Bioceres Crop Solutions Corp.

Thank you for your patience. This morning's call will begin shortly. Please stay on the lines. Thank you. Thank you. Good morning, or good afternoon, or welcome to the Biosaurus Crop Solutions Fiscal First Quarter 2023 Financial Results Conference Call. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor over to Pula Savanti, Head of Investor Relations, to begin. So, Pula, please go ahead when you are ready.

Thank you and good morning to everybody. Thank you for joining. Presenting today during the call will be Federico Trucco, our Chief Executive Officer, and Enrique Lopez-Lecube, our Chief Financial Officer. Both will be available for the Q&A session. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of today's earnings release and presentation, as well as the region's filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed circumstances. This conference call is being webcast. The webcast link is available at the WSETI's crop solutions investor relations website. At this time, I will turn the call over to our CEO, Federico Trucco. Thank you.

Thank you, Paula, and thanks, everyone, for joining us today. Good morning. Please turn to slide three so that we can start our earnings call. The first quarter of fiscal 23 has been a fantastic quarter in multiple ways. We have grown revenues by 71%, and this is after including pro-farm historical revenues in the year-over-year comparisons. And this revenue growth has trickled down to profitability, with our adjusted EBITDA almost steadily falling over and reaching $24.5 million. a record quarterly number that is even more impressive if you consider that we're now fully accounting for Profarm, which is initially a negative EBITDA contributor, which we intend to quickly turn around into a positive contributor. On this last point, and as we discussed in our September call, we have finalized the Profarm merger on July 12th and have started the integration process during the reported quarter. This transaction triggered a change to U.S. dollars as a functional guarantee in our main subsidiary in Argentina, which we believe will help us better reflect the reality of this business in our consolidated financials. And Richard will expand on this in his part of the presentation. We will report on H3-4 crop status in a few minutes with H3-4 seed plantings underway and H3-4 wheat harvest to start in the next few weeks. Finally, we would like to use today's presentation to discuss the long-term agreement we have recently reached with Syngenta Feedcare to accelerate the expansion of our endowment internationally. Discuss why we did it, the expected benefits, what is included and what is not included in the agreement. Before we move to the next slide to more deeply address these key highlights, we also would like to announce the completion of our Shared Buyback Program. The program was launched back in March of 2020, and we have seen approximately 570,000 shares with an average acquisition price of $8.77. We have used the program opportunistically, where we observed significant dislocation in the market, and intend to continue to do so by refreshing the program for another $5 million on a forward volume basis. Please now turn to slide four. This slide shows the year-over-year growth of paid and comparable revenues for the last six quarters and the growth reported in the current quarter. It is obviously not the same to grow at a 71% rate if you're coming from a flat year than when you're running at a 62% growth rate from the fiscal year immediately before. We are very proud of this quarter's performance and Enrique will further address this in his part of the presentation. Moving to slide five, as we have already discussed, we have completed the NERGEN with ProPharm and now have an NMED platform for future growth in biological ag inputs, positioning our company as a clear leader in sustainable solutions for the agriculture of the future. With the integration of Profile, we now have an existing portfolio or pipeline of products designed to replace or significantly reduce the use of synthetic chemicals in most functions for which they are required in high productivity agriculture. Where we can most immediately achieve this substitution is in the feature segment of the industry. As we will describe shortly, when we discussed the long-term collaboration agreement breach with one of the segment leaders, CU-Genta. Before we do that, let's review the status of HP4 drops in the next three slides. Severe drought conditions in Argentina may transiently slow down sales in our second quarter, the current quarter. However, and at the same time, the drought is creating a unique opportunity to showcase H3PORT technology, with a countrywide wheat crop decline expected to be at the 40% level compared to last year's harvest. As you know, HP4 crops are drought tolerant, not drought-proof, so we expect to lose some fields where the conditions have been too extreme and the crops will not be taken to harvest. We think that 86% of the fields will be harvested and provide good indication of the benefit of HP4. We believe also that we will have enough inventories to stay on track and meet our fiscal year 23 goals for the crop, positioning us to reach the guidance provided for fiscal year 24. In the next slide, you can see that the phenotypic difference observed for one of our second-generation materials when compared to its isogenic, non-HB4 system line, which is currently a top-selling conventional variety in Argentina. We are looking forward to see these differences translate into yield benefits and report these in more detail in our next earnings call. In the next slide, we will provide a brief update on HP4 soil. We are making big progress with HP4 soil breeding and multiplication efforts with added season planting well underway. and with two varieties being scaled in the fall for an upcoming launch with multipliers next season. Importantly, we have onboarded the four new licensees, or germ planting providers, covering genetics for Argentina, Brazil, the United States, and South Africa, where we recently obtained feed and food clearance for those days before we even started. We're doing this while advancing our cyclical collaborations. For instance, We expect varieties from Grupo Don Mario to become available to multipliers next year in Argentina and the following year in the United States. Let's now move to the next slide to discuss the announced long-term collaboration with Ingenta SeedCare. First, why SeedCare? This is a $4,000 to $5,000 segment within the input market, in which biologicals are currently at 20% of the segment, with one-third of that penetration resulting from inoculants. After that category, where we have achieved significant success in Argentina, and are starting to do so internationally. Biologists in this segment are expected to reach $1.6 billion by the end of the decade, and we believe we can be a clear winner in capturing that growth. Turning to the next slide. To do this, to be a clear winner, we partnered with a segment leader, Syngenta Seed Care. We have been collaborating with Syngenta Seedcare for 20 years in Argentina and have jointly achieved and held the number one position for our inoculants, biofungicides, and Syngenta molecules for a long time. This new collaboration creates the right structure to expand its success internationally at an accelerated pace. We expect the international revenues generated by our inoculants alone to at least double in the next two years. While Syngenta will now cover working capital needs as well as sales and marketing activities, we have secured minimum profits that average $23 million on a per year basis over the life of the agreement. And this is not including an upfront fee of $50 million in exchange for the different rights granted for the collaboration. On top of these annual minimum profits, we will receive between 50% and 30% of the incremental profits generated by the collaboration, depending on the geography and the year. The collaboration is not just designed to maximize our commercial reach, but it is also focused on accelerating our R&D efforts. With Syngenta covering 70% of the R&D investments required for every pipeline product, a new product that we may opt to develop jointly within this framework. Finally, I'm turning to the next slide. We have not sold our in-Oakland business to Syngenta. We have partnered with Syngenta to make this business far more relevant over the next 10 years. The current agreement does not include pro-farm portfolio. It is retaining rights for us to use seed treatment solutions in our H-Report Farming as a Service channel or H-Report program. And we are also making southern rice non-exclusive in the United States for the over-the-top solutions derived from products within the agreement. We want to thank Engenda Seedcare leadership for their trust and hard work to get to this point. and reassure them of our full commitment to the success of this joint endeavor. Enrique, all yours. Thank you Federico and thank you to everyone for joining us today. We are delighted to have kicked off a new career with such a strong performance. And so what we're reporting today builds on top of outstanding growth achievements throughout the previous six quarters. So I would like to take this opportunity to congratulate and thank our sales and operations teams for doing a fantastic job of getting our technology from product to market with relentless execution. I will address the drivers behind our quarterly financial performance in the next few slides, but a strategic outline. This was predominantly a very important quarter from a strategy standpoint. We started the fiscal year on a strong note by completing the merger with ProFarm, and then continued to make considerable progress on our integration efforts and synergy targets in the quarter. Simultaneously, we executed an IOCAT agreement with Syngenta Seed Care that created value on multiple fronts. It provides a long-term profitable growth path for our inoculants. It broadens the scope of our research and development activities around sea treatment biologicals by having Syngenta co-fund 30% of the investment. And it also strengthens our dialogue by bringing in 50 million dollars in a context of global turmoil in which liquidity has become an increasingly important lever to have at hand. These two milestones put us in a unique strategic position to structurally benefit from the secular growth trend and high profitability profile of the biological software. Before I dive further into the quarter results, I would like to call your attention to a couple of important reporting changes we have introduced. The most relevant aspect relates to a switch in functional currency of our main Argentine subsidiary, which is addressed on slide 12. The merger with Opam and the subsequent business integration triggered the need to adopt the U.S. dollar as the functional currency in our main operational subsidiaries in Argentina, starting in the first quarter of this fiscal year. Despite starting out operations mostly in U.S. dollars, these subsidiaries had historically used the Argentine peso as the functional currency, and their financial statements were therefore subject to IAS 29 accounting adjustments that created distortions in our reported results and forced us to provide compound metrics to better assess our underlying performance. The graduate report pump has enabled this long-standing shift, which now eliminates the need for IAS 29 inflationary adjustments and, as a result, comparable figures will no longer be presented except in reference to past quarters. Long-term, this change will simplify our financial reporting and provide our shareholders with a much clearer picture of our problems. On a different note, to allow a fair comparison of our organic crop and growth year-over-year, we have taken the extra steps to provide pro forma comparisons for fiscal year 2022 revenues and gross profit, two metrics that would otherwise benefit from the addition of crop farm in our fiscal 2022 results. Perform a compiling of figures reflect the addition of pro-farm to historical numbers and isolate any IAS and denying distortions on fiscal 2022 figures to favor a cleaner comparison of our results to past performance. Otherwise, as reported results from prior reporting periods will be used for other line items to the income statement and balance sheet, including adjusted EBITDA. We recognize there will be a bit of adjustment as we go through the 2022-2023 fiscal year, but again, we believe this change more accurately reflects our evolution as a company. If you would turn now to slide 13, please. Our first quarter is dominated by sales in the southern hemisphere, where the growing season started in earnest. Summer crops planted in Latin America, an important source of earnings for us, spans the first half of our fiscal year, and our team did an exceptional job of anticipatively locking in a 71% growth in the first quarter in the face of dry weather, particularly in Argentina. As I mentioned, revenues from ProPharm are incorporated into our sales results, which gives you a light-for-light comparison of our total business first quarter to first quarter. By any measure, a 71% increase in revenues has been a strong start and provides us with comfort on the outlook for the first half of the fiscal year, even as we navigate rough waters on what has now been confirmed as a historical drought in Argentina. Let's please move to slide 13 for more detail on the revenue breakout by segment. Co-administration was the main contributor to growth in quarter, We saw continued strong adoption of our microwave fertilizers in an environment of tight and costly fertilizer supplies. The expansion was driven by the winter season and pre-season summer sales in Latin America. Inoculant sales also expanded across multiple regions. These gains were somewhat offset by lower sales of pro-farm biothymulants on a competitive basis because of the timing of sales last year. All of the biostimulants from the ProPharm portfolio are now included into the crop nutrition segment, while all of the products that come from the legacy ProPharm biocontrol portfolio have been incorporated into the crop protection segment. Sales of crop protection products increased by 54%, even as growers faced dry water conditions in key Latin American markets and in the United While drought conditions in the western United States continue to curtail specialty crop sales, U.S. row crop sales of pro-farm bioprotection products grew. Agilent sales in Brazil and Argentina also delivered solid performance with higher B2B sales. Finally, sales of seed treatment packs ahead of planting were higher in both Latin America and South America. We anticipate drought conditions will likely hamper the planting and growing seasons in Latin America. But on the other hand, we will have the added benefit of profile revenues, which we expect to rebound with growth as we move through the fiscal year. If you turn to slide 15, revenue growth translated into a 52% increase in gross profit. Also led by our crop nutrition segment, which delivered an impressive 85% growth in gross profit with a 50% gross margin. Growth in feed treatment bags was also achieved with a healthy 50% gross margin. Overall gross margins of 40.5% were down roughly 500 basis funds from the same period last year because of the mix of products sold within each segment, dumping margins across the board. We, like others in our industry, experienced high interest and price costs in the first quarter, which also played a role in putting pressure on margins of some products that require volunteers involving international logistics, such as Agilent. Adjusting use of the quarter reached a record high of $24.5 million as shown on slide 16. The increase in gross profit drove improvement and more than offset higher operating expenses with increasing healthy operational leverage. SE&A increase in the quarter was mainly driven by the addition of pro-farm operating expenses and by transitory costs related to the integration efforts, such as severance and higher than usual traveling expenses. Baseline business operating expenses were also higher, mainly explained by variable SG&A costs on higher sales. Even with these additional one-timers, SG&A is a percent of sales after deducting 2.8 million dollars in merger transaction expenses, was roughly 23%, in line with the first quarter of last year. Despite not benefiting from the pro forma exercise from historical 2022 numbers, the adjusted data margin remained relatively stable at 19.3% year-over-year. Slide 17 gives you a slightly different look at what were the adjusted data improvements. These calls have been to see that our Baseline business was strong enough to absorb the Mayor de Minca contribution from Proparm and still allow us to report an impressive $24.5 million result. It is also important to note that within the first quarter, we made meaningful progress on achieving cost synergies from the merger, which also contributed to minimizing the Mayor de Minca to Mayor de Minca from Proparm's results. Within the next two quarters, we expect to fully achieve the cost synergies we targeted at the time of the merger and believe that by year-end, profile assets will have turned into positive Indica contributors, which should be the basis on which we continue to build sales synergies in the next 12 to 18 months. Same as mentioned when describing sales, having achieved such an impressive EBITDA result in the first quarter gives us great comfort on the outlook of profitability for the first half of our fiscal 2023. If you return to slide 18, let me wrap up by covering three of the values. Total financial debt increased to $228 million related to the execution of the two financing agreements in connection with the pro-farm merger. Part of the proceeds were allocated to paying off all existing ProHAR financial obligations, and the remaining were used to reinforce working capital at ProHAR and our overall cash position. Our net debt ratio remained relatively flat at 2.36 times LPM adjusted EBITDA, with a healthy balance of cash, current and non-current debt. Cash and equivalents rose to $51.3 billion at the end of the quarter, including cash used to fulfill our $5 million share repurchase commitment. Subsequently, to the close of the quarter, we received the $50 million of payments from Syngenta, which brings our cash position to over $100 million. In completion, we have had an exceptional start to the 2023 Peace Career, and despite severe weather conditions in some key markets, our strong first quarter results and the revenue diversification we gained from ProPharm makes us feel confident about the growth outlook for the full Peace Career and allows us to remain focused on executing our H3-4 strategy and making ProPharm assets into contributors before year-end. With that, I would like to turn the call back over to Federico. Thank you, Enrique. I don't want to take much longer, but I do want to finish with some looking forward remarks for the remainder of fiscal year 23 if we turn to the next slide. I think we expect to see sustainable double-digit growth in our core business year over year. And this is despite coming out of a and also after the volatility that we might be experiencing due to the weather conditions in Latin America. So we are highly confident on this continued growth trajectory for the company. for the fiscal year 23. Obviously the ProPharm integration process is an important aspect for the fiscal year where we expect to reduce that negative EBITDA contribution from ProPharm and turn that into a positive number by the end of the year. and also take advantage of the R&D capabilities that exist within ProcFarm to make them available not only to other internal customers but also to external clients so that we can utilize this in full. We will fully launch HP4Weed in Argentina. We will have data coming out from the current harvest in the next earnings call. and use that to validate and promote HP4 technology for the next season. And we continue to scale HP4 soy breeding and multiplication in Argentina and Brazil with the inventory levels set in place and the performance achieved to meet the fiscal year 24-25 guidance we have already provided. And to recap on those, we expect HB4E to contribute between $15 to $20 million of EBITDA in the next fiscal year, and so to do that at the $20 to $25 million level by fiscal year 25. It is important that during fiscal year 2023 we meet the initial KPIs that we set in place for the Tintenza collaboration and scale up our production capacity for biological cytotentina and also for Agilent in Brazil. hoping to finish the new facilities by the end of the fiscal year and have that fully operational in fiscal year 24. So these are some of the sort of expectations for the current fiscal year that we wanted to finish the call with. We can now open up the floor for Q&A.