Lavoro Ltd. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Business Overview: Farming income expected to remain healthy, but market dynamic with price fluctuations in commodities. Lavoro had strong year-to-date results with 25% revenue growth and 38% adjusted EBITDA growth.
• Strategic Initiatives: Completed acquisition of Cromo Química, launched agricultural insurance solutions in partnership with Brasilseg, opened largest flagship store in Latin America, and made progress on Agrobiológica's manufacturing expansion.
• M&A Updates: Acquired Cromo Química, expect to close Referência Agroinsumos in Q4, NS Agro deal delayed due to longer diligence, with 8 active MoUs focusing on new markets and vertical integrated Crop Care.

Segment Performance

• Brazil Cluster: Revenue decreased by $1.3 million to $426.5 million compared to the prior year, primarily due to a 6.7% reduction in grain revenue. Within inputs, sales of specialties offset lower industry pricing for fertilizers and herbicides. Gross margin declined by 3.7 percentage points to 12.1%.
• Latin America Cluster: Revenue decreased by 12% to $48.2 million compared to the prior year, driven by the devaluation of the Colombian currency. On a constant currency basis, revenue increased 7.1%, supported by a 7.9% increase in input revenue and a 22% increase in services revenue. Gross margin expanded by 1.9 percentage points to 15.8%.
• Crop Care Segment: Revenue declined by 13.7% to $17.1 million due to phasing of biologic input sales. Gross margin expanded significantly by 13 percentage points to 46.8%, representing approximately 11% of consolidated gross profit.

Guidance

• Consolidated as-reported: Revenue expected in the range of $1.95 billion to $2.05 billion, adjusted EBITDA in the range of $154 million to $159 million.
• Pro forma: Excludes NS Agro, revenue expected in the range of $1.99 billion to $2.13 billion, adjusted EBITDA in the range of $172 million to $178 million.
• NS Agro: Diligence process taking longer, not expected to close before June, guidance updated to reflect this delay.

Risks

• Inventory and Pricing: Impact of excess inventory in the market, potential margin impacts from herbicides, and need to align costs with suppliers.
• M&A Delays: Delayed closing of NS Agro due to longer-than-expected diligence process.

Question and Answer

Q: How positioned vs broader market, impact of excess inventory and pricing?

A: Lavoro is comfortable with its inventory position, not significantly affected by fertilizer price changes, working to align herbicide costs with suppliers, and expects market normalization by the third quarter of the year.

Q: Farmer customers' export opportunities and growth?

A: Latin American farmers, particularly Brazilian farmers, will continue investing in ag inputs for productivity gains, with healthy margins making them resilient, and expected growth in inputs and productivity next year.