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Enrique López Lecube

Good morning and thank you, Let's dive into the financials. As Federico mentioned, our total revenues for the quarter were $106 million which is no doubt disappointing but requires some more detail on the context behind the numbers. The first thing I want to point out is that the soft performance in the quarter as well as the first half of the fiscal year was driven entirely by the sales performance of our business in Argentina.
Argentina is a key market for us, and it is decisive for the first half of the fiscal year due to the high season for summer crops. So this season was particularly challenging in Argentina with lower commodity prices and mild to weak yield expectations driving an expected reduction of more than $200 per hectare in farmers' income from soybeans and corn compared to the previous season.
This decline in expected income undermined farmers' purchasing capacity and also coupled with an abundant supply of agricultural inputs generated price pressure on our inputs. Competition between suppliers increased sharply. Estimates indicate that on average, about half of the $200 per hectare drop in farmer income was passed on to a input suppliers, shrinking the overall I input market.
In this context, our sales in Argentina dropped in line with the market contraction and entirely explained the drop in the quarter as well as in the first half of the fiscal year, which pretty much stands the summer crop season in the country. There are 3 aspects of this soft performance that I believe are worth keeping in mind.
First, that the largest revenue decline in Argentina came from lower margin products, and as a result, our overall gross margin expanded from 37% to 42% during the quarter, with similar dynamics for the first half.
Second, that despite the overall market contraction in Argentina, our key product families roughly maintain market share or in some cases, even experienced an expansion of our market share in the country.
Non-core products for the most part decreased in line with market performance and finally, Although not at a scale that will help us offset headwinds in the high season for the Argentine market, sales outside of Argentina grew during the first half, which is a good sign of our geographic diversification strategy, paying out in primary markets like Brazil and the US, but also in secondary markets like Mexico, the Andean region, or Uruguay.
So what I would like to point out is that without losing perspective of the magnitude of the impact that the Argentine market setback took on our quarterly and first half financial results, it is worth noting that benefits from accomplishments in the first half of the fiscal year, such as are pivoting in the business, geographic diversification, and stable to slightly increasing market share in key products. Will most likely outlive headwinds in Argentina that we see as temporary for the most part.
In the coming slides, I will explain how these market dynamics affected each business segment. So let's please move on to the next slide.
I think it's like 5. So, let's now look in more detail at what happened to crop production.
Here we saw the largest decline in revenues in absolute terms, with sales falling from $71 million to a little bit above $55 million in the quarter, primarily explained by the performance of Argentina.
Although during our last earnings call, we had discussed and mentioned early signs of recovery in the crop protection business in Argentina. The dynamics for the 2nd quarter continued the trends we observed in the 1st quarter of the fiscal year, which is why I believe it makes sense to address the performance of the 1st half as a whole.
Year-to-date, overall crop protection revenues are down 20%. The decline can be entirely attributed to Argentina, where as shown in the graph, revenues dropped by nearly $30 million or 29%, primarily driven by lower sales of non-core and third-party products.
This performance aligns with the overall market trend in Argentina, where market research firms estimate a 27% contraction in the CP sector during this period. There are several factors that contributed to this market downturn.
First, and as a common denominator to the Argentine market across almost every product category, tighter farm economics undoubtedly led to the decrease of preventive field management strategies to favor a more reactive and just in time purchasing behavior from farmers. This is particularly the case in crop protection products.
Second, that softer demand for CP products due to tight on farm economics and lower pest pressure combined with an abundant supply as distributors had stocked up last year in anticipation of the evaluation of the Argentine peso under the new government. Which in turn led to increased price competition.
In summary, both overall market prices and volumes declined for CP in Argentina. Despite these significant challenges, we successfully maintained sales of our core high margin adjuvants offering in Argentina, which in a shrinking market signals market share expansion and is encouraging. On a similar note, sales outside of Argentina grew during the first half, primarily driven by our core bio protection portfolio.
Let's move on to the next slide to take a closer look at performance for crop nutrition. Sales in crop nutrition were $28 million in the second quarter. In this case, as in CP, the decline is primarily attributed to Argentina and more specifically to micro fertilizer sales.
As the revenue bridges in the slideshow, the contribution to the decline in revenues from Argentina is almost coincidental with the contribution to the declining revenues from micro fertilizers when looking at product level variations.
Several factors contribute to the decline in microbead fertilizer sales in Argentina. First, a 16% year over year reduction in corn acreage, which is the primary target crop for phosphate fertilization on a per acre or hectare basis.
Probably tight farm economics were even more decisive than acreage in shaping market behavior as farmers either decided to forego fertilization altogether or in some cases opted for lower cost commodity fertilizers. Our estimates indicate that the overall specialty fertilizer market dropped 40% for the entire 2024 calendar year, which indicates that broadly speaking, the drop in micro fertilizers. Did not come at the expense of the leading market share position we have gained in specialty fertilizers, but rather from the overall market contraction.
On a positive note, despite the soft performance, sales outside of Argentina, as well as from other crop nutrition products grew during the first half, particularly driven by inoculants. Similar to what I described for CP, it seems reasonable to assume that the benefits from our international expansion will most likely be more permanent than the transitory is set back in fertilizers in Argentina.
Let's please now move on to the following slide to review performance for Syria integrated products.
This this segment is slightly different than the other two because the main revenue decline here is an anticipated result from a purposeful strategic decision. The decrease is almost entirely due to lower downstream grain sales in line with the strategic changes we are introducing to our HP4 strategy and which Federico will go into further detail later on in the presentation.
As we'll see in the next slide that this decline has had very little impact on gross profit for the segment due to the low margin nature of sales from H4 grain inventory divestments. That said, within this segment, the part of the business that did expand was related to Cri solutions.
This growth was primarily driven by soybean-based treatments which benefited from the increase in soy soybean increase in Argentina. Once again, although not meaningful enough to turn around challenges for our Argentine business, I do think that growing sales of high margin packs in a context of headwinds is a demonstration.
Of the value of portfolio diversification aside from the geographic diversification. Let's please now go to slide 8 to review gross profit evolution.
Gross profit for the quarter to $45 million. Like I mentioned at the beginning of my presentation, it is important to point out that gross margin expansion from 37% last year to 42% this quarter meaningfully buffered the softer top line performance and led to a 12% decrease in contrast to the 24% decrease in revenues.
As shown in the slide, gross profit performance varied meaningfully when looking at different segments. Crop protection and micro fertilizers were the main drivers for the decline in overall gross profit, while enhanced product needs in seed and integrated products and high margin in opulent related sales partially offset the drop.
Let's take a closer look at the individual segments. In crop protection, gross profit came in at $20 million a 22% decline, which aligns closely with the revenue performance.
Well, we did see an increase in sales of high margin adjuvants. This was partially offset by a decline in bio protection product sales in the US during the quarter, which had had a strong first quarter.
Overall, gross margin for crop protection remains steady at 37% during the quarter. In Syria integrated products, gross profit declined by 15%. This drop is smaller than the drop in revenues because as mentioned earlier, the reduction in HP4 grain inventory sales had a minimal impact on profitability.
Consequently, segment growth margin improved to 37% from 31% last year. This improvement is a result of our deliberate focus on preserving working capital and prioritizing higher margin products.
Particularly in HP 4 as we pivot towards a more capital efficient and royalty based model as Federico will discuss.
Lastly, in the corporate nutrition segment, gross profit increased by 6% despite the decreasing in revenues. This growth was driven by strong performance in high margin inoculants, which more than offset the decline in micro fertilizers profit contribution. As a result, the segment's cross margin expanded significantly to 57% in the second quarter of this year.
Let's please turn to slide 9 to take a look at adjusted for the 2nd quarter. Adjusted for the quarter reached $15.4 million compared to roughly $24 million in the year ago quarter. The decline as shown, was primarily driven by a reduction in gross profit within the crop protection segment which we've already discussed in detail.
Another significant factor contributing to the decline in EBIDTA was the performance of our joint ventures, particularly Syrtec, our main joint venture in the micro fertilizer space. Syrtec's results were negatively impacted by lower product demand in recent quarters, which weighed on the overall performance of our JV equity accounting.
On the cost side, we also experienced an increase in SGNA which further contributed to the decline in IIDA. A key driver of this increase was the higher temporary expenses in Argentina compared to the same period last year. These expenses added pressure to our cost base and include factors like higher dollar denominated costs, given the lower rate of currency depreciation in Argentina.
Also, temporary import taxes that were in place during the quarter that have already been lifted. And an increase in the impairment of re receivables which was done mainly to more accurately reflect current market conditions in Argentina.
So to summarize, the combination of lower gross profit in crop protection, weaker JB performance, and slightly higher opE in Argentina led to a decline in adjusted Vida that I just addressed.
Finally, turning to the next slide, let's look at financial deposition and review some balance sheet highlights. Total net debt by quarter stood at $238 million sequentially increasing by roughly $26 million from the first quarter.
Given the lower IBA, our leverage ratio now stands at 3.3.3 turns above the threshold of 3 turns that we have been keeping as a target. In light of PNL headwinds affecting profitability, during the quarter, we took precautionary measures by implementing a tighter inventory management policy with a more just in time approach.
Notably, our inventory levels at quarter end were 18% lower than last year, despite lower revenues that could have translated into higher inventories by season end if measures had not been taken. This aligns with our strategy of reducing working capital exposure to focus on enhancing cash generation and improving capital allocation to that regard.
Now that the high season in a primary market like Argentina is behind during the next two quarters, we will increase our focus on improving accounts rece's performance.
Despite this quarter's results coming in below what we expected, anticipating a likely drop in annual results, we remain optimistic about our mid- and long-term prospects. We are driven by the underlying value that a unique portfolio of technology like ours provides and the value creation that that portfolio brings to end users of our products.
We are also cognizant that successfully navigating this period of market volatility requires a strong focus on capital allocation, driving cost efficiencies to safeguard profitability, and transitioning towards a more asset-like business model. The strategic repositioning of our seed business and tighter inventory management are initial steps to address short term challenges on the cost side but are also signs. Of our intention to cement the mid to long-term prospects for the company. In the near future, we will continue to explore additional opportunities to enhance profitability and cash flows, ensuring we're well positioned to capitalize on the groundwork we've already made to support our global expansion, but also to benefit from the recovery of the Argentine market when that takes place.
I finalize my remarks, so I'll turn the floor over to Frederico now. Okay.

Federico Trucco

Thanks Kike and please turn now to slide number 11. This slide provides an overview of our integrated seed business which today goes all the way from development to commercializing seeds and identity preserved grain.
While this model may have been the only viable model to realistically become what we are today, one of only 4 commercial GMO trade providers in soy and the only one in wheat, we are certainly not the best at each stage, and this affects our ability to quickly and profitably scale our technologies in a more predictable manner.
Consequently, and please now turn to the next slide, we have decided to sharpen our focus on what we do best, which is sourcing cutting-edge science and cost effectively developing patented seed traits until commercial approval. For this purpose, we'll assign trade management rights to third parties in geographies where we are pursuing a broad licensing strategy such as for HP4 within the United States.
Trade managers will be responsible for breeding and commercial agreements in these geographies, as well as technology stewardship and stakeholder management, all of which are resource demanding and require country-specific adjustments.
We'll continue to collaborate with global seed companies in developing high-performing varieties, often with some aspect of exclusivity, which may be trade and or geography dependent, but we'll leave the breeding and value capture work to them.
And finally, we will enable some of our most important farmer customers to become regional seed developers, transferring the operational management of our current portfolio varieties and contracts as well as well as helping them develop more site-specific products for their regions as they scale over time.
And we have already put this new strategy into action. Please turn to the next slide. Aside from transitioning our C channel's operations to some of our most important customers, we have this week executed an important agreement with GDM for the development of new soybean solutions with exclusive rights outside the drought tolerant space.
Under this agreement, GDM will use Vertaca's patented platform to develop and market a new generation of soybean varieties with superior agronomic performance. This opportunity will leverage on the collaboration that has already started several years ago and will have a near term opportunity on improved with management technology as I will exemplify it in a minute.
We have also agreed to redefining the scope of our rejoint venture with Florimon exiting conventional breeding operations in Argentina and Australia, while directly licensing our H4 weed technology to partners outside of Latin America.
We believe that by refining our strategy in this way we'll be able to accomplish more predictable and attractive growth while limiting the capital exposure to this effort as we are making cash generation a top priority.
Now turn to the next slide. During our last call, we discussed the opportunity to explore new monetization approaches for our existing technologies. This is what we are currently doing with our two patented GMO events outside the drought tolerant space.
Here we can see how we can bioactivate Vertica soybean event to achieve improved performance after treatment with a broadly used glutamate synthetase inhibitor, as we controlled technology that is quickly becoming an attractive alternative to farmers and where new products are being registered that allow for significant reductions in per hector load, combining cost effectiveness with improved environmental profile.
We believe this alternative product strategy for our already approved events will help us complement and diversify our current trade offering as we see the attractiveness of this opportunity to multiple partners under our revised seed strategy.
Finally, but no less important, we are very happy to announce the appointment of Mil Marinoff as our Chief Commercial Officer.
Please turn to the next slide. As I indicated in my initial remarks, Milan's past experience in key commercial development roles in Vallaro until its acquisition by Syngenta, and then Syngenta, as well as his track record with us since joining the Proform team last year, positions him uniquely to help us accelerate profitable growth. As Chief Commercial Officer, Mille will oversee sales, marketing, business development, and portfolio management functions across the organization.
Mille will join us in future earnings calls, and we expect him to actively contribute to the understanding of our commercial performance and growth strategies. Let me take this opportunity to congratulate Mil on this appointment, and with that, I think we can now open up the call for Q&A operator.

Question and Answer Session

Operator

Thank you very much. [Operator Instructions]. Our first question comes from Kristen Owen of Oppenheimer.

Good morning. Thank you for taking the question. Plenty of questions that we could ask to unpack with the announcement this morning, but I want to start with maybe just at a high level with the transition in the seed business, turning over some of the high working capital parts of the business, but maybe giving up a little bit of control on timing. Just maybe help us understand what the economics of these partnerships would look like, say a year from now, 3 years from now, 5 years from now so that we can understand how this will progress over time? and I'll start there.

Federico Trucco

Hi Kristen, thanks for joining the call. This is Federico. Look, some of these things, obviously we have already started, in particular those that have to do with transitioning our existing, channels, the semis and H4 channels to some of our key customers, and that I think will more immediately affect our cost structure. So I think we will be. Having a benefit there as we scale more effectively with them and collect royalties that are generated by these partnerships.
This is likely to give us more significant results in the next 2 to 3 years. But it is in line in part with what we were planning to do ourselves initially for the current year and after that. Now, I think the most important part of the partnerships, announcement has to do with the ability to engage with trade managers in other geographies and also the GM GDM announcement that we've made today. We believe that it'll be better for our partners to sort of address this directly themselves, and we're planning to do that shortly, and have probably either a joint press release or have them provide their overview in terms of market opportunity and timing so that we can provide that incremental layer of information.
And it doesn't just reflect on what we think ourselves, but in terms of these new alternative monetization strategies, I think what you have to keep in mind is that the opportunities we're seeking are broader than what we've originally pursued with the drought tolerance approach.

Okay, that that's helpful. My follow up question relates to the degree to which this will influence the balance sheet, sort of the impact on the working capital of you and your overall leverage. I mean, you noted some of the inventory take down in the quarter even with the sales decline, just how we think about the balance sheet impact of this transition?

Enrique López Lecube

Hi Kristen, this is Enrique. Thanks for joining us and thanks for the question. I think it is a good point that you're making because the strategic pivoting has a dual effect like Federico said, it's not only broadening the scope of the opportunity, going to sort of a wider, acreage, to others, but it also has implications on the cost side. On the spending side, but also on the balance sheet side, so on working capital. So, I think that this, strategic decision is threefold. Is, pose to sort of maximize penetration of our GMO technology.
And the risk that penetration by using established third parties but also allow us to free up working capital that was tied in this business and allocate that elsewhere as we have meaningful opportunities to ramp up our biological business globally.
So the impact of that, what you will see in the coming quarters is a reduction on the SGNA that we allocate to the seed business. And probably with a little bit more patience, you will start seeing cash come back for our balance sheet from the divestment of the grain inventories. Bear in mind that this past which season was the last in which we made a significant effort with the identity preserve model. And that has spilled grain inventories that we will continue to invest in the remaining half of this fiscal year and probably will also spill a bit into the first and probably 2nd quarter of the next year, but there will be cash turning back to the balance sheet from this changing strategy in the next 3 to 4 quarters and also a cost reduction on the SGNA.

Last question for me, if I may, the freeing up of that SGNA or even to an extent maybe even some of the R&D that's been associated with HB 4 and some of these other traits, I mean if we're thinking who does bioceries view themselves in this market, are you intending to develop more traits? This is the first time we've kind of heard about some of these other traits in a long time. Is this capital that's being reallocated towards building up the biological platform? How do you redefine yourselves in this market given this transition? That's my last question. Thank you.

Federico Trucco

Yeah, that's a great point. I think obviously we are putting a strong focus on the biological side of the business where we have low-hanging fruits and the ability to quickly bring technologies that are not as expensive to develop as new GMO events. That is not to say we're not going to pursue incremental technologies in seeds, but we believe that some of that incrementality is by better partnering with others, particularly on the gene editing space.
So, the good thing about the GMO platform that we have is that it not only provides traits like drought tolerance or improve with management opportunities, but also it provides a backbone. A patented backbone for the introduction of multiple gene editing improvements that might be a third-party improvements, but that can go to market in a way that is patent protected by partnering with us. And I think that will be kind of the key strategy around new products in seeds. So, it's not doing the research ourselves, it's not doing the discovery ourselves. It's using what we already have. To bring these innovations in a patent protected way.

Operator

Our next question comes from the line of Steve Byrne from Bank of America. Steve, please go ahead.

Yes, your partnership that you announced with GDM, provokes me to want to drill into your R&D platform just a bit. I wanted to ask you about a couple of challenges in in key South American crop crops that I'm curious whether you might have.
An idea or something in development either in the biologicals or in a trait development and seeds that that could be a solution. The first one would be target spot in soybeans, particularly in Brazil, which I'm sure, your partner GDM would welcome some kind of a genetic or biological solution to that problem?

Federico Trucco

Hi Steve, thanks for joining the call. Look, I think there are interesting leads to TRY to deal with that problem. Part of them come from the gene editing space, some of which might already be within the pipeline of companies like GDM, and I think what we're planning to do is combine forces.
To make them not only viable or market ready but also combine them with the other technologies that we have in our portfolio, be them at the see treatment level from our biological suffering. Remember we have a very complete.
We can almost substitute every chemical AI in seed treatments with biological alternatives, but also with the GMO platform on drought tolerance and weed management that can be at times an effective way to patent protect some of these innovations as well. So, we are likely to do a joint announcement with Don Mario, with GDM sorry, to explain this in greater detail and address that specific opportunity that you're mentioning in Brazil, which is becoming more relevant every day, no.

Yeah, very good. The other one would be corn stunt, in Argentina and maybe a little more broadly. Do you, do you have a view on the global regulatory outlook for GMO seeds or gene edited seeds that could be helpful to you down the road and particularly in these crops that are that are exported out of South America?

Federico Trucco

Yeah, look, in corn we're not actively participating today, so it's a space that we've decided to leave to others that are better prepared. I think obviously from a regulatory viewpoint we have created an infrastructure, a network of equal-minded companies with whom we can collaborate to make regulatory clearances cost effective. I think if you look at what we have done, one of our claims is that we were able to deregulate globally GMO events at a fraction of the cost that industry leaders have historically alluded to, no, and that has in a way made technology, more viable in terms of what type of returns are expected to make a go no go decision. For many of these technologies that might not be global but might be country-specific or crops specific.
So, I think in that front we're obviously looking to participate, leverage what we've been able to put together, in terms of regulatory capabilities and then in corn specifically, it's not a crop that we are addressing ourselves, but I think, and others are actively working on, you want to add something there?

Enrique López Lecube

Yeah. Hi Steve, thanks for joining. Good to have you on the call. And I do think that from a crop perspective we are profiting from corn. On the biological front with seed treatments where we are market leaders and that has built a close relationship with seed compounds in the corn space. So, I think that that exposure that Federico is alluding to will probably come from that end, but we still benefit and profit from the technologies that we have on the biological front for corn.

Yeah Very good, helpful, thank you.

Operator

The first question comes from the line of Ben Klieve of Lake Street Capital Markets.

All right, thanks for taking my questions, Enrique, I'm hoping you can help us put a little finer point on the expectations in coming quarters on OpEx related to the kind of dynamics within, especially the seed business. Can you talk about the expectations of cost savings that you're going to be able to get here, in coming quarters out of the kind of realignment that you're talking about today?

Enrique López Lecube

Hi Ben, thanks for joining the call and for the question. And look, I think that this is probably a broader effort. It's not only focused on seed has a structural aspect that is essentially a shift in strategy. I don't know if this is going to be meaningful enough to be only allocated to the seed business, but there's a structural decision there to downsize teams.
Aside of that. We're also going to take a closer look at our cost structure in other parts of the business, because sales have not delivered, what we needed. So that means that we need to sort of like, understand if there's a downscale that we need to make there to adjust to the reality and to navigate successfully, this time of volatility until it fades out and we can go back to sort of like growth.
Having said that, I do think and expect that we can probably have a meaningful reduction of OECs on a quarterly basis before year end and have that be a contributor to EBITDA that we already foresee is not going to be at the levels of last year considering what we lost in this first half due to what I explained in the Argentine market. So, we know that there's a part that is not going to be recovered. We do think that the dynamics for the Fourth quarter for the most part are highly independent from what happened until now.
So, a combination of prospects for Q4 that might be untied from the reality that we had in this first half, plus a contribution in sort of being more prudent on the OEC side should allow us to sort of like TRY to reach a stable level of EBITDA margin. Also bear in mind that in the 3rd quarter, we will have sort of like an unfair comparison to the last year. So that's in our mind, and that's the main focus when dealing with OECs, and with the 4th quarter.

Okay, thank you, Actually, the Q3 year over year dynamic is one of the questions I had also here, given the inoculate business that you cited here in the first half, it would seem to me that some businesses come in from the Syngenta agreement, year-to-date.
Can you talk about the kind of level of seasonality you expect coming out of Syngenta for the first half versus the second half of this fiscal year, and then just remind us all of the level of kind of that upfront. Benefit that you received in the 3rd quarter of last year?

Enrique López Lecube

Yeah, sure. So, like you pointed out last year we had an accrual of $15 million in Q4, roughly $15 million in Q3, and that will not be there this year. And actually, Q3 is not a high season for the Innoia business, so I do think that the Q3 comparison will be a tough one.
And then by Q4, I think that it will depend mostly on the pace coming from Syngenta, particularly for the Brazilian business. So, we don't have a lot of Pibility on that, and actually I think that for the full annual year, we probably have locked in a big portion of what we would get from Syngenta, independently that then it will be sort of like, to be seen how the Brazilian season unfolds and what that does to Q4. But that's why then I think that we will be focusing on the rest of the things that we need to do in Q4, mostly. And also starting in Q3, the foliar season, in the US, that's important to us, the beginning of the summer crop season for the Brazilian market, the comeback or the use of phosphate fertilizers for the wheat season, in Argentina, all of this. Are probably more relevant in our thinking of how IIDA will sort of like shape up in the second half than what it is at the Syngenta agreement for that for the most part has already delivered the profits that we were foreseeing.

Federico Trucco

But what I would add is that unlike the first two years where that was, heavily loaded in the 3rd quarter. And now this is more evenly spread. Obviously in the second quarter we benefited from the agreement in part. Remember this agreement has minimum profits guarantee to the tune of $230 million for the 10-year period, and that it's not linear. So initially the first years were lower amounts, and they increased year after year.
So we have a continuity of that agreement. And even though we are not going to have the accrual of the upfront in the 3rd quarter, I see you will see that more steadily reflected in every quarter and and this last quarter was an example of that in many ways.

Okay, very good, plenty more to ask. I one of one more and then get back in cu and you talked about the headlines from non-core third party products that that you guys have talked about historically, but I don't know that these have ever really been emphasized all that much. I'm wondering if you can talk about the percentage of this revenue base within, ex, percentage of products from. These non-core third party products within your total revenue base, and then kind of define the logic and having these in your in your portfolio.

Enrique López Lecube

I'll probably take a first time at it and then let the comment then it's a good question because I also think that that's part of the capital allocation sort of like a tighter approach that we are intending to have. But I do think that there's a distinction that needs to be made when we're talking about non-core products. There are some of these products that are resale products that we make, in Argentina, Brazil, Uruguay, where we lever our capacity to position a high technologies and profit from that, and where we probably commercialized technologies that are owned by others, but we make a very attractive margin. Just out of our, ability to position this type of products in the market.
That's one thing. And that's probably, I would say, sort of a 10% or 15% part, depending on the year of our crop production sales. Then we have an initiative that we took a couple of years ago that is a dedicated sales force for when we get partners. So, if we sell a high-tech technology product and we get paid with a lower margin third party product, we want to get that out of our system quickly and out of the balance sheet. And for that purpose, we have a specific team and that probably accounts for a bigger chunk. It's probably about 25% to 30% of our revenues in the crop in the crop protection segment, specifically in the crop protection segment.
That business is and has always been and is tightly managed from a working capital standpoint, from a cost standpoint, and that will probably continue. The type of business that we have foregone this season and that we will probably TRY to stay away from on a structural basis to improve our gross profit profile and also the working capital performance are more opportunistic partners that when you look at the full cash flow cycle, don't really make sense. So, when we are getting paid for high margin product with something that is probably lower margin, we will keep that channel in the foreseeable future.
We will also keep the third-party products that are high margin, if you will, in this context that probably bring us 25% to 35% margins on our ability to commercialize the technologies, and we will forgo products that are not part of the bartering and that are probably margins below 25% or 20%. I don't know if that's clear enough or if that's the question or the answer you were seeking for, but, in a nutshell, that's how we think about it.

Yeah, no, I, there's plenty going on there, but it's, that, that's helpful to understand the logic and the magnitude, very good. Okay, thanks for taking my questions.

Operator

Our next question comes from Austin Moller from Canaccord.

Hi, good morning. So just my first question here. Given the new partnerships, can you quantify the percentage of HB4 royalties or profits you would receive in Latin America versus outside of Latin America where you have full control just given the partnership on trade development and plant breeding.

Federico Trucco

So, thanks Austin for joining the call. Obviously, the opportunity outside of Latin America is much bigger than the one in Latin America, even though that might come at a later time because it might take us a bit longer to get there. But for instance, Australia itself is twice the size of Latin America in terms of weed acreage. Obviously, drought is very relevant in Australia.
So there instead of now going through the JB with Florimondre we can have the business that we put in place in Australia become one licensee but also license the technology to others with providers in that geography, so that will help us. Not depend on one singlere program will allow us to have a broad licensing approach like the one I've indicated we're pursuing in the US, which is by the way bigger than Australia but probably the drought tolerant opportunities is similar or more constrained to sort of the. Midwest, part of the with acreage, and by doing that ourselves directly, we will keep the H4 royalty component in full.
In Latin America, we share that with Florimondere through Trial Genetics. What you will see is that the JB profitability will improve. Because it will no longer have to offset the breeding costs of both, of the conventional genetics that are also commercialized through the HIV. So I think we're keeping the income and we're reducing significant part of the cost. That in the near term is where we will see the improvement. But eventually in 2 to 3 years, I think, the opportunity outside of Latin America will obviously of of far more relevant than what we can do in Latin America in wheat. That is just in terms of a wheat example in terms of the soybean example, I think.
That we will continue obviously to pursue the HP 4 op opportunity in areas that are drought prone, but the ability to expand beyond that with improved with management tools, which are increasingly needed because of the herbicide resistance evolution to some of the more famous herbicides like glyphosate, and ALS inhibitors and the like, are creating a very, Steady and strong demand on alternatives and I think we have an opportunity there to compete and achieve significant market share and more so if we're partner with someone that already has.
Close to 70% or 80% of the genetic footprint in the in the subcontinent, no. So, it will also take some time to ramp that up, but we're not starting from scratch. There are varieties that are being multiplied as we speak, and I will prefer for that opportunity to be addressed more directly by our partners and that I think have a a better understanding of the dynamics, the year-to-year growth, and we're likely to do that in the, in an upcoming call or press release.

Great, that's helpful and just commenting on the cash balance, do you feel comfortable with the current cash balance of $29 million to support the revised business strategy over the next 12 months, or do you expect you might need to raise capital?

Enrique López Lecube

Hi Austin, thanks for joining us and for the question. No, look, I don't think that the cash position is a concern for us now, even more so as we focus on cash generation and sort of like being prudent and expenses, all measures that we probably need to take from a P&L standpoint that that will have an impact on cash flows. And obviously what Federico just described for the city. So the cash position I think is well sized for what we need to do. What we will keep an eye on is probably the leverage of the company and to that regard, cash that is generated will be used to pay down debt.
So, that's the main focus, and what we're looking for. I think that the short sterm sort of like needs are coincidental with what we want to do with the business in the midterm and long term for the sake of the P&L. So, there's a convergence there of the things that we need to do with the things that we want to do, and cash is probably not the top priority there catch position.

Great, thanks for the insights.

Operator

The next question comes from the line of Kemp Dolliver of Brookline Capital Markets.

Brian Kemp Dolliver

Great, thank you. A couple of questions, first. Is there a deconsolidation of revenue with these new agreements?

Federico Trucco

If you mean if we're reported on a separate agreement by agreement basis.

Brian Kemp Dolliver

Well, no, it would just be if it comes out of the, your consolidated income statement?

Enrique López Lecube

I can, this is Enrique. No, look, I think that, of course, the downscaling of the identity preserve model means that we're going to have a lower revenue coming from the grain divestment, then. The accounting or the recording of sales that are achieved through the different partnerships will depend on how those partnerships evolve.
So if sales in Wheat, for example, are done to the legal, the platform in Latin America, that's going to be accounted for through the JB accounting. If it's done through the partnership with Don Mario and there's not a sort of like an actual JB there, we will have our fair share of the royalties flowing through the revenue line.
Probably less bulky and what direct seat sales, would bring to the top line, but of course with higher margin. So, it will depend on the form and shape, that the agreements take, but unless there's a JV. Revenues are going to show up in our top line in the form of royalty-based high margin sales.

Brian Kemp Dolliver

Okay good. And how much of the inventory decline in the recent 1 to 2 quarters reflects the results from the, HB4. Grain sales versus what you're doing to control inventories overall?

Enrique López Lecube

Very good question. Look, I think that both things contributed to the decrease in inventories. For the most part, I like to see grain inventories going down, because that was our intention that has been our. Also bear in mind that wheat was harvested in December, January, so there might be part of those inventories that are already considered in the inventory number that we're reporting, but both things contributed to the declining inventories and what, we can probably not show is what would be the scenario if we had not been managing inventories more tightly.
So, the reduction in inventories doesn't fully show the new policy because you don't see the intended sales and how tighter inventory management prevented us from ending the season and then probably declining season with higher inventories if we have not been working just in time. But to your question, both things contribute to the declining inventories and going forward, it will continue to be the case.

Brian Kemp Dolliver

But did they can both contribute equally?

Enrique López Lecube

Yeah, during the quarter I would say so, yeah, equally contributed during the quarter, yeah.

Operator

There are no additional questions waiting at this time, so I will, we will end the conference call over here. Thank you for your participation. You may now disconnect your line.