Hello, everyone, and welcome to the Bioceres Corp Solutions Fiscal Second Quarter 2022 Financial Results Conference Call. My name is Victoria, and I will be coordinating your call today. [Operator Instructions] I'll now present you to your host, Rodrigo Krause, Head of Investor Relations to begin. Please go ahead.

Good day, everyone, and thank you for joining us. Presenting during 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. 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 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 webcasted. The webcast link is available at the biocerescrops.com Investor Relations site. At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.

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 are pleased 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 prelaunch costs. Our very strong second quarter's performance reflects an 89% growth in revenues over the same quarter of last year with the last growth across all 3 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 least 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 this last front, I would like to mention the recent announcement in November 2021 by the Brazilian National Biosafety Commission, CTNBio that decided unanimously to approve the import certification for HB4 wheat flour for human and animal consumption in that country. This approval is a major milestone in Bioceres' mission 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 seasons results for a before week as we completed harvesting of 53,000 hectares. HB4 wheat performance was consistent with prior seasons with HB4 varieties outyielding non-HB4 by 12.8% across all environments and mutations with improved performance in local activity environments where a yield benefit averaged 49%. Some important takeaways from the current season are the…

Thanks, Enrique. I think we can now open up the call for Q&A. And after that, I'll finish with some final remarks. Operator?

[Operator Instructions] Our first question comes from Ben Klieve from Lake Street Capital Markets.

First of all, congratulations on a great quarter. First question is around the launch of HB4 wheat. I'm curious the degree to which there are buyer -- downstream buyers secured after harvest. Do farmers that are buying your seed have guaranteed offtake agreements for millers and do those millers have offtake agreements with consumer goods companies or is that something that still is yet to be determined?

Hi, Ben, this is Federico. Thanks for joining us today, and thank you for your question. So we have been working actively to create the agreement with processors. As we move into the next season and commercially launch HB4 wheat, we will continue to handhold with our farmers so that we minimize any kind of commercial disruption. And as of today, we have already 13 different processors onboarded or in the process of onboarding for processing HB4 wheat with capacity combined -- or a combined capacity, I should say, of about 700,000 tons, which is way in excess of what we would need for the upcoming season. So that's been negotiated, put in place. That is an aspect that we will continue to solve for our customers, understanding the complexity behind this new technology on the commercial front.

Perfect. Next question on -- I appreciate your comments on kind of moving from first to second to third generation varieties here to reduce the -- to improve the genetics -- the underlying genetics. I'm curious how that is playing out in soybean within the U.S.? Are you -- do you expect that you're going to see -- have that same kind of genetic gap with your first-generation HB4 seed that you've been testing in the U.S.? And if so, how are you addressing that to improve the genetics in the U.S. proactively?

So that's an excellent question as well, Ben. I think in the U.S., since we didn't have a bridging program of our own, and we rely more on third-party genetics we are less likely to observe that generic gap. I think we will be introgressing the trade into already competitive germplasm -- we are introgressing already the trade into competitive germplatform. So we don't expect to see the gap that we saw in Argentina. And also, this is a strategy we're expanded into in Argentina as well. So you will see that the onboarding of Alex -- Alex Garcia, Head of Seeds is predominantly to focus on the new approach and relied on the outstanding genetics of current market participants so that we minimize sort of the germplasm gaps in new markets as we roll out the technology globally.

Got it. Got it. Perfect. Last one for me, and I'll get back in queue. And I don't know if Enrique or Federico, who this is more appropriate for, but the results over the last 4 quarters here as you've changed the go-to-market strategy just been exceptional, but those results are lapping. And so as you look into Q3 and beyond, when you've got that strategy already built in to your prior year results, how do you see growth evolving over the next few quarters? Is there still runway to be had from this new go-to-market strategy or are you guys expecting kind of a more material decline on a year-over-year -- your growth from a year-over-year basis?

I will give you my high-level view on that, and then Enrique probably can give you more detail. I do expect to see a similar momentum in the third quarter. So there's still runway from the existing reorganization to be materialized, probably a little less from that particular aspect on the fourth quarter, but I do expect international growth to continue on a very robust manner. And we do expect HB4 to kick in, in the fourth quarter as well, helping keep the momentum that we currently have. So I'm sort of very happy with the growth trajectory that we've been having and are fairly confident that we can keep this momentum in the next 2 quarters. Enrique? Enrique López Lecube: Yes. I agree with Federico's comments. Ben, I think that there are some values that played into how we were able to grow through the last year, one of those is market conditions. So we had very, very attractive market conditions out of the fact that fertilizers' prices, for example, went up and that gave us a great setup to go with our product to market. So I think that as long as those conditions remain in place, we're going to be able to keep showing growth, maybe not as aggressively as what we did until now. But there is still runway ahead, but there's some of the values that helped us that will always be outside of the control of management, right? So steel tools in the toolkit to keep growing as long as market conditions are there. And I think that as Federico mentioned as well, we're excited about to have other growth levers to pull like with HB4 wheat kicking in.

[Operator Instructions] And our next question comes from Brian Wright from Wolff Capital Markets.

A couple of questions. I want to start out with, if you could just educate us on the relevance of the yellow rust and what that means from a commercial standpoint?

Brian, it's good to have you on the call. I think it's obviously a concerning aspect to farmers, mostly on the commercial front. I mean consumers don't like to see rust in the flower or in the grain that will be processed. And I think that, that was an unexpected outcome of these new varieties that the rust incidence was significantly diminished. So we expect that to enable more profitable commercialization from a yield perspective in the field. It's an important sanitary aspect, but not too dramatic, I should say.

Okay. And then just following up a little bit on the improvement on the test weight, is there any quantification you want to help us out with on that?

Sure. I think that's something we observed with a significant number of farmers, particularly in the Southwest of Buenos Aires where we are currently having some of the better results on HB4 technology. These are regions that have very restrictive activity at many times with production goes into forage. The quality component here allows that need to go into industrial uses. I think that way PH and other elements combined provide for that -- in that particular region in a manner that is very relevant. So it's not only about improving on the tonnes per hectare viewpoint, but also the quality of what's being produced allows for an end use that is more profitable than deviating to forage because of the reduced test weight. I think the improvement was above 10%, which is significant in this particular aspect.

Great. That's perfect. A couple more. I just wanted to understand. On Slide 7, on the market opportunity in Argentina, could you -- on the 2.3 million hectares, is that -- is that acreage that's lower yielding predominantly or is it just like how that addressable market was kind of defined?

So those are hectares where we believe HB4 will provide a consistent benefit. So they are usually lower yielding. And that is not to say that we're not expecting, particularly, as we introduced the second-gen varieties, which we have presented in today's presentation, I think we can, aspirationally, target the high productivity areas as well, but we are not contemplating that today in our markets that way. So we are almost restricting the technology to the lower productivity regions, and that's where the number comes from.

Perfect. And 2 more if you'll bear with me or actually go back in queue, but I'd like to just go with them, if that's okay.

No, go ahead.

Can you remind us on kind of what the historic gross margin differences between the adjuvants versus the insecticide and the fungicides, just ballpark?

In terms of what are the different product characteristics?

No gross margin differentials.

So adjuvants tend to be our highest gross margin products in the Crop Protection segment. Enrique, you want to comment on the rest? Enrique López Lecube: Yes, absolutely. So adjuvants, we are in the range of 55% to 65%, usually, Brian, depending on what type of adjuvant, whether it's a high-tech adjuvant or lower tech based on vegetable oil and not silicon. But most of our adjuvants are high tech, and that is closer to towards the 65% top of the range that I just said. Then on insecticides and fungicides, obviously that is a lower category. I think in the lower category in the segment that basically explains the decline in overall gross margin for the quarter are the third-party products. In third-party products, we make between 25% to 35% margin, sometimes even higher if it's a highly tech sale that needs to be done. But it is a business that is practical to us. It's not strategic and we usually pay less attention to that. Now we're focused a bit more on that. And I think that to us is -- I won't say low-hanging fruit because it does require a commercial effort, but it's a provider of revenues with a margin between 25% to 35%. That's the range for the whole segment.

I think the only thing we should highlight here is that, that is why we are talking about chemicals. If you talk about bioinsecticides or in our case, biofungicide like I think so, the gross margin is more similar to that biological product. So this is upwards of probably 60%. Enrique López Lecube: Absolutely. Yes. When we're talking about proprietary bioinsecticides or biofungicides, the margin is more tilted towards what we make on inoculants and seed treatment bags.

Perfect. And just last one, if I can. What was that recent acquisition kind of revenue in the quarter?

You're meaning the one associated to the reorganization of the Crop Protection segment with the use of the Rizobacter sales force?

Yes. The one that was -- came on board, I think it was last quarter.

Yes. Enrique López Lecube: Yes, absolutely. Federico said it right, that is part of our reorganization. I mean, it's a commercial entity that takes care of basically sales force that is specifically allocated to commercializing third-party products across the main regions in Argentina. They do have some -- we do have now some owned stores, but it basically focuses on low margin I refer 25% to 35% range, type of products. That came on board a couple of quarters ago, they took over the commercialization of the third-party products that are Rizobacter sales force be that before, and that allows the Rizobacter sales force to focus more on international growth and also in the micro-beaded fertilizers. That acquisition was probably had a run rate in the previous quarter -- in the quarter -- second quarter of the previous fiscal year of about $8 million, and it grew significantly now in our hands.

Probably almost sliced? Enrique López Lecube: Yes. So the jump from this sort of -- a jump from $8 million to $16 million now in this particular quarter. But that…

So it's performing exceptionally well as well. So it's across the board. What you're integrating in is we're seeing great performance across core and acquisition revenue. Enrique López Lecube: Absolutely. I think that there was -- it makes a ton of sense in terms of synergies as this commercial team that we brought on board was already commercializing some of the Rizobacter products way before we make that integration. So it makes sense that we are seeing some very strong commercial synergies coming out of the interaction between the 2 commercial teams.

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

Just to start with the growth in the ES -- I'm sorry, EU and U.S. markets. Could you talk a little bit more about the actions you've taken to drive that, the outlook and also a little more -- and I think you mentioned the product segment, but if you could go through the opportunity across the business in those 2 markets that would be helpful?

We are thrilled with what we're seeing in Europe and the U.S. In the U.S., we've been there for many years and have reorganized the sales force under new management that provided for the incremental sales that we're seeing today, mostly on the inoculant front and the biologicals that are our most international product, if you will. So that incremental growth in the U.S. comes from an internal reorganization and a new manager in place that's been building or rebuilding the relationships on the historical products that were sold in the U.S., mostly, inoculants. In the case of Europe, we've been putting a strategy in place by initially having a subsidiary so that we could secure product registrations, integrating our biologicals with some of the seed care products and further consolidating some historical relationships, as you know, we are a very important partner of Syngenta. And even though that is today most material in Argentina, it is a relationship that is expanding to our other geographies. And part of the European growth comes from that relationship as well. So on a forward-going basis, we expect to see similar growth, obviously, not 146% quarter-over-quarter in every period, but we do expect these 2 geographies to become very meaningful. And these are huge markets. The U.S., as you know, for row crops in general, and Europe for biologicals or biofertilizers that can't minimize the use or reduce the use of chemical fertilizers, I think we have a very appealing portfolio with the upcoming registration also of our biofungicide for the European market. So we do expect to see a very strong performance in the quarters to come. Enrique López Lecube: Yes. I would only add to that, Kemp, that I think the part that it makes it even more exciting is that these 2 geographies, North America and Europe brought almost 1/4 of the growth in gross profit. So it's not only attractive markets from the size perspective, but also markets that are very profitable to us. So that is something that makes us put more focus and effort into building more infrastructure to keep growing. Having said that, I think that still this needs to be evaluated in the sort of like a context of the full season in those countries, and it has just gotten started. So I think that we are here to see what the final result will be for the full season, and that is going to unfold in the second quarter, third quarter and fourth quarter.

Super. And in the U.S., is this revitalized sales effort, the team you can leverage or when you roll out the HB4 products, will that require a separate marketing effort?

I think there might be some support from the existing team, but we are more inclined to thinking of an independent effort for the HB4 program in the U.S. This is a team that specializes on biologicals, particularly seed treatment. We will obviously use the HB4 channel to commercialize biologicals and seed treatments, but the specificity of the seed business will require a dedicated marketing and commercial effort with a different level of expertise. So some synergies, some support, but for the most part, these will be 2 different teams.

Great. And the guidance regarding Eco Wheat's very helpful. So a couple of questions related to the assumptions. First for the market opportunity, over what time frame do you think that realization is possible? Is that 5 years, 10 years? What's your thinking about the adoption curve?

So we believe it's closer to 5 than to 10. It's up 3 years out, but that's as much as I would like to say now.

That's fair enough. And with regard to the EBITDA guidance, what revenue does that -- what level of revenue does that imply?

So you can think of this as a 30% to 35% EBITDA margin business. So that you can then play with the numbers and get your revenues, or vice versa. Obviously, there might be some price pressure as we try to fully penetrate. So it's not like we're going to keep steady pricing, but there might be additional technologies brought into the product offering. So I think you can use that to sort of play with the numbers and come to some very close understanding of what we expect.

Great. And that would apply to both soy and wheat? Enrique López Lecube: Yes. In general, yes. I think that margins are similar. Remember that we do some equity accounting for a JV with Florimond Desprez that we don't do in soybeans, but EBITDA margin-wise, yes.

So for -- in soy, we're fully owned the technology which part of the technology and the product was cofinanced by Florimond Desprez? Enrique López Lecube: Yes.

Great. And my last product -- or I'm sorry, my last question relates to China. There have been some regulatory changes involving GMO wheat and -- I'm sorry, soy and corn, they appear to focus on domestic development of these products. Do you have a -- do you have any thoughts on how that move impacts your application? It seems like a step in the right direction, but it's very hard to determine everything that may be going on there?

Yes, absolutely. I think it is a step in the right direction. It is a step that is mostly designed for the in-country cultivation process and for some local developers that have today products in their pipelines that can be applied in China. Unfortunately, we have not seen sort of a similar attitude towards international approvals. So if you look at the last 2 innings of the Chinese regulators, they have mostly restricted approvals to domestic market issues that have not approved any new soy for feed and food importation, for instance. So it is a process that is difficult to that unlike what we had with Brazil CTNBio that we knew every month what to expect, the Chinese process is more difficult to track. We are now in the process of requesting Argentine authorities to review the current approval. This is an approval that takes back to 2015. So they have -- 7 years have passed already, and we're still waiting for the Chinese clearance. So I think that this can be made for a time limitation on the Chinese plus here in Argentina, particularly for a technology that has already been approved in the U.S., in Brazil, in Paraguay, in Canada. So most of the relevant production geographies without any kind of consideration to the Chinese regulatory process. So we do expect the Chinese approval to come, but we are taking a more proactive stance, particularly with the Argentine authorities to try to remove that restriction and be able to freely commercialize HB4 in the upcoming season. 7 years is not atypical for them. Enrique López Lecube: No, but I think it's enough time to make a decision. But we're cautiously optimistic, I should say, even though we did expect this last year, but we're still waiting.

At this time, there are no further questions. I now would like to pass the call back over to Federico Trucco, for any final remarks.

Well first, I want to thank everyone again for joining us today. I think we had a very good quarter. We are very enthusiastic about the state of our business and the prospects ahead. I mean to say bluntly, we are on fire and delighted to be on fire and hopefully, we can keep on bringing similar performances in the quarters to come. So not much more. Wish everyone a happy Thursday and a good end to this week. Thank you.

Thank you, everybody, for joining today's call. You may now disconnect your lines.