Earnings Call Transcript - BIOX Q2 2021

Operator, Operator

Good morning, and thank you for joining us. I would like to welcome you to the Bioceres Crop Solutions Fiscal Second Quarter 2021 Earnings Conference Call. I will now hand it over to Max Goya. Please go ahead.

Máximo Goya, Executive

Thank you. Good day, everyone, and thank you for joining us. Presenting during today's earnings call will be Federico Trucco, Bioceres 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, 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. I would now like to turn the call over to our CEO, Federico Trucco.

Federico Trucco, CEO

Thanks, Max, and thanks everyone for joining us today, and Happy New Year. Today, we are reporting on our second fiscal quarter that ended on December 31. As a technology company, our value proposition is centered on developing highly differentiated solutions that create economic incentives in the form of improved yields, management practices and other efficiencies to further decarbonize production processes while regenerating agricultural ecosystems. With this central purpose in mind, we have been investing over the last 18 years in a solution called HB4, designed to improve the resiliency of crops in the face of adverse climatic conditions, more specifically limited water availability, the single most important factor affecting agricultural sustainability. During the quarter, we achieved the first approval ever of this technology in wheat, an approval we have been working on since 2015. We discussed the implications of this approval in our September earnings call. Today, we're presenting the data obtained from our first pre-commercial production process with independent growers totaling close to 7,000 hectares and 17 times more than in our prior production cycle. And the results are as follows: HB4 wheat outyielded commercial varieties commonly used by participating growers by 13.5% on average across all environments and locations. In lower-yielding environments, representing one-third of all hectares harvested, the average improvement from the HB4 technology was 42%. This is more than twice the performance we estimated using our historical data. In higher-yielding environments, we also outperformed our historical data, and we will discuss this in more detail later in today's presentation. As a result, all participating growers have anticipated their willingness to repeat and/or increase their exposure to HB4 wheat in the coming season, further validating our value proposition. The performance of the current HB4 wheat varieties and the validation of our value proposition with farmers as well as the high quality of the seed obtained allow us to ratify our prior guidance, projecting almost 20 times more hectares for the upcoming season. As we indicated, this projection is subject to Brazil's import approval. Regarding this approval process, the public hearing that precedes the introduction of any new GM crop has already taken place. This occurred on October 22, and no further information has been requested by regulators as of today. Continuing with HB4 soy, we have engaged with 148 growers across 220 locations for a total of close to 23,000 hectares, where we are currently multiplying seven material ranging from maturity groups 3 to 5. Despite some initial dry conditions in certain regions, this scaling-up process is advancing favorably. We continue to make progress with our collaborators to develop materials for a broader range of maturities, and we have recently announced an important collaboration with NSIP, a computational breeding company to fast-track product development and targeting efforts in the United States. This collaboration is possible given the increased flexibility we have achieved after the full acquisition of Verdeca. We will also comment on this later in the presentation. From a financial performance perspective, we experienced a drop in revenues of 17% for the quarter, which Enrique will explain in detail during his part of the presentation. This slowdown in revenues partially offset the good momentum of the last three quarters, giving us a revenue growth of 8% for the trailing 12 months. This number does not include HB4 deferred revenues accumulated to date, which we refer to as contributed goods, totaling $3.6 million over the approximately 30,000 hectares of HB4 crop farmed thus far. Please now turn to Slide 4 for a more in-depth overview of HB4 wheat performance. The heat map of South America, on the right side of the slide, indicates soil water availability in late October of last year as compared to an average year. Blue areas have more abundant water than usual, and orange and red areas have less. This image illustrates the severity and extent of the drought conditions during the last week growing season. As we zoom in on the left side of the slide to the HB4 wheat production locations, we see that in the northern locations, where drought was more severe, the average improvement in yield was 60% with some extreme situations where yields were more than doubled. The average drop in production for this region was reported at 47% by the Rosario Board of Trade, an institution that has historically reported statistics for different crops. Accordingly, our HB4 technology could have reduced this loss by two-thirds. Improved performance was still observed in southern regions, indicated as B and C, with average increases of 7% and 8% as shown, where water constraints were less significant and yields in general were above average. On the following three slides, we present case studies in environments with different productivity levels. First, we see a location in Henderson, Buenos Aires province, where yields were above five tons per hectare, and the improvement in the HB4 crop was 20%. In these high-yielding environments, we have outperformed commercial varieties every six out of ten times, with an average improvement of 3%, probably more a factor of the elite genetics of our varieties and less so of the drought-tolerant technology. Moving to the next slide. We see another location in Buenos Aires province, now within an intermediate yield range that is between three to five tons per hectare. In this location, we observed an improvement of 30%. While we average on locations within the three- to five-ton range, we observed a benefit of 11%, outperforming commercial material every 7.5 out of 10 times. Lastly, in the next slide, we go to a western location in the same province where yields are generally below three tons per hectare and observed a benefit in the HB4 crop of 68%. In these lower-yielding environments, we have obtained an average yield improvement of 42% across all sites, as indicated before, outperforming commercial materials every nine out of ten times. Slide 8 provides an overview of our HB4 scaling-up process. We take this opportunity to ratify our prior guidance in terms of hectares and associated deferred revenues knowing today that we have the variety performance, the seed quality and the volume of inventories needed to meet these goals. Moving now to HB4 soy on Slide 9. We have been able to plant close to 23,000 hectares with 148 participating growers despite the slow start to the planting season, mostly affected by the lack of rainfall until late December. This production cycle represents an 8 to 10 times increase in the number of hectares and farmers, respectively, compared to the prior cycle. We have been able to replace some of the lower-performing varieties with new materials coming from our U.S. off-season multiplication process, with a total of seven materials now being validated and scaled up. As indicated before, the process is progressing favorably, and we are closely monitoring the adaptation of the different genetic backgrounds to the current universe of growing conditions, a key determinant of our ability to speed up the deployment of HB4 soy. Chinese import approval for HB4 soy is still pending. We are actively engaged with regulators to facilitate the generation of independent in-territory data and supplement our dossier whenever new information is requested. In our assessment, the process is advancing according to precedent. An important aspect of the HB4 seed multiplication process is the data gathering aspect where all sites are actively monitored over 130 different variables, with the resolution of some of these variables at the meter square level. Slide 10 provides an overview of our data acquisition process and farm inventory surveillance interface. Taking advantage of the data science possibilities generated by this growing database, we have engaged with Nature Source Improved Plants, NSIP, a U.S.-Mexican company dedicated to computational breeding to gain powerful insights regarding the interaction of different environments with the genetics of our materials and EcoSeed combinations, improving the design of our breeding strategies and shortcutting the product development process by more accurately predicting the performance of our products for a given location. Using the operational research approach championed by NSIP founder, Steve Tanksley, a pioneer in genome mapping and plant molecular breeding, we also aim to significantly improve the return on our R&D dollars dedicated to this process. As we recently announced, we will first use these capabilities to fast-track our breeding efforts for HB4 in the United States, where we expect our proprietary drought-tolerant technology to quickly gain a foothold. Incorporating NSIP's computational technologies into the development of HB4 soy and HB4 wheat will also help us better target a wider range of drought-prone growing regions around the world as well as bring them to market faster. With that, I will now turn the financial portion of the presentation over to our CFO, Enrique López Lecube. Enrique?

Enrique López Lecube, CFO

Thank you, Federico. Please turn to Slide 12. As Federico mentioned, despite the drought that negatively impacted revenues for the quarter, we experienced success in several other areas as it relates to preparation and the broad commercial launch of our drought-tolerant HB4 technology, including HB4 wheat seed inventory volume target, HB4 wheat outyielding its historical performance, HB4 soybean planted hectares and scale in Coronel Dorrego. All of these alternative metrics grew substantially during the second quarter of 2021 and uniquely positioned the company in the quarters to come as we expand our geographical reach and addressable market for our disruptive HB4 program. For added context and for comparison purposes, let me remind you of the seasonal nature of our business since the performance of a significant portion of our total portfolio is tied to planting activities for raw crops in the southern hemisphere. As you can see on this slide, high season begins late in our fiscal first quarter with our strongest performance taking place in the second quarter and the lowest sales level occurring in the third quarter. Severe drought in agricultural areas of Argentina and southern states of Brazil impacted revenues in the second quarter of fiscal 2021. Total quarterly sales accounted for $47.7 million compared to solid top line performance of $57.2 million in the same year ago quarter, smoothing the growth momentum we had achieved in the last quarter of fiscal year 2020 and the first quarter of the current fiscal year. Total comparable revenues for the trailing 12 months increased 8% to $167.8 million compared to $155.5 million in the same year ago period. On a positive note, during the second quarter, we increased contributed goods for HB4 wheat and soybean significantly to $3.6 million with a gross margin of approximately 60% compared to $0.7 million in the same year ago quarter. The value of these contributed goods will be recognized as revenues once the realized inventories are sold as wheat or grain and no longer contributing in the seed multiplication agreement. For the time being, this has the financial benefit for the company as the corresponding gross profit from contributed goods implies that less cash is required for the HB4 inventory build-up process. Please turn to Slide 13 for a closer look at what impacted sales and profitability during the second quarter. As you can see, during the quarter, drought conditions in some agricultural regions of the market in Argentina and Brazil impacted our revenues, primarily affecting the Crop Nutrition and Crop Protection segments, which accounted for 55% and 35% of the total decrease, respectively. Crop Protection segment revenues decreased 12% to $26.5 million as dry weather during the quarter shrank the crop protection market size across the affected agricultural areas. Estimates indicated an average lower seed between one and two applications of what would be a difficult spring calendar in normal water conditions, which in turn, had a direct impact on annual demand. Decreased pest pressure on crops from the dry weather also impacted the performance of B2B insecticides, fungicides and adjuvants. Comparable gross margin for the segment, slightly below the previous fiscal year quarter, primarily due to the slightly increased sales of lower-margin B2B adjuvant in Argentina. The seed and integrated products segment had a mixed performance. Seed treatment pack sales in Argentina were lower as a result of a highly successful pre-season summer crop sales campaign of this product prior to the second quarter of fiscal 2021. However, higher sales of seeds and robust growth of pack sales in South Africa offset the drop in Argentina, leading to $12.1 million in comparable revenues for the quarter, a 5% decrease compared to the previous fiscal year. Comparable gross margin dropped 151 basis points, primarily due to a higher mix of lower-margin seed sales during the quarter. For Crop Nutrition, the absence of rain delayed soy planting, with growers migrating to lower-end technology, which posed a challenge for the value proposition of our micro-bead fertilizer product versus commodity fertilizers. The result, total comparable revenues for the Crop Nutrition segment decreased 37% to $9.2 million. Lower sales of fertilizers, mainly in Argentina, reflected a sequential fall in the use of installed capacity from 30% to 25% on a trailing 12-month basis. Stand-alone inoculant sales fall in South Africa resulted from the demand shift toward integrated seed treatment packs that we previously mentioned. Comparable gross margin for the segment expanded by 558 basis points to 52.4%, mainly due to higher micro-bead fertilizer profitability explained by temporary cost efficiencies. Overall, gross margin for the business increased slightly year-over-year from 52.1% to 52.8%. Now, let's please turn to Slide 14 for a look at how revenues and gross margin per segment impacted the evolution of overall gross profit for the quarter. The slight gross margin expansion, as just described, slightly offset the decrease in revenues, with comparable gross profit decreasing 15% year-over-year and reaching $25.2 million for the fiscal second quarter. Crop Production and Nutrition mainly contributed to the decrease, while seed and integrated product only showed a $0.6 million growth. Please now turn to Slide 15, which breaks down the performance in Bioceres' second quarter adjusted EBITDA and margin. The operational performance I just described, which impacted comparable gross profit as well as other results, driven mainly by Synertech, our micro-beaded fertilizer manufacturing facility, explains most of the 33% decrease in adjusted EBITDA, which was $14.2 million for the second quarter compared to $21.1 million in the year ago quarter. IAS 29 adjustments of comparable gross profit were slightly offset by lower expenses. Here are the incremental SG+A, as we approach the commercial launch of HB4. Net of one-time transaction expenses and stock-based compensation charges in both quarters, SG&A expenses decreased 5% to $9.6 million for the quarter, following a strict control of our expenses throughout a quarter facing market headwinds. SG&A includes R&D expenses, of which approximately one-third in the quarter were related to the development of new biofungicides and biostimulant for seed treatments and foliar applications for wheat and soybean crops. The other two-thirds of R&D expenses were related to the development of seeds and traits, including product registrations as well as the company's pursuit of regulatory approvals of HB4 in countries that import and produce wheat and soybean. Please turn to Slide 16 for a closer look at how this quarter's performance impacted the sales and profitability growth momentum we have been experiencing in the previous quarters. Even with an adverse scenario in the second quarter, our business has proven to be resilient. Federico mentioned previously that our sales grew 8% when looking at the trailing last 12 months, which smooths down seasonal effects versus that same time period a year ago. As you can see, profitability also showed a slight positive evolution when looking at the trailing last 12 months, increasing from $41.3 million in adjusted EBITDA to $42 million. Even more, in breaking down contributions to the growth in adjusted EBITDA, operational performance delivered almost $7 million in additional comparable gross profit versus the year ago period, which was mainly offset by IAS 29 adjustments to comparable gross profit. Finally, let's please turn to Slide 17 for an update on our balance sheet. Cash, cash equivalents and other short-term investments as of December 31, 2020, totaled $36 million, clearly improving liquidity position compared to $16 million as of December 31, 2019. Sequentially, the cash position was down from the previous quarter as we entered the high season of our business in South America, powering the corresponding working capital needs. During the quarter, we also used our improved financial position to deploy capital in achieving our HB4 program soybean acreage target with almost 23,000 hectares planted and also to fulfill payments related to the recent Verdeca acquisition. Net debt as of December 31, 2020, totaled $128.7 million, which approximately 46% consisted of long-term obligations. A short-term portion of our debt consists of working capital loans that are correlated to our working capital position and the current portion of long-term obligations. Our liquidity position as of December 31, 2020, represented approximately 40% of the short-term portion of debt covering our coming debt payment obligations. Our net debt to trailing twelve-month adjusted EBITDA as of December 31, 2020, was 3.06, compared to 2.31 as of December 31, 2019. Increasing the debt ratio compared to the prior fiscal year was primarily due to the already mentioned increase in total net debt and uses of cash as we invest in ramping up inventories of HB4 soybean and wheat. During the fiscal second quarter, we significantly lowered our financing costs as a result of our continuous initiatives to gain financial flexibility through debt profile and maturities improvement, an area in which we will continue to work and identify opportunities in the financial markets. In conclusion, the solid cash position we maintain allowed us to support working capital needs and complete significant transactions, such as the acquisition of Verdeca's 50% stake, which gives us now full ownership of the HB4 soy technology. And with the acquisition behind us, we are now focused on fast-tracking our HB4 inventory yields as we prepare for the commercial launch in the quarters to come. We look forward to sharing more on our developing story at soon-to-be-announced investor conferences in the coming months. This concludes our presentation for today's call. Operator, please open the line for the Q&A portion of the conference call.

Operator, Operator

You have a question from Ben Klieve.

Benjamin Klieve, Analyst

First, I have a couple on HB4 wheat. So first of all, congratulations on some really impressive data coming out of that program. My question to you is, do you have the sense that your farmer customers are going to be willing to purchase seed once that Brazilian approval comes? Or do you believe that these farmers are looking for additional certainty that there will be buyers for the grain after harvest before they commit to purchasing seed from you?

Federico Trucco, CEO

Ben, this is Federico speaking. And thank you for your question. Obviously, we believe that farmers will have more confidence once the Brazilian approval is in place and our conventional commercial channels become available for HB4 wheat. In the meantime, we're operating under the HB4 program, which is the identity preserved infrastructure we put in place to basically take care of that situation with farmers. And this is something we can do today. Because everything that is produced is needed for the next cycle of seed multiplication. So we become customers of all that grain that turns into seed as we are ramping up the HB4 process. Now eventually, if HB4 is not approved in Brazil, that will represent a risk and an issue that we probably need to take care ourselves and not leave that in the hands of farmers. No, we don't want farmers to purchase seed and produce grain that cannot be commercialized afterwards, and that's where we have taken a very prudent approach, no?

Benjamin Klieve, Analyst

Got it. Okay. I have another question regarding the regulatory status of HB4 wheat. I understand it's difficult to provide a timeline, but can you share any insights or precedents that might indicate you expect approval in the next couple of quarters? Has there been any information published by regulatory authorities that could suggest this outcome, or is it still uncertain?

Federico Trucco, CEO

Look, I think, obviously, having had the public hearing, which we referred to during the presentation on the 22nd of October, was kind of a final step in the regulatory process to be able to be in a position to obtain an approval. Since that public hearing, we have received no new inquiries from CTNBio, that is the regulatory agency that deals with the seeds in Brazil. Bear in mind, obviously, that December and January are not active months for the public administration in Brazil. So there might be a question coming up after the Brazilian carnival we believe. But in any instance, our working assumption is that the import approval is likely to be in place before the next cropping season. So we need to make decisions by May to be able to fully roll out our HB4 wheat inventories, and we think that it is possible that by that month, we will have a final answer from the Brazilian regulators.

Benjamin Klieve, Analyst

Got it. Okay. We'll look forward to that. Regarding the HB4 soybean side, I have a couple of questions about the NSIP collaboration. Are you expecting them to assist in securing commercial partners for a future launch, or are you primarily looking to them to help advance your breeding program in new regions? It seemed more like the latter, but I wanted to know if you think they could help you identify commercial partners or if that responsibility falls more on you.

Federico Trucco, CEO

No. You're right, that is the latter. It's more about doing advanced breeding so that we can have the right materials faster for the geographies in which we believe HB4 can be a major contributor to yield. So we're focalizing ourselves in, for instance, the 10 million acres of the Dakotas, which is an area that is usually affected by water availability. There are also areas in the southern U.S., where there exists a very interesting market for HB4. So we want to use computational science to better predict the performance of varieties and fast-track the breeding process. Now from a commercial perspective, we're actively looking to structure relationships, initially probably equally to what we do in Argentina with the identity preserved structure so that we are ramping up inventories and engaging more directly with farmers. But eventually, with a more business-as-usual approach in seed distribution using the existing players in the U.S., no? And that you will see coming up some announcements regarding this in the next quarters.

Benjamin Klieve, Analyst

Got it. Regarding the fast track of the development timeline, do you think there will be any significant field trials in the United States starting in a few months, or is that more likely to happen in 2022 or later?

Federico Trucco, CEO

No. We will be doing a lot of trialing in the U.S. in the coming season. So we have been doing trialing already with some of the materials. Remember that all our off-season production is done in the U.S. probably in a single location or a couple of locations. Because there, the emphasis is on scaling up seed and the quality of a seed, and not so much evaluating the technology in different geographies. So that is something we're starting to do more aggressively today in the coming season. And there is where we have now the capability to use NSIP's computational breeding and predictive targeting platform to be more efficient and essentially reduce the time to market. I mean in the past, you will have to do extensive trialing before you launch a variety. I think there's a possibility to weigh in the use of artificial intelligence and machine learning tools to shorten that process.

Benjamin Klieve, Analyst

Got it. My last question is about the locations for the trials. I understand you were increasing your inventory last year, particularly in Arkansas, and it seems like you're considering the Dakotas. Are these the primary markets you plan to focus on first, or are there other regions you might be testing this year?

Federico Trucco, CEO

We will prioritize the Dakotas for trials because we see the most immediate opportunity for HB4 there, and it has enough acreage to be significant. In terms of production, we will continue our efforts in Arkansas since the maturity groups we utilize in Argentina will likely perform better there. Typically, in the Dakotas, we work with shorter maturity groups of 2 and below, and we are slightly behind in that regard. In South America, we plant maturity groups of 3 and above. To address this, we need to focus on more southern U.S. locations for seed multiplication. If we specifically target seed multiplication for the U.S. market, the Dakotas will become increasingly important.

Operator, Operator

Your next question is from Sebastian Azumendi with 5D+ Capital.

Sebastian Azumendi, Analyst

I have 2 questions regarding the balance sheet of the company. The first one is, if you can give further details on the cash use of proceeds for the quarter? And the second one is that, given the current liquidity, which is roughly half of EBITDA that the share price currently just $8, if we should be concerned about Arcadia liquidating their almost 2 million share position. And also, if you have any thoughts about them being a long-term shareholder.

Federico Trucco, CEO

Sebastian, this is Federico again, and thank you for your call. I'll address the second question and then pass it to Enrique for the first. Firstly, I want to mention that the 1.8 million shares we provided to Arcadia for the Verdeca acquisition are restricted for 6 months. These shares cannot be traded immediately. Secondly, Arcadia is currently well capitalized, having recently completed a significant equity raise. Therefore, their decision to sell or reduce their equity in Bioceres will likely depend more on their perception of value rather than short-term cash needs. I believe we are still aligned, and Arcadia may continue to support the Bioceres story. Additionally, if those shares become available, I do not foresee any major issues affecting the daily trading of our stock. Enrique, would you like to add anything on this or address the second question?

Enrique López Lecube, CFO

No, I think that what you said about the second piece of Sebastian's question is accurate, Federico. So on your question about the uses of cash during the quarter, you know that our main uses of cash, as we have been communicating, are around the commercial launch of HB4. So during the quarter, we invested cash and continued to build up inventories of HB4 wheat and soy. That was a significant portion of the use of cash during the quarter. And the second one in terms of importance was the upfront payment related to the Verdeca acquisition for us to consolidate 100% ownership in the HB4 soy vehicle that we have. So those 2 initiatives were something that we anticipated in terms of use of cash. And then there's a seasonal nature in the buildup of inventories and working capital in general as we entered into high season in the two most important markets for us, Brazil and Argentina. So those were the main 3 streams in which we invested cash during the quarter, Sebastian.

Sebastian Azumendi, Analyst

I have a final question regarding the HB4. Can you discuss the 42% yield for HB4 wheat that you saw during the quarter and how we should consider that on a larger scale?

Federico Trucco, CEO

Thank you for your question, Sebastian. The 42% improvement in a lower-yielding environment was unexpected. Up until this call, we had indicated an average yield benefit of 19% in environments yielding less than 2.5 tons. We have approximately 2,000 hectares where the yields were under 3 tons, and the average yield improvement across these areas was 42%. This is more than double what our historical data suggested. Several factors contributed to this result. Firstly, we have superior wheat genetics compared to the historical data, which mainly relied on the original event rather than the advanced background we currently utilize. Furthermore, the northern Argentina region faced an extreme drought, affecting about one-third of the hectares we considered low-yielding, where the overall yield drop was 47%, which is unusual compared to historical averages. It was an ideal opportunity to demonstrate our technology, leading to this impressive outcome. I am confident that farmers who have used HB4 wheat and witnessed these results will likely continue to choose HB4 wheat in the future due to its significant yield advantage. This should drive demand and could be a transformative factor in the wheat seed market. We are optimistic about the potential based on the data and the scale of hectares involved, and we hope that with the necessary approvals, we can bring this to a larger group of farmers.

Sebastian Azumendi, Analyst

Excellent. I have a last question. It is, I saw your debt ratios coming from double digits to close to 2x. And seeing the lower cash and current debt, what are the options or any areas that you have for the next 12 months?

Enrique López Lecube, CFO

Thanks for the question, Sebastian. As I mentioned earlier, one of our key investment areas is the HB4 commercial launch. We are investing in initiatives to increase inventories and also in the Verdeca stake, which we believe will greatly benefit our shareholders in the future. These two initiatives do not currently generate revenue or profitability for our P&L, so we anticipated an increase in the net debt or leverage ratio as we pursue these initiatives. Additionally, we are currently in the high season for our main business, which is also consuming cash that will return to the balance sheet once we exit this peak period. Moving forward, we think we will operate within the range of what has been seen in the past, likely slightly higher than previous quarters as we invest in HB4 and reach its commercial launch. However, we do not expect any significant changes in the company's leverage ratio in the upcoming months.

Operator, Operator

Your next question is from Steven Ralston with Zacks.

Steven Ralston, Analyst

I found the information about your seed effort in the HB4 area to be very interesting, especially regarding its testing in drought conditions. However, I would like to shift the focus to the Crop Protection and Crop Nutrition business, which has been affected by decreased demand due to drought. Could you explain the factors contributing to the decline in demand for both areas, particularly in the micro-beaded fertilizer segment?

Federico Trucco, CEO

Sure, Steve. The first thing to keep in mind is that our portfolio is heavily focused on the planting season. In our Crop Nutrition business, we lack the geographical diversity that we have in our biologicals, where we operate in around 25 different countries. Extreme weather events have a lesser impact on our biologicals because such phenomena are rarely consistent across all regions. However, in Crop Nutrition, we rely heavily on Argentina, especially for micro-beaded fertilizers, making weather a crucial factor. We experienced very little rainfall until late December, which is close to the end of the quarter, affecting our expected sales for micro-beaded fertilizers. We also believe there’s a strategic approach for this product line. We launched this product a few years ago with a high-value positioning strategy, but we now feel we’ve maximized that approach and are shifting to a volume-driven strategy. We plan to leverage our available manufacturing capacity, which is currently utilized at just under 30%. Increasing that capacity should create cost synergies that will make us more competitive on pricing, and we are actively discussing this with our partners in the business. Regarding the Crop Production business, without rain, growth doesn’t progress as dramatically compared to wetter conditions, which can lead to missed applications that directly impact our adjuvant business. Enrique, do you have anything else to add?

Enrique López Lecube, CFO

Yes. Essentially, what Federico mentioned about fertilizers is that by adopting a strategy focused on higher volumes, we can reduce some fixed costs associated with our manufacturing facility and also enhance our raw material sourcing. This should result in a more attractive pricing option for farmers without compromising the profitability of the product. This is an initiative we will pursue. Regarding what Federico said about adjuvants, we noted during the presentation that farmers often skip one or two spray applications in the fields, which leads to decreased demand for adjuvants. Beyond these points, Federico's insights largely explain the trends in these two segments.

Steven Ralston, Analyst

Just getting a little granular. What was the capacity utilization at the micro-beaded fertilizer facility during the quarter?

Enrique López Lecube, CFO

So it was on a 12-month basis, and that's how we monitor our progress on this end. It was 25%, down from 30%.

Operator, Operator

Your next question is from Matias Cremaschi with Delta Asset Management.

Matias Cremaschi, Analyst

Following up on a previous question about HB4 wheat, could you provide some insights on how discussions are progressing with potential buyers and crushers?

Federico Trucco, CEO

Thank you for the question. We are actively engaged with all stakeholders, particularly the milling industry, not only in Argentina but in Brazil to provide comfort in terms of this new product. I think that we have been making very good progress compared to where we started. Initially, there was a reaction of concern being the first GMO wheat ever. But as they see the sort of the farmer appetite and in many ways, also on the environmental side of the equation, I think that we are gaining traction with them and probably equally to soy. We might be able to announce in the coming quarters strategic relationships with different processors to provide that commercial comfort that would enable the full rollout of our HB4 wheat plants. So we are doing this not only in Argentina, as I indicated before, but also in Brazil so that most of our customers in domestic market and international markets are taken into account.

Operator, Operator

At this time, there are no questions. Do you have any closing remarks?

Federico Trucco, CEO

So no specific closing remarks. I want to thank everyone for participating and remind everyone that we are fully available for follow-ups and to address any questions that might come up after the call. So I hope everyone has a great day, and looking forward to continuing the conversation in the months to come.

Operator, Operator

Thank you for participating in today's conference. You may now disconnect.