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spk01: Hello everyone and welcome to the Baris Harris Corp Solutions Fiscal Second Quarter 2022 Financial Results Conference Call. My name is Victoria and I will be coordinating your call today. If you'd like to ask a question during the presentation, you may do so by pressing Star 1 on your telephone keypad. If you wish to withdraw your question, please press Star 2. When preparing to ask your question, please ensure that your line is unmuted locally. I will now pass over to your host, Rodrigo Kraus, Head of Investor Relations, to begin. Please go ahead.
spk03: Good day, everyone, and thank you for joining us. Presenting during today's call will be Federico Trucco, our Chief Executive Officer, and Enrique Lopez-Lecure, 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 statement section of today's earnings release and presentation, as well as in our recent findings 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 our presentation today, we will discuss comparable results which exclude the impact of hyperinflation accounted 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 BFCADIScrop.com investor relations site. At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.
spk06: Federico Trucco Thanks, Valerio. Good morning and welcome to all that have joined us today for our quarterly report. Please turn to slide three for a brief overview of the business and financial highlights we will be discussing into this call. We are thrilled to report a record quarter in the history of our company with quarterly comparable revenues at $90.3 million and LDM adjusted EBITDA at $61.8 million, excluding HV4 pre-dawn costs. Our very strong second quarter's performance reflects an 89% growth in revenues over the same quarter of last year, with robust growth across all three business segments. We're also very proud to report that our combined growth in Europe and North America at 146% year-over-year places these important geographies at close to 10% of our global revenues, a huge step forward in our international diversification strategy. As we have done in past calls, we will provide a brief update on the HB4 rollout and regulatory processes. On this last front, I would like to mention the recent announcement in November 2021 by the Brazilian National Biosafety Commission , that decided unanimously to approve the import certification for HB4 wheat flour for human and animal consumption in that country. This approval is a major milestone in the Aceris' mission to build agricultural systems that enhance carbon sequestration and climate resiliency, and is a necessary step for a commercial launch in the upcoming planting season. Please now turn to slide four for an overview on our season's results for HB4 wheat as we completed harvesting of 53,000 hectares. HB4 wheat performance was consistent with prior seasons, with HB4 varieties outyielding non-HB4 varieties by 12.8% across all environments and locations, with improved performance in local activity environments, where the yield benefit averaged 49%. Some important takeaways from the current season are the improved sanitary and quality profiles observed in our HP4 materials. For instance, the prevalence of yellow rust in HP4 varieties was 70 times lower than in commercial controls in infected fields. As we expand acreage and achieve exposure to a wider array of growing conditions, we are also able to identify some limitations in our current first-generation portfolio, particularly in terms of lodging in undernourished environments and lower yield groups under high productivity conditions, most notoriously above the five pounds per hectare level. We expect to overcome these limitations with the introduction of second-generation genetics, as we will discuss in slide six. and with grower education activities. In slide five, you will see performance results by region and grower satisfaction levels. It is very important to note that 225 growers participated in the current season. representing an unprecedented level of preload grower scrutiny for the technology and for our identity preserve production program. Year improvements ranged from 5.7% to 39.6% across all environments and regions. Regions where benefits were lower reflected limited adaptation by current materials, and conversely in regions where gains were more relevant. Growers satisfaction levels ranged between 60 and 80 percent in regions where yield benefits were below average and increased to above 80 percent where benefits were close to or above average. We believe that the current level of performance information by region by productivity conditions and by grower profile provide us a very valuable data to fine-tune our value proposition and portfolio mix ahead of our upcoming launch. Turning now to slide six, as noted, we expect to minimize geographical limitations and improve grower experience under high-yielding conditions as we expand our portfolio to include second-gen materials. Our current data show an average improvement of 16% in environments yielding above 5 tons per hectare for new materials when compared to first-generation varieties. We are moving at full biological speed to include these newer materials in our offering, planning to contract 30% of the 23-24 season multiplication cycle with these second-generation varieties. Please turn to slide seven for our current thinking regarding the HP4 weed opportunity in key markets. LACAM represents a total market of roughly 9.5 million hectares, of which Argentina, South America's biggest weed producer, contributes with 6.5 million. We believe we can capture an estimated 2.3 million hectares with our available portfolio and near-term pipeline, and we're currently requesting registration of three commercial varieties. We estimate an incremental EBITDA of between $15 and $20 million by fiscal year 24, with peak sales in this market projected in the $190 to $200 million range. We also expect to grow beyond Argentina as we secure cultivation approval in Brazil, the second largest LATAM market. Production approval in Brazil is now expected for 2023 after completing in-country evaluations. We believe that H3-4 technology may enable significant market expansion in this country, particularly as tropical germplasm currently being tested for reproduction in the Serranos region is incorporated to the pipeline. Brazil may therefore represent an additional opportunity of between 700,000 to 1.1 million hectares in the medium term. Beyond Latin America, we are currently pursuing production approvals in the United States, Australia, and South Africa. These geographies combined represent twice the hectare opportunity currently being pursued in Latin America, although in a longer time horizon. Please turn to slide eight. On this slide, we address the rollout of new age report soil varieties. As we anticipated in our fourth quarter call of fiscal year 2021, we decided to discontinue the ramp-up process for first-generation materials in favor of second- and third-generation varieties. Third-generation varieties were multiplied off-season in the United States and resulting inventories planted in full in the current cycle, totaling approximately 1.5 thousand hectares, which are generally in good condition. In the case of second-generation materials, where the germ class and drag was not fully eliminated, we decided to reposition a significant part of the multiplication process as a follow-up crop to wheat in later season plantings. Data from the 2021 season indicated that the use of these materials as a second crop in later season plantings showed little, if any, performance gap under higher yielding conditions. Unfortunately, the lack of rain during December made some of the locations we selected no longer suitable for the ramp-up process, and consequently, we achieved 60% of the planned area for second-generation plantings. Despite not fully achieving our notification objective in the current cycle, we still believe resulting inventories may reach launch-level readiness for the next season. Finally, turning to the next slide, in our progression to further enhance our business worldwide and develop top-performing genetics for VH3 portraits and new technologies, we have brought on board Alexander Garcilia as Global Head of SEEDS. Alex has led P&G's innovation and R&D initiatives for many years, and has collaborated actively and meaningfully from the P&G side on HB4 technology development in the world. We take this opportunity to welcome Alex to the MSNs family and wishing every success in his new position. This concludes my prepared remarks. I will now turn the call over to our CFO, Enrique Lopez-Lecue, to discuss our fiscal second quarter financial results. Enrique.
spk04: Thanks, Federico. Good day to everyone. Thank you for joining us for our presentation. Let's turn to slide 10 as we go to our financials for the last quarter. In the second quarter, we continue to have strong revenue momentum with comparable revenues increasing by 89% year over year to $90.3 million. Part of this increase is explained by a weak comparable as last year's second quarter numbers were negatively affected by drought in key regions of South America. However, year-to-date growth reached 72% and growth in the last 12 months showed a solid 56% increase, jumping to $262.6 million, which confirms robust growth dynamics that go far beyond weak comparables. The main drivers behind the quarters numbers are remarkable commercial performance and market penetration of scaling technologies. Microwave fertilizers, in particular, continued to deliver growth in Argentina, while inoculant and seed treatment pack sales were outstanding in North America and Europe. Let's please move to slide 11 to take a closer look to our baseline business profitability performance on an LTM basis and year-to-date. As a reference, baseline business EBITDA excludes HB4 pre-launch costs, which are expensed as incurred and accounted for in SG&A and other income or loss, both income statement line items that impact a reported adjusted EBITDA metric. As we have made headways in scaling up the HB4 program to build CV inventories for commercial launch, Expenses related to pre-launch efforts have ceased to be irrelevant relative to our reported EBITDA as they have been until last quarter, making it necessary to have a profitability metric that grasps performance of the underlying business that generates revenues today. The three main components of the expenses that are stripped out from the baseline business EBITDA calculation are HP4-related SG&A, inventory ramp-up, and data acquisition costs. and IAS 29 accounting adjustments to HV4 grain inventories. And we are providing a breakdown for each of these categories, both in the presentation and our press release. To the numbers, following the growth trend in revenues, the last 12 months' baseline business EBITDA reached $61.8 million in the second quarter, as Federico pointed out, up 46% year-over-year. On a sequential basis, LTM baseline business EBITDA grew 15%, in line with the upward trend we have seen for the past four quarters. HB4 pre-launch costs during the last 12 months amounted to $6.2 million, of which close to half correspond to inventory ramp-up and data acquisition costs, and $1.4 million were general expenses related to the management of the HB4 program. The remaining $1.9 million were not cash expenses, but the accrual of a negative accounting adjustment from IAS 29 application to HB4 grain inventories. During the first half of the fiscal year, our baseline business reached $37 million in adjusted EBITDA, a 48% increase compared to the year-ago period. HB4 pre-launch costs for the first half stood at $4.9 million. Importantly, while the SG&A portion of the HB4 pre-launch costs has a rapidly steady run rate throughout the year, inventory ramp-up and data acquisition costs can be lumpy, as its accrual depends mainly on when farmers choose to set a price to grain they provide us with, as well as our own ability to commercialize grain that will not be used for seed purposes. I will refer to the specifics behind the second quarter's performance in the next slides. But as a summary for this one, I believe that we had a great quarter that builds on top of the momentum we have seen in our baseline business for almost a full year now. It is exciting to think about the prospect of adding to this business the $15 to $20 million in EBITDA contribution from HB4WID that we believe we can accomplish by fiscal year end 2024. We have now tested our wheat varieties at a broad scale and received good feedback from growers regarding ROI, which makes us feel comfortable with the optics we are putting into the prelaunch of HB4. Now let's turn to Slide Trust for a breakdown by business segment. As mentioned before, comparable revenues increased to $90.3 million in the second quarter, up from $47.7 million a year ago. Almost half of this growth came from the crop nutrition segment, which grew by $19.3 million, more than tripling its revenues. It was an outstanding performance in the quarter, both for fertilizers and inoculants. Microwave fertilizer sales grew aggressively in Argentina, which explained most of the 9,500 tons sold during the quarter. Demand generation work done in the last two years paid out as commodity fertilizer prices continued on an upward trend, offering great market conditions to scale up our own product. Also, high inoculant sales were seen across several geographies, in particular Europe, where soybean acreage increased, and Brazil, where our long-life inoculant formulation continues to represent a competitive advantage and drive expansions. Importantly, the increase in crop nutrition revenues also came with the gross margin expansion, even the positive market conditions and economies of scales in micro-read fertilizers and a broad mix shift in inoculants to higher value products such as LLI. Gross margin was 54.1% for the segment compared to 50.7% a year ago. In the seed and integrated product segment, Revenue growth and margin expansion came from higher pack sales in Europe, the U.S., Uruguay, and Argentina. Same as inoculants, pack sales also benefited from Europe's rise in soybean acreage. European growth was also leveraged by new commercial agreements, while growth in the United States was mainly explained by changes introduced in the commercial team. Segment sales grew by $3.1 million to $15.3 million, a 26% year-on-year increase, with a gross margin expanding to 68.9%. Finally, crop protection saw a 76% increase in revenues, contributing $20.1 million to total revenue growth. It was the only segment that brought growth with a decline in gross margin, as expansion in sales was driven by lower margin third-party products. something to be expected following the split of commercial teams that focus on third-party products versus proprietary portfolio. In slide 13, we can see how this translated into gross profit contribution per segment. Comparable gross profit increased by 69% year-over-year, reaching $42.2 million. The top nutrition segment contributed close to two-thirds of the total $17.2 million increased gross profit. with an impressive 233% growth driven by increased sales and margin expansion, as I described in the preceding slide. Crop protection and field-integrated product segments contributed 23% and 15% respectively to the overall gross profit growth. Despite all regions' nominally growing contributions to gross profit compared to a year-ago quarter, Europe and North America stood out, contributing jointly 23% of the gross profit growth and representing 15% of the total $42.2 million in gross profit, up 11% in the second quarter of the prior fiscal year. Let's move on to slide 14 for a breakdown of the quarterly EBITDA. Our baseline business adjusted EBITDA reached $22.7 million, up 57% from the year-ago quarter, which is a week comparable to a very strong performance, as explained before. We had an aggressive EBITDA growth as a result of top-line expansion, partially offset by a decrease in gross margin, increased operating expenses, and IAS 29 adjustments to gross profit. Operating expenses, excluding pre-launch HB4 SG&A, increased by $7.3 million, explained by a mix of higher variable and fixed costs. Possible expenses such as sales taxes and price increased in line with sales growth and explained roughly one-third of the total increase. Fixed expenses, on the other hand, were negatively affected by effects on inflation in Argentina, a dynamic that has continued to develop unfavorably to dollar-denominated business such as ours for the fourth consecutive quarter, affecting our cost structure in the country operations, not only in SG&A, but also in cost of goods sold. JV results went up by $1.1 million compared to the second quarter of fiscal 2021, mainly due to higher Scenotech sales or microarray fertilizer manufacturing JV. HB4 prelaunch costs total $3 million in the quarter, leading to a reported adjusted EBITDA of $19.7 million. Now let's please turn to slide 15 to address our debt evolution cash position before turning it over to Federico for final remarks. Total debt has been increasing in line with the growth of the business. Net debt by quarter end was $147.9 million, a 2.66 ratio of net debt to LTM adjusted EBITDA. On a sequential basis, our leverage ratio decreased from 2.74 in the first quarter due to LPM adjusted EBITDA growth. Over the last year, we have been working on a debt structure that supports growing based on business and that upcoming HB4 launch with two goals in mind. To decrease the current portion of total debt and to reduce cash financial expenses. On the first, we have decreased the short-term portion of our debt from 54% by the end of the year-ago quarter to almost 25% by December 2021. On the second goal, despite the growth in total debt, which reached $187.8 million, our cash financial interest expense line remained roughly flat at $13.4 million for the last 12 months as of December 2021. During the quarter, our subsidiary, Sobacte Argentina, completed a $20 million public offering of corporate bonds, maturing in December 2024, and paying an annual nominal interest rate 1.49%. These issuance allowed us to maintain a strong equity position of almost $40 million by quarter end, and further improved our average cost of debt. By way of conclusion, I believe that the strong financial performance of our baseline business combined with a stable and very healthy debt structure and equity position, provides a solid foundation for growth. We are excited about what is to come next as we aim for the EBITDA contribution that we have identified for HP for wheat by fiscal 2024, but with our minds set in the much bigger global opportunity that wheat represents beyond that specific target.
spk06: Thanks, Enrique. I think we can now open up the call for Q&A. And after that, I'll finish with some final remarks. Operator?
spk01: Perfect, thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. When preparing to ask your question, please ensure that your line is unmuted locally. And our first question comes from Ben Cleave from Lake Street Capital Markets. Please go ahead.
spk02: All right, thanks for taking my questions this morning. And first of all, congratulations on a great quarter. The first question is around the launch of HB4 wheat. I'm curious the degree to which there are downstream buyers secured after harvest. Do farmers that are buying your seed have guaranteed offtake agreements from millers? And do those millers have offtake agreements with consumer goods companies? or is that something that still is yet to be determined?
spk06: Hi, Ben. This is Federico. Thanks for joining us today, and thank you for your question. So we have been working actively to create the agreement with processors. As we move into the next season and commercially launch HB4Weed, we will continue to handhold with our farmers so that we minimize any kind of commercial disruption. And as of today, we have already 13 different processors onboarded or in the process of onboarding for processing HB4Weed. with a combined capacity of about 700,000 tons, which is way in excess of what we would need for the upcoming season. So that's been negotiated, put in place, and that is an aspect that we will continue to solve for our customers, understanding the complexity behind this new technology on the commercial front.
spk02: Perfect. Thank you, Federico. Next question, I appreciate your comments on moving from first to second to third generation varieties here to improve the underlying genetics. I'm curious how that is playing out in soybean within the U.S. Do you expect that you're going to have that same kind of genetic gap with your first-generation HP4 seed that you've been testing in the U.S.? And if so, how are you addressing that to improve the genetics in the U.S. proactively?
spk06: So that's an excellent question as well, Ben. I think in the U.S., since we didn't have a breeding program of our own and we relied more on third-party genetics, we are less likely to observe that genetic gap. I think we will be introgressing the trade into already competitive germplasm. We are introgressing already the trade into competitive germplasm. So we don't expect to see the gap that we saw in Argentina. And also, this is a strategy where... expanding into in argentina as well so you will see that the onboarding of alex alex garcia's head of seeds is predominantly to focus on on the new green approach and relied on the outstanding genetics of current market participants so that we minimize sort of the drum class and gaps in new markets as we roll out the technology globally
spk02: Got it. Got it. Perfect. Thanks, Federico. Last one for me, and I'll get back in queue. And I don't know if Enrique or Federico, who this is more appropriate for, but the result over the last four quarters here as you've changed the go-to-market strategy has just been exceptional. But those results are lapping. And so as you look into Q3 and beyond when you've got – When you've got that strategy already built in to your prior year results, how do you see growth evolving over the next few quarters? Is there still runway to be had from this new go-to-market strategy, or are you guys expecting kind of a more material decline on a year-over-year – your growth from a year-over-year basis?
spk06: I will give you my high-level view on that, and Enrique probably can give you more detail. I do expect to see a similar momentum in the third quarter, so there's still a long way from the existing reorganization to be materialized, probably a little less from that particular aspect on the fourth quarter, but I do expect international growth to continue in a very robust manner. And we do expect HB4 to kick in in the fourth quarter as well, helping keep the momentum that we currently have. So I'm sort of very happy with the growth trajectory that we've been having and fairly confident that we can keep this momentum in the next two quarters. Enrique?
spk04: Yeah, I agree with Federico's comment. Hi, Ben. Great to speak to you again. I think that there are some variables that played into how we were able to grow throughout the last year. One of those is market conditions. So we had very, very attractive market conditions out of the fact that 49ers prices, for example, went up and that gave us a great setup to go with our product to market. So I think that as long as those conditions remain in place, we're going to be able to to keep showing growth, maybe not as aggressively as what we did until now, but there is still runway ahead. But there's some of the values that helped us that are always the outside of the control of management, right? So still tools in the toolkit to keep growing as long as market conditions are there. And I think that that's very conventional as well. We're excited about to have other growth levers to pull like with HP4, we're kicking in.
spk02: Got it. Very encouraging. Well, I appreciate you all taking my questions. That does it for me, and I'll jump back in queue.
spk01: Perfect. Thank you, Ben, for your question. And as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. And our next question comes from Brian Wright from Roth Capital Markets. Please go ahead. Your line is open.
spk05: Thanks. Good morning. A couple of questions. I want to start out with if you could just educate us on the relevance of the yellow rust and what that means from a commercial standpoint.
spk06: Hi, Brian. It's good to have you on the call. I think it's obviously a concerning aspect to farmers, mostly on the commercial front. I mean, consumers don't like to see rust in the flower or in the grain that will be processed. And I think that that was an unexpected outcome of these new varieties, that the rust incidence was significantly diminished. So we expect that to enable more profitable commercialization from a yield perspective in the field. It's an important sanitary aspect, but not too dramatic, I should say.
spk05: Okay. And then just following up a little bit on the improvement on the test weight, is there any quantification you want to help us out with on that?
spk06: Sure. I think that's something we observed with a significant number of farmers, particularly in the southwest of Buenos Aires, where we are currently having some of the better results on HB4 technology. These are regions that have very restrictive activity, and many times, wheat production goes into forage. The quality component here allows that wheat to go into industrial uses. I think that's why pH and other elements combined and provide for that in that particular region in a manner that is very relevant. So it's not only about improving on the tons per hectare viewpoint, but also the quality of what's being produced allows for an end use that is more profitable than deviating to forage because of a reduced test weight. I think the improvement was about 10%, which is significant in this particular aspect.
spk05: Great, great. That's perfect. Thank you. A couple more. I just wanted to understand, on slide seven on the market opportunity in Argentina, could you, on the 2.3 million hectares, is that is that acreage that's lower yielding predominantly, or just like how that addressable market was kind of defined?
spk06: So those are hectares where we believe HP4 will provide a consistent benefit. So, they are usually lower yielding, and that is not to say that we're not expecting, particularly as we introduce the second-gen varieties which we have presented in today's presentation, I think we can aspirationally target the high productivity areas as well, but we are not contemplating that today in our market assessment.
spk05: um we are almost restricting the technology to the lower productivity regions and that's where the number comes from perfect and in two two more if you'll bear with me um or i could go back into you but but i'd like to just you know go go with them if that's okay go ahead thank you um Can you remind us on kind of what the historic gross margin differentials between the adjuvants versus the insecticides and the fungicides? Just broad, you know, ballpark.
spk06: In terms of what are the different broad characteristics?
spk05: No gross margin differentials.
spk06: So adjuvants tend to be our highest cross-margin products in the crop protection segment. I think that you want to comment on the rest.
spk04: Yeah, absolutely. So adjuvants, we are in the range of 55 to 65, usually, Brian, depending on what type of adjuvant, whether it's a high-tech adjuvant or lower-tech based on vegetable oil and not silicon. But most of our adjuvants are high-tech, and that is closer towards the 65% top of the range that I just said. Then on insecticides and fungicides, obviously that is a lower category. I think that the lower category in the segment that basically explains the decline in overall gross margin for water are the third-party products. In third-party products, we make between 25% to 35% margin, sometimes even higher if it's a highly tech sale that needs to be done. But it is a business that is tactical to us. It's not strategic, and we usually pay less attention to that. Now we focused a bit more on that, and I think that to us is, I won't say low-hanging fruit because it does require a commercial effort, but it's a provider of revenues with a margin between 25 to 35. That's the range for the whole segment.
spk06: I think the only thing we should highlight here is that that is what we're talking about, chemicals. If you talk about bio-insecticides, or in our case, bio-fungicides like risoderma, the gross margin is more similar to that of a biological product. So it's upwards of probably 60%.
spk04: Absolutely. When we're talking about proprietary bio-insecticides or bio-fungicides, the margin is more tilted towards what we make on inoculants and citrulline bags.
spk05: Perfect. Thank you. And just last one, if I can. What was that, you know, recent acquisition kind of revenue in the quarter?
spk06: You're meaning the one associated to the reorganization of the crop protection segment with the use of the sales force?
spk05: Yeah, the one that came on board, I think it was last quarter.
spk04: Yeah. Yeah, absolutely. Like Federico said, Ryan, that is part of our reorganization. I mean, it's a commercial entity that takes care or basically has a sales force that is specifically dedicated to commercializing third-party products across the main regions in Argentina. They do have some, we do have now some own stores, but it basically focuses on low margin, low margin, I refer to 25 to 35% range. type of products that came on board a couple of quarters ago. They took over the commercialization of the third-party products that are re-selected by Salesforce before, and that allowed the re-selected Salesforce to focus more on international growth and also in the micro-use fertilizers. was probably had a runaway in the previous quarter, in the second quarter of the previous fiscal year of about $8 million, and it grew significantly now in our hands. Probably almost twice, no? Yeah, so that jumped from, there's sort of like a jump from $8 million to $16 million now in this particular quarter. But that kind of mix of synergies, right?
spk05: So it's performing exceptionally well as well. So it's across the board. What you're integrating in is, you know, we're seeing, you know, great performance across core and acquisition revenue.
spk04: Absolutely. I think that it makes a ton of sense in terms of synergies as this commercial team that we brought on board was already commercializing some of the selected products way before we make that integration. So it makes sense that we are seeing some very strong commercial synergies coming out of the interaction between the two commercial teams. Great. Thank you so much.
spk05: Thank you.
spk01: Perfect. Thank you, Brian, for your questions. Our next question comes from Kemp Deliver from Brookline Capital Markets. Please go ahead. Sorry, Kemp, we're not getting any audio from your line. Could you please assure you not to mute? Hello? Hello, we can hear you now.
spk05: Thank you. So thank you and good morning. Just to start with the growth in the EU and U.S. markets, Could you talk a little bit more about the actions you've taken to drive that, the outlook, and also a little more, and I think you mentioned the product segment, but if you could go through the opportunity across the business in those two markets, that would be helpful. Sure.
spk06: So, thanks, Ken, for joining. We're thrilled with what we're seeing in Europe and the U.S. In the U.S., we've been there for many years and have reorganized the sales force under new management that provided for the incremental sales that we're seeing today, mostly on the inoculate front and the biologicals that are most internationally product, if you will. So that incremental growth in the U.S. comes from an internal reorganization and a new manager in place that's been building or rebuilding the relationships on the historical products that we sold in the U.S., mostly in our clients. In the case of Europe, we've been putting a strategy in place by initially having a subsidiary so that we could secure product registrations, integrating our biologicals with some of the seed care products, and further consolidating some historical relationships. As you know, we are a very important partner of Syngenta, and even though that is today most material in Argentina, it is a relationship that is expanding to other geographies. and part of the european growth comes from from that relationship as well so on a forward-going basis uh we expect to see um similar growth obviously not 146 percent quarter over quarter in every period uh but uh we do expect these two uh geographies to to become very meaningful and um these are huge markets so the us as you know for row crops in general and euro for for biologicals for biofertilizers that can't minimize the use or reduce the use of chemical fertilizers i think we have a very appealing portfolio with upcoming registration also of our biofungicide for the european market so we do expect um to to see um a very strong performance in the quarters to come yeah i would only have to outcome but the the part that it makes it
spk04: even more exciting is that these two geographies north america and europe brought almost a quarter of the growth in gross profit so it's not only attractive markets from the size perspective but also markets that are very profitable to us so that is something that makes us uh put more focus and effort into building uh more infrastructure to keep growing having said that uh I think that still needs to be evaluated in the sort of like a context of the full season in those countries. And it has just gotten started. So I think that we are here to see what the final result will be for the full season. And that's going to unfold in the second quarter, third quarter and fourth quarter.
spk05: Super. And in the U.S., is this revitalized sales effort the team you can leverage for when you roll out the HB4 products, or will that require a separate marketing effort?
spk06: I think there might be some support from the existing team, but we are more inclined to thinking of an independent effort for the HV4 program in the US. This is a team that specializes on biologicals, particularly seed treatment. We will obviously use the HV4 channel to commercialize biologicals and seed treatments, but the specificity of the seed business will require a dedicated marketing and commercial effort with a different level of expertise. So some synergies, some support, but for the most part, these will be two different teams.
spk05: Great. Thank you. And the guidance regarding, you know, Echo Wheat's very helpful. So a couple of questions related to the assumptions. First, for the market opportunity, over what time frame do you think that realization is possible? Is it five years, ten years? What is your thinking about the adoption curve?
spk06: So we believe it's closer to five than to ten. It's not three years out. But that's as much as I would like to say now.
spk05: That's fair enough. And with regard to the EBITDA guidance, what level of revenue does that imply?
spk06: So you can think of this as a 30% to 35% EBITDA margin business so that you can then play with the numbers and get your revenues or vice versa obviously there might be some price pressure as we try to fully penetrate so it's not like we're going to keep steady pricing but there might be additional technologies brought into the product offering and so um i i think you can use that to sort of play with numbers and come to to some very close understanding of what we expect
spk05: Great. And that would apply to both soy and wheat?
spk04: Yeah, in general, yes. I think that margins are similar. Remember that in wheat, we do some equity accounting for JV with that we don't do in soybeans. But EBITDA margin-wise, yes.
spk06: So in soy, we fully owned the technology in which part of the technology and the product was co-financed by Florimo de Pre.
spk05: Great. And my last product, or I'm sorry, my last question relates to China. You know, there have been some regulatory changes involving GMO wheat I'm sorry, soy and corn, they appear to focus on domestic development of these products. Do you have any thoughts on how that move impacts your application? It seems like a step in the right direction, but it's very hard to determine everything that may be going on there.
spk06: Yes, absolutely. I think it is a step in the right direction. It is a step that is mostly designed for the in-country cultivation process and for some local developers that have today products in their pipelines that can be applied in China. Unfortunately, we have not seen sort of a a similar attitude towards international approvals. So if you look at the last two meetings of the Chinese regulators, they have mostly restricted approvals to domestic market issues that have not approved any new soy, or feed and food importation, for instance. So, it is a process that is difficult to track, unlike what we had with Brazil's Cetenebio, that we knew every month what to expect. The Chinese process is more difficult to track. We are now in the process of requesting Argentine authorities to review the current the current approval. This is an approval that dates back to 2015. So seven years have passed already, and we're still waiting for the Chinese clearance. So I think the case can be made for a time limitation on the Chinese Plus here in Argentina, particularly for a technology that has already been approved in the U.S. and Brazil, in Paraguay, in Canada. So most of the relevant production geographies without any kind of consideration to the Chinese regulatory process. So we do expect the Chinese approval to come, but we are taking a more proactive stance, particularly with the Argentine authorities to try to remove that restriction and be able to freely commercialize HP4 soil in the upcoming seasons.
spk05: Well, seven years is not atypical for them.
spk06: No, that's not true. But I think it's enough time to make a decision. But we're cautiously optimistic, I should say, even though we did expect this last year, and we're still waiting.
spk05: Very good. Thank you.
spk01: Perfect. Thank you, Ken, for your question. At this time, there are no further questions, and I would like to pass the call back over to Federico Trucco for any final remarks.
spk06: Well, first, I want to thank everyone again for joining us today. I think we had a very good quarter. We are very enthusiastic about the state of our business and the prospects ahead. I mean, to say it bluntly, we are on fire and delighted to be on fire, and hopefully we can keep on bringing similar performances in the quarters to come. So not much more. I wish everyone a happy Thursday and a good end to this week. Thank you.
spk01: Thank you everybody for joining today's call. You may now disconnect your line.
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