Diamondback Energy Q2 2024 Earnings Call Transcript

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Provided by Quartr
February 8, 2024

There are 9 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Thank you for joining today's BioSeries Crop Solutions Fiscal Second Quarter 20 24 Fiscal Results Conference Call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call over to Paula Savanti, Head of Investor Relations at BioSirius Crop Solutions.

Operator

Please proceed.

Speaker 1

Good afternoon, and thank you, everyone, for joining our 2nd quarter fiscal 'twenty four earnings call. Today's presentation will be led by our Chief Officer, Federico Truco and our Chief Financial Officer, Enrique Lopez de Cubes. Both of them will be available for the Q and 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 statement section of the earnings release and presentation as well as the recent filings with the SEC.

Speaker 1

We assume no obligation to update or revise any forward looking This conference call is being webcast, and the webcast link available at Bioceris Crop Solutions Investor Relations website. I will now turn the call over to our CEO, Federico Trucco, to begin our presentation. Thank you.

Speaker 2

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 3 for this call's highlights. I would like to start by expressing our profound gratitude to our customers, our partners and the entire BioSettis team from manufacturing to R and D to sales and so on for what has been a new record setting quarter.

Speaker 2

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 Q2 of fiscal 2024 were CAD140 1,000,000, an almost 50% improvement compared to the same quarter of last year. Our net income improved by 8 fold And our adjusted EBITDA for the quarter reached $24,100,000 a 134% increase compared to the year ago period, resulting in an LTM EBITDA of EUR 86,700,000. In a minute, Enrica will provide further details on this outstanding financial performance. On the HP4 front, We continue to make good progress as I will briefly discuss towards the end of the presentation.

Speaker 2

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 U. S. PTO, covering the HB4 soy technology and initiating our 3rd patent family for this product, which will provide protection for our seats until 2,040 2. I will now pass the presentation over to Enrique a more detailed discussion of our numbers.

Speaker 3

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 4. As Erico mentioned, we had our highest quarterly revenue rate this quarter at $140,000,000 which represents a 49% increase year over year.

Speaker 3

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.

Speaker 3

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 Q1 was matched by outstanding performance in the second quarter, which led to resumed double digit growth in the first half of the fiscal year, reaching revenues of $257,000,000 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 5, please, to look in more detail at the revenue performance by segment and the main drivers.

Speaker 3

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 microvividy 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, inoculant 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 the Q2.

Speaker 3

The SEDAR Integrated Products 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, HP4 soy hectares under the identity preserved program were at 150% of last year's hectares with a 7x expansion in Brazil as we continue to grow our HP4 program there. But also, we explained last quarter that this current fiscal year, We have increased our commercialization of HP4 wheat grain inventories in pursuit of 2 things. 1, recovering working capital from grain that is not quality and 2, to develop industrial channel for fully traced inventories that satisfy particular sustainability and quality requirements.

Speaker 3

Also important within this segment that despite the migration of certain countries into a 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. Adjuvance, 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.

Speaker 3

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 6 now. For the quarter, overall gross profit was $51,500,000 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 $15,000,000 The main driver was the top line growth from microgrid fertilizers, which was matched by margin expansion from slightly higher prices and lower raw material costs in that particular product category.

Speaker 3

CDN Integrated Products also contributed to gross profit growth by adding $2,000,000 to the $8,000,000 in gross profit contribution from last year and reaching $10,000,000 The overall gross margin for the segment decreased 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 seats. 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 Biocontrol product sales in the U. S.

Speaker 3

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, bioprotection. So let's now go to Slide 7 to take a look at adjusted EBITDA. Adjusted EBITDA during the 2nd quarter reached $24,000,000 which more than doubles the $10,300,000 in the Q2 of the previous fiscal year. This substantial improvement is primarily explained by the increase of almost $17,000,000 in gross profit that I just described, which was matched by an increase of $2,000,000 in JV results and also operational leverage as operating expenses grew at a lower pace than gross profit. To that regard, SG and A increased by less than 10% year over year, and the increase was largely explained by higher variable expenses on account of higher sales.

Speaker 3

Importantly, variable SG and A as a percentage of sales remained almost flat at around 5% of sales And fixed SG and A on an absolute basis remained flat. Both things important to keep disciplined execution. Now let's please turn to Slide 8 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 $223,000,000 compared to 2.50 $7,000,000 in the prior fiscal year. Our financial debt position was slightly lower than the $226,000,000 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%.

Speaker 3

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 $87,000,000 in cash. Compared to the Q1 of the current fiscal year, Our cash position remained roughly flat. Last two comments from my side on the financial position. 1, 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 Q2, I think it is worth noting The strength and stability of a dollar denominated business in that country not only allowed us to conduct business as usual, We could also achieve some financial gains from hedging our activities as well as benefit from a better cost environment.

Speaker 3

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?

Speaker 2

Thanks, Kike. I'm pleased now turn to Slide number 9 for a brief update on HB4 soy. As we have indicated in our previous call, We have increased our identity preserved footprint in Argentina to be at 1.5 times of what we did last year, continuing to fine tune our bringing efforts and variety positioning, while building inventories ahead of our targeted fiscal year 2025 launch with multipliers and distributors. At the same time, we are seeing an accelerated progress in Brazil, where we work with 25 key farmers to test and multiply 2 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.

Speaker 2

And as I mentioned at the beginning of our call, we were granted an additional patent by the USPTO that should protect the 834 soy technology through at least 2,040 2. Please turn now to the next slide for an update on HP4 wheat. 2 key takeaways here. 1, 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 2nd generation materials, have helped us improve performance in some high productivity conditions, where we are now at par to the best performing conventional seats.

Speaker 2

And the second takeaway here is that jointly with our multipliers and distributors, We now have sufficient inventories, mainly of the 2nd generation materials to be in a position to meet our fiscal year 2024 guidance, where we expect to improve the EBITDA of this business by approximately $15,000,000 I think this is These are the key highlights regarding HB4. I think we can now pause and open up the line for Q and A. Moderator?

Operator

Absolutely. We will now begin the Q The first question comes from the line of Kristen Owen with Please proceed.

Speaker 4

Hi. Thank you. Good afternoon. I appreciate you taking the question. So first, congratulations on the very strong results here.

Speaker 4

The one question I wanted to dig into on the HB4 wheat side. So you started talking to 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 2 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?

Speaker 2

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 3 tonnes 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 from below. And that is a consistent observation in 1st generation material, 2nd generation materials.

Speaker 2

And then we'll talk a little bit about 3rd generation materials. As we move to higher yielding environments, What we saw in the 1st generation materials is that above the 4.5, 5 tons per hectare, we were experiencing A yield drag or a gap compared to the top performing commercial varieties and that is what we try to fix with the 2nd generation materials where we are now into environments of 6, 7 and 8 tonnes per hectare at par with the most advanced, most 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. And also in the beginning, maybe we were averaging 7% improvements in yields in environments of more than 4 tonnes. As we better position these materials, we can move to 9% 13% improvements when compared to the top performing variety.

Speaker 2

So that's the work that has been done In this last season and finally on the 3rd generation materials, these are materials that probably perform equally to the 2nd 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 adapted materials. So it's Coming from a new wave of breathing, but not necessarily generating a differentiated performance compared to what I recently alluded to in terms of 1st 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.

Speaker 4

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?

Speaker 2

I think the key here is to get the multiplier. So As we indicated in the past, we have 27 multipliers in the last season compared to 3 the year before To help us get these varieties in the hands of farmers and have them fully experienced Well, 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. It's 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 to have them Realize those improved economics, I think, is also very important. And looking forward to sort of the upcoming Season towards the Q4 of this year where we have today the inventories on hand to significantly improve compared to what we did the year before.

Speaker 2

And this means that we will be growing at least at 4x to try to meet the guidance that we provided.

Speaker 4

Okay. Thank you very much for that. My second question is a little bit more for Enrique and Biosphere, just as a function of your geographic exposure, you're in much better position coming into this calendar year, coming into Seasons been a lot of U. S. Peers.

Speaker 4

You've obviously been very successful in integrating Marrone and getting that to a point of contribution. Your leverage is down to 2 times. I'm just wondering what you think about the M and A environment for you guys at this point in time?

Speaker 3

Hi, Christian. Good to have you on the call and thanks for the 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 U. S.

Speaker 3

So we do feel very confident about what we're doing. Now I still think that we need to do work to get the U. S. Business and essentially the Technologies that we get we got from our own now pro form to start thriving. And that will require some work, some additional work for us.

Speaker 3

So regardless of what the market might look like in terms of M and 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, we integration of our own and like I said, building a portfolio of technologies that is rather unique.

Speaker 1

Fantastic. Thank you so much.

Operator

Thank you. The next question comes from the line Ben Klade with Lake Street Capital Markets. Please proceed.

Speaker 5

All right. Excuse me. All right. Thanks for taking my questions and congratulations guys. Really good Lots to talk about, but I want to focus on HB4 SOY.

Speaker 5

First question, if Federico, in your response to Kristen's question, I'm not sure if I overlooked this, but the expectations for HB4 SOI 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 you think there's any kind of headwinds to that 3rd year number as you stand today.

Speaker 2

Hi, Ben. 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 2025 on soy, I think it depends to some extent on the performance we experienced 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.

Speaker 2

I think maybe in the next call, our Q3 call, we might be able to sort of give you full visibility on that.

Speaker 5

Okay, very good. That's fair enough. And as a follow-up to that, you noted Brazil, The variety that you are in pre commercial stage with targeted to monogroso,

Speaker 3

Can you kind

Speaker 5

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 2? Or you think that's still More of a mid to long term type product?

Speaker 2

No, I think it's a variety that we can add next steer to the 2 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 Throughout 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 HP4 technology, but we expect that to be joining the IP channel in the coming cycle.

Speaker 5

Great, great. Thank you. And then last one for me and then I'll get in queue back into the queue. In the HB4 soy performance in the U. S.

Speaker 5

In this past calendar year, in calendar 2023. There's kind of a series of 3, 4 week, just brutal drought throughout the U. S. I'm curious how the performance of HB4 soy curious what HP-four forty eight performance was in those conditions relative to the conventional alternatives?

Speaker 2

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 in the breeding program stage. So we might have been at less than 1,000 hectares for sure.

Speaker 2

But and depending on where we have that, we might have had to the drought that you're alluding to or not, but let me get back to you on that. It's I'm not immediately knowledgeable on the performance since these were mostly breeding related activities.

Speaker 5

Okay. Yes, very good. I totally understand. Congratulations again on a really nice quarter and I'll get back in line.

Speaker 2

Thanks, Ben.

Operator

Thank you. The next question comes from the line of Bobby Brophy with Canaccord. Please proceed.

Speaker 6

Hi, guys. Thanks for taking my questions. 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 how is that affecting 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.

Speaker 2

Hi, Bobby. Thanks for joining and great 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.

Speaker 2

So now if those ambitions are being reevaluated, 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, our processes in Europe, we continue to do things the same way we were doing before this current this more recent development.

Speaker 6

Understood. Thanks for that answer. 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.

Speaker 6

I'm curious what you're expecting here in California.

Speaker 3

Hi, Bobby. This is Enrique. Thanks for joining us

Speaker 7

and for

Speaker 3

the question. Hi. So, yes, I mean, it's you're in California as well. We are actually doing this call from California today. So, We're here as well.

Speaker 3

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 product in place. We've been sort of like implementing changes on the sales and marketing teams.

Speaker 3

So we are preparing ourselves for what should be Very reasonable to good season here in California.

Speaker 6

Okay, great. And 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

Speaker 3

Yes, for sure. I mean, on the weather side, for sure, Then I think that the overall environment with interest rates and stuff like distributors trying to Minimizing inventory holds, that's probably different to what Marrone had in the past. Maybe 2 or 3 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 destocking or higher interest rates.

Speaker 3

So I think that, That part of the market is different to what Marrone used to have in the past. The last 2 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.

Speaker 6

Okay, great. Thanks and congratulations on the strong results. Thank

Speaker 3

you. Thanks, Bobby.

Operator

Thank you. The next question comes from the line of Brian Wright with ROTH MKM. Please proceed.

Speaker 7

Thanks. Good afternoon and congrats. Wanted to just delve into the evaluation effects. Was that a net negative on the overall net income line?

Speaker 3

Hi, Brian. This is Enrique. Thanks for joining and for the question. 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.

Speaker 3

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.

Speaker 3

Then there are some cost benefits on the SG and A line, not something that was primarily driving the cost effectiveness that we had, but it does help. It's sort of like a tailwinds. 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 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 $8,000,000 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.

Speaker 3

Our gains that we will realize in time, but we had to make that a tax 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 be something positive to us.

Speaker 2

Okay.

Speaker 7

So to think about it, Because I'm just trying to bridge the operating profit benefit, right, versus and growth year over year versus The net income, so it really is this tax dynamic that's the biggest driver. So like if I were to try and drive Adjusted EPS number, would I just use the normalized tax rate?

Speaker 3

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 about $5,000,000 that are related to this deferred tax liability and are 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.

Speaker 7

Great. Thank you so much. And then just a 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?

Speaker 2

Yes, Brian, in terms of the low yielding environment. So when we are talking about yields that are below the 3 tons per hectare, the Generation 1 materials, Generation 2 materials and Generation 3 materials that are now being developed will all give you the same type of improvement. The difference between generation 1 materials and 2 materials is around yields in the higher yielding environment. So when we are talking about 4 to 5 tons per hectare, Wherein the 1st generation materials, we had a yield drag compared to the best performing commercial varieties That has been neutralized or overcome in the 2nd generation materials.

Speaker 7

Great. But there's no degradation from like the 2nd year of that generation On their relative

Speaker 2

Right, right. I mean, the materials so yes, the performance of the trade survives as you move from 1 year to the next. There's no degradation effect from one year to the next. Perfect.

Speaker 7

Perfect. And then lastly, if I could, the RhinoTech, just approval in America, just any latest thoughts on timing?

Speaker 2

So we don't we haven't, I think, provided guidance on that in terms of Rhinotec. I think it's Not likely to happen this year. The approval we are looking for this year is the U. S. Approval, which is going to be very important for us.

Speaker 2

I think South America is most likely after this year.

Operator

Thank you. The next question comes from the line of Kent Dyliver with Brookline Capital Markets. Please proceed.

Speaker 8

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 HP4 business?

Speaker 3

Hi, Cam. 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.

Speaker 3

But obviously, there was a much higher contribution from sales from inventory of grain that have inherently low margins, lower margins than the rest of the plots. So that's what's driving the average gross margin for the segment.

Speaker 8

Great. Thank you. Second question is the new IP that was Granted, could you tell us a little bit more about the nature of the IP? And since this is a U. S.

Speaker 8

Patent, Is this IP that you have elsewhere, and you're adding the U. S. Or anything else on the subject?

Speaker 2

Yes, sure. Kem, this is Federico. So this is the 3rd family of patents covering the 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 HP4 events, there's a second family of patents where we had certain modifications that help achieve better performance. And then the 3rd 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.

Speaker 2

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 get Do the filings first in the U. S. And then filing 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 soy aspiration.

Speaker 8

That's great. Thank you very much.

Operator

Thank you. We will pause here briefly to allow questions to generate. There are no additional questions left at this time. I will pass it back to Federico Trico for any closing remarks.

Speaker 2

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.

Speaker 2

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.

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