Bioceres Crop Solutions Corp. (BIOX) Q1 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Bioceres Crop Solutions Fiscal First Quarter 2022 Financial Results Conference Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Rodrigo Krause, Head of Investor Relations, to begin. Rodrigo, please go ahead.

Good day, everyone, and thank you for joining us. Presenting today's call will be Federico Trucco, our Chief Executive Officer; and Enrique Lopez Lecube, our Chief Financial Officer. Both will be available for the Q&A session. I would like to take a moment to inform you that Maximo Goya, Head of Investor Relations, is leaving Bioceres to pursue an enriching personal and academic venue. I, Rodrigo Krause have joined the company to take over Maximo's responsibilities and want to thank him for his open arm support. Everyone at Bioceres, including management, would like to thank Maximo for all his excellent work and wish him success in his new endeavors. Back to our presentation. And before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of today's earnings release and presentation, as well as 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 [Audio Gap] 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 biocerescrop.com Investor Relations site. At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.

Thanks, Rodrigo, and welcome to the Bioceres team. Welcome [ as well as ] investors and analysts joining us today. As we will report, yes, we believe that we had very good quarter from a financial performance perspective. Please turn to Slide 3 for a brief overview of the business and financial highlights, we will discuss in today's call. We are thrilled to report the first quarter's financial performance and show that the positive momentum observed in the last 2 quarters has further accelerated in the reported period. Fiscal first quarter comparable revenues were up 54% over year. Consolidating and adjusted EBITDA of slightly above $50 million on an LTM basis. I will provide a high-level overview, and Enrique will expand on financial performance during his section of the presentation. As we have done in past calls, we will provide a brief update on the HB4 roll-out and regulatory processes. We will also take a minute to introduce a new level of ESG reporting on HB4 inventories that will help us measure environmental exposure toward chemicals and promote reduced chemical footprints in our seed and grain production systems. Last but not least, we'll report on the completion of Rizobacter's $16 million public offering of Series VI corporate bonds throughout the quarter. The capital raise adds to the financial strength required to support working capital needs in the coming quarters. Please now turn to Slide 4 for a quick review of a strong self-momentum growth throughout the last 3 quarters. Comparable LTM revenues reached $220 million, up 24% from the same period last year on an LTM metric. We observed top line double-digit growth trajectory results from the effective implementation of new strategies in the Crop Protection and Nutrition segments with revenue growth accelerating from the 35% to 40% level in the first half of the calendar year to about 50% in the current period. First fiscal quarter expansion was driven primarily by the combination of the new commercial strategies recently mentioned, new product launches and generally positive sector dynamics in Latin America. The rising trends in micro-beaded fertilizer sales continues for the third consecutive quarter with the Crop Nutrition segment explaining 44% of the growth in the period. Our installed capacity reaching 48%, up 60% from the year ago period. Innovative bionutrition products launched ahead of the summer crop planting season also showed solid performance during the quarter. Integral Microstar Bio and Microstar [ PED ] Bio already represents close to 10% of the segment sales. The Crop Protection segment benefited from the full impacts of sales force and channel reorganization, with this segment explaining close to 55% of the growth observed in the period. Finally, we expect to see similar growth in the Seeds and Integrated Products segment in the upcoming quarters, primarily as HB4 inventories are not longer contributed but are sold as seed or grain, and also as a result of an ongoing [Technical Difficulty] process within this segment materializes. Growth in the Seeds and Integrated Products segment should help us keep the current momentum so [ as this part ] of first quarter of the current fiscal year. Please turn to Slide 5 for an update on the ongoing HB4 initiatives. HB4 inventory ramp up processes are moving forward as discussed in our previous earnings call. Early season HB4 Soy plantings were completed, while late season planting, which represents the majority of the targeted factors is about to start in the coming days. HB4 Wheat harvest started and is currently at about 10%, mainly in the northern regions of Argentina where wheat reaches [indiscernible] [ maturity ] earlier. Operational metrics will be updated in the upcoming quarters at the end of HB4 Wheat harvest and HB4 Soy planting seasons. On the regulatory front, no additional information has been requested since our September report by Chinese regulatory authorities regarding HB4 Soy nor by Brazil's CTNBio regarding their ongoing evaluation of HB4 Wheat. As we said before, we believe both regulators should be able to resolve approval requests in their upcoming meetings and look forward to communicating our findings as they will inform to us. As you all know, end-to-end traceability is a central feature for our company and is considered a broad across the board approach in the early aspects of [Technical Difficulty] program as we generate information and design the tools for consumers and growers to talk to each other. In Slide 6, you will find a snapshot of different points within our HB portfolio in process where data is collected. We have dedicated significant time and resources to integrate different technologies into a comprehensive traceability platform, including the use of [indiscernible] ledger to bolster transparency and credibility to all stakeholders. A tangible solution arrive from these assets are the ESG reports, which aims to keep track of farmers' performance and provide consumers with solid traceable [ EFTC ] and grain scoring. We are taking this opportunity to announce the addition of ecotoxicological indexes to our ESG reporting process for HB4 inventories, which you will see in Slide 7. We have decided to produce a blended ecotoxicological score, combining the well similar [ SCPs ], and [ by environmental ] impact portions with the Ripest based dependent pesticide risk approach. These measurements consider factors such as thermal toxicity, toxicity to birds, bees and beneficial [ Ag ] reports, soil health life, surface [ notes ] potential, plant surface half-life, systemicity, reaching potential among other factors affecting [ foreign workers ], environment and consumers, which are estimated for the most frequently used pesticides. We believe this report will set a new industry standard. Understanding environmental impacts of exposure to different active ingredients, the carbon intensity of production processes, and the water footprint of agricultural ecosystems are all key elements in designing and promoting a 21st century regenerative agriculture. This concludes my prepared remarks. I will now turn the call over to our CFO, Enrique Lopez Lecube to discuss our fiscal first quarter financial performance. Enrique? Enrique López Lecube: Thanks, Federico. Good day to everyone, and thank you for joining us today. Moving over to the financials. Please turn to Slide 8 as we frame the impact of our quarterly performance on an LTM basis. As Federico outlined a few minutes ago, we had a strong first quarter performance at the run-off of the high season of sales in key markets across South America, with comparable revenues rising 54% to roughly $65 million. Now for the third consecutive quarter, our top line has outperformed the previous fiscal year period, clearly offsetting the blowback in the second quarter of the previous fiscal year, which had been negatively affected by serious droughts in South America. As a result, LTM comparable revenues were up 24% to $220 million, even as the LTM metric of this year's seed accounts for that soft second quarter. Execution during the quarter consolidated the successful outcome from the initiatives taken in the second half of fiscal 2021 to reignite growth in our Crop Protection and Nutrition business segments. Segregation of commercial teams and enough sales force power, allowing the implementation of a more customized market approach with a product centered strategy for high-technology categories such as micro-beaded fertilizers versus an opportunistic and market-driven approach for third-party product. Crop Nutrition was the segment that benefited the most from the doubling sales versus a year ago quarter. In particular, we saw a twofold growth in micro-beaded fertilizer volumes as a result of the combination of increased sales force focus and market conditions. Growing sales of product lines that minimize negative externalities from farming activities continues to be a key element of our baseline business. And this quarter's performance is a testimony to that. Moving on to Slide 9 that compares LTM EBITDA as of September 2021 with LTM EBITDA in September 2020. Growth in profitability was more modest than top line growth. This year's LTM EBITDA metrics fully accounts for $3.4 million in pre-operational expenses related to the roll-out of the HB4 program that we [indiscernible] in the previous fiscal year LTM EBITDA. Profitability from our baseline business is currently supporting expenses relating to HB4, but still have no current record in reported revenues and gross profit. It is important though to note that the inventory ramp-up process that is being executed is generating deferred revenues and profitability from contributed goods that will be recognized in a timely fashion once inventories are sold as seed or grain. Furthermore, the LTM EBITDA metric for this year also accounts for the drawback in the second quarter of fiscal '21 that have been hit by dry weather, as mentioned before, as well as unfavorable dynamics from inflation and depreciation of local currency in Argentina, where we hold most of our manufacturing and support function. Furthermore, LTM EBITDA stands at over $50 million and slightly increased even as we account for these key elements that had no impact in the previous fiscal year is the proof of the strength and resiliency of our baseline business and gives us great confidence as we move forward. Let's please move to Slide 10 for a breakdown of first quarter revenues for business segment. The $22.6 million increase in comparable revenues was driven by an almost even contribution from Crop Protection and Crop Nutrition with Seed and Integrated Products almost flat versus the previous quarter. Crop Protection sales were up 58%, reaching $34.3 million. Crop Protection global supply chain conditions provided tailwinds of product shortages, low prices higher in South America, which was further reinforced by sustained agricultural commodity prices. As I mentioned earlier, the reorganization of the commercial teams in the segment favored an opportunistic approach to leverage market momentum with higher sales of third-party products, mainly in Argentina. On the flip side, the mix train during the quarter drove adjuvant volumes down compared to a year ago quarter, a situation we believe could get normalized during the current quarter. The average gross margin for the segments declined from 38.6% to 33%, primarily due to the increase in sales of lower-margin third-party products, detrimental to sales contribution from higher-margin adjuvants. The Crop Nutritional segment grew an impressive 83% to almost $22 million. The expansion in the segment was mainly explained by micro-beaded fertilizer sales that benefited from a combination of factors. First, increased focus from commercial teams with expertise in conducting sales based on product attributes rather than market conditions alone. This was possible, thanks to the incorporation of new sales people who are focused on lower margin and more opportunistic sales. Secondly, the commodity fertilizers market macro conditions also provide an opportunity to ramp volumes up with healthy margins. Commodity fertilizer supply shortages resulting from China's energy crisis and global logistic challenges drove prices higher, which favors market penetration and adoption of high-tech specialty fertilizers. Throughout the quarter, 30 distributors have incorporated the new different presentations of Microstar, our main brand for micro-beaded fertilizers to the product offering as Federico previously mentioned. Inoculant's sales were also higher during the quarter despite volumes remaining flat. This was due to a shift in the product mix from conventional inoculants to higher value inoculants, in particular the Long-Life Inoculants, LLI, a proprietary technology of Bioceres. LLI has been gaining popularity among growers because of its higher microorganism survival rate and greater nodular dry mass. The overall gross margin for the segment increased slightly to 51% despite higher sales contribution from micro-beaded fertilizers, which have lower margins than inoculants. The micro-beaded fertilizer margins remained fairly stable, driven by economies of scale as volumes increase as well as favorable market conditions. Inoculant margins increased as a result of the shift to LLIs from conventional inoculants. Finally, Seed and Integrated Products comparable revenues in the first quarter of fiscal '22 stood at $8.7 million, flat compared to the first quarter of fiscal '21. Seed pack volumes remained flat in the first quarter as the high season for seed treatment solutions in South America begins. Margins in the segment dropped to almost 63% due to unfavorable cost dynamics in Argentina where seed treatment packs are manufactured. Overall, it was a great quarter for our top line growth. Let's please move on to Slide 11 for a look at how this translated into gross profit contributions. [ So in ] comparable gross profit for the quarter grew to roughly $28 million, almost 40% more compared to the year ago quarter, driven by expansion of our top line was done profitably. Crop Nutrition contributed roughly 2/3 of the growth for the quarter, as sales grew with gross margin expansion. Despite contributing roughly half of the growth in revenues, Crop Protection only contributed 1/3 of the growth in gross profit as expansion in sales was driven by lower margin third-party products. Overall, gross margin and sales dropped from 37.5% to 43.1%, explained by the product mix shifts as we said before but also by unfavorable cost comparison versus the prior year. Our cost of goods sold during this year's quarter have been negatively impacted by inflation and FX dynamics in Argentina. For the last 12 months, inflation in the country has outpaced depreciation of the local currency, which has the negative effect on dollar-linked businesses like ours. Situation we live should be normalized sometime in the near future based on backed experience. Let's now please turn to Slide 12 for a review on EBITDA performance for the quarter. Adjusted EBITDA increased 18%, totaling $12.4 million in the first quarter of fiscal '22. Reported gross profit rose by $9.8 million, composed of $7.9 million increase in comparable gross profit and $1.9 million in IAS 29 positive adjustments. Operating expenses and other income and expenses collectively increased by $7.5 million, partially offsetting growth in gross profit. Importantly and as discussed at the beginning of our presentation, this $7.5 million increase includes $1.9 million in pre-operational expenses during the quarter related to HB4. $1.1 million accounted for in SG&A and $0.8 million accounted for in other income and expenses. These pre-operational expenses are fully accounted for in our adjusted EBITDA and, therefore, supported by our baseline business. I'll take a minute to further discuss SG&A, which totaled $16.2 million in the first quarter of fiscal '22 compared to $10.1 million during the first quarter of fiscal '21. The increase is mainly explained by a combination of variable and semi-fixed expenses. Variable sales-related tax and logistics expenses grew by $2.7 million, in line with growth in revenues and increased freight expenses in a global trade challenges. Employee salaries and social security costs, a semi-fixed expense, increased by $1.7 million, including resources assigned to HB4. Finally, similar to cost of goods sold, FX and inflation dynamics in Argentina also played a negative growth on operating expenses. Despite the year-over-year increase, total SG&A expenses remained almost flat as a percentage of revenue at 24.2%. Turning to Slide 13 to address our debt evolution and cash position before turning it over to Federico for remarks. Total financial debt by quarter end was roughly $180 million of each approximately 63% consisted of long-term obligations. The liquidity equivalents, cash as equivalents and short-term investments stood at $42 million and represented approximately 63% of the current portion of debt. The total financial debt increased by $6 million from the fourth quarter of fiscal '21, despite the increase in total financial debt. LTM financial expenses decreased by 7% from $14.6 million to $13.5 million. Net debt by quarter end was $137.6 million, a 2.7% ratio of net debt to LTM adjusted EBITDA. The sequential increase in the net financial debt is explained by a slight increase in total debt and an increase in the cash position as we enter a high season in key markets and working capital requirements increase. This concludes my remarks for today. Federico?

Thanks, Enrique. I will now open up the floor for questions before concluding remarks.

[Operator Instructions] Our first question comes from the line of Ben Klieve from Lake Street Capital Market.

I got a question for probably Enrique here on the breakdown of SG&A that you talked about. I appreciate the breakdown of the HB4 pre-operational expenses especially, but I'll say it's kind of unclear to me why this number is coming up now, as I can't really tell what has really changed within HB4 this quarter versus prior quarters. So can you help me kind of understand what these expenses are? Confirmed that these are, in fact, new expenses realized this quarter? And then talk about kind of what your outlook is for that throughout the next few quarters? Enrique López Lecube: Ben, thanks for the question, and thanks for having on the call once more. Thanks for joining. So the pre-operational expenses that we have recorded during the quarter has to do with a bucket of different things. So it's a good question. So there is a piece of that, that has to do with data acquisition costs that is in nature a variable expense because it relates directly to how many tons we are acquiring from farmers, I should say, have been constructed with farmers. So that in nature is a variable expense and depends on when farmers decide to price the signification services that they are providing to us for which we obtained the [indiscernible] grain. So that is a value-added expense that depends on -- the timing of that expense depends on when farmers could price to get service. About 2/3 of the SG&A costs related to HB4 has to do with data acquisition costs. And 1/3 is a semi-fixed expense that has to do with support functions for the HB4 platform. So does that answer your question, Ben? Or are we -- do you need further expansion on any aspect?

No, that's a helpful start. I guess my follow-up question to that though is collectively that, I forget what it was like $1 billion, something like that in the first quarter. Is that kind of a good run rate that you expect going forward? Do you expect that that's going to pick up in coming quarters? What's your outlook for that line item here down the road? Enrique López Lecube: No, again, it is difficult [ collectively I think ] what the run rate is going to be because that depends on when farmers choose to price the service that they provide. What I can tell you is that what we recorded in this quarter has a substantial portion of the services that we have contracted to multiplied service. So there's a big portion of the soybean that we have produced under the HB4 program in the last season that has been already priced. So this number in this quarter has the [ cool note ] of that service and the [ wheat ] acquisition we made it to the last season of soybean [ powder ]. Going forward, that is going to depend on when farmers who applies to the service that they are providing for us to modify the 55,000 hectares of wheat. There's a portion of that that has been already -- we contractualized about 1/3 of that. It's going to happen in the second quarter and third quarter, but there's still price that needs to be due to that. So it's not for us to project that run rate. What I can tell you is that most of soybeans from the last season have already been priced and the data acquisition related to that has already been paid.

Got it. Okay. Great. A couple of other questions. You talked about kind of the difficulties in your second quarter of last year, given weather conditions. It appears from my vantage point, that conditions here are much more favorable this year. I'm wondering if you can just kind of provide a quick boots on the ground update of growing conditions this year, especially relative to last year.

Ben, this is Federico. Thanks for joining us today. We are having normal conditions in Latin America primarily this year. So we don't expect to see the same weather effect that we saw last year. So we hope to be able to keep the current momentum on the second quarter. That's probably as far as I would like to go today in terms of guiding towards second quarter outlook.

Okay. No, that's helpful, and understood. Last question from me, and then I'll get back in queue. You talked about the challenges around kind of transportation, logistics, et cetera, that everybody seems to have right now. It seems that you guys are -- have been able to weather that pretty well. Can you talk about the conditions in Argentina and throughout your supply chain and how problematic these transportation issues really are? And to the extent to which it's really impacted your ability to get your product to customers. And that will do it for me.

No, that's an excellent question. I think when we talk about transportation and logistical complications, we are mostly focusing on international logistics. Within the country logistics are somewhat normal, and we are not having major difficulties there. It is in terms of sourcing some raw material for adjuvant that we have to take anticipatory needs, if you will, that do payouts. As you can see, we did see some incremental cost, but nowhere close to the magnitude that other industry participants have observed. So -- and likewise, in terms of our international business where we source products, for instance, from our manufacturing facilities in Argentina, we will take -- we will move inventories way ahead of what we used to, to make sure that farmers have products in the shelf when they need them. And we do recognize that gaining customers, it's not always easy when you're sort of playing internationally. So we don't want the lack of inventory to be an issue. And in that sense, there are ongoing difficulties in the sector, but we have taken anticipatory measures to try to minimize disruption. And there are certain incremental costs. I think, Enrique can comment to that, but nothing to be too concerned about. Enrique López Lecube: Yes. Federico, I think it's right as [indiscernible] basically shipping in more expenses, moralities, if you will. And that basically happens or takes place in inoculants, [ as we call ]. So we tend to manage this depending on marginality. So lower-margin products have less flexibility. But as Federico said, in terms of imports, now we had to really take some precautions for adjuvants, where we import silicon from outside of Argentina, where we have the manufacturing facilities. Remember that biologicals don't have any [indiscernible] outside of Argentina. Again, we manufacture. And then for fertilizers where we use DAP and MAP as raw materials, that both way supply chain has not been as disrupted [ probably ] as containers. So that continue to flow pretty nicely for the quarter and continues to [indiscernible] now.

Our next question comes from the line of Brian Wright from ROTH Capital Partners.

Just a quick question. Can you give us some [Audio Gap] how much the market for the micro-beaded fertilizer? Is it going to finally get a sense of market share gains?

Brian, really happy to have you on the call. Thanks for joining. So if I understood correctly, you are comparing to market share gain in micro-beaded fertilizers. That is a great question. Bear in mind that the main competitor for micro-beaded fertilizers rate are basically commodity fertilizers. So we are replacing all technologies with a higher technology fertilizer, specialty fertilizer. So our main challenge is to get farmers to adopt these new technologies rather than competing with other companies. There are obviously other players that provide similar fertilizers to ours in South America mainly, but we do have a competitive advantage that we are the only provider of the [indiscernible] fertilizers that is manufacturing in-country. So both in terms of gaining market share versus commodity fertilizers and also competing with other providers of specialty fertilizers, this has been a great quarter. For starters, because they are [ actualized ] in commodity fertilizer prices allowed us or enabled a more receptive market of high-tech products. And the other one is that in terms of the challenges of logistics that Ben alluded in his questions, we have a competitive advantage of manufacturing in-country and therefore, making sure that we have a steady supply of these products.

Great. And it just seems like given what -- in the futures market for the commodity pricing, it seems like this tailwind should last quite some time.

Yes. And here -- and then you quite know, but if I heard you correctly, the -- you referred to the commodity -- the [indiscernible] commodity prices. So what we've seen also is that throughout this quarter, steady commodity [Technical Difficulty] in price and [ moderating ] for this corn and wheat. We have provided a very healthy profitability environment for farmers, which is a metric where we keep an eye, considering that, that is -- we accept the need in acquiring high-tech products that they want to recommercialize. In particular, I think that from most of our clients, the one that is more exposed to these dynamics, [indiscernible] fertilizers just because fertilizers represent a big portion of the farmer's spending every year. Having said that, we tend to see that there is a correlation of prices between agricultural commodities and MAP and DAP that are raw material to us and our main competing products for the micro-beaded fertilizer. So [ we personally ] know the agricultural commodity prices, fertilizers tend to adjust with the lag, but they intend to adjust and that has happened now. What we are seeing now is that commodity prices are, I wouldn't say, softer, but it seems like they reached a new and farmer's sentiment. I'm thinking it's around that. So as long as prices stay where they are in terms of commodity fertilizers and the agricultural commodities, I think that this is an nice setup.

[Operator Instructions] Our next question comes from the line of Steven Ralston from Zacks Investment Research.

And congratulations on the successful execution of your 2 strategies in Crop Nutrition and Crop Protection. Could you help me understand what management's expectations are on the mix shifts that are occurring in your 3 segments? It seems like each segment has a very targeted strategy. In Crop Protection, with your pricing strategy, even though you're compressing the margins, sales are growing very nicely. In Nutrition, sales are even growing faster and the margin is expanding. And this has caused some compression in the corporate margin. But it seems like when HB4 technology really gained some traction, which is a very high-margin segment that, that would drive the corporate margin higher. Is that the way management is looking at it? Or could you just help me understand that? Enrique López Lecube: Steven, this is Enrique. Thanks for having you on the call, and thanks for joining. So I think that -- I know you're thinking about it correctly, so that we are seeing the question is some margin compression that might be [indiscernible] aspect. Bear in mind that we are also working on growing our [indiscernible] business in Brazil, where we intend to invest in expanding our manufacturing capabilities. That is probably a category that has the higher-margin of the Crop Protection. But that is something that will some time, so we will be building that facility throughout the next 12 months probably. But I don't see as a trend this margin compression in Crop Protection, but there are something seasonal. In Crop Nutrition, [ we got outright ] really expanded sales and margins likely expanded. I think that this is also kind of like a steady base for the margins, considering that we have the own fertilizers significantly and have been able to maintain the margin for the segment. On the corporate margin, in the long run, as you correctly mentioned, HB4 is a high-tech [ high-yielding ] product. So when those revenues and profits hit our P&L, that should be something that allows us to get adjusted EBITDA margin to levels -- to similar levels of what we have seen in the past and probably operate at some point between 25% to 30%. But that is going to depend on when we are able to get those revenues in buckets to keep our P&L, and that is somewhere a long-term view of growing EBITDA financial update, one for being [ HB4 ] market.

Thank you. Could you clarify the dynamics that are occurring in the distribution channel in Crop Nutrition? You mentioned that you have 30 new distributors that incorporated Microstar. A clarification of that. Are these -- are they adopting Microstar for the very first time? Or are they -- do you already have a relationship with these distributors and they're just extending it to Microstar? Enrique López Lecube: So that is a great question, Steve. So these were 30 distributors, but we are already [ executing ] our products and incorporated new presentations of Microstar. So we went to market with a more conventional presentation, if you will, or less technology. And we have been working on new presentations, a new technology in Microstar of the main brand in micro-beaded fertilizer. So throughout the quarter, what we saw is 30 existing distributors to incorporate new presentations of Microstar.

So you expanded the relationship with these distributors. I think a couple of years ago, you put out a chart of all your distributors in Argentina, which is impressive. How much more potential is there to broaden your -- it's -- Microstar into other distributors that you're already having relationships with?

Steve, this is Federico. I think there's a tremendous potential. I mean, we probably will not expand the overall points of sale for our portfolio, which today are in excess of 700 in Argentina. But they'll be -- there is -- these new presentations that Enrique alluded to that were sold by a very small group or sub segment of these distributors that are likely to be adopted by the majority of them. And by them, I mean, the sort of the bio version of Microstar that has microorganisms incorporated. So we are not only providing the formulation advantage where if you want 1/4 of application rate, that will make the nutrients themselves more revenue available with sort of the microbials that are added to the formulation. And today, you will see that close to 10% of the segment revenues are explained by these new product launches. Now they are in a sub fraction or a smooth fraction of a 700 sale points that we currently have, the 30 that we are adding in the last quarter. And we knew that throughout the year, we should get to the majority of these participants but not beyond the distribution footprint that we currently have for the reselected [indiscernible] products.

Our next question comes from Kemp Dolliver from Brookline Capital Markets.

Great. Apologies if you had covered this earlier, but CTNBio is meeting, I think, today and tomorrow and echo wheat is on the agenda. Can you talk about what we should expect if they approve your application, when we would see an announcement? Or is the -- is there anything left with regard -- are there any other steps in the approval process between a vote at this meeting and then final approval?

So thank you, Kemp, for your question. We have not discussed that earlier in the call, but I think we should know the outcome of the current meeting tomorrow, I believe, on the levels. There are 2 potential outcomes. In our view, one is that the community in a way approves the technology. And that is -- it's for the current evaluation or that new questions are requested by committee members, not by evaluators that have not submitted any questions since our last filing that was done ahead of the October meeting, but they did not have enough time to report on that since that -- the October meeting. So the evaluators themselves we believe not to be generating questions, but the committee may request to ask additional aspects. In each case, we will know tomorrow. But I think those are the 2 possible outcomes on the levels. If there are more questions, we'll try to sort of reply to them quickly so that we can have [indiscernible] consider again in the December meeting. But we are assured, anxiously waiting for tomorrow's results.

Yes. That's great. And just to clarify, if they approve, does that complete the process and you will be able to effectively move -- yes, you are literally standing in material steps when the process are done and then you'll be able to move forward with the launch?

So I think if they approve, that will be a huge milestone. Remember, we indicated 5 conditions for us to [ product ] relaunch. This is one of them. We have also done findings in other minor export destinations for Argentine meet that I believe are below the 5% level and within above the 5% level, we have that as a requirement for launch, but I've seen it's probably [ delayed ] 1 country where we consistently have, if you do like a 5-year average, a position that explains more than 5% of Argentine in the exports. The approval that will likely be granted after the current evaluation is for [Audio Gap] so that I think we'll free up the ability of local [ needs ] to export big flower to Brazil. We gained approval in the later stage, and I think that will probably be matched to in-country production in Brazil, which is something we are currently pursuing, and there'll be a subsequent filing to [indiscernible] in the coming quarters. But I think it will be huge and it will significantly improve our ability to enroll HB4 contributed [ consent to ] revenues.

Great. And my last question is, as I look at the balance sheet, biological assets have increased substantially and one, what accounts for the increase since June? And secondly, how should we -- what should we expect for changes in biological assets looking ahead? Enrique López Lecube: Kemp, this is Enrique. Thanks for joining. Good to have you in the call. So biological assets may comprise of HB4 inventories. So the reason that has gone up after June is basically because we are accounting to all of the HB4 Soy inventories that were produced in the last harvest season in Argentina in May, June and July. So that is the reason why biological assets have gone up. Then we decide to keep all of that plan for future [ suit ] or you can decide to discuss some of those varieties. That are the 2 variables that affect biological assets. Going forward, bear in mind, we will also incorporate into that wheat production for this year that will be harvested in December and January in Argentina. So the trend in biological assets, an upward trend, wheat seasonality considering when we harvested wheat or soy [indiscernible]. And then the outflow of that asset is basically when we decide to discard that [indiscernible] will not be moved to seed collection or moved to seed [indiscernible] for the future. So that is basically the dynamics, and there's always be an upward trend that should build up inventories in next few quarters.

Okay, super. So really, this is just an inventory line item from here? Enrique López Lecube: Yes, it is as long as HB4 is not converted into a final product. When we convert that grain, we basically process that grain into a final seed of HB4 that is converted into or moved into an inventory line. But as long as it sits as grain for a [indiscernible] has been planted on the field, it's in biological assets.

We currently have no further questions. We'll now hand back over to Federico and Enrique for the closing remarks.

So not much more to add other than we are very happy and satisfied with the performance we're showing you today. I think this is something to congratulate the operations team that at [indiscernible] in terms of different strategies that were implemented. And we believe that towards the next few quarters and probably more importantly, towards the second half of the fiscal year, a similar trend will be seen in the Seed and Integrated Products segment, which is where we are still slightly flat today. And that will materialize primarily as HB4 contributed goods, but and reported as revenues and no longer continue to be like we do today. So we have a strategy that is moving forward as projected, and we are very satisfied with that. We remain fully available to address any additional questions that you might have. I hope I wish everyone a great rest of the day today.

This concludes today's call. Thank you for joining, and I hope you have a lovely rest of your day. You may now disconnect your lines.