540,000 containers and you're looking at boats here that have about 500 containers on them and 540,000 that are sitting at the port today that have not been unloaded. So that's about 100 vessels. And if you go down there, you can see them anchored all up and down the southern coast there. The current ability to unload at that port is about 18,000 containers a day. So if you looked at it and said, well, I guess, in 30 days, we would be able to unload those 540,000 containers, which is true. But the problem is that 29,000 new containers are arriving each day. And so we're not going the right way, and there doesn't seem to be any real solution at the moment. So why is this happening? I guess we talk about maybe a perfect storm that's occurred. We have a shift in buying patterns due to COVID. People got behind, and they panicked on certain items. So things shifted around. Some items are plentiful, some are short. As you certainly are aware if you hit your supermarkets or if you try to get a car, anything with circuit boards. We’ve been operating with the same port capacity for years and generally being able to kind of make it through, but we just haven't had this big a shift in buying pattern. Same thing with containers. There's a limited number of containers and those containers are being delayed as they're sitting waiting to be unloaded, or in some cases, the empties are having trouble getting back. Just recently, we had products that we were trying to ship to Australia, and we can't get a truck to take it from 20 miles from our plant down to Long Beach harbor. If they get there, they're going to wait eight hours, and truckers don't particularly want to do that. As such, a lot of the empty containers are just winding up on residential streets throughout the harbor area as truckers are frustrated and they're just dropping the trailers anywhere and moving on. It's created quite a mess; and of course, we're dealing with somewhere around 60,000 to 80,000 truckers short, which makes — even once those containers do get offloaded, it gets difficult to actually move them out of the harbor. So what's to be done? How do you deal with it? I really kind of boiled this down to three key factors. First is production itself. You've got to decide if the product that you're searching for, whether it's intermediate or finished goods, is going to be produced and when it's going to be produced. I'll talk in a minute about us, dependence on China. For instance, China has shut down a number of factories for environmental reasons; not necessarily that factor but production sites. The government is prioritizing energy, and certain high energy products are not getting permitted to continue for production. That's causing a squeeze that goes across the world. So first is, can you — is the product — can you make that purchase order? We've had products that we've ordered, and they've come back and said, you've got to pay more. And so we say, okay. Then it's like, well, we're not going to be able to ship anything. So that's certainly the first thing that you've got to identify, are you going to be able to produce or get the product itself? The second is on logistics, which we talked a little bit about. But those containers that you saw that have come over, last year, were running about $2,500 to $3,000 per container. This year, they picked up to $26,000 per container. That's just bringing them into the U.S. Once they're here, then you've got to get it moved from there to your factory or your production site. From that standpoint, you've got to get it delivered, and you’ve got this shortage of truckers and you’ve got to try to figure out how you're going to get it and then how much you're going to pay. So it gets to be sometimes a bidding war if you want the product to get to point A, how much will you pay to do it rather than kind of standard fares. So that kind of all boils down to maybe — and the most important point is, let's assume you do get your goods, you clearly need to do quick calculations to understand exactly how much those goods are costing. We're also seeing cost rises in factories as labor wages are going up. We're working with our finance team to look at all SKUs and do an analysis in real time of what our costs are, ensuring that our commercial product managers have visibility of what their cost of goods that they're selling. I think the companies that can go through this process will fare the best. There's no real clear vision as to when this disruption, I think, will cease. It will hit other areas harder than others and will be cyclical. You've just got to be nimble and understand where this is going. On the positive side, again, we're sitting here with six production sites in North America. That gives us the ability to produce and be in a stronger position to handle the disruptions. I mentioned that about 8% of our portfolio is dependent on materials from China. A few years ago, we started the process of second sourcing, if we could, outside of China due to the tariffs, which are pushing up to 31%. Second, we manufacture 46% of our portfolio within our six North American factories. Having these manufacturing facilities gives us both greater independence and the ability to respond quickly to market conditions. Third, we ordered goods from overseas on a comparatively sporadic basis. By contrast, many of our consumer businesses rely upon a steady stream of imported goods. Nevertheless, we're working closely with our logistics partners to ensure that we can get goods from point A to point B. We are ordering goods from overseas further in advance and looking at lesser congested ports. Through that means, we have been able to manage through the supply chain conditions and, at this stage, are optimistic that we will be able to continue to do so without material interruption. So with that, David, let me turn it over to you for our financial and operational analysis.

David Johnson, Chief Financial Officer

Thank you, Eric. With regard to our public filing, I understand from my controller that we are in the queue to file. I expect that we will file within the half hour or 45 minutes. As I've mentioned in previous conference calls, our industry is one that's considered critical in all jurisdictions in which we operate. During the pandemic in 2020 and now throughout the nine months of 2021, our business, our customers, and our suppliers have all operated without major disruption. It's been a good place to be during this difficult time. This is our quarterly sales performance. You can see that our sales have increased, as Eric mentioned, since the third quarter of 2020. Overall, our sales are up about $30 million to $147 million. That's about a 25% increase over the prior year. Our U.S. sales are up about 33% or $22 million, while our international sales were up about 16% or $8 million. Because of the very strong U.S. performance, despite the strong international performance, our international sales reduced to about 40% of total sales, whereas this time last year, they were about 43%. With regard to our gross profit performance, when we spoke at the end of Q2, we acknowledged that we had some production delays but indicated that this issue was temporary and substantially behind us. In the third quarter of 2021, our production performance was much better just as we expected, and that had an impact on our gross margin performance. When I look at the crop business, our gross margin performance improved by about 50%, including the impact of the recovery of overhead costs in the factory. Our non-crop business had significant mix changes in 2021 compared to the prior year, with some higher-margin business happening earlier in the year in 2020 as compared to this year. As a result, our margins remained comparatively flat in the quarter. For international sales, gross margin improved compared to the prior year, primarily because of the addition of businesses acquired late in 2020 which generate margins higher than our pre-existing business performance. Moving on; I particularly like this graph because it gives a quick way of visualizing the impact of factory performance on our results. In the third quarter of 2021, our factories cost us about 1.2% of net sales in under recovery. If you look back a couple of quarters to the third quarter of 2020, the cost amounted to 2.5%. That's a reflection of the kind of activity we've managed to record in the factory in this third quarter. Operating expenses increased by about 24%, amounting to $9 million. Our newly acquired businesses accounted for about 14% of that increase. Freight accounted for 17%, and then the balance was incentive compensation linked to financial performance, some legal expenses, and increased marketing costs. Overall, our OpEx as a percentage of sales remained steady at 33%. In the third quarter, our operating income was up 112% compared to last year. Additionally, we made some immaterial adverse changes in the value of investments we've had for some time. As Eric mentioned, our interest expense continues to track about 24% below the prior year. Our tax rate is a little higher than last year primarily due to the strong taxable income compared to the prior year. Our bottom line is about $5.5 million, which is up 88% compared to the prior year. For the first nine months of 2021, our sales were up 25%. Gross margins in absolute terms are up 27%. All our main activities in U.S. crop, U.S. non-crop, and international contributed to this exciting performance. Our operating expenses increased primarily due to the new businesses acquired in the final quarter of 2020, increased performance-linked incentive compensation, legal costs, some increases in travel, and costs associated with volume changes such as freight and warehouse costs. Overall, operating costs were up 22% compared to the net sales increase I mentioned earlier of 25%, and operating costs compared to sales improved to 33% in 2021 as compared to 34% last year. Interest expense has reduced by 23% due to cash generated over the last 12 months. Overall, our net income has increased by 87%. Now, I'd like to turn my attention to the balance sheet. During the third quarter, we increased cash generated from operations by 56% compared to the same quarter of the prior year. The movement in working capital was in line with the prior year, including the expanded scope related to the businesses acquired in the fourth quarter of 2020. Overall, net cash from operations increased by 34%. At the end of September 2021, our inventories were about $167 million compared to $176 million this time last year. If we exclude the impact of products and entities acquired since December 2019, which accounted for $10 million of inventory at the end of Q3, our base inventory decreased by 11% from this time last year. We feel that we have controlled inventory well during this phase of the company's annual cycle. Our current inventory target for the end of the financial year remains at $155 million. That compares with $164 million at the end of 2020. That target is obviously dependent on a few things, including continued low impact from the pandemic, normal weather patterns, and no more acquisitions this year. With regard to liquidity, under the terms of the credit facility agreement, the company uses consolidated EBITDA as defined in that agreement to determine leverage. Our consolidated EBITDA for the trailing four quarters to September 30, 2021, was $66 million compared to $49 million for the four quarters to September 30, 2020. This, taken in conjunction with outstanding indebtedness, translates to borrowing availability amounted to $95 million at the end of September 30, 2021, compared to $45 million at the same time last year. We have been controlling debt well even as we work through the annual cycle and continue to invest in the business for the future. Overall, in summary then, in the third quarter of 2021, we increased sales by 25%, improved overall margins, and managed operating expenses, which increased in absolute terms but declined when expressed as a percentage of sales. Our net income increased by 88%. We have a similar story for the first nine months of 2021. We increased sales by 25%, gross margins by 24%. Operating costs have reduced when compared to net sales. Our interest expense is down, and net income has improved by 87%. From a balance sheet perspective, accounts receivables increased driven by strong sales. Inventories have been well controlled. Working capital has been held flat during the quarter. Debt is lower than this time last year despite three acquisitions in the intervening 12 months. Finally, our liquidity position has improved significantly.

Eric Wintemute, Chairman and CEO

Thank you, David. In recently quarterly earnings calls, we've provided updated information on our two strategic growth initiatives in green solutions and precision application technology. Let me go into green solutions. We mentioned last time that we have grown our technology on the green solutions, and we've seen that we've got 100 different products in our expanding portfolio. In this slide, we break out the functional categories of our offerings. It's a balanced range of solutions with a strong emphasis on biofertilizers, biostimulants, biopesticides, and micro/macro nutrients. These products allow us to offer not only our traditional crop protection defensive products but also beneficial plant nutrition and soil health amendments. We've developed quite a balanced and growing portfolio. Green solutions has posted steady recent growth, as seen on this slide. For Q3, we increased about $10 million, a 26% increase from Q2. A good portion of that growth was attributed to increased sales in LATAM, Brazil, India, and Australia. Year-to-date, our revenues stand at just $27 million. For the full year, we're upping our forecast from the $32 million to $35 million range; we're now estimating somewhere in the $35 million to $37 million range, with about $10 million coming from LATAM, our largest contributor. So, looking at what we're focusing on and keeping an eye on our targets, we have registrations underway in LATAM. The Colombia business has transitioned over and is working well. We've got a pipeline building for further distribution in Europe and Africa. Our U.S. group is looking at opportunities for significant gains in '22. Part of that is a result of the 1,500 plot trials we mentioned last time that we're doing in '21, which are geared towards benefiting the '22 period. We've linked this with our SIMPAS trials, where we're introducing iNvigorate, a nitrogen fixation product that looks extremely promising. Our trials for turf and ornamental are near completion at this point. We have large-scale customer demo plots underway, aiming for a pickup next year. With Envance/AMGUARD, our bioherbicide product is being developed for both consumer and professional past use with potential agricultural applications. This is significant, given the decision to exit the consumer market through the domestically recognized leading herbicide. Demand for solutions is showing strong momentum, and we believe we are well-positioned here. Within Greenplants, which we acquired as part of AgriCenter in late 2017, we had strong products to expand but had taken time to integrate them into our other areas. We recently moved product into China and Colombia and have strong growth potential identified in Australia. Bi-PA, a consortium in Belgium established six or seven years ago, has yielded our first product—a biofungicide called Vintec, originally developed in Europe for grapes, which we've tested on almonds and recently received registration in California. There are over one million acres of almonds in California, and we believe this offers a nice fit for a biotreatment of a particular disease harming almonds. We're also conducting tests on bananas in Central America. In summary, we anticipate a progressive increase in sales in this area. We're looking to double our performance over the coming years and continue to see high demand for solutions in this market. Shifting over to SIMPAS, during our last call, we updated our forecast revenue for SIMPAS through '25. At this point, the forecast remains unchanged. We reached out to progressive retailers to focus on their precision farmers, beginning to shift the precision application of crop inputs. We've identified a number of retailers, and we have over a dozen that have entered into agreements for distribution of SIMPAS with us. We expect that number to double over the next few months. We've identified around 26, mostly in the Midwest, but also five retailers in the South. One question you might have is, what's in it for a retailer? These retail partners can provide agronomy and prescription software capabilities needed for targeting SIMPAS inputs of crop protection, plant nutrition, and soil fertility enhancements. With this on-the-ground template, SIMPAS can dispense and deposit ingredients that yield maximum returns and beneficial environmental outcomes. These precision ag services help build a solid bond between the grower and the retailer, creating long-term business loyalty. One final point is regarding the software data retention aspect of SIMPAS, which documents effective agricultural practices. In terms of the emerging carbon credit market, the ability to validate beneficial practices could secure compensation to offset investment in adopting technologies like SIMPAS. We are working with USDA on sharing this technology. They were excited, and we applied for a grant under the USDA Agriculture Innovation Center program; we did submit it at the end of September. The decision-making process takes about two to eight months, so we expect news by Q2 of '22. This grant aims for nitrogen reduction using the SIMPAS Ultimus system, decreasing synthetic fertilizer use, instead applying soil health products. The SIMPAS Ultimus system will document everything applied to the field by volume and location. No other company in our industry has climate-friendly technology as comprehensive as our SIMPAS Ultimus system, especially when used to dispense our green solutions. Let me conclude these comments with a quote from Jason Orr, the owner of Orr Farms in Iowa and a satisfied user of SIMPAS: 'The opportunities are endless. I can foresee in the future dozens of SIMPAS applied solutions being applied this way. This is going to change the way we producers look at in-furrow applications.' So with that, I'd like to open it up to any questions you may have. Sherry?

Operator, Operator

Our first question is from Gerry Sweeney with ROTH Capital Partners. Please proceed.

Gerry Sweeney, Analyst

Good afternoon. Thank you for taking my call.

Eric Wintemute, Chairman and CEO

Sure.

Gerry Sweeney, Analyst

Eric, you went through the supply chain. I actually learned a little about the unloading and loading — or unloading of vessels and the speed at which it is done and the amount of ships coming in. Looking forward to 2022, do you foresee any issues with maintaining your profitability? Or do you expect your multiple sourcing relationships, as well as factories, to manage demand and everything going forward?

Eric Wintemute, Chairman and CEO

Yes. Again, I think the key to that is — so far, domestically, we haven't had real pushback in implementing increases. But it is so dynamic that unless our commercial team knows where their costs are — generally, we have inventory. When we know what the cost is going forward or what is happening in real-time, we're not at the point now where we're manufacturing just to order. Our customers are kind of placing orders in advance, and so we're trying to stay ahead of the game. The key is to truly understand our costs. If we can do that and get that information, we can discuss where we need to be with our products. If that was your question about whether we're able to pass through increased supply, that will be the key for that. We definitely saw a disruption with our soil fumigant I mentioned. We produce about 12 million gallons yearly. Rail and trucking for that across the U.S., Mexico, Australia, and Central America can be a logistical challenge. You can consider 12 million gallons of product are being produced alongside a similar amount of raw materials coming in. We have seen disruptions in trains delivering those raw materials on time, particularly during our peak periods, which we saw in the third quarter. About 70% of our volume typically occurs between August and November, placing us under significant strain. Even though we have considerable storage, demand was high. I hope that answered your question.

Gerry Sweeney, Analyst

That was helpful. Yes, yes. Actually, more than my question, which is perfect, sir. I appreciate that. The other question was on acquisitions, focusing a bit on green solutions. You have outlined 100 different products. As you look at the playing field and opportunities, is there anything specific that you're looking to add to that portfolio? Or do you remain opportunistic regarding opportunities across the board?

Eric Wintemute, Chairman and CEO

Well, I think we’re seeing more opportunities than we have historically. The industry is consolidating, and there's a lot of shifting occurring. We certainly look for bargains like with what we did with Agrinos. We've laid much foundation to get to this point. Now we're looking to put a number of these solutions through SIMPAS. For example, our soil fumigant can now kind of sterilize the soil, allowing us to introduce beneficials into the soil that promote nutrient uptake. Our team operates, and Bob heads this area up; he might want to comment on whether we’re looking opportunistically or strategically. The answer is yes to both, but feel free to elaborate, Bob.

Bob Trogele, Chief Operating Officer

Yes. So Gerry, yes, we’re always interested. Anyone in the selling side should know this. The EU would be a target regionally because of all the environmental headwinds for chemistry in Europe—it would be a good place to invest if the price is right. However, we're also much into a lot of licensing discussions and distribution agreements because of our great team and footprint for marketing green solutions. We've acquired a microbial library from the Agrinos acquisition and are assessing how to develop that further. Furthermore, we are pursuing strategic partnerships. When combining green solutions with SIMPAS, many regions globally lack our structural footprint. We're actively talking to some partners about potential collaborations.

Gerry Sweeney, Analyst

Okay, great. Very helpful. That's all for me. I appreciate it. Thank you.

Eric Wintemute, Chairman and CEO

Sure.

Operator, Operator

Our next question is from Christopher Kapsch with Loop Capital Markets. Please proceed.

Christopher Kapsch, Analyst

Hi, good afternoon. Thanks for taking my questions. I'm focused on the green solutions portfolio, as it's an important growth vector for the company. Just curious about your confidence in those numbers for '23 and '25. Should those be considered guidance or projections? Or are they more aspirational in nature?

Eric Wintemute, Chairman and CEO

At this point, this is our best estimate of where we're going to be. If we think we're going to miss at some point, we'll make that adjustment. We felt we could get to the 70 and the 140 based on what we currently have in our portfolio. There's no acquisitions factored in above that. The fact that we're up a few million this year versus what we had originally put out brings a little more confidence that we can reach these figures.

Christopher Kapsch, Analyst

Okay. Just curious about that upside you referenced. What are the drivers of that? Are there a couple of different product lines or one specifically?

Eric Wintemute, Chairman and CEO

No. It was a variety. Our Central American piece was the strongest. We had a truckload of a Greenplants product going to China. Our Agrinos team realized the product's potential, immediately secured a truckload order. India is performing well as well. So it's a collective effort. At our meeting with our team in early '19 after acquiring the Brazilian business, the enthusiasm for bioproducts was previously seen outside the United States. However, the U.S. is now picking up interest. When we make sales calls now, the mention of anything bio captures attention due to mandates across most of our customers needing to look at biosolutions more seriously. Thus, this growing willingness bodes well for us.

Christopher Kapsch, Analyst

Got it. And just for my curiosity, do you have a sense of what percentage of that green solutions growth you believe will come from your Envance essential oil technology?

Eric Wintemute, Chairman and CEO

We're not giving a percentage right now. We're striving to exceed the minimum royalty space without specific targets. However, it is margin-friendly. That said, we're not being overly aggressive at that level.

Christopher Kapsch, Analyst

If excluding the margin benefit from those royalties, do you believe the green solutions bucket—excluding Envance—would be margin accretive to the overall company? Or do they currently come with lower-than-average margins?

Eric Wintemute, Chairman and CEO

Yes. Across the portfolio, particularly since these are well-used outside the United States, I believe bioproducts represent a higher end of margins. Thus it aligns with our goals of profitability moving forward.

Bob Trogele, Chief Operating Officer

This is correct. Agrinos, of course, has basic manufacturing capabilities. Greenplants does as well. These areas tend to provide solid margins. While we'd like to see them grow at a higher rate, there are good licensing possibilities when marketing through SIMPAS in the future or our direct-to-market organization in Central America, AgriCenter. Thus we're well-positioned for obtaining favorable trading margins.

Eric Wintemute, Chairman and CEO

I think that these products have a degree of uniqueness; their performance is differentiable. While bioproducts have been around, they haven't garnered notable strength until recently. At least for the foreseeable future, our projections hold essential significance.

Christopher Kapsch, Analyst

Okay. On the core business and your comments about supply chain disruptions impacting most industrial markets: Are there instances where your lower exposure to sourcing from China, domestic manufacturing, or proactive management have led to share gains or increased demand for your products overall? Or is this just a function of a historically healthy ag market and positive commodity pricing?

Eric Wintemute, Chairman and CEO

I think it's a combination of both. We're seeing strong market conditions, and our customers want to ensure they have secure product lines. However, several products are short right now, and our customers are ensuring they have access to products that are available and can fit in without supply constraints, potentially replacing products that are harder to source. We've observed significant upticks in our herbicide business, where established products may not face resistance issues or have heightened prices that allow us to strengthen our position. The soybean prices further assist, but some of the recovery we've witnessed is due to our ability to replace hard-to-obtain or higher-priced products.

Christopher Kapsch, Analyst

So to clarify, you referenced a couple of herbicides, such as your new introductions, ImpactZ and Impact plus glufosinate. Have you noticed these products being successful due to a shift toward better resistance management or simply price lack and availability of mainstream herbicides?

Eric Wintemute, Chairman and CEO

It's more of the latter. We're benefiting from shortages of herbicides and the tighter supply chain.

Operator, Operator

As there are no more questions, I would like to turn the conference back over to Eric for closing comments.

Eric Wintemute, Chairman and CEO

Thank you, Sherry, and thank you, everyone, for joining us today. Again, it's a pleasure to report on the quarter. We feel positive heading into the fourth quarter, and things look lined up well for the '22 season. Again, we’ll keep you updated. Next call will be the first week of March. Thank you for joining us, and have a good evening.

Operator, Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.