Bioceres Crop Solutions Corp (BIOX) 2021 Q1 法說會逐字稿

Good day, everyone, and welcome to Bioceres Crop First Quarter 2021 -- Bioceres Crop Solutions Corp. Fiscal First Quarter 2021 Conference Call. Today's call is being recorded. (Operator Instructions)

I'd now like to turn the conference over to Mr. Máximo Goya, Investor Relations, who will make some opening remarks and introduce today's other speakers. Please go ahead.

Thank you. Good day, everyone, and thank you for joining us. Presenting during today's earnings call will be Federico Trucco, Bioceres Chief Executive Officer; and Enrique López Lecube, our Chief Financial Officer. Both will be available for the Q&A session.

Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to forward-looking statements section of today's earnings release and presentation as well in our recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Also, please note that for comparison purposes and a better understanding of our company's underlying performance, in addition to discussing our reported results during our presentation today, we will discuss comparable results, which exclude the impact of hyperinflation accounting in Argentina. Additional information in connection with the application of the rule IAS 29 can be found in our earnings report.

I would now like to turn the call over to our CEO, Federico Trucco.

Thanks, Máx. Although today's call was originally intended to discuss our first quarter financial performance, recent significant developments were on time in today's presentation. As announced earlier today, we are acquiring Arcadia Biosciences full interest in Verdeca LLC, a joint venture we launched in 2012, for the development of second-generation biotechnologies for soybean, including the development of HB4 Soy. In conjunction with the acquisition of Arcadia's interest in Verdeca, we are acquiring rights to Arcadia genome-edited wheat varieties, designed to improve health and shelf life aspects of wheat flours and flour-derived food products as well as other IP assets. Addition of these technologies to our pipeline, together with the recent approval of HB4 Wheat in Argentina, which we will discuss later in this presentation, help position Bioceres as a leader in this biotech orphan, yet incredibly important stable crop.

Finally, Enrique will comment on the strong momentum that our core business maintained, as we enter into the new fiscal year, delivering an 8% growth in comparable revenues and a 30% increase in adjusted EBITDA.

Please turn to Slide 4 for an overview of the various assets we are acquiring. With full ownership in Verdeca, we'll be able to consolidate one of the most important technologies in our pipeline, HB4 Soy. Having full control of HB4 Soy, we'll enhance our ability to initiate, prelim and go-to-market collaborations with partners in new and existing geographies, allowing us to execute our strategy at a faster pace.

Although we'll now have to fully fund the ongoing reading, regulatory and working capital efforts, we believe that the incremental economics resulting from this transaction, ranging between an additional 25% to 42.5% of technology-associated revenues, depending on the go-to-market channel and other third-party obligations, will provide a very attractive return on allocated capital.

On a per hectare basis, the additional revenues may equate to approximately $6, give or take $2.5, a value that is not insignificant over the 21.5 million hectares targeted with HB4 Soy in geographies in which the technology has already been approved by regulators.

Through the deal, we also received exclusive rights to other soybean traits as well as assumed ownership of Verdeca's vetted library of gene-edited soybean materials, which can be used to cost effectively source neutral activity and quality traits.

Beyond soybean, we have negotiated rights to gene-edited wheat varieties that provide health benefits and other quality attributes to further consolidate Bioceres' position in this other important crop, in addition to other minor intellectual property rights.

On Slide 5, we present the wheat technologies being in-licensed for Latin America. While Bioceres' HB4 technology substantially improves growers' yields and provides a range of significant environmental benefits, including increased carbon sequestration and reduced water usage, we are now expanding our portfolio to quality traits which offer tremendous health benefits, including resistant starch and reduced gluten. Resistant starch varieties have 10x the dietary fiber of traditional wheat and thus digest more slowly, preventing the rapid production of blood sugar that normally occurs with wheat-based products, such as pasta, bread and pizza.

Reduced gluten varieties have 65% less gluten, while resulting in flour that is substantially equivalent in taste and performance to conventional flour. For producers and retailers of wheat-derived products, the Oxidative Stability technology we're also in-licensing will enable enhanced product shelf lives. For consumers, having these attributes straight from the farm will help them obtain the quality products they seek with cleaner, shorter product labels, an important consumer trend these days.

It is also important to note that by expanding our portfolio to wheat traits, we will be leveraging Bioceres' investment in identity-preserved production platforms and tracing systems, such as those currently being used for our HB4 program. The data gathered through these platforms will allow consumers to make more informed decisions by understanding the health and environmental aspects underlying the wheat products they buy.

Before moving to the next slide, it is important to know that some wheat technologies being in-licensed are subject to third-party clearance, and therefore, to a clawback provision in our agreement with Arcadia. We will discuss this provision when we look at the total consideration for this transaction on the following slide.

Please turn to Slide 6. So acquiring a full interest in Verdeca and rights to other intellectual property that I have discussed, we are paying a total of $32 million in cash and equity as shown in this slide. Of this amount, $20 million is being paid upfront, comprising $5 million in cash and $15 million in stock at a value of $8 per share. This 1.875 million newly issued shares will lead to a total of 40.6 million shares outstanding, with $8 per share representing a minimum full premium compared to yesterday's closing price.

1/3 of these shares, that is $5 million at the value of a transaction, are pledged in favor of Bioceres and will be released once all clearances regarding third-party rights to the wheat portfolio being in-licensed are achieved. All shares will be locked up for a 6-month period. The remaining $12 million in cash will be paid post closing and are conditioned on regulatory milestones and HB4 Soy penetration levels. More specifically, $2 million will be paid upon achieving import approval in China or reaching 200,000 hectares of HB4 Soy in a single growing season. The remaining $10 million will be deducted from commercial royalties paid to Verdeca from HB4 Soy sales, of which 6% will go to Arcadia until the $10 million consideration is met.

These numbers do not include $1 million of fees and other transaction-related costs that we will reimburse Arcadia and non-Verdeca royalties that may be paid once non-soy intellectual property is commercialized.

Please move to Slide 7. Last month was particularly important in our company's history as we achieved the nonregulated approval for HB4 Wheat in Argentina, a technology we've been developing with French partner, Florimond Desprez, for more than 8 years.

Argentina is Latin America's most important wheat producer, accounting for roughly 70% of the wheat produced in the region and 3% to 4% of the world's production. Today, the drought-tolerant HB4 wheat is also the only genetically modified wheat to be approved and on a commercial path to market anywhere in the world, which represents a major milestone in wheat's global value chain, generating significant media backlash around the globe.

If you turn to Slide 8, you will see that until now, wheat was an orphan crop in the sphere of biotechnology despite being planted in 200 million hectares globally, the highest organic growth. By comparison, corn with 10% less hectares planted than wheat has 44 biotechnology events approved, while soybean and rice have 24 and 9 approved events each. These comparisons make clear that the approval of HB4 wheat is the beginning of a monumental, but achievable quest to modernize and transform wheat production around the world for the benefit of both consumers and growers alike.

For growers, our HB4 wheat increases yields by an average of 20% during growing seasons impacted by droughts, which is increasingly frequent across the world and thus, increasingly threatening our food supplies. Suffice it to say, HB4's economic as well as human benefits are clear and indisputable and are based on over 10 years of field validation.

For consumers, our HB4 technology helps mitigate climate change by facilitating double cropping, which seasonally rotates wheat and soybean, an environmentally friendlier growing system that is otherwise limited by water availability. When combined with soil-regenerative practices, an evergreen cropping system made possible by HB4 captures more carbon than conventional growing practices. I will quantify the current sequestration benefit for you.

For each hectare farm per year, the resulting sequestration is equivalent to 6 months of carbon emitted by a city automotive. The other major environmental benefits are reduced water consumption and higher crop yields that reduce the need to expand agriculture sequestration footprint, particularly with regard to rainforest as well as marginal and fragile ecosystems.

Of course, some market participants have expressed important concerns as to the potential disruption this technology may signify for the conventional wheat value chain. To address these concerns around wheat global trade, we have adopted the general principles shown in the next slide. So please turn to Slide 9.

There are 5 primary conditions the company is pursuing to launch HB4 Wheat in a given country once regulatory clearance is achieved. These include: satisfying the requirements of the resolution granting regulatory approval. For instance, in the case of Argentina's approval, we will need to obtain import approval in Brazil before a commercial launch may be initiated in Argentina. Brazil is Argentina's most important wheat importer; import approval in the geography where our regulatory system exists and which represents at least 5% of the total wheat exports from the country where we want to launch, based on a 5-year moving average. That's the second condition; thirdly, the availability of a low-cost production method with a 1% sensitivity level. This has already been achieved for all geographies; fourth, the existence of a value capture system and an identity-preserved channel that ensures IP protection as well as minimizes disruption to conventional channels, while adoption is initiated and at a single-digit market share; and lastly, the existence of an outreach and education program in the country of interest for growers and consumers.

Please turn to Slide 10 for an overview of our go-to-market road map. For our go-to-market road map, we have prioritized our target countries chronologically for regulatory approval of HB4 Wheat. In total, we are targeting at this stage about 1/3 of the global hectarage dedicated to wheat, and in 3 phases. In the next 2 years, we're pursuing approvals and launches in Argentina, Uruguay, Paraguay and Brazil, representing 9.4 million hectares or close to 13% of our initial addressable market.

Immediately following, we expect to launch in South Africa and Bolivia as well as the United States, where we have already applied for food and feed approval. These markets allow us to move from 9.6 million hectares to 25.3 million hectares and represent about 35% of our targeted markets.

Starting today, that anticipating a longer process, we will pursue launches in Australia, Canada and Russia. Along with the previously mentioned countries, these geographies represent 72.5 million hectares, 1/3 of all hectares planted with wheat in the world on an annual basis.

Please turn to Slide 11. Argentina's regulatory clearance of HB4 wheat eliminates significant operating challenges for us and will lower the cost of working with growers to multiply related wheat varieties and building up seed inventories ahead of our phased commercial launches across the world in the coming years. In effect, we are now able to transition to thousands to hundred of thousands of hectares in our next wheat cycle.

As you can see on this slide, our ramping up of HB4 Wheat inventories will expand from less than 7,000 hectares in the current cycle to more than 60,000 hectares in the next cycle. And if Brazil import approval is granted in time, it would be twice that number of hectares.

It is important to note that this process will continue to be assured by robust growing systems, which along with identity preservation and traceability, are still of paramount importance to us. Accordingly, we continue working to enhance the state-of-the-art digital farming tools that are an integral part of our HB4 program for wheat and soybean.

In addition to generating extensive and detailed data sets for each product on the field that is monitored, we are applying and leveraging data science and blockchain technology to other areas of the value chain, such as storage, logistics and processing in order to guarantee complete farm to full traceability.

As those of you who follow our company now, our HB4 program for wheat and soy entails a formal agreement with growers to whom we contribute goods, agricultural inputs, which comprised Bioceres' seed germplasms and drought-tolerant traits, customized microbial solutions as well as our next-gen crop protection and nutrition technologies. In the aggregate, the combination of these technologies and our HB4 Wheat program deliver a solution that not only enhances the activity, but optimizes water resources, increases carbon sequestration and reduces the use of agricultural chemicals. The value of these contributed goods for our HB4 program with growers will be recognized as revenues once the realized inventories are sold, a seed or grain, but not longer contributed.

Near the bottom of this slide are the estimated metrics that we will be using to account for and track the underlying economic performance of our HB4 Wheat program, ahead of reporting HB4 revenues and related accounting measures. By publishing the level of contributed goods, the investment community can also use this information to better follow our process.

For the next ramping-up phases, we estimate that the HB4 approval implies an economic impact of $4 million to $15 million in additional revenues for contributed goods for fiscal year 2021, depending on Brazil approval. We will be using the same accounting for HB4 Soy program in the upcoming quarters, which is currently progressing as discussed during our last earnings call.

Please turn to Slide 12. Before turning the call over to Enrique for an overview of the quarter's financial performance, I would like to close my presentation with a slide that shows a field in corner, which received almost no rainfall during the winter season. The right half of the image captures wheat grown with Bioceres' HB4 Wheat and illustrates the full potential of our drought-tolerant wheat trait.

That concludes my portion of the presentation. I'll now turn the call over to Enrique with a review of our first quarter results.

Thank you, Federico. Please turn to Slide 13. We are glad to report that the significant milestones and developments at Bioceres, like the regulatory approval of HB4 Wheat in Argentina and the acquisition of strategically relevant assets and licenses from Arcadia, were also matched by the growth momentum we maintained in sales and profitability of our core business, as we enter the new fiscal year.

Provide context and for comparison purposes, let me remind you of the seasonal nature of our business. Since the performance of a significant portion of our current portfolio is tied to planting activities for roadblocks. As you can see in this slide, high season begins late in our first fiscal quarter, with our strongest performance taking place in the second quarter and the lowest sales level occurring in the third.

Our top line during the quarter ended September 30, grew 8% year-over-year on a comparable basis to $42.2 million, which implies a 9% CAGR for the Q1 over the last 2 years. This level of growth signals a good start of the system and confirms the growth trend of our sales even without benefiting from HB4 revenues, the main catalyst for our next phase of growth.

Furthermore, since the beginning of our current fiscal year in July, we have seen soybean and corn prices trade up significantly, predicting an increase in farmers' profitability across markets where we operate commercially.

As we have learned from past experience, enhanced profits for farmers usually comes hand-to-hand with appetite for technology and premium products. So we will keep a close eye on commodity price behavior and how that can provide an additional benefit for our business going forward.

Let's please turn to Slide 14 for a closer look at what drove sales and profitability during the quarter. As you can see, Crop Protection and Seed & Integrated Products contributed to the quarter's 8% revenue growth versus Q1 of the prior year, while sales in Crop Nutrition declined. Crop Protection maintained its growth momentum in the quarter, with revenue increasing $2.1 million or 11% to $21.8 million, consistent with our expansion strategies for Brazil and Uruguay.

At the product category level, this segment's main driver was adjuvant volumes, which increased 40% and 50% in Brazil and Uruguay, respectively. Adjuvant volumes also grew in Argentina during the quarter, increasing nearly 30% year-over-year. As a point of reference, regarding the magnitude of our commercial footprint for this product category, our adjuvants reached over 13 million hectares farmland.

Growth driven by adjuvants was partially offset by lower B2B sales of seed treatment insecticides and fungicides in Argentina compared to strong sales of these products in the first quarter of last year.

Sales in our Seed & Integrated Products segment rose significantly by $3.1 million, which represented a 57% year-over-year increase, reaching a total of $8.6 million for the quarter. Growth in this segment was mainly due to a 69% increase in sales volumes of seed treatment packs, which accounted for 85% of this segment's revenue.

Our ready-to-use crop solutions for on-pharmacy treatment reached 2.2 million hectares during this quarter. This performance was on the heels of strong fourth quarter of sales of packs in Argentina. We had executed a highly successful presale campaign, ahead of the summer crop season. As you note here that some of the year-over-year growth was due to weaker revenues in last year's quarter when Argentine growers have delayed purchases of seed treatment packs.

As I noted before, Crop Nutrition offset the growth achieved in the other business segments. Lower sales of microbial fertilizers in Argentina and the declining inoculant sales in Brazil led to a 15% decrease in the segment's revenue year-over-year, which totaled $11.9 million.

In the (inaudible) in certain parts of Argentina caused growers to delay purchases of our fertilizers ahead of planting, with volume declining 10% compared to last year's quarter, which, by the way, was a strong one. Anticipatory purchases by growers that drove double-digit growth in the fourth quarter of the prior fiscal year also impacted our first quarter volumes. Still, we were able to maintain capacity utilization of our fertilizer plant, unchanged sequentially on a 12-month basis at 30%, and we remain optimistic about the evolution of this product moving forward.

Inoculant volumes also declined, mainly due to strong sales of this product in Brazil during the fourth quarter of the prior fiscal year. Hectares-wise, our inoculants reached 4.1 million hectares during this quarter.

In terms of margins, growth in comparable revenues was achieved profitably as overall gross margins expanded 200 basis points year-over-year from 45.5% to 47.5%. Gross margins in Crop Protection decreased from 40.5% to 38.6% as growth in Brazil was achieved through a greater proportion of B2B adjuvant sales and FX and inflation dynamics in Argentina negatively affected inventory valuation of adjuvants sold during the quarter.

A notable increase in sales of Seed & Integrated Products was achieved with relatively steady margins at 67.7%. And finally, weaker volumes in Crop Nutrition compared to the first quarter of the prior fiscal year were buffered by higher profitability with a margin expansion of 520 basis points from 43.9% to 49.1%.

Please turn to Slide 15 now, to look at how revenues and gross margins per segment contributed to growth of our overall gross profit for the quarter. In line with the gross margin expansion I just described, comparable gross profit increased 13% year-over-year, higher growth rate than our revenue growth, reaching $20 million for the fiscal first quarter. Sales growth in Crop Protection was slightly offset by the gross margin decline, resulting in 5% gross profit growth in the segment, which totaled $8.4 million.

Seed & Integrated Products comparable gross profit increased $2.1 million or 58%, in line with sales growth, reaching $5.8 million for the quarter and becoming the main contributor of gross profit growth.

And lastly, our Crop Nutrition's performance. Gross profit decreased 5% to $5.8 million as the decline in sales was positively offset by higher gross margins in fertilizers.

Please turn to Slide 16, which breaks down the growth in Bioceres' first quarter adjusted EBITDA, which increased 30% to $10.5 million on higher revenues and an increase in our EBITDA margin. The margin expanded to 146 basis points mostly due to a total increase of $3.2 million related to gross profit, which was mostly driven by significant profitable growth in seed treatment packs that I highlighted.

As regards to the SG&A expenses, these were flat as a percentage of sales. On a nominal basis, SG&A increased nearly 16% in the quarter due to an unfavorable FX and inflation dynamics in Argentina, where most of our administrative functions are located. Expenses incurred in this country are largely denominated in local currency, and therefore, exposed to fluctuations related to FX and inflation adjustments.

Finally, let's please turn to Slide 17 for an update on our financial position. Bioceres' debt profile has improved considerably since last year, with long-term debt accounting for 62% of total debt versus 33% at the end of first quarter of fiscal 2020. Also following the $17 million public offering of Rizobacter bonds earlier in the quarter, our cash position strengthened further.

At the end of September, cash and short-term investments stood at $60 million, nearly 5x the level at the end of first quarter of the previous year. From a liquidity standpoint, that cash represented around 97% of the current portion of our debt. In terms of leverage, this ticked down to 2.12x net debt-to-EBITDA despite a year-over-year increase in net debt, as we generated significantly higher levels of EBITDA.

In addition to the strength of Bioceres' core business, our solid balance sheet and liquidity position are serving as a strong foundation for executing our HB4 Wheat and Soy strategy. A way of example, we are now in a position to fund working capital requirements for the accelerated inventory buildup process in both wheat and soy that Federico has discussed as well as fund the expansion of our global regulatory footprint in wheat and the advancement of our breeding programs.

Our strong financial position has also allowed us to regain full control of HB4 Soy and given us access to cutting-edge wheat technologies that reinforce our leading position in this crop. This not only provides an attractive ROI for the company, but also has the potential of being highly accretive for our shareholders, as we advance HB4 wheat and Soy.

This concludes our presentation for today. And with that, I will ask the operator to open up the line for any questions that participants in today's call might have.

(Operator Instructions)

And your first question comes from Sally Yanchus with Brookline.

Federico and Enrique, congratulations. Good quarter. I have a question on -- in the income statement. What's the reason for the high finance cost? It's like $12.7 million. What's the source of that?

Sally, thanks for joining today's call. With regards to your question, keep in mind that we usually separate noncash expenses that are more related to inflation and FX adjustments and to accounting adjustments from our cash financial expenses.

So if you look at the cash financial expenses, you will see that we were below what we spent last year. That will be around $3.9 million. So we have not only improved our cash generation by lowering financial expenses, but also we are spending less cash and interest expenses with higher debt. So -- but you need to keep in mind that we separate cash financial expenses from noncash financial expenses that are related to FX and inflation adjustments.

Okay. So do you expect levels along that level for the next couple of quarters for the finance costs?

Yes. So if you take a look at the press release that we issued, Sally, you will see that the cash financial expenses for the quarter were at $3.9 million compared with $4.5 million from the prior year's quarter. So again, with significantly higher debt, we are spending less on interest expenses. And obviously, moving forward, we believe that our interest expenses today are in line with what we should be expensing, if we keep the same net debt levels.

Okay. And then as far as the acquisition of the rest of the Verdeca JV, have you paid any cash yet for that?

Yes. So the -- for the acquisition of Verdeca, there is $5 million upfront payment. That is the consideration -- the cash consideration that gets paid at the closing of the transaction, and that goes out immediately.

And then there are additional considerations in cash for $3 million, of which 2 are guide to performance of HB4 Soy. And there is a $1 million reimbursement of expenses. That is all cash consideration, that -- but the $2 million of HB4 Soy-related payments and the $1 million reimbursement of expenses will be done post closing, while the $5 million are upfront payments.

(Operator Instructions)

And your next question comes from Ben Klieve from National Securities.

I've got a few here. So first question on working capital build. And Federico, I apologize, I missed a few minutes at the beginning of your prepared remarks. So if you addressed this, I'm sorry. But I'm going to ask about the working capital build here and how that changes now. So with Arcadia no longer in the picture on the HB4 Soy product, from a working capital build perspective, what does this do to your -- to the cash outlay here that you're expecting over the next fiscal year or potentially 2 fiscal years? If you can elaborate on that, that would be great.

Ben, it's great to hear from you. That is a very important point because, obviously, as we assume in control of Verdeca, that also means we need to source the full working capital level. I think that this transaction is one that we decided to do where we saw the ability of the company to source local debt in Argentina in very consistent terms. So we're also announcing today our other issuance of public bonds at 0 interest over the next 3 years.

And so that, in a way, give us the confidence that we could take the full note and also, in exchange for that, receive the full economics of this technology that we now own entirely.

I don't know, Enrique, if you want to comment more on the working capital consideration for the -- related to the acquisition.

Yes. I believe, Federico, your answer was -- is pretty much -- pleasure to have you on the call and talking it about you. So Federico mentioned, this implies that we will need to take care of the full burden of the working capital piece. The only thing that I might add that from a working capital perspective, this is an investment that has a crop cycle. So this is regardless of the fact that it is an investment in capital, it's only for the period of the crop cycle.

So within our business, for most of its products, recovers pretty much all of the cash that we invest in working capital by the time that harvests come. So that's probably the only piece. So we expect that we will be able -- regardless of the $3 million -- the 3-year corporate bond that we issued during the quarter. We believe that there's further working capital sources -- short-term working capital sources that can be used to fund a seasonal investment.

Got it. Okay. I'd like to turn it over to HB4 Wheat. So you talked a lot about kind of the economic and environmental benefits of the products, which I think are clear. But my question here is, while those benefits, I think, are clear, what is really being done to really drive demand for the product more downstream? Farmers -- are farmers comfortable at this point buying the product once -- once you have the import approval from Brazil, are those -- are your farmers comfortable putting this product in the ground? Or do they need more visibility that they're -- that there's going to ultimately be demand from processors and consumer goods companies for the product? And if there is still hesitation from those farmers, what are you guys doing to drive that demand?

So Ben, thanks for that question. I think this is a very important point. From a farmer's perspective, they're eager. I mean they're waiting in line, if you will, to have access to the technology. So farmers are pro technology, in general, and they're eager to adopt solutions that will help them improve productivity. So we have to be the more cautious party in that relationship because we don't want them to face commercial problems after they plant a crop. And for that reason is that we went into great efforts into building a commercial channel that can basically take HB4-derived wheat products to consumers without disrupting the existing channels.

So for that purpose, what we are doing is identifying millers that are willing participants of this new story around environment preservation and sort of an improved water and carbon footprint and are using these to differentiate an otherwise difficult to differentiate space. If you look at flours and flour-derived products, there's little differentiation from this perspective. And that is something that good processors, I think, are starting to understand and willing to participate.

Now this has to be done in an identity-preserved manner, where we can keep this channel isolated to some extent from the conventional channel, at least initially. If we go above the double-digit mark from a market share or market penetration perspective, I think this will become less of a concern. But initially, that's the way we're operating. And so far, I think we're really encouraged by what we see.

And can I ask you a clarifying question? When you say you're identifying partners, are these going to be -- where in the supply chain are you targeting and seeing traction? Is this -- you mentioned processors, but are you also seeing the final consumer goods companies, considering this or somewhere else in the supply chain? I mean where specifically once the farmer sell the crop are you building partnerships and building advocacy for this?

The main partners today are the leaders. Remember, there are geographies in which there are no mandatory labeling. So this can go through a generic channel without differentiation. Obviously, we want to differentiate this on purpose because we believe this is actually better than normally produced wheat because of the carbon sequestration implications of HB4.

And that is something we're doing with a very small group of leaders under the HB4 brand. So that this particular group of consumers that are pro science and concerned about climate change can use their purchasing power to, in a way, help us visualize this demand.

Now what I'm saying still remains to be seen. I mean this is kind of the open question, if you will, around genetically modified wheat. But it's one that, I believe, is exciting and that we are leading with a message that is, in a way, restricted to the science around the technology, but understanding sort of the emotional elements that play in the consumer's decision.

Perfect. Got it. Very good. Last question I have for you, and I'll get back in queue here. Is it -- hoping you can comment just kind of on general growing conditions. Now you talked about the drought that's pervasive throughout your area. What does the current growing condition really kind of imply for the second quarter here and maybe into the third quarter? Are you expecting any material shift, one way or another, on your chemistry or your fertilizer business, given how expansive drought conditions are right now?

Look, the site conditions that affected us to some extent in the first quarter have by now more or less normalized. So we are not seeing significant delays in the current quarter.

I don't know, Enrique, if you have additional information in terms of what we expect.

Yes. Sure, Federico. So Ben, as we stated over the call, at the beginning of the season, there were a couple of tough months in Argentina. Russia, I think, that went to a smoother beginning of the season. But in Argentina, there were a couple of tough months. And that normalized a couple of weeks ago with rainfall that helped crops. So as of today, moisture conditions are looking good, but rainfall during this spring Argentina needs to maintain.

So the other important fact here for me is obviously commodities prices that have trended up. And so to us, performance, profitability (inaudible) this making a lot of sense now. So if we have a normal season during the next couple of months, they should have profitability for farmers in Argentina and Brazil.

(Operator Instructions)

At this time, there are no further questions. I'd like to hand the call back over to Federico Trucco for some closing remarks.

Thank you. I would like to close the call with perhaps a personal reflection. My first relevant transaction as CEO of Bioceres back in 2011, 2012 was the agreement with Arcadia Biosciences for the constitution and financing of Verdeca. At that time, Bioceres could barely pay the due diligence and legal costs associated with the transaction. HB4 was a technology promise. Our ability to deregulate a GMO event was disputable, and the overall investment requirement to transform this promise into a commercially approved product was estimated at over $100 million by industry experts. To be able to say that we have successfully overcome these initial difficulties and are today regaining full control, not only on HB4 Soy, but also on other very attractive earlier-stage technologies and technology platforms within Verdeca's portfolio, fills me with enormous pride.

I would like to thank Arcadia for the trust in us back in 2012 and for helping us advance Verdeca's pipeline to its current state. We also take this opportunity to welcome Arcadia as new shareholder of our company.

Thank you for joining our call today. As always, we appreciate your interest in Bioceres. We look forward to meeting more of you in person in the future and to updating you on our progress during our next earnings call. In the meantime, please do not hesitate to contact us with any questions you may have. Please stay safe, and enjoy the rest of the day. Thank you.

Thank you for participating. This concludes today's conference call. You may now disconnect.