S&W Seed Company

Good day and welcome to the S&W Seed Company second quarter fiscal year 2024 financial results conference call. All participants will be in 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 telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Robert Bloom with Lithum Partners. Please go ahead.

All right. Thank you all for joining us today to discuss S&W Seed Company's second quarter fiscal year 2024 financial results for the quarter ended December 31st, 2023. With us on the call representing the company today is Mark Herman, company's chief executive officer. and Vanessa Bowman, the company's chief financial officer. For those that didn't see, Vanessa has joined S&W in a full-time capacity, effective February 12th, having previously served as interim chief financial officer and corporate secretary since May 2023. 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 meeting 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, planned 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 risks 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 and the company's 10K for the fiscal year ended June 30th, 2023, and other filings subsequently made by the company with the Securities and Exchange Commission. In addition to supplement S&W's financial results reported in accordance with U.S. generally accepted accounting principles or GAAP, S&W will be discussing adjusted EBITDA on this call. These non-GAAP financial measures are not meant to be considered in isolation or or they substitute for the comparable gap measure and are not prepared under any comprehensive set of accounting rules or principles. A description of adjusted EBITDA and reconciliations of historical adjusted EBITDA to net loss are included at the end of S&W's earnings release issued earlier today, which has been posted on the investor relations page of S&W's website. An audio recording and webcast replay for today's conference call will also be available online at on the company's investor relations page. With that said, let me turn the call over to Mark Herman, Chief Executive Officer for S&W Seed Company. Mark, please proceed.

Thank you, Robert, and good morning to all of you. I want to start with confirming the great leadership that Vanessa has provided S&W over the last six months as interim CFO and how excited we are that she has accepted the permanent CFO role. I'm pleased to share the progress that we are making with you today. to continually transition S&W into an efficient, operated, best-in-class C company, driven primarily by the rapid adoption of our high-value trade technology solutions within Sorghum. You know, as I have talked about since I took over as CEO back in July, my focus has been instituting key operational initiatives to drive the business towards profitability in the near term. These operational initiatives have included improved lifecycle management to reduce obsolescence costs, the rationalization of certain low margin forage product lines and seed treatments, suspension of our stevia development program, and overall seed manufacturing cost reduction plan. These operational improvements, coupled with the high margin nature of our double team sorghum trade solutions, resulted in our second consecutive quarter with gross margins above 30%, an improvement of 900 basis points compared to last year, as well as further reduction of our operating expenses by more than $1 million. The net result is a $1.4 million improvement in adjusted EBITDA. And please remember, the second quarter is seasonally our smallest quarter of the year. Beyond operational improvements, my goal has been to build upon the existing trade technology pipeline that will ultimately be the key driver to S&W long-term success. Our first trade, double-team grain sorghum, has been the home run that we expected it to be. Sales during the second quarter were up 233% to 4 million as we continue to see strong farmer satisfaction demand and adoption of the high margin trait technology. As it pertains to Double Team, I want to share a few points from our recent farm survey on brand health. First off, 100% of growers who use Double Team said that they were satisfied with the grass weed control system. Secondly, 100% of the growers who tried Double Team's system said they would be increasing acres in this coming year. Third, 87% of growers who used the Double Team system stated they were satisfied with the performance. Fourth, 87% of growers saw the value of the Double Team system. And lastly, 100% of growers said Double Team was an easy-to-use system. Simply put, the feedback from growers is positive on value, satisfaction, and performance of the system. Double Team provides superior grass weed control, which protects yields under high weed pressure and delivers a positive return on investment and thus increases overall farm profitability. For these reasons, since its launch in 2021 and broader commercial launch in the calendar year 2022, Double Team grain sorghum accounts for what we estimate to be 6% of all grain sorghum acres planted in the U.S. in spring of 2023 and believe it will grow to more than 10% of this year's plantings of grain sorghum. This is not only a tremendous achievement for our sales team, but also highlights the value and demand for innovation in this critical crop, which can be used as a substitute for many grains on the market today due to its keen nutrient profile and its ability to handle higher temperatures, drier climates better than many other crops. and has been void of innovation to this point by larger agricultural companies. As I've said in the past, corn, soybeans, and cotton growers have all benefited from the research investments in advanced tools for weed control technologies. However, sorghum simply has not benefited to this point from innovation despite being the fifth largest cereal crop globally. There are currently about 15 million acres globally with the expectations to increase due to SNW's introduction of new technologies to increase yield. It's my opinion that as farmers increasingly recognize the value of new management tools, corresponding risk reduction and yield enhancement through controlling grasses and robust crop grazing safety technologies, these superior traits will drive greater numbers of sorghum planted acres. We are looking to build upon the success of double team grain sorghum with the introduction of double team forage sorghum solution and prussic acid free trait for sorghum. Initial double team forage sorghum sales are expected in the fiscal 2024 and a pilot launch of our prussic acid free trait for sorghum is being planted this year. High-value trade technology solutions will be a key driver to S&W long-term success, and it is clear that we are becoming a key technology provider in sorghum. Our commercialization strategy is to continue to drive sales through our S&W-owned sorghum partners brand, but also align with independent seed companies with current market-leading brands in key grain and forage sorghum markets, to maximize market penetration through licensing of SNW germplasm and or our traits. On that front, in the U.S., close to 45% of orders are with private label companies. And during the quarter, we have begun conversations with potential international licensees and have positive momentum leading us into the next season. We couldn't be more pleased with the progress made to date within our sorghum trade technology commercialization solutions, as well as our pipeline. For the year, we continue to remain on target to achieve our stated goal of $11.5 to $14 million of double team sales. more than doubling our revenue from last year. And don't forget our gross margins on Double Team are approximately 65%, which will be the key driver of future bottom line improvements. Beyond our sorghum trade technology portfolio, another key value driver is our agreement with Shell to develop Camelina as a feedstock for biofuels, which Shell has a takeoff agreement to develop green diesel, SAF jet fuel production. We successfully achieved all the stated objectives required of VBO and received the $6 million payment from Shell on February 6, 2024. As a reminder, the total paid to S&W, inclusive of cash payments and repayments of a loan on the NAPA facility, was $20 million from Shell. The infusion of capital is great. However, the excitement is really in the partnership and the financial interest. Remember, we currently own 34% of the JV to produce sustainable low-carbon energy fuel solutions from novel crop sciences like Hamelina. We are excited about the long-term value we believe this JV will bring to the S&W and its shareholders. Within our Australia partnerships, we also received the expected $1 million payment from Trigel on January 2nd, 2024, as part of its position in the jv of the australian wheat business while we're achieving strong adoption in our high margin sorghum trade technology solutions as we reported in the press release we are closely monitoring the dynamics from expanding conflicts in the mina region on our international alfalfa operations The war in Ukraine and the civil war in Sudan, as well as the conflict between Israel and Hamas, all contributing to expanded geopolitical conflicts in the MENA region has caused disruptions to normal farming operations and seed distribution channels. As we alluded to last quarter, we are seeing Saudi Arabia shifting acres to wheat, demand and price erosion, as well as mixed shifts in the marketplace, all putting pressure on our business in the region. Further into a smaller scale, we have seen a shortage in supply within the Australia past year business with specific products, which has limited our ability to meet demand in Australia. The third and fourth quarters of our business are always the largest quarters of the year for us. We are monitoring the dynamics closely and began the fiscal year a series of cost cutting initiatives within our international operations, as well as production optimization initiatives to mitigate any potential impact on our bottom line. We will look to provide any further update as critical upcoming selling season continues. Again, our focus is on profitability in the near term, not sales growth at any cost. I believe the actions that we have showcased on the margin improvement, OpEx reduction, Successful execution of our high-value sorghum trait solutions in our JV with Shell highlight our commitment to develop our best-in-class seed company for the long term. With that, let me turn the call to Vanessa to review the financials. I will then look to quickly wrap things up and take your questions. Vanessa.