Bioceres Crop Solutions Corp.

Welcome to today's BioService Crop Solutions Fiscal Second Quarter 2025 Financial and Operational Results. My name is Nandija and I will be your moderator for today's call. All lines will be muted during the presentation with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Paola Savanti, Head of Investor Relations. Please go ahead.

Thank you and good morning to everyone. Welcome to BioService Crop Solutions second quarter 2025 earnings conference call. Our prepared remarks today will be led by our Chief Executive Officer Federico Trucco and our Chief Financial Officer Enrique Lopez Lecube. Both of them will be available for the Q&A session following the presentation. During this call, we will make forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. 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. Please note in today's presentation, we'll be making references also to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press release. The conference call is being webcast and the webcast link is available at our investor relations website. It is now my pleasure to turn over the call to Federico.

Thank you, Paula, and good morning to everyone. Thank you for participating in today's call. Please turn to slide number three. Calendar year 2024 has been a reminder that growth, at least in our industry, the agricultural industry, is rarely linear. The conditions in Argentina, which remains our primary market, have proven increasingly difficult, as we have briefly discussed in our earnings pre-announcement of last week. Our revenues in the quarter declined by 24% compared to the year-ago quarter, And while we have improved our gross margins, our profitability metrics have been affected by this significant drop in the top line. Enrique will discuss our second quarter 25 and first half 25 numbers in more detail in a minute. And while it is important to note that we have roughly kept or increased market share in our key product segments, We also believe that we need to more effectively unlock the full potential commercially of our differentiated portfolio of products and technologies. To that end, we are implementing two important changes. First, in the seed segment, during our last call, we indicated that we were in the process of finalizing a strategy review with two key focal points. accelerating the transition to a more capital-like business model and exploring alternative monetization approaches. As a result of this process, we have made the strategic decision to exit breeding, seed production and seed commercialization and will instead partner with leading seed companies as well as some of our most important seed clients who are better structured to conduct these activities for us. Aligned with this new strategy, we are announcing a new agreement with GDM in soybeans and a revised partnership with Florimont de Pré in wheat, which I will describe later in the call. Second, we're appointing Milen Marinov, who previously served as our Executive VP of Commercial for North America, as our new Chief Commercial Officer. Milan's past experience in key commercial development roles, as well as his track record with us since joining the team last year, positioned him uniquely to help us streamline our commercial operations, accelerate the onboarding of new commercial partners, and better prioritize, diversify, and synchronize our portfolio opportunities for profitable growth. Before we discuss these changes in greater depth, I would like to pass over the call to Enrique for a discussion of our financial performance.

Good morning and thank you, Fede. Let's dive into the financials. As Federico mentioned, our total revenues for the quarter were $106 million, which is no doubt disappointing, but requires some more detail on the context behind the numbers. The first thing I want to point out is that the soft performance in the quarter, as well as the first half of the fiscal year, was driven entirely by the sales performance of our business in Argentina. Argentina is a key market for us, and it is decisive for the first half of the fiscal year due to the high season for summer crops. So this season was particularly challenging in Argentina with lower commodity prices and mild to weak yield expectations driving an expected reduction of more than $200 per hectare in farmers' income from soybeans and corn compared to the previous season. This decline in expected income undermined farmers' purchasing capacity and also coupled with an abundant supply of agricultural inputs generated price pressure on ag inputs as competition between suppliers increased sharply. Estimates indicate that on average, about half of the $200 per hectare drop in farmer income was passed on to ag input suppliers, shrinking the overall ag input market. In this context, our sales in Argentina dropped in line with the market contraction and entirely explained the drop in the quarter, as well as in the first half of the fiscal year, which pretty much spans the summer crop season in the country. There are three aspects of this soft performance that I believe are worth keeping in mind. First, that the largest revenue decline in Argentina came from lower margin products, and as a result, our overall gross margin expanded from 37% to 42% during the quarter, with similar dynamics for the first half. Second, that despite the overall market contraction in Argentina, our key product families roughly maintained market share, or in some cases, even experienced an expansion of our market share in the country. Non-core products, for the most part, decreased in line with market performance. And finally, although not at a scale that will help us offset headwinds in the high season for the Argentine market, sales outside of Argentina grew during the first half, which is a good sign of our geographic diversification strategy paying out in primary markets like Brazil and the US, but also in secondary markets like Mexico, the Andean region, or Uruguay. so what i would like to point out is that without losing perspective of the magnitude of the impact that the argentine market setback took on our quarterly and first half financial results it is worth noting that benefits from accomplishments in the first half of the fiscal year such as our pivoting industry business geographic diversification and stable to slightly increasing market share in key products will most likely outlive headwinds in Argentina that we see as temporary for the most part. In the coming slides, I will explain how these market dynamics affected each business segment. So let's please move on to the next slide. I think it's slide five. So let's now look in more detail at what happened to crop protection. Here we saw the largest decline in revenues in absolute terms, with sales falling from $71 million to a little bit above $55 million in the quarter, primarily explained by the performance of Argentina. Although during our last earnings call, we had discussed and mentioned early signs of recovery in the crop protection business in Argentina, the dynamics for the second quarter continue the trends we observed in the first quarter of the fiscal year, which is why I believe it makes sense to address the performance of the first half as a whole. Year to date, overall crop protection revenues are down 20%. The decline can be entirely attributed to Argentina, where, as shown in the graph, revenues dropped by nearly $30 million, or 29%, primarily driven by lower sales of non-core and third-party products. This performance aligns with the overall market trend in Argentina, where market research firms estimate a 27% contraction in the CP sector during this period. There are several factors that contributed to this market downturn. First, and as a common denominator to the Argentine market across almost every product category, Tighter farm economics undoubtedly led to the decrease of preventive field management strategies to favor a more reactive and just-in-time purchasing behavior from farmers. This is particularly the case in crop protection products. Second, that softer demand for CP products due to tight on farm economics and lower pest pressure combined with an abundant supply as distributors had stocked up last year in anticipation of the devaluation of the Argentine peso under the new government, which in turn led to increased price competition. In summary, both overall market prices and volumes declined for CP in Argentina. Despite these significant challenges, we successfully maintained sales of our core high margin adjuvants offering in Argentina, which in a shrinking market signals market share expansion and is encouraging. On a similar note, sales outside of Argentina grew during the first half, primarily driven by our core bioprotection portfolio. Let's move on to the next slide to take a closer look at performance for crop nutrition. Sales in crop nutrition were $28 million in the second quarter. In this case, as in CP, the decline is primarily attributed to Argentina and more specifically to micro-rated fertilizer sales. As the revenue breaches in the slide show, the contribution to the decline in revenues from Argentina is almost coincidental with the contribution to the decline in revenues from micro-rated fertilizers when looking at product level variations. Several factors contribute to the decline in microbial fertilizer sales in Argentina. First, a 16% year-over-year reduction in corn acreage, which is the primary target crop for phosphate fertilization on a per-acre or hectare basis. Probably tight farm economics were even more decisive than acreage in shaping market behavior as farmers either decided to forego fertilization altogether or, in some cases, opted for lower-cost commodity fertilizers. Our estimates indicate that the overall specialty fertilizer market dropped 40% for the entire 2024 calendar year, which indicates that, broadly speaking, the drop in microbead fertilizers did not come at the expense of the leading market share position we have gained in specialty fertilizers, but rather from the overall market contraction. On a positive note, despite the soft performance, sales outside of Argentina, as well as from other crop nutrition products, grew during the first half, particularly driven by inoculants. Similar to what I described for CP, it seems reasonable to assume that the benefits from our international expansion will most likely be more permanent than the transitory setback in fertilizers in Argentina. Let's please now move on to the following slide to review performance for seeder-integrated products. This segment is slightly different than the other two. because the main revenue decline here is an anticipated result from a purposeful strategic decision. The decrease is almost entirely due to lower downstream grain sales in line with the strategic changes we are introducing to our HB4 strategy and which Federico will go into further detail later on in the presentation. As we'll see in the next slide, this decline has had very little impact on gross profit for the segment due to the low margin nature of sales from HB4 grain inventory divestments. That said, within this segment, the part of the business that did expand was related to seed treatment solutions. This growth was primarily driven by soybean-based treatments, which benefited from the increase in soybean acreage in Argentina. Once again, Although not meaningful enough to turn around challenges for our Argentine business, I do think that growing sales of high margin packs in a context of headwinds is a demonstration of the value of portfolio diversification aside from the geographic diversification. Let's please now go to slide eight to review gross profit evolution. Gross profit for the quarter totaled $45 million. Like I mentioned at the beginning of my presentation, it is important to point out that gross margin expansion from 37% last year to 42% this quarter meaningfully buffered the softer top-line performance and led to a 12% decrease in contrast to the 24% decrease in revenues. As shown in the slide, gross profit performance varied meaningfully when looking at different segments. Crop protection and microwave fertilizers were the main drivers for the decline in overall gross profit, while enhanced product mix in seed and integrated products and high margin inoculant related sales partially offset the drop. Let's take a closer look at individual segments. In crop protection, gross profit came in at $20 million, a 22% decline, which aligns closely with the revenue performance. While we did see an increase in sales of high-margin adjuvants, this was partially offset by a decline in bioprotection product sales in the US during the quarter, which had had a strong first quarter. Overall, gross margin for crop protection remained steady at 37% during the quarter. In seed and integrated products, gross profit declined by 15%. This drop is smaller than the drop in revenues because, as mentioned earlier, the reduction in HB4 grain inventory sales had a minimal impact on profitability. Consequently, segment gross margin improved to 37% from 31% last year. This improvement is a result of our deliberate focus on preserving working capital and prioritizing higher margin products. particularly in HB4 as we pivot towards a more capital-efficient and royalty-based model, as Federico will discuss. Lastly, in the crop nutrition segment, gross profit increased by 6% despite the decrease in revenues. This growth was driven by strong performance in high-margin inoculants, which more than offset the decline in migrated fertilizers' profit contribution. As a result, the segment's gross margin expanded significantly to 57% in the second quarter of this year. Let's please turn to slide 9 to take a look at adjusted EBITDA for the second quarter. Adjusted EBITDA for the quarter reached $15.4 million compared to roughly $24 million in the year-ago quarter. The decline, as shown, was primarily driven by a reduction in gross profit within the crop protection segment, which we've already discussed in detail. Another significant factor contributing to the decline in EBITDA was the performance of our joint ventures, particularly SynerTech, our main joint venture in the micro-radio fertilizer space. Cinertech's results were negatively impacted by lower product demand in recent quarters, which weighed on the overall performance of our JV equity accounting. On the cost side, we also experienced an increase in SG&A, which further contributed to the decline in EBITDA. A key driver of this increase was the higher temporary expenses in Argentina compared to the same period last year. These expenses added pressure to our cost base and include factors like higher dollar-denominated costs, given the lower rate of currency depreciation in Argentina, also temporary import taxes that were in place during the quarter but have already been lifted, and an increase in the impairment of receivables, which was done mainly to more accurately reflect current market conditions in Argentina. So to summarize, the combination of lower gross profit in crop protection, weaker JV performance, and slightly higher OPEX in Argentina led to a decline in adjusted EBITDA that I just addressed. Finally, turning to the next slide, let's look at financial debt position and review some balance sheet highlights. Total net debt by quarter end stood at $238 million, sequentially increasing by roughly $26 million from the first quarter. Given the lower EBITDA, our leverage ratio now stands at 3.3 turns, above the threshold of three turns that we have been keeping as a target. In light of P&L headwinds affecting profitability, During the quarter, we took precautionary measures by implementing a tighter inventory management policy with a more just-in-time approach. Notably, our inventory levels at quarter end were 18% lower than last year, despite lower revenues that could have translated into higher inventories by season end if measures had not been taken. This aligns with our strategy of reducing working capital exposure to focus on enhancing cash generation and improving capital allocation. To that regard, now that the high season in a primary market like Argentina is behind, during the next two quarters, we will increase our focus on improving accounts receivables performance. Despite this quarter's results coming in below what we expected, anticipating a likely drop in annual results, we remain optimistic about our mid- and long-term prospects. We are driven by the underlying value that a unique portfolio of technology like cars provides and the value creation that that portfolio brings to end users of our products. We are also cognizant that successfully navigating this period of market volatility requires a strong focus on capital allocation, driving cost efficiencies to safeguard profitability, and transitioning towards a more asset-light business model. The strategic repositioning of our seed business and tighter inventory management are initial steps to address short-term challenges on the cost side, but are also signs of our intention to cement the mid- to long-term prospects for the company. In the near future, we will continue to explore additional opportunities to enhance profitability and cash flows, ensuring we're well-positioned to capitalise on the groundwork we've already made to support our global expansion, but also to benefit from the recovery of the Argentine market when that takes place. That finalizes my remarks, so I'll turn the floor over to Federico now.

Thanks, Kike. And please turn now to slide number 11. This slide provides an overview of our integrated seed business, which today goes all the way from trade development to commercializing seeds and identity preserved grain. While this model may have been the only viable model to realistically become what we are today, one of only four commercial GMO trade providers in soy and the only one in wheat, We are certainly not the best at each stage, and this affects our ability to quickly and profitably scale our technologies in a more predictable manner. Consequently, and please now turn to the next slide, we have decided to sharpen our focus on what we do best, which is sourcing cutting-edge science and cost-effectively developing patented seed traits until commercial approval. For this purpose, we'll assign trade management rights to third parties in geographies where we are pursuing a broad licensing strategy, such as for HB4 wheat in the United States. Trade managers will be responsible for breeding and commercial agreements in these geographies, as well as technology stewardship and stakeholder management, all of which are resource demanding and require country-specific adjustments. We'll continue to collaborate with global seed companies in developing high-performing varieties, often with some aspect of exclusivity, which may be trade and or geography dependent, but we'll leave the breeding and value capture work to them. And finally, we'll enable some of our most important farmer customers to become regional seed developers, transferring the operational management of our current portfolio varieties and contracts, as well as helping them develop more site-specific products for their regions as they scale over time. And we have already put this new strategy into action. Please turn to the next slide. Aside from transitioning our seed channels operations to some of our most important customers, we have this week executed an important agreement with GDM for the development of new soybean solutions with exclusive rights outside the drought tolerant space. Under this agreement, GDM will use Verdeca's patented platform to develop and market a new generation of soybean varieties with superior agronomic performance. This opportunity will leverage from the collaboration that has already started several years ago and will have a near-term opportunity on improved weed management technology, as I will exemplify in a minute. We have also agreed to redefining the scope of our weed joint venture with Florimón de Pré, exiting conventional breeding operations in Argentina and Australia, while directly licensing our HB4WIT technology to partners outside of Latin America. We believe that by refining our strategy in this way, we'll be able to accomplish more predictable and attractive growth, while limiting the capital exposure to this effort as we are making cash generation a top priority. Now, turn to the next slide. During our last call, we discussed the opportunity to explore new monetization approaches for our existing technologies. This is what we are currently doing with our two patented GMO events outside the drought tolerant space. Here we can see how we can bioactivate vertical soybean event to achieve improved performance after treatment with a broadly used glutamate synthetase inhibitor. A weed control technology that is quickly becoming an attractive alternative to farmers and where new products are being registered that allow for significant reductions in per hectare load, combining cost effectiveness with improved environmental profile. We believe this alternative product strategy for our already approved events will help us complement and diversify our current trade offering as we see the attractiveness of this opportunity to multiple partners under our revised seed strategy. Finally, but no less important, we are very happy to announce the appointment of Milan Marinov as our Chief Commercial Officer. Please turn to the next slide. As I indicated in my initial remarks, Milan's past experience in key commercial development roles in Vallagro until its acquisition by Syngenta and then Syngenta, as well as his track record with us since joining the ProPharm team last year, positions him uniquely to help us accelerate profitable growth. As chief commercial officer, Milen will oversee sales, marketing, business development and portfolio management functions across the organization. Milen will join us in future earnings calls and we expect him to actively contribute to the understanding of our commercial performance and growth strategies. Let me take this opportunity to congratulate Milen on this appointment. And with that, I think we can now open up the call for Q&A. Operator?

Thank you very much. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star followed by one. Our first question comes from Kristen Owen from Oppenheimer. Kristen, please go ahead.

Good morning. Thank you for taking the question. Plenty of questions that we could ask Locke to unpack with the announcement this morning. But I want to start with maybe just at a high level with the transition in the seed business, you know, turning over some of the high working capital parts of the business, but maybe giving up a little bit of control on timing. Just maybe help us understand what the economics of these partnerships would look like, say, a year from now, three years from now, five years from now, so that we can understand how this will progress over time. And I'll start there.

Hi, Kristen. Thanks for joining the call. This is Federico. Look, some of these things, obviously, we have already started. In particular, those that have to do with transitioning our existing channels, the Bioceres Emisas and Generation H4 channels to some of our key customers. And that, I think, will more immediately affect our cost structure. So I think we will be having a benefit there as we scale more effectively with them and collect royalties that are generated by these partnerships. This is likely to give us more significant results in the next two to three years. But it is in line in part with what we were planning to do ourselves initially for the current year and after that. Now, I think the most important part of the partnerships announcement have to do with the ability to engage with trade managers in other geographies and also the GDM announcement that we've made today. We believe that it'll be better for our partners to sort of address these directly themselves. And we're planning to do that shortly and have probably either a joint press release or have them provide their overview in terms of market opportunity and timing so that we can provide that incremental layer of information and it doesn't just reflect on what we think ourselves. But in terms of these new alternative monetization strategies, I think what you have to keep in mind is that the opportunities we're seeking are broader than what we've originally pursued with the drought tolerance approach.

Okay, that's helpful. My follow-up question relates to the degree to which this will influence the balance sheet, sort of the impact on the working capital and your overall leverage. I mean, you noted some of the inventory takedown in the quarter, even with the sales decline. Just how we think about the balance sheet impact of this transition.

Hi, Christian, this is Enrique. Thanks for joining us and thanks for the question. I think it is a good point that you're making because the strategic pivoting has a dual effect, like Federico said, is not only broadening the scope of the opportunity, going to sort of a wider acreage through others, but it also has implications on the cost side on the spending side, but also on the balance sheet side, so on working capital. So I think that this strategic decision is threefold. It's supposed to sort of maximize penetration of our GMO technology de-risk that penetration by using established third parties, but also allow us to free up working capital that was tied in this business and allocate that elsewhere as we have meaningful opportunities to ramp up our biological business globally. So the impact of that, what you will see in the coming quarters, is a reduction on the SG&A that we allocate to the seed business. And probably with a little bit more patience, you will start seeing cash come back to our balance sheet from the divestment of the grain inventories. Bear in mind that this past wheat season was the last in which we made a significant effort with the identity preserve model. And that has built grain inventories that we will continue to invest in the remaining half of this fiscal year and probably will also spill a bit into the first and probably second quarter of the next year. But there will be cash turning back to the balance sheet from this changing strategy in the next three to four quarters and also a cost reduction on the SG&A.

Last question from me, if I may. The freeing up of that SG&A or even to an extent, maybe even some of the R&D that's been associated with HB4 and some of these other traits. I mean, if we're thinking, who does BioSeries view themselves in this market? Are you intending to develop more traits? This is the first time we've kind of heard about some of these other traits in a long time. Is this capital that's being reallocated towards building out the biologicals platform? How do you redefine yourselves in this market given this transition? That's my last question. Thank you.

Yeah, Kristen, that's a great point. I think, obviously, we are... putting a strong focus on the biological side of the business where we have low-hanging fruit and the ability to quickly bring technologies that are not as expensive to develop as new GMO events. That is not to say we're not going to pursue incremental technologies in seeds, but we believe that some of that incrementality is by better partnering with others. particularly on the gene editing space. So the good thing about the GMO platform that we have is that it not only provides traits like drought tolerance or improved weed management opportunities, but also it provides a backbone, a patented backbone for the introduction of multiple gene editing improvements that might be third-party improvements, but that can go to market in a way that is patent protected by partnering with us. And I think that will be kind of the key strategy around new products in seeds. So it's not doing the research ourselves. It's not doing the discovery ourselves. It's using what we already have to bring these innovations in a patent protected way.

Our next question comes from the line of Steve Byrne from Bank of America. Steve, please go ahead.

Yes, your partnership that you announced with GDM provokes me to want to drill into your R&D platform just a bit. I wanted to ask you about a couple of challenges in key South American crops that I'm curious whether you might have an idea or something in development, either in the biologicals or in trait development and seeds that could be a solution. The first one would be a target spot in soybeans, particularly in Brazil, which I'm sure your partner, GDM, would welcome some kind of a genetic or biological solution to that problem.

Hi, Steve. Thanks for joining the call. Look, I think there are interesting leads to try to deal with that problem. Part of them come from the gene editing space, some of which might already be within the pipeline of companies like GDM. And I think what we're planning to do is combine forces to make them not only viable or market ready, but also combine them with the other technologies that we have in our portfolio, be them at the seed treatment level from our biological software. And remember, we have a very complete We can almost substitute every chemical AI in seed treatments with biological alternatives, but also with a GMO platform on drought tolerance and weed management that can be at times an effective way to patent protect some of these innovations as well. So we are likely to... to do a joint announcement with Don Mario, with GDM, sorry, to explain this in greater detail and address that specific opportunity that you're mentioning in Brazil, which is becoming more relevant every day now.

Yeah, very good. The other one would be corn stunt in Argentina and maybe a little more broadly Do you have a view on the global regulatory outlook for GMO seeds or gene-edited seeds that could be helpful to you down the road, particularly in these crops that are exported out of South America?

Yeah, look, in core, we're not actively participating today. So it's a space that we've decided to leave to others that are better prepared. I think, obviously, from a regulatory viewpoint, we have created an infrastructure, a network of equal-minded companies with whom we can collaborate to make regulatory clearances cost-effective. I think if If you look at what we have done, one of our claims is that we were able to deregulate globally GMO events at a fraction of the cost that industry leaders have historically alluded to. And that has, in a way, made technology more viable in terms of efficiency. what type of returns are expected to make a go-no-go decision for many of these technologies that might not be global, but might be country-specific or crop-specific. So I think in that front, we're obviously looking to participate, leverage what we've been able to put together in terms of regulatory capabilities. And then in corn specifically, it's not a crop that we are addressing ourselves But I think others are actively working on that. Do you want to add something there?

Yeah, yeah. Hi, Steve. Thanks for joining. Good to have you on the call. I do think that from a crop perspective, we are profiting from corn on the biological front with seed treatments where we are market leaders and that has built a close relationship with seed companies in the corn space. So I think that that exposure that Federico is alluding to will probably come from that end, while we still benefit and profit from the technologies that we have on the biological front for corn.

Very good. Helpful. Thank you.

Our next question comes from the line of Ben Clive from Lake Street Capital Markets. Ben, please go ahead.

All right, thanks for taking my questions. Enrique, I'm hoping you can help us put a little finer point on the expectations in coming quarters on OPEX related to the kind of dynamics within especially the seed business. Can you talk about the expectations of cost savings that you're going to be able to get here in coming quarters out of the kind of realignment that you're talking about today?

Hi, Ben. Thanks for joining the call and for the question. Look, I think that this is probably a broader effort. It's not only focused on seed. Seed has a structural aspect that is essentially the shift in strategy. I don't know if this is going to be meaningful enough to be only allocated to the seed business, but there's a structural decision there to downsize teams. Aside of that, we're also going to take a closer look at our cost structure in other parts of the business because sales have not delivered what we needed. So that means that we need to sort of like understand if there's a downscaling that we need to make there to adjust to the reality and to navigate successfully this time of volatility until it fades out and we can go back to sort of like growth. Having said that, I do think and expect that we can probably have a meaningful reduction of OPEX on a quarterly basis before the year end and have that be a contributor to EBITDA that we already foresee is not going to be at the levels of last year, considering what we lost in this first half due to what I explained in the Argentine market. So we know that there's a part that is not going to be recovered. We do think that the dynamics for the fourth quarter, for the most part, are highly independent from what happened until now. So a combination of prospects for Q4 that might be untied from the reality that we had in this first half, plus a contribution in sort of being more prudent on the OPEC side should allow us to sort of like try to reach a stable level of EBITDA margin. um also bear in mind that in the third quarter we will have sort of like an unfair comparison to the last year so that's in our mind and that's the main focus when dealing with opex and with the fourth quarter okay uh thank you um on uh actually the the

Q3 year-over-year dynamic gets to one of the questions I had also here. Given the inoculate business that you cited here in the first half, it would seem to me that some business has come in from the Syngenta agreement year-to-date. Can you talk about the kind of level of seasonality you expect coming out of Syngenta for the first half versus the second half of this fiscal year? And then just remind us all of the level of that upfront benefit that you received in the third quarter of last year.

Yeah, sure. So like you pointed out, last year we had an accrual of $15 million in Q4, roughly $15 million in Q3. And that will not be there this year. And actually Q3 is not a high season for the inoculant business. So I do think that the Q3 comparison will be a tough one. And then by Q4, I think that it will depend mostly on the pace coming from Syngenta, particularly for the Brazilian business. So we don't have a lot of visibility on that. And actually, I think that for the full annual year, we probably have locked in a big portion of what we would get from Syngenta. independently that then it will be sort of like to be seen how the Brazilian season unfolds and what that does to Q4. But that's why then I think that we will be focusing on the rest of the things that we need to do in Q4 mostly. And also starting in Q3, the fall year season in the US, that's important to us. The beginning of the summer crop season for the Brazilian market, the comeback or the use of phosphate fertilizers for the wheat season in Argentina, all of this are probably more relevant in our thinking of how EBITDA will sort of like shape up in the second half than what it is, the Syngenta Agreement, that for the most part has already delivered the profits that we were foreseeing.

What I would add is that unlike the first two years where that was heavily... loaded in the third quarter and now this is more evenly spread obviously in the second quarter we benefited from from the agreement in part remember this agreement has minimum profits guarantee to the tune of 230 million dollars for the 10-year period and that it's not linear so initially the first years were lower amounts and they increase year after year. So we have a continuity of that agreement. And even though we are not going to have the accrual of the upfront in the third quarter, I see you will see that more steadily reflected in every quarter. And this last quarter was an example of that in many ways.

Okay. Very good. plenty more to ask. I'll leave one, ask one more and then get back in queue. You talked about the headwinds from non-core third-party products that you guys have talked about historically, but, but I don't know that these have ever really been emphasized all that much. I'm wondering if you can talk about the percentage of this revenue base within, excuse me, percentage of products from these non-core third-party products within your total revenue base, and then kind of define the logic in having these in your portfolio.

First, Alarif, and then let Fede comment then. It's a good question because I also think that that's part of the capital allocation, sort of like a tighter approach that we are intending to have. But I do think that there's... distinction that needs to be made when we're talking about non-core products there are some of these products that are pre-sale products that we make in argentina brazil uruguay where we lever our capacity to position a high technologies and profit from that and where we probably commercialize technologies that are owned by others but we make a very very attractive margin just out of our ability to position these type of products in the market that's one thing And that's probably, I would say, sort of a 10 or 15% part, depending on the year of our crop protection sales. Then we have An initiative that we took a couple of years ago that is a dedicated sales force for when we get barters. So if we sell a high technology product and we get paid with a lower margin third party product, we want to get that out of our system quickly and out of the balance sheet. And for that purpose, we have a specific team and that probably accounts for For a bigger chunk, it's probably about 25 to 30% of our revenues in the crop protection segment, specifically in the crop protection segment. That business is and has always been and is tightly managed from a working capital standpoint, from a cost standpoint, and that will probably continue. The type of business that we have foregone this season and that we will probably try to stay away from on a structural basis to improve our gross profit profile and also the working capital performance are more opportunistic partners that when you look at the full cash flow cycle don't probably make sense. So when we are getting paid for high margin product with something that is probably lower margin, we will keep that channel in the foreseeable future. We will also keep the third party products that are high margin, if you will, in this context that probably bring us 25% to 35% margins on our ability to commercialize the technologies, and we will forego products that are not part of the bartering and that are probably margins below 25% or 20%. I don't know if that's clear enough or if that's the answer you were seeking for, but in a nutshell, that's how we think about it.

Yeah, no, there's plenty going on there, but that's helpful to understand the logic and the magnitude. Very good. Okay. Thanks for taking my questions. I'll get back to you.

Our next question comes from Austin Mueller from Canaccord. Austin, please go ahead.

Hi. Good morning. So just my first question here, given the new partnerships, can you quantify the percentage of HB4 royalties or profits you would receive in Latin America versus outside of Latin America where you have full control, just given the the partnership on trade development and plant breeding?

So thanks, Austin, for joining the call. Obviously, the opportunity outside of Latin America is much bigger than the one in Latin America, even though that might come at a later time because it might take us a bit longer to get there. But for instance, Australia itself is twice the size of Latin America in terms of weed acreage. Obviously, drought is very relevant in Australia. So there, instead of now going through the JV with Florimonte Pre, we can have the business that we put in place in Australia become one licensee, but also license the technology to others with providers in that geography. So that will help us not depend on one single premium program, will allow us to have a licensing approach, like the one I've indicated we're pursuing in the U.S., which is, by the way, bigger than Australia, but probably the drought tolerant opportunities is similar or more constrained to sort of the Midwest part of the wheat acreage. And by doing that ourselves directly, we will keep the HB4 royalty component in full. In Latin America, we share that with Florimón de Pré through Trigal Genetics. What you will see is that the JV profitability will improve because it will no longer have to offset the breeding costs of the conventional genetics that are also commercialized through the JV. So I think we're keeping the income and we're reducing significant part of the cost. That In the near term is where we will see the improvement. But eventually, in two to three years, I think the opportunity outside of Latin America will obviously be far more relevant than what we can do in Latin America in wheat. That is just in terms of a wheat example. In terms of the soybean example, I think... we will continue, obviously, to pursue the HB4 opportunity in areas that are drought-prone, but the ability to expand beyond that with improved weed management tools, which are increasingly needed because of the herbicide resistance evolution to some of the more famous herbicides like glyphosate and ALS inhibitors and the like, are creating a very... steady and strong demand on alternatives. And I think we have an opportunity there to compete and achieve significant market share. And more so if we're partnered with someone that already has close to 70 or 80% of the genetic footprint in the subcontinent. So It will also take some time to ramp that up, but we're not starting from scratch. There are varieties that are being multiplied as we speak, and I will prefer for that opportunity to be addressed more directly by our partners that I think have a better understanding of the dynamics, the year-to-year growth, and we're likely to do that in an upcoming call or press release.

Great, that's helpful. And just commenting on the cash balance, do you feel comfortable with the current cash balance of $29 million to support the revised business strategy over the next 12 months, or do you expect you might need to raise capital?

Hi, Austin. Thanks for joining us and for the question. No, look, I don't think that the cash position is a concern for us now, even more so as we focus on cash generation and sort of like being prudent on expenses, all measures that we probably need to take from a P&L standpoint that will have an impact on cash flows. And obviously what Federico just described for the seed business. So the cash position, I think, is well-sized. For what we need to do, what we will keep an eye on is probably the leverage of the company. And to that regard, cash that is generated will be used to pay down debt. So that's the main focus and what we're looking for. And I think that the short-term needs are coincidental with what we want to do with the business in the mid-term and long-term for the sake of the P&L. So there's a convergence there. the things that we need to do with the things that we want to do. And cash is probably not the top priority there. Cash position, I mean.

Great. Thanks for the insights.

Our next question comes from Kemp Dolliver from Brooklyn Capital Markets. Kemp, please go ahead.

Great. Thank you. A couple of questions. First, is there a deconsolidation of revenue with these new agreements?

You mean if we're going to report it on a separate agreement by agreement basis?

Well, no, it would just be if it comes out of your consolidated income statement.

Hi, Camp. This is Enrique. No, look, I think that, of course, the downscaling of the identity preserve model means that we're going to have lower revenues coming from the grain divestment. The accounting or the recording of sales that are achieved through the different partnerships will depend on how those partnerships evolve. So if sales in wheat, for example, are done through the Trigal platform in Latin America, that's going to be accounted for through the JV accounting. If it's done through the partnership with Onmario and there's not an actual JV there, we will have our fair share of the royalties flowing through the revenue line. probably less bulky than what direct seed sales would bring to the top line, but of course with higher margin. So it will depend on the form and shape that the agreements take, but unless there's a JV, revenues are going to show up in our top line in the form of royalty-based high margin sales.

Okay, good. And how much of the inventory decline in the recent one to two quarters reflects the results from the HB4 grain sales versus what you're doing to control inventories overall?

Very, very good question. Look, I think that both things contributed to the decrease in inventories. For the most part, I like to see grain inventories going down because that was our intention and has been our intention. Also bear in mind that wheat was harvested December, January, so there might be part of those inventories that are already considered in the inventory number that we're reporting. But both things contributed to the decline in inventories campaign. we can probably not show is what would be the scenario if we had not been managing inventories more tightly. So the reduction in inventories doesn't fully show the new policy because you don't see the intended sales and how tighter inventory management prevented us from ending the season and probably declining season. with higher inventories if we had not been working just in time. But to your question, both things contributed to the decline in inventories, and going forward, it will continue to be the case.

But did they both contribute equally?

Yeah, during the quarter, I would say so, yeah. Equally contributed during the quarter, yeah.

Thank you.

There are no additional questions. Thank you. There are no additional questions waiting at this time. So we will end the conference call over here. Thank you for your participation. You may now disconnect your line.