Bioceres Crop : Transcript

Bioceres Crop Solutions - Fiscal Second Quarter 2022 Financial Results Conference Call, April 19, 2022

C O R P O R A T E P A R T I C I P A N T S

Rodrigo Krause, Head of Investor Relations

Federico Trucco, Chief Executive Officer

Enrique López Lecube, Chief Financial Officer

C O N F E R E N C E C A L PA R T I C I P A N T S

Ben Klieve, Lake Street Capital Markets

Brian Wright, ROTH Capital Partners

Kemp Dolliver, Brookline Capital Markets

P R E S E N T A T I O N

Operator

Hello, everyone, and welcome to the Bioceres Crop Solutions' Fiscal Second Quarter 2022 Financial Results Conference Call.

I would now pass over to your host, Rodrigo Krause, Head of Investor Relations to begin. Please go ahead.

Rodrigo Krause

Good day, everyone, and thank you for joining us. Presenting during today's call will be Federico Trucco, our Chief Executive Officer, and Enrique López 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 statement section of today's earnings release and presentation, as well in our recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

Also, please note that for comparison purposes and a better understanding of our Company's underlying performance, and in addition to discussing as-reported results during our presentation today, we will discuss comparable results, which exclude the impact of hyperinflation accounting in Argentina. Additional information in connection with the application of the rule IAS 29 can be found in our earnings report.

Finally, this conference call is being webcast. The webcast link is available at the biocerescrops.com Investor Relations site.

Bioceres Crop Solutions - Fiscal Second Quarter 2022 Financial Results Conference Call, April 19, 2022

At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.

Federico Trucco

Thanks, Rodrigo.

Good morning, and welcome to all that have joined us today for our quarterly report.

Please turn to Slide 3 for a brief overview of the business and financial highlights we will be discussing in today's call. We're thrilled to report a record quarter in the history of our Company with quarterly comparable revenues at $90.3 million and LTM Adjusted EBITDA at $61.8 million, excluding HB4 pre-launch costs. Our very strong second quarter's performance reflects an 89% growth in revenues over the same quarter of last year with a robust growth across all three business segments.

We're also very proud to report that our combined growth in Europe and North America, at 146% year-over-year, places these important geographies at close to 10% of our global revenues, a huge step forward in our international diversification strategy. As we have done in past calls, we will provide a brief update on the HB4 rollout and regulatory processes. On these last fronts, I would like to mention the recent announcements in November 2021 by the Brazilian National Biosafety Commission, CTNBio, that decided unanimously to approve the input certification for HB4 wheat flour for human and animal consumption in that country. This approval is a major milestone in Bioceres to build agricultural systems that enhance carbon sequestration and climate resiliency and is a necessary step for a commercial launch in the upcoming planting season.

Please now turn to Slide 4 for an overview on our season's results for HB4 wheat as we completed harvesting of 53,000 hectares. HB4 wheat performance was consistent with prior seasons, with HB4 varieties out yielding non-HB4 varieties by 12.8% across all environments and locations, with improved performance in low productivity environments where the yield benefit averaged 49%.

Some important takeaways from the current season are the improved sanitary and quality profiles observed in our HB4 materials. For instance, the prevalence of yellow rust in HB4 varieties was 70 times lower than in commercial controls in infected fields. As we expand acreage and achieve exposure to a wider array of growing conditions, we're also able to identify some limitations in our current first-generation portfolio, particularly in terms of lodging in undernourished environments and lower yields roofs in high productivity conditions, most notoriously above the five tons per hectare level. We expect to overcome these limitations with the introduction of second-generation genetics, as we will discuss in Slide 6, and with grower educationactivities.

In Slide 5, you will see performance results by region and grower satisfaction levels. It is very important to note that 225 growers participated in the current season, representing an unprecedented level of pre-launch grower scrutiny for the technology and for our identity preserve production program. Yield improvements ranged from 5.7% to 39.6% across all environments and regions. Regions where benefits were lower reflected limited adaptation by current materials, and conversely in regions where gains were more relevant.

Grower satisfaction levels ranged between 60% and 80% in regions where yield benefits were below average, and increased to about 80% where benefits were close to or above average. We believe that the current level of performance information by region, by productivity conditions, and by grower profile provide us a very valuable data to fine-tune our value proposition and portfolio mix ahead of our upcoming launch.

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Bioceres Crop Solutions - Fiscal Second Quarter 2022 Financial Results Conference Call, April 19, 2022

Turning now to Slide 6, as noted, we expect to minimize geographical limitations and improve grower experience under high yielding conditions as we expand our portfolio to include second-gen materials. Our current data show an average improvement of 16% in environments yielding above five tons per hectare for new materials when compared to first-generation varieties. We are moving at full biological speed to include these newer materials in our offering, planning to contract 30% of the '23-'24 season multiplication cycle with these second-generation varieties.

Please turn to Slide 7 for our current thinking regarding the HB4 wheat opportunity in key markets. LATAM represents a total market of roughly 9.5 million hectares, of which Argentina, South America's biggest wheat producer, contributes with 6.5 million. We believe we can capture an estimated 2.3 million hectares with our available portfolio and near-term pipeline, and we are currently requesting registration of three commercial varieties.

We estimate an incremental EBITDA of between $15 million and $20 million by Fiscal Year '24, with peak sales in this market projected in the $190 million to $200 million range. We also expect to grow beyond Argentina as we secure cultivation approval in Brazil, the second largest LATAM market. Production approval in Brazil is now expected for 2023 after completing in-country evaluations. We believe that HB4 technology may enable significant market expansion in this country, particularly as tropical germplasm currently being tested for wheat reproduction in the Cerrados region is incorporated to the pipeline. Brazil may, therefore, represent an additional opportunity of between 700,000 to 1.1 million hectares in the medium term.

Beyond Latin America, we are currently pursuing production approvals in the United States, Australia and South Africa. These geographies combined represent twice the hectare opportunity currently being pursued in Latin America, although in a longer time horizon.

Please turn to Slide 8. On this slide, we address the rollout of new HB4 soy varieties. As we anticipated in our fourth quarter call of Fiscal Year 2021, we decided to discontinue the ramp-up process for first-generation materials in favor of second and third-generation varieties. Third-generation varieties were multiplied off season in the United States and resulting inventories planted in full in the current cycle, totaling approximately 1,500 hectares, which are generally in good condition.

In the case of second-generation materials, where the germplasm drag was not fully eliminated, we decided to reposition a significant part of the multiplication process as a follow-up crop to reach in later season plantings. Data from the 2021 season indicated that the use of these materials as a second crop in later season plantings showed little, if any, performance gap under higher-yielding conditions. Unfortunately, the lack of rain during December made some of the locations we selected no longer suitable for the ramp-up process, and consequently we achieved 60% of the planned area for second-generation plantings. Despite not fully achieving our multiplication objective in the current cycle, we still believe resulting inventories may reach multilevel revenues for the next season.

Finally, turning to the next slide, in our progression to further enhance our business worldwide and develop top performing genetics for HB4 traits and new technologies, we have brought on board Alexandre Garcia as Global Head of Seeds. Alex has led TMG's innovation and R&D initiatives for many years and has collaborated actively and meaningfully from the TMG side on HB4 technology development in Brazil. We take this opportunity to welcome Alex to the Bioceres family and wish him every success in his new position.

This concludes my prepared remarks. I will now turn the call over to our CFO, Enrique López Lecube, to discuss our fiscal second quarter financial results.

Enrique.

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Bioceres Crop Solutions - Fiscal Second Quarter 2022 Financial Results Conference Call, April 19, 2022

Enrique López Lecube

Thanks, Federico.

Good day to everyone. Thank you for joining us for our presentation.

Let's turn to Slide 10 as we go through our financials for the last quarter. In the second quarter, we continued to have strong revenue momentum with comparable revenues increasing by 89% year-over-year to $90.3 million. Part of this increase is explained by a weak comparable, as last year's second quarter numbers were negatively affected by drought in key regions of South America.

However, year-to-date growth reached 72% and growth in the last 12 months showed a solid 56% increase, jumping to $262.6 million, which confirms robust growth dynamics that go far beyond the comparables. The main drivers behind the quarter's numbers are a remarkable commercial performance and market penetration of scaling technologies. Micro-bead fertilizers, in particular, continued to deliver growth in Argentina, while inoculant and seed treatment pack sales were outstanding in North America and Europe.

Let's please move to Slide 11 to take a closer look to our baseline business profitability performance on an LTM basis and year-to-date. As a reference, baseline business EBITDA excludes HB4 prelaunch costs, which are expensed as incurred and accounted for in SG&A and other income or loss, both income statement line items that impact our reported Adjusted EBITDA metric. As we have made headway since scaling up the HB4 program to build seed inventories for commercial launch, expenses related to prelaunch efforts have ceased to be irrelevant relative to our reported EBITDA as they had been until last quarter, making it necessary to have a profitability metric that grasps performance of the underlying business that generates revenues today.

The three main components of the expenses that are stripped out from the baseline business EBITDA calculation are HB4 related SG&A, inventory ramp-up and data acquisition costs, and IAS 29 accounting adjustments to HB4 grain inventories. We are providing a breakdown for each of these categories, both in the presentation and our press release.

To the numbers, following the growth trend in revenues the last 12 months, baseline business EBITDA reached $61.8 million in the second quarter, as Federico pointed out, up 46% year-over-year. On a sequential basis LTM baseline business EBITDA grew 15%, in line with the upward trend we have seen for the past four quarters.

HB4 prelaunch costs during the last 12 months amounted to $6.2 million, of which close to half correspond to inventory ramp-up and data acquisition costs and $1.4 million were general expenses related to the management of the HB4 program. The remaining $1.9 million were not cash expenses, but the accrual of a negative accounting adjustment from IAS 29 application to HB4 grain inventories.

During the first half of the fiscal year, our baseline business reached $37 million in Adjusted EBITDA, a 48% increase compared to the year ago period. HB4 prelaunch costs for the first half stood at $4.9 million. Importantly, while the SG&A portion of the HB4 prelaunch costs has a roughly steady run rate throughout the year, inventory ramp-up and data acquisition costs can be lumpy, as its accrual depends mainly on when farmers choose to set a price to grain they provide us with, as well as our own ability to commercialize grain that will not be used for seed purposes.

I will refer to the specifics behind the second quarter's performance in the next slides. But as a summary for this one, I believe that we had a great quarter that builds on top of the momentum we have seen in our

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Bioceres Crop Solutions - Fiscal Second Quarter 2022 Financial Results Conference Call, April 19, 2022

baseline business for almost a full year now. It is exciting to think about the prospect of adding to this business the $15 million to $20 million in EBITDA contribution from HB4 wheat that we believe we can accomplish by Fiscal Yearend 2024. We have now tested our wheat varieties at a broad scale and received good feedback from growers regarding ROI, which makes us feel comfortable with the OpEx we are putting into the prelaunch of HB4.

Now let's turn to Slide 12 for a breakdown by business segment. As mentioned before, comparable revenues increased to $90.3 million in the second quarter, up from $47.7 million a year ago. Almost half of this growth came from the Crop Nutrition segment, which grew by $19.3 million, more than tripling revenues. It was an outstanding performance in the quarter, both for fertilizers and inoculants.

Micro-bead fertilizer sales grew aggressively in Argentina, which explained most of the 9,500 tons sold during the quarter. Demand generation work done in the last two years paid out as commodity fertilizer prices continued on an upward trend, offering great market conditions to scale up our own product. Also, high inoculant sales were seen across several geographies, in particular Europe, where soybean acreage increased and Brazil, where our long-life inoculant formulation continues to represent a competitive advantage and drive expansion.

Importantly, the increase in Crop Nutrition revenues also came with the gross margin expansion given the positive market conditions and economies of scale in micro-beaded fertilizers and a product mix shift in inoculants to higher-value products such as LLI.

Gross margin was 54.1% for the segment compared to 50.7% a year ago. In the Seed and Integrated Products segment, revenue growth and margin expansion came from higher pack sales in Europe, the U.S., Uruguay and Argentina. Same as inoculants, pack sales also benefited from Europe's rise in soybean acreage. European growth was also leveraged by new commercial agreements, while growth in the United States was mainly explained by changes introduced in the commercial team. Segment sales grew by $3.1 million to $15.3 million, a 26% year-on-year increase with the gross margin expanding to 68.9%.

Finally, Crop Protection saw a 76% increase in revenues, contributing $20.1 million to total revenue growth. It was the only segment that brought growth with a decline in gross margin, as expansion in sales was driven by lower margin third-party products, something to be expected following the split of commercial teams that focused on third-party products versus proprietary portfolio.

In Slide 13, we can see how this translated into gross profit contribution per segment. Comparable gross profit increased by 69% year-over-year, reaching $42.2 million. The Crop Nutrition segment contributed close to two-thirds of the total $17.2 million increase in gross profit with an impressive 233% growth driven by increased sales and margin expansion, as I described in the preceding slide. Crop Protection and Seed and Integrated Products segments contributed 23% and 15%, respectively, to the overall gross profit growth.

Despite all regions nominally growing contributions to gross profit compared to the year ago quarter, Europe and North America stood out, contributing jointly 23% of the gross profit growth and representing 15% of the total $42.2 million in gross profit, up 11% in the second quarter of the prior fiscal year.

Let's move on to Slide 14 for a breakdown of the quarterly EBITDA. Our baseline business Adjusted EBITDA reached $22.7 million, up 57% from the year ago quarter, which is a weak comparable to a very strong performance, as explained before. We had an aggressive EBITDA growth as a result of top-line expansion, partially offset by the decrease in gross margin, increased operating expenses and IAS 29 adjustments to gross profit.

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