ArborGen Holdings Limited (ARB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Annual Meeting of Shareholders of ArborGen Holdings Limited. I'm David Knott, the Chairman of the Board of ArborGen. Thank you for your attendance today. I'm very happy to be back in New Zealand again to be able to introduce ArborGen's new CEO, Justin Birch, to you, in person. Justin joined ArborGen as Andrew Baum's successor in June of this year. I'm pleased to advise that a quorum is present and that this meeting is duly constituted. The notice of meeting sent to shareholders last month sets out the formal agenda for today's meeting. We are conducting our meeting this year, both here in person at the Ellerslie Events Centre in Auckland, and online through the Computershare online medium's platform. All shareholders have the ability to ask questions and vote. For those of you joining us online, if you would like to ask a question, please select the Q&A tab on the right half of your screen anytime, type your question into the field and press send. It will then be sent through for us to answer. If you require any assistance, refer to the virtual meeting guide that was sent to shareholders or use the chat function by typing your query, and one of the Computershare team will assist. I would encourage you to submit your questions as early as possible, as that will allow us to answer at the appropriate time of the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamate it together. Voting today will be conducted by way of a poll on all items of business. In order to provide online attendees with enough time to vote, I will shortly open the online voting for all resolutions. At that time, if you are eligible to vote at this meeting, you will be able to cast your vote under the vote tab. Once the voting is opened, the system will allow votes to be submitted. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution. Your vote has been cast when the tick appears. To change your vote, simply select Change Your Vote. And you have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all business -- all items of business. The resolutions will now be open on the vote tab. Please submit your votes at any time. I will give you a warning before I move to close voting. [Voting]

I would like to introduce the members of your Board and management to you. Presently with me here today are our two New Zealand-based directors, Paul Smart and George Adams. And from the U.S., we have directors, Tom Avery and Ozey Horton, attending virtually. From management, we have ArborGen's Chief Executive Officer, Justin Birch; our Company Secretary, Sharon Ludher-Chandra; our CFO, Alex Brown, and our communications contact, Pam Wardenburg. Turning then to our program for today. First, I'll ask Justin to update you on the fiscal year '23 performance and recent progress. I'll then make some comments from the Board's perspective. You will then have the opportunity to raise any questions you may have, and we will then deal with the formal resolutions to be considered by this meeting. I'll now ask Justin to review our recent activity for you.

Thank you, David. On behalf of the ArborGen team, I'd like to extend a warm welcome to our shareholders, joining us today, both in person and virtually. It's certainly been a busy 3.5 months since I joined ArborGen, and it's been an absolute pleasure to be here in person to address you. As you will know, the last few months have seen some significant changes at the senior management level. With me joining as Andrew Baum's successor as CEO of the ArborGen Group in June and the appointment of Adriano de Almeida as General Manager of ArborGen's Brazil operations in August, succeeding Gabriela Monnerat. Needless to say, it is early days, but -- and I'm still learning a great deal about the business. However, from what I've seen thus far, I'm truly excited about ArborGen's growth prospects and the opportunities for step change. I'm also privileged to be working alongside a great team of people, including recognized industry leaders across the entire organization who are passionate about the business and what we have to offer. To ensure a smooth leadership transition, we also have the benefit of both, Gabriela and Andrew's continued support in a consulting capacity. Over the last couple of months, I visited nearly all of our sites in the U.S. and Brazil and spent time understanding the uniqueness of ArborGen's value proposition. In particular, its advanced genetics know-how, production capability and high-quality product and service offering. ArborGen is undeniably the market leader in advanced genetics seedlings, with the ability to make transformational changes to forest productivity. I'm sure you've heard this before, but our products are truly game changing for forest owners. We have -- we are also fortunate to have a strong balance sheet, helped by the sale of ArborGen's business in New Zealand and Australia, giving us headroom for growth in our core and emerging growth markets. Turning then to our fiscal year ending the 31st of March 2023, I'm pleased to report ArborGen achieved several commercial objectives as we focus on our vision of being a world-leading provider of value-added, high-quality seedlings for the forest industry. In particular, we produced our highest ever MCP seed volumes. MCP stands for mass control pollinated seed, which is produced from crossing specific elite mother and father parent trees to generate seed with the highest genetic potential. So we produced the highest ever mass controlled MCP seed volumes from our U.S. orchards in a single year. Specifically, our 2023's orchard corn harvest produce seed equivalent to around 240 MCP seedlings, 2.5x the MCP seed produced the prior year. Importantly, approximately 65% of the seed is for Eastern provinces where we have been mostly supply constrained following Hurricane Michael in 2018. This seed was partly used for the current fiscal year's MCP seedling production with the balance being held in seed inventory, allowing us to build buffer in our inventory to mitigate risk for future years seedling production. We achieved significant growth in Brazil, and our Brazilian operations achieved record sales volumes, revenue, gross margin and earnings. We successfully completed our U.S. container expansion approved for fiscal year 2023, effectively increasing our in-house container capacity by approximately 70% to nearly 20 million seedlings per annum. And we successfully integrated a new 10 million capacity pine seedling nursery and a fourth $15 million capacity eucalyptus seedling nursery into our operations in Brazil, increasing overall internal production to almost 60 million seedlings per annum. Turning to our financial results for fiscal year 2023. The group reported in U.S. dollars. Revenue from continuing operations of $56.1 million, up 18% on the prior year, comprising sales of $39.3 million in the U.S. and $16.8 million in Brazil. Gross margin from continuing operations of $18.2 million, up from $17.8 million in fiscal year 2022. Operating profit including items outside of normal operations of $2.2 million, up from a loss of $1.3 million in the prior year. Net loss after tax of $2.5 million, down from net earnings after tax of $1.7 million in the prior period. U.S. GAAP EBITDA of $10.3 million, up 35% from the $7.6 million reported in fiscal year '22. Adjusted U.S. GAAP EBITDA of $9.2 million, down from $10.1 million in the prior period. Net cash from operating opportunities of $6.5 million, down from $7.5 million in the prior period. And net debt excluding capitalized leases of $13 million, up from $11.5 million. Items outside of normal operations during the period was a gain of $0.6 million compared to an expense of $4 million in the prior year, comprising of $1.2 million in employee retention credits or ERCs, received under the Coronavirus Aid Relief and Economic Securities Act or CARES, and $0.6 million relating to residual strategic review costs and a portion of CEO severance costs. Net loss of $2.5 million included a noncash net deferred tax loss recognition of $2.6 million comprising the deferred tax liability of $8.3 million related to how the group expects to recover the carrying value of intellectual property, offset by a deferred tax asset of $5.7 million relating to the recognition of previously unrecognized losses in the U.S. In contrast, the prior year period, net earnings of $1.7 million included $4.7 million tax benefit. Net debt of $13 million at fiscal year-end was higher than expected, primarily due to the delayed receipts of approximately $2 million in ERCs received post fiscal year-end, additional investments made for certain growth initiatives and working capital timing. Following the recent leadership changes, we have revisited and refined ArborGen's mission, vision and values. To put it succinctly, ArborGen's mission is to produce superior performing trees for the forestry industry through innovation, strategic partnerships and dedication to our clients' success. Our vision is to be the world-leading provider of value-added high-quality seedlings for the forestry industry, creating thriving forest that benefit landowners, the environment and future generations through unmatched industry expertise. And our values comprise 5 core elements. First, excellence, to pursue the maximization and enhancement of all parts of our business. Second, people, to commit to an environment where teamwork, diversity, safety and development are valued. Third, integrity, to stand by our word and our people. Fourth, customers, to partner with our customers to achieve their long-term goals while treating them with honesty and respect. And finally, sustainability, to support the future of forestry through socially and environmentally responsible practices. We are confident that our mission, vision and values, combined with our superior position in pine and eucalyptus advanced genetics will allow us to build a sustainable, highly profitable business that is recognized as the preeminent seedling supplier in terms of product breadth and quality and superior service delivery. As you've heard before, the sale of ArborGen's operations in New Zealand, Australia has allowed us to refocus the business on our core high-growth markets in the U.S. South and Brazil as well as new and emerging high-growth carbon markets. Our overarching strategy is to increase our sales of advanced genetic seedlings. To achieve this, we are focused on the following: continuously converting our customers to higher-value advanced genetics, loblolly pine seedlings and eucalyptus seedlings. Leveraging our most advanced and broadly adapted portfolio of advanced genetics in the industry to generate strong returns for forest owners. As we note in our customer slogan, we strive to have the best trees, the best results. Building MCP inventory to meet demand growth and mitigate seed supply risk from weather and biological risks, leveraging our internal seedling production capacity, evaluating opportunities to strategically expand production capacity, working to expand the market and opportunities to showcase our superior genetics, including opportunities in carbon. To achieve our goals, we have recently reviewed our priorities and are focusing on our efforts in 5 key initiatives, each with a range of agreed upon targeted actions. These are: To expand our market share and increase MCP adoption in the U.S. We believe that continuing to educate our customers to the value genetics as well as find new opportunities to show the value of our genetics will allow for more sales of MCP; focusing our product development efforts on market-driven genetics for the future, we are working to make sure that product development continues to maintain our industry leadership and ensuring we are market-driven in our efforts. Third, opportunistic and measured expansion in Brazil. We are working on continuing our growth in Brazil, capitalizing on a strong market while recognizing the volatility and preparing for it. Fourth, optimizing productivity and margins in Brazil and U.S., working on improving how we work with our customers on pricing while focusing on efficiencies in our cost structure. And finally, strengthening our organizational culture. Taking the organization to the next level professionally and instilling a culture of performance. I'd like to spend a few minutes on ArborGen's business in Brazil, which continues to grow on and build as a market leader, a testament to the hard work of ArborGen's team and the market leadership position. Brazil is projected to contribute around 40% of our total revenues in the current fiscal year 2024. ArborGen Brazil has grown to become one of the largest commercial suppliers of eucalyptus and pine seedlings in the Brazilian market, leveraging the following: its strong portfolio of best-in-class seedling products from exclusive, [ in lysine ] relationships and internal product development capability as preferred partner status with suppliers and customers; excellent sales and marketing capability; established network of in-house and contract nurseries; and establishing operating systems and logistics collectively allowing us to offer reliable, high-quality products to meet demand across several markets. Seedling sales increased by 34% to 102 million seedlings in fiscal year 2023. In addition to the very strong volume growth achieved, ArborGen Brazil also achieved strong price increases for both, pine and eucalyptus, seedlings in real terms and margin expansion, driving exceptional earnings growth. To provide some context, eucalyptus pulp is an excellent short fiber hardwood pulp due to its uniform fiber, simple cell structure, low degree of lignification, smoothness, bulk and water absorption characteristics. Brazil is the world's largest producer and exporter of hardwood pulp driven by the superior productivity of its eucalyptus plantations. As this table shows, there have been significant expansions in the Brazilian pulp industry with several announced expansionary projects targeted for the rest of this decade, collectively projected to lift pulp production capacity up by approximately 30% in Brazil. This, in turn, driving a eucalyptus seedling supply-demand imbalance. On the supply front, the seedling industry in Brazil is fragmented and unsophisticated, and has been shrinking due to recessionary conditions, poor management and weak capitalization of independent nurseries. Moreover, after many years of increasing eucalyptus productivity, yields per acre have fallen over the past few years as a result of expanded eucalyptus growing areas, increasing issues with disease and insect pests and heat and drought stress. ArborGen has now grown to become one of the largest commercial suppliers of eucalyptus and pine seedlings in the Brazilian market. With our compelling portfolio and pipeline of products, we believe there is significant opportunity for the eucalyptus tree improvement. Our products offer growers higher yields and higher wood density than standard market clones, improved disease and insect resistance and good drought tolerance, which is increasingly important trade as eucalyptus plantings in Brazil expand into dryer regions. And as rainfall patterns change as a result of global climate change. We operate the most extensive set of trials across Brazil as we look to continue to find the next level of genetics and continue our market-leading position. This map shows our field trial program in Brazil, which consists of approximately 200 trials, involving 1,500 eucalyptus clones spread across 17 Brazilian states. Consistent with our growth aspirations for this market over the last 18 months, we have done the following: acquired a 10 million seedling capacity pine nursery in Canoinhas, Santa Catarina, in April of 2022. Leased a fourth 20 million capacity eucalyptus nursery in [ Minas Gerais ] State, late in calendar 2022. Leased our fifth 5 million capacity eucalyptus nursery in [indiscernible], in the state of Mato Grosso in April of 2023. And most recently, acquired our sixth 15 million capacity eucalyptus nursery, in Rio Grande do Sul, which we will assume control of from October 2. This latest nursery, which will be referred to as ArborGen ervo Grande was acquired for the purchase price of BRL 15 million, which is approximately NZD 5 million and USD 3 million, and will be financed by the sellers. The deal also includes a 10-year initial lease for the land with no payments for the first 7 years. ArborGen ervo Grande currently has capacity to produce 15 million eucalyptus seedlings per annum with the opportunity to expand a further 5 million seedlings. The acquisition increases ArborGen's internal production capacity to approximately 80 million seedlings per annum, and is expected to lift earnings by USD 1 million on an annualized basis initially. Following the most recent nursery expansion of ArborGen ervo Grande, ArborGen will operate 6 eucalyptus nurseries and 1 pine nursery in Brazil, complemented by a network of contract producers that allow us to address all the major pine and eucalyptus markets in the country. ArborGen's eucalyptus products are available in all the primary eucalyptus growing regions in Brazil, including the states of Minas [indiscernible], Mato Grosso, Mato Grosso do Sul, Sao Paulo and Parana. Turning to current year performance, that is for the year ending 31st of March 2024. In the U.S., seedling orders are currently behind prior year orders at the same time last year. While there's still a couple of months before lifting and dispatch of seedlings begins, we are currently expecting to be flattish on last year's overall seedling sales volumes and slightly ahead on advanced genetic seedling volumes. Our customers have some decreases in orders this year due to weather impacting ability to prep areas for planting and mill closures that have constrained harvest capacity and ability to turn the land for replanting, as well as normal yearly deviations due to sales and acquisitions of plan. On a positive note, we are expecting an increase in total dollar revenues and solid improvement in gross margin and earnings over the prior year as a result of lower MCP cost expense in our cost of sales, increased internal container seedling production and higher selling prices year-on-year. In Brazil, seedling sales are projected to be materially higher than prior year as a result of continued strong underlying demand for both, eucalyptus and pine seedlings, as well as the expansion of ArborGen's internal seedling capacity summarized earlier. Added to this higher pricing and margins for both, eucalyptus and pine seedlings, is projected to increase profitability substantially. Dave will provide further guidance on the current year in his outlook and comments. Thank you for your support.

Thank you, Justin. Before we move on to your questions, the more formal sessions of the day. I would like to make a few comments on recent management changes, the business in the current fiscal year ending March 2024. This year has seen some significant changes at the leadership level, with the appointment of Justin as CEO of the group and the appointment of Adriano de Almeida as the General Manager of ArborGen's Brazilian operations. Justin, who was previously based in California, officially joined ArborGen in June, and is now based at our headquarters in Bridgeville, South Carolina. He is an experienced senior executive with significant experience in the agriculture sector and a strong background in private equity. He brings to the company a solid financial, operational and strategic experience. And the Board believes he is a great fit for our company with the combination of skills and experience to lead the business through its next phase. Adriano brings a wealth of knowledge and experience in tree improvement and tree breeding, as well as an understanding of the Brazilian forestry market. He will oversee our Brazilian production and sales operations, as well as the marketing program. Adriano succeeds Gabriela Monnerat, who will continue in a consulting capacity to facilitate a seamless transition. Both, Justin and Adriano, are a great addition to the ArborGen executive team. We are very excited about the future growth of the company under their leadership. On behalf of the Board, I would like to take this opportunity to also acknowledge and thank Andrew and Gabriela for their significant efforts and contributions to the company that span over a decade for each of them. Under Andrew's leadership, the company has developed an unparalleled leadership position in the advanced genetics seedling market. Similarly, Gabriela has successfully managed our Brazilian operations through a period of strong growth and has ensured that ArborGen's Brazilian operations are well positioned for the future. We thank both, Gabriela and Andrew, for their valued leadership and contributions and wish them the very best in their future endeavors. This year, we also simplified the ownership of ArborGen Inc., the operating wholly-owned subsidiary of ArborGen Holdings, by repurchasing the warrants equating to approximately 5% of ArborGen Inc.'s fully diluted common stock for USD 1.35 million. These warrants arose out of the acquisition of the assets and intellectual property for CellFor Inc. in 2012, pursuant to which shareholders for CellFor received CAD 1.1 million in cash and warrants to purchase ArborGen Inc. common stock. Following the repurchase of the warrants, ArborGen Holdings' effective economic interest in ArborGen Inc. increased from 95% to 100%, with no dilution overhang remaining. The purchase price reflects a significant discount based on a number of factors, including intercompany advances between ArborGen Holdings and ArborGen, Inc. and the fact that the warrants were exercisable for ArborGen Inc. shares rather than ArborGen Holdings shares. We're now very much focused on achieving the strategic objectives of the business. The sale of our Australasian business in late 2021 released to NZD 22.5 million of capital, allowing us to focus our efforts and capital on our core markets in the U.S. South and Brazil. In Brazil, we are leveraging our strong position in the pine and eucalyptus seedling markets to build a sustainable, highly profitable business that is recognized as the preeminent seedling supplier. And in the U.S., we are focused on driving increased adoption of advanced genetics across the U.S. South as the leading commercial supplier of advanced genetics loblolly seedlings, leveraging decades of investment in developing best-in-class proprietary MCP products. Turning to our fiscal year. We have sold nearly 90% of all seedlings we have available in the U.S. and are currently not expecting seedlings sales volumes in the U.S. to be materially different to fiscal '23 levels. Having said that, as Justin mentioned, we're expecting a solid improvement in revenues, gross margin and earnings over prior year as a result of higher average selling prices, lower unit MCP seed costs, expense in cost of sales, increased internal container seedling production and increased internal container seedling production. In Brazil, the underlying market dynamics are very strong, driving robust demand for eucalyptus and softwood seedlings and in turn, higher seedling prices. Added to this, we have the benefit of our recent investment in expanding in-house nursery production capacity. As a result, we are projecting strong growth in seedling sales volumes, prices and margins in the current fiscal year. Taking these factors into account, including approximately $2.7 million of CEO costs in the period, we expect double-digit growth in U.S. GAAP EBITDA, in the current fiscal year 2024 over the $10.3 million recorded in fiscal year 2023. Having said that, management are currently reviewing seed inventory on hand across the U.S., which may result in seed write-down costs relating to seed obsolescence. While this would reduce earnings, it is a nonrecurring item and will not impact cash. Of the $2.7 million of CEO costs to be expensed in fiscal year 2024, $1.2 million relates to half of the first and second tranches of Justin's equity grant, assuming Resolution 2 has passed. $800,000 relates to the base salary and guaranteed bonus for Justin, $300,000 of relocations costs and sign-on bonus, and $400,000 related to the previous CEO, including cash tax paid on shares issued and for consulting costs incurred pursuant to a 29-month consulting agreement. Turning to cash flow. Inclusive of expansionary activities in the period, including the acquisition of our Jasper nursery in the U.S. for $2.5 million and growth initiatives in Brazil, the repurchase of the warrants as well as CEO transition cash expenses in the period, net debt is projected to be relatively flat on the prior year level of $13 million, excluding capital leases. As we look ahead, however, recent expansionary activities are expected to be both, earnings and cash flow accretive in fiscal year 2025 and beyond. The Board and management are very excited about ArborGen's future. We have brought on strong new leadership, refined the business to focus on core existing and emerging growth markets and significantly strengthened ArborGen's balance sheet to ensure we deliver on the company's growth potential. Before I move on to the business of the meeting, I would also like to acknowledge and thank the ArborGen teams in the U.S., Brazil and New Zealand for their commitment and dedication. Finally, I would like to thank all of our shareholders for your continued support for which we are very grateful. We acknowledge the share price performance has been disappointing over recent months, which is unrelated to the underlying performance of the business. We're committed to ensuring strong returns for shareholders as a result of strong earnings and cash flow growth.

I will now open up to questions. If you are yet to submit your question online, select the Q&A tab on the right half of your screen, type your questions and press send. For questions relating to the actual resolutions, we'll respond to these as we deal with each of the resolutions in turn. For those shareholders who are present here in Auckland who want to ask a question, please raise your hand and wait until a microphone is brought to you. Please then clearly give your name for those online before you address the meeting. Thank you. They're going to bring a mic over, we need to, for the people online.

Yes. No, I'm not going to ask the questions that you and I talked about. The 17-year amortization of the intellectual capital, how is that derived? It's a very precise sum. It's a very large amount involved. Just curious as to what the basis of that is, please?

Yes. Justin, do you want to take that? Or Paul, I'm sorry, Paul.

I guess, Frank, at the end of the day, it's an assessment the directors have made about the economic life and value of that intellectual property. And there's a -- I guess there's a degree of judgment that are required in that, and we've taken advice. And in fact, we've reduced it from 20 years down to 17 in the last -- I think it was last year, wasn't it, Alex? To recognize the reassessment of that value.

What's the sales contract worth in the United States? So do you get a deposit? And if so, how much is that deposit, what percentage? In other words, what's to stop people booking something with you and then walking away? And if there's not much, is that part of the issues that you're now facing?

Sure. I'll let Justin handle that one.

Yes. No, I think that it's a very -- typically, our typical contract involves some measure of up to a 30% down payment for that. But that being said, I would say that coming into this business, there is a lot of history around every different customer, many small relationships that have grown over the years and have had different agreed to sales terms. So going forward, to your point is that currently, there is, I would say, somewhat of a misalignment on us taking the risk for -- of planting these seedlings and the customers having that ability to cancel. We've already instituted and moved up our cancellation date a month on our typical contracts this year. And so we continue to explore ways with our customers to make sure that there is a proper alignment of -- if we're going to go out there and invest the capital and the time to grow these seedlings that they're not just left and plowed under at the end, but acknowledge that there is at least some ability in our -- to have some sort of deposit, but there is a cancellation period built into most of our contracts from legacy type of formation.

I don't know where to start. I've been coming to these AGMs for quite a long time, and I've gone back over a few annual reports. And they all seem to say the same thing. Every year, things are going to come right next year. We have employed new CEOs, nothing really has changed over this period of time. The company just does not grow at all. The profitability is always going to be the next year and the year after. Why should I believe what I've just heard, that things are going to come right in 2024, '25?

Yes. I'm not sure we're reading the same annual reports. Our profitability has increased. The company continues to perform. Our stock price, however, I think is what you're referring to, has continued to underperform. Is that correct?

Yes. Well, it's underperformed because you've never made a profit really. That's the problem, and you continue to issue more and more shares. I see the new remuneration package is talking about 20 million new shares. You issued new shares to previous CEOs when they've left, you issue shares to the directors, the number of shares on issue continues to increase all the time without any growth in the company at all.

There's significant growth in the company. The stock price is not growing.

Well, is the profit going up?

Yes.

Well how much?

I mean, over the -- since I've been on the board, I would say about threefold.

Well -- but it's still not an adequate return for this company at all.

From a share price perspective, of course. And I feel that just as much as you do. There's a lot of other factors that are at play that have nothing to do with the company performance with respect to our share price. A lot of that is selling pressure in liquidity in the stock, the inability to attract institutional investors to such an illiquid stock. The geographic problems with the business being listed in New Zealand with the main operations in the U.S. and a big chunk of them in Brazil now, it's kind of an orphaned company in a lot of respects. And I think with respect to your question though, I think the company continues to perform. And at some point, this is going to be too cheap for people to ignore, they will get over illiquidity in the stock, and they'll come in and start buying it. But right now, we've got a lot of selling pressure without enough buyers coming in to pick that up, and that's why the stock price has declined, I think.

[indiscernible]

I think I own a pretty fair amount of the stock already. And I would actually need your approval to buy more. But yes, I think everyone in this room has the ability to go out and pick up shares and increase the stock price. It doesn't take a lot of buying to move this price as we've seen.

Well, I mean, the asset backing in here in New Zealand dollars is probably $0.50 a share, is it not, on your balance sheet?

Yes, in the 40s, I believe.

Yes. Well that's right. So it's up to you as the Board of Directors to make sure that the market acknowledges that.

Yes, for sure.

And it hasn't happened over the last 10, 15 years.

For sure. I agree with that. And I think we've got -- we brought in Justin as a new CEO. We're trying to increase our marketing efforts and our investor relations efforts. We're not tracked by any of the banks. We don't have any real research reports out there to attract kind of institutional investors, which is what you really need here to move the stock meaningfully and keep it up meaningfully. But I think that these are all things that we consider it all the time, and they're certainly on the top of my mind as the largest shareholder.

Yes. Well as I say, one of the problems is that you keep issuing more shares.

Yes. I mean -- what we issued -- I mean, I think the biggest swath of shares that we issued was back in 2017, I believe, with the acquisition of the other 2/3 of ArborGen Holdings. And that was done so that we could complete the purchase of ArborGen Inc., and we needed to issue those shares. There was no other cash and [ Rubicon ] at the time to make that purchase. And otherwise, we were going to be forced to sell ArborGen and Inc. for a below market price at the time. And we got a very good deal on it. So I mean I understand, trust me, I don't like the dilution either, right? I'm right there with you on that, but these were necessary evils essentially.

So why should I believe what's going to happen in the next 2 or 3 years from what I've heard in the last several years?

Yes, sure. I mean, I think that in terms of what's going on right now, we've seen Brazil finally go from being breakeven to starting to be very meaningfully profitable and becoming a meaningful part of our business. I think the U.S. is -- listen to me though, the MCP adoption in the U.S. has not been as rapid as it was in New Zealand, which is where we're kind of modeling things off of prior to this, if you're going back several years. I think that Justin has a lot of ideas on how to increase that. I think that there's a lot of stuff going on with carbon right now that once it rationalizes in the U.S. in terms of the carbon market there, there's going to be a lot of stuff to be done. That's something that we have 0 control over. And frankly, I'm still trying to understand myself. And I don't think there's a lot of regulatory backing behind it yet to make it a rational market, but there's a lot of growth built into that if it does come to fruition. Hope I answered some of your question there.

[indiscernible] shareholder. Well, I don't want to go over it again. But the hard part I must admit is the issuing of shares when you're -- like you've just done now, another 20 million. And I mean end of the day, what we're hearing, I must admit, it sounds good. It really amazed how you have turned it, a bit worried about Brazil, though, because we hear so many stories about Brazil, especially with their inflation going through the roof. I mean we talk about ours, I mean, over there, it's just -- I don't know how you make a profit, but somehow you do. Is it all in American dollars or something? All I'm -- and the other thing was you mentioned a bit on it as well about carbon credits. Your -- our last CEO, used to -- said quite a bit about that. But obviously, there's no advantage for us yet on that.

No. So -- I mean Andrew had spoken and I believe it was last year actually on this with respect to a couple of new customers that we've added in the U.S. that are doing various -- they're buying seedling from us for various carbon-related investments. Beyond that, we don't know what's going on right now with the carbon markets in the U.S. So just -- there's nothing there. It's very gray. But I know that there's a lot of really smart people working on it and a lot of very smart-money buying seedlings right now in anticipation of that coming to fruition. I'm sorry, I forgot the first part of your question there.

It's just about issuing 20 million?

Sure. Yes. So I mean, I think we'll probably get more questions on this.

Also for him to be shift $300,000. And that's a bit more than a Tesla car, its just that it's quite a bit of money. I know it's part of your contract or Justin.

Yes. So I'll just address this in general because I think it's probably going to come up during the resolutions as well. I'll start at the beginning. We engaged a search firm in the U.S. this past fall, essentially, or I believe it was last fall. And at which point they informed us immediately that Andrew's base salary in current package was severely below market rate at the time. And that we were going to be looking at anywhere from high 6 figures into the millions of dollars for a quality CEO, given the current labor market in the U.S. and the inflation experience and all that stuff right there. And so what we tried to do when we finally identified Justin, we knew he was the guy for the job. And we tried to kind of minimize cash costs with this whole process in order to be able to invest into growth, some growth CapEx and some maintenance CapEx is probably how [indiscernible] put off with the company. And so what we did essentially was we took Justin, we gave him what is basically the same thing as Andrew's base salary, which is going to extend into the future, we've front-loaded with time-based shares or hopefully, we'll be front loading with time-based shares up till the resolutions are passed where that is essentially done so that he's got skin in the game right off the bat. He's highly aligned with shareholders for his performance-based shares [ divest ]. He's got to really meaningfully impact the company right now, right? And so for me, personally -- yes?

There's nothing against you, Justin. It's just that there's a lot of people here. It's good to hear news that things are getting better. And [ all right, ] new blood, new people that you know, well, it's hopeful. And okay, the performance shares?

So for him to vest his performance shares and to get those shares, he's got to materially impact earnings over the next year and then the following year, right? And so that way, with the time-based shares, he'll be able to play it -- to grow with the company in that sense, right? And for me, personally, I'm sick of waiting around and I didn't want to make long drawn-out increases slowly and get these performance shares over time. I want it done now in the near next 2 years or whatever it is, Justin's committed to that. He's got to put his -- a lot of his pay package behind that actually. And so in that respect, we did that. And then I think there's going to probably be a question about the STI being guaranteed this year. And that was essentially -- Justin was at a job, had a great job before we hired them away from, with a lot of incentives on the table, both the short-term, long-term incentive plan there. And we basically wanted to make him whole on that to bring them over to our side. And so we guarantee his bonus for this year, and we did that. And going forward, his STI will be 50% cash, 50% in shares, and that's going to minimize the cash cost on the company. And I mean the dilution following this LTI, the performance and the time-based shares will be minimal going forward. But we essentially -- we had to make -- so we made them whole, we brought them on, and we tried to do that with this little cash leakage as possible. Are there any other questions?

My name is Hailey Ching, and I have been a shareholder of this company for quite a number of years. And my view is different from other shareholders, I can see the light at the end of the tunnel. Why? For example, like Brazil is a safe place. If we will break out, it will be safe, like first world war, second world war, nothing happened in the South.

I'm sorry. We just wanted the question though, so...

Hold on, please. And so I wish to see whether the company is doing the right step. I wish to inquire about Texas. What is your business doing in Texas now, because you have a business in Texas.

Texas?

Yes. How is it going now?

Yes, Justin.