Bioceres Crop Solutions Corp. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Seed Business Strategy: Decided to exit breeding, seed production, and seed commercialization, partnering with leading seed companies and clients. Announced a new agreement with GDM in soybeans and a revised partnership with Florimond Desprez in wheat.
• Appointment of Chief Commercial Officer: Milen Marinov was appointed as Chief Commercial Officer to streamline commercial operations, onboard new partners, and prioritize portfolio opportunities for profitable growth.
• Financials Discussion: Enrique discussed total revenues of $106 million in the quarter, impacted by Argentina's challenging market conditions. Gross profit totaled $45 million, with gross margin expanding from 37% to 42%. Adjusted EBITDA declined due to lower gross profit in Crop Protection, weaker joint venture performance, and higher SG&A in Argentina.
• Balance Sheet and Inventory: Total net debt stood at $238 million, leverage ratio at 3.3 turns. Inventory levels were 18% lower than last year due to tighter inventory management, focusing on cash generation and capital allocation.

Segment Performance

• Crop Protection: Revenues in the quarter fell from $71 million to slightly above $55 million, with a YTD decline of 20%, entirely attributed to Argentina. While core high margin adjuvants maintained market share in Argentina, overall sales of non-core and third-party products declined. Year-to-date, Crop Protection revenues are down 20% due to Argentina's market contraction.
• Crop Nutrition: Sales in the second quarter were $28 million. The decline is primarily due to Argentina's micro-beaded fertilizer sales. However, sales outside of Argentina and from other Crop Nutrition products grew during the first half, particularly driven by inoculants.
• Seed & Integrated Products: Revenue decline is an anticipated result of strategic shifts. The decrease is almost entirely due to lower downstream grain sales aligning with the HB4 strategy. Despite this, seed treatment solutions, especially soybean-based treatments, grew, benefiting from increased soybean acreage in Argentina.

Guidance

• Management remains optimistic about mid and long-term prospects despite current quarter's results being below expectations and anticipating a drop in annual results.
• Focus on improving accounts receivables performance in the next two quarters.
• Emphasize capital allocation and enhancing cash generation, with a focus on the underlying value of the technology portfolio.

Risks

• Challenges in the Argentine market, including lower commodity prices, weak yield expectations, and reduced farmers' purchasing capacity, impacting revenues and profitability.
• Performance of joint ventures, particularly Synertech, negatively impacted by lower product demand.
• Increase in SG&A expenses in Argentina, including higher dollar-denominated costs, temporary import taxes, and increased receivables impairment.

Question and Answer

Q: Welcome to today's Bioceres Crop Solutions Fiscal Second Quarter 2025 Financial and Operational Results. My name is Santja, and I will be your moderator for today's call. All lines will be muted during the presentation, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to your host Paula Savanti, Head of Investor Relations. Please go ahead.

A: Paula Savanti welcomes everyone to the call and introduces the CEO and CFO.

Q: Kristen Owen from Oppenheimer asks about the economics of seed business partnerships in the future.

A: Federico Trucco states partnerships will affect cost structure and generate royalties, with more significant results in 2-3 years.

Q: Kristen Owen follows up on balance sheet impact of the transition.

A: Enrique López Lecube explains strategic pivoting frees working capital for biologicals business, with cash expected to return from grain inventory divestment.

Q: Kristen Owen asks about reallocation of capital towards biologicals.

A: Federico Trucco mentions focus on biologicals, using GMO platform for gene editing improvements.

Q: Steve Byrne from Bank of America asks about R&D for target spot in soybeans.

A: Federico Trucco states there are leads in gene editing, combining with biologicals and GMO platform.

Q: Steve Byrne asks about global regulatory outlook for GMO/gene-edited seeds.

A: Federico Trucco discusses regulatory infrastructure and collaboration, noting corn is not actively participated in.

Q: Ben Klieve from Lake Street Capital Markets asks about OpEx cost savings from seed business realignment.

A: Enrique López Lecube expects meaningful OpEx reduction by year-end to contribute to EBITDA.

Q: Ben Klieve asks about seasonality of inocula business from Syngenta.

A: Enrique López Lecube discusses tough Q3 comparison and focus on Q4, with Syngenta agreement's profits already locked in.

Q: Ben Klieve asks about noncore third-party products in revenue base.

A: Enrique López Lecube explains breakdown of noncore products, with focus on high margin and tightly managed products.

Q: Austin Moeller from Canaccord asks about HB4 royalties in Latin America vs outside.

A: Federico Trucco explains larger opportunity outside Latin America, with JV profitability improving in Latin America.

Q: Austin Moeller asks about cash balance for revised strategy.

A: Enrique López Lecube states cash position is well-sized for current needs, focusing on cash generation and debt reduction.

Q: Kemp Dolliver from Brookline Capital Markets asks about deconsolidation of revenue with new agreements.

A: Enrique López Lecube explains lower revenues from grain divestment, with royalties accounted for based on partnership structure.

Q: Kemp Dolliver asks about inventory decline in recent quarters.

A: Enrique López Lecube states both HB4 grain sales divestment and inventory management contributed to inventory decline.