S&W Seed Company

Good morning and welcome to the SNWC Company fourth quarter and fiscal year 2021 financial results conference call. All participants will be in listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Soliciton Partners. Please go ahead.

Okay, thank you very much, and thank you all for joining us today to discuss the financial results for S&W Seed Company for the fourth quarter fiscal year 2021, which ended June 30, 2021. With us on the call representing the company today are Mr. Mark Wong, President and Chief Executive Officer, and Matthew Zott, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Before we begin with prepared remarks, please note that statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, And such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually, or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's 10-K for the fiscal year ended June 30, 2020, and other filings made by the company with Securities and Exchange Commission. With that said, let me turn the call over to Mark Wong, Chief Executive Officer for SMW Seed Company. Mark, please proceed.

Thank you very much, Robert, and welcome everyone to the call today. I would just like to start out by saying it's hard to believe after 18 months that COVID could still have such a difficult, stressful effect on all of our businesses. But we see that continuing, frankly, through the full fiscal 2022 year. So that would be the summer would be June of 22 calendar year. So we continue to have logistics issues that we're managing. We continue to, as other companies have had employment shortages and difficulty hiring, and also we've had to increase wages. So again, we are assuming for our 2022 fiscal year that COVID will unfortunately be a problem that all businesses worldwide are dealing with. And so the remarks that Matt and I are going to make today, please remember that they're all made in the background of COVID continuing to put stress on our business. With that being said, though, Logistics are reasonably under control. We've reorganized the company to have teams that look at the orders, the big orders, especially going to the Middle East and South America and Asia. We coordinate those teams from the plant all the way through the paperwork needed to get these shipments to the customers and the through booking the ships and dealing with any problems that happen because, as you all know, lots of ship schedules don't hold and are changed at the last minute, and it forces us to change our shipping instructions to our customers. The net-net, though, is very good news. So far, we have not had a delay. So we have had delays, no question about that. but we have not had a delay that forces us with a shipment to miss our customer's planting date. So remember that we're in an agricultural business. There's in the northern and southern hemisphere for each of our key crops dates which the farmers like to plant the seed. And so far, although the seeds may have been delayed, it has not missed the planting date that the customer wanted to put that seed in the ground. And in the end, that, of course, is a very important fact. So we basically continue to get the sales, but it might be delayed from one fiscal year to the other or one quarter to the next. Even with these pressures, though, I'm pleased to report that margins are improving. They are higher than last year, and we are continuing to believe that we will be able to recognize higher margins for the full fiscal year of 22. We put price increases on most of our products, and we believe that the proprietary products that we sell will be able to hold those price increases. And given a market of high commodity prices that farmers are able to afford those price increases, and still see higher value in terms of returns per acre on the seeds that we sell them for their planting crops. In addition, double team our grass herbicide product that's in its really full first year of initiation. So last year we did sell some seed and we were sold out. but this year we have a reasonable amount of seed to sell and we have seen very, very favorable results in the field. And what I mean by that is when you look at a sorghum, grain sorghum field that has been sprayed with our double team product over the top of the sorghum, two things you'll notice. Number one, the weeds are under control. There basically are no weeds, grass weeds in the field. And the sorghum looks excellent, right? There's not browning on the leaves. There's not any dead plants for sure. And so we're very, very optimistic that the product really does perform well in the field. The last step, of course, is now that we're in harvest in the western corn belt of the U.S. So that would be the Mississippi River west to the Rocky Mountains. We're seeing... farmers harvest their fields and we're starting to get back information on yields, right? Because in the end, the crop can look very good. The herbicide performance can be very good and the weeds are non-existent, but the farmer must get a good yield. And so we're in the process of verifying that with real data from the farmers that purchased and planted our seed in the spring of 2021 calendar year. So we're very, very optimistic about double-team. and very optimistic that the product, once final data is in, will have performed well in the field and that sales for this fiscal year 2022 will be excellent. So the last thing I wanted to talk a little bit about was Stevia. So as you all know, we announced a deal with Ingredion, the largest stevia seller in North America and the world. Right now, most of the production of stevia leaf comes from China. So in China, the leaf is an annual crop. So they plant in the spring and the crop is grown for one year and then harvested by hand. And then that leaf is taken to an extraction plant and then a purification plant to get the final stevia product that is sold in the market. The markets are growing pretty fast. It's a $1.3 billion worldwide market, $600 to $800 million in the U.S. So the U.S. is the biggest worldwide market. And we at Ingredion have been working on a program to produce the stevia leaf in the United States. And so... Our breeding program is in the southeast of the United States, where the conditions of where the plant's growing are very similar to where the plant was originally discovered in South America, in Paraguay. Very humid, hot summers, which stevia plants like. But our system of production based on our proprietary germplasm is a little bit different. And our commercial agreements are a little bit different. So I just wanted to make sure that I gave enough details so people would understand that. So we basically harvest stevia for three years. Stevia is, by its nature, a perennial crop. So China does not take full advantage of it being a perennial. But we leave it in the ground for three years. And... And we and our farmer customers have developed a machine that strips the stevia leaves off of the stevia plant and does not destroy the plant. So it doesn't rip the plant out of the ground so the plant can produce stevia leaves again in the next year. There's obviously some advantages on a cost basis. You only have to plant every three years. And the farmer also has a cover crop that is on his acre of production for three years. And hopefully someday there'll be the ability to get some carbon credits for that part of the stevia production process. But right now, the big goal is that we have convinced ourselves and Ingredion that we can produce stevia leaf in the US at a competitive cost per pound. uh, that competes with China. And, and that's a big if that, that the industry was always asking what would be the, uh, cost of stevia leaf if there, uh, wasn't a, um, hand harvest, if it was a mechanical harvest and who would develop the technology to mechanically harvest the, uh, stevia and also produce it at a competitive cost. And, um, We have done that, and that is the basis of our agreement with Ingredion. On the commercial side, though, what everyone on the call should understand is we buy the leaf from our farmers, and we have a back-to-back supply agreement to sell that leaf to Ingredion. And so we're not really a seed company. We've sort of taken one step up the vertical line. laddered towards the customer, and we now are the leaf seller to Ingredion, who processes that leaf, extracts the stevianoids, and then refines that and sells that to their customers in the beverage and food industries. So it's a model that we call a closed-loop model, where basically we don't really sell our seed. We sort of rent it. to our farmers who sell back the stevia leaf under contract to us and they have to sell us all the leaf. They don't have the ability to sell to a third party. So we maintain control of our genetics and we give the farmer a profitable product to produce at a worldwide competitive cost. So we're very excited about that agreement and there'll be more news as we continue to develop to develop the markets in the U.S., but the end result will be that stevia will be produced in the U.S. at a competitive cost to China and that, as we've all learned with COVID, the supply chains will be shortened, Ingredion will gain a source of production in addition to China based in the U.S., and that U.S. production will supply the biggest stevia market in the world, which is the United States market. So we're very excited about the agreement, and as I said, there'll be more announcements as we continue to make progress with Ingredion, but that will be a big piece of our business going forward, these closed-loop contracts where we're buying the raw material and then selling it to the refiner or user. And we like that model. It makes for a bigger addressable market for us. So it's not just the seed market, but in the case of Stevia, it's the leaf market. And we have other addressable markets that we're looking at where we think a closed-loop system will also increase our business and our ability to earn profits. So that's my update for the call today. Again, COVID is going to be with us for the full 2022 year is our assumption, but even with those stressful wins on our business, margins look good, product performance with Double Team looks good in the field, and the Stevia contract has finally been announced. We've been working on it for many, many years now, and we're very excited about where Stevia is going to be moving taking S&W in terms of new opportunities. So with that, I'll turn the call over to Matt, who's got some details on the financials, and then I'll come back and just follow up with some concluding remarks. Thanks again.