Bioceres Crop Solutions Corp. (NASDAQ:BIOX) Q2 2024 Earnings Call Transcript
Bioceres Crop Solutions Corp. (NASDAQ:BIOX) Q2 2024 Earnings Call Transcript February 8, 2024
Bioceres Crop Solutions Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen. Thank you for joining today's Bioceres Crop Solutions Fiscal Second Quarter 2024 Fiscal Results Conference Call. My name is Tia, and I will be your moderator for today's call. All participants’ lines will be muted throughout the presentation. But at the end of the presentation, there will be an opportunity to ask a question. [Operator Instructions] I would now like to pass the call over to Paula Savanti, Head of Investor Relations at Bioseries Crop Solutions. Please proceed.
Paula Savanti: Good afternoon, and thank you everyone for joining our second quarter Fiscal '24 Earnings Call. Today's presentation 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. 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 the recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed circumstances. This conference call is being webcast, and the webcast link is available at Bioceres Crop Solutions Investor Relations website. At this time, I will turn the call over to our CEO, Federico Trucco, to begin our presentation
Federico Trucco: Thank you. Thank you, Paula, and thanks, everyone, for joining. Good afternoon or good evening, depending on where you are. It's a pleasure to be having our earnings call today. Please turn to slide number three for this call's highlights. I would like to start by expressing our profound gratitude to our customers, our partners, and the entire Bioseries team from manufacturing to R&D to sales and so on for what has been a new record-setting quarter. While we are not immune to the broader destocking process in several geographies, resulting in a double-digit contraction in some key markets like Brazil, our portfolio of innovative products, secular growth drivers, and strong execution by our commercial teams allowed us to continue to outperform the industry and deliver our highest quarterly revenues yet.
Total revenues in our second quarter of fiscal '24 were $140 million, an almost 50% improvement compared to the same quarter of last year. Our net income improved by eightfold, and our adjusted EBITDA for the quarter reached $24.1 million, a 134% increase compared to the year-ago period, resulting in an LTM EBITDA of $86.7 million. In a minute, Enrique will provide further details on this outstanding financial performance. On the HB4 front, we continue to make good progress, as I will briefly discuss towards the end of the presentation. It is important to note that we have completed last season's wheat harvest, and jointly with our multipliers, have the required inventories to meet our fiscal year guidance. Another important recent development was the granting of a new patent from the USPTO, covering the HB4 soy technology, and initiating our third patent family for this product, which will provide protection for our seeds until 2042.
I will now pass the presentation over to Enrique for a more detailed discussion of our numbers.
Enrique Lopez Lecube: Thank you, Federico. Good afternoon or good evening to everyone. Thanks for joining our call today. Let's dive in into our financials, starting with revenues on slide four. As Federico mentioned, we had our highest quarterly revenue rep this quarter, at $140 million, which represents a 49% increase year-over-year. This result is no doubt a reflection of the quality and attractiveness of our portfolio, but also the ability of our teams to deliver consistent and profitable growth when market conditions are normal. It is important to acknowledge that the percentage growth is particularly large, given the favorable comparison to a rather slow quarter last year. As you might recall, a year ago, Argentina, which is an important market to us, was undergoing a historic drought, and our growth trajectory had been unexpectedly put on hold.
At that time, our top line had dropped 7% year-over-year. With the 49% revenue increase that we are announcing today, not only we are delivering targeted growth for this year, but also we are more than compensating for growth that was taken from us by the weather impact last year. During our previous earnings call, I mentioned that first quarter results needed to be looked at in the context of the whole Southern Hemisphere summer crop season, which runs August through December. In the prior fiscal year, we had had a record high first quarter paired with a soft second quarter due to the drought. Well, today we can confirm that the good performance in the current fiscal year's first quarter was matched by outstanding performance in this second quarter, which led to resumed double-digit growth in the first half of the fiscal year, reaching revenues of $257 million, which is a 16% increase to the previous fiscal year's first half.
I think this is something that our sales and executions teams need to feel very proud of, so kudos to them and all of the colleagues that provide support to them on a daily basis. Let's turn to slide five, please, to look in more detail at the revenue performance by segment and the main drivers. The first thing I would like to note is that revenue growth this quarter was broad-based, so all segments contributed to growth in a fairly equal manner. In crop nutrition, revenues were up by 49%. This growth was mainly driven by sales of micro-heated fertilizers with an outstanding 61% increase in sales volumes paired with a slight increase in price despite lower commodity fertilizer prices, which in my view speaks to the strength of the value proposition this technology brings to farmers.
Also within this segment, inoculants sales saw a slight year-over-year increase for the quarter, inclusive of profit sharing with Syngenta in countries that were operating under the agreement during this second quarter. The seed and integrated product segment saw the greatest percentage growth, almost doubling last year's sales number. In this case, the growth is due to higher HB4 sales, both seed sales and downstream grain sales. On the one hand, HB4 soy hectares under the Identity Preserve Program were at 150% of last year's hectares with a seven times expansion in Brazil as we continue to grow our HB4 program there. But also we explained last quarter that this current fiscal year, we have increased our commercialization of HB4 wheat grain inventories in pursuit of two things.
One, recovering working capital from grain that is not seed quality. And two, to develop the industrial channel for fully traced inventories that satisfy particular sustainability and quality requirements. Also important within this segment that despite the migration of certain countries into the Syngenta agreement, seed treatment pack sales remained flat versus last year, which implies that the countries that were kept under our proprietary distribution grew their sales. And finally, in crop protection, revenues increased by 34% compared to last year. Here, the normalization of weather conditions in Argentina plus southern states of Brazil avoiding dry spells led to more pest pressure and greater need for product applications. Adjuvants in particular saw a 40% increase in sales this quarter in Argentina and also performed well in Brazil.
In almost all categories of the segment, we saw growth in volumes with flat to slightly higher prices. Bioprotection was the only category that had a slight drop in the top line, but on the flip side expanded margins significantly and grew gross profit as we will see in the coming slide. So let's please turn to slide six now. For the quarter, overall gross profit was $51.5 million, which is a 46% increase over last year's number and consistent with revenue growth. Overall gross margin remained roughly flat at almost 37%. In terms of segments performance, crop nutrition saw the largest gross profit contribution increase, almost doubling gross profit from last year and reaching $15 million. The main driver was the top line growth from microbead fertilizers, which was matched by margin expansion from slightly higher prices and lower raw material costs in that particular product category.
Seed and integrated products also contributed to gross profit growth by adding $2 million to the $8 million in gross profit contribution from last year and reaching $10 million. The overall gross margin for the segment decreased as sales from higher margin seed treatment packs and HB4 soy seed grew at a lower-pace than HB4 grain inventory sales, which had been negligible last year and that have inherently lower margins than packs and seeds. And finally, gross profit from crop protection increased by 40% as a result of higher sales, improved product mix and margin expansion in some product categories. The excellent performance of high margin adjuvants improved the mix, contributing to increase the average gross margin of the segment. But also, as I mentioned in the previous slide, a slight drop in bio-controlled product sales in the US was more than offset with margin expansion in that product category, which led to a positive contribution to gross profit growth by this product category, bio-protection.
So let's now go to slide seven to take a look at adjusted EBITDA. Adjusted EBITDA during the second quarter reached $24 million, which more than doubles the $10.3 million in the second quarter of the previous fiscal year. This substantial improvement is primarily explained by the increase of almost $17 million in gross profit that I just described, which was matched by an increase of $2 million in JV results and also operational leverage as operating expenses grew at a lower-pace than gross profit. To that regard, SG&A increased by less than 10% year-over-year, and the increase was largely explained by higher variable expenses on account of higher sales. Importantly, variable SG&A as a percentage of sales remained almost flat at around 5% of sales, and fixed SG&A on an absolute basis remained flat.
Both things important to keep disciplined execution. Now let's please turn to slide eight to wrap up with some brief remarks on our financial debt and cash positions. As of calendar 2023 year-end, the total financial debt reached $223 million compared to $257 million in the prior fiscal year. Our financial debt position was slightly lower than the $226 million that we reported in the first quarter of this fiscal year, and we maintain a healthy run rate of interest expenses with an annualized average cost of debt at around 7%. Regarding our cash position, it is important to take into account that the position reported last year accounted for Syngenta's upfront payment, which explains the $87 million in cash. Compared to the first quarter of the current fiscal year, our cash position remained roughly flat.
Last two comments from my side on the financial position. One with regards to leverage, we are now at 2.5 turns, mainly explained by good performance on the adjusted EBITDA line, but also the fact that we decreased our total debt compared to a year ago. And finally, with regards to the steep depreciation of the Argentine peso that happened during this second quarter, I think it is worth noting that the strength and stability of a dollar-denominated business in that country not only allowed us to conduct business as usual, but we could also achieve some financial gains from hedging our activities, as well as benefit from a better cost environment. To summarize my remarks, and before I turn it over to Federico, let me tell you that we are highly encouraged by the result of this quarter.
We continue to see sustained demand for our technologies and a clear path to targeting double-digit growth, something that we can afford mainly because of the strength and attractiveness of the portfolio that we have been patiently building throughout the years. With that, I will hand the floor over to Federico.
Federico Trucco: Thanks, Enrique. And please now turn to slide number nine for a brief update on HB4 soy. As we have indicated in our previous call, we have increased our identity preserve footprint in Argentina to be at 1.5 times of what we did last year, continuing to fine-tune our breeding efforts and variety positioning, while building inventories ahead of our targeted fiscal year 25 launch with multipliers and distributors. At the same time, we're seeing an accelerated progress in Brazil, where we work with 25 key farmers to test and multiply two materials developed under the TMG collaboration with good results. On the regulatory front, we obtained feed and food import approvals for soybeans in Australia, New Zealand, Thailand, and Malaysia now reaching approximately 80% of the Asian soybean destinations from Latin America.
And as I mentioned at the beginning of our call, we were granted an additional patent by the USPTO that should protect the HB4 soy technology through at least 2042. Please turn now to the next slide for an update on HB4 wheat. Two key takeaways here. One, overall variety performance was consistent to that of prior seasons, while we continue to fine-tune variety positioning, which is identify the best suited environments and planting times for each of our existing materials. Our newer materials, which we named second generation materials, have helped us improve performance in some high productivity conditions, where we are now at par to the best performing conventional seeds. And the second takeaway here is that jointly with our multipliers and distributors, we now have sufficient inventories, mainly of these second generation materials, to be in a position to meet our fiscal year '24 guidance, where we expect to improve the EBITDA of this business by approximately $15 million.
I think these are the key highlights regarding HB4. I think we can now pause and open up the line for Q&A. Moderator?
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