Q3 2020 Earnings Call
[music].
[noise], ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to be a series crops solutions fiscal third quarter 2020 earnings conference call.
This time all participants are in listen only mode. After the speakers presentation will be a question answer session ask a question during the session you'll need to press star one on your telephone. Please be advised of today's conference is being recorded its your car any further assistance. Please press star zero.
Now I'd like to turn the call over to Mr., Matt Brooklier head of Investor Relations that deals. There is please go ahead.
Thank you.
We want to thank you for joining us today.
Today's call it would be 30 gold.
[laughter], not big enough and Oh, Gee National [laughter], Oh, Yeah, I know I like your next question.
[laughter] I would like to my.
<unk>.
Thank God, we werent.
Hi, good morning, everyone that spectrum ebay earnings release or something.
That's one <unk> filings with the yet.
Yes, you know you're going to update or revise any form they might still no chance you're bands or [laughter].
Oh so.
A couple Boston properties, and I better understanding the phone companies I'm done like formats, and having something happens to be solved oh person patient they won't be Scott.
That's correct would be hyperinflation accounting in Argentina.
You got information and I'm not sure won't be up you can shop and why you spent tonight.
And now with earnings report.
I would now like to during the call noble long CEO rate equal.
Thank you Mike Simone.
Hello, everyone and thanks for joining us ready.
We trust your money being just creates great during these difficult times.
Got it helps with black perhaps like never before on how privileged we are I mean, that's great.
Probably 19 really could disrupt from Gregory culture in general and because the yakking input that we could there be email.
<unk>.
Todays earnings report [laughter] and deliberate figure you along with it.
Before we dive into [laughter] these quarters performance.
I'm comment of our main shareholders, our board and executive team.
We really leach comes great responsibility.
The priorities that we choose during these challenging times well defined our organization for your become.
These contact.
He only come first.
Does that then we have now entering the second month troubled <unk> fiction and they got home measures companywide.
We try to help that's perfect color personnel or find maybe an hour community I like.
For more information about these another rig mitigations because few years, we'd not be implemented please refer to todays earnings press release.
Secondly, we have been able to maintain optimal business operations and serve our customers no timely I'm flex a little minor.
And now we announced that lever the quarterly gross no. We are currently reporting.
Beginning our presentation I will provide a brief overview of the main highlights sounds like water.
Enrique will follow me with a detailed review of our third quarter financial results.
Focusing first on gifts I did see stopped line.
So I mean girlfriend girls I would be product lines drove comparable revenues, 9% higher during the quarter.
Bike temporary concerns among growers about the kabi biking, and dynamic which delayed sales meeting the water.
Growth with a believer in was particularly gratifying assets second quarter, you see somebody no one.
Deeper penetration in international markets, such as Brazil in Europe also drove sales higher.
We expect you're up to be increasingly report them at the market for our biological products in quarters two comp.
The third quarter was also but equally important from a financing perspective.
If we were able black so no cool I need to national debt markets, who raised over $50 million during the period.
The majority of these funding gaming to form a convertible notes due in two years, which Enrique we've described in greater detail.
We do start becoming incorporated into our balance sheet, we got to secure the financial strength required to transition our age before crop acreage from Elsom 200 hours from <unk>.
During the next winter and summer crops Csos <unk>.
Which could potentially to require as much as 30 million working capital detail.
Like for.
At the same time, we lose judiciously used the proceeds from these quarters financing decelerate breeding and production like eating because no I'm the United States.
Two key markets for Eco fleet technology.
Now to slide five.
Well the second time this year, we showcased our drug problems technology at explore <unk> March which is one of nothing Americas largest agricultural pay shows.
These years objective was to sign up kind of really for the second cycle of people who could be Asian.
Which could involve many 60000 hectares prequalified, depending on the performance I'm I've got a repeat of the omni variety piece currently being harvested their sleep quality I'm of course growers and PC babies appetite for our H. before technology.
Okay last week, we got harvested 30% of the covered pretty healthy <unk>. There's some people. So I am by the end of next month, we should have all the information required.
During the magnitude of the next cycle.
During the execution.
No worse sign up for almost 10 times the available acreage, we choose I'm enormous [laughter].
It is important to note that registering underlying anchorage with not a minor process.
It required gunby, they feel could be up and those eat the floor digital platform and a reasonable study called beta I know like <unk> pre ever great feet of each environment to our technology.
With regard to go eat wearing the final planning stages for our winter campaign.
Target remain 12 Felton factors.
Although we are not recognizing revenues I'd be stage, if it's important to know that every pack. There are there to the H.B. Fuller program AFE on average.
She met 100, bothersome going pretty you'd be tracking.
Which will be recognized when restocking, even cody primarily sold a worry grain revenues are generated from these kartik material.
With a current harvests 30, plus what we feel we're completing that beat that faith, probably your product that you could go back <unk> with Plenti for growers.
I'm like.
Provides like clean of their data being generated by the platform.
He started kind of satellite data can be used to define the production environment and how do you feel you know that can really feel.
Biomass evolution soil moisture levels and crop nutrition that goes can only be incurred from satellite images put all big put up cycle.
These data can be also aggregate either with hyper localized whether data and geo reference yielding permeation for a number of people that applications as we have communicated previously.
Well that all grow weren't experience was satisfactory.
Currency fine tuning different aspects so for platform for a second but all around us.
This concludes my initial highlights for the quarter I will now pass the presentation over to Enrique for a more detailed discussion of our financial performance.
Thank you for any equal good morning to you all.
Please turn now to slide seven.
Basically no big bump and roll this quarter was largely driven by international sales went up the main drivers behind or expansion strategy.
Your sale side, you want somebody else you called it out because she Brasil I don't why that's what drove part and 9% increase in comparable revenues during the third quarter.
You are also very pleased with the outstanding performance, so see to integrate products sales June mainly by pack sales in Europe.
But also maybe continues we've already in Argentina.
Segment grew nearly two times last years level and now represents 16% bookings on revenue.
And just 8%.
However, weaker sales for microbiome nicest mentioned being partially offset the quarter's growth, let's say to go pointed out you spoke on service about it's always nice you never be Danny led to a review of the uncertainty in late March softening growers free seasonal pretty chasers. That's our usually made ahead of the upcoming wins or.
You can see in Argentina.
She was seen in crop protection, our largest segment, that's 64% revenue grew 4% well crop nutrition declined 10% accounting for 20%.
Our overall sales performance was solid.
During the third party, probably nine in overlap I would see somebody lowest quarter into your.
You can't revenue on a nine month basis sales rose almost uniformly across all three segments, increasing 8% $222 million driving sales during the spirit was primarily a two month growth in Brasil up by White, our second and third biggest markets well strongly back Argentina still remained market.
Other contributors to growth in a nine month period, where higher seed treatment back sales into southern cone and euro and our ability to ramp up production microwaves for nicer to meet growing demand.
Now, let's please turn to slide eight.
For a detailed in crop protection.
We reported $16.7 million in revenues up 4% year over year.
This segment continues to execute well against our growth plans for received by why your way in Bolivia, mostly linked to high Tech agile and somebody elliptical fanatics.
I do want to sales volumes use four countries increased 32%.
However, miler best conditions in Argentina, led to lower demand or pesticides and herbicides, resulting in reduced demand for us one so swelling, which led to an 11% sales volume dropping the Godfrey.
Sequentially, Argentina, offset some of the quarter's growth.
Over the last nine months sales grew 8% to $66 million. She continues to effectively execute our argument growth strategy in Brussels over why.
In Brazil, we drove I do my body on 66% higher were doing Argentina, I do want volume decreased 8%. Nevertheless, I do on sales were stable in Argentina over the period. So we continue emphasizing margin sold the volume well, we achieved higher sales of biological adoptees base and other pest control.
Yes.
Moving to see to integrate products on slide nine.
Revenue in this segment rose, 98% to just over $4 million.
The French subsidiary drove much of these growth.
Strengthening commercial activities on the bus orders allows us got true demand for soybean backs disrupting acreage versus corn, sunflower, which faced seed supply shortages at the time of 19 Euro.
Considering the raising they must to replace chemical products with biological solutions Europe, we're excited to refine our commercial work and positioning in these markets has been appropriate unbearably fruits.
As we have already highlighted to treat them back some deals we are going out and you know where we also further penetrate elections market.
Segment revenues on a nine month basis increased 10% to 20.6 medium motors, we drove higher between them back to sales team by why you watch Europe.
In addition to the partial sales recovery in Argentina, you wouldn't be suppose second third quarter, so when btwenty.
These revenue gains more than offset lower sales softseeds on seed treatment bags, the first and second fiscal quarters. When our didn't think rowers certain you about weather macroeconomic conditions [laughter] purchase decisions for the branding all.
Summer crops.
Before moving to an exercise we reminder, sales in this segment for the nine month period also benefited from the partial every patient if you're not enough <unk> had been previously reported under preference Reashure standalone costs.
Now moving from accretion on slide 10.
As we noted earlier.
Certain euros later in the quarter when growers have been initially concerned about potentially but the only thing.
Lower at times for Chase is highly seasonal costs, such as microwave fertilizers enough to them useful winter planting nurturing Tim Brasil accounted for 10% decrease across just regional sales. The segment's revenue decline was partially offset by a pickup.
So sales more Libya.
Being recovering from property you got unrest.
We also saw good performance he sales for the U.S. Europe, which also helped to offset the lower crop nutrition, we sold to Latin America.
You don't give any decline in the third fiscal quarter year to date crop nutrition sales rose, 9% to 33.7 million borders we effectively raised spoke production capacity microwave funky nice to meet growing demands in our let them markets.
Not gun sales in the segment decreased so we saw the being partially substitute it with secret impacts and consequently being reported within the state that really products segment. So I just mentioned.
If we moved to the next slide.
But I would Ross profit rose, 6% to 12 doors for the quarter, while the corresponding margin contracted 133 basis points to 46.4%.
As a reminder, most of our production operations article in Argentina.
Because our manufacturing costs, mainly labor are denominated in pesos, you said as margins are sensitive to the dynamics between currency movements on Argentina inflation rate at any given time.
The net effect of negotiation on your agent Bank based so on the countries. Some place show raised our reported manufacturing costs for the quarter with us at holding our gross profit margin.
Thanks was partially offset by razor probably station a high margin seed treatment bucks within our revenue meats.
So they are gross margin declined to 185 basis points to 48.8%.
The sharp depreciation up, especially benefited our gross profit margin during our fiscal nine months interesting ideas, we thought being on a favorable comparison versus the current be spent here.
Looking now at gross margin by segments, starting with crop protection.
He was mainly impacted by yet first affect some inflation dynamics on manufacturing costs, resulting in a margin decreased 39%.
We'll see an integrated products.
This dynamic was more than offset.
Backs share increasing to 84% of segment revenues compared to 39% last year. This led to margin expansion in the order from 28% to 63%.
From a margin perspective, our revenues also improved in crop nutrition, expanding gross profit margin from 82% to 58%.
During the quarter and product mix shift, resulting from lower microwave pretty nice for sales and you were lower and no.
More than offset the adverse effect of effects on inflation dynamics in Argentina.
Now moving to profitability on page 12.
Reported adjusted EBITDA for the quarter was $2.6 million compares we just over $3 million last year.
Although we generated healthy year on year float in revenues reflect these were offset by higher as cheny costs, driven primarily by three factors.
First as we continue executing our international growth, we have been expanding our presence in Brazil.
Losses, I was confused between Greece, yes, gionee compared to a year ago.
We're making good progress news from are very excited about the future growth as we continue to raise our brand awareness and lay the ground for the launching of victory for India constructive market.
Second corporate costs now we agreed in our financial had been previously incurred by your Synopsys holding company.
Third the previously mentioned headwinds related to the negative impact from the net.
Currency depreciation inflation rates in Argentina, compared to a positive effect last year. So my journey here are setting on these certainly support functions are located in Argentina. Therefore, Chrysler nominated summarize a significant portion of our SGN 86, the effect on our EBITDA margin is pronouncing.
Or theres, a seasonally low in other words or whatever you do they look these incremental costs is weaker during Q3.
So you can see on the EBITDA bridge for the quarter, we reported higher gross profit from crop protection and see an integrated products along with higher JV contributions, which was mainly offset by higher SDMA compared to last year, resulting in adjusted EBITDA margin of 10.2% this quarter, I guess, 17.7% a year ago quarter.
Okay.
Looking at the nine months adjusted EBITDA was relatively unchanged $32 million with margins of 25.5% compared to a margin of 29.4% in the same video over the prior fiscal year.
Growth in professional sales in Brasil, you're right in front of why microwave fertilizer ramp up on higher sales were mainly offset by lower gross margins and hires jonae. Following the same dynamics I just described for the quarter. They had a net effect on inflation and effects Mentalist DNA to support both in Brazil.
Hi, Sean corporate costs.
Now, let's please move on to slide 13 to address balance sheet.
And then find significant new opportunities Swift spend as much in weeks support working copies of reducing non some costs and enhanced financial succeeded be has been key focus areas our finances right.
In this regard we made important progress in the order racing and growth of $50 million assai equally spread at the beginning this includes $42.5 million race in March where private placement for secured convertible note.
Seats on the 7.6 million order public debt issuance in February by our subsea to these aren't there Argentina.
We just from section we have taken another step enhancement.
Since then maturity profile, increasing the share of long term debt to 59% total debt up from 37% in the second quarter off the current fiscal year and 17% in a year ago quarter.
Probably not raise has also substantially increased our financially we with gasoline presenting approximately 80% its current portion of that.
Additionally, we are lowering financing costs through a more efficient capital structure, particularly by these continuing hiding efficient sources of working capital while also improving our leverage ratio to two point 30 times. This quarter from 2.37 times in the same videos up last year.
With regards to the convertible note maturity sonos, our convertible into cash.
Sure so be Osiris or a combination of both at the option of the holders.
So at any time frame maturity, you'll see this kind of convertible notes into ordinary shares of the company to a mandatory conversion there center certain conditions, which include a free float several hundred million bars.
Stock price above the strike off $8 per share for 10 consecutive days.
Its conversion feature means that we also have the potential of enhancing the trading we are sitting at the shares which remains a focus city and creating value for our shareholders.
The capital raise to be announced combined with the public bond issuance by reluctance significantly strengthened our balance sheet, we prepared to monetize the technology and business investments that we have been making over many years.
I would like to emphasize here, but in light of the economic impact of probably 19, you only might scope or magnitude of which are still unpredictable, we will employ our capital prudently.
Seeking to strike appropriate balance between advancing our growth strategy and maintaining a sound level our finances we.
Turning to slide 14, I'll take a moment to briefly expand those two factors that enhance our free cash flow generation.
First the lowering of our financing costs in the third quarter. Our total net interest expense system by national commissions decreased by $1.6 million or 30% versus same quarter in the prior year, which reflects the replacement of inefficient external sources of working capital maybe with cash generated from the operation.
Ones.
Proceeds from the capital raises came late in the quarter.
Moving up a nine month period, our cash financial expenses declined 9% up the company convenient optimizing its financing structure.
On the upper hand, given the strong asset base that we already having place to execute the near and long term elements of our growth strategy.
The cash we are generating sufficient to fund our capex requirements for the foreseeable future.
By way of example quarter Capex was 300000 lawyers compared with 400000 doors in third quarter trends you might be looking at Capex on a nine month basis Youre today, when you spend VR Capex was one point forming of ours.
Now, let me turn the call back to fade equal for some closing remarks.
Thanks and again.
Turning to the next slide and looking ahead, we will continue to focus from the execution of our a tree for programming initiatives, which include the planting of up to 12000 hectares of E. coli in the coming month.
Trying to find and acreage for the next I couldn't be closely sequel deprecation.
At the same time, we will accelerate bringing production and licensing initiatives directed at the U.S. from the Brazilian markets.
We will also continue to execute our baseline business strongly protecting our leading position in Argentina, and further penetrating international markets with our next generation solutions.
Finally, with a stronger balance sheet will maintain an opportunistic but judicious approach towards capital under patient opportunities that didn't help us further accelerate.
Our business objectives.
I will now pass the call to the operator to open up for Q Renee.
If he'd like to ask a question at this time. Please press Star then the number one on your telephone keypad. If you like we'd like to try your question tested penalty I first question comes from Ben Klieve with National Securities.
Alright, Thanks for taking my questions first Enrique question about the capital structure. So with the convertible note now completed is your transition away from these from the usual various inefficient.
That source is now complete or do those remain on your balance sheet, either as of the end of the fiscal quarter or as of today.
Hi, Ben Thanks for joining us on the.
Good to have you today on the call.
So yes structure, one thing to bear in mind that are they talk about race.
Through the convertible note gaming through the balance sheet late in the quarter. So everything that is related to improving financial costs from discontinuing inefficient sources of capital has been done with funds generated by the operation.
Now as we go forward there there will be a process to which we will start getting read up is.
Efficient sources of capital him that should continue to improve.
Our financial expenses like.
Got it okay. Thank you.
It's turning over the age before Federico you described the the low end and high end of the inventory build range for next year of of 20 to 60000 hectares, which is a big range and you described the number of considerations that that go into that range.
But I'm curious if you can kind of breakdown how much of that ranges due to.
Agronomic performance versus the kind of the ability to market the seed and secure growers, what kind of how does that how did that range breakdown between those two kind of broad considerations.
Hi van.
Great and then going at the rig et cetera, and thanks for the question. So.
Let me first say that regarding the range.
We had a showing that drove farmers that exceeds the maximum number of excess by almost identical.
If we needed to do like half a million Hexis, we have announced farmers, saying now.
That's up from from a technology.
Technologies and appetite perspective.
This is not an issue.
Now we're harvesting today 3000 factors that will provide the material when we will plan. These 20 to 60000 hectares.
And we're doing these with.
Small number of varieties that come from our Elliot 14 that reading program. So.
Having said that the number one consideration in terms of how.
Lastly, we know how many Texas, we put into the next cycle will depend on the performance that we seem to feel.
I'm, making sure we're moving forward the right deal.
Some of these my Mediasite up early adopted so we may not be able to seize every region with easy limited number of horizon. So that's creating.
An initial bundle that you will.
That we will take into consideration was overly is collected and that would happen in the next two to three weeks.
The second aspect is that.
We need to have good flooding team and in some areas.
The plateau might have been affected by weather event.
And that can affect the flooding the seat.
We anticipate that to me I left the problem, if you will but at least two things check.
We could do 60000 hectares.
If these are things don't kick fully will be somewhere in between and we wanted to put a light an indication remember that.
Any of the two scenarios in the upcoming T cell, which will be planted in August.
It was due November December.
And should allow us to do a very significant launch.
Following season.
In sort of mid Twentys fiscal year, Twentytwenty do which is next year for that.
The next summer season.
Plant.
Got it hurdle take on that.
Yeah that was helpful and I apologize if you mentioned that 10.
You know the tenfold number in your prepared remarks, and I met that I apologize for that but that that was helpful. Thank you.
Just a couple of quick questions on the quarter, and then I'll jump back into queue for first on the fertilizer business you discussed the delayed purchases given.
Kind of brought uncertainty around coven 19.
My question here.
It is is where these delayed purchases that were you know that may get rolled into the fourth quarter here or read these delayed purchases for a you know in advance of next growing season.
So.
Ben what you have to see is that.
The current water will report that we see some purchases of farmers that down to the marketing and then TC made it way to take advantage of promotions and sort of get that there for the next plantings.
Yeah. So that is what got delayed so these purchases that are opened on preseason we.
We expect them to occur in season, which is in the current water. So it shouldn't be a facing issue regarding that late quarter call. These 19 uncertainty I dunno and he can do what add anything to do these.
No it's absolutely like that Theres, usually at least on sales.
Pain studies.
No no no, yes, but some competitors to lead us well and I know you've seen in the context of for a certain even assayed ecosystem.
People, we're not waiting to sort of reinvest in the inputs they need for the winter bucking season. So are there so very good chance that we're going to see those sales happening in the fourth quarter.
Got it got a perfect.
One last one from me is with regards to the performance of the seed segment this quarter.
This this segment of kind of.
You know flown under the radar if you will Ah, but but this quarter I mean, those numbers are pretty remarkable to to what degree do you think the performance that you saw in the third quarter is is kind of about a one off resolve or or do you think that on you know there do you think that this that the.
Segment in advance of H. before.
Is kind of position for to see this kinda you know this kind of growth going forward.
No you what I've seen banks that are there were some.
Onetime factors that affected positively and may actually be so on the micro used for two nicer than we had a lower than expected sort of preseason sales campaigns, but that was offset by the outstanding performance. He will there be process now when you runs the good news for US. He said we've been doing commercial work over there.
For for four years now.
And you up into a market, where you see that there's going to be a shift from chemical products into biological clause studies increasing.
And so.
We were positioning ourselves in that market now be outstanding performance. This quarter has to do with the fact that there was a seat shortage for pulling them sunflower I'm. There for soybeans. So increased acreage that is a one timer I don't think is gonna be than you normally you will but the good news for US was that we were.
Ready to capture that opportunity on us by Adobe goes further penetrate that market, we're going to be there, but so to summarize there was a one cymer positive, but was Europe and the wants to make everyone bye.
No we see some say also microwave merchandise or so to me the growth in weeks. We have you seen in line with what we think that we can do work our baseline business going forward.
Got it.
Perfect very good well I think that does it for me I'll get back in queue. Thank you both very much for taking my questions.
Next question. Your next question comes from Selyanka with topline capital.
Hi, I'm. Thanks for taking taking the question I just want to come from you do expect.
Crop nutrition to be cover some in this fourth fourth quarter.
Hi, Sally Greg how are you on because things things for your question.
Yes, there's a very good Jones, but are we could recover those sales in the quarter. If things are goes more to the abnormalities being has seen so far and good see some four weeks on barley blunting Argentina.
We just brought either main markets for winter crops in southern cone.
So we have a we have a good expectation on some of what can be done with ascending microwave fertilizers for winter Bobby.
Okay.
And Ah in terms of just the about product line.
You.
I you still.
Selling in North America.
Did you have any north American sales this quarter.
Yes, yes, he's actually obviously, that's a that's business he's a steel small oh, we have.
Yes, well strong focus in the U.S. Fady program for audience on more on that but importantly grow even being a small business. We had a good performance, we do not to them sales in the U.S. These quarters. He was slightly if you will left on it on a second place by what's happening in Europe, but he was a good setting order or.
You us subsidiary as well.
Okay.
Oh, and then and yeah any uptick so.
I don't know study and he said he goes it's great to having that gold I was just going to Watson reengage that obviously the U.S. teams is still a very important focal point for us and.
Yes, we are actively I'm trying to consolidate that market from a biologic of perspective as well as a seat opportunity perspective.
One thing that.
We mentioned briefly are viewing or they call was or wbz knowledge to.
Moved some a lot feel that internationally via things into.
I think within the hour Biofungicide in Europe, and that we believe will help us European performance, Oh, and not just the one time or another so this quarter as we see a transition toward biological products for in crop protection solutions and that should also be true.
In the U.S.
Okay.
Thanks, and then do you have any update on the status of China's approval or acceptance of.
He goes away.
Well thanks for that question as well, we we have indicated in the press release and that were currently reviewing our all your guidance on China and that is mostly.
Driven by a they've got a 19 situation and what that might have done as to the bureaucracy and cannot be that is required regulatory processes forward.
We have.
And officially be.
We have an official word that things are moving us as planned.
So that is probably couldn't news, we have not been able to quarter over eight that will officially a beneficial manner. So yes that is as much as I can tell you have dropped from China right now.
Okay. Thank you. Thanks very much that's all that's all I have.
Once again, if you'd like to ask a question. Please press Star then the number one on your telephone keypad.
At this time, we do not have any questions I will turn the call over to Mr. to cover for closing remarks.
Thanks, operator, and thanks again for joining us today as always we appreciate your Intrexon gets better.
Leaving numbers a site or for my Alaskamen, Yeah, I would like them locally with by saying that we were now operating under a new reality you know there somewhat of a new normal.
We have the opportunity a privilege black also a helping hand.
Helping hand for our employees and suppliers as we provide a source of stability in times of upgrade I wish.
Helping our customers as we help them troublesome logistical problems and avoid the late but equally when they are harvesting their crops.
On a helping hand to our communities that's when PCB purchases to small businesses that have seen a total collapse in their income or or help the local hospital procure protection equipment for health professional done meeting the front lines.
And we do need is not out of Cherokee, we believe because we feel it is the best use of our capital These days and investment for a which will drop it many times over in the future and I wanted to show these thoughts.
The audience today hearing that goal.
With that Pat I.
I would like to notice and say that.
We wish you stay safe.
And obviously enjoy the rest of your right. Thank you very much.
This concludes today's conference call you may now disconnect.
[music].