Good morning and welcome to the Second Quarter 2020 Earnings Call for FMC Corporation. This event is being recorded. I would now like to turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you and good morning, everyone. Welcome to FMC Corporation's Second quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our second quarter performance and the outlook for the rest of the year. Andrew will provide an overview of select financial results and discuss sustainability of FMC's tax structure. Following the prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earning means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms, of which we may refer during today's conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Michael, and good morning, everyone. At our last earnings call, we forecasted Q2 would be a challenging quarter. Despite this outlook, we delivered solid financial performance and navigated the challenges posed by COVID-19, severe headwinds from foreign currency, very dry weather in Europe, and an industry-leading comparison from Q2 2019. Our proactive cost control actions, along with price and volume increases, delivered earnings growth in the quarter. Our confidence in the outlook for the second half of the year has increased, which is why we are raising the midpoints of our EBITDA and EPS guidance and tightening those ranges. Underlying demand for our products remains healthy. And we expect double-digit organic revenue growth in the second half of the year, driven by volume, market access expansion, and the full effect of our pricing actions. We also continue to invest in innovation to support and enhance the long-term sustainable growth model we have built at FMC. In the past few months, we announced the launch of our Arc Farm Intelligence Platform and a related agreement with Nutrien to increase the adoption of this technology. We launched FMC ventures with an initial investment in Trace Genomics, and we announced a partnership with Cyclica that will enhance our R&D discovery engine. Let me now turn to the impact of the COVID-19 pandemic on our business. As we said last quarter, we have avoided significant plant closures and all our manufacturing facilities remain operational. The well-being of our employees is FMC's top priority. Although most FMC employees around the world have been working from home during these last few months, we are slowly bringing employees back to offices and laboratories in locations where health officials have deemed this to be safe. In addition, we have thousands of employees who continue operating our manufacturing sites and distribution warehouses. In all our facilities, we are using a variety of best practices to address COVID-19 risks and following the protocols and procedures recommended by leading health authorities. In Q2, sourcing of raw materials and intermediates was not a significant issue, although we continue to see some logistics challenges and related higher costs. We are seeing some pockets of reduced demand as expected due to food chain dislocations and labor availability. As we commented in May, we implemented cost-saving measures across the company, and price increases to offset the impact of COVID-19 and the related FX headwind caused by a stronger U.S. dollar. Turning to our results, FMC's strong financial performance over the past several quarters continued in the second quarter despite a robust prior period performance. Last year, our business grew 9% organically in Q2. This year, we reported approximately $1.16 billion in second quarter revenue, which reflects a 4% decrease on a reported basis, but 3% growth organically. After removing the FX impact, our business saw double-digit growth in Argentina, Brazil, Australia, Pakistan, and Canada. Adjusted EBITDA was $341 million, an increase of 1% compared to the prior year period. EBITDA margins were 29.5%, an increase of 150 basis points compared to the prior year driven by significant cost containment measures and pricing actions. Adjusted EPS was $1.72 in the quarter, an increase of 4% versus Q2 2019. This year-over-year performance was driven equally by the increases in EBITDA, reduced share count, and the benefit of a lower tax rate. Relative to our Q2 guidance, however, the $0.06 beat was driven almost entirely by our $9 million EBITDA outperformance versus the midpoint. Moving now to revenue decline. Q2 revenue declined by 4% versus last year as a 7% FX headwind more than offset growth contributions of 2% from volume and 1% from price. We overcame a 3% volume impact from products that were discontinued either because of registration cancellations or rationalizations that we had planned for and forecasted earlier this year. We should note that 2020 has a higher than normal level of product discontinuations. Latin America sales grew 2% year-over-year and 24%, excluding FX. Pricing actions across the region offset some of the currency headwind, while the underlying volume gains were very strong in Argentina and Brazil. Sales grew fastest in Argentina, driven by herbicide sales for wheat and soybean applications, including Finesse herbicide. In Brazil, sales grew double digits organically, led by continued robust demand for our products on sugarcane including Boral herbicide and Altacor insecticide. Our channel inventories in Brazil continue to be at normal levels as we head into the new season. Mexico sales grew organically but were impacted somewhat by COVID-19-related pressures on the growers that export fruits and vegetables. In Asia, revenue increased 2% year-over-year and 8% excluding FX. Volume growth in India, Australia, and Pakistan as well as modest price increases across the region were mostly offset by FX headwinds and some COVID-19-related impacts in India. Herbicide sales, including for the newly launched Authority NXT, were robust for soybeans in India. We also continue to see a strong market recovery in Australia with the improved weather and record demand for Hammer and Affinity Force herbicides due to strong broad acre season. In North America, sales decreased 6% year-over-year, driven by our continued focus on drawing down channel inventories of our pre-emergent herbicides following the wet spring last year. Coming out of this summer, we forecast our channel inventories will be in a much better position in this region, which should lead to good restocking at the end of the year. We also saw robust sales of Lucento fungicide in our second U.S. season. Sales in Canada were strong, driven by herbicide blends from our precision pack systems for use on cereals and insecticides to control early season pests. Sales in EMEA contracted 13% year-over-year and 10% excluding FX due to hot dry conditions across Northern and Eastern Europe and Ukraine as well as the expected registration cancellations and product rationalizations. This was partially offset by insecticide growth in Southern Europe for specialty crops. Turning now to the second quarter EBITDA bridge. We had strong operational performance, offsetting a $62 million FX headwind with a $46 million contribution from lower costs, a $16 million benefit from higher pricing, and modest volume growth. Moving now to the first half results to highlight the overall performance we have delivered in a very challenging market. We posted organic revenue growth of 6%. On the EBITDA bridge, balanced contributions from volume growth, price increases, and cost reductions more than offset the FX headwind. I will now turn the call over to Andrew.

Thanks, Mark. Let me start this morning with a few highlights from the income statement. FX was a larger than anticipated headwind to revenue growth in Q2 at 7% versus our expectations of a 5% impact. The Brazilian real was more than half of this total, followed by the Indian rupee, Pakistan rupee, Australian dollar, euro, and a broad set of other European currencies. While we did take pricing actions in the quarter, we were intentionally less aggressive, particularly in countries hit hard by COVID. We continue to expect FX headwinds to remain at an elevated level throughout 2020, with pricing trailing FX impacts for the full year, with prices increasing ahead of FX during the second half of the year. Interest expense for the second quarter was $40.7 million, up slightly from the prior year period primarily due to the impacts of our third quarter 2019 debt offering and higher foreign debt balances, partially offset by lower term loan and commercial paper balances. With the decrease in interest rates since the last quarter, we now anticipate interest expense between $150 million and $160 million for the full year, somewhat better than our prior guidance. Our effective tax rate on adjusted earnings for the second quarter was 13.5%, consistent with our expected full year tax rate of 12.5% to 14.5%. Before leaving the topic of taxes, I think it's important to spend a few minutes this morning on the long-term sustainability of FMC's tax rate, particularly given the tax rate impact on our stock valuation on a price to earnings basis as opposed to an enterprise value to EBITDA basis. As many of you have noted, FMC currently trades at a premium to our peers on an EV/EBITDA basis but at a discount on a PE basis. When we completed the DuPont Crop Protection transaction in 2017, we aligned the legal entity structure of FMC in such a way that in conjunction with our broad geographic dispersion of sales, led to the advantaged tax rate, which we now benefit from. We believe this will prove to be durable. FMC operates our business through regional hubs in which we have established principal operating companies or POCs. Our POCs own, operate, and protect business-critical assets, particularly intellectual property, trade secrets, and other intangible assets. As a result of this POC structure and our geographic mix of sales, approximately 40% of FMC's overall profit stream flows through jurisdictions where we pay the statutory tax rate on corporate earnings, such as the United States. The remaining roughly 60% of FMC's profit stream flows through jurisdictions where we have made significant investments and commitments and as such, pay an effective tax rate that is below the statutory tax rate. These arrangements are formalized through what is commonly referred to as a tax ruling, which sets the specific rate that FMC pays over a defined period of time, based on the commitments and investments FMC has made in the relevant jurisdiction. We believe with our existing and planned investments, we can maintain or improve upon our current tax rulings, at least through the year 2030, with further opportunities to extend them beyond that time horizon. As such, we are highly confident in maintaining a very competitive tax rate, particularly as compared to peers with very different entity structures and larger earnings streams and statutory rate jurisdictions such as the United States. Over the 2030 horizon, we expect our tax rate to stay in the range of 13% to 16% based on our expectations for geographic sales mix and the durability of our tax rules. Despite our competitive global effective tax rate, let me be clear, FMC pays substantial taxes in the United States, particularly due to the GILTI or global minimum tax provisions of the 2018 tax bill. Moving next to the balance sheet and liquidity. Gross debt at quarter end was $3.5 billion, down by approximately $300 million from the prior quarter. Strong free cash flow led to lower short-term financing needs. We also reduced the amount of excess liquidity we maintained due to the heightened uncertainty caused by the COVID pandemic. We fully repaid the revolver draw made late in the first quarter at the height of the pandemic's impact on short-term financing markets. We ended the quarter with over $200 million of surplus cash on the balance sheet. Considering this surplus cash, gross debt to trailing 12-month EBITDA was 2.7x at the end of the second quarter, still somewhat above our targeted 2.5x annual average leverage, reflecting the seasonality of working capital and cash flow. We continue to expect leverage to be at or below 2.5x at year-end. Moving on to Free cash flow and cash deployment. Free cash flow for the second quarter was $205 million, up significantly from the prior year period, with very strong collections in the quarter and improved payables. We are maintaining our full year free cash flow guidance range of $425 million to $525 million. With improving confidence in our outlook, we expect to revisit share repurchases at the end of the third quarter and at present, anticipate restarting share repurchases during the fourth quarter. Moving on to the implementation of our new SAP S/4HANA ERP system. This was the second quarter in close that we've completed with 60% of the company on the new system, and the closing went very smoothly. We continue to push forward to complete implementation of the new SAP system across the remainder of FMC by year-end, which will give us a thoroughly modern system across the entire company and will enable further efficiencies in our back-office processes. The most recent implementation phase has gone so well that we are accelerating some synergies planned for 2021 into 2020. We continue to expect total synergies of $60 million to $80 million from implementing the new system, but we now forecast $40 million of synergies in 2020, up $20 million from our prior forecast. We will capture most of the remaining $20 million to $40 million in 2021. With that, I'll turn the call back over to Mark.

Thank you, Andrew. Turning to the market outlook for 2020. We now expect the overall global crop protection market will be flat to down slightly on a U.S. dollar basis, which is slightly worse than our previous outlook. The change is driven by a reduced outlook for Europe, where we believe the market will be flat year-over-year versus up low single digits in our prior forecast. Our views on the other regions have not changed. We expect the North American market to be up low single digits, the Asian market to be down slightly, and the market in Latin America to contract by low to mid-single digits. All these forecasts are the markets, not FMC, and are in U.S. dollars. As such, the Latin American market is seeing the largest headwind from FX. Moving to the review of FMC's full year 2020 and Q3, Q4 earnings outlook. As I said earlier, we are expecting double-digit organic revenue growth in the second half of the year, driven by both volume and the full effect of our pricing actions. We expect continued headwinds from FX, and to a lesser extent, from impacts related to the pandemic. At the onset of the pandemic, there were numerous contingencies to consider. But after several months of navigating in this environment, we are more confident in our ability to deliver on our 2020 forecast. FMC full year 2020 earnings are now expected to be in the range of $6.28 to $6.62 per diluted share, a year-over-year increase of 6% at the midpoint and 7% above prior guidance. EPS estimates do not include the benefit of any share repurchases in 2020. 2020 revenue is forecasted to be in the range of $4.68 billion to $4.82 billion, an increase of 3% at the midpoint versus 2019 and 9% organic growth. We believe the strength of our portfolio will allow us to deliver high single-digit organic growth, continuing a multiyear trend of above market performance. EBITDA is now expected to be in the range of $1.265 billion to $1.325 billion, which represents 6% year-over-year growth at the midpoint. For the third quarter, we expect earnings to be in the range of $1.03 to $1.17 per diluted share, a year-over-year increase of 17% at the midpoint versus Q3 2019. We forecast Q3 revenue to grow 6% year-over-year at the midpoint. Excluding the significant FX headwinds, revenue is expected to increase 12% organically, driven primarily by robust growth in Asia, following a good monsoon season as well as improved market conditions in EMEA and a normal start to the Latin American season. EBITDA is forecasted to be in the range of $233 million to $257 million, representing a 12% increase at the midpoint versus the prior year period. The third quarter is seasonally the smallest quarter for FMC, which is in line with the quarterly pattern from the past two years, as Q3 is not a high season in any of our regions. Guidance for Q4 implies a strong quarter with sales growth of 6% at midpoint on a reported basis and 11% organically as compared with Q4 2019. We are forecasting EBITDA growth of 10% year-over-year at the midpoint. Turning to full year EBITDA and revenue drivers. Revenue is expected to benefit from a 5% volume growth with the largest growth in Asia and Latin America. New products are driving about 1.5% in total revenue growth, with the largest contribution coming from EMEA. FX is now forecasted to be a 6% top line headwind versus 5% in our prior forecast. However, we expect to offset much of this with price increases, totaling 4%. Regarding EBITDA, we will deliver significant cost savings this year to offset the COVID-related impacts to supply chain costs, pockets of lower demand caused by food chain dislocations and labor availability as well as a portion of the FX headwind. This includes the earlier realization of some SAP synergies that Andrew referenced. Foreign exchange remains a critical factor in our outlook. We now foresee an impact of $230 million for the full year versus $170 million in our prior forecast. We increased our full year pricing actions to $177 million to cover over 75% of the full year FX impact. But in the second half of the year, we expect to cover the full impact. Pricing will come from all regions, led by Latin America. Moving to the Q3 and Q4 drivers. On the revenue line, volume and price are expected to drive the top line strength in both quarters. We expect the second half volume growth to be driven primarily by Asia and EMEA, in addition to the overall strength of our diamides business. Regarding EBITDA drivers, pricing is certainly the largest positive factor and volume contributions are also meaningfully higher than in the first half. As my first quarter as CEO, this was certainly an interesting time to start. Q2 was a quarter to focus on execution, cost management, the health of our employees, protecting the balance sheet as well as setting the stage for a strong second half. It was not the time to chase volumes or significant price increases. We are looking forward to the rest of the year as we continue to launch new products, expand our market access, and stay aligned with our customers as we collectively manage through these difficult times. Before closing our prepared remarks, I'd like to announce that we will host an Investor Day call on November 17 to provide an update on our R&D pipeline. This will cover some of the topics we had planned to discuss at our Investor Technology Day that was canceled early this summer due to the pandemic. More details will be available in the coming weeks. I will now turn the call back over to the operator for questions.

And the first question today will come from Mark Connelly with Stephens.

Mark, conventional wisdom has been that India is going to get its GSP status back before the elections. So two questions. How much has losing that status affected you and is your sourcing strategy going to change materially if it's not backed by the election?

Yes. Thanks, Mark. No, the GST didn't fundamentally impact us when it came in. I think at the time when it happened a couple of years ago, we did see issues with collections given just the dislocation between the old methodology, which was running across many different provinces and more of a standardized system. So no, I don't see any change to our demand. I would say from a manufacturing perspective, we've taken a very broad look at rebalancing the supply chain over the last four to five years. Consequently, that has meant that we have moved resources out of China into the rest of the world. And one of those destinations has been India. Now at this point, India is very important for us and will continue to grow as we put more manufacturing assets into our own facilities, mainly in Panoli and Savli, but also into toll manufacturing partnerships that we've been growing over the last few years, very similar to what we do in China. So I don't see that strategy changing. When you look at the overall economics of moving products out of China, there is obviously a cost impact. However, over the years, that cost impact has declined as not only China costs have increased, but a lot of our partners around the world have gotten used to making the products that we make and we've improved the processes. So for us, it's not so much a question of cost; it is very much a question of surety of supply and quality. So bottom line, for your question, we don't see a lot changing for us with our investments in India.

And the next question will come from Steve Byrne with Bank of America.

Have you noticed that your South American customers placed more orders for crop inputs than usual in the second quarter, following recent grain sales? If so, do you recognize these orders in the second quarter, or are they just bookings that you hedge, providing you confidence in your expectations for currency impacts in the second half? Your guidance indicates that you can offset currency effects with pricing, and you have an estimate of the EBITDA drag. Does this suggest that a significant portion of the second half has already been booked?

Yes, there is a lot in that question, Steve. I think what I'll do is let me talk about where we see ourselves in Latin America right now. And then I'm going to let Andrew jump in and talk a little bit about our established hedging process that we use for our Latin American business, in particular, in Brazil. You've heard me talk over the last couple of years that we've seen an uptick in early ordering for the forthcoming seasons in Brazil. So I talked about a number of around 70% of orders in hand in sort of the early July time frame over the last couple of years. It should be noted that that was really in times of somewhat more stable currency than we have today and that indeed what we'd had in the past. A more normal rate for early July for us and into July is about 50% of the orders remaining for the year are taken at that point. So we already have them in hand. I would say today, we're in the 55% to 60% of orders needed for the rest of the year, slightly behind the last two years, but well ahead of the average for the last five or six years, I would say. What's driving that? Well, obviously, FX has changed a lot for this year. And basically, it's got nothing to do with the season being delayed. We see the weather patterns as being good for a normal start of the season which would mean planting in the late September, early October time frame. It's more farmers and growers and distribution looking at the exchange rate and pushing out the decision of when to just simply place the order. Now obviously, that FX has an impact on us, and we've highlighted very clearly what we think that impact is. To your second part of the question about receiving an order: when do we book it? We book it when we receive it. Now let me talk about when Andrew can go through the FX hedging process. Andrew, why don't you talk through what we do when we get that order?

Sure. So I think the practice in Brazil, we've had a similar hedging strategy for several years now. As we go through the earlier parts of the calendar year into this time of the year where there's heavy negotiation of terms of orders and pricing etc. with customers. As we get those open orders confirmed, we will hedge a significant portion of those open orders from the time we confirm the order with the customer until we actually ship the product and then recognize the revenue, right? So just to be clear, we don't recognize revenue until we actually ship and invoice the product. But that exposure between the time we come to commercial terms with the customer to the time we actually ship it, we hedge the majority of that exposure during that time period. Once we invoice a customer, ship the product, and invoice it, we hedge 100% of the receivable. Hedging, of course, is not free, but that's built into our margin structure in Brazil, and it's been an important part of limiting the impacts of FX volatility on our business. So I say the bottom-line message for us with Brazil around FX, it is a more volatile situation than we've seen in the past several years. Pricing continues to be the first lever that we have to offset those moves in FX, but we continue to follow the same disciplined hedging strategy that we've had for several years now to limit the impact of FX and certainly to increase the ability of the company to deliver on its guidance.

And the next question will come from Chris Parkinson with Crédit Suisse.

Mark, despite COVID, your organic pathway still looks pretty solid heading into the roaring 20s here. But can you just offer some additional framework in terms of the volume contribution from diamides versus the past few years, it does appear as size of peers further kicking into gear in a few geographies? And also how should we think about the volume contributions from new registrations and products as we head into 2021? Has there been any change in assumptions since your Analyst Day?

Thank you. Strong organic growth as we go into the second half and I sort of touched on it in the script. Asia and Latin America are two of the drivers. And then following up behind that is our expectation one season in the U.S. and in Canada. From a diamides perspective, growth rates are still in the high single digits, low double digits organically. A little lower than they were last year, but that's not surprising when you consider that in '18, I think we grew something like 25%, then we grew mid-teens in '19. Now we're growing high single digits, low double digits this year to be expected. Those compounding numbers are very large, indeed. From a registration perspective, this year, we talked in the past about having around about 285 registrations and submissions going out through 2026 for the diamides. That was when we put the original plan together back in the early part of 2018. Today, we're at about 350 submissions and registrations. So that number has continued to climb the products that we've got our hands on. This year, we're pretty much on track to where we thought we'd be. We've added about 90 different registrations and label expansions this year, which keeps that growth rate moving forward in that very high, well above market type of number.

And the next question will come from Adam Samuelson with Goldman Sachs.

My question has two parts. First, regarding the quarter and year-to-date, I’ve noticed that R&D has decreased. Can you provide any insights into how COVID has affected your R&D spending and whether it has impacted your research pipeline? Secondly, following up on Chris's question about registrations this year, has COVID created any challenges for you in completing the necessary documentation and trials for new product registrations slated for launch in 2021 and 2022?

Yes. Thanks, Adam. First of all, on R&D. When we saw what was happening with COVID and we knew we were going to face headwinds, both from a cost and potential market disruption. We decided to take a broad look at the cost structure of the company, and we put in place roughly $60 million of activities that we knew would reduce costs. Part of that was R&D. Now we were very specific with our R&D organization when we looked at our cost structure. We did not want to slow down any of the mid- to long-term projects where we're investing significant dollars in the development phase, and that is fundamentally where we spend a lot of our time and effort. So it's safe to say that the changes that we've made in R&D, they're more timing than they are anything else. They are not cancellation of projects. They're not cancellation of development activities. It's more looking at your project timelines and pushing out of the first half of the year as far as possible costs. Now we will obviously take a look at that in the second half of the year as well. We've been very clear that we think we have a good view of our demand situation. If for any reason, that was to change, we would be able to once again go back to our cost structure, not just in R&D, but in SG&A and look at other levers to pull. Outside of R&D, we looked across the whole company. Every single item of spend, whether it was related to our human resource groups, our legal groups, finance, IT, the commercial activities, global marketing, everywhere, we looked at costs. We looked at what was absolutely mission-critical for the first three quarters of this year? And what could we again push out rather than automatically cancel? So we've done a good job with that. Yet we still have levers to pull if we should see any situations that get worse than where we are today. The second part of your question is a slowdown in registrations. It's interesting. Many governments around the world have been very adept at keeping their organizations running, even though you would expect things to slow down. They actually have not. We've been getting registrations on time. And in fact, we launched a new product this year in the U.S. called Elevest, which is one of our first formulations for Rynaxypyr plus another insecticide. We actually got that registration earlier than we thought, which allowed us to launch this year rather than next year. So to answer your question, Adam, we have not seen any slowdown in registrations that would impact the future growth of the business.

And the next question will come from Joel Jackson with BMO Capital Markets.

I wanted to talk about the pre-emerge demand commentary you gave in the U.S. for herbicide. Can you talk about how much of this was just a destocking issue where channel inventories were high? And we had heard some stories a couple of months ago that perhaps this year, farmers in the U.S. attempted to apply less pre-emerge. Because last year, they didn't apply as much because of the wet weather, yields ended up being okay. This year, the spring was early, the spring was good. The weather was good, and maybe they tried to get away with lower pre-emerge just like last year. Can you comment on that, please?

No, that's not what we observed. Growers did not apply less pre-emergent herbicide this year. Instead, we noticed a clear shift towards the newer, high-performing products in our portfolio. Weed resistance is increasing in the U.S., and some weeds are becoming extremely challenging to control. In response, we've introduced Authority Edge and Authority Supreme, which are highly effective formulations for glyphosate-resistant weeds. This segment of our portfolio has performed exceptionally well and continues to fuel our growth. We anticipate that, over the next few years, the portfolio will increasingly shift to these higher-performing products. The reason we discussed our volumes is straightforward. We were not comfortable finishing last year with elevated inventories. Therefore, the revenue reductions you've seen from us in the U.S. are purely because we are not replenishing the same amount of product back into the channel that is being used on the ground. As a result, our channel inventories are decreasing, positioning us much better as we head into next year.

And the next question will come from PJ Juvekar with Citi.

A couple of questions on Latin America. You had outsized growth in diamide in Latin America, looks like in Argentina, did you gain share in sugarcane there? Was that the main driver and then I may have missed it, but can you just break down the 24% organic growth in Latin America between price and volume?

So yes, PJ, diamides. Listen, the diamides growth is coming from a number of different areas. It's not coming from what you just referred to as sugarcane. We already are the #1 player in sugarcane with a very high market share. So we don't necessarily expect to take significant market share in sugarcane. We grow as we introduce new technologically advanced products. That is how we grow in sugarcane, but we've also seen significant growth in soybeans, in citrus, in coffee, and in corn, in particular, which is a growing market for us in Brazil. Of the 24% growth, it's really equal between sort of price and volume when you look at where we're going. I don't want everybody to focus on Brazil. I know it's a big market for us, and we like it a lot. But I do have to say the rest of the region is performing very, very well. You heard me talk about Argentina and the growth rates we've seen in Argentina. Our structure has taken us a while to get right, but now we have it right. The team down there is doing a great job. We have a very good, strong portfolio for soybeans, and we also have a very good portfolio now for more of the specialty crops in Argentina. Mexico is a little bit more of a challenge right now. We've seen some demand destruction because of COVID, especially with exports of fruits and vegetables. But overall, that growth is pretty evenly balanced, which is what we like.

And the next question will come from Laurent Favre with Exane BNPP.

My question is regarding the impact of phase-out. Mark, you've just said that there would be more impact in 2020. I was wondering if you could give us a percentage impact on volumes, for instance, for 2020 and perhaps your best guess on 2021? And then related to that, with the new Green Deal and Farm to Fork Strategy in Europe and the 50% targeted reduction in weed cutting from pesticides. I was wondering if you think that this is more of a risk for you? Or whether you think it's more for the, I guess, more generic players?

Thanks, Laurent. On the discontinued products/loss of registrations, we think it's about 3% of our revenue this year, which is probably double what the average is for us. It's about 1.5% a year. We had a particularly difficult year because we made a very strategic decision at the end of last year to remove one of our oldest insecticides called carbofuran from the marketplace. This is a proactive move, impacted Asia, Latin America, is very deliberate. We have more sustainable products that we can put in place. So it was an obvious move to make, although it hurts the top line. And then we had a couple of other products in Europe that were impacted. I have to say Europe was probably the most impacted region from that 3% number that I just mentioned. You raised a very good point, Laurent, about the Farm to Fork and the European Green Deal. A 50% reduction in all pesticide use in Europe is an enormous number. And I know ourselves and our industry colleagues are very skeptical that, that number can actually be realized. In one way, it sounds like a very large drag on a particularly large part of the market. Yet in another way for the technology-based players that are bringing new, more sustainable chemistries that are targeted, I think it is an opportunity for us because there are still a lot of generics used in Europe that are older chemistries, and not with the same sustainable profile that the newer chemistries have. So we tend to look at it in a slightly different way. We tend to look at this as an opportunity to advance the new technologies into Europe, to have less of an environmental footprint impact, and also really remove older products that are all there, both in our portfolio and in the market in general.

The next question will come from Vincent Andrews with Morgan Stanley.

Mark, congratulations on your first quarter as CEO. I appreciated your comments about being careful with pricing during the COVID environment. It seems you managed to reduce costs effectively as well. As we approach the second half of the year and move into next year, I assume you may consider a more aggressive pricing strategy. Additionally, I wonder if some of the costs that were reduced this year will need to be reinstated next year. Will these two factors offset each other, or do you anticipate that pricing increases will outpace the return of those costs? How should we approach this relationship in our models for 2021?

Yes. It's a good question, one we're having internally now as we start the very early part of our budget process for next year. Yes, listen, I do think as we raise our prices in the second half of the year, they naturally have an impact on the first half of next year. If you think of the Latin American season, it doesn't stop at the end of Q4. It carries on well into the end of Q1, beginning of Q2. So whatever we do now, will obviously have a beneficial impact as we go into next year. As I said, Asia also will be and are looking at pricing now for the second half of the year, followed by Europe and North America. So I do expect to see pricing being a tailwind as we go into next year. On the cost front, the $60 million of cost that we've taken out of this year, there will be some spring back next year for sure. I talked about pushing back on timing on some projects and some expenditure. Some of that will come back. Obviously, you're going to have the very real tailwind of the SAP implementation, which will lower costs once again. We've already talked about another $20 million to $40 million next year on top of what we've done this year, and we accelerated this year. So net-net, I would say, price as a tailwind. I would also believe that because of the balance of SAP plus how we will manage whatever spring back occurs, I would expect cost to be a tailwind as well next year.

And the next question will come from Michael Sison with Wells Fargo.

Mark, just curious on where you have your manufacturing facilities, your raw materials sourcing was an issue this quarter, but you have a lot of your manufacturing in China. Any thoughts longer, can you shift that around the regions, given your sales would have been more even and just wondering how long of a process would that take if you could sort of move some of your manufacturing around?

Thanks, Mike. So if you go back, I don't know, seven to ten years now, time moves on, FMC was probably 90%, 95% dependent on China. We had that very good model that we used to run called an asset light model. We've moved a long way since then. I was looking at some numbers over the last couple of months and I think we're about 60% sources from China today. Our longer term, mid-term plan is to get that down to 40%, 45%. That will come through investments in India, investments in Europe, and investments in part of the U.S. and Mexico. It's not easy in this industry to just pick your products up and move them. The registration process is tied to your point of manufacture. So if you move your point of manufacture, you have to go reapply for a new registration and that can take anything from 2 to 5 years, depending on the jurisdiction that you're in. So you really have to plan for the move. So when I say we moved from 90% to 95% dependent on China to 60%, we've done that over a four-year time frame and really since the acquisition of Cheminova and the DuPont assets really allowed us to accelerate that because we have our own manufacturing facilities in India, Europe, U.S. now. So you should expect us to see a continuous gradual spreading out of our manufacturing, so that eventually, we're in that 40% to 45% dependency on China, the rest being spread around India, Europe, and the U.S.

The next question will come from Kevin McCarthy with Vertical Research Partners.

Mark, a year ago on this call, you provided a helpful discussion of your long-term growth strategy in diamides, taking those molecules through the various patent expirations around the world. I was wondering if you could provide an update on what's transpired over the last year in terms of your discussions around manufacturing agreements, actions on maybe new formulations and other aspects of that transition?

Thanks, Kevin. It's hard to believe it's been a year since we last discussed this. We have put a strong plan in place to support the ongoing growth of diamides. Our approach has two main components: protecting our substantial patent estate and establishing commercial partnerships to enable others to market our products. I'm pleased to report that both areas are progressing well. We have achieved several legal victories in India against manufacturers of illegal materials that we have successfully identified and shut down. We plan to continue this effort in India, China, and other regions where we encounter patent infringement. On the partnership front, our collaboration with industry players is going very well. Currently, we have about four global agreements and over 40 local agreements with various companies. Some of the larger partnerships are already operational, while others are in the initial stages and require new registrations, a process that will take some time but is progressing well. Regarding product formulations, we are actively working on multiple initiatives within the company. We've recently launched a new product in the U.S, which is our first FMC reformulation of Rynaxypyr with pyrethroids, specifically tailored for the U.S. market. We have several other formulation activities in progress and expect to see results in the next two to three years as we secure the necessary registrations for new technologies. Overall, we're on track and continue to advance these technologies significantly beyond market growth.

And the next question will come from Frank Mitsch with Fermium Research.

Congratulations on your new position. This year you launched the Arc Farm Intelligence Platform and have trials in progress with Nutrien. Could you provide some updates on its progress and share your thoughts on how this new platform might influence FMC?

Thanks, Frank. Yes. The Arc platform really was and is a first in the industry. It is a predictive model for insect pressure. We were very careful in thinking this through in how we would go to market. And we are going different ways to market in different parts of the world. Obviously, the Nutrien agreement is one of those activities. It's a very specific crop, brassicas in California, it's not a particularly easy crop to grow, and it takes a lot of time and effort. And we believe using something like Arc, which is a predictive in terms of what pests and when they'll come, which will allow the growers to be much more optimal in terms of how they think about spraying. It is the first of what we will consider a series of technologies that will blend into the Arc platform. I see it as both defensive and offensive in terms of how we could gain market share. But equally, how we defend our market share. We are the number one provider of insecticides in the world. So we have some franchises that we wish to defend. Arc will allow us to do that from a very sustainable perspective, using the right product at the right time, allowing you to use less product, which is good for the grower and good for us in the sense that we defend our business. But once people get used to that, they're willing to expand the portfolio of products that they buy from FMC, and we're already seeing that. We actually see that with another technology that we have, which is called 3RIVE 3D which is our application of pesticides in soil during planting via what is essentially a patented shaving foam. It uses tremendously low amounts of the product and low amounts of water. The growers that are using that in the U.S. for corn are actually now acquiring more of FMC's portfolio as they get used to that type of technology. So we see these very targeted precision applications has been a boon to our growth and bringing more sustainable chemistry and technology to the marketplace.

And the last question today will come from Michael Harrison with Seaport Global Securities.

Mark, I was wondering if you can provide some examples of areas where SAP is helping to enable you to run more efficiently and with the acceleration of some of these benefits, are you more confident in delivering on the high end of that $60 million to $80 million of eventual synergies?

Mike, that’s a great question. I’ll turn it over to Andrew since he’s managing the project in FMC. Andrew, please go ahead and discuss the benefits we anticipate.

Yes, thank you, Mike, for the question. SAP serves as the backbone for all our business processes. It functions as our back office platform. We've experienced significant efficiency gains since launching the new system, which enables us to utilize shared service centers instead of a widely scattered workforce. Our shift from the DuPont TSA to our own systems has allowed us to operate at a much lower cost compared to what we were paying DuPont. This year, we’re observing an acceleration in our operations that allows us to run more efficiently and implement headcount reductions ahead of schedule, primarily through attrition, in anticipation of a complete SAP rollout throughout FMC by year-end. The additional $20 million in savings we've captured this year is a concrete benefit that will persist and carry into 2021 and beyond. We are optimistic about reaching the additional savings of $20 million to $40 million, with potential for it to exceed the midpoint of that estimate. Timing will play a role, especially as we implement the next phase of improvements in 2021 with the full company on the SAP platform. We are very confident in our ability to enhance our business processes, including finance, planning, budgeting, procurement, and supply chain management through the enterprise resource planning system. The level of efficiency we anticipate by upgrading to a modern system tailored for agricultural sciences, compared to outdated systems from various industries, is significant. It's also important to note that the efficiencies we gain will not solely come from reducing back office costs; we will also improve our analytical capabilities and visibility in areas like working capital. The current state of our disparate systems limits our ability to achieve the efficiencies we desire. Therefore, we expect the new functionalities and increased visibility from a unified platform to significantly aid our efforts in enhancing working capital efficiency.

And that is all the time we have for the call today. Thank you, and have a good day. This concludes the FMC Corporation conference call. Thank you for attending, and you may now disconnect.