Lavoro Ltd. Q1 FY2024 earnings call

Overall Business Landscape

• Revenue grew 11% Y/Y to $483 million, but adjusted EBITDA declined 75% due to deflationary pressures in Brazil ag retail.

Market Environment

• Disruptive El Nino phenomenon in Brazil caused severe drought, delaying soybean planting and impacting next crops, expected to affect second and third quarter results in Brazil ag retail and crop care segments.

Distribution Margins Recovery

• Distribution margins recovery has been slower than expected due to steep deflationary trend in crop protection and fertilizer prices over multiple quarters.

Share Gain Efforts

• Hired experienced sales consultants with low attrition, and improved logistics to handle last-minute orders, driving strong volume growth as mentioned in financial highlights.

Consolidated revenue for fiscal first quarter 2024 ended September 2023 was $483 million, up 11% year-over-year. Brazil retail revenue increased 15%, with contributions from acquired Referencia roughly 2% of overall revenue growth. Latam retail revenue decreased 1%, impacted by pricing headwinds to fertilizers and supply shortages of corn seeds. Crop care revenue decreased 1%, affected by Perterra's price declines and Agrobiologica's delays but boosted by Cromo Quimica and Union Agro. Brazil ag retail gross margins contracted to 8.7%, Latam ag retail gross margin declined to 13.8%, and crop care gross margin was affected by lower margins at Perterra and product mix shifts.

Adjusted EBITDA Guidance

• Revised adjusted EBITDA forecasted to be in the range of $80 million to $110 million, with revenue guidance unchanged.

New Facility Production

• Production on new biologicals facility postponed until August, with additional costs related to initiation postponed.

• Disruptive El Nino phenomenon causing drought, delaying planting and impacting crop investment.
• Steep deflationary trend in Brazil ag retail negatively affecting margins.
• Supply shortages and delays in key products like Paraquat impacting Latam business results.

Q: Please proceed with your question. Bobby Burleson with Canaccord asked about share gain efforts and position in market.

A: Ruy Cunha mentioned hiring experienced sales consultants, low attrition, and better logistics to handle last-minute orders as key components of share gain.

Q: Vincent Anderson with Stifel asked about biologicals component and guidance.

A: Ruy Cunha said lower adoption of biological solutions in corn crop due to farmer skepticism, and new facility production postponed until August.

Q: Ben Theurer with Barclays asked about destocking and El Nino impact.

A: Ruy Cunha said crop protection is most important in destocking, and El Nino has been severe, with inventory levels improving but normalization timeline uncertain