Bioceres Crop Solutions Corp (BIOX) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Bioceres Crop Solutions Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions)

Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your first speaker for today, Máx Goya, Investor Relations. Please go ahead, Mr. Goya.

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 the forward-looking statements section of today's earnings release and presentation as well as 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 better understanding of our company's underlying performance, in addition to discussing as reported results during our presentation today, we will discuss comparable results, which exclude the impact of hyperinflation accounting in Argentina.

Additional informations 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.

Thank you, Máx. Today's financial and operating results reflect the hard work of our more than 400 collaborators, the commitment of our customers and partners in the 31 countries where our products are sold and the resiliency of our organization and growth strategy. In a year when growers' incomes were under pressure, economic conditions in our key markets had deteriorated and where we witnessed one of the most dramatic disruptions to our lives due to COVID-19, being able to say that we achieved our initial growth and profitability objectives fills me with great pride. We had a strong finish to our fiscal year with comparable revenues growing 46% for the quarter, driving adjusted EBITDA up by 67% in the period. Our fourth quarter performance allowed us to maintain our track record of double-digit annual growth, with revenues rising to $174 million, while adjusted EBITDA increased to $46.5 million. We were able to deliver this performance while significantly strengthening our balance sheet and improving our credit rating. We raised $65 million during the period and reduced our net debt-to-EBITDA ratio from 2.2x to slightly under 2x.

Our recurring cash, cash equivalents and short-term investments mean our HB4 ramp-up program is fully financed. I will like to congratulate our corporate finance team for a terrific year. And I would like to thank the community of financial institutions and investors that have supported our growth plans with a special recognition to Solel Capital Partners.

We are now in a position to advance our HB4 program from thousands of hectares to hundreds of thousands, further validating the value of this technology from key stakeholders. We anticipate that more than 50% of the growth we project in fiscal year 2021 will be derived from the HB4 program. As a reminder, no revenues were recognized from the HB4 program in our fiscal year 2020 results.

Although we maintain a strong focus on execution during the year, we also remained alert to changing market conditions and quickly seized opportunities, such as issuing 0 interest debt and removing the overhang of the stock-derived warrants in a cost-effective way, both of which occurred subsequent to the quarter's end.

Now if you follow me to the next slide, we can discuss the status of our HB4 program in greater depth. Please turn to Slide 4. We successfully harvested our 2020 plantings of 6 EcoSoy varieties with over 50% of the materials, meeting the feed quality standards and performance metrics needed to advance to the next cycle of multiplications.

Although we expected to have more materials available for the next cycle of multiplications, we recognize that parallel tracking of variety validation and multiplication processes may result in fewer materials moving from one cycle to the next. We also believe that the proportion of materials retained will increase in future years as multiplication cycles populate with more extensively validated genetics.

We currently have at least 20,000 hectares reserved for planting during the upcoming season, in which we will include materials ranging from maturity groups 3 to 5, which are the most frequently used maturity groups in Argentina, our initial market.

Now in Slide 5, we discuss the progress with HB4 wheat. Of the 12,000 hectares, we have reserved for planting with EcoWheat varieties, we were able to plan close to 7,000 as severe drought conditions prevented some of our grower partners from initiating multiplications in their respective locations.

We were unable to relocate these hectares due to the extended permitting process that is required for land-related materials. Yet, this final planted area represents a more than 17x increase over our prior year's hectarage. Additionally, the persistent drought conditions even in fields where the crop was successfully planted provided an excellent opportunity to demonstrate the technology's potential as participating growers commented in social media with unprecedented international interest, even within the international scientific community that is dedicated to this field of research. A glimpse of social media news articles covering HP4 wheat is shown in this slide.

Please turn to Slide 6. I would like to take a moment to discuss the successful withdrawal of all our existing warrants, a security that we incorporated into our capital structure after our stock-mediated listing. As recently announced, we removed all 24.2 million outstanding warrants, allowing holders to exchange their warrants for either 0.12 ordinary shares or $0.45 in cash.

More than 90% of the holders accepted to tender their warrants without the need to amend the original offer, with more than 99% of the tendering holders electing to exchange their warrants for ordinary shares, resulting in 2.6 million shares being issued, a 7% increase in the total number of outstanding shares.

The company's warrants had a maximum relative dilution of at least 0.36 shares per warrant, for which those tendering kind were voluntarily removed at 1/3 of their potential maximum dilution to common shareholders. The high acceptance rate of the tender offer allowed the company to immediately amend the warrant agreement post-transaction and redeem all nontendering warrants for less than $1 million in cash, as shown in the chart of Slide 7.

Following the transaction, 1.7 million shares were added to the company's float. This number excludes shares received by our controlling shareholder, which are locked up for a 12-month period. We believe this transaction provides clarity to our capital structure, allows for undivided demand in our common shares and finally improves the liquidity of our float, all of which should positively contribute to shareholder value.

I think this is a good place to leave off. So I'll turn the call over to Enrique, who will provide details on our strong finish to fiscal '20.

Thank you, Federico, and good day, everyone. Please turn to Slide 8, where I will begin with a review of our top line performance. As Federico mentioned, we had a strong finish for the fiscal year as our fourth quarter results continue to validate our strategy to expand internationally. We drove the top line 46% higher, mainly through strong sales of adjuvants in Brazil as well as higher sales of biofungicides, inoculants and seed treatment packs across different regions. Stronger sales of micro-beaded fertilizers in Argentina, where demand levels normalized after a slow activity in the previous quarter, also supported our outstanding commercial execution during Q4.

Our strong performance at the end of the fiscal year contributed to the 17% increase in Bioceres 2020 revenue of $174 million, with higher sales across all 3 business segments. Driving this growth across the year was further penetration of Brazil and Paraguay's adjuvant markets, higher sales of seed treatment packs and inoculants, most notably in South African and France and the ramping up of our micro-beaded fertilizer production as market acceptance of this product continued to grow in Argentina, Paraguay, Uruguay and Bolivia.

For a review of our sales performance by business segment, please turn to Slide 9, starting with Crop Protection. During the quarter, we continued to execute well against our adjuvant growth strategy, with volumes growing over 78%. More specifically, Brazil volumes tripled, while demand of adjuvants in Argentina normalized. Biofungicides were also a growth driver behind the 29% increase in this segment's revenue for the quarter as the category benefited from the increasing adoption of our leading product, Rizoderma, which replaces conventional seed treatment fungicides.

For the year, Crop Protection sales increased 13% to $94 million, mostly due to 125% increase in adjuvant volumes in Brazil, but also to solid volume growth in Paraguay. In total, adjuvants volumes increased 15%. Despite modest adjuvant demand conditions in Argentina during the third quarter, Argentina was also a contributor to the segment's annual revenue with above-average growth in biofungicides.

Please move to Slide 10 to review the performance of our Seed & Integrated Products segment. The 175% increase in this segment's quarterly revenue was mainly driven by our South Africa business as customers in this market increasingly perceive the added value of an integrated solution that combines inoculants with complementary seed treatment products that are included in our packs.

Seed treatment pack sales also rose in Argentina, where we executed a highly successful pre-season sales campaign for summer crops. The quarter's strong growth drove much of the 32% increase in the segment's annual revenue. Other than the strong performance by our South African subsidiary. Paraguay, Uruguay and Europe also showed higher seed treatment pack sales throughout the year, given the success of our commercial strategy.

Argentina suffered a decline in the fiscal first quarter when economic and weather conditions impacted planting decisions but partially recovered during the remainder of the year.

To review our Crop Nutrition results, let's please turn to Slide 11. As we explained during our third quarter call, Argentine growers have postponed advanced purchases of our micro-beaded fertilizers due to uncertainty about COVID-19. However, as these concerns subsides and weather conditions partially improve, buying of the winter crop's planting season finally materialized. Also driving the segment's revenue for the quarter was B2B in inoculant sales in Brazil, where we further expanded in the industrial seed treatment market.

These 2 factors led to a 46% increase in Crop Nutrition sales during the fourth quarter.

Now looking at the full fiscal year, in response to higher demand for our micro-beaded fertilizers in Argentina, Paraguay, Uruguay and Bolivia, we continued ramping up production, finishing 2020 with a utilization rate of over 30% versus 22% at the year-end 2019. This drove much of the year's 18% revenue growth. I will now discuss profitability, starting with gross profits and margins on Slide 12.

For the quarter, gross profit grows across all 3 segments, increasing 51% as a result of the higher revenues and 138 basis point expansion in our margin, a greater proportion of Seed & Integrated Products revenues, as I explained about higher seed treatment pack sales, drove the expansion with the margin in this segment, in particular, increasing 337 basis points.

We achieved healthy sales growth in Crop Protection as gross profit grows in line with revenues and a stable margin. And finally, Crop Nutrition's margin contracted 245 basis points in the quarter, as micro-beaded fertilizers comprised a larger portion of the mix compared to inoculants that usually have higher margins.

For the full year, our gross profit rose 13%, slightly below our growth in revenues due to a slight margin decline of 177 basis points, explained by the shift in our product mix and distribution channels. That brings us to adjusted EBITDA, which you will find on Slide 13.

Our sales growth and more profitable revenue mix during the quarter along with significantly lower G&A expenses drove much of the 67% increase in adjusted EBITDA. Operating expenses for the quarter were favorably impacted by inflation and FX dynamics in Argentina, where most of our administrative functions are based as well as reduced travel expenses and professional fees. For the year, the 13% increase in adjusted EBITDA was in line with our profitable sales growth, while our JV's performance improvement partially offset higher operating expenses, which tend to be less pronounced on annual basis with regards to the effect of inflation and FX dynamics in Argentina.

As Federico mentioned earlier, fiscal 2020 was a particularly satisfying year in terms of improving our cash position and strengthening our balance sheet in a complex context.

So let's please turn to Slide 14 for an overview of our financial position. During the quarter, Rizobacter Argentina, our main subsidiary, improved its long-term credit rating and subsequently issued a third corporate bond raising $15 million at an attractive rate of 4.73%. For the year, our total net debt remains fairly stable at $91.9 million, only $0.9 million down from June 2019, but with a much stronger cash position and debt profile.

Long-term debt at the end of the fiscal year accounted for 57% of total debt versus 37% at the end of fiscal 2019. And cash and cash equivalents at $56 million by the end of the year represented 90% of the current portion of our debt.

This financial performance, coupled with our operational performance, significantly lowered our leverage ratio to 1.98x net debt-to-EBITDA, which was both a sequential and year-over-year improvement.

Subsequent to our fiscal year-end, we were able to seize the opportunity of favorable market conditions for corporate debt issuers in Argentina. And last month, we raised another $17 million through a Rizobacter bond that bears 0% interest and matures in August 2023.

With this last bond issuance, our total capital raised since January totaled $82 million, not only improving our cash position substantially, but also extending our debt maturity.

We are very pleased with what has been achieved, and I want to thank the institutions and investors that supported these transactions, for their trust and interest in Bioceres. Although we will continue to work on improving maturity of our debt, the accomplishments we have achieved so far coupled with the successful withdrawal of the warrants from our equities Federico described before, provide a well suited capital structure ahead of our next steps with HB4.

Finally, let's please turn to Slide 15 for a short review of our interest expense. As you can see, the improvement to our debt structure had a significantly positive impact on our financing costs as we were able to better manage our working capital. Cash interest expenses for the quarter were down 56%, which led to a total spending of $17.3 million over the fiscal year, a 25% improvement versus our previous fiscal 2019. This, together with limited CapEx requirements led to improved cash generation.

With that, I will like to thank you for your time and turn it back to Federico.

Thanks, Enrique. Fiscal 2020 was a year that presented many challenges that we successfully navigated, but also opportunities that we were able to capitalize on, demonstrating our agility as much as our resiliency. We are a far stronger company today, and our many accomplishments this year have served to strengthen our confidence in our growth plans.

Looking ahead, we'll continue to consolidate our HB4 soybean breeding program, while actively engaging with our existing licensees and other breeding partners to expand on our genetics offering and accelerate our international HB4 deployment plans, particularly in the United States and Brazil.

As we always emphasize, Bioceres has a well-developed asset base that is the foundation of our near-term growth. We expect to continue to expand production of micro-beaded fertilizers, further expanding Brazil and Paraguay's adjuvant markets as well as further penetrate Europe and South Africa with our integrated seed treatment products. Lastly, we will continue to find new ways to improve our capital efficiency as another way to drive shareholder value.

Operator, please open the call for questions.

(Operator Instructions) Your first question today comes from Ben Klieve from National Securities.

All right. First of all, congratulations on the strong end of the year. And first question for you is regarding the capital structure. The -- congratulations on removing the warrants first of all, but I'm wondering where you stand on removing the kind of higher-interest working capital sources? Have these all been eliminated at this point? Or is there some that are still on the balance sheet?

Thanks for joining the call. Good talking again to you. This is Enrique. So to your question, we have been able now to finance all of the working capital with efficient sources. So again, that is showing, if you will, in the interest expense line of Q4. It doesn't show in the full fiscal year because that started -- that restructuring of working capital sources began a couple of quarters ago, and it was not something that was done throughout the full year. But as of now, we are in a position to finance all of our capital -- working capital needs in an efficient way.

Okay. Perfect. That's -- I appreciate the color there. Couple of questions on the HB4 inventory build. First, Federico, in your prepared remarks, you commented that the fiscal 2020 harvest had kind of 50% plus meet your quality standards. I'm curious for those that did not meet your quality standards, what do you attribute that to? Was that issues with specific growers? Was it in processing? Was it that the genetics just didn't deliver as you expected? I mean what really led to that number being as substantial as it was?

Thanks for joining the call. It's actually a very important question, which I thank you for. Essentially, what we're trying to accomplish here is a parallel process that is often done sequentially in the breeding industry where materials that are well-validated from a genetics performance are then multiplied and scaled up. Here, as we are trying to speed up the process, we're doing both things in parallel. So we are bringing materials to multiplication that are probably not extensively validated. And given sort of the high standards that we have put for the HB4 technology, where we want the technology, not only to deliver higher yields in restricted environments, but also not penalize farmers when things go right, we have decided to eliminate varieties that do not provide these 2 components.

And this first year, as we scale up, there were some materials that did not meet that criteria. So we expect that as we move forward in the breeding program and materials that go from one year to the next have more extensive validation, the number of materials that are discarded is reduced, and we're only multiplying things that we will then fully deploy. But that is one of the reasons why we provided a range of hectares for the upcoming season where we were targeting 60,000 hectares of multiplication. Now in the next soybean season, we are now saying between 20,000 and 60,000, probably towards the lower part of that range. It's just because of that reason of the parallel tracking process and seeing some varieties that we need to discard because they don't fully meet our criteria.

Now when I say this, I'm referring to the background genetics, and I'm not referring to trade performance, which is well validated.

I don't know if that's clear.

Yes, that was very helpful. And I guess as a follow-up then, the -- call it, call it, 20,000 hectares that you are expecting to plant this year.

How many of those -- how much of that acreage is with varieties that are maybe not as well-developed genetically and therefore, have kind of risk in the extent to which you can build inventory for the following year versus varieties that you feel very comfortable and can be harvested and multiplied at the, kind of, maximum level?

Okay. That's also an excellent question, Ben. And I think there's a slide where we try to show that. So of the 5 materials we are scaling up this year, there are 2 that are coming from last year and were validated and performed as we expected. So there, the risk of sort of not continuing is very, very low, if not negligible. There are other 2 materials that were also used last year, but where we restricted them to areas where drought is almost a certainty because we have doubts about their ability to continue. And that's sort of what we might have at risk. So I would say if last year, going into our multiplication process, 100% of the materials were not tested fully as we would like, this year, it'll be only 50% of the materials in that space. And obviously, there is a new variety that we're bringing from the up season production site in the U.S. that comes from a second-generation of breeding, in which we have very high expectations.

So every year, the sort of the risk of discontinuing materials as we scale up should be reduced by 50%.

Our next question comes from Sally Yanchus from Brookline Capital Markets.

Enrique and Federico, congratulations on a strong quarter, very good to see. I'm wondering, you -- so you plan to launch -- you'll start selling the HB4, the EcoSoy seeds this fiscal year 2021. Do you know what quarter we should start to expect to see the initial sales?

Thanks for joining, and thank you for your comments. So what you will see in this fiscal year is basically what we contribute to farmers that are multiplying seed for us. So these might not booked 100% of sales from a revenue recognition perspective, but these are implicit ag inputs that we use in -- as prepayment for services that partners provide.

So if these ag input seed were to be booked as sales, you would see that coming up in the next quarter for soybeans, towards the second quarter perhaps and then for wheat towards the end of the fiscal year. I don't know if Enrique wants to add additional color there.

No, no, that's right. Sally, as Federico just mentioned, these were booked. This would be in the second quarter for soybeans and the third and fourth quarter for wheat.

Okay. All right. That's helpful. And then I just wanted to check, earlier in the year. I just wonder, what's the status of China in their ability to import products grown with like EcoSoy seeds.

Is there still an issue with them not being able to either buy exports of soybeans grown with EcoSoy or the seeds themselves? What's the status of that?

So Sally, thanks for the question. Obviously, China, it's a key market. And what we reported in the last quarter was that they were initiating the field trials that the government does independently of the company. We expect those results to be in the regulators by the end of the summer season in the Northern Hemisphere and a decision soon after that. Obviously, we have hopes that, that will come this year. And so that we are fully enable on soybeans. We are not anticipating -- for the process that we just indicated, this is not necessary. Obviously, we expect the feed and food clearance to be in place for the following season, not the upcoming one, but the following one, and fully by the end of this year.

Okay. So you said they're initiating their field trials. So does this mean they're actually growing some of these seeds in China, in fields in China?

Yes. So the Chinese regulatory process is different from what is done in other countries. The regulators themselves generate independent data. For that, they need to grow HB4 soybeans. That has already been initiated. The plantings occurred earlier in the year. The results will be in by the end of the summer season.

(Operator Instructions) And gentlemen, as I have no further questions in queue, I'll turn the call back for any closing remarks.

Okay. Well, thanks, everyone, for joining. As I indicated before, we're quite pleased with the results of fiscal year 2020. And we look forward to solid results in the upcoming fiscal year as HB4 becomes a reality that's been in the making with a lot of effort and dedication for the last almost, I should say, 10 years. So this is not a spontaneous process, as everyone knows, but one that today, puts us in a unique position, I believe. So I hope you have a great day and that you're all staying safe in these challenging times.

With no further comments, I think we're finishing the call.

Ladies and gentlemen, this does conclude today's conference call. Thank you once more for participating. You may now disconnect.