Bioceres Crop Solutions [BIOX] Conference call transcript for 2021 q4
2022-02-10 14:48:24
Fiscal: 2022 q2
Operator: Hello and welcome to the Bioceres Crop Solutions' Fiscal Second Quarter 2022 Financial Results Conference Call. My name is Victoria and I will be coordinating your call today. I would now pass over to your host, Rodrigo Krause, Head of Investor Relations to begin. Please go ahead.
Rodrigo Krause: Good day everyone and thank you for joining us. Presenting during today's call will be Federico Trucco, our Chief Executive Officer; and Enrique López Lecube, our Chief Financial Officer. Both will be available for the Q&A session. 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 in our recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Also, please note that for comparison purposes and a better understanding of our company's underlying performance, and in addition to discussing as reported results during our presentation today, we will discuss comparable results, which exclude the impact of hyperinflation accounting in Argentina. Additional information in connection with the application of the rule IAS 29 can be found in our earnings report. Finally, this conference call is being webcast. The webcast link is available at the biocerescrops.com Investor Relations site. At this time, I would like to turn the call over to our CEO, Federico Trucco. Thank you.
Federico Trucco: Thanks Rodrigo. Good morning and welcome to all that have joined us today for our quarterly report. Please turn to slide three for a brief overview of the business and financial highlights we will be discussing in today's call. We're thrilled to report a record quarter in the history of our company with quarterly comparable revenues at $9.3 million and LTM adjusted EBITDA at $61.8 million, excluding HB4 crude oil costs. Our very strong second quarter's performance reflects an 89% growth in revenues over the same quarter of last year with a robust growth across all three business segments. We're also very proud to report that our combined growth in Europe and North America at 146% year-over-year, places these important geographies at close to 10% of our global revenues, a huge step forward in our international diversification strategy. As we have done in past calls, we will provide a brief update on the HB4 rollout and regulatory processes. On these last fronts, I would like to mention the recent announcements in November 2021 by the Brazilian National Biosafety Commission, CTNBio have decided unanimously to approve the input certification for HB4 Wheat flour for human and animal consumption in that country. This approval is a major milestone in Bioceres solution to build agricultural systems that enhance carbon sequestration and climate resiliency and is a necessary step for a commercial launch in the upcoming planting season. Please now turn to slide four for an overview on our seasons results for HB4 Wheat as we completed harvesting of 53,000 hectares. HB4 Wheat performance was consistent with prior seasons, with HB4 varieties out yielding non-HB4 varieties by 12.8% across all environments and locations. With improved performance in low productivity environments where the yield benefit averaged 49%. Some important takeaways from the current season are the improved sanitary and quality profiles observed in our HB4 materials. For instance, the prevalence of yellow rust in HB4 varieties was 70 times lower than in commercial controls in infected fields. As we expand acreage and achieve exposure to a wider array of growing conditions, we're also able to identify some limitations in our current first generation portfolio, particularly in terms of lodging in undernourished environments and lower yields on the hyperactivity conditions, most notoriously, above the five tonnes per hectare level. We expect to overcome these limitations with the introduction of second generation genetics, as we will discuss in slide six, and we put our irrigation activities. In slide five, you will see performance results by region and our satisfaction levels. It is very important to note that 225 growers participated in the current season, representing an unprecedented level of three large growers scrutiny for the technology and for our identity preserve production program. Improvements ranged from 5.7% to 39.6%. across all environments and regions. Regions where benefits were lower reflected limited adaptation by carrying materials and conversely, in regions where gains were more relevant. Growers and instruction levels range between 60% and 80% in regions where yield benefits were below average and increased to about 80%, where benefits were close to or above average. We believe that the current level of performance information by region, by productivity conditions, and by global profile provide us a very valuable data to fine-tune our value proposition and portfolio mix ahead of our upcoming launch. Turning now to slide six. As noted, we expect to minimize geographical limitations and improve grower experience under high yielding conditions as we expand our portfolio to include second gen materials. Our current data show an average improvements of 16% in environments yielding above five tonnes per hectare for new materials, compared to first generation varieties. We're moving at full biological speed to include these newer materials in our offering, learning to contract 30% of the 2023-2024 season multiplication cycle with these second generation varieties. Please turn to slide seven for our current thinking regarding the HB4 read opportunity in key markets. LatAm represents a total market of roughly 9.5 million hectares of which Argentina, South America's biggest wheat producer contribute with 6.5 billion. We believe we can capture an estimated 2.3 million hectares with our available portfolio and near-term pipeline. We're currently requesting registration of three commercial varieties. We estimate and implement an EBITDA of between $15 million and $20 million by fiscal year 2024 with peak sales in this market projected in the $190 million to $200 million range. We also expect to grow beyond Argentina as we sit here cultivation approval in Brazil, the second largest LatAm market. Production approval in Brazil is now expected for 2023 after completing in-country evaluations. We leverage with our technology that enables significant market expansion in this country, particularly as tropical germ plasm currently being tested for reproduction in the Cerrados region is incorporated to the pipeline. Brazil may therefore represent an additional opportunity of between 700,000 to 1.1 million hectares in the inventory. In non-Latin America, we are currently pursuing production approvals in the United States, Australia, and South Africa. These geographies combined represent twice the hector opportunity currently being pursued in Latin America, although it in a longer time horizon. Please turn to slide eight. On this slide, we address the rollout of new HB4 Soy varieties. As we anticipated in our fourth quarter call of fiscal year 2021, we decided to discontinue the ramp up process for first generation materials in favor of second and third generation varieties. Third generation varieties were multiplied of season in the United States and resulting inventories planted improved in the current cycle, totaling approximately 1,500 hectares which are generally in good condition. In the case of second generation materials, while the germ plasm drug was not fully eliminated, we decided to reposition a significant part of the multiplication process as a follow-up throughout the week in the inter-season plantings. Data from the 2021 season indicated that the use of these materials have a second crop in latest season plantings show returning performance gap under higher living conditions. Unfortunately, the lack of rain during December in some of the locations is selected, no longer suitable for the ramp up process. And consequently, we achieved 60% of the plant area for second generation rankings. Despite not fully achieving our modification objective in the current cycle, we still believe resulting inventories may reach launch level readiness for the next season. Finally, turning to the next slide, in our progression to further enhance our business worldwide and to ramp up top performing genetics for HB4 traits and new technologies, we have brought on board Alexandre Garcia as Global Head of Seeds. Alex has led TMG's innovation and R&D initiatives for many years, and has collaborated actively and meaningfully from the TMG side on HB4 technology development. We take this opportunity to welcome Alex to family and wish him every success in his new position. This concludes my prepared remarks. I will now turn the call over to our CFO, Enrique López Lecube to discuss our fiscal second quarter financial results. Enrique?
Enrique López Lecube: Thanks Federico. Good day to everyone. Thank you for joining us for our presentation. Let's turn to slide 10 as we go to our financials for the last quarter. In the second quarter, we continue to have strong revenue momentum with compatible revenues increasing by 89% year-over-year to $90.3 million. Part of this increase is explained by a weak comparable as last year's second quarter numbers were negatively affected by drought in key regions of South America. However, year-to-date growth reached 72% and growth in the last 12 months showed a solid 56% increase jumping to $262.6 million, which confirms robust growth dynamics that go far beyond weak levels. The main drivers behind the quarter's numbers are remarkable commercial performance and market penetration of scaling technologies. Microbial fertilizers in particular continued to deliver growth in Argentina, while inoculant and seed treatment back sales were outstanding in North America and Europe. Let's please move to slide 11 to take a closer look to our baseline business profitability performance on an LTM basis and year-to-date. As a reference baseline on business EBITDA excludes HB4 prelaunch costs which are expensed as incurred and accounted for in SG&A and other income or loss, both income statement line items that impact our reported adjusted diametric. As we have made headway in scaling up the HB4 program to build seed inventories for commercial launch, expenses related to prelaunch efforts have ceased to be irrelevant relative to our reporting EBITDA as they have been in the last quarter, making it necessary to have a profitability metric that grasps performance of the underlying business that generates revenues today. The three main components of the expenses that are stripped out from the baseline business EBITDA calculation are HB4-related SG&A, inventory ramp up, and data acquisition costs and IAS 29 accounting adjustments to HB4 grain inventories. And we are providing a breakdown for each of these categories, both in the presentation and our press release. To the numbers following the growth in revenues, the last 12 months baseline business EBITDA reached $61.8 million in the second quarter as Federico pointed out, up 46% year-over-year. On a sequential basis, LTM baseline business EBITDA grew 15%, in line with the upward trend we have seen for the past four quarters. HB4 prelaunch costs during the last 12 months amounted to $6.2 million, of which close to half correspond to inventory ramp up and data acquisition costs and $1.4 million were general expenses related to the management of the HB4 program. The remaining $1.9 million were not cash expenses, but the accrual of a negative accounting adjustments from IAS 29 application to HB4 grain inventories. During the first half of the fiscal year, our baseline business reached $37 million in adjusted EBITDA, a 48% increase compared to a year ago. HB4 prelaunch costs for the first half stood at $4.9 million. Importantly, while the SG&A portion of the HB4 prelaunch costs has a roughly steady run rate throughout the year, inventory ramp up and data acquisition costs can be lumpy, accruals depends mainly on when farmers choose to set a price to grain they provide us with as well as our own ability to commercialize grain that will not be used for seed purposes. I will refer to the specifics behind the second quarter's performance in the next slides. But as a summary for this one, I believe that we had a great quarter. It's on top of the momentum we have seen in our baseline business for almost a full year now. It is exciting to think about the prospect of adding to this business that $15 million to $20 million in EBITDA contribution from HP4 Wheat that we believe we can accomplish by fiscal year end 2024. We have now tested our wheat varieties at a broad scale and received good feedback from growers regarding ROI, which makes us feel comfortable with the OpEx we're putting into the prelaunch of HB4. Now, let's turn to slide 12 for breakdown by business segments. As mentioned before, comparable revenues increased to $90.3 million in the second quarter, up from $47.7 million a year ago. Almost half of this growth came from the Crop Nutrition segment, which grew by $19.3 million, more than tripling its revenues. It was an outstanding performance in the quarter both for fertilizers and inoculant. Micro-beaded fertilizer sales grew aggressively in Argentina, which explained most of the 9,500 tonnes sold during the quarter. Demand generation work done in the last two years paid out of commodity fertilizer prices continued on an upward trend, offering great market conditions to scale up our own product. Also high inoculant sales were seen across several geographies, in particular Europe, or soybean acreage in Greece and Brazil, where our long life inoculant formulation continues to represent a competitive advantage and drive expansion. Importantly, the increase in Crop Nutrition revenues also gained with the gross margin expansion, even the positive market conditions and economies of scales in micro-beaded fertilizers and a broad mix shift inoculants to higher value products such as LLI. Gross margin was 54.1% for the segment compared to 50.7% a year ago. In the Seed and Integrated product segment revenue growth margin expansion came from higher pack sales in Europe, U.S., Uruguay, and Argentina. Same as inoculants, pack sales also benefited from Europe's rise in soybean acreage. European growth was also leveraged by new commercial agreements, while growth in the United States was mainly explained by changes introduced in the commercial team. Segment sales grew by $3.1 million to $50.3 million, a 26% year-on-year increase with a gross margin expanding to 68.9%. Finally, Crop Protection saw a 76% increase in revenues, contributing $20.1 million to total revenue growth. It was the only segment that brought growth with a decline in gross margin expansion in salesforce driven by lower margin third-party products, something to be expected following the split of commercial teams that focus on third-party products versus proprietary volume. In slide 13, we can how this translated into gross profit contribution per segment. Comparable gross profit increased by 69% year-over-year reaching $42.2 million. The Crop Protection segment contributed close to two-thirds of its total $17.2 million increase gross profit with an impressive 133% growth, driven by increased sales and margin expansion as I described in the preceding slide. Crop Protection and Field Integrated Product segments contributed 23% and 15% respectively to the overall gross profit growth. Despite all regions nominally growing contributions to gross profit compared to a year ago quarter, Europe and North America stood out contributing jointly 73% of the gross profit growth and representing 15% of the total $42.2 million in gross profit, up to 11% in the second quarter of the prior fiscal year. Let's move on to slide 14 for a breakdown of the quarterly EBITDA. Our baseline business adjusted EBITDA reached $32.7 million, up 57% from the year ago quarter, which is a weak comparable to a very strong performance as explained before. We had an aggressive EBITDA growth as a result of topline expansion, partially offset by the increase in gross margin, increased operating expenses, and IAS 29 adjustments to gross profit. Operating expenses excluding prelaunch HB4 SG&A increased by $7.3 million, explained by a mix of higher variable and fixed costs. Variable expenses such as sales taxes and price increased in line with sales growth, and explained roughly one-third of the total increase. Fixed expenses, on the other hand, were negatively affected by effects and inflation in Argentina is a dynamic that has continued to develop unfavorably to dollar-denominated business such as ours for the fourth consecutive quarter, affecting our cost structure in the country operations not only in SG&A but also cost of goods sold. Debut results went up by $1.1 million compared to the second quarter of fiscal 2021, mainly due to higher senior tech sales or micro-beaded fertilizer manufacturing JV. HB4 prelaunch costs totaled $3 million in the quarter, leading to a reported adjusted EBITDA of $19.7 million. Now, let's please turn to slide 16 to address our debt evolution, cash position before taking you over to Federico for final remarks. Total that has been increasing in line with the growth of the business net debt by quarter end was $147.9 million, a 2.66% ratio of net debt to LTM adjusted EBITDA. On a sequential basis, our leverage ratio decreased from 2.74% in the first quarter due to LTM adjusted EBITDA growth. Over the last year, we have been working on a debt structure that supports rolling baseline business and that upcoming HB4 launch with two goals in mind; to decrease the current portion of total debt and to reduce cash financial expenses. First, we have decreased the short-term portion of our debt from 54% by the end of the year ago quarter to almost 25% by December 2021. On the second goal, despite the growth in total debt, which reached $187.8 million, our cash financial interest expense line remained roughly flat at $13.4 million for the last 12 months as of December 2021. During the quarter, our subsidiary Rizobacter Argentina completed a $20 million public offering of corporate bonds maturing in December 2024 and paying an annual nominal interest rate 1.49%. This issuance allowed us to maintain a strong equity position of almost $40 million by quarter end and further improved our average cost of debt. By way of conclusion, I believe that the strong financial performance of our baseline business combined with a stable and very healthy debt structure and easy position provides a solid foundation for growth. We are excited about what is to come next, as we aim for the EBITDA contribution and we have identified for HB4 Wheat by fiscal 2024. With our mind set is a much bigger global opportunity that we will presents beyond that specific target.
Federico Trucco: Thanks, Enrique. I think we can now open up the call for Q&A. And after that, I'll finish with some final remarks. Operator?
Operator: And our first question comes from Ben Klieve from Lake Street Capital Market. Please go ahead.
Ben Klieve: All right. Thanks for taking my questions this morning. And first of all, congratulations on a great quarter. The first question is around the launch of HB4 Wheat. I'm curious, the degree to which there are buyers, downstream buyers secured after harvest do farmers that are buying your seed, you have guaranteed off-take agreements for miller's into those millers have off-take agreements with consumer goods companies, or is that something that's still yet to be determined?
Federico Trucco: Hi, Ben. This is Federico. Thanks for joining us today. And thank you for your question. So we have been working actively to create the agreements with processors, as we move into next season and commercially launch HB4 Wheat, we will continue to handhold with our farmers so that we minimize any kind of commercial disruption. And as of today, we have already 13 different processors on boarded, or in the process of on-boarding for processing HB4 Wheat, with capacity combined, or a combined capacity, I should say of about 700,000 tonnes, which is way in excess where we would need for the upcoming season. So that's been negotiated, put in place. And that is an aspect that we will continue to solve for our customers, understanding the complexity behind these new technology on the commercial front.
Ben Klieve: Perfect. Thank you, Federico. Next question on, I appreciate your comments on moving from first to second to third generation varieties here to reduce -- to improve the genetics, the underlying genetics. I'm curious, how that is playing out in soy bean within the U.S.? Are you -- do you expect that you're going to see -- you have that same kind of genetic gap with your first generation HB4 Seed that you've been testing in the U.S.? And if so, how are you addressing that to improve the genetics in the U.S. proactively?
Federico Trucco: So that's an excellent question as well, Ben. I think in the U.S., since we didn't have a breeding program of our own, and we rely more on third-party genetics, we are less likely to observe that genetic gap, a, I think we will be progressing the trade into already competitive germplasm. We are we are introducing already the trade into competitive germplasm. So we don't expect to see the gap that we saw in Argentina. And also, this is a strategy we're expanding into in Argentina as well. So you will see that, the on-boarding of Alex Garcia's Head of Seeds is predominantly to focus on the new green approach, and relied on the outstanding genetics of current market participants. So that we minimize sort of the germplasm gap in new markets as we roll-out the technology globally.
Ben Klieve: Got it. Got it. Perfect. Thanks, Federico. Last one for me, I'll get back in queue and I don't know, if Enrique, Federica who this is more appropriate for. But you know, the results over the last four quarters here as you know, change the go to market strategy, just been exceptional. But those results are lapping. And so as you look, in the Q3 and beyond, when you've got, when you've got that that strategy already built in to your prior year results, how do you see growth evolving over the next few quarters? Is there still runway to be had from this new go to market strategy? Or are you guys expecting, kind of the more material decline on a year-over-year -- your growth from a year-over-year basis?
Federico Trucco: I will give you my high level view on that. And then, Enrique can give you more detail. I do expect to see a similar momentum in the third quarter. So there's still a long way from the existing reorganization to be materialized, probably less from that particular aspect on the fourth quarter. But I do expect international growth to continue on a very robust manner. And we do expect, HB4 to kicking in the fourth quarter as well, helping keep the momentum that we currently have. So I'm sort of very happy with the growth trajectory that we've been having, and fairly confident that we can keep this momentum in the next two quarters. Enrique?
Enrique López Lecube: Yes, I agree with Federico’s comments. Hi, Ben, great to speak to you again. I think that there are some values that played into how we were able to grow for the last year, one of those are East market conditions. So we have very, very attractive market conditions out of the fact that fertilizer prices, for example, went out. And that -- gave us a great setup to go with our product to market. So I think that as long as those conditions remain in place, we're going to be able to, to keep showing growth, maybe not as aggressively as us what we need until now. But there is still runway have. But there's some of the values that helped us that are obviously outside of the control of management, right. So steel tools in a toolkit to keep growing as long as market conditions are there and I think that, that's very convention as well. We're excited about to have other growth lever to pool, like with HB4 Wheat sticking in.
Ben Klieve: Got it. Got it. Very encouraging. Well, I appreciate you all taking my questions. That does it for me, and I'll jump back in queue.
Operator: Perfect. Thank you, Ben for your question. And our next question comes from Brian Wright from ROTH Capital Partners. Please go ahead. Your line is open.
Brian Wright: Thanks. Good morning. Couple of questions, I want to start out with, if you could just educate us on the relevance of the yellow rusting and what that means from a commercial standpoint?
Federico Trucco: Hi, Brian, it's good to have you on the call. I think it's obviously a concerning aspect to the farmers and mostly on the commercial front. I mean, consumers don't like to see rust, in the flour or in the grain that will be processed. And I think that that was an unexpected outcome of these new varieties that the rust incidents will significantly diminish. So we expect that to enable more profitable commercialization from a yield perspective in the field. It's an important sanitary aspect, but not too dramatic, I should say.
Brian Wright: Okay, And then just following up a little bit on the improvement on the test fleet, is there any quantification you are going to help us out with on that?
Federico Trucco: Sure. I think that's something we have served with a significant number of farmers particularly in the Southwest of where we are currently having some of the better results on HB4 technology. These are regions that have very restrictive activity or many times we production goes into forage. The quality components here allows that wheat to go into industrial uses. I think that's why bleach and other elements combined provide for that, in that particular region in a manner that is very relevant. So it's not only about improving on the tonnes per hectare viewpoint, but also the quality of what's being produced allows for an end use that is more profitable than deviating to forage, because of a further reduce this way. I think improvement was about 10%, which is significantly in this particular aspect.
Brian Wright: Great. Okay. That's perfect. Thank you. A couple more, I just wanted to understand, on slide seven on the market opportunity in Argentina, do you -- on the 2.3 million hectares is that is -- hectares, is that acreage that's lower yielding predominantly, or just like how that addressable market was kind of defined.
Federico Trucco: So those are hectares where we believe HB4 will provide a consistent benefit. So they're usually lower yielding. And that is not to say that we're not expecting, particularly as we introduced the second gen varieties, which we have presented in today's presentation. I think we can aspirationally target the high productivity areas as well. But we're not contemplating that today in our market assessment. So we are almost restricting the technology to the lower productivity regions. And that's where the number comes from.
Brian Wright: Perfect. And two more if you'll bear with me, or I could go back in queue, but I'd like to just go with them if that's okay.
Federico Trucco: Yes. Go ahead.
Brian Wright: Thank you. Can you remind us on kind of what the historical gross margin differentials between the adjuvants versus and insecticides and fungicides, just broad ballpark?
Federico Trucco: In terms of what are the different product characteristics?
Brian Wright: No, gross margin differentials?
Federico Trucco: So adjuvants tend to be our highest gross margin products in the Crop Protection segment. Enrique, do want to comment on the rest.
Enrique López Lecube: Yes, absolutely. So adjuvants, we are in the range of 55% to 65%, usually Brian, depending on what type of adjuvant whether it's a high-tech adjuvant or lower tech based on vegetable oil, and not silicon. But most of our adjuvants for high-tech, and that is closer to towards the 65% top of the range that I just said. Then on insecticides and fungicides, obviously, that is a lower category. I think that the lower category in the segment basically explains the decline in overall gross margin for the quarter are the third-party products. In third-party products we make between 25% to 35% margin, sometimes even higher, if it's highly tech sales that needs to be done. But it is a business very tactical to us. It’s not strategic and we usually pay less attention to that. Now we've focused a bit more on that. And I think that was this -- I won't say low hanging fruit, because it does require a commercial effort. But it's a provider of revenues with a margin between 25% to 35%. That's the range for the whole segment.
Federico Trucco: I think only thing we should highlight here is that that is where we're talking about chemicals. If you talk about bio-insecticides, or in our case bio-fungicides, like at least the normally gross margin is more similar to our biological product. So this upwards of probably 60%.
Enrique López Lecube: Absolutely. Yes, yes. We're talking about proprietary bio-insecticides or bio-fungicides, the margin is more tilted towards what we make on inoculants and seed treatment packs.
Brian Wright: Perfect. Thank you. And just last one, if I can. What was the recent acquisition kind of revenue in the quarter?
Enrique López Lecube: You're meaning the one associated to the reorganization of a Crop Protection segment with the use of the each provider salesforce.
Brian Wright: Yes. The one that was came onboard, I think, it was last quarter.
Enrique López Lecube: Yes. Yes, absolutely, like 30% dry. And that is part of our reorganization. I mean, it's a commercial entity that takes care, or basically has a salesforce that is specifically dedicated to commercializing third-party products across the main regions in Argentina. They do have some -- we do have now some own stores. But it basically focuses on low margin, I refer 25% to 35% range type of products that came onboard a couple of quarters ago. They took over the commercialization of the third-party products that are Rizobacter salesforce before, and that allowed Rizobacter salesforce to focus more on the international growth, and also in the micro-beaded fertilizers. That representation was broadly had a runaway in the previous quarter, in the quarter -- second quarter of the previous fiscal year of about $8 million. And it grew significantly now in our hands.
Brian Wright: Clearly, almost twice up?
Enrique López Lecube: Yes. So that jumps from this sort of like, jump up from $8 million to $16 million now in this particular quarter. But that…
Brian Wright: Great. So it's performing, correct?
Enrique López Lecube: Yes.
Brian Wright: So it’s performing that -- it’s exceptionally well as well. So it's across the board. If you're -- what you're integrating now is, we're seeing great performance across core and acquisition revenue.
Enrique López Lecube: Absolutely. I think that there was -- it makes a ton of sense in terms of synergies, as this commercial team that we brought onboard was already commercializing some of the selected products, the way before we make that integration. So it makes sense that we are seeing some very strong commercial synergies coming out of the interaction between the two commercial teams.
Brian Wright: Great. Thank you so much.
Enrique López Lecube: Thank you.
Operator: I’d like to thank you Brian for your questions. Our next question comes from Kemp Dolliver from Brookline Capital Markets. Please go ahead. Sorry, Kemp, we’re not getting any audio from your line. Could you please assure you’re not in mute?
Kemp Dolliver: Hello.
Operator: Hello, we can hear you now.
Kemp Dolliver : Thank you. So thank you, and good morning. Just to start with the growth in the ES -- I'm sorry, EU and U.S. markets. Could you talk a little bit more about the actions you've taken to drive that the outlook and also a little more? And I think you mentioned the product segment, but if you could go through the opportunity across the business in those two markets, that would be helpful?
Federico Trucco: So, thanks again for joining. We were thrilled with what we're feeding them in Europe and the U.S. In the U.S., we've been there for many years, and have reorganized the sales force under new management. And that provided for the incremental sales that we're seeing today, mostly on the inoculants front and the biologicals that are our most international product, if you will. So, that incremental growth in the U.S. comes from an internal reorganization, a new manager in place that's been building or rebuilding the relationships on the historical products solving the U.S. mostly inoculants. In the case of Europe, we've been putting a strategy in place by initially having a subsidiary so that we could secure product registrations and integrating our biologicals with some of the seed care products and further consolidating some historical relationships. As you know, we were a very important partner of Syngenta. And even though that is today, raw material in Argentina, it is a relationship that is expanding to our other geographies and part of the European growth comes from that relationship as well. So on a forward going basis, we expect to see similar growth obviously in 146%, quarter-over-quarter in every period. But we do expect these two geographies to become very meaningful and these are huge markets. In the U.S., as we know for crops in general and Europe for biologicals or bio fertilizers that can minimize the use or reduce the use of chemical fertilizers. I think we have a very appealing portfolio with upcoming registration also of our Biofungicide for the European market. So we do expect to see very strong performance the quarters to come.
Enrique López Lecube: Yes. I would only add to that Kemp that the point that it makes it even more exciting is that these two geographies, North America and Europe brought almost a quarter of the growth in gross profit. So it's not only affected markets from the size perspective, but also markets that are very profitable to us. So that's something that makes us put more focus and effort into building more infrastructure to keep growing. Having said that, I think that still needs to be evaluated in the sort of like a context of the full season in those countries. And it's -- it has just gotten started. So I think that we are eager to see what the final result will be for the full season. And they're going to unfold in the second quarter, third quarter and fourth quarter.
Kemp Dolliver: Super. And in the U.S. is this revitalized sales effort the team you can leverage for when you rollout the HB4 products or will that require a separate marketing effort?
Federico Trucco: I think that there might be some support from the existing team. But we are more inclined to thinking of an independent effort for the HB4 program in the U.S. This is a team that specializes on biologicals, particularly seed treatments. We will obviously use the HB4 channel to commercialize biologicals and seed treatments, but the specificity of the seed business will require a dedicated marketing and commercial effort with a different level of expertise. So some synergies, some support, but for the most part, these will be two different teams.
Kemp Dolliver: Great. Thank you. And the guidance regarding your Echo wheats very helpful. So a couple of questions related to the assumptions. First, the market opportunity, over what timeframe do you think that realization is possible, so it's 5 years, 10 years? What is your thinking about the adoption curve?
Federico Trucco: So we believe it's closer to five out of 10 and it's not three years out. But that's as much as I would like to say now.
Kemp Dolliver: That's fair enough. And with regard to the EBITDA guidance, what revenue does that -- level of revenue does that imply?
Federico Trucco: So you can think of these as a 30% to 35% EBITDA margin business. So that you can then play with the numbers and get your revenues or vice versa. Obviously, there might be some price pressure as we try to fully penetrate. So it's not like we're going to keep steady pricing, but there might be additional technologies brought into the product offering. So I think you can use that to sort of play with numbers and come to some very close understanding of what we expect.
Kemp Dolliver: Great. And that would apply to both soy and wheat?
Enrique López Lecube: Yes. In general, yes. I think that margins are similar. Remember that we do some equity accounting for JV with that we don't do in soybeans. But EBITDA margin wise, yes. So in soy, we fully owned the technology and we are part of the technology and the product was co-financed by .
Kemp Dolliver: Great. And my last product -- I'm sorry, my last question relates to China. There have been some regulatory changes involving GMO wheat. And I'm sorry soy and corn. They appear to focus on domestic growth development of these products. Do you have any thoughts on how that impacts your application? It seems like a step in the right direction. But it's really hard to determine all the -- everything that may be going on there?
Federico Trucco: Yes. Absolutely. I think it is a step in the right direction. It is a step that is mostly designed for the in-country cultivation process. And for some local developers that have up to date products in their pipelines that can be applied in China. Unfortunately, we have not seen sort of a similar attitude towards international approvals. So if you look at the last two meetings of the Chinese regulators, they have mostly restricted approvals to domestic market issues that have not approved any new soy or feed and food importation for instance. So it is a process that is difficult to that, unlike what we had with Brazil's that we knew every month, workflow expect. And the Chinese processes, it's more difficult to track. We are now in the process of requesting Argentina authorities to review the current applicate, the current approval, this is an approval that dates back to 2015. So they have seven years have passed already. We're still waiting for the Chinese clearing, so that I think that case can be made for a time limitation on the Chinese clause here in Argentina, particularly for a technology that has already been approved in the U.S. in Brazil, in Paraguay, in Canada, so most of the relevant production geographies without any kind of consideration to the Chinese regulatory process. So we do expect the Chinese approval to come. But we are taking a more proactive stance, particularly with the Argentine authorities to try to remove that restriction and be able to freely commercialize HP4 soy upcoming season.
Kemp Dolliver: And seven years is not a typical for them?
Federico Trucco: No. But I think it's enough time to make a decision. But we're cautiously optimistic, I should say, and even though we did expect this last year, and we're still waiting.
Kemp Dolliver: Very good. Thank you.
Operator: Perfect. Thank you, Kemp for your questions. At this time, there are no further questions. And now I'd like to pass a call back over to Federico Trucco for any final remarks. Well,
Federico Trucco: Well, first, I want to thank everyone again for joining us today. I think we had a very good quarter. We are very enthusiastic about the state of our business and the prospects ahead. I mean to say lovely we are on fire and delighted to be on fire and hopefully we can -- people will bring in similar performances in the quarters to come, so not much more. I wish everyone Happy Thursday and added them to this week. Thank you.
Operator: Thank you everybody for joining today's call. You may now disconnect your lines.
