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Bioceres Crop Solutions (NASDAQ:BIOX) generated strong double-digit top-line growth in the first quarter of fiscal 2022. Comparable revenues increased 53.6% to approximately $64.8 million from $42.2 million in the first quarter of fiscal 2021. Top-line growth was driven by new commercial strategies recently instituted by management in the Crop Nutrition and Crop Protection segments. Three quarters ago, management implemented a new fertilizer pricing structure in order to stimulate sales of micro-bead fertilizer (Crop Nutrition segment). Lower competitive price points have driven volume that in turn has generated revenue growth and increased capacity utilization at the micro-bead fertilizer plant. Also, a supply shortage of nitrogen-based fertilizers and a high commodity price environment have contributed to increased demand for micro-bead fertilizer.
Furthermore, two quarters ago, management reorganized the sales effort in the Crop Protection segment so that the company now has a dedicated sales channel to support high-value biological products. The reorganization is driving increases in sales of bio-insecticides and bio-fungicides.
As a result, for the third consecutive quarter, Bioceres has experienced top-line double-digit growth.
In the first fiscal quarter, adjusted EBITDA increased 18.1% YOY to $12.4 million versus $10.5 million in the first quarter of the prior fiscal year, driven by increased gross profits from the Crop Nutrition and Crop Protection segments. Adjusted EBITDA over the trailing 12-month period reached $50.2 million. The baseline Rizobacter business is financially supporting the HB4 seed roll-outs, which is a unique attribute and a competitive advantage of Bioceres Crop Solutions compared to other Ag- Biologic companies.
On September 3, 2021, Rizobacter Argentina S.A. (Bioceres 80%-owned subsidiary) completed a $16.1 million public corporate bond offering in the Argentine capital market. These Series VI bonds were issued in two classes: $12.7 million of 18-month bonds due March 2023 with a nominal annual rate of 3.75% and $3.4 million 3-year bonds due September 2024 with a nominal annual rate of 5.25%. The capital will be used to support working capital needs, extend the maturities of the company’s debt portfolio and reduce the company’s financing costs.
Regulatory Import Approval of HB4 Wheat Flour
On November 11, 2021, Bioceres Crop Solutions announced that Comissão Técnica Nacional de Biossegurança (National Technical Biosafety Commission aka CTNBio) approved the importation of HB4 drought-tolerant wheat flour for animal and human consumption in Brazil. After thoroughly investigating allergenic and safety concerns, the Commission’s panel unanimously endorsed HB4 wheat’s equivalence to conventional wheat.
The Brazilian approval is a milestone event that should generate major commercial demand for HB4 wheat seeds in Argentina where HB4 wheat was approved for growth and consumption in October 2020. In the Southern Cone, Argentina is the largest wheat producing country, and Brazil is Argentina’s main export market for wheat.
Bioceres is well-positioned to take advantage of this regional opportunity having scaled-up HB4 wheat inventories. Approximately 55,000 hectares of HB4 wheat (which was planted during June and July) are being harvested between November and December with the seeds being available for the 2022 planting season. Management plans to update investors in the next earnings call (usually during the second week of February) concerning 2022 acreage projections and provide additional information on commercial prospects of HB4 wheat.
Management will provide the operational metrics of the November-December 2021 HB4 soy planting season, since only the early season plantings have been completed as of the first fiscal quarter’s reporting date of November 10th. The majority of the soy plantings occur thereafter.
Awaiting Regulatory Approval from China for HB4 Soy
The growing seed inventories for HB4 soy are laying the foundation for Bioceres to meaningfully launch HB4 soy in China, once the regulatory approval is granted. The Chinese regulatory authorities did not request any additional information regarding HB4 soy during the first fiscal quarter.
ESG (Environmental, Social and Governance) Assessment
Bioceres Crop Solutions commissioned Vigeo Eiris, the ESG Solutions Group of the well-known Moody’s rating company, to produce an independent Second Party Opinion (SPO) on the social and environmental impact the roll out of HB4 soy and HB4 wheat in terms of cumulative CO2-equivalent savings. Management’s goal for the roll out of HB4 technology is to achieve over 156,000 tons in cumulative CO2-equivalent savings by 2025.
During the first fiscal quarter of 2022, management added ecotoxicological scoring to the company’s ESG Report on HB4 inventories. Data has been gathered over the entire crop cycle and translated into ecotoxicological scores in order to track HB4’s chemical footprint in addition to tracking carbon and water footprint measurements. Some of the additional factors considered are thermal toxicity, toxicity to birds & bees, soil health life, surface potential and plant surface half-life.
Management desires to adhere to Voluntary Process Guidelines of the ICMA (International Capital market Association), which recommend achieving certain Sustainability-Linked Bond Principles (SLBP) in order to give guidance to market participants that allocate capital to sustainability-linked financial products. SLBP include realizing material, pre-determined and verifiable ESG sustainability objectives through quantitative Key Performance Indicators (KPIs). Management believes its goal in terms of cumulative CO2-equivalent savings provides a clear definition of a KPI, along with its reference to the Sustainable Development Goals (SDGs) of the United Nations (namely SDG 2 and 13), sets the foundation to qualify as an issuer of Sustainability-Linked Bonds (SLBs).
Management continues to build awareness by attending Analyst Conferences.
Recent conferences include:
• Jefferies 2021 Industrials Conference held virtually between August 3rd & 4th 2021
• Lake Street’s 5th Annual Best Ideas Growth Virtual Conference between Sept. 14th &15th 2021
• Roth 10th Annual Technology & Inaugural AgTech Answers Virtual Event on Nov. 16, 2021
• Canaccord Genuity AgriFood Tech Innovation Forum on December 2, 2021
First Quarter of Fiscal 2022 Financial Results
Bioceres Crop Solutions reports financial results where its Argentinean operations are subject to IAS 29, since Argentina’s economy is currently classified as hyperinflationary. Under IAS-29, comparable financial information is provided so that investors can make better informed decisions. In order to adjust nominal cash flows in terms of purchasing power, prior-period accounting line items in the income statement are restated so that they are expressed on the basis of the purchasing power of the hyperinflationary functional currency at the end of the reporting period. In this manner, cash flows are adjusted for the effects of general inflationary price index changes, and investors are provided relevant and comparable information for a company’s operations.
On November 10, 2021, Bioceres Crop Solutions reported financial results for the first quarter of fiscal 2022 ending September 30, 2021. For the second consecutive quarter, management’s new fertilizer pricing structure stimulated sales of micro-bead fertilizer (along with a supply shortage of nitrogen-based fertilizers) and the reorganization of the sales effort in the Crop Protection segment drove increased sales of insecticides and fungicides. Consequently, total comparable revenues increased 53.6% YOY to approximately $64.8 million from $42.2 million in the first quarter of fiscal 2021.
Comparable revenues of the Crop Nutrition segment increased 83.2% to approximately $21.8 million versus $11.9 million in the comparable quarter last year. The catalyst was micro-beaded fertilizer, where management has implemented a new commercial pricing strategy designed to utilize more of the installed operational capacity of 50,000 tonnes. The plant’s utilization rate on a 12-month trailing basis was 48% (24,000 tonnes) and increase from 40% (20,000 tonnes) in the prior sequential fiscal quarter. Furthermore, during the first fiscal quarter, 30 new distributors incorporated additional presentations of Microstar, namely Integral Microstar Bio and Microstar PED Bio, which now account for almost 10% of segment sales. Inoculant sales also increased, though volumes were flat, as growers adopted the high generation of long-life inoculants, which promotes greater microorganism survival and enhanced nitrogen fixation.
In the Crop Protection segment, comparable revenues increased 57.3% to approximately $34.3 million versus $21.8 million in the comparable quarter last year due to strong demand for fungicides in Latin America and higher sales of third-party products. Higher agricultural commodity prices also stimulated demand. However, the segment’s gross margin contracted from 38.6% to 33.0%, primarily due to the increase in sales of lower-margin third-party products.
In the Seed and integrated products segment, comparable revenues modestly increased 1.2% from $8.6 million to $8.7 million, primarily due flat seed pack volumes. The segment’s gross margin declined from 67.7% to 62.9% due to higher costs since the seed treatment packs are manufactured in Argentina, which was impacted by unfavorable FX dynamics.
The comparable gross profit margin of total comparable revenues compressed 422 basis points from 37.5% in the first quarter last year to 43.1% in first quarter of fiscal 2022.
Reported selling, general and administrative (SG&A) expenses increased 60.4% to $16.2 million, primarily due increased variable expenses and the HB4 rollout. As a result, SG&A increased slightly more than the 57.6% increase in revenues from contracts with customers. R&D expenses increased 39.8% over the comparable quarter last year. About half of the R&D expenses were due to investments in the seeds segment, both from the development of seeds & traits as well as the pursuit of regulatory approvals for HB4 technology. The other half was related to the development of seed treatments (biofungicides and biostimulants) and foliar applications.
Adjusted EBITDA increased 18.1% YOY to $12.4 million in the first fiscal quarter versus $10.5 million in the first quarter of the prior fiscal year, primarily driven by increased gross profits from the Crop Nutrition and Crop Protection segments.
For the first fiscal quarter, Bioceres Crop Solutions reported a net profit attributable to equity holders of $874,137 (or $0.0206 per diluted share) versus a loss of $6.97 million (or $0.1917 per diluted share) in the first fiscal quarter last year. Working capital increased 41% to $61.3 million.
For Bioceres Crop Solutions, a reasonable methodology is a discounted cash flow (DCF) model that estimates future cash flows and discounts them by using the cost of capital in order to attain a net present value. Our DCF model is arranged by expected revenue streams from three business lines, namely the company’s revenue generating businesses (primarily Rizobacter), the expected revenues from HB4 soybeans and the expected revenues from HB4 wheat. The model (which applies a 14.5% discount rate and a terminal P/S ratio of 0.54) indicates a NAV share price target of $20.34 per share on a fully diluted basis.
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