Bioceres Crop Solutions Corp (BIOX) 2022 Q3 法說會逐字稿

Hello, everyone, and welcome to today's Bioceres Crop Solutions Fiscal Third Third Quarter 2020 Financial Results Conference Call. My name is Emma, and I'll be coordinating your call today. [Operator Instructions] I'll now pass the call over to -- over to Rodrigo Krause.

Good morning, everyone, and thank you for joining us. Presenting during today's call will be Federico Trucco, our Chief Executive Officer; and Enrique Lopez Lecube, our Chief Financial Officer.

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 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 and in addition to discussing as reported results, which exclude the impact of hyperinflation accounting in Argentina, additional information in connection with the application in our earnings report. Finally, this conference call is being webcast. The webcast link is available.

At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.

Thank you [Technical Issues] for joining us today. Please turn to Slide 3 for a quick overview of the quarter's main. Third fiscal quarter has been historically our weakest and less, importantly because it overlaps with the Latin American summer. The third quarter of fiscal year 2022, which we are currently reporting, this is not only because of the great momentum we continue to observe in our sales with revenues increasing 72% on a comparable basis, but also and significantly due to the business development and regulatory milestones that were achieved during the period and subsequently thereafter.

As we announced in March, we are pursuing a transformational merger in the ag biological space. And recently, in April, we have received the long-awaited regulatory green light from China that allows us to move HB4 soy into its commercialization phase. With regards to the MBI merger, we were able to file F-4 documents with the SEC this quarter closing in fiscal 2023, that is between July and September of this year. In terms of HB4 soy, we are today providing guidance for fiscal year '25, where we expect HB4 soy to contribute between USD20 million and USD25 million of incremental EBITDA. We expect this contribution only after 2 prior commercial seasons in Latin America, as we will describe in more detail in a few minutes.

Outside from these important milestones, we are taking advantage of commercial agreements for HB4 wheat within Latin America and expand outside of the region. Among this, our wheat with subsidiary, Trigall Genetics, has reached a preliminary understanding with S&W Seeds of Australia to acquire a majority of its wheat breeding program and assets. This agreement is reached a in Australia regarding the use of HB4 wheat in food and feed. We'll discuss this and other [Indiscernible]

Please now turn to Slide 4 for a deeper discussion on our current HB4 soy highlights. The Chinese approval for HB4 for soy does 2 immediate things. First, it allows for unrestricted commercialization of HB4 Soy in Argentina, our most immediate market; and secondly, it releases our third-party licensees from contractual restrictions to initiate launch activities in multiple geographies. We estimate an addressable market of approximately 35 million hectares for HB4 soy in the U.S., Brazil and Argentina, just to focus on the most important production geographies currently enabled.

We believe that given the status of our pipeline and that of our licensees, we can achieve a 15% penetration of this opportunity in Argentina, 4% in Brazil, and have an initial 60,000 hectares farmed in the U.S. during the 2024-'25 crop season. All combined, we estimate an incremental EBITDA contribution of 20% to 25% of this EBITDA and associated revenues resulting from our proprietary channels.

Please turn to Slide 5. It is expected to be launched during the next 3 years and how many of these varieties are being developed by us compared to between 100,000 and 300,000 hectares on an annual basis once introduced. So not probably on year 1, but most likely as of year 2 and forward.

Finally, on HB4 Soy and turning to Slide 6. We are 52% done in harvesting the current season and expect close to 70% of the resulting inventories to meet initial seed quality. Standard inventories will be commercialized as grain. We'll continue to pursue approvals in significant export markets and countries accounting for 75% of the soybean trade out of the Americas by fiscal year '24.

Please turn now to Slide 7 for an overview of some major developments regarding HB4 wheat. Current conflict in the Ukraine-Russia region is significantly affecting the global wheat market. To increase interest in wheat breeding and production solutions, we are today benefiting from our unique technology offering for this crop. As I indicated at the beginning, Trigall Genetics has reached a preliminary understanding with S&W Seeds of Australia to create a joint Technical Issues assets that S&W bought from Corteva AgriSciences back in 2019, and further developed Technical Issues will be majority owned by Trigall Genetics, our joint venture with Florimond Desprez.

We have also reached a collaboration agreement with the African Agricultural Technology Foundation based in Kenya. We'll be initially testing HB4performance in selective environment and initiate trade in progression into locally adapted materials. To existing approvals for the use of HB4 wheat in Argentina and Brazil, we have added regulatory clearances or positive recommendations in Colombia, Australia, and New Zealand, and expect several other positive regulatory news in the coming months and into next year.

Regarding the opportunity for HB4 wheat in Australia by acquiring S&W wheat assets in this country. To put this into perspective, Australia is a bigger wheat market than Latin America today. It is a production area that is often and severely affected by drought events, and it has established an efficient endpoint royalty system that facilitates collections and quick technology adoption. All these factors make it a very logical next step in our internationalization process.

For a brief update on the status of the HB4 wheat program in Latin America, please now turn to the next slide. Wheat planting in Argentina will start in the next few weeks, and we are estimating HB4 program sales of between $10 million to $12 million in the current season. We have a little over 100,000 tonnes of wheat still in inventory, and we have already recovered over $4 million of working capital. When we do this, we operate with selected processors under our identity preserve scheme to minimize interference with conventional wheat commercial channels.

Today, we are operating with 12 different processors with aggregated capacity of close to 700,000 tonnes, and inventories or grain processing needs that may result from the harvest of this next crop. Since the approval of HB4 wheat in Argentina, 120 optical testing devices were at points of grain delivery. In total, over 4 million tonnes were tested. Despite some anecdotal false positives, no formal complaints or corroborated positive detections have been communicated to us as of today. We continue to pursue regulatory clearances in important with export destinations as we further internationalize this very exciting opportunity.

Finally, on my part and before turning the call over to Enrique, please turn to Slide 10 for an introduction with MBI. As I indicated before, we have filed F-4 documents with the SEC this past Monday, and we expect the SEC review to take between 6 to 8 weeks. With SEC approval, we will then have 4 to 5 weeks before the NBM formally approved. This gives us today between 10 to 13 weeks before closing. And this is consistent with our prior expectations on this matter.

Let me now pass the call over to Enrique to go over the numbers for our third fiscal quarter.

Thank you for joining us today. Please turn to Slide 11 to get started with the financial review of the quarter. Following with our latest top line performance, we saw another very strong quarter for sales, 2% year-over-year, reaching $60.1 million, a record high third quarter revenue number for us. It was not so long ago, probably 2 years or less than a $60 million quarter only to claim quarter like this one. Growth was driven by higher sales across all product categories of the Crop Protection segment, combined with continued momentum in our Micro-beaded fertilizers business. I will provide more detail that this great quarterly performance continued to build on top of what we had accomplished in the first half of our fiscal 2022. Year-to-date revenues increased versus the year ago period and LTM revenues, a 63% increase compared to the LTM metric from the third quarter of fiscal 2021. No doubt on outstanding performance of our business up to this point.

Let's please move on to the next slide, margins and the impact of IAS29 on reported revenues. The Crop Protection segment was the biggest [Indiscernible] -- sorry, a $19.4 million increase, but comparable revenue for the segment to $35.8 million. We saw higher third-party product sales in Argentina, America, as many farmers decided to purchase adjuvants in advance to ensure availability in light of the current global supply ingredients out of China have driven crop protection prices higher, creating a positive environment for our sales teams in this segment.

Crop Nutrition also had a solid performance with revenues increasing by $5.7 million to $20.8 million, a 38% growth rate. As I mentioned, micro-beaded fertilizers continued to push sales higher due to positive market conditions. Competing commodity fertilizers, MAP and DAP continue high uncertainty around supply in the agricultural markets, which stimulated demand of our products and further enhanced the value propensity by increasing prices at a slower pace than commodity phosphate in anticipation of MAP and DAP prices turning lower at some point given that we are currently seeing [Technical Issues].

The Seed Integrated Product segment remained stable with overall comparable revenues at $3.5 million for the quarter. Seed treatment packs sales increased in Argentina and Europe, but this growth was offset by lower seed sales in Argentina due to delayed wheat planting decisions by farmers. Variances in comparable gross margins rather than by a shift in profitability of the different product categories, which remained fairly stable as sales grew. Crop Protection decreased from 37.7% to 35.9% as growth in sales of lower-margin seed protection and third-party products outpaced growth in adjuvants during the quarter. Seed and integrated products rose by 130 basis points to 52.2% on higher contribution of seed treatment packs to the mix. And finally, Crop Nutrition fell slightly from 53.2% to 51.6% given the higher growth contribution of micro-beaded, which have lower margin than inoculants.

To summarize, growth in sales was achieved on stable margins, which is -- please turn to the next slide. It is important to note that IAS29 adjustments have become increasingly material over the last few quarters as the inflation rate in Argentina outpaced the financial statements of the operating subsidiaries of the country that are then consolidated into BIOX's financials. For example, while we reported revenues in the third quarter of fiscal 2021, were only $1.2 million higher than comparable revenues, this quarter's cap from IAS29.

Let's now please turn to Slide 13 to review gross profit. Total comparable gross profit grew by 59% year-over-year, reaching $25.4 million, a record high third quarter figure and in line with our top line performance. Crop protection gross profit rose by $6.6 million, reaching $12.8 billion, up 107% year-over-year. Crop nutrition contributed $10.7 million to comparable gross profit. And seed integrated products generated $1.8 million in gross profit, almost the same as last year, contained stable gross margins. The overall comparable gross margin decreased from 45.6% to 42.3% as segments with lower gross margins saw greater expansion, mainly crop protection. While segment mix explains this variance in comparable gross margin, it is important to note that in this particular quarter, IAS29 adjustments heavily affected the reported gross margin figure.

While IAS29 application expanded revenues to have the opposite effect on gross profit, contracting the reported metric by $1.7 million versus the comparable gross profit. Importantly, adjusted EBITDA calculation is based on the reported gross profit figure affected by IAS29. Distortion on financials from the application of IAS29 has become increasingly significant as depreciation of the local currency in Argentina has lacked the monthly inflation rate by 41% over the last 15 months, an unusually long period of time for these 2 variants not to converge.

Please turn to Slide 14 to take a closer look at EBITDA drivers over the quarter. Adjusted EBITDA totaled $4.8 million in the third quarter of fiscal 2022, down from $6.9 million in the year ago quarter. I would like to call your attention to a few concepts worth keeping in mind when considering EBITDA for the quarter as it might not give you the best picture of the underlying performance of the business, which was outstanding in terms of revenues and growth is seasonally slow, which tends to amplify small riding quarters. Furthermore, our portfolio is heavily biased towards planting activities, which many times creates spacing issues by uncoupling expenses from corresponding profits. Particularly in this quarter, freight and haulage expenses were unusually high as we made the decision to anticipate shipment of high-margin products closer to end markets.

Freight expenses this quarter rose $1.6 million, a 165% increase versus last year without the corresponding profits that we expect to materialize in the fourth quarter. Second, as we scale up, HB4 that were much smaller or not even present in the year ago quarter, particularly in the third quarter of the current fiscal year Indiscernible from $0.5 million as sectors managed under the HB4 program rose almost threefold, and we recognize no profit from HB4 wheat that are expected to begin in the fourth quarter.

And lastly, the above-mentioned 41% Indiscernible rate generated 3 negative effects on quarterly EBITDA. One, a $1.7 million IAS29 negative adjustment to IAS29 adjustment to occur in the country where we house our manufacturing and administrative functions. The last 2 together account for $27.8 [Phonetic] million in SG&A increase for the quarter. While these 2 macro values, Argentine effects and inflation normally average out. When they don't, it creates significant headwinds as this particular quarter show to our EBITDA.

Let's please turn to Slide 15 to briefly review our financial position before I turn the call back to Federico. Total debt has been increased -- was $163.7 million, a $3.06 net debt to LTM adjusted EBITDA with $5 million, increasing from $183.4 million in the third quarter of fiscal 2021, which explains higher LTM financial expenses on a relatively stable Technical Issues closing, we announced the conversion of 75% of the outstanding amount of the convertible notes issued in 2019, reducing our short-term debt by approximately $37 million as we prepare for 2 major events, the commercial launch of HB4. Following the recent soy approval in China and progress made in expanding our wheat food products for HB4 wheat and soy that imply a contribution of $35 million to $45 million of additional EBITDA over the next 2 to 3 years that we will build on top. This ends my remarks for today. Federico?

Thanks, Enrique, and I think we can now open up the call, operator, for Q&A.

Thank you. (Operator Instructions) comes from Ben Klieve from Lake Street Capital Markets.

Thanks for taking my questions and congratulations on all the developments here. I have a couple of questions on HB4 for wheat as there's been an awful lot of news here, I think. You mentioned -- you said an acquisition of S&W's wheat varieties. Are you making any cash payments as bringing its wheat assets to the joint venture on a noncash basis?

Hi, Ben, it's great to have you here in the call as always. So, it's a [Technical Issues] for S&W into the new entity as consideration for the assets that we are receiving.

Got it, got it, okay. Thank you. And then my second question on HB4 wheat in Australia is, has there been any work done on developing this kind of under the radar historically? I mean, you've been working on development work prior.

So we've been working under the radar in Australia for some time. We've done this initially with a partner helping us on the regulatory front. And when we decided that to move forward in this particular geography, and that was a joint decision with Florimond that deeply engaged with S&W, which we new acquired the Corteva seed assets -- wheat seed assets work towards this that we are announcing today. It also sort of came together, at the same time we received news from in an approval for HB4 use in feed and food within these 2 countries. So things are coming together. I indicated bigger than Latin America.

That's helpful. Regarding soy, it looks like a lot of progress here. Great to see the inventory. The thing that was the most notable to me though, you talked about expectations here for kind of a modest launch in the U.S. in 2025, which is a little earlier than I would have anticipated. Can you talk about -- can you provide just a bit of context around that? I mean, are you -- is your intention here that you think you will be a seed company selling seed in the U.S. in 2025, even this is going to be the royalty business? Do you have kind of geographies lined up that you're going to launch? Any detail there would be helpful.

So look, we are looking for those capabilities become available for us to develop an organic strategy, most valuable in the U.S., which is kind of the core part, where we expect that technology to deliver significant yield increases. Now as an asset, so what you see there under our proprietary strategy is from existing participants in the U.S. market. So we're not able to disclose today with the product that are locally adaptive so that we can have this earlier opportunity. Now we understand that for us to be able to fully penetrate this market, we need to develop these third-party channels like we are doing in Latin America, I mean, even though initially we take sort of -- we do expect third-party, well-established soybean seed companies to generate royalties term strategy. And in the U.S. that is critical. So we -- the first to market channel, we are incorporating third-party term plasm to be able to do so. And hopefully as we validate the U.S. as a valid market companies doing the work like they are in Argentina and Brazil.

Got it, got it. Very helpful. My last question, and then I'll get back in queue. Now that HB4 is -- it's here. I'm wondering if you can help us a bit with kind of modeling the seasonal of soy, do you expect will be concentrated in your fourth and second fiscal quarters respectively, versus kind of being extended?

Hi, Ben, this is Enrique. Good to be talking to you. Thanks for joining the call. Look, for planting, and while Argentina and Brazil remain to be an important part of the revenue stream and profits of this particular initiative of the company, I think that our fourth quarter will be probably when we recognize the revenues coming from wheat, it might for some of that in the second quarter of our fiscal when we we have the season in Latin America. This will begin to even out when we start getting revenues from the U.S., but I would expect our revenues from HB4 wheat and soy corresponding.

Okay, very good. All right, thank you both for taking my questions. Congratulations again on all the exciting news, and I'll get back in queue.

Thank you, Ben. Our next question today comes from Brian Wright from Roth Capital Partner. Please go ahead, Brian. Your line is open.

Thanks, good morning. Congrats on all the progress. I wanted to just get a sense, did you speak about the revenue basis for the EBITDA for HB4 soy in 2025?

So obviously, the revenue from licensees or royalties coming from third parties will tend to be small because obviously there is no cost of goods or relatively small cost of goods to that revenue compared to the proprietary revenue where we are selling the fully integrated seed product will be operating on the gross margins you've been seeing from the HB4 program already. I will let Enrique complete the answer in terms of what to expect on a per hectare basis, perhaps, which is, I think, probably the best way to model total revenues for fiscal year '25.

Hey, Brian, good to have you. In the presentation, we provided our overview of what we think will be the split. So I think that for what it's worth, a back of the envelope calculation that you can do is that a nonproprietary channel sales would bring probably a third of the revenues than a nonproprietary channel would bring. But as Federico said, with a much higher margin as we are only accounting for royalty. So I think that 1/3 of our revenue for nonproprietary channel versus proprietary channel, it's a good back up.

Great. I just want to make sure I understand that. So 1/3 of if it were proprietary or...

So let me put it in numbers. So if we -- we are pricing a lot of soybeans orders to $35, about $10. Perfect, okay, thank you so much. Thank you. Got it, got it. And then if I could just -- one real quick detailed follow-up. Could you give us the exact percentage on the Trigall ownership for Australia? So obviously, that is still to be finalized, but we will have a controlling interest of 60% on day 1, jointly with Florimond Desprez and the ability to increase that up.

Okay, great. Thank you so much.

Thank you, Brian. [Operator Instructions] Our next question comes from Kemp Dolliver from Brookline Capital Markets. Please go ahead, Kemp. Your line is now open. Hi, Kemp, your line is now open.

First question, just continue with Australia. S&W reports that Australia represents about $24 million in annual revenue, but I'm pretty sure that includes pieces of the business that will not be in the JV. So first question is, can you roughly size the revenue -- incremental revenue coming in from the joint venture?

Sure, Kemp. So thanks for joining the call. Those revenues reported out of Australia are probably mostly from pastures and sorghum and other crops. Weak revenues, if I recall correctly, less than $1 million from their existing operation. So that will give us locally adapted derm class, some which we can breed HB4 right away and have -- that we believe that by fiscal year '25 will likely to be able to launch that commercially in countries. So not meaningful day 1 from a revenue perspective from the conventional business that currently exists.

Super. Thank you. And you've made a couple of important moves in the last few months that expand your footprint for essentially distribution and marketing purposes. Are there any other markets of consequence enter in similar fashion?

Look, obviously, Australia is -- from a wheat perspective is a very logical next step for us in terms of business opportunity for wheat in the U.S. is one that we would like to put online sooner rather than later for weeks. I think we're likely to do something similar to what we are doing in Australia at a second stage, and that would be our sort of highest priority outside of what we are currently announcing today.

Okay, I'll ask about one market in particular. So in addition to approving HB4 soy for import -- in the last couple of months, food security has become a high priority for the Chinese government. They've started to loosen their GMO rules for domestic production. You have a partner there, at least who has helped you through the regulatory process in the next couple of years for domestic growers for HB4 soy and to them?

Yes, definitely. I think even though that's been kind of not in our -- it's something that is not in our immediate plans. I think that the current situation in China, the recent approval of HB4 for feed and food and importation and the growth that we're seeing in our Chinese partner that is becoming a significant player in the biotech sphere within the country, I think allow bringing this technology into China. And I think that you will probably see that agreement or with a local partner of significance and not something that we are likely to do ourselves on a stand-alone basis.

And my last question is, in the past you've given capacity utilization data for the -- do you have an update on that?

Hey Kemp, this is Enrique. Good to have you on the call. So yes, we are -- as we measure use of installed capacity, we are today at roughly 65%. Now you need to bear in mind that, that considers sort of like the annual capacity of the plant. When you go into high season like now, what I can tell you is that we are running at full capacity today because we are building inventories for the high season in the summer crops planting in Latin America and also for winter crop planting now. So today we're running at full capacity. If you annualize that, it's around 65%, but that 65% doesn't tell the reality because it spreads out capacity throughout the year.

Super. Thank you so much.

We have no further questions. I'd like to hand the call back for closing remarks.

Thank you, operator. Well, I mean, I think that it's very rewarding for us to see that the momentum that we've been reporting in the last few quarters continues throughout the current quarter. We are moving forward into closing a fiscal year that I believe will be record setting in many ways and not only sort of reporting these good numbers, but also finally having all these regulatory clearing, Brazil approval last year that basically enable us to launch HB4 wheat in Argentina. Earlier today, we got news that the Ministry of Agriculture here has fully released the commercialization of the first HP4 variety, so that there are no doubts as to what the Brazil approval means in terms of us being able to bring this forward and materialize the revenues that we're -- I know that's been long awaited, took us more than [Technical Issues] in agriculture. But we are today monetizing or capitalizing or showing since we took many years back, and we are very proud of where we are. We are very happy with where we are going with MBI. All of these will become even clearer to investors in the space. So looking forward to staying connected as needed.

Thank you all for joining. Have a lovely rest of your day.