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spk04: Welcome to the BioService Corp Solutions Fiscal Third Quarter 2024 Financial Results Conference Call. My name is Karlyn. I will be the operator for the call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to hand you over to your host, Paola Savanti, Head of Investor Relations to begin. Please go ahead, Paola.
spk00: Thank you and good morning and thank you everybody for joining our third quarter fiscal 24 earnings call for Bioservice Crop Solutions. Today's presentation will be led by our Chief Executive Officer Federico Trucco and our Chief Financial Officer Enrique Lopez Lecube. Both of them are available for the Q&A session following the presentation. 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 the earnings release and presentation, as well as the recent 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, and the webcast link is available at Biocera's Crop Solutions Investor Relations website. With this, I will now turn the call over to our CEO to start our call. Federico, thank you.
spk02: Thanks, Paula, and good morning to everyone. Please turn to slide number three to be in the report. I have to say that despite the anticipated drop in the year-over-year numbers for the quarter, And although we experienced some delayed sales for our bio nutrition solutions in Argentina and in Brazil, which we now expect to realize in our fourth and last fiscal quarter, we are generally satisfied with the results we're reporting today. Total revenues in our third quarter were at 84 million, a 10% decrease compared to the same quarter of last year. Similarly, our net income for the period declined to 9.8 million and our adjusted EBITDA to 21.1 million. As Enrique will explain during his part of the presentation, these anticipated drops are entirely explained by the disproportional weight of the Syngenta distribution agreement in the third quarter of 23, whose contribution is now more evenly distributed throughout the year. From a qualitative point of view, we continue to see positive developments in Brazil, which we expect to translate into quantitative milestones in one or two seasons. One of these developments was the first regulatory approval for our inactivated Burgoderia biocontrol solutions, which we announced last week. This approval creates an immediate opportunity in high-value bioinsecticidal markets, as well as in our Generation HB4 channel, and in one or two seasons in broader row crop markets once our lowest-rate formulations are included in the offering. Another positive development in Brazil comes from the performance of our first two HB4 soy varieties, where we received favorable feedback from key farmers and expect to increase the current pace of growth. I will provide more information on these developments later in the presentation, as well as discuss the outlook for our fourth and final quarter of fiscal 24. Before that, I will now pass the presentation over to Enrique for a more detailed discussion of our numbers.
spk01: Thank you, Fede, and good morning to everyone on the call. Thanks for joining us. Let's turn to slide four to begin looking at our financials for the quarter. Like Federico mentioned, our total revenues in Q3 were $84 million, which fell a bit short of what we were hoping to achieve this quarter. Our ambition for the top line was to get as close as possible to the $93.6 million in revenues from last year's quarter, which included a $32.9 million accrual from the Syngenta compensatory payment. Here, let me remind you that from the $50 million we obtained from Syngenta upon signing the agreements, $32.9 million got booked in the third quarter of last year compared to only $15.7 million that got accrued in the quarter we are reporting today. An ambitious goal for the quarter was to offset this $17 million drop in sales with performance from the rest of the business, which was challenging to do in a seasonally low quarter. Well, we came halfway of that and exclusive of the Syngenta compensatory payment, we grew our top line by $8 million. Although we knew it was going to be very hard to fully compensate the drop from the Syngenta Cruel in a quarter characterized for being low season in most of our target markets, we did have expectations of accomplishing more than what we did. We will get into the details for the different business segments as there are different realities for crop nutrition and production. But for the time being, let me just tell you that there is a portion of the sales that didn't happen this quarter that is related to market timing rather than our specific performance. And therefore, we have a reasonable level of expectations with regards to recovering part of this in the fourth quarter. As you will see through the presentation, the $17 million reduction in the Syngenta compensatory payment accrual from $33 million to $15.7 million is what largely shapes the year-over-year compatibles this quarter as it flows from top to bottom line of the income statement. Adjusted EBITDA was not an exception and the underlying business performance got to $21.1 million in EBITDA compared to $35.8 million last year. Now let's turn to slide five to give you some granularity on sales per segment. In crop protection, revenues were $46.8 million for the quarter, a 6% increase compared to the same quarter last year. Although the year over year comparison is positive, this is one of the segments in which we were expecting to do a bit more. particularly in Brazil with adjuvants and the U.S. with some of our cash crops bioprotection products. Both markets continue to show suboptimal conditions, mainly explained by the interaction with our distributors in a context of higher interest rates and the impact that this has on inventory management from their side. Although things have been getting better in the crop protection industry, it has taken a bit more than what everyone expected for the market to get normalized. In seed and integrated products, revenues increased by 46%, primarily due to downstream HV4 sales. The third quarter is normally low season for seed products. So unless there are pre-season sales for winter crops related products, there is not much happening in this segment for the quarter, which was the case this year. I do think it is important to note, though, that things are lining up pretty well for an active winter crops campaign, particularly in Argentina. Soil moisture needed for planting is almost secured with accumulated rain so far, and wheat-soybeans double cropping shows the most attractive economics for farmers compared to corn or soybeans standalone. Also, local wheat price has significantly improved in the last few weeks in Argentina, so it seems that May, June and July will be pretty active. Finally, in the crop nutrition segment, we see the outsized effect of the Syngenta payment accrual. Product sales grew during the quarter in comparison to the previous year, however, not enough to offset the effect from the Syngenta payment, and therefore, segment revenues come in at a 34% reduction. Excluding the compensatory payment effect, growth in the segment came from biostimulants and microbead fertilizer sales. In biostimulants, we continue to see expansion in Europe and Brazil compared to the prior year, same than in past quarters. Microwave fertilizers had a comeback from last year's low compatible, which had been impacted by drought in Argentina and grew revenues for the segment, but did so to a lesser extent than what we were expecting. This is particularly related to market dynamics, as phosphate prices have remained fairly high, with a price ratio of phosphate to ag commodities at historically high levels, only surpassed by the months that followed the breakout of war in the Black Sea region. This, of course, plays against having an active pre-season campaign, as we did in past years for winter crops, because farmers postponed purchasing decisions in the wait for one of the two variables to improve. In any case, we estimate that there were between $6 to $7 million of fertilizer sales that we were planning to do in Q3 that are not lost sales, but rather got pushed into Q4. Inoculants in Brazil follow their similar dynamic, and we estimate that there are $3 to $4 million in sales that were planned in the third quarter and will get pushed into Q4. Turning to slide six now for a quick look at gross profits. Overall gross profit was $42.6 million in comparison to last year's $57.5 million, in line with what I described regarding the effect of the Syngenta payment accruals. Excluding this effect, the rest of the business increased the gross profit, but proportionally less than revenues due to segment and product mix. Crowd protection saw a slight increase in gross profit, but less than the growth in revenues. As I explained before, we were expecting a higher gross profit contribution from sales in Brazil and the US, which have higher gross margins than the categories that brought growth this quarter. In seed and integrated products, revenue growth came from low margin downstream grain sales, reducing gross margin in a period that is seasonally the lowest for the rest of the segment portfolio. And finally, in crop nutrition, the gross profit decline is entirely due to the $17 million lower accrual from the Syngenta booking. Overall, gross margin was 50.8% for the quarter, a reduction from last year given the extraordinary comp. Excluding the Syngenta payment accrual effect, gross margin for the portfolio remained effectively flat. Moving on to adjusted EBITDA in slide seven. Like I already mentioned, adjusted EBITDA for the quarter was $21.1 million compared to last year's 35.8%. This was explained in full by the effect of the Syngenta accrual and was partially offset by the operational performance of the rest of the business. Different than sales, although fully compensating the year-over-year TAF comparison was never within our expectations at the EBITDA level, we were targeting to beat the $25 million mark. Our estimation is that headwinds in the crop protection business in the US and Brazil brought a shortfall of about $2 million to our plan. while fertilizer and inoculant sales pushed into Q4 were meant to bring in close to $3 million in EBITDA during this quarter that we expect to achieve in the current quarter, Q4. Federico will talk as to what we expect for the last quarter of our fiscal year, but we remain positive and cautiously optimistic with regards to being able to deliver a double digit growth in profitability if we have an active winter crops market for seeds and fertilizers in Argentina, on top of resumed activity in Brazil, and if the quarter goes as planned in Europe and the US. Finally, turning to slide eight, Total financial debt stood at $242.8 million compared to $250 in the year-ago quarter, with net debt at $210 million. The leverage ratio is higher, essentially on a higher net debt and lower LTM EBITDA base than last year, but still below the three turns, usually what we use as a watermark level. With that, I will turn the call back to Federico. Federico?
spk02: Thanks, Kike. And please now turn to slide number nine for a brief update on HB4 soy. Soy harvest in Argentina has been delayed due to excessive rains during the last part of the crop cycle. So we are not yet able to report on performance or inventory conditions at this moment. Having said this, the improved weather of the last few weeks should allow for this situation to normalize by the end of the month. In Brazil, we have introduced the first two HB4 soy varieties with key farmers on a limited number of hectares, about 7,000 hectares. And we have received generally positive feedback up to now. Win rate compared to top commercial alternatives was greater than 60%, with some locations showing double-digit improvements in yield. This is a promising beginning and a good step forward towards achieving our next season's ambition for this crop in this geography. Also, and continuing with encouraging developments in Brazil, in the next slides we'll discuss our announcement of last week regarding the recent approval of Diosedes' first bioinsecticidal solutions by Brazil's Ministry of Agriculture and Livestock. Please turn to slide 10. This approval represents a significant regulatory milestone in the Brazilian market, marking the first endorsement of biological products formulated from fully inactivated microorganisms. To recap, our most advanced biocontrol solutions leverage the metabolites of inactivated microorganisms, resulting in products that demonstrate heightened effectiveness, precision, shelf life, and formulation stability, as well as greater consistency in their mode of action compared to live formulations. Moreover, non-living bacteria-based products can be formulated with increased potency and at much lower cost, nearing cost parity to less favorable present-day chemical alternatives. The recently approved products are based on Burkholderia-derived metabolites, which were first registered in the United States in 2014 and have since been commercialized under the Venerate and Majestine brands, as well as third-party brands under special commercial agreements. In the United States alone, they are used as nematicidal and insecticidal seed treatment on more than 4 million hectares, of corn, cotton, and soybeans, effectively replacing abamectin in seed treatments while also boosting the control of soil-dwelling insects that are typically controlled by neonics, pyrethroids, and organophosphates. If you turn to the next slide, you will see that these solutions also exhibit a much improved safety and climate impact profile when compared with the broadly used chemistries I just referred to. This graph from our sustainability report shows how we compare two main alternatives in terms of greenhouse gas emissions, hazard to pollinators and soil biota, among other key sustainability indicators. Lastly, this enhanced environmental profile comes with improved or similar performance, as you can see in the next slide. Brazil is today the first biocontrol market in the world in row crops and poised to become the largest individual biocontrol market by 2030. Bio-insecticides and bio-nematicides currently represent approximately 11% of the country's total insecticide and nematicide market, estimated at 5.5 billion, and have been growing at an annual average rate of 44% for the past five years. This approval is a much-awaited milestone for our near-term growth plans in Brazil and because of the global relevance of this market, for our company in general. Finally, let's take a moment to discuss where we stand in terms of our fourth quarter performance and what we expect will be driving a significant profitability improvement in the period to be able to deliver another year of double digit growth. Roughly, I'm turning to the next slide. 75% of the improvement is dependent on growth in our seed and integrated products segment, mostly associated with HB4 wheat sales. As of today, we are almost halfway there, and we expect to be able to approach this target in the almost 45 days that remained in our fiscal year. The rest of the growth is expected to come from the discussed catch-up in the bio-nutrition product sales, namely microstar sales in Argentina and inoculant sales in Brazil, and from comparatively stronger conditions for winter crops in Latin America. I don't know, Enrique, if you want to add anything to these remarks regarding the outlook of the fourth quarter.
spk01: Absolutely. Thanks. Look, I think, of course, it's kind of like we would get to what is a historically high fourth quarter. But we do feel comfortable with what is lining up as a pretty nice market in Argentina for winter crops. We have seed availability. We have the only product that can deliver biotechnology in wheat. plus what seems to be a pretty active fertilizer campaign also in the fourth quarter. So we feel that we are in good shape if the market is there to be able to hit a watermark. And also with the level of visibility of the things that have been accomplished so far in the quarter with HB4, plus what I already mentioned of EBITDA falling from Q3 into Q4.
spk02: Good. So I think this is... a good place where we can pause and open up the call for Q&A. So operator.
spk04: Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Kristen Owen from Oppenheimer. Your line is now open.
spk03: Hi, good morning. Thank you for taking the question. I want to start with a little bit of an easy one, but just a modeling question for you around the Syngenta payment. Now that we're through those two big compensatory milestones, How should we think about that Syngenta revenue contributing to overall crop nutrition revenue going forward? Just remind us of the mechanics of that as we start to think about fiscal 2025, fiscal 2026.
spk01: Hi, Kristen. This is Enrique. Thanks for joining us today. And thanks for the question. I think it's important to be able to sort of like provide a level of visibility on how we think that this business with Syngenta, this material for us is going to evolve. So to put it in context, Let me remind everyone what the $50 million compensatory payment was meant to do for business. For the first two years of the agreement, we are sharing with Syngenta part of what was a very profitable business to us. But they have still not been able to grow the business in a fashion that would make it economically advantageous to us. So that's where the $50 million compensatory payment is coming from, in sort of like a way to compensate profit sharing in the stage in which Syngenta has yet not grown the business to the level that they can grow it. So what I would expect, Kristen, is that next year around, when we don't have the $15.7 million compensatory payment accrual that we got this quarter, that the business should be able to bring in profits in a tune that would make it be at least flat. So in the first three years of the agreements, what we have in the agreement with Syngenta, what we have is a meaningful jump compared to the prior numbers to the agreement. And then year one, two and three is just keeping up with that sort of like meaningful jump and then start growing again at double digits in inoculants in year four, five and onwards. So next year round, what you can expect is for the inoculants business led by Syngenta to fully compensate with operational performance. What this year we have accrued as a compensatory payment in the tune of $15.7 million. which was already lower than the $33 million that we accrued in the first year. So those are the dynamics. I don't know if that was clear. If not, let me know.
spk02: It might be worth reminding the nature of the agreement, where there is a minimum profit sharing of $230 million on top of the $50 million. that we're alluding to in terms of the payments that are being booked in third quarter of 23 and now in the third quarter of 24. So in addition to that, throughout the 10 years of the agreement, there are minimum payments totaling $230 million, which initially, as Syngenta was onboarding, the new geographies were smaller and they become more meaningful as we move forward in one year after another. um that i believe will will compensate and more what we are achieving today through this particular accrual and so in total it's 280 million dollars of profitability guaranteed by contract that we should be getting from the the agreement with singenta absolutely and just for modeling purposes i think uh kristin that you what you will see
spk01: is that we are targeting, like Federico said, this to annually provide close to $30 million in profits. The first two years, because we didn't have that from the business, we got a compensatory payment. And obviously, I think that one other thing worth reminding everyone is that this was the one product category in which we are market leaders. It was tougher for us to grow. Hence, comes the agreement with Syngenta to join forces and keep expanding our portfolio globally.
spk03: That is super helpful. I'll ask one clarifying question. The past years, one and two, the contribution of that revenue is more ratable versus these one-time compensatory payments.
spk01: Exactly right. You got it right.
spk03: Okay, perfect. So then my second question is related to the new registrations in Brazil. Big milestone for you guys in that market. I think, Federico, you mentioned that that has already been approved also in the U.S., So my question is sort of a broad US and market question around some of the more stringent adherence to things like the Endangered Species Act review, just getting tougher to register products in the United States unless they can get around either that EPA review or, excuse me, ESA review. or they have some biological benefit. So it's kind of a big-picture question, but how you think about your pipeline, the progression of MB306 in the U.S., and sort of the broader regulatory environment and how that may be an opportunity for bioseries in these broad-acre applications.
spk02: Thanks, Kristen, for the question and for joining the call. It's never easy to talk about regulations because they tend to be constantly evolving and that's a bit frustrating for the business in which we are. Having said this, the U.S. and Brazil tend to be walking apart compared to Europe these days. So I'm not going to complain. I just have to say that what we approved or what was approved in Brazil now has been already approved in the U.S. in the form of what was known as MBI 206. So this is something we're currently commercializing in the U.S. and where we feel there's a market for it in Brazil. In terms of the lower rate version of this technology, which we refer to as MBI 306, I think we're expecting the approval to come in the US in the next few months. Hopefully, by the next call, we should have news on that. And after kind of a back and forth from the EPA, where there was initially an intention to do an extended review, and then that got reverted, and we're now able to seek the labels for these lower rate formulations. And in the case of Resel, the path forward is probably a different one, since we're not talking about a different active ingredient, and might be one where we can fairly quickly onboard with these lower rate formulations. lower rate approach. Now, the lower rate approach is critical for the row crop market, where we need to be very cost competitive while retaining the level of effectiveness in the control of the key pests. And that's why I think Brazil, it's very relevant because pest pressure obviously is very high. I was Referring to how much we invest today in each bag of soybeans in bioinsecticides, in insecticides, not bioinsecticides, in Brazil, which is about $15 per bag. So about $22 per hectare. Imagine if we would be able to replace that. with our biocontrol solutions. That's probably more than what we make out of germplasm royalties today. Way more than what we make out of germplasm royalties today. So this is the opportunity we are trying to seize initially in the higher value markets and hopefully very shortly in the low rate markets. In terms of... The regulatory framework, obviously, Brazil tends to be faster than what we see in the U.S. in general. And both countries much, much, much faster than what can be done in Europe these days in terms of sort of probably the three main markets regarding these products.
spk03: Thank you so much for all the color. I'll leave it there and congrats on the progress.
spk04: Our next question comes from Ben Cleve from Blue Street Capital Markets. Your line is now open.
spk05: All right. Thank you for taking my question. I first want to start with a clarifying question as well. On the last slide of your presentation where you're laying out the looking ahead, I want to make sure I understand this right. You are, with this slide, you are basically trying to indicate that between the EBITDA contributions that got pushed out from Q3 to Q4, plus HB4 contributions that you have, that are already in the bag in the first six weeks of this quarter, your EBITDA is already at year-over-year levels. Is that correct? This is not, yeah, I just want to make sure I'm understanding that right.
spk02: So first, Ben, it's great to have you here. What we are saying with this last graph is that the improvement that we expect for the last fiscal quarter, so which are almost 21, little less than $21 million of EBITDA, is in part going to be delivered by what's slipping from the current quarter. So there are about $4 million of EBITDA that we didn't realize in the third quarter, that we are expecting to realize in the current quarter, incremental to the EBITDA of last year, the $10 million that I caught delivered last year. And then the remainder, or a significant part of what's left, will be explained by the incremental EBITDA that we guided towards for HB4 wheat, of which half of that is almost done already after... 45 days into the quarter. Is that clearer?
spk05: Yeah. Yeah. And I think you just answered my follow-up question, which is your expectations for HB4 wheat, you know, either in the quarter specifically or in the full year in general, that $15 million VBIT contribution, at least that you've targeted for some time. It sounds like you're still comfortable with that $15 million number. Is that correct?
spk02: I mean, we're as comfortable as we can be. Obviously, I would much rather say we're already done in terms of we're a month and a half into the quarter. That number is already in the books, but it's not. We're only halfway there, which is not insignificant, by the way. But yeah, as Enrique said at the beginning of his presentation, we're cautiously optimistic and feel that this is doable.
spk01: And that we start at a higher floor compared to where we were last year. Exactly. Ben, just hi. This is Enrique. Just to complement what Fede just said, I think what we want to communicate here is that there's about $10 million that we didn't have last year. So anything coming from HB4 is something that we didn't have last year, plus the flow of about $4 million from Q3 into Q4 is something that shouldn't be counted towards the $10 million base that we had last year. So that already puts us at $20 million, and I think that the $10 million remaining to get to $30 million, is something that the business with the underlying organic growth should be able to deliver. Like I mentioned, biostimulants have been delivering growth quarter over quarter and year over year, plus a normalized sort of like market, probably in Brazil, in bioprotection and in the US. That alone should put us on track to accomplish what we have set our minds to. Got it.
spk05: Okay, very good. That's all helpful and very clarifying. On the fertilizer business, I understand there's a lot of just major, you know, kind of puts and takes going on here. I'm wondering on a high level, Enrique, if you can clarify the performance of the fertilizer business this quarter as broken down by price versus volume changes on a year-over-year basis.
spk01: Yeah, that's a good question, Ben. I think it was all sort of like volume related, year over year, plus also the shortfall against what we were planning to do. It's all volume driven. And that's what makes us feel a bit more comfortable with the performance this quarter, even though it was less than what we wanted it to be, because it seems to be responding to the dynamics that I just described. MAP and DAP prices have remained historically high, only surpassed by the sort of like months that follow the breakout of the war in the Black Sea, like I said. That usually, when you go back into historicals and check for farmers' behavior, what it usually does is that farmers postpone purchasing to the very last minute. So we have good soil moisture. Improving wheat prices, which at the end of the day improves the ratio of phosphate to our commodities. And that signals we should have a strong fertilizer season for the winter crop planting in Argentina particularly. Got it.
spk05: Very good. Well, that's all helpful. It's really encouraging to see such a good year so far. Best of luck here in the fourth quarter bringing it home. I'll jump back in queue.
spk04: And our next question comes from Scott Fortune from Ross MKM. Your line is now open.
spk07: Thank you, and thank you for... Yeah, thank you, and thank you for taking the questions. Just want to follow up in your remarks. You called out continuing difficulties in Brazil, kind of the crop protection market. Just wanted to get a sense, can you unpack that and where we are as that process plays out a little bit? And then similar on the U.S. side with the headwinds in the bioprotection market. Just kind of a little more color on what you're seeing and kind of easing on those two markets from that standpoint.
spk01: Hi, Scott. Thanks for joining the call. Good to have you on board. And that's a good question. Look, I think what everybody has anticipated would be a sharper recovery of the markets has been taking longer. We have been seeing an improvement. It's not like things have remained flat, but it's a little bit heavier. than what everybody anticipated. And I probably think that there are kind of like some nuances around what is happening in the US and Brazil that are different in the US, at least in our business, that is more lean towards cash crops still. What we see is that there's a tighter inventory management from our distributors because of high interest rates. So what usually used to be kind of like more of a flowed dynamic with them has gotten into almost just in time. So it's not so much about inventory levels in the channel as it is about inventory management. And that's a meaningful sort of like difference between against what we saw last year where channels were tough and that made it tougher for sales people in Brazil. I think that there was still some inventory channel issues that, again, the market anticipated that were going to go away easier than what they did. Plus, sort of like the low commodity prices that usually pose somewhat of a halt in farmer purchasing. Both of those things are sort of like slightly improving quarter after quarter. And remember that we are still a small part of the market, of the crop protection market. It's not a market in which we operate directly as chemical companies do. So we get some collateral damage, but they're not in the eye of the storm.
spk02: I don't know, Fede, if you want to... Yeah, first, Scott, it's great to have you on the call, and welcome to the BioCities story. What I would add to this is when we talk about headwinds in terms of our portfolio, it's a fraction of the magnitude of what's being discussed more broadly by industry participants. Remember that biologicals cannot be held in inventory forever because in some instances microorganisms die. Even our inactivated microbial formulations cannot be stored forever. So we have the luxury of perishable inventory, and that mitigates in part these inventory build-up situations that are fairly frequent in the chemical space and sort of commodity fertilizer space. So we're talking about... I would say mostly single digit drops or effects compared to the sort of 30 to 40% declines that have been experienced by other participants in the industry. Just to put things into perspective, still a drop, but of much lesser magnitude than what is seen in the broader, more generic ag input markets.
spk07: That's helpful. I appreciate the color on that. You mentioned U.S. with kind of focus there. You provide good color in Orange City and Brazil, but kind of the ongoing expansion initiatives there, kind of where are you with the plannings in U.S. regarding the HB4 program to kind of move that to meaningful commercial scale, kind of timing on that. Just a little bit more color on the spring planning and then follow up, you know, with the pro farm and how that tracking on the revenue side, expanding in California from kind of the margin and the cost side of that segment. Just kind of update on the U.S. and the initiatives kind of moving forward there. It would be helpful.
spk02: Sure. So on the HP4 front, the U.S. is coming behind Latin America in terms of product development. We have indicated in the past that we were working together with companies with Stein in terms of some materials that we source from them to have better performing genetics for the soybean market in the U.S., as well as with other breeding companies. But this is not something we expect to kick in in the next fiscal year. I think this is probably more fiscal year 26 and forward in the case of wheat. We're still waiting for the USDA approval for in-country production, which is long, long overdue. I mean, it's surprising that Brazil, Paraguay, Argentina have already approved and the U.S. being such a quick market in terms of GMO clearances has not yet delivered on demand. in-country production, even though we can export HB4 wheat for feed and food purposes to the U.S. So that's still a pending item, even though we are working with local germplasm providers to develop varieties. So that prevents us from having visibility in wheat. And in terms of soy, we believe this is more of a fiscal year 26 than a event, all things HV4 considered. In terms of the pro-farm business, we continue to expand the margins on the existing products and obviously feel that we can significantly improve on what we have. in terms of margins, but mostly in terms of art of use and general rate competitiveness. Once MBI 306 formulations become approved, this will be initially very relevant in the seed treatment space where we are today using the 206 formulation in a limited manner because of the amount of product that needs to be loaded into the seeds. And I believe that that will be the most meaningful aspect for near-term growth in the U.S. We continue to sort of do better on everything we're currently offering to U.S. farmers in the cash crop, as Enrique alluded to, which is a historical market of pro-farm or maroon bio-innovations. And more so in the row crops, mostly with key names like Syngenta, for instance, in inoculants and Corteva in some of our other products. So a very important market for us is probably one that is coming behind our efforts in Brazil in terms of seeds and in parallel or even slightly ahead in terms of biocontrol.
spk06: I appreciate that update. Thanks. I'll jump back in the queue.
spk04: As a reminder, to ask a question, please press star followed by 1 on your telephone keypad. Our next question comes from Camp Dolliver from Brookline Capital Markets. Your line is now open.
spk08: Great. Thank you so much. So a couple of questions on a few different topics. First, in your slide on HB4 soil, you have the performance information that shows the average for a relatively small number of different farms or plantations, et cetera. But what does the median look like, given that range of minus 5, I think, to plus 27? Is the median much different from that average?
spk02: Hi, Kent. Thanks for joining the call. I think the median is probably slightly above the average we had before. only two locations where performance was below par, minus one and minus 5%, which maybe bias the average towards 7%. And then in general, there were maybe three or four locations where we had double digit gains from 10% to 27% and the rest were below the double digit between similar to 9% yield. But I would say that The medium might be slightly different, but not too significantly off from that 7% improvement that is reported as the average number. It's still 7,000 hectares, nine out of the 25 different farmers that have reported yields until today. So it is what it is, but yeah, that's the color.
spk08: That's great. Thank you. Shifting gears to the approval of Venerate and Majestine, how quickly can you launch those in Brazil? And just to confirm, will this cannibalize anything that you're currently selling?
spk02: Yeah, that's a great question. So on the... cannibalizing part no because we're not selling by insecticides today so this is great news this is a new family of products for us in the brazil market we can deliver sales very quickly i think we we need to do the regional registrations that usually take three months after getting the mapa approval on the master dossier, which we have already gotten. So this is ready to go in terms of some applications, particularly in high value crops where these products are cost competitive. And we're considering including them also in the seed treatment of our Generation HB4 um channel uh which is proprietary so that's almost internal use in terms of contractual arrangement but a way to replace part of the insecticidal load we are today getting from third parties and improving on the environmental profile of the hv4 program in in general so we we're going to do some substitution probably not too significant the first year because um part of the soybean seeds already being manufactured. But more importantly, next year, and hopefully once we get the lower rate approved, more broadly penetrate on the seed treatment part.
spk01: Hi, this is Enrique. Just to complement what Federico just mentioned. So first, on the regional registrations, what we mean is state-level registrations within Brazil. that usually, like Federico said, take three months after the countrywide approval. And then I think that one other thing worth mentioning is that we have a sales force that has been long awaiting to replenish the portfolio of things that they can offer. Inoculants were a big part of our offering to our own distribution network in Brazil, and that's now within the Syngenta scope. So this is something that comes to replenish the portfolio of offerings to our own distribution network. That's one. And the second, I think it is important to have an already operational business when you launch this type of products. It's not like we are going to be new in the market. It's bringing a new offering to an already existing network of relationships. Plus, like Federico mentioned, having the opportunity of deploying it also within the HB4 platform. So we have three options. sort of like paths to market for these new products. One is our B2B relationships with Corteva, with Syngenta. We'll see what is the best path on that one. And then HB4 and then our own distribution network.
spk08: That's very helpful. Thank you. And the last question is, you know, there's been significant flooding in one of the key David Miller- Regions in Brazil and there's some commentary about how that's going to impact the harvest and David Miller- You may not see this as I'm assuming you won't necessarily see direct impact of that short term. But how are you thinking about how that may influence your businesses that farmers go into the next planting season.
spk02: Obviously, it's not good news in terms of a group of our customers that live in the southern part of Brazil. Having said that, that is not a region that we are targeting for HB4 soy. footprint. We're north of that in the Cerrado region and to some extent in the Mato Grosso region, so we're not affected by the floods in the Paraná and southern region of Brazil. It might affect some of our more generic business, if you will, the adjuvants that we sell into that part of the country, it is a severe incidence in terms of total hectares, but probably not too significant on our overall revenue in Brazil because of lack of exposure or meaningful exposure to that particular geography or sub-geography within the country. It is having an effect on the soybean price so that might help improve economics, which is also important.
spk01: Yeah, what I would add as color of camp to that is you have probably three sub regions within Brazil. Obviously, the southern states are an important cultural market and one where we do have a sort of like sales. So we'll see what's the impact. We're monitoring that. But again, like Federico mentioned, I don't think that we have an overexposure there that would force us to sort of like come with very bad news at all. And the Brazilian market is so big that there's other pockets to compensate if that's the case.
spk08: Great. Thank you.
spk04: As we currently have no further questions, I will hand back over to Frederico Trocco to conclude.
spk02: Thank you and thanks everyone again for taking time to participate in our third quarter earnings call. We look forward to a good finish to fiscal year 24. I think we have done a lot of work to be in a position to continue to grow at double digits. And we have done so since the inception in the public markets. So that's something we take very, very seriously and hope we can follow up with you in the next few days if you need any additional color on what we discussed today. Have a great day and a great rest of the week.
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