Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Bioceres Crop Solutions Corp. (NYSEMKT:BIOX)
Q2 2021 Earnings Call
Feb 11, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by. I'd like to welcome you to the Bioceres Crop Solutions fiscal second-quarter 2021 earnings conference call. [Operator instructions] I would now like to turn the conference over to Max Goya. You may begin.

Max Goya -- Investor Relations

Thank you. Good day, everyone, and thank you for joining us. Presenting during today's earnings call will be Federico Trucco, Bioceres chief executive officer; and Enrique Lopez Lecube, our chief financial officer. Both will be available for the Q&A session.

Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of today's earnings release and presentation as well in our recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Also, please note that for comparison purposes and a better understanding of our company's underlying performance, in addition to discussing as reported results during our presentation today, we will discuss comparable results, which exclude the impact of hyperinflation accounting in Argentina.

Additional information in connection with the application of the rule IAS 29 can be found in our earnings report. I would now like to turn the call over to our CEO, Federico Trucco.

Federico Trucco -- Chief Executive Officer

Thanks, Max, and thanks, everyone, for joining us today, and Happy New Year. Today, we are reporting on our second fiscal quarter that ended on December 31. As a technology company, our value proposition is centered on developing highly differentiated solutions that create economic incentives in the form of improved yields, management practices, and other efficiencies to further decarbonize production processes while regenerating agricultural ecosystems. With this central purpose in mind, we have been investing over the last 18 years in a solution called HB4, designed to improve the resiliency of crops in the face of adverse climatic conditions, more specifically limited water availability, the single most important factor affecting agricultural sustainability.

During the quarter, we achieved the first approval ever of this technology in wheat, an approval we have been working on since 2015. We discussed the implications of this approval in our September earnings call. Today, we're presenting the data obtained from our first pre-commercial production process with independent growers totaling close to 7,000 hectares and 17 times more than in our prior production cycle. And the results are as follows: HB4 wheat outyielded commercial varieties commonly used by participating growers by 13.5% on average across all environments and locations.

In lower-yielding environment, representing one-third of all hectares harvested, the average improvement from the HB4 technology was 42%. This is more than twice the performance we estimated using our historical data. In higher-yielding environments, we also outperformed our historical data, and we will discuss this in more detail later in today's presentation. As a result, all participating growers have anticipated their willingness to repeat and/or increase their exposure to HB4 wheat in the coming season, further validating our value proposition.

The performance of the current HB4 wheat varieties and the validation of our value proposition with farmers, as well as the high quality of the seed, obtained allow us to ratify our prior guidance, projecting almost 20 times more hectares for the upcoming season. As we indicated, this projection is subject to Brazil's import approval. Regarding this approval process, the public hearing that precedes the introduction of any new GM crop has already taken place. This occurred on October 22, and no further information has been requested by regulators as of today.

Continuing with HB4 soy, we have engaged with 148 growers across 220 locations for a total of close to 23,000 hectares, where we are currently multiplying seven material ranging from maturity groups 3 to 5. Despite some initial dry conditions in certain regions, this scaling-up process is advancing favorably. We continue to make progress with our collaborators to develop materials for a broader range of maturities, and we have recently announced an important collaboration with NSIP, a computational breeding company to fast-track product development and targeting efforts in the United States. This collaboration is possible given the increased flexibility we have achieved after the full acquisition of Verdeca.

We will also comment on this later in the presentation. From a financial performance perspective, we experienced a drop in revenues of 17% for the quarter, which Enrique will explain in detail during his part of the presentation. This slowdown in revenues partially offset the good momentum of the last three quarters, giving us a revenue growth of 8% for the trailing 12 months. This number does not include HB4 deferred revenues accumulated to date, which we refer to as contributed goods, totaling $3.6 million over the approximately 30,000 hectares of HB4 crop farmed thus far.

Please now turn to Slide 4 for a more in-depth overview of HB4 wheat performance. The heat map of South America, on the right side of the slide, indicates soil water availability in late October of last year as compared to an average year. Blue areas have more abundant water than usual, and orange and red areas have less. This image illustrates the severity and extent of the drought conditions during the last week growing season.

As we zoom in on the left side of the slide to the HB4 wheat production locations, we see that in the northern locations, where drought was more severe, the average improvement in yield was 60% with some extreme situations where yields were more than doubled. The average drop in production for this region was reported at 47% by the Rosario Board of Trade, an institution that has historically reported statistics for different crops. Accordingly, our HB4 technology could have reduced this loss by two-thirds. Improved performance was still observed in southern regions, indicated as B and C, with average increases of 7% and 8% as shown, where water constraints were less significant and yields, in general, were above average.

On the following three slides, we present case studies in environments with different productivity levels. First, we see a location in Henderson, Buenos Aires province, where yields were above 5 tons per hectare, and the improvement in the HB4 crop was 20%. In this high-yielding environment, we have outperformed commercial varieties every six out of 10 times, with an average improvement of 3%, probably more a factor of the elite genetics of our varieties and less so of the drought-tolerant technology. Moving to the next slide.

We see another location in Buenos Aires province, now within an intermediate yield range that is between 3 to 5 tons per hectare. In this location, we observed an improvement of 30%. While we average on locations within the 3- to 5-ton range, we observed a benefit of 11%, outperforming commercial material every 7.5 out of 10 times. Lastly, in the next slide, we go to a western location in the same province where yields are generally below 3 tons per hectare and observed a benefit in the HB4 crop of 68%.

In this lower-yielding environment, we have obtained an average yield improvement of 42% across all sites, as indicated before, outperforming commercial materials every nine out of 10 times. Slide 8 provides an overview of our HB4 scaling-up process. We take this opportunity to ratify our prior guidance in terms of hectares and associated deferred revenues knowing today that we have the variety performance, the seed quality, and the volume of inventories needed to meet these goals. Moving now to HB4 soy on Slide 9.

We have been able to plant close to 23,000 hectares with 148 participating growers despite the slow start to the planting season, mostly affected by the lack of rainfall until late December. This production cycle represents an 8 to 10 times increase in the number of hectares and farmers, respectively, compared to the prior cycle. We have been able to replace some of the lower-performing varieties with new materials coming from our U.S. off-season multiplication process with a total of seven materials now being validated and scaled up.

As indicated before, the process is progressing favorably, and we are closely monitoring the adaptation of the different genetic backgrounds to the current universe of growing conditions, a key determinant of our ability to speed up the deployment of HB4 soy. Chinese import approval for HB4 soy is still pending. We are actively engaged with regulators to facilitate the generation of independent in-territory data and supplement our dossier whenever new information is requested. In our assessment, the process is advancing according to precedent.

An important aspect of the HB4 seed multiplication process is the data gathering aspect where all sites are actively monitor over 130 different variables, with the resolution of some of these variables at the meter square level. Slide 10 provides an overview of our data acquisition process and farm inventory surveillance interface. Taking advantage of the data science possibilities generated by this growing database, we have engaged with Nature Source Improved Plants, NSIP, a U.S.-Mexican company dedicated to computational breeding to gain powerful insights regarding the interaction of different environments with the genetics of our materials and EcoSeed combinations, improving the design of our breeding strategies and shortcutting the product development process by more accurately predicting the performance of our products for a given location. Using the operational research approach championed by NSIP founder, Steve Tanksley, a pioneer in genome mapping and plant molecular breeding, we also aim to significantly improve the return on our R&D dollars dedicated to this process.

As we recently announced, we will first use these capabilities to fast-track our breeding efforts for HB4 in the United States, where we expect our proprietary drought-tolerant technology to quickly gain a foothold. Incorporating NSIP's computation technologies into the development of HB4 soy and HB4 wheat will also help us better target a wider range of drought-prone growing regions around the world, as well as bring them to market faster. With that, I will now turn the financial portion of the presentation over to our CFO, Enrique Lopez Lecube. Enrique?

Enrique Lopez Lecube -- Chief Financial Officer

Thank you, Federico. Please turn to Slide 12. As Federico mentioned, despite the drought that negatively impacted revenues for the quarter, we experienced success in several other areas as it relates to preparation and the broad commercial launch of our drought-tolerant HB4 technology, including HB4 wheat seed inventory volume target, HB4 wheat out-yielding its historical performance, HB4 soybean planted hectares and scale in Coronel Dorrego. All of these alternative metrics grew substantially during the second quarter of 2021 and uniquely positioned the company in the quarters to come as we expand our geographical reach and addressable market for our disruptive HB4 program.

For added context and for comparison purposes, let me remind you of the seasonal nature of our business since the performance of a significant portion of our total portfolio is tied to planting activities for raw crops in the southern hemisphere. As you can see on this slide, high season begins late in our fiscal first quarter with our strongest performance taking place in the second quarter and the lowest sales level occurring in the third quarter. Severe draught in agricultural areas of Argentina and southern states of Brazil impacted on revenues in the second quarter of fiscal 2021. Total quarterly sales accounted for $47.7 million, compared to solid top-line performance of $57.2 million in the same year-ago quarter, smoothing the growth momentum we had achieved on the last quarter of fiscal-year 2020 and the first quarter of the current fiscal year.

Total comparable revenues for the trailing 12 months increased 8% to $167.8 million, compared to $155.5 million in the same year-ago period. On a positive note, during the second quarter, we increased contributed goods for HB4 wheat and soybean significantly to $3.6 million with a gross margin of approximately 60% compared to $0.7 million in the same year-ago quarter. The value of these contributed goods will be recognized as revenues once the realized inventories are sold as wheat or grain and no longer contributing in the seed multiplication agreement. For the time being, this has the financial benefit for the company as the corresponding gross profit from contributed goods implies that less cash is required for the HB4 inventory buildup process.

Please turn to Slide 13 for a closer look on what impacted sales and profitability during the second quarter. As you can see, during the quarter, drought conditions in some agricultural regions of the market in Argentina and Brazil impacted our revenues, primarily with the Crop Nutrition and Crop Protection segments, which accounted for 55% and 35% of the total decrease, respectively. Crop Protect segment revenues decreased 12% to $26.5 million as dry weather during the quarter shrink the crop protection market size across the affected agricultural areas. Estimates indicated an average lower seed between one and two applications of what would be a difficult spring calendar in normal water conditions, which in turn, had a direct impact on annual demand.

Decreased pest pressure on crops from the dry weather also impacted performance of B2B insecticides, fungicides, and base. Comparable gross margin for the segment, slightly below the previous fiscal-year quarter primarily due to the slightly increased sales of lower-margin B2B adjuvant in Argentina. The seed and integrated products segment had a mixed performance. Seed treatment pack sales in Argentina were lower as a result of a highly successful pre-season summer crop sales campaign of this product prior to the second quarter of fiscal 2021.

However, higher sales of seeds and robust growth of pack sales in South Africa offset the drop in Argentina, leading to $12.1 million in comparable revenues for the quarter, a 4% decrease compared to the previous fiscal year. Comparable gross margin dropped 151 basis points primarily due to a higher mix of lower-margin seed sales during the quarter. For Crop Nutrition, the absence of rain though delayed soy planting, with growers migrating to lower-end technology, which posed a challenge for the value proposition of our micro-bead fertilizer product versus commodity fertilizers. The result, total comparable revenues for the Crop Nutrition segment decreased 37% to $9.2 million.

Lower sales of fertilizers, mainly in Argentina, reflected a sequential fall in the use of installed capacity from 30% to 25% on a trailing 12-month basis. Stand-alone inoculant sales fall in South Africa resulted from the demand shift toward integrated seed treatment packs that we previously mentioned. Comparable gross margin for the segment expanded by 558 basis points to 52.4%, mainly due to higher micro-bead fertilizer profitability explained by temporary cost efficiencies. Overall, gross margin for the business increased slightly year over year from 52.1% to 52.8%.

Now, let's please turn to Slide 14 for a look at how revenues and gross margin per segment impacted the evolution of overall gross profit for the quarter. The slight gross margin expansion, as just described, slightly offset the decrease in revenues with comparable gross profit decreasing 15% year over year and reaching $25.2 million for the fiscal second quarter. Crop Production and Nutrition mainly contributed to the decrease, while seed and integrated product only showed a $0.6 million growth. Please now turn to Slide 15, which breaks down the performance in Bioceres second-quarter adjusted EBITDA and margin.

The operational performance I just described, which impacted comparable gross profit, as well as daily results, driven mainly by Synertech, our micro-beaded fertilizer manufacturing daily, explains most of the 33% decrease in adjusted EBITDA, which was $14.2 million for the second quarter, compared to $21.1 million in the year-ago quarter. IAS 29 adjustments of comparable gross profit was slightly offset by lower expenses. Here are the incremental SG&A as we approach the commercial launch of HB4. Net of one-time transaction expenses and stock-based compensation charges in both quarters, SG&A expenses decreased 5% to $9.6 million for the quarter, following a strict control of our expenses throughout a quarter facing market headwinds.

SG&A includes R&D expenses, of which approximately one-third in the quarter were related to the development of new biofungicides and biostimulant for seed treatments and foliar applications for wheat and soybean crops. The other two-thirds of R&D expenses were related to the development of seeds and traits, including product registrations, as well as the company's pursuit of regulatory approvals of HB4 in countries that import and produce wheat and soybean. Please turn to Slide 16 for a closer look at how this quarter's performance impacted the sales and profitability growth momentum we have been experiencing in the previous quarters. Even with an adverse scenario of flow in the second quarter, our business has proven to be resilient.

Federico mentioned previously, our sales grew 8% when looking at the trailing last 12 months, which smooths down seasonality effect versus that same time period a year ago. As you can see, profitability also showed a slight positive evolution when looking at the trailing last 12 months, increasing from $41.3 million in adjusted EBITDA to $42 million. Even more, in breaking down contributions to the growth in adjusted EBITDA, operational performance delivered almost $7 million in additional comparable gross profit versus the year-ago LTM. This was mainly offset by IAS 29 adjustments to comparable gross profit.

Finally, let's please turn to Slide 17 for an update on our balance sheet. Cash, cash equivalents, and other short-term investments as of December 31, 2020, totaled $36 million, clearly improved liquidity position compared to $16 million as of December 31, 2019. Sequential basis, cash position was down from the previous quarter as we entered the high season of our business in South America and powered the corresponding working capital needs. During the quarter, we also used our improved financial position to deploy capital in achieving our HB4 program soybean acreage target with almost 23,000 hectares planted and also to fulfill payments related to the recent Verdeca acquisition.

Net debt as of December 31, 2020, totaled $128.7 million, which approximately 46% consisted of long-term obligations. A short-term portion of our debt consists of working capital loans that are correlated to our working capital position and the current portion of long-term obligations. Our liquidity position as of December 31, 2020, represented approximately 40% of the short-term portion of debt covering our coming debt payment obligations. Our net debt to LTM adjusted EBITDA as of December 31, 2020, was 3.06 times compared to 2.31 times as of December 31, 2019.

Increasing the debt ratio compared to the prior fiscal year was primarily due to the already mentioned increase in total net debt and uses of cash as we invest in ramping up inventories of HB4 soybean and wheat. During the fiscal second quarter, we significantly lowered our financing costs as a result of our continuous initiatives to gain financial flexibility through debt profile and maturities improvement, an area of which we will continue to work and identify opportunities in the financial markets. In conclusion, the solid cash position we maintain allowed us to support working capital needs and complete significant transactions, such the acquisition of Verdeca's 50% stake, which gives us now full ownership of the HB4 soy technology. And with the acquisition behind us, we are now focused on fast-tracking our HB4 inventory yields as we prepare for the commercial launch in the quarters to come.

We look forward to sharing more on our developing story at soon-to-be announced investor conferences in the coming months. This concludes our presentation for today's call. Operator, please open the line for the Q&A portion of the conference call.

Questions & Answers:

Operator

[Operator instructions] You have a question from Ben Klieve.

Ben Klieve -- National Securities Corporation -- Analyst

All right. Thanks for taking my questions. First, I have a couple on HB4 wheat. So first of all, congratulations on some really impressive data coming out of that program.

My question to you is, do you have the sense that your farmer customers are going to be willing to purchase seed once that Brazilian approval comes? Or do you believe that these farmers are looking for additional certainty that there will be buyers for the grain after harvest before they commit to purchasing seed from you?

Federico Trucco -- Chief Executive Officer

Ben, this is Federico speaking. And thank you for your question. Obviously, we believe that farmers will have more confidence once the Brazilian approval is in place and our conventional commercial channels become available for HB4 wheat. In the meantime, we're operating under the HB4 program, which is the identity-preserved infrastructure we put in place to basically take care of that situation with farmers.

And this is something we can do today because everything that is produced is needed for the next cycle of seed multiplication. So we become customers of all that grain that turns into seed as we are ramping up the HB4 process. Now, eventually, if HB4 is not approved in Brazil, that will represent a risk and an issue that we probably need to take care ourselves and not leave that in the hands of farmers. No, we don't want farmers to purchase seed and produce grain that cannot be commercialized afterwards, and that's where we have taken a very prudent approach, no?

Ben Klieve -- National Securities Corporation -- Analyst

Got it. OK. Thank you. And then I guess one other question on the regulatory front around HB4 wheat.

I mean, I know it's impossible to lay out a timeline, but do you have -- is there any sense that you can -- or any precedent that you can point to that suggests that you're looking for approval to come here in the next couple of quarters? Is there anything that's been published by any regulatory authorities that would suggest something like that? Or is it really just unknown?

Federico Trucco -- Chief Executive Officer

Look, I think, obviously, having had the public hearing, which we referred to during the presentation on the 22nd of October, was kind of a final step in the regulatory process to be able to be in a position to obtain an approval. Since that public hearing, we have received no new inquiries from CTNBio, that is regulatory agency that deals with the seeds in Brazil. Bear in mind, obviously, that December and January are not active months for the public administration in Brazil. So there might be a question coming up after Brazilian carnival, we believe.

But in any instance, our working assumption is that the import approval is likely to be in place before the next cropping season. So we need to make decisions by May to be able to fully roll out our HB4 wheat inventories, and we think that it is possible that by that month, we will have a final answer from the Brazilian regulators.

Ben Klieve -- National Securities Corporation -- Analyst

Got it. Got it. OK. Very good.

We'll look forward to that. Over on the HB4 soybean side, I have a couple of questions on the NSIP collaboration. Are you looking for them to help you secure commercial partners for an eventual launch here? Or are you looking at NSIP to really just kind of help you advance your breeding program in new geographies? It seemed like the latter, but I just wanted to see if you had any sense that they would really help you identify commercial partners. Or if that was more on you?

Federico Trucco -- Chief Executive Officer

No. You're right. That is the latter. It's more about doing advanced breeding so that we can have the right materials faster for the geographies in which we believe HB4 can be a major contributor to yield.

So we're focalizing ourselves in, for instance, the 10 million acres of the Dakotas, which is an area that is usually affected by water availability. There are also areas in the southern U.S., where there exists a very interesting market for HB4. So we want to use computational science to better predict the performance of varieties and fast-track the breeding process. Now, from a commercial perspective, we're actively looking to structure relationships, initially probably equally to what we do in Argentina with the identity-preserved structure so that we are ramping up inventories and engaging more directly with farmers.

But eventually, with a more business-as-usual approach in seed distribution using the existing players in the U.S., no? And that you will see coming up some announcements regarding this in the next quarters.

Ben Klieve -- National Securities Corporation -- Analyst

Got it. Got it. Regarding the fast track of the development timeline, do you think there's going to be any meaningful field trials in the United States starting in a few months? Or is that going to be likely an event for 2022 or maybe thereafter?

Federico Trucco -- Chief Executive Officer

No. We will be doing a lot of trialing in the U.S. in the coming season. So we have been doing trialing already with some of the materials.

Remember that all our off-season production is done in the U.S. probably in a single location or a couple of locations. Because there, the emphasis is on scaling up seed and the quality of a seed and not so much evaluating the technology in different geographies. So that is something we're starting to do more aggressively today in the coming season.

And there is where we have now the capability to use NSIP's computational breeding and predictive targeting platform to be more efficient and essentially reduce the time to market. I mean, in the past, you will have to do extensive trialing before you launch a variety. I think there's a possibility to weigh in the use of artificial intelligence and machine learning tools to shorten that process.

Ben Klieve -- National Securities Corporation -- Analyst

Got it. And then I guess last question on this is regarding locations then for those trials. I think you were ramping up your inventory last year, and I believe Arkansas. It sounds like you're looking at the Dakotas.

Are those kind of the markets you want to -- you're probably going to be focused on first? Or are there additional geographies that you're maybe going to be trialing this year?

Federico Trucco -- Chief Executive Officer

So on the trialing side, we'll prioritize the Dakotas because we believe that is where the most immediate opportunity lies for HB4, and it's meaningful enough from an acreage perspective. For the production aspect of things, we will continue to do that in our Arkansas, where the maturity groups that we use in Argentina will probably grow better. If you remember the Dakotas, we usually do short-term maturity groups like two and below. And that's where we are slightly behind.

What we plant here in South America is three and above. And for that, we need to go to some more southern locations in the U.S. for the seed multiplication. If we were to do seed multiplication specifically targeted the U.S.

market, then the Dakotas will become more important.

Ben Klieve -- National Securities Corporation -- Analyst

Gotcha, gotcha. Well, thanks for taking my questions. I think that's it for me. Best of luck with all these initiatives, and I'll jump back in the queue.

Thanks.

Operator

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

Sebastian Azumendi -- 5D+ Capital -- Analyst

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

Federico Trucco -- Chief Executive Officer

Sebastian, this is Federico again, and thank you for your call. I'll answer the second question, and then I'll pass it on to Enrique for the first question. Essentially, I think that the first thing I need to say is that the 1.8 million shares that we gave Arcadia for the -- in consideration for the Verdeca acquisition are locked up for six months. So these are not shares that can become immediately tradeable.

The second thing I will say that Arcadia probably is today well-capitalized. They have recently done an equity raise of significance for them. So I think that their willingness to sell or divest their equity in Bioceres will not depend on their near-term cash needs but on sort of their perception of value. And there is where I feel that we continue to be aligned and might have a supporter of the Bioceres story in Arcadia.

Now, having said this, I believe that that is a position of significant size that might be attractive to non-holders that want to participate in the Bioceres story. So if eventually, those shares become available, I don't anticipate a significant problem in sort of the daily trading of our stock today. I don't know, Enrique, if you want to comment further on this or tackle the second question.

Enrique Lopez Lecube -- Chief Financial Officer

No, I think that what you said about the second piece of Sebastian's question is accurate, Federico. So on your question about the uses of cash during the quarter, you know that our main uses of cash, as we have been communicating, are around the commercial launch of HB4. So during the quarter, we invested cash and continue to build up inventories of HB4 wheat and soy. That was a significant portion of the use of cash during the quarter.

And the second one in terms of importance was the upfront payment related to the Verdeca acquisition for us to consolidate 100% ownership in the HB4 soy vehicle that we have. So those two initiatives were something that we anticipated in terms of use of cash. And then there's a seasonal nature in the buildup of inventories and working capital in general as we entered into high season in the two most important markets for us, Brazil and Argentina. So those were the main three streams in which we invested cash during the quarter, Sebastian.

Sebastian Azumendi -- 5D+ Capital -- Analyst

Got it. Thank you for the answer. I have a final question regarding the HB4. If you can give -- if you can talk more about the 42% yield for HB4 wheat you experienced during the quarter and how should we think about that at much larger scale.

Federico Trucco -- Chief Executive Officer

Thanks for the question, Sebastian. I think that the 42% improvement in the lower-yielding environment was unanticipated. If you look at everything we've reported until today or prior to this call, we were indicating a 19% yield benefit on average in environments of less than 2.5 tons. Here, we have thousands of hectares, I think, close to 2,000 hectares where yields were less than 3 tons.

And across all those hectares, the average was 42%. So that's more than twice what we obtained or what we had from our historical data. I think there's a combination of factors that play into this. One is obviously the good genetics that we have in wheat compared to sort of the historical data where most of the data was produced with the original event and not really the sort of the lead background that we're currently using.

And then the extreme situation, this was a very extreme drought in the northern Argentina region where we had maybe a third of these hectares of low-yielding environment. The general drop was 47%. That's not usual, I mean, 47% to the historical average. So it was a perfect year to showcase the technology, and we were basically -- we found ourselves with this amazing result.

Now, I can guarantee that farmers that tried HB4 wheat and saw this outcome will probably not use anything else but HB4 wheat in the future. This is too meaningful from a yield advantage perspective. So that should give us sort of the demand required to make this a game-changer, if you will, with wheat seed business. So we are very bullish given the data that we have given sort of the magnitude -- the number of hectares that -- where this number comes from.

And hopefully, with the approvals in place, we can make this a reality for a much bigger group of farmers.

Sebastian Azumendi -- 5D+ Capital -- Analyst

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

Enrique Lopez Lecube -- Chief Financial Officer

Thanks for the question, Sebastian. As I explained previously, one of our main lines of investment is around the HB4 commercial launch. So as we invest in initiatives to ramp up inventories and also the investment in the Verdeca stake, which we believe is going to be highly accretive for our shareholders in the future, those two initiatives don't bring in revenues and profitability into the P&L. So it was something that we expected that the net debt or the leverage ratio, I should say, would go up as we invested in these initiatives.

Also, we are in the high season now of our base main business. So that is also requiring cash that is going to return to the balance sheet once we get out of the high season. So as we move forward, we believe that we should be operating within the range of what you have seen in the past. And probably slightly higher than the previous quarters as we invest in HB4 and come to commercial launch.

But we will not anticipate something meaningful changing on the leverage ratio of the company in the coming months.

Sebastian Azumendi -- 5D+ Capital -- Analyst

Thank you so much.

Operator

[Operator instructions] Your next question is from Steven Ralston with Zacks.

Steven Ralston -- Zacks -- Analyst

Good morning.

Federico Trucco -- Chief Executive Officer

Good morning, Steve.

Steven Ralston -- Zacks -- Analyst

Very interesting information about your seed effort in the HB4 area, also with really being able to test it in drought conditions. But if I could just turn to the Crop Protection and Crop Nutrition business, which was impacted by lower demand due to the drought conditions. Could you talk about the dynamics of the reduction of that demand for both, especially in the micro-beaded fertilizer area?

Federico Trucco -- Chief Executive Officer

Sure, Steve. So the first thing to keep in mind is that our portfolio is heavily geared toward the planting season. And in those two businesses, particularly in the Crop Nutrition business, we are not as geographically diversified as we are in our biologicals, for instance, where we sell in like 25 different countries. And then these extreme weather events tend to be less impactful because it's not frequent that you will have the same phenomenon in all geographies.

Now, in the Crop Nutrition space, we are highly dependent on Argentina, particularly in the micro-beaded fertilizers. Weather, it's a very important factor. We had almost no rains until late December. That's very close to the end of the quarter, and that basically hit us with the micro-beaded fertilizer sales that we were expecting.

Now, we also think that there is a need for a new strategy in that particular product line. This is a product that we introduced into the market some years ago. And when we did so, we prioritized in our initial strategy the positioning of this solution as a high-value solution, like everything else we have in the portfolio. I think we do see that we probably achieved everything we could achieve with that strategy, and we are now shifting gears to have a more volume-driven approach, taking advantage of the installed capacity that we have to take care of higher volumes.

We are, as I tell you before, slightly below 30% utilization of our manufacturing capability. So if we were to ramp that up significantly there should be cost synergies there that would allow us to be more competitive in pricing. And that is something we're actively discussing with our partners in that business, this and growth. In Crop Production business, if there is no rain, probably that's -- don't evolve as dramatically as when there are wetter condition.

So there might have been one or two sprays that were missed, and that directly affects our adjuvant business. I don't know, Enrique, if you want to comment anything else on that.

Enrique Lopez Lecube -- Chief Financial Officer

Yes. I mean, so basically, what Federico said on fertilizers, by getting into higher volumes strategy, that should allow us to dilute some fixed costs from the manufacturing facility and obviously, allow us to improve also sourcing of raw materials. So all of that should translate into a better pricing proposition to the farmer without eroding profitability of the product. So that is an initiative that we will be taking.

And then on what Federico said about adjuvants and we referred to during the presentation, farmers skip at least one or two sprayings in the fields. And obviously, that translates into less demand of adjuvants. But I think that apart from these two comments, what Federico expressed is what mainly explains the dynamics on the two segments.

Steven Ralston -- Zacks -- Analyst

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

Enrique Lopez Lecube -- Chief Financial Officer

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

Steven Ralston -- Zacks -- Analyst

Thank you very much for taking my questions.

Enrique Lopez Lecube -- Chief Financial Officer

Thank you.

Operator

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

Matias Cremaschi -- Delta Asset Management -- Analyst

Thanks for the call. Glad to talk to you. Following up a previous question regarding HB4 wheat. I would like to -- if you can provide some color on the -- how are evolving conversations with -- specifically with the buy side of the equation with potential buyers and crushers, how are that conversations are evolving.

Federico Trucco -- Chief Executive Officer

It's great to have you on the call, and thank you for the question. We are actively engaged with all stakeholders, particularly the milling industry, not only in Argentina but in Brazil to provide comfort in terms of this new product. I think that we have been making very good progress compared to where we started. Initially, there was a reaction of concern being the first GMO wheat ever.

But as they see the sort of the farmer appetite and in many ways, also on the environmental side of the equation, I think that we are gaining traction with them and probably equally to soy. We might be able to announce in the coming quarters strategic relationships with different processors to provide that commercial comfort that would enable the full rollout of our HB4 wheat plants. So we are doing this not only in Argentina, as I indicated before, but also in Brazil so that -- most of our customers in domestic market and international markets are taken into account.

Matias Cremaschi -- Delta Asset Management -- Analyst

Thank you.

Operator

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

Federico Trucco -- Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Max Goya -- Investor Relations

Federico Trucco -- Chief Executive Officer

Enrique Lopez Lecube -- Chief Financial Officer

Ben Klieve -- National Securities Corporation -- Analyst

Sebastian Azumendi -- 5D+ Capital -- Analyst

Steven Ralston -- Zacks -- Analyst

Matias Cremaschi -- Delta Asset Management -- Analyst

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.