S&W Seed Company

Good day, and welcome to the S&W Seed Company third quarter fiscal year 2024 financial results conference call. 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 a touch-tone phone. 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 Lithum Partners. Please go ahead.

All right. Thank you very much, and thank you all for joining us today to discuss S&W Seed Company's third quarter fiscal year 2024 financial results for the quarter ended March 31, 2024. With us on the call representing the company today are Mark Herman, Chief Executive Officer, and Vanessa Bowman, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. If you dialed into the call through the traditional teleconference line, as the operator indicated, please press star, then 1 to ask a question. If you are listening through the webcast portal and would like to ask a question, you can submit your question through the ask a question feature in the webcast player and we'll do our best to get to as many questions as possible. 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, anticipate, 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 and those projecting the forward-looking statements, including the risks that actual results may differ materially from those projecting 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, 2023, and other filings subsequently made by the company with the Securities and Exchange Commission. In addition, to supplement S&W's financial results report in accordance with U.S. generally accepted accounting principles or GAAP, S&W will discuss adjusted EBITDA on this call. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute of the comparable GAAP measure and is not prepared under any comprehensive set of accounting principles or rules. 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 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'm excited to be speaking to you today. To set the agenda for this call this morning, Let me first provide a high-level overview of the progress we have made during the past quarter, including the commercialization of Double T, which has gone exceedingly well to date with the technology expected to be on more than 10% of all grain sorghum acres in the United States this year. I will also talk about our technology pipeline with the new traits that are being launched over the next year to drive incremental growth. I will expand on the disruptions we've talked about in the Middle East, which are impacting our operations there, and how we have largely mitigated the impact of these disruptions as it relates to our adjusted EBITDA guidance for the year. Finally, I will provide an update on our Vision Biofuels oil seeds, BBO joint venture, and some of the activities taking place there. Vanessa will then run through the financial results in detail, including our guidance for the rest of the year. We will then close the session with any questions that you might have. So let's start with Double Team. You know, as mentioned moments ago, the commercial launch of Double Team has gone exceedingly well, with expectations for the proprietary high-value sorghum trade technology to be planted on more than 10% of all acres in the United States in 2024. This is approximately double of what was planted just last year. As mentioned in the press release, we are maintaining our guidance for double team growth for fiscal 2024, with revenue expected to be at $11.5 to $14 million, representing an increase of 77% to 115% compared to fiscal 2023 for the product lines. We expect incremental stair-step adoption over the coming years with a goal of 25% market share by 2027. We will look to provide more formal go-forward guidance on our year-end call. However, it's fair to assume that this growth puts Double Team as one of the fastest growing trade technologies on the market today. The reason for this rapid growth today and why we are so confident in the future market share gains is that until SNW's development in sorghum technology, sorghum has been without significant research investments to successfully support step change developments to improve the crop's productivity. As farmers are increasingly recognizing the value of new management tools, corresponding risk reduction and yield enhancement through controlling grasses and more robust crop grazing safety technologies, these superior traits are expected to drive greater numbers of sorghum acres planted in the future. As I touched in detail during our last call, in numerous field trials, Double Team has proved to deliver increased yields with reduced risk of crop failure to growers, providing them with high levels of satisfaction. Sorghum is a great crop to meet current worldwide trends in that it is uniquely equipped to handle higher temperatures, drier climates better than many other crops, contributing to sustainability and food security. To date, Double Team has only been available on grain sorghum crops. As you hopefully saw from our press release last week, we have now launched Double Team into the forage sorghum market as well. We are expecting about $500,000 in DT forage sorghum sales in its introductory year this year, with expectations for similar step change growth in the coming years, much as we have seen and experienced in the grain sorghum market with DT. Beyond Double Team, which gives grain sorghum growers an over-the-top, non-GMO, grassy weed control option, We are expanding our focus on sorghum through the pilot launch of our Presic acid-free trait this year. Presic acid-free sorghum is designed to remove naturally toxic metabolite-stressed sorghum for safe, worry-free grazing in hay. We expect a commercial launch in 2025. We will then look to stack double-team and Presic acid-free traits. which is expected to be commercially available in 2028. I am sure it goes without saying, but beyond the strong return on investment, these trades provide growers. They also provide a significant return for SMW and its shareholders as well. Double-team gross margins are currently around 60%, which we expect will increase in the future due to efficiencies and the ability to spend. We are beginning to recognize the benefits this year with year-to-date margins of 29.2% compared to 23.2% in the previous year. As total revenue in the future continues to shift more towards our robust sorghum technology portfolio, including product line extensions and new technology offers over our next year, we expect to see continued margin expansion and profitability. High-value freight technology solutions will be the key driver to S&W long-term success, and it is clear that we are becoming the key technology provider at Sorghum. As I mentioned a moment ago, Double Team continues to be on track for expectations that we provided at the beginning of the year. The same can be said for our broader Americas business as well, which of course includes Double Team, but also our conventional Sorghum products, as well as alfalfa. As a whole, for fiscal 2024, we are reaffirming our America's combined revenue expectations to be in range of $32 to $33 million. Beyond the fact that we are hitting the revenue expectations in America, we have enacted a number of initiatives to improve efficiencies, including improved lifecycle management, increasing inventory utilization, reducing product SKUs, and obsolescence costs. We are also implementing the rationalization of certain low margin forage product lines and seed treatments, suspension of our stevia development program costs, and an overall seed manufacturing cost reduction plan. I am pleased with the progress the team is making in the Americas and look forward to the continued positive momentum in the years to come. Let's now transition to our international operations. As we talked about last quarter on the conference call, there are a number of headwinds in the markets that we operate within, particularly in the Middle East, Northern Africa, MENA region, that are impacting us directly. And unfortunately, they've gotten worse since our call in February. The key disruptions that have centered around expanding conflicts in the MENA region, in particular the war in Ukraine, the Sudan civil war, two key results have occurred. The first has been the transition of many alfalfa growers in the MENA region to plant wheat this upcoming season, which has caused disruptions to normal farming operations and seed distribution channels. The second is that the Department of Ministry in the Saudi Arabia market has recently discontinued their approval of import permits for all forages, which includes alfalfa in all grasses. As a means of water conservation, Combined, we expect to see an impact of approximately $6 to $7 million in revenue from our previous stated guidance. This decrease is within our mid-margin alfalfa products and will affect both volume and pricing expectations on a go-forward basis globally for the remainder of fiscal 2024. Also, as we have signaled in our previous earnings call, we have seen a shortage in supply within our Australia pasture products, which has limited our ability to meet demand in Australia. This will result in a $3 to $4 million revenue reduction in the third and fourth quarters of fiscal 2024 within our low-margin pasture products. So all told, we see a $9 to $11 million revenue impact to our international operations. That said, and as Vanessa will discuss in detail, despite the revenue impact, we are only making slight adjustments to our overall adjusted EBITDA guidance. In fact, the midpoint of our new adjusted EBITDA guidance is still within range of guidance we provided at the beginning of the fiscal year. As we have introduced in previous calls, we have identified and pursued several actions in Australia to improve margins, terminating business projects that have development costs or OPEX costs with low prospect to contribute solid margins and EBITDA in the near future, as well as numerous efficiency measures with facility streamlining, such as the closure of the Wingfield facility consolidating activities into alternative S&W facilities. So while we're frustrated with the disruptions, I am pleased we have operated at a high level across the rest of the organization, having implemented a number of initiatives that have helped to largely mitigate the shortfall. Now, transitioning to a couple of quick updates since our last call regards to our Vision Bioenergy oil seeds business, BBO, the partnership with Shell for biofuels. BBO recently signed an exclusive license for bufacinate-resistant amelina trait, which its research team is moving all efforts to integrate into high-value germplasm and hybrids for commercial use. Bufacinate is a broad-spectrum herbicide that, when utilized with resistant crops, provides an effective over-the-top weed control system. All BBO development efforts will now pivot to fast-tracking this high-value trait into leading products to offer growers. Currently, BBO will be putting out pre-commercial demonstration blocks to highlight the technology value with growers in 2024 and 2025, move to commercial launch for limited trials fall of 2025, and then wide scale plannings in 2026. With this significant technology advancement, BBO has decided not to expand commercial or conventional camelina to focus on launching this breakthrough and fascinate resistant camelina technology trade. Further, BBO has a technology pipeline in development to continue to advance high value products which will contribute to biofuels for the future. Beyond the development progress made within BBO, we successfully achieved all stated objectives required of S&W for our part of the partnership and received a $6 million payment from Shell in February 2024, helping to bolster our balance sheet. Speaking of partnerships and balance sheets, as I introduced earlier, streamlining efforts in Australia, we have made the decision to sell off the remaining portion of our Australia partnership with Trigold Genetics, a wheat development partnership. Since the beginning of January, we have received a total of $1.4 million in consideration, as well as a significant reduction in research and op-ex expense that will start being recognized immediately. With that, let me turn the call to Vanessa to review the financials. I will then look to quickly update things and take your questions.