This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Thank you for your patience. The BioTheorists Crop Solutions Fiscal First Quarter 2022 Financial Results Conference call will begin shortly. During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your telephone keypad.
spk00: Thank you.
spk01: Hello and welcome to the BioSeries Crop Solutions Fiscal First Quarter 2022 Financial Results Conference call. My name is Lauren and I will be coordinating your call today. question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to host Rodrigo Cruz, Head of Investor Relations, to begin. Rodrigo, please go ahead.
spk03: Good day, everyone, and thank you for joining us. Presenting today's call will be Federico Trucco, our Chief Executive Officer, and Enrique Lopez-Lecuria, our Chief Financial Officer. Both will be available for the Q&A session. I would like to take a moment to inform you that Maximo Goya, Head of Investor Relations, is leaving Bioceres to pursue an enriching personal and academic venue. I, Rodrigo Kraus, have joined the company to take over Maximo's responsibilities and want to thank him for his open arms support. Everyone at Bioservice, including management, would like to thank Maximo for all his excellent work and wish him success in his new endeavors. Back to our presentation, and 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 statement 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 during 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. Finally, this conference call is being webcast. The webcast link is available at the BioserviceCrop.com Investors Relations site. At this time, I would like to turn the call over to our CEO, Frederico Bruco. Thank you.
spk04: Thanks, Rodrigo, and welcome to the VOC team. Welcome as well to investors and analysts joining us today as we will report what we believe to be a very good quarter from a financial performance perspective. Please turn to slide three for a brief overview of the business and financial highlights we will discuss in today's call. We were thrilled to report the first quarter's financial performance and show that the positive momentum observed in the last two quarters has further accelerated in the reported period. Fiscal first quarter comparable revenues were up 54% over the year, consolidating an adjusted EBITDA of slightly above $50 million on an LPM basis. I will provide a high-level overview and Enrique will expand on financial performance during his section of the presentation. As we have done in past calls, we will provide a brief update on the HB4 rollout and regulatory processes. We will also take a minute to introduce a new level of ESQ reporting on HB4 inventories that will help us measure environmental exposure to our chemicals and promote reduced chemical footprint in our seed and grain production systems. Last but not least, we'll report on the completion of the selectors $15 million public offering of series six corporate bonds throughout the quarter. The capital raise adds to the financial strength required to support working capital needs in the coming quarters. Please now turn to slide 4 for a quick review of a strong self-momentum growth throughout the last three quarters. Comparable LPM revenues reached $220 million, up 24% from the same period last year on an LPM metric. The observed top-line double-digit growth trajectory results from the effective implementation of new strategies in the crop protection and nutrition segments, with revenue growth accelerating from the 35% to 40% level in the first half of the calendar year to about 50% in the current period. First fiscal quarter expansion was driven primarily by the combination of the new commercial strategies recently mentioned, new product launches, and generally positive sector dynamics in Latin America. The rising trend in microbial fertilizer sales continues for the third consecutive quarter, with the nutrition segment explaining 24% of the growth in the period, and with capacity reaching 48%, up 60% from the year-over-period. Innovative bio-nutrition products launched ahead of the summer crop planting season also showed solid performance during the cooler. VitaGrow, Microstar Bio, and Microstar TV Bio already represent close to 10% of the segment sales. The crop detection segment benefited from the full impacts of Salesforce and channel reorganization. with each segment explaining close to 55% of the growth observed in the period. Finally, we expect to see similar growth in the feed and integrated product segment in the upcoming quarters, primarily as HB4 inventories are no longer contributed but are sold as seed or grain, and also as a result of an ongoing process within this segment materializes. Growth in the seed and integrated storage segment should help us keep the current momentum towards the third and fourth quarter of the current fiscal year. Please turn to slide five for an update on the ongoing HB4 initiatives. HB4 inventory ramp-up processes are moving forward as discussed in our previous earnings report. Early season HB4 soil plantings were completed, while late season planting, which represents the majority of the targeted hectares, is about to start in the coming days. HB4 wheat harvest started and is currently at about 10%, mainly in the northern regions of Argentina, where wheat reaches physiological maturity earlier. Operational metrics will be updated in the upcoming quarters at the end of HB4 wheat harvest and HB4 soil planting seasons. From the regulatory front, no additional information has been requested since our September report by Chinese regulatory authorities regarding HB4 soil, nor by Brazil's CETELERIO regarding their ongoing evaluation of HB4 wheat. As we said before, we believe both regulators should be able to resolve approval requests in their upcoming meetings and look forward to communicating their findings as they are informed to us. As you all know, end-to-end traceability is a central feature for our company and is considered a broad, across-the-board approach into every aspect of the program. as we generate information and design the tools for consumers and growers to talk to each other. In slide six, you will find a snapshot of different points within our entry-level program process where data is collected. We have dedicated significant time and resources to integrate different technologies into a comprehensive traceability platform including the use of blockchain ledger to bolster transparency and credibility to all stakeholders. A tangible solution derived from these efforts are the ESG reports, which aim to keep track of farmers' performance and provide consumers with solid, traceable ESG seed and grain scoring. We're taking this opportunity to announce the addition of ecotoxicological indexes to our DSU reporting process for HP4 inventories, which you will see in slide 7. We have decided to produce a blended ecotoxicological score combining Cornell University's environmental impact portions with a repressed dose-dependent pesticide risk approach. These measurements consider factors such as thermal toxicity, toxicity to birds, bees, and beneficial acrobats, soil health life, surface mass potential, land surface health life, systemicity, leaching potential, among other factors affecting farm workers, the environment, and consumers, which are estimated for the most frequently used practices. We believe this report will set a new industry standard, understanding the environmental impacts of exposure to eco-inactive ingredients, the current intensity of production processes, and the world's footprint of agricultural ecosystems are all key elements in designing and promoting a 21st century regenerative agriculture. This concludes my prepared remarks. I will now turn the call over to our CFO, Enrique López-Latina, to discuss our fiscal first quarter financial performance. Enrique? Thanks, Federico. Good day to everyone and thank you for joining us today. Moving over to the financials, please turn to slide A as we frame the impact of our quarterly performance on an LTM basis. As Federico outlined a few minutes ago, we had a strong first quarter performance at the run-up of the high season of sales in key markets across South America, with comparable revenues rising 64%, roughly $65 million. Now, for the third consecutive quarter, our top line has outperformed the previous fiscal year period, clearly offsetting the blowback in the second quarter of the previous fiscal year, which had been negatively affected by severe droughts in South America. As a result, LTM comparable revenues were up 24% to $220 million, even as the LTM metric of this year still accounts for that soft second quarter. Execution during the quarter consolidated the successful outcome from the initiatives taken in the second half of fiscal 2021 to reignite growth in our crop protection and nutrition business sector. Segregation of commercial teams and enough sales force power allowing implementation of a more customized market approach with a product-centered strategy for high-technology categories such as micro-e-fertilizers versus an opportunistic and market-driven approach for third-party products. Prop nutrition was the segment that benefited the most from this, doubling sales versus the year-ago quarters. In particular, we saw a two-fold growth in micro-use fertilizer volumes as a result of the combination of increased sales force focus and market conditions. Growing sales of product lines that minimize negative externalities from farming activities continues to be a key element of our baseline difference, and this quarter's performance is a testament to that. Moving on to slide nine that compares LPM EDITIA as of September 2021 with LPM EDITIA in September 2020. Growth in profitability was more modest than top-line growth as this year's LPM EDITIA metrics truly account for $3.4 billion in pre-operational expenses related to the rollout of the H-4 program that did not exist in the previous fiscal year LPM EDITIA. Profitability from our baseline business is currently supporting expenses related to HB4 that still have no counterpart in reported revenues and gross profits. It is important, though, to note that the inventory ramp-up process that is being executed is generating deferred revenues and profitability from contributed goods that will be recognized in a timely fashion once inventories are sold as seed or grain. Furthermore, the LTM EDITA metric for this year also accounts for the drawback in the second quarter of fiscal 21 that has been hit by dry weather, as mentioned before, as well as unfavorable dynamics from inflation and depreciation of local currency in Argentina, where we hold most of our manufacturing and support functions. Adding our LPM and ETF stand at over $50 million and slightly increase, even as we account for these three elements that have no impact in the previous fiscal year, is a proof of the strength and resiliency of our banking business and gives us great confidence as we move forward. Let's please move to slide 10 for breakdown of first quarter revenues for business segments. The $22.6 million increase in comparable revenues was driven by an almost even contribution from crop protection and crop nutrition. The three integrated products almost flat versus the previous quarter. Crop protection sales were up 58%, reaching $34.3 million. Crop protection global supply chain conditions provided tailwinds of product shortages, low prices higher in South America. It was further reinforced by sustained agricultural commodity prices. As I mentioned earlier, the reorganization of the commercial teams in the segment favored an opportunistic approach to leverage market momentum, with higher sales of third-party products, mainly in Argentina. On the flip side, the lead strain during the quarter drove adjuvant volumes down compared to the year-end low quarter, a situation we believe could get normalized during the current quarter. The average gross margin for the segment declined from 38.6% to 33%, primarily due to the increase in sales of lower-margin third-party products, detrimental to sales contribution from higher-margin adjuvants. The crop nutritional segment grew an impressive 83% to almost $22 million. The expansion in the segment was mainly explained by micro-refertilizer sales that benefited from a combination of factors. First, increased focus from commercial teams with expertise in conducting sales based on product attributes rather than market conditions alone. This was possible thanks to the incorporation of new salespeople who are focused on lower margin and more optimistic sales. Secondly, the commodity fertilizers market macro conditions also provide an opportunity to run volumes up with healthy margins. Commodity fertilizer supply shortages resulting from China's energy crisis and global logistic challenges grow prices higher, which favors market penetration and adoption of high-tech specialty fertilizers. Throughout the quarter, 30 distributors have incorporated new different presentations of Microstar, our main brand for microwave fertilizers, to the product offering, as Erico previously mentioned. Inoculant sales were also higher during the quarter, despite volumes remaining flat. This was due to a shift in the product mix from conventional inoculants to higher-value inoculants, in particular to long-life inoculants, LLI. the proprietary technology of PSS. LNI has been gaining popularity among growers because of its higher microorganism survival rate and greater nodular dry mass. The overall gross margin for the segment increased slightly to 51% despite higher sales contributions from microinfertilizers, which have lower margins than the others. The micro-refertilizer margins remain fairly stable, driven by economies of scale as volumes increase, as well as favorable market conditions. Inoculant margins increased as a result of the shift to analyze unconventional inoculants. Finally, for your integrated products and parallel revenues, the first quarter of fiscal 22 stood at $8.7 million flat compared to the first quarter of fiscal 21. Seed pack volumes remain flat in the first quarter of the high season for seed treatment solutions in South America begins. Margins in the segment dropped to almost 63% due to unfavorable cost dynamics in Argentina, where seed treatment packs are manufactured. Overall, it was a great quarter for our top-line growth. Let's please move on to slide 11 for a look at how this translates into gross profit contributions. The only compounded gross profit for the quarter grew to roughly $28 million, almost 40% more compared to the year-old quarter, including that expansion of our top line was done profitably. Crop nutrition contributed roughly two-thirds of the growth for the quarter, a sales clue with gross margin expansion. Despite contributing roughly half of the growth in revenues, Profit protection only contributed one-third of the growth in gross profit, as expansion in sales was given by lower-margin third-party products. Overall, gross margin in sales dropped from 47.5% to 43.1%, explained by the product mix shifts I described before, but also by unfavorable cost comparison versus the prior year. of goods sold during this year's quarter have been negatively impacted by inflation and effect dynamics in Argentina. Throughout the last 12 months, inflation in the country has outpaced depreciation of the local currency, which has a negative effect on dollar-linked businesses like ours. The situation we live in should be normalized sometime in the near future based on past experience. Let's now please turn to Slide 12 for a review on ETA performance for the quarter. Adjusted EBITDA increased 18%, totaling $12.4 million in the first quarter of fiscal 2022. Reported gross profit rose by $9.8 million, composed of $7.9 million increase in comparable gross profit and $1.9 million in AF29 positive adjustments. Rating expenses and other income and expenses collectively increased by $7.5 million, partially upsetting growth and lost profits. Importantly, and as discussed at the beginning of my presentation, this $7.5 million increase includes $1.9 million in pre-operational expenses during the quarter relating to AC4, $1.1 million accounted for in FG&A, and $0.8 million accounted for in other income expenses. These pre-operational expenses are fully accounted for in our adjusted EBITDA and therefore supported by our basement business. I'll take a minute to further discuss the G&A, which totaled $16.2 million in the first quarter of fiscal 22 compared to $10.1 million in the first quarter of fiscal 21. Increases may be explained a combination of variable and semi-fixed expenses. Variable sales-related tax and logistics expenses grew by $2.7 million. Nine-year growth in revenues and increased freight expenses and global trade challenges. Employee salaries and social security costs and semi-fixed expense increased by $1.7 million, including resources assigned to 84. Finally, similar to cost of goods sold, effects on inflation dynamics in Argentina also played a negative role on operating expenses. Despite the year-over-year increase, total FG&A expenses remain almost flat at the percentage of revenue at 24.2%. We turn to slide 13 to address our debt evolution and cash position before turning it over to Federico for thoughts. Total financial debt by quarter end was roughly $180 million, of which approximately 63% consisted of long-term obligations. And then three before, cash as equivalent and short-term investment stood at $42 million and represented approximately 63% of the current portion of debt. The total financial debt increased by $6 million from the fourth quarter of 2021 Despite the increase in total financial debt, LPM financial expenses decreased by 7% from $14.6 million to $13.5 million. Net debt by quarter end was $137.6 million, a 2.7 ratio of net debt to LPM adjusted interest. A sequential increase in the net financial debt is explained by a slight increase in total debt and increase in the cash position as we enter high season market and working capital requirements increase. This concludes my remarks for today. Federico? Thanks, Enrique. I will now open up the floor for questions before concluding remarks.
spk01: Of course. Please note that if you would like to ask a question, then please dial into the conference call. To ask a question, please press star followed by 1 on your telephone keypad. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, to ask a question, please press star followed by 1. We will pause for a moment to allow questions to be registered. Our first question comes from the line of Ben Clee from Lake Street Capital Market. Ben, please proceed.
spk05: All right, thanks for taking my questions, and congratulations on a really good quarter here. I've got a question for probably Enrique here on the breakdown of SGA that you talked about. I appreciate the breakdown of HB4 preoperational expense especially, but I'll say it's kind of unclear to me why this number is coming up now. I can't really tell what has really changed within HB4 here. this quarter versus prior quarters. So can you help me kind of understand what these expenses are, you know, confirm that these are, in fact, new expenses realized this quarter, and then talk about kind of what your outlook is for that, you know, throughout the next few quarters?
spk04: Hi, Ben. Thanks for the question and thanks for having me on the call once more. Thanks for joining me. So the three operational expenses that were recorded during the quarter have to do with a bucket of different things. So it's a good question. So there's a piece of that that has to do with data position costs. That is in nature a valuable expense because it relates directly to how many funds we are acquiring from farmers, or I should say have been contracted with farmers. So that in nature is a valuable expense and depends on when farmers decide to price the signification services that they are providing to us for which we obtain the multiplied grain. So that is a valuable expense that depends on the timing of that expense, depends on when farmers could price to get service. About two-thirds of the SG&A costs related to HB4 have to do with data acquisition costs. And one-third is a semi-fixed expense that has to do with support functions for the HB4 platform. So does that answer your question, Ben, or do you need further expansion on any aspect?
spk05: No, that's a helpful start. I guess my follow-up question to that, though, is collectively that, I forget what it was, like $1 billion, something like that, in the first quarter. Is that kind of a good run rate that you expect going forward? Do you expect that that's going to pick up in coming quarters? What's your outlook for that line item here down the road?
spk04: Well, again, it's difficult to ask these questions. what the run rate is going to be because that depends on when farmers choose to price the service that they provide. What I can tell you is that what we recorded in this quarter has a substantial portion of the services that we have contracted to multiply soybeans. So there's a big portion of the soybeans that were produced under the HP4 program in the last season that had been already priced. So this number in this quarter has to cool low of that service and the data position related to the last season of soybean. Now, going forward, that is going to depend on when farmers utilize the service that they are providing for us to multiply the 55,000 hectares of wheat. There's a portion of that that has been already deconfertilized, about a third of that It's going to happen in the second quarter and third quarter, but there's still a price that needs to be paid to that. So it's hard for us to project that one way. What I can tell you is that most of shortings from the last season have already been priced, and the data position related to that has already been baked in.
spk05: Got it. Okay, great. Thanks. A couple other questions. You talked about the difficulties in your second quarter of last year given weather conditions. It appears from my vantage point that conditions here are much more favorable this year. I'm wondering if you can just kind of provide a quick boots on the ground update of growing conditions this year and especially relative to last year.
spk04: Hi, Ben. This is Federico. Thanks for joining us today. We're having normal conditions in Latin America primarily this year, so we don't expect to see the same weather effect that we saw last year. So we hope to be able to keep the current momentum on the second quarter. That's probably as far as I would like to go today in terms of guiding towards second quarter
spk05: outlook. Okay. No, that's helpful and understood. Last question for me, and then I'll get back in queue. You talked about the challenges around transportation, logistics, et cetera, that everybody seems to have right now. It seems that you guys have been able to weather that pretty well. Can you talk about the conditions in Argentina and throughout your supply chain and how problematic um you know these transportation issues really are and um and and you know to the extent to which it's really impacted your ability to you know get get your um you know get your product to customers and that'll do it for me well that's an excellent question i think when we talk about uh transportation and logistical complications we are mostly
spk04: focusing on international logistics. Within the country, logistics are somewhat normal, and we are not having major difficulties there. It is, in terms of sourcing some raw material for adjuvant, that we have to take anticipatory moves, if you will, to pay out. As you can see, we did see some incremental costs, but nowhere close to a magnitude that other industry participants have observed. And likewise, in terms of our international business, our resource products, for instance, from our manufacturing facilities in Argentina, we do take inventories way ahead of what we used to, to make sure that farmers have products in the shelf when they need them. And we really recognize that gaining customers, it's not always easy when you're sort of playing internationally. So we don't want the lack of inventory to be an issue. And in that sense, there are ongoing difficulties in the sector, but we have taken anticipatory steps measures to try to minimize disruption and um there are some influential costs I think that we can comment to that but nothing to be too concerned about yeah shipping in more expensive varieties and that basically can happen so takes place in Northland So we tend to manage this depending on marginal speed. So low-margin products have less flexibility. But as Federico said, in terms of the imports, the only product where we take some precautions were adjuvant, where we import silicon from outside of Argentina, where we have manufacturing facilities. Remember that biologicals don't have any of those outside of Argentina. Again, when we manufacture, And then for fertilizers where we use BAP and MAP as raw materials, that bulk load supply chain has not been as disrupted as containers. So that continues to flow pretty nicely for the program and continues to so now.
spk05: Got it. That's all very helpful. Thank you for that context. Congrats again on a really good quarter here, and I'll get back to you.
spk01: Our next question comes from the line of Brian Wright from Roth Capital Partners. Brian, please go ahead.
spk02: Thanks. Good morning. Just a real quick question. Can you give us some how much the market for the microbead fertilizers are growing? Just want to get a sense of market share gains.
spk04: Hi, Brian. Really happy to have you on the call. Thanks for joining. So, if I understood correctly, referring to market share gain in micro-eat fertilizers, that is a great question. Bear in mind that the main competitor for micro-eat fertilizers today are basically commodity fertilizers. So, we are replacing old technologies with the higher technology fertilizer, specialty fertilizer. So, our main challenge is to get farmers to adopt these new technologies while competing with our companies. There are obviously other players that provide similar fertilizers to ours in South America mainly, but we do have a competitive advantage that we are the only provider of this type of fertilizers that is manufacturing in-country. So both in terms of main market share versus commodity fertilizers and also competing with other providers of specialty fertilizers, this has been a great quarter. For starters, because the uprise in commodity fertilizer prices allowed us a more receptive market of high-tech products. And the other one is that in terms of the challenges of logistics that Ben alluded to in his questions, we have the competitive advantage of manufacturing in-country and therefore making sure that we have a steady supply of these products.
spk02: Great. And it just seems like
spk04: given what, you know, in the futures market for the commodity pricing, it seems like this tailwind should last quite some time. Yeah, I'm here, and then you, like you know, but before I tell you correctly, the U30 commodity, the agricultural commodity prices, so what we've seen also is that throughout this quarter, state commodity prices and more than anything, soybeans, corn, and wheat, have provided a very healthy profitability environment for farmers, which is a metric where we keep an eye, considering that that is what sets the mood in acquiring high-tech products that we want to re-commercialize. In particular, I think that from our point of view, the one that is more exposed to to these dynamics are the microwave fertilizers just because fertilizers represent a big portion of the farmer's spending every year. Having said that, we tend to see that there's a correlation of prices between agricultural commodities and NAP and DAP that are well-known to us and are main competing products for the microwave fertilizers. If there's a new agricultural commodity crisis, fertilizers tend to adjust. We don't act, but they tend to adjust, and that has happened now. What we are seeing now is that commodity prices are, I won't say softer, but it seems like they've reached a new and former sentiment and thinking is around that. So as long as prices stay where they are in terms of commodity fertilizers and agricultural commodities, I think that this is a nice setup. Great, thank you.
spk01: As a reminder, to ask any further questions, please press star followed by 1 on your telephone keypad. Our next question comes from the line of Stephen Ralston from Student Research. Stephen, please go ahead.
spk06: Good morning. And congratulations on the successful execution of your two strategies in crop nutrition and crop protection. Can you hear me? Thank you, Stephen. Yeah, thank you, Stephen. It's great to have you here in the call. Could you help me understand what management expectations are on the mix shifts that are occurring in your three segments? It seems like each segment has a very targeted strategy in crop protection. With your pricing strategy, even though you're compressing the margins, sales are growing very nicely in nutrition. Sales are even growing faster, and the margin is expanding. And this has caused some compression in the corporate margin. But it seems like when HB4 technology really gained some traction, which is a very high margin segment, that that would drive the corporate margin higher. Is that the way management is looking at it, or could you just help me understand that?
spk04: Thanks for joining. So I think that you're thinking about it correctly. So what we are seeing is some margin compression that might be an aspect. Bear in mind that we are also working on growing our in expanding manufacturing capabilities. That is clearly a category that has the higher margin of protection. But that is something that we will take some time. So we will be building that facility throughout the next 12 months, probably. But I don't see a good trend, this margin compression protection. But there is something personal. In carbon fiction, worldwide, we expanded sales and margins largely expanded. I think that it's also kind of like a stay-in-state for the margins, considering that we have loan-perpetuizers, as you can see, and have been able to maintain the margin for the segment. On the corporate margin, in the long run, as you correctly mentioned, HB4 is a high-tech, high-moving product, so when those revenues and profits keep our P&L, that should be something that allows us to get adjusted in the margin to levels, to similar levels of what we have seen in the past and probably operate at some point between 25% to 30%. But that is going to depend on when we are able to get those values in profit to keep our P&L, and that is somewhat a long-term view of where we need to go to market.
spk06: Thank you. Could you clarify the dynamics that are occurring in the distribution channel in crop nutrition? You mentioned that you have 30 new distributors that incorporated MicroStar. Clarification of that, are these – are they adopting MicroStar for the very first time, or are they – Do you already have a relationship with these distributors, and they're just extending it to MicroStar?
spk04: So that is a great question, Steve. So these were 30 distributors that were already distributing our products and incorporated new presentations of MicroStar. So we went to market with more conventional presentation, if you will, or left technology, and we have been working – and new presentations and new technology in Microsoft of the main brand in micro-aided merchandisers. So, a lot of data will resource 30 existing distributors and incorporate new presentations of Microsoft.
spk06: So, you expanded the relationship with these distributors. I think a couple of years ago, you put out a chart of all your distributors in Argentina, which is impressive. How much more potential is there to broaden your... MicroStar into other distributors that you're already having relationships with.
spk04: Hi, Steve. This is Federico. I think there's tremendous potential. I mean, probably we will not expand the overall points of sale for our formula, which today are in excess of 700 in Argentina. But there are these new presentations that Enrique alluded to that were sold by a very small group or sub-segment of these distributors that are likely to be adopted by the majority of them. And by them, I mean sort of the the bio version of microstar that has microorganisms incorporated so you're not only providing the formulation advantage where you use one quarter of the application rate and make the nutrients themselves more readily available with sort of microbials that are added to the formulation. And today, you will see that close to 10% of the second revenues are explained by these new product launches. Now, they are in a sub-fraction or a small fraction of the 700 sale points that we currently have. There are 30 that were added in the last quarter, and we believe that throughout the year, we should get to the majority of these participants, but not beyond the distribution footprint that we guarantee have for those who like their farming products.
spk06: Thank you for taking my questions.
spk01: Our next question comes from Kent Dolliver from Brookline Capital Markets. Kent, please proceed.
spk02: Great. Thank you and good morning. Apologies if you had covered this earlier, but CTN Bio is meeting, I think, you know, today and tomorrow, and Echo Wheat is on the agenda. Can you talk about what we should expect if they approve your application, when we would see an announcement, or, you know, is there Is there anything left with regard, are there any other steps in the approval process between a vote at this meeting and then final approval? Thank you.
spk04: So thank you, Ken, for your question. We have not discussed that during the call, but I think we should know the outcome of the current meeting tomorrow, I believe on the 11th. There are two potential outcomes in our view. One is that the committee in a way approves the technology and that is it for the current evaluation or that new questions are requested by committee members, not by evaluators that have not submitted any questions since our last signing. And that was done ahead of the October meeting, but they did not have enough time to report on that for the October meeting. So, the evaluators themselves will be not to be generating questions, but the committee may request to ask additional aspects, in which case we will know tomorrow. But I think those are the two possible outcomes. On the 11th, if there are more questions, we'll try to sort of reply to them quickly so that we can have the OCA considered again in the December meeting. But we are, as you, anxiously waiting for tomorrow's results.
spk02: That's great. And just to clarify, if they approve, does that complete the process and you will be able to that you effectively move, at least any material steps in the process are done and you'll be able to move forward with the launch?
spk04: So I think if they approve, that would be a huge milestone. Remember, we indicated five conditions for us to probably launch. This is one of them. We have also done findings in other minor export destinations for Argentine wheat. that I believe are below the 5% level. Everything above the 5% level, we have that as a requirement for launch, but a serious problem today. The only country where we consistently have, if you do like a five-year average, a position that explains more than 5% of our demand in exports. And the approval that will likely be granted after the current evaluation is for So that I think will free up the ability of local mills to export wheat flour to Brazil. Wheat grains approval in the United States, and I think that will probably be much to in-country production in Brazil, which is something we're currently pursuing, and there'll be a subsequent finding to address that. in the coming quarters. But I think it will be huge, and it will significantly improve our ability to roll HB 4.3 GDP puts into revenues.
spk02: Great. Thank you. And my last question is, as I look at the balance sheet, you know, biological assets have increased substantially, and One, what accounts for the increase since June? And secondly, what should we expect for changes in biological assets looking ahead?
spk04: Again, this is Enrique. Thanks for joining. Good to have you on the call. So biological assets mainly comprise of HB4 inventories. So the reason that has gone up after June is basically because we are accounting for all of the HEPA soil that were produced in the last harvest season in Argentina in May, June, and July. So that is the reason why biological assets have gone up. Then we decided to keep all of that grain for future seed or if we decide to discuss some of those varieties, that are the two variables that affect biological assets. Going forward during Monday, we will also incorporate into that reproduction from this year that will be harvested in December and January in Argentina. So the trend in biological assets, an upward trend, which is an IEP considering when we harvest the people's soil every week. And then The outflow of that asset is basically when we decide to discard varieties that will not be moved into seed production or into seed commercialization for the future. So that is basically the dynamics, and there will always be an upward trend as we build up inventories in the future.
spk02: Okay, super. So really, this is just an inventory line item from here?
spk04: Yes, at least as long as... HB4 is not converted into a final grain. When we convert that grain, we basically flush that grain into a final seed of HB4 that is converted into or moved into an inventory line. But as long as it sits as grain for a crop that has been planted on the field, it sits in biological assets.
spk02: Great. Thank you.
spk01: We currently have no further questions. We'll now hand back over to Federico and Enrique for closing remarks.
spk04: So not much more to add other than we are very happy and satisfied with the performance we're showing you today. I think this is something to congratulate the operations team at LACERES for in terms of different strategies that were implemented, and we believe that towards the next few quarters and probably more importantly towards the second half of the fiscal year, a similar trend will be seen in the seed and integrated product segment, which is where we are still slightly flat today, and that will materialize primarily as H3O continuity puts become reported as revenues and no longer continuity like we do today. So we have a strategy that is moving forward as projected, and we are very satisfied with that. We remain fully available to address any additional questions that you might have and hope to wish everyone a great rest of the day today.
spk01: this concludes today. Thank you for joining and I hope you have a lovely rest of your day. You may now disconnect your lines.
Disclaimer