S&W Seed Company

Good day and welcome to the S&W Seed Company Report's first quarter fiscal year 2022 financial results. All participants will be in a listen-only mode. Should you need 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 touchtone phone. And 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 Mr. Robert Bloom. Please go ahead.

All right. Good morning, everyone, and thank you all for joining us today to discuss the financial results for S&W Seed Company for the first quarter of fiscal 2022 for the period ended September 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, 2021, and other filings made by the company with the Securities and Exchange Commission. With that said, let me turn the call over to Mark Wong, Chief Executive Officer for S&W Seed Company. Mark, please proceed.

Thank you, Robert. And hello, everyone who's on the call today. I would like to just start out by saying commodity prices around the world in agriculture are very, very high. We have sort of record corn, soybeans, sorghum, and wheat prices. And as all of you know, because a significant piece of our business is actually on the continent of Australia where meat prices, that would be beef and sheep prices, drive kind of farmers' profitability. Those prices are also for proteins very, very high. And so around the world in our markets, we find ourselves in a situation where farmers are as we've talked about before, are now willing to pay for that incremental bushel of yield. I mean, at these kind of returns for farmers, every bushel is a bushel they make money off of. So in some markets, as we've discussed, when commodity prices are low, the farmer may manage his farm to sort of break even. But in a market like this, he's going foot on the gas to get as much yield as he can And, you know, that's reflected in high demand for seeds in general and for S&W seeds in particular. We will be seeing in the 2022 year price increases in pretty much across the board. Some species obviously are prices will increase more than others, but price increases across the board and improving margins for S&W will result from that. That being said, though, Our strong year this year is still being buffeted by some of the logistics problems that everyone's reading in the popular press. These problems are really first generated by the shutdown of worldwide economies by COVID and now with the restarting of those economies and the huge demand being placed on trucking and shipping. around the world, we are still feeling that. And I would say versus 12 months ago, I think it's not getting better. It's actually getting a bit worse. But, you know, we've also changed some of the things management-wise in the company to try to deal with that. So we have organized our sales contracts so that some of the freight costs are now borne by our customers. And we're doing things like cleaning our new crop seed as rapidly as possible. So we have cleaned to date in the northern hemisphere about twice, at least twice as much, sometimes more than that seed than we had cleaned at this time last year. And what helps us in the northern hemisphere is that we had a very good production season. This year, we did not get any early frost and we did not get any rain on the crop. So all of that crop has been harvested in the Northern Hemisphere, U.S. production locations, and is in our two plants in Idaho and Texas, now being cleaned. So because shipments are still troubling in terms of getting trucking companies and the and shipping lines to hold to a schedule. I thought it might be useful just to remind everybody kind of where the problems for S&W are coming from. So if I can dive into a little bit more detail, and this kind of reflects what I said on the last call when we had a chance, Matt and I, to speak to all of you. So in the U.S., you know, it's a northern hemisphere cycle. We harvest in September and October, and we sell in May and June. And in a normal year, we have plenty of time to clean the seed and get it ready. And that's augmented also by the fact that we carry over some inventory in different varieties and hybrids. And so we can ship to our customers both out of new crop harvest and out of carryover inventories. And in the Australian home market, so that's the continent of Australia, we have the same kind of thing, except it's a southern hemisphere production cycle and sales cycle. That's another one of our big home markets, and it's a significant piece of our sales. And we have 12, 14 salespeople in the field there selling to distributors and dealers. So, you know, the seasons are just opposite. So we are selling now into the Australian farmer customer network that we have. And, you know, we normally harvest in that sort of April and May period. And again, we sell out of carryover inventory. We have plants there that we operate ourselves and where we receive and clean the seed. And so it's a much different similar market to the U.S. and timing only a six month sort of delay. The problem that we have is because we produce a majority of our alfalfa and in this case it's the non-dormant alfalfa, the ones that are not grown in areas which have severe winter so that we don't need to provide Alfalfa varieties that can survive winter because the winters are basically very mild, so this is the Middle East. What we have is a southern hemisphere production system because we're harvesting and growing those crops, mainly in alfalfa in this example. In Australia, so we're harvesting in kind of April, May and but we've got a northern hemisphere, even though it's closer to the equator. a northern hemisphere planting season. So these guys want to plant July-ish, August, July, sometimes June. And so we always are pressed to get the new crop cleaned in Australia and send it to our customers in the Middle East. And a lot of times we send the first shipments out of carryover inventory and then the later shipments in the season when we have another 30 or 60 days, we send out a new crop. And that will continue, but COVID and logistics issues have made those shipments the ones that have a timing problem in terms of whether they make it into our fourth quarter or our first quarter of the next year. And so as we have happened In the 2021 year, those shipments did not make it into the 21 fiscal year since we have an end of June fiscal year. Those shipments are in the 22 fiscal year, and Matt will talk a little bit about that in detail. So, you know, that's where our problem is, not in the US market or the Australia home markets, but in the Australia production of alfalfa that then goes from a southern hemisphere production cycle to a northern hemisphere sales cycle. And so that, I just wanted to be specific, is the reason why our guidance of 80 to 85 million is maybe a little bit lower, as we talked about in our last call, than some people expected. And that's just because we had 2,021 sales move to the first quarter of 22. And we will have fourth quarter 22 sales move to the first quarter of 23 fiscal year so that we're not double counting those sales of alfalfa to the Middle East in one fiscal year. We're not counting them twice. And the reason is that the high demand in addition to the logistics issues has almost eliminated all of our carryover inventory. And so most of the shipments will have to come out of new crop. And it's going to be very, very difficult to get that crop clean and in the environment of logistics issues, get it on a boat and get it to the Middle East in the 2022 fiscal year. So those shipments will be in the 2023 fiscal year. There's still plenty of time, even with shipping in July and August to get, and September even, to get those crop bags of seed to our customers in Saudi. We're not going to miss the planting season. It's just folding from one fiscal year to the next fiscal year for us because of the short inventory situation. And that's a good thing because that just means there's high demand from our customers and the logistics issues that we're experiencing in trucking and containers, which is a bad thing, but we're trying to manage that by cleaning our seat as early as we can, paying attention to all the logistics issues. Every time there's just even the hint from a trucking company or a shipping company that there's going to be a problem, we're sort of all over it now trying to look at alternatives. And from a cost standpoint, we've passed some of those freight costs on to our customers. So I just wanted to touch on that and just absolutely spend a little bit of time making sure everyone on the call understands why the guidance, as Matt's going to tell you, is still in that $80 to $85 million US dollar range. And with that said, I'll go on to a couple of high points. As I said, the farmers are very excited about what's happening this year. They're going to make money. So demand for our seed is really high. Our double team trait in sorghum, that's our herbicide resistance trait to control grass weeds, is looking very, very strong. As I mentioned, in the northern hemisphere, we usually set prices around December 1st. And so we're in the process of doing that. but we're hearing very strong reaction from our sales force that farmers were very, very impressed with the performance of Double Team in this past 2021 year. And we expect them to be pretty much sold out in the 22 fiscal year also. So Double Team's going really well. That's a big thing for S&W because The margins are very strong on traits, as all of you know. And we're very, very pleased with that. And it also gives our salespeople something to talk about with their customers. Hopefully it will drag along additional sales of other sorghum lines that we sell that are not double teamed. So both double teamed and non-traded hybrid sorghum lines. grain sorghums look like we're going to have a good year. We are also, as I said, following the Monsanto strategy where we, based on the strong demand, are pressing other seed companies to license the trade from us, and that continues to go well. I don't have any new news specifically to tell you right now, but there are some of the bigger players in grain sorghum now looking at the trade and in discussions with us about a license. On the stevia front, as you all know, we signed the agreement with Ingredion. We have an agreement to ship containers of leaf to China to put it through their extraction plant and their purification plant. Those plans remain on schedule. We planted a crop in North Carolina this fall. And we will plant more acres in the spring, and we expect to be able to meet those requirements for leaf, dry leaf that we are going to deliver to Ingredion in China. So that all looks fantastic so far. And again, that's just the beginning of a longer-term relationship where eventually we hope that we will, we being Ingredion and SW, will embark to really build the U.S. market, which is supply market, which is the biggest demand market for Stevia, and that there will be a new production plant built in the U.S. to both extract and purify stevia from dry leaf, and that, as our agreement with Ingredion indicates, that we will be the supplier of that leaf to Ingredion over the next decade. We've touched a little bit on margins, but I'll just say we're in the process of setting prices. As I mentioned, in the U.S., we sort of do that in December, early December. We have set prices in Australia as we're selling into that Australian market and margins look good. Matt's going to give you some indications of that. And as the new prices hit in our big quarters, which is the third and fourth quarter, we expect margins to actually improve some more over what they currently are. Lastly, I'd just like to say, you know, it did the attract some interest in the shares, I think, when shareholders, both current and potential, saw that management and the board stepped in to raise, through a private placement, $5 million of equity. And we're pretty simple guys, so we just sell common. It wasn't any kind of high-powered special equity It's the same kind of shares that we've always sold. And I am personally happy to say that I was also an investor in that round of 5 million. And I just think that all the work that we have done as a management team is starting to really show in the form of better margins and our work in alpha Alfalfa in the Middle East with the markets coming back, our deal with the stevia with ingredient and more. The most important thing in the short term is our double team trait, which is going to add to significantly to the financial returns in 2022. So with that, I'll turn the presentation over to Matt and then I'll conclude with a couple of comments. Matt, please.