Bioceres Crop Solutions Corp. Q1 FY2023 Earnings Call

Good morning, good afternoon, and welcome to the Bioceres Crop Solutions Fiscal First Quarter 2023 Financial Results Conference Call. My name is Adam, and I'll be your operator today. I will now hand the floor over to Paula Savanti, Head of Investor Relations, to begin. So Paula, please go ahead when you are ready.

Thank you, and good morning to everybody. Thank you for joining. Presenting today during the call will be Federico Trucco, our Chief Executive Officer; and Enrique Lopez 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 statements. 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 as the recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed circumstances. This conference call is being webcast. The webcast link is available at the Bioceres Crop Solutions Investor Relations website. At this time, I will turn the call over to our CEO, Federico Trucco. Thank you.

Thank you, Paula, and thanks, everyone, for joining us today. Good morning. Please turn to Slide 3, so we can start our earnings call. The first quarter of fiscal 2023 has been a fantastic quarter in multiple ways. We have grown revenues by 71%, and this is after including Pro Farm historical revenues in the year-over-year comparisons. And this revenue growth has trickled down to profitability with our adjusted EBITDA almost doubling for the quarter and reaching $24.5 million. A record quarterly number that is even more impressive if you consider that we are now fully accounting for Pro Farm, which is initially a negative EBITDA contributor, which we intend to quickly turn around into a positive contributor. On this last point, and as we discussed in our September call, we have finalized the Pro Farm merger on July 1, and we have started the integration process during the reported quarter. This transaction figure has changed to U.S. dollars as a function of guarantee in our main subsidiary in Argentina, which we believe will help us better reflect the reality of this business in our consolidated financials. Enrique will expand on this in his part of the presentation. We will report on HB4 crop status in a few minutes, with HB4 soy planting underway and HB4 wheat harvest to start in the next few weeks. Finally, we would like to use today's presentation to discuss the long-term agreement we have recently released with Syngenta Seedcare to accelerate the expansion of our investment internationally. Discuss why we did it, what are the expected benefits, and what is included and excluded in the agreement. Before we move to the next slide, to more deeply address each key highlight, we also want to mention the completion of our share buyback program. The program was launched back in March of 2020, and we have seen stocks approximately 570,000 shares with an average acquisition price of $8.77. We have a new program opportunistically where we observe significant dislocation in the market and intend to continue to restore by refreshing the program for another $5 million on a volume basis. Please, now turn to Slide 4. This slide shows the year-over-year growth of trailing comparable revenues for the last six quarters and the growth reported in the current quarter. It is obviously not the same to grow at a 71% rate if you're coming from a flat year than when you're running at a 62% growth rate from the fiscal year immediately before. We're very proud of this quarter’s performance, and Enrique can further address each in his part of the presentation. Moving to Slide 5, as we have already discussed, we have completed the merger with Pro Farm and now have an unmatched platform for future growth in biological Ag inputs, positioning our company as a clear leader in sustainable solutions for the agriculture of the future. With the integration of Pro Farm, we now have an existing portfolio or pipeline of products designed to replace or significantly reduce the use of synthetic chemicals in most functions for which they are required in high productivity agriculture. Where we can most immediately achieve this substitution is in the seed care segment of the industry, as we will describe shortly when we discuss the long-term collaboration agreement reached with one of the segment leaders, Syngenta. Before we do that, let's review the status of HB4 crops in the next three slides. Severe drought conditions in Argentina may transiently slow down sales in our second quarter, the current quarter. However, at the same time, the drought is creating a unique opportunity to showcase HB4 technology, with the country-wide wheat crop decline expected to be at the 40% level compared to last year’s harvest. As you know, HB4 crops are drought tolerant, not drought prone. So we expect to lose some fields where the conditions have been too extreme and the crop will not be taken to harvest. We think that 86% of the field will be harvested and provide a good indication of the benefit of HB4. We believe also that we have enough inventories to stay on track and meet our fiscal year 2023 goal for wheat, positioning us to reach the guidance provided for fiscal year 2024. In the next slide, you can see the significant difference observed for one of our second generation materials when compared to isogenic non-HB4 system line, which is currently a top selling conventional variety in Argentina. We are looking forward to seeing these differences translate into yield benefits and report this in more detail in our next earnings call. In the next slide, we will provide a brief update on HB4 Soy. We're making good progress with the HB4 Soy breeding and multiplication efforts, with early season plantings well underway and two varieties being scaled in Brazil for an upcoming launch with multipliers next season. Importantly, we have onboarded four new licensees or germplasm providers covering genetics for Argentina, Brazil, the United States, and South Africa, where we recently obtained feed and food clearance for both HB4 wheat and soy. We're doing this while advancing our historical collaborations. For instance, we expect a variety from Grupo Don Mario to become available to multipliers next year in Argentina and the following year in the United States. Let me now move to the next slide to discuss the announced long-term collaboration with Syngenta Seedcare. First, what is seed care? It is a $4 billion to $5 billion segment in the ag-input market in which biologicals are currently at 20% of the segment, with one-third penetration resulting from inoculants. Our product category where we have achieved significant success in Argentina and are starting to do so internationally. Biologicals in this segment are expected to reach $1.6 billion by the end of the decade, and we believe it can be a clear winner in capturing that growth. Turning to the next slide. To do this to be a clear winner, we partnered with a segment leader, Syngenta Seedcare. We have been collaborating with Syngenta Seedcare for 20 years in Argentina and have jointly achieved and held the number one position for our inoculants, bio fungicides, and Syngenta molecules for a long time. This new collaboration creates the right structure to expand this success internationally at an accelerated pace. We expect the international revenues generated by our inoculants alone to at least double in the next two years. While Syngenta will now cover working capital needs as well as sales and marketing activities, we have secured minimum profits that average $23 million on a per year basis over the life of the agreement, and this is not including an upfront fee of $50 million in exchange for the different rights granted for the collaboration. On top of these annual minimum profits, we will receive between 50% and 30% of the incremental profits generated by the collaboration, depending on the geography and the year. The collaboration is not just designed to maximize our commercial reach, but it is also focused on accelerating our R&D efforts, with Syngenta covering 70% of the R&D investments required for early pipeline products and new products that we may opt to develop jointly within this framework. Finally, and turning to the next slide. We have not sold our inoculants business to Syngenta. We have partnered with Syngenta to make this business far more relevant over the next 10 years. The current agreement does not include our profile portfolio. It is retaining rights for us to use seed treatment solutions in our HB4 farming as a service channel or HB4 program. And we are also making some rights non-exclusive in the United States for the overall top solutions derived from products within the agreements. We want to thank Syngenta Seedcare leadership for their trust and hard work to get to this point and reassure them of our full commitment to the success of this joint endeavor. Enrique, all yours.

Thank you, Federico, and thank you to everyone for joining us today. We are delighted to have kicked off a new fiscal year with such a strong performance. The results that we're reporting today are built on top of outstanding growth achievements throughout the previous six quarters. So I would like to take this opportunity to congratulate and thank our sales and operational teams for doing a fantastic job at getting our technologies and products to market, with relentless execution. I will address the drivers behind our quarterly financial performance in the next few slides as Federico outlined. This was predominantly a very important quarter from a strategy standpoint. We started the fiscal year on a strong note by completing the merger with Pro Farm, then continued to make considerable progress on our integration efforts and synergies in the quarter. Simultaneously we executed an ironclad agreement with Syngenta Seedcare that created value on multiple fronts. It provides a long-term profitable growth path for our inoculants. It broadens the scope of our research and development activities around featuring biologicals by having Syngenta core fund 30% of the investments. And it also strengthened our balance sheet by bringing in $50 million in the context of a global term loan, in which liquidity has become an increasingly important lever to handle. These two milestones put us in a unique strategic position to structurally benefit from the secular growth trend and high profitability profile that biologicals offer. Before I dive further into the quarterly results, I would like to call your attention to a couple of important changes we have introduced. The most relevant aspect relates to a switch in functional currency of our main Argentine subsidiary, which is addressed on Slide 12. The merger with Pro Farm and the subsequent business integration triggered the need to adopt the U.S. dollar as the functional currency in our main operational subsidiaries in Argentina, starting in the first quarter of this fiscal year. Despite starting our operations mostly in U.S. dollars, this subsidiary has historically used the Argentine peso as a functional currency, and their financial statements were therefore subject to IAS 29 accounting adjustments, which need distortions in our reported results and forced us to provide compelling metrics to better assess our underlying performance. The merger with Pro Farm has enabled this long-standing shift, which now eliminates the need for IAS 29 inflationary adjustments and as a result, comparable figures from prior years are no longer represented except in reference to past quarters. Long term, this change will simplify our financial reporting and provide our shareholders with a much clearer picture of our products. On a high note, to allow a fair comparison of our organic topline growth year-over-year, we have taken the extra step to provide pro forma comparisons for fiscal year 2022 revenues and gross profit. Two metrics that would otherwise benefit from the addition of Pro Farm in our fiscal 2023 results. Pro forma comparable figures reflect the addition of Pro Farm to historical numbers and isolate any IAS 29 distortions from fiscal 2022 figures to favor a cleaner comparison of our results to past performance. Otherwise, as reported results from prior reporting periods, will be used for other line items to the income statement and balance sheet, including adjusted EBITDA. We recognize there will be a bit of adjustment as we go into the 2023 fiscal year. But again, we believe this change more accurately reflects our evolution as a company. I will turn now to Slide 13, please. Our first quarter is dominated by sales in the Southern hemisphere, where the growing season started in earnest. Summer crop planting in Latin America is our fiscal year, and there will be an exceptional job of anticipating locking in a 71% growth in the first quarter in the face of dry weather, particularly in Argentina. As I mentioned, revenues from Pro Farm are incorporated into our sales results, which gives you a like-for-like comparison of our total business first quarter to the first quarter. A 71% increase in revenues has been a strong start and provides us with comfort on the average for the first half of the fiscal year, even as we navigate rough waters in what has now been confirmed as a historical drought in Argentina. Let's please move to Slide 14 for more detail on the revenue breakout by segment. Compensation was the main contributor to growth in the quarter. We saw continued strong adoption of our micro-beaded fertilizers in an environment of tight and costly fertilizer supplies. The expansion was driven by the winter season and preseason summer sales in Latin America. Inoculant sales also expanded across multiple regions. These gains were somewhat offset by lower sales of Pro Farm biostimulants on a comparative basis because of the timing of sales last year. All of the biostimulants from the Pro Farm portfolio are now included in the Crop Nutrition segment, while all the food products that come from the legacy Pro Farm biocontrol portfolio have been incorporated into the crop protection segment. Sales of crop production products increased by 54%, even as we face dry weather conditions in key Latin American markets and in the United States. While dry conditions in the Western United States continue to curtail specialty crop sales, U.S. low crop sales of Pro Farm bio-protection products. Adjuvant sales in Brazil and Argentina also delivered solid performance with higher B2B sales. Finally, sales of seed treatment packs ahead of planting were higher in both Latin America and South Africa. We anticipate dry conditions will likely come from the planting and growing seasons in Latin America. But on the other hand, we will have the added benefit of total revenues, which we expect to rebound with growth as we move through the fiscal year. If you turn to Slide 15, revenue growth translated into a 52% increase in gross profit, also led by our crop nutrition segment, which delivered an impressive 85% growth in gross product with a 15% gross margin. Growth in seed treatment packs was also achieved with a healthy 50% gross margin. Overall, gross margins of 40.5% were down roughly 500 basis points from the same period last year because of the mix of products sold in each segment dampening margins across the board. We like our industry experienced higher input and price costs in the first quarter, which also played a role, including pressure on margins of some products that require raw materials involving international logistics. Adjusted EBITDA for the quarter reached a record high of $24.5 million, as shown on Slide 16. The increase in gross profit growth improvement more than offset higher operating expenses with healthy operational leverage. SG&A increase in the quarter was mainly driven by the addition of Pro Farm operating expenses and by transitory costs related to the integration efforts, such as severance and higher than usual trailing expenses. Baseline business operating expenses were also higher than explained by bearing our SG&A costs on higher sales. Even with these additional one-timers, SG&A as a percent of sales after deducting $2.8 million in merger transaction expenses was roughly 23%, in line with the first quarter of last year. Despite benefiting from the pro forma as far from historical 2022 numbers, the adjusted EBITDA margin remained relatively stable at 19.3% year-over-year. Slide 17 gives you a slightly different look at what brought the adjusted EBITDA improvement. It's comforting to see that our baseline business was strong enough to absorb the net EBITDA contribution on Pro Farm and still allow us to report an impressive $24.5 million result. It is also important to note that within the first quarter, we made meaningful progress on achieving cost synergies from the merger, which also contributed to minimizing the net impact on EBITDA for Pro Farm’s results. Within the next two quarters, we expect to fully achieve the cost synergies we targeted at the time of the merger and believe that by year-end, Pro Farm assets will have turned into positive EBITDA contributors, which should be the basis on which we continue to build sales synergies in the next 12 to 18 months. As mentioned when describing sales, having achieved such an impressive EBITDA in the first quarter gives us great comfort on the outlook of profitability for the first half of our fiscal 2023. If you turn to Slide 18, let me wrap up by covering briefly the balance sheet. Total financial debt increased to $228 million related to the execution of the two financing agreements in connection with the Pro Farm merger. Part of the proceeds were allocated to paying off all existing Pro Farm financial obligations and the remaining were used to reinforce working capital at Pro Farm and our overall cash position. Our net interest ratio remained relatively flat at 2.76 times LTM adjusted EBITDA with a healthy balance of cash, term, and long-term debt. Cash equivalents rose to $51.3 million at the end of the quarter, including cash used to fulfill our $5 million share repurchase commitment. Subsequently to the close of the quarter, we received the $50 million upfront payment from Syngenta, which brings our cash position to over $100 million. In conclusion, we have had an exceptional start to the 2023 fiscal year. And despite severe weather conditions in some key markets, our strong first quarter results and the revenue diversification we gained from Pro Farm make us feel confident about the growth outlook for the full fiscal year and allow us to remain focused on executing our HB4 strategy and making Pro Farm assets EBITDA contributors before year-end. With that, I would like to turn the call back over to Federico.

Thank you, Enrique. I don't want to take much longer, but I do want to finish with some forward-looking remarks for the remainder of fiscal year 2023, if you turn to the next slide. I think we expect to see sustainable double-digit growth in our core business year-over-year. And this is the spike coming out of a terrific fiscal year 2022 and also after the volatility that we might experience due to the weather conditions in Latin America. So we are highly confident about this continued growth trajectory for the company for fiscal year 2023. Obviously, the Pro Farm integration process is an important aspect for the fiscal year, where we expect to reduce that negative EBITDA contribution from Pro Farm and turn that into a positive number by the end of the year and also take advantage of the R&D capabilities that exist within Pro Farm to make them available not only to other internal customers but also to external clients so that we can utilize this in full. We will fully launch HB4 wheat in Argentina. We will have data coming out from the current harvest in the next earnings call and use that to evaluate and promote HB4 technology for the next season. We continue to scale HB4 soy breeding and multiplication in Argentina and Brazil, with inventory levels set in place and the performance achieved to meet the fiscal year 2024 and 2025 guidance we have already provided. To recap on those, we expect HB4 wheat to contribute between $15 million to $20 million of EBITDA in the next fiscal year, and soy to achieve that at the $20 million to $25 million level by fiscal year 2025. It is important that during fiscal year 2023, we meet the initial KPIs that we set in place for the Syngenta collaboration and scale up our production capacity for biologicals in Argentina and also for adjuvants in Brazil, hoping to finish the new facility by the end of the fiscal year and have that fully operational in fiscal year 2024. So these are some of the sort of expectations for the current fiscal year where we wanted to finish the call with. We can now open up the floor for Q&A.

And our first question today comes from Bobby Burleson from Canaccord. Bobby, your line is open. Go ahead.

Yes. Thank you for taking my questions. Not sure exactly what time it is for you guys, but good morning if it's still morning for you, obviously. So I guess the first one is just if we think about Pro Farm formerly Marrone. They had nice growth. They had pretty healthy gross margins, but they always seemed to struggle a little bit with the OpEx – and I know you guys are targeting reducing that negative EBITDA drag, and then turning that positive. So maybe just walk us through some of the low-hanging fruit there that will help you kind of achieve that objective this fiscal year?

Hey, Bobby. This is Enrique. Good to have you on the call for the first time. So, thanks for taking the opportunity to ask questions. It is still morning for us, so you are right. Not as early as for you Bobby. Well, you're right on your comment. I mean, that's right on thought. There's obviously the low-hanging fruit that we had identified at the time of the merger, and that was mostly related to the sort of the business scheme of the company, and that was what we achieved first. Not having the costs or the effects of two publicly listed companies is something that gave us a quick win at the beginning. There were obviously some restructuring measures that we took that were a bit harder to do. But we have already accomplished those as well. So we are probably today about 80% of the cost synergies that we have targeted. What we expect is certainly in the next couple of quarters, we will execute the remaining, and that plus growth coming from the sales deals in the next three quarters should allow us to position Pro Farm as an EBITDA positive contributor or the asset coming profile. Bear in mind that the way that we structure the business and that we announced at the time of the merger, we will no longer be looking at performance as a single-standing entity. There will be business units and there's cross-selling there. So at some point, this will begin to be sort of one company. What we wanted to do today is give you some sort of notion of how we're targeting and tracking those operating expenses synergies. And then on top of that, if we get to year-end and look back on a trailing last 12 months basis, and Pro Farm has become a positive EBITDA entity that should set the basis for us to continue executing on the medium-term synergies that were related to sales. Remember that we targeted between $5 million to $15 million in synergies that take a bit longer to be executed, mostly because it requires some work on the registration front, so ready to register some of the Pro Farm products in geographies where we have sales muscle takes a bit of time, but that's what we're looking for, a strong basis on which to add those synergies.

Great. Very helpful. And then just – maybe just a quick follow-up or a slightly different question, I guess. If we think about all of the supply chain concerns and export issues for grain out of Ukraine, et cetera. Obviously, over the past few years, and it looks like it will continue to be so, South America is becoming a major – and has become a major export source for the world's food in certain areas, in particular. I'm wondering with the GM seed and trade capability you guys have developed with HB4. Is there an increasing acceptance maybe for GM seeds and produced in regions of the world that maybe were resistant to GM, Europe, et cetera? What are your thoughts on that environment and how it's maybe broadening the scope of your opportunity there for HB4?

Thank you for joining the call today. I think that the situation you just described has created a shift in focus from sort of the way GM Technologies may be perceived by some groups to sort of more important focus on food security. All of a sudden we see the importance of food production and technologies that can help us increase productivity while preserving natural resources become center stage regardless of sort of the tools that we use to achieve this type of solutions. So yesterday for instance, we received notice from Indonesia of doing HB4 Wheat for approval. And that is on top of Nigeria coming from a continent where there was a high level of reluctance to GMO approval, perhaps highly influenced by the historical European position. I'm not saying that we are ready to fully enter those markets. But today, we're much closer than we ever were in trying to get these technologies accepted even by the more skeptical or reluctant consumers. This is an opportunity we are seeking after the approval in Argentina, and we saw our approvals cascaded in very meaningful geographies for Wheat and Soy. Wheat obviously is more of a challenge because we are the only company today with the GM wheat and wheat has been historically for human consumption, unlike soy and corn, which were more dedicated to animal feedings and biofuels. But we're taking advantage of the situation. I think the current drought in Latin America will make this even more relevant, and we expect to see many more approvals cascaded down in the upcoming months.

Fantastic. Thanks for taking my questions. Congratulations on such a strong quarter.

Thanks, Bobby.

The next question from Ben Klieve from Lake Street Capital. Ben, please go ahead. Your line is open.

All right. Thanks for taking the questions, and yes, congratulations on just another exceptional quarter across the board here. Two quick ones for me. My first question is on the quarter itself. Enrique, I'm wondering if you saw any kind of lumpiness that benefited the quarter, either revenue getting pushed from Q4 into Q1, some revenue getting pulled from Q2 into Q1, or any kind of outside of the orders or the success was just kind of broad across the board?

Thanks for joining us. Well, I think that the way we tend to look at the performance in the first quarter is all together with the second quarter. If you think about it, the first and the second quarter of our fiscal year are basically where all of the summer crop planting activities take place in Latin America. That remains an important market for us with Argentina. I would say that we are looking at this as part of the summer crop planting season that will go up with that – there is some bit of sales that transcended from winter crops in micro-beaded fertilizers, but that's not as meaningful as it is in terms of looking at the first half as a whole. That's what I would say. And that's why I think it's so important that we're seeing this growth early in the season. That makes us feel comfortable as we look to the full fiscal year growth outlook. We remain positive about that, even as we transition with some pressure due to rotation that has paid in the last quarter. Argentina is an important market for us.

Got it. That's helpful. And that kind of helps a bit my second and last question here, and that around is drought conditions. I mean, you guys have been very vocal about this. And reports are widespread around just the terrible dynamic that Argentinian farmers are facing. A couple of years ago, there was a similar dynamic underway. I'm wondering if you can help characterize the kind of your outlook here into the second quarter and the chemical fertilizer application this coming period relative to similar conditions that arose a couple of years ago. Are you looking for more as material of a headwind as you faced two years ago? Do you think that's going to be offset by other variables? Help us kind of frame the outlook here for the next quarter relative to the experience a couple of years ago?

Hi, Ben. This is Federico. Thank you for joining us once more, and thanks for the question. I think that we are better prepared than we were back then, first, because we have a more diversified base today. So we will have, I think, we expect more meaningful contribution from Pro Farm in North America and Europe in the quarter. In terms of the fertilizer impact, that is mostly related to corn planting, and that depends on the rain events that might happen in the upcoming days or weeks. So I think if those rain events occur and there is a transition from last season corn to later season corn. We might see a slowdown in the fertilizer sales, but I have to say that we are much better positioned than we were two years ago when we faced a similar situation. Having had such a great start, I think, gives us enough of a cushion to deliver the first half revenues and results that we expected to deliver for fiscal year 2023.

Got it. Okay, very good. Plenty more to talk about, but I'll pass the time here. Congratulations on a great quarter, and I'll get back in line. Thanks, guys.

Thanks.

Next question comes from Brian Wright from ROTH Capital Partners. Brian, please go ahead. Your line is open.

Thanks. Good morning. First of all, just wow, that's all I got to say commentary. Question, on the global minimum targets with the Syngenta agreement where you said the average is $23 million on a yearly basis of the life – is that over the first four years, five, or the 10-year period? And how to think about like maybe how that minimum target kind of moves from the beginning to the end?

Hi, Brian. Great to have you in the call and thank you for your initial comments. We feel the same way. So the $23 million average is basically the $230 million that is contractualized at minimum profit over the life of the agreement divided by 10 years. Initially, that number – we expect in the initial years, while we are still pursuing some of the business ourselves. So this is not starting all at once, and it's probably going to be over $23 million average. As we move to the later years, it's going to be above that $23 million average. So that's the guaranteed profitability under the agreement, obviously, in a format. On top of that, if we have sales from the collaboration that exceed those minimum targets, we will be sharing profits at a 50% to 40% rate depending on the geography and the year. That is basically what we are reflecting with an average number in terms of the Syngenta collaboration.

Great. And then just a follow-on, if I could. The cash position post the agreement, it's robust. I know you completed the $5 million share buyback. There seems to be room for potentially more, just any kind of comments along those lines?

In terms of the buyback, you mean?

Correct.

Yes. I think we would like to continue to do what we have done in the past, which is take advantage of dislocations in the market and opportunistically exercise the buyback program. If we need to refresh on a monthly basis because we are sort of meeting the $5 million cap every month, we will pass to our board permission to do so. But this is kind of a capital allocation decision that needs to provide a level of return that is attractive compared to the other capital allocations that we might have in our business. So this is not something that we're going to support the price of the stock. This is an investment opportunity or something we really know well when the market gives us sort of an opportunity to do. So I don't know, Enrique, if you want to add anything to that.

I think that also helps us potentially minimize dilution coming from the commercial notes. Remember that we have issued convertible notes that have a strike price of 18, and this is a fantastic way. If we are positive about the outlook of the company to minimize the potential dilution.

Okay, great. Thank you so much.

The next question comes from Kemp Dolliver from Brookline Capital Markets. Kemp, please go ahead. Your line is open.

Great, thank you. And good morning. So two questions. First is, where do we see multiplication efforts you've discussed in the presentation put you relative to the fiscal 2024 and 2025 EBITDA goals? Essentially, thinking of it as a percentage of target, where will this put you?

Hi, Kemp. Thank you for joining us and thank you for the question. I think – obviously, we're not halfway in terms of fiscal 2024. The key here is to make sure we have enough inventories to reach those numbers in fiscal 2024. I think that even though the yields will be lower because of the significant drought, we will have those inventories in place, probably the top of mind aspect today in all partners in Argentina. So I don't think we'll have an issue placing those inventories in the current year, so that we can reach the $15 million to $20 million next year from an EBITDA viewpoint. The only caveat, if you will, is that we might rely a little heavier or we might depend a little more on the first generation materials compared to a second-generation material, which was the material that we were just starting to multiply this season. We have limited inventories and sort of the reduced yield because of the drought in a way. It doesn't allow us to go full speed ahead of those. This is not an issue that we are facing drought because the structuring of materials has shown terrific benefits, but it is something we need to clean up in the value of normal years or years where yields are expected to be high so that we avoid any kind of drive in overall performance. So that's the only thing I would say; we need to readjust in the current season, but not affecting what we need to be the $15 million to $20 million guidance for fiscal 2024.

My second question is, what is the status of the joint venture talks between Trigall and S&W in Australia?

Great question. So we moved forward with that joint venture process. We are now finalizing the definitive agreements. It took us a little longer, but we expect to have this closed by the end of the year, and we are starting to coordinate planning activities with them. This has been ongoing since September already. We have not included this in the backlog, but it continues to be an important aspect of the Trigall opportunity in Australia.

Very good. Thank you. And I will ask a third question which is, are you going to miss doing the IAS 29 adjustments?

That's a great question. No, we are not, and actually, it's even hard to make those adjustments.

We're not going to miss that at all.

I will not. Thank you.

And the next question comes from Steven Ralston from Zacks. Steven, please go ahead. Your line is open.

Good morning and congratulations on a great quarter. My first question concerns your collaboration with Syngenta. Could you expand upon that and clarify some specifics, especially towards product lines? As I understood it, it was a very symbiotic relationship in Argentina, where you distributed Syngenta's fungicides and insecticides, the Maxim family and the Actellic family of products. And in return, Syngenta distributed Rizobacter's seed treatment products. How is that changing? I know it's global and in some cases exclusive ex-ing out the U.S. And could you also get into the specifics of the potential you see in China and Brazil?

Great. So thanks a lot, Steven, for joining the call and for the great question regarding the Syngenta dynamics. So as you described, in Argentina, we have achieved 100% success. We are, by far, the leaders in the inoculant business and also in the biofungicide side of our business in the seed treatment. I believe Syngenta has obtained in Argentina a level of molecule penetration that is much higher than anywhere else in the world. I think when we consider both channels export close to 40% to 50%. So that's something Syngenta was not able to replicate in other geographies for their active ingredients. So the question was, how do we scale this up internationally in a way that is attractive to both parties? That's why we went into this long-term distribution collaboration and have an R&D component as well. So the footprint we have in Argentina, we don't have that footprint in Europe or the United States, let alone Asia, like China or Australia. So being able to build that ourselves organically will take a long time. Being able to use Syngenta's existing footprint gives us an opportunity to quickly penetrate those markets with a product category where we have done this jointly in a very successful way. We are initially doing this only with inoculants and we selected part of the seed treatment portfolio. This is not to say that we're not leaving the opportunity to use Syngenta's footprint for other opportunities that come out of this collaboration. But that is not a focus for today. This was kind of a starting point for us to fully penetrate that $4 billion to $5 billion market, where biologics are already at the 20% level, and we believe we can be at $1.6 billion market-wide in biologicals as a whole by the end of the decade. That's kind of the thesis behind the Syngenta collaboration. We are not going into a blinded relationship. We've known each other for 20 years, through the positive and the negative. So this is what we are sort of now deciding to jointly move forward.

Now turning to EBITDA. It seems like the major contributor was Crop Nutrition, and that's related to your micro-beaded fertilizer plant. I've noticed last quarter and this quarter, you have not given out the 12-month trailing capacity utilization in your press release. It must be very high at the current time. Can you share that now? And what are your plans there in the future? Because you should be getting very close to maximum capacity?

Hi, Steven. This is Enrique. Thanks for joining the call and thanks for the question. Yes, you're right. I mean, we have been ramping up the use of total capacity; we have used that metric of utilization of installed capacity to basically understand asset performance that is most industrial in nature. The rest of our pipelines are not heavily relying on industrial assets or manufacturing facilities by our contracts. That's the reason why we use that metric. We are standing today at 38% use of installed capacity. We can still use an additional 20%, but that requires investing in working capital because this is a highly seasonal product. So we are already looking into expanding capacity in that plant. We feel positive about how this product has rolled out in the market in Argentina and the southern states of Brazil. We're looking at opportunities maybe in our markets, maybe in the northern space of Brazil, and why not in the U.S. at some point? So yes, we will need to do some investment. Now it's not the thing to start from scratch than to add capacity on what we already have. To continue expanding Latin America, we will start doing module investments to ramp installed capacity up as we see that there's still demand for the product.

Thank you. And I want to congratulate you all on that – your strategy on that plant because basically, it was a wasting asset with very low capacity utilization. And through your strategies, you've made it into a true cash generator. Thank you for taking my questions.

We know you've been tracking that part very closely. So it's great to see you recognize the progress there, and we are also very proud to see that happening.

We have no further questions, so I'll hand it back to Federico for any concluding remarks.

Okay. I want to thank everyone for joining us today, for those that woke up at 5 a.m. particularly thank you because it's very early. We are really proud of the quarter we just finished and the progress that we're making, and hope to continue to bring these types of results on a forward-going basis. It's going to be challenging because the bar is high and the weather is not helping. So maybe a little bit of rain might help in Argentina, despite our investment and how important drought is for us from a technology viewpoint, but we are really happy to be where we are. Please feel free to reach out if you want additional information or follow-up with any additional questions. Thank you, and have a great rest of your day.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.