Bioceres Crop Solutions Corp. (NASDAQ:BIOX) Q2 2024 Earnings Call Transcript

Bioceres Crop Solutions Corp. (NASDAQ:BIOX) Q2 2024 Earnings Call Transcript February 8, 2024

Bioceres Crop Solutions Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen. Thank you for joining today’s Bioceres Crop Solutions Fiscal Second Quarter 2024 Fiscal Results Conference Call. My name is Tia, and I will be your moderator for today’s call. All participants’ lines will be muted throughout the presentation. But at the end of the presentation, there will be an opportunity to ask a question. [Operator Instructions] I would now like to pass the call over to Paula Savanti, Head of Investor Relations at Bioseries Crop Solutions. Please proceed.

Paula Savanti: Good afternoon, and thank you everyone for joining our second quarter Fiscal ’24 Earnings Call. Today’s presentation will be led by our Chief Executive Officer, Federico Trucco; and our Chief Financial Officer, Enrique Lopez Lecube. Both of them will be available for the Q&A session following the presentation. 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 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, and the webcast link is available at Bioceres Crop Solutions Investor Relations website. At this time, I will turn the call over to our CEO, Federico Trucco, to begin our presentation

Federico Trucco: Thank you. Thank you, Paula, and thanks, everyone, for joining. Good afternoon or good evening, depending on where you are. It’s a pleasure to be having our earnings call today. Please turn to slide number three for this call’s highlights. I would like to start by expressing our profound gratitude to our customers, our partners, and the entire Bioseries team from manufacturing to R&D to sales and so on for what has been a new record-setting quarter. While we are not immune to the broader destocking process in several geographies, resulting in a double-digit contraction in some key markets like Brazil, our portfolio of innovative products, secular growth drivers, and strong execution by our commercial teams allowed us to continue to outperform the industry and deliver our highest quarterly revenues yet.

Total revenues in our second quarter of fiscal ’24 were $140 million, an almost 50% improvement compared to the same quarter of last year. Our net income improved by eightfold, and our adjusted EBITDA for the quarter reached $24.1 million, a 134% increase compared to the year-ago period, resulting in an LTM EBITDA of $86.7 million. In a minute, Enrique will provide further details on this outstanding financial performance. On the HB4 front, we continue to make good progress, as I will briefly discuss towards the end of the presentation. It is important to note that we have completed last season’s wheat harvest, and jointly with our multipliers, have the required inventories to meet our fiscal year guidance. Another important recent development was the granting of a new patent from the USPTO, covering the HB4 soy technology, and initiating our third patent family for this product, which will provide protection for our seeds until 2042.

I will now pass the presentation over to Enrique for a more detailed discussion of our numbers.

Enrique Lopez Lecube: Thank you, Federico. Good afternoon or good evening to everyone. Thanks for joining our call today. Let’s dive in into our financials, starting with revenues on slide four. As Federico mentioned, we had our highest quarterly revenue rep this quarter, at $140 million, which represents a 49% increase year-over-year. This result is no doubt a reflection of the quality and attractiveness of our portfolio, but also the ability of our teams to deliver consistent and profitable growth when market conditions are normal. It is important to acknowledge that the percentage growth is particularly large, given the favorable comparison to a rather slow quarter last year. As you might recall, a year ago, Argentina, which is an important market to us, was undergoing a historic drought, and our growth trajectory had been unexpectedly put on hold.

At that time, our top line had dropped 7% year-over-year. With the 49% revenue increase that we are announcing today, not only we are delivering targeted growth for this year, but also we are more than compensating for growth that was taken from us by the weather impact last year. During our previous earnings call, I mentioned that first quarter results needed to be looked at in the context of the whole Southern Hemisphere summer crop season, which runs August through December. In the prior fiscal year, we had had a record high first quarter paired with a soft second quarter due to the drought. Well, today we can confirm that the good performance in the current fiscal year’s first quarter was matched by outstanding performance in this second quarter, which led to resumed double-digit growth in the first half of the fiscal year, reaching revenues of $257 million, which is a 16% increase to the previous fiscal year’s first half.

I think this is something that our sales and executions teams need to feel very proud of, so kudos to them and all of the colleagues that provide support to them on a daily basis. Let’s turn to slide five, please, to look in more detail at the revenue performance by segment and the main drivers. The first thing I would like to note is that revenue growth this quarter was broad-based, so all segments contributed to growth in a fairly equal manner. In crop nutrition, revenues were up by 49%. This growth was mainly driven by sales of micro-heated fertilizers with an outstanding 61% increase in sales volumes paired with a slight increase in price despite lower commodity fertilizer prices, which in my view speaks to the strength of the value proposition this technology brings to farmers.

Also within this segment, inoculants sales saw a slight year-over-year increase for the quarter, inclusive of profit sharing with Syngenta in countries that were operating under the agreement during this second quarter. The seed and integrated product segment saw the greatest percentage growth, almost doubling last year’s sales number. In this case, the growth is due to higher HB4 sales, both seed sales and downstream grain sales. On the one hand, HB4 soy hectares under the Identity Preserve Program were at 150% of last year’s hectares with a seven times expansion in Brazil as we continue to grow our HB4 program there. But also we explained last quarter that this current fiscal year, we have increased our commercialization of HB4 wheat grain inventories in pursuit of two things.

One, recovering working capital from grain that is not seed quality. And two, to develop the industrial channel for fully traced inventories that satisfy particular sustainability and quality requirements. Also important within this segment that despite the migration of certain countries into the Syngenta agreement, seed treatment pack sales remained flat versus last year, which implies that the countries that were kept under our proprietary distribution grew their sales. And finally, in crop protection, revenues increased by 34% compared to last year. Here, the normalization of weather conditions in Argentina plus southern states of Brazil avoiding dry spells led to more pest pressure and greater need for product applications. Adjuvants in particular saw a 40% increase in sales this quarter in Argentina and also performed well in Brazil.

In almost all categories of the segment, we saw growth in volumes with flat to slightly higher prices. Bioprotection was the only category that had a slight drop in the top line, but on the flip side expanded margins significantly and grew gross profit as we will see in the coming slide. So let’s please turn to slide six now. For the quarter, overall gross profit was $51.5 million, which is a 46% increase over last year’s number and consistent with revenue growth. Overall gross margin remained roughly flat at almost 37%. In terms of segments performance, crop nutrition saw the largest gross profit contribution increase, almost doubling gross profit from last year and reaching $15 million. The main driver was the top line growth from microbead fertilizers, which was matched by margin expansion from slightly higher prices and lower raw material costs in that particular product category.

Seed and integrated products also contributed to gross profit growth by adding $2 million to the $8 million in gross profit contribution from last year and reaching $10 million. The overall gross margin for the segment decreased as sales from higher margin seed treatment packs and HB4 soy seed grew at a lower-pace than HB4 grain inventory sales, which had been negligible last year and that have inherently lower margins than packs and seeds. And finally, gross profit from crop protection increased by 40% as a result of higher sales, improved product mix and margin expansion in some product categories. The excellent performance of high margin adjuvants improved the mix, contributing to increase the average gross margin of the segment. But also, as I mentioned in the previous slide, a slight drop in bio-controlled product sales in the US was more than offset with margin expansion in that product category, which led to a positive contribution to gross profit growth by this product category, bio-protection.

So let’s now go to slide seven to take a look at adjusted EBITDA. Adjusted EBITDA during the second quarter reached $24 million, which more than doubles the $10.3 million in the second quarter of the previous fiscal year. This substantial improvement is primarily explained by the increase of almost $17 million in gross profit that I just described, which was matched by an increase of $2 million in JV results and also operational leverage as operating expenses grew at a lower-pace than gross profit. To that regard, SG&A increased by less than 10% year-over-year, and the increase was largely explained by higher variable expenses on account of higher sales. Importantly, variable SG&A as a percentage of sales remained almost flat at around 5% of sales, and fixed SG&A on an absolute basis remained flat.

Both things important to keep disciplined execution. Now let’s please turn to slide eight to wrap up with some brief remarks on our financial debt and cash positions. As of calendar 2023 year-end, the total financial debt reached $223 million compared to $257 million in the prior fiscal year. Our financial debt position was slightly lower than the $226 million that we reported in the first quarter of this fiscal year, and we maintain a healthy run rate of interest expenses with an annualized average cost of debt at around 7%. Regarding our cash position, it is important to take into account that the position reported last year accounted for Syngenta’s upfront payment, which explains the $87 million in cash. Compared to the first quarter of the current fiscal year, our cash position remained roughly flat.

Last two comments from my side on the financial position. One with regards to leverage, we are now at 2.5 turns, mainly explained by good performance on the adjusted EBITDA line, but also the fact that we decreased our total debt compared to a year ago. And finally, with regards to the steep depreciation of the Argentine peso that happened during this second quarter, I think it is worth noting that the strength and stability of a dollar-denominated business in that country not only allowed us to conduct business as usual, but we could also achieve some financial gains from hedging our activities, as well as benefit from a better cost environment. To summarize my remarks, and before I turn it over to Federico, let me tell you that we are highly encouraged by the result of this quarter.

We continue to see sustained demand for our technologies and a clear path to targeting double-digit growth, something that we can afford mainly because of the strength and attractiveness of the portfolio that we have been patiently building throughout the years. With that, I will hand the floor over to Federico.

Federico Trucco: Thanks, Enrique. And please now turn to slide number nine for a brief update on HB4 soy. As we have indicated in our previous call, we have increased our identity preserve footprint in Argentina to be at 1.5 times of what we did last year, continuing to fine-tune our breeding efforts and variety positioning, while building inventories ahead of our targeted fiscal year 25 launch with multipliers and distributors. At the same time, we’re seeing an accelerated progress in Brazil, where we work with 25 key farmers to test and multiply two materials developed under the TMG collaboration with good results. On the regulatory front, we obtained feed and food import approvals for soybeans in Australia, New Zealand, Thailand, and Malaysia now reaching approximately 80% of the Asian soybean destinations from Latin America.

And as I mentioned at the beginning of our call, we were granted an additional patent by the USPTO that should protect the HB4 soy technology through at least 2042. Please turn now to the next slide for an update on HB4 wheat. Two key takeaways here. One, overall variety performance was consistent to that of prior seasons, while we continue to fine-tune variety positioning, which is identify the best suited environments and planting times for each of our existing materials. Our newer materials, which we named second generation materials, have helped us improve performance in some high productivity conditions, where we are now at par to the best performing conventional seeds. And the second takeaway here is that jointly with our multipliers and distributors, we now have sufficient inventories, mainly of these second generation materials, to be in a position to meet our fiscal year ’24 guidance, where we expect to improve the EBITDA of this business by approximately $15 million.

I think these are the key highlights regarding HB4. I think we can now pause and open up the line for Q&A. Moderator?

See also 15 States with the Cheapest Car Insurance In The US and 15 Best African Countries to Live in as a Woman in 2024.

Q&A Session

Operator: Absolutely. We will now begin the Q&A session [Operator instructions].The first question comes from Delana Kristen-Owen with Oppenheimer. Please proceed.

Delana Kristen-Owen: Great, thank you. Good afternoon. I appreciate you taking the question. So first, congratulations on the very strong results here. The one question I wanted to dig into on the HB4 wheat side. So you started talking, Federico, about the quality of the yield and sort of matching the performance of the incumbents. Just hoping you could expand on yield performance there. Any commentary you might have on performance of Gen two versus Gen 1? And I see in this pie chart here a little sliver of Gen 3. Just how to think about that performance yield and then maybe the S curve of adoption for that trait?

Federico Trucco: Perfect. So thanks, Kristen, for the question and for joining the call today. I think in terms of overall performance in environments where wheat yields tend to be below average, and that is probably below three tons per hectare in Argentina, we’ve seen double-digit improvements across all generations. So we are talking about maybe close to 20% yield benefits, in some cases about 40% yield benefits when we are at the sort of 1.5 tons on yield. And that is a consistent observation in first-generation materials, second-generation materials, and then we’ll talk a little bit about third-generation materials. As we move to higher yielding environments, what we saw in the first-generation materials is that above the 4.5, five tons per hectare, we were experiencing a yield drag or a gap compared to the top-performing commercial varieties.

And that is what we tried to fix with the second-generation materials, where we are now into environments of six, seven, and eight tons per hectare at par with the most advanced, most adopted and adopted materials. Concurrently with that, what we have done in this past season is to try to better fine-tune the position of our existing portfolio so that we can tell people in which environments and at which planting times the materials that we hold are most likely to give that sort of top performance. So in the beginning, maybe we were averaging 7% improvements in yields in environments of more than four tons. As we better position these materials, we can move to 9% and 13% improvements when compared to the top-performing variety. So that’s the work that has been done in this last season and finally on the third-generation materials.

These are materials that probably perform equally to the second generation, but are sort of allowing us to complete certain portfolio gaps so that we can go into northern parts of Argentina with shorter wheat cycles and some regions where we didn’t have locally adopted materials. So it’s coming from a new wave of breeding, but not necessarily generating a differentiated performance compared to what I recently alluded to in terms of first and second generation. I don’t know if I fully answered your question, but I’ll pause here and see if that’s the case or not.

Delana Kristen-Owen: The background, that’s exactly what I was looking for is understanding what that yield performance looks like, how it varies from generation to generation, and I guess to put just a brief follow-up on that, and then I do have a separate question, but just a brief follow-up on that would be, now, if you feel like there are any barriers that you still have to get through or roadblocks that you have to get through to see sort of that acceleration in adoption from this point?

Federico Trucco: I think the key here is to get the multipliers. So as we indicated in the past, we have 27 multipliers in the last season compared to three the year before to help us get these varieties in the hands of farmers and have them fully experience what we have experienced with the initial set of farmers that helped us in the identity preserve scheme. So I think making sure the experience is extending to a broader community of farmers is very important to have multipliers improve their performance in the wheat business by having biotech events. Remember, we are the only biotech provider in wheat globally, and that tends to improve the economics for multipliers. So to have them realize those improved economics, I think is also very important.

And I’m looking forward to sort of the upcoming season towards the fourth quarter of this year where we have today the inventories on hand to significantly improve compared to what we did the year before. And this means that we will be growing at least at 4X to try to meet the guidance that we provided.

Delana Kristen-Owen: Okay, thank you very much for that. My second question is a little bit more for Enrique. And, BioSeries, just as a function of your geographic exposure, you’re in a much better position coming into this calendar year, coming into this season than a lot of US peers. You’ve obviously been very successful in integrating Marone and getting that to a point of contribution. Your leverage is down to two times. Wondering what you think about the M&A environment for you guys at this point in time?

Enrique Lopez Lecube: Hi, Kristen. Good to have you on the call and thanks for that question. Yes, of course. I mean, I think that we are sort of, we need to be thankful for where we are in terms of geographic positioning. The Southern Hemisphere has had a very, very good summer crops planting season. As you mentioned, we’re making good progress in the US. So we do feel very confident about what we’re doing. Now, I still think that we need to do work to get the US business and essentially the technologies that we get, we got from Marone now ProPharm to start thriving. And that will require some work, some additional work for us. So regardless of what the market might look like in terms of M&A, we will remain primarily focused on execution.

If there are opportunities out there, obviously we will take a look at them, but our primary focus this year is execution and consolidating what we did last year with integration of Marone. And like I said, building a portfolio of technologies that is rather unique.

Operator: The next question comes from Ben Klieve with Lake Street Capital Markets. Please proceed

Benjamin Klieve: All right. Thanks for taking my questions. And yes, congratulations guys. Really good quarter here. Lots to talk about, but I want to focus on HB4 Soy. First question, Federico, in your response to Kristen’s question, I’m not sure if I overworked this, but the expectations for HB4 Soy here coming up the next fiscal year, didn’t hear any comments around any changes to those expectations. Is your previous target still on track? Or do you think there’s any kind of headwinds to that third year number as you stand today?

Federico Trucco: Great to have you on the call, and thanks for your comment on the quarter. I think we’re probably not ready yet to tell you if we need to change our guidance for fiscal year ’25 on soy. I think it depends, to some extent, on the performance we experience with the current materials in the field and inventory levels. So we feel good in terms of where we are. We feel really good in terms of Brazil, and we think that is moving at a faster pace than what we projected. But it might be a little too early to tell. I think maybe in the next call or third quarter call, we might be able to sort of give you full visibility on that.

Benjamin Klieve: Okay, very good. That’s fair enough. And as a follow-up to that, you know that Brazil, the variety that you are in pre-commercial stage with target to Mato Grosso, can you kind of help kind of roughly characterize where exactly that stands in development? Is that a variety that you think is coming to market in the next year or two? Or do you think that’s still more of a mid to long-term type product?

Federico Trucco: No, I think it’s a variety that we can add next year to the two varieties we already hold to try to improve optionality for our farmers in a region that is very important, as you know, the Mato Grosso region, not historically a region that experiences drought too frequently. But as we know, sometimes it happens, like in the last season, and it can be very dramatic. And that is what’s creating a high level of interest from some multipliers and seed companies, and obviously, farmers for the HB4 technology. But we expect that to be joining the IP channel in the coming cycle.

Benjamin Klieve: Great. And then last one for me, and then I’ll get back into the queue. In the HB4 Soy performance in the U.S. in this past calendar year, in calendar 2023, there’s kind of a series of three, 4-week, just brutal droughts throughout the U.S. I’m curious how the performance of HB4 Soy — curious what HB4 Soy performance was in those conditions relative to the conventional alternatives.

Federico Trucco: That’s a good question. I don’t have the data in front of me. Remember that in the U.S., it’s mostly still within the breeding program stage. So we might have been at less than 1,000 hectares for sure. But depending on where we had that, we might have had exposure to the drought that you’re alluding to or not, but let me get back to you on that. I’m not immediately knowledgeable on the performance since these were mostly breeding-related activities, no?

Benjamin Klieve: Okay. Yes, very good. I totally understand. Very good. Well, I appreciate you taking my questions. Congratulations again on a really nice quarter, and I’ll get back in line.

Operator: The next question comes from the line of Bobby Burleson with Canaccord, please proceed.

Bobby Burleson: Hi guys, thanks for taking my questions. Yeah, I guess first off, this is something a little bit not directly related to your business, but wondering your thoughts. With the farmer protests in Europe and the scrapping of the pesticide reduction kind of proposal or plans there. I’m wondering kind of are you hearing anything in terms of changes in appetite for biologics? Or what — how is that affecting the distribution dynamics going forward, do you think with some of the things that might backfill some of the pesticides that were scheduled to be eliminated?

Federico Trucco: Thanks for joining, and great question. This is kind of a recent development. So we still don’t have probably a full picture. We believe that there’s been a little bit of a contradictory aspect to sort of the ambition of reduction in the European Union and how that sort of resulted in changes in the regulatory framework to try to help technology developers like us, provide solutions that will go or be aligned to that ambition. So, I think even though there was a significant ambition, we weren’t able to see material changes in the regulatory process that would allow us to fast track, time to market for our existing solutions. So now, if those ambitions are being re-evaluated, we don’t know what that might imply in terms of the sort of perpetual hope that we have to have a more straightforward regulatory process in Europe.

It’s — might relieve some of the pressure from the existing participants on replacing their chemistries. On the other hand, that’s kind of a very well-established consumer demand. So we don’t know that, it will change the appetite for biologicals. There might be no regulatory driver early on, but in terms of our existing collaborations and our processes in Europe, we continue to do things the same way we were doing before this more recent development.

Bobby Burleson: Understood. And then I’m curious just with the wet weather in California, I’m based in California and it seems to be raining all the time, I’m wondering what the outlook is for pest pressure? You talked about pest pressure in other regions picking up given weather dynamics. I’m curious, what you’re expecting here in California?

Enrique Lopez Lecube: Robbie, this is Enrique. Thanks for joining us and for the question. Yes, I mean, you’re in California as well. We’re actually doing this call from California today. So we’re here as well. We’re seeing the rain coming. It’s relieving to see California in this kind of like weather. So, yes, I think that we are preparing ourselves for what should be a rather normal to good sort of season here. We have the products in place. We’ve been sort of like implementing changes on the sales and marketing teams. So we are preparing ourselves for what should be very reasonable to good season here in California.

Bobby Burleson: Okay. Great. How does that contrast with what you’ve seen in the past? Since you’ve owned some Marrone business, is this potentially a better season than you’ve had since owning Marrone?

Enrique Lopez Lecube: Yeas, for sure. I mean, on the weather side, for sure. Then I think that the overall environment with interest rates and sort of like distributors trying to minimize inventory holds, that’s probably different to what Marrone had in the past. Maybe two or three years ago, there was a completely different context. Having said that, the fact that, we sort of like are a rather small participant yet in the market is something that makes us feel enthusiastic. We don’t feel, as Federico mentioned, such a big pressure as other players from de-stocking or higher interest rates. So I think that that part of the market is different to what Marrone used to have in the past. The last two years have been tough on the weather side.

So there are some pros and cons, but overall, I think that the market is there. We have the products and we have better teams. So we should be able to target sort of the type of growth that we see for this type of technologies and portfolio.

Bobby Burleson: Okay. Great. Congratulations on the strong results.

Operator: The next question comes from the line of Brian Wright with Roth MKM, please proceed.

Brian Wright: Thanks, good afternoon and congrats. I wanted to just delve into the into the evaluation effects with was that a net negative on the overall net income line?

Enrique Lopez Lecube: Brian, this is Enrique. Well, I mean, we described that in the press release. So what I would say is that from a cash perspective, like I mentioned, we had some hedging gains. So let me take a step back. On the revenue front and the gross profit front, our business is isolated from whatever happens with the local currency, just because we operate in U.S. dollars. So there’s no effect there. It’s neutral, whatever happens with the local currency. Then there are some cost benefits on the SG&A line. It’s not something that was primarily driving the cost effectiveness that we had, but it does help. It’s sort of like a tailwind. And then on the financial line, because we hedge all of our activities, we did have some gains on the financial results line.

I would say that, there’s an accounting part that is related to the depreciation of the local currency, that is the accrual of a one-time deferred tax liability, that if you take a look at the earnings release, you will see that there’s an $8 million income tax accrual that is disproportionate to the earnings that we made. And that’s essentially related to how IFRS treats depreciation of local currency and potential gains on inventories. There are gains that we will realize in time. But we had to make that a tax accrual. So that’s an accounting sort of accrual. It’s not cash. On the cash front, the impact from the depreciation of the local currency was actually something positive to us.

Brian Wright: Okay. So, to think about it, because I’m just trying to bridge the operating profit benefit right versus in growth year-over-year versus the net income and so it really is this tax dynamic that’s the biggest driver, so like, if I were to try and derive a adjusted EPS number would I just use the normalized tax rate?

Enrique Lopez Lecube: Yes, you could use a normalized tax rate, and I don’t have the exact number with me right now, but I think that from the income tax that we are reporting in the quarter, there are about $5 million that are related to this deferred tax liability, and they’re not exactly and directly related to the profits that we made in the quarter. So that would be an adjusted net income, or a way to think about an adjusted net income. We would have had a much better result, if it were not for this accounting provision that we had to make.

Brian Wright: Great. We need to follow-up on the yield performance. And I just want to make sure that I’m interpreting your comments correctly. But it sounds like not only is the yield performance improved through the generations, but the performance of each generation over the years has been fairly consistent. Is that a fair observation?

Federico Trucco: Yes, Brian, in terms of the low yielding environments. So when we are talking about yields that are below the three tons per hectare, the Generation 1 materials, Generation two materials, and Generation three materials that are now being developed will all give you the same type of improvement. The difference between Generation 1 materials and two materials is around yields in the higher yielding environment. So when we are talking about four to five tons per hectare, where in the first generation materials we had a yield drag compared to the best performing commercial varieties that has been neutralized or overcome in the second generation materials.

Brian Wright: Great. But there’s no degradation from like the second year of that generation. on their relative.

Federico Trucco: Right, right. I mean, the materials, so yes, the performance of the trade survives as you move from one year to the next. There’s no degradation effect from one year to the next.

Brian Wright: Perfect, perfect. And then lastly, if I could, the Rhino Tech, just approval in South America, just any latest thoughts on timing?

Federico Trucco: So we don’t, we haven’t, I think, provided guidance on that in terms of Rhino Tech. I think it’s not likely to happen this year. The approval we’re looking for this year is the US approval, which is going to be very important for us. I think South America is most likely after this year.

Operator: The next question comes from the line of Kemp Dolliver with Brookline Capital Markets. Please proceed.

Kemp Dolliver: Hi, thank you and good afternoon. First question is looking at the gross margin in the Seeds and Integrated Product segment. And on a, say, product-by-product basis, were there any surprises with gross margins? Or was this strictly a matter of the increase in the HB4 business?

Enrique Lopez Lecube: Kemp, thanks for joining. This is Enrique. That’s a good question. No, no, no surprises on the product-by-product gross margins, individual gross margins. The drop in the overall gross margin for the segment comes from a product mix, but there were no surprises. Actually, there were slight price increases both in seeds and seed treatment packs. But obviously, there was a much higher contribution from sales from inventory of grain that have inherently lower margins than the rest of the plots. So that’s what’s driving the average gross margin for the segment.

Kemp Dolliver: Second question is the new IP that was granted. Could you tell us a little bit more about the nature of the IP? Since this is a U.S. patent, is this IP that you have elsewhere and you’re adding the U.S. or anything else on the subject?

Federico Trucco: Yeah, sure, Kemp. This is Federico. So this is the third family of patents covering the HB4 technology, and this is what we call the event-specific patent. So the first family was probably covering the DNA construct and the method of generating the HB4 events. There’s a second family of patents where we had certain modifications that help us achieve better performance. And then the third family is the one where you claim the insertion site in the seed, in the crop, that gives you the specific profile that results in the technology that we are commercializing. So, that — you will see kind of a mirror strategy in wheat. And this is what is allowing us to have a staggered approach to IP protection. We tend to do the filings first in the US and then file in all the PCT countries except for Argentina, and some other countries in Latin America that are not part of PCT where we have to file individually within a year.

So these — you can expect these same type of protection to happen in every geography where we have an HB4 soil aspiration.

Operator: [Operator Instructions] There are no additional questions left at this time. I will pass it back to Federico Trucco for any closing remarks.

Federico Trucco: Perfect. So thanks everyone for joining us again. It’s been a pleasure for us to announce these results. We are very excited about the way things are going in the current fiscal year. As I said at the beginning, despite the difficulties that have been experienced mostly by others in key markets like Brazil, and sometimes also the U.S. to be able to show this type of growth after growing last year as well, almost 25% on the revenue side, it’s very rewarding. So we’re delighted. We’re looking forward to a great second half, and wishing you all a very good rest of the week. Thanks and have a good evening.

Operator: That concludes today’s conference call. Thank you. You may now disconnect your line.