Business Context and Reporting Period
Bioceres Crop Solutions Corp. filed a Form 6-K on September 13, 2019, reporting unaudited consolidated results under IFRS for the three months and fiscal year ended June 30, 2019. The company provides crop protection, seed and integrated products, crop nutrition, and HB4 biotechnology solutions. Results are presented in U.S. dollars. Argentina was treated as hyperinflationary under IAS 29 beginning July 1, 2018; management therefore presents both reported and comparable, or ex-IAS 29, metrics.
Key Financial Metrics
| Metric | 4Q19 | FY19 |
|---|---|---|
| Reported revenue | $49.9 million, up 57.7% year over year | $160.6 million, up 20.3% |
| Comparable revenue | $35.5 million, up 12.1% | $148.7 million, up 11.3% |
| Reported gross profit | $21.5 million; 43.2% margin | $73.6 million; 45.9% margin |
| Comparable gross profit | $16.8 million; 47.3% margin | $75.1 million; 50.5% margin |
| Adjusted EBITDA | $8.8 million, up 57.8%; 17.6% margin | $41.3 million, up 84.8%; 25.7% margin |
| Net loss | $1.2 million | $16.4 million |
| Operating profit | $7.3 million | $32.1 million |
| Net finance loss | $5.7 million | $41.5 million |
FY19 revenue growth was led by crop nutrition, with comparable revenue up 43.7% to $41.8 million, and crop protection, up 7.5% to $83.5 million. Comparable seed and integrated products revenue declined 12.8% to $23.4 million.
FY19 SG&A was $39.2 million, including $4.5 million of one-time transaction expenses related to the Union Acquisition Corp. merger. Excluding those expenses, SG&A was 21.6% of sales versus 26.4% in FY18. R&D expense was $3.7 million, plus $1.9 million invested in R&D activities related to intangible assets and joint ventures.
Cash and cash equivalents were $3.3 million at June 30, 2019, compared with $2.2 million a year earlier. Total net debt was $93.0 million, compared with $97.1 million, and net debt to LTM Adjusted EBITDA improved to 2.25x from 4.34x. FY19 capital expenditures were $2.0 million, primarily maintenance-related. The filing describes strong cash flow but does not provide a detailed consolidated cash flow statement in the supplied text.
Material Changes Versus the Prior Comparable Period
- Reported FY19 revenue increased 20.3%, while comparable revenue increased 11.3% after excluding IAS 29 effects.
- Comparable FY19 gross margin expanded to 50.5% from 42.3%, helped by Argentine Peso depreciation, lower U.S.-dollar-denominated manufacturing costs, and a shift toward higher-margin adjuvants.
- Adjusted EBITDA increased 84.8% to $41.3 million, with margin expanding to 25.7% from 16.8%.
- FY19 net loss increased to $16.4 million from $14.3 million, despite substantially higher operating profit, primarily reflecting finance costs and taxes.
- Interest expense increased as a result of higher interest rates on debt and financial services in Argentina. The reported FY19 finance result also included IAS 29 inflation effects and merger-related accounting items.
- Inoculant volumes increased 73%, while adjuvant volumes declined 17% as the company moved from high-volume, lower-margin products to higher-margin products. Brazil adjuvant sales volumes increased 66%.
- Micro-beaded fertilizer capacity utilization reached 22%, with 11.1 thousand tons sold in FY19, a 73% increase in utilization from FY18.
- Debt maturities were extended through a $16 million 2021 corporate bond offering, a $4.5 million refinancing into a three-year loan, and restructuring of $15 million of intercompany loans into a five-year facility.
Guidance, Outlook, Risks and Unusual Items
Management stated that FY19 Adjusted EBITDA exceeded its full-year expectations and expects continued business momentum while preparing for the formal launch of HB4 soybean. On August 8, 2019, Verdeca, the company’s joint venture with Arcadia Biosciences, received USDA approval for HB4 drought-tolerant soybean. The company stated that regulatory approvals then covered more than 80% of the global soybean market.
HB4 had also been approved in Argentina and Brazil. Regulatory submissions remained under consideration in China, Paraguay, Bolivia, and Uruguay. The filing states that Chinese import approval was required for commercial launch in Argentina and was expected in 2020.
Management identified Argentine Peso volatility, high Argentine interest rates, debt servicing, and the need to continue extending maturities as important financial considerations. Management believes the largely dollarized business, improved leverage, and healthy farmer balance sheets provide resilience against regional macroeconomic volatility.
Unusual or nonrecurring items include $4.5 million of merger transaction expenses, a $14.3 million accounting registration loss related to the merger, a $14.5 million net gain from inflation effects on monetary items under IAS 29, and FY18 share-based payment and purchase-option items used in the Adjusted EBITDA reconciliation. Adjusted EBITDA, net debt, and comparable metrics are non-IFRS measures and may not be comparable with similarly named measures used by other companies.
The release contains customary forward-looking statement risks. Actual regulatory approvals, commercialization timing, demand, currency movements, interest rates, debt refinancing, and operating results may differ materially from management expectations.
Facts Investors Should Verify
- Reconcile reported versus comparable revenue and gross profit, including the effects of IAS 29 and Argentine Peso translation.
- Review the bridge from the $16.4 million FY19 net loss to $41.3 million of Adjusted EBITDA and assess the recurring nature of excluded items.
- Confirm debt maturities, interest rates, covenant requirements, and liquidity relative to only $3.3 million of cash and $93.0 million of net debt.
- Monitor regulatory approvals, particularly Chinese import approval and remaining approvals needed for HB4 commercialization.
- Assess whether gross-margin benefits from currency depreciation and product mix are sustainable.
- Evaluate execution risk associated with the HB4 launch, the seed-channel restructuring, and expansion of fertilizer and international businesses.