S&W Seed Company

Good day and welcome to the S&W Seed Company second quarter fiscal year 2025 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 this event is being recorded. I would now like to turn the conference over to Robert Bloom with Wilson 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 second quarter fiscal year 2025 financial results for the period ended December 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. As 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. Before we begin with prepared remarks, please note that statements made by the management team of SWC 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 is amended, and Section 21E of the Securities Exchange Act of 1934 is 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 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 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 30th, 2024, and other filings subsequently made by the company with the Securities and Exchange Commission. To supplement S&W's financial results, reporting in accordance with U.S. generally accepted accounting principles or GAF, S&W will be discussing adjusted EBITDA and adjusted operating expenses on this call. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measure and are not prepared under any comprehensive set of accounting rules or principles. 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 here today speaking with you all. To set the agenda for the call today, let me first touch on the actions we have taken over the past few quarters to reposition S&W focus on our high value add crop opportunities, where we can drive growth and profitability through leading crop innovation, namely in sorghum and camelina, and ultimately unlock value to shareholders. We will then look at long-term opportunity for Sorghum, as well as where the market stands today. I then will provide a brief update on our joint venture with VBO. Vanessa will then provide a detailed review of the financials, and we will take a look at any questions that you may have at the end. For those somewhat new to S&W, let me just take a brief moment to remind everybody of the key activities that have taken place over the past few months. or so that we believe will ultimately unlock value for S&W and its shareholders. First, we successfully completed the VA process in Australia, which occurred in late November 2024. Among other key conditions, the settlement agreement, which we finalized shortly after our last conference call in November, allowed for the release from the intercompany obligations owed to S&W Australia and agreement with the National Australia Bank that released S&W from the $15 million AUD guarantee. In exchange, among other conditions, we transferred ownership of certain intellectual property and inventory to the new entity. Ultimately, this agreement provided the resources we mutually believe were needed to create going concerns for all entities. Following the completion of the VA process, we successfully secured a new 25 million working capital facility with Mountain Ridge in late December 2024, which replaced the previous facility with CIBC Bank. In connection with the agreement, MFB, our largest shareholder, provided a letter of credit with a face amount equal to 13 million to be used as collateral. We believe the new facility and commitment should be viewed as a strong endorsement from both our largest shareholder and new strategic lending partner in the future of S&W and the opportunity it represents going forward. With these key activities as backdrop, we have operationally focused on aligning the cost structure of S&W while implementing best practices across the organization. The end result has been improved gross margins, a reduced break-even rate, as well as lower working capital through an overall improvement in inventory management. All of which has put us closer to profitability without having raised equity capital during this past year. As a reminder, there are currently approximately 2.1 million shares of common stock outstanding and approximately 138,000 warrants, bringing the total diluted shares outstanding to approximately 2.2 million. Clearly, this has not been an easy task, threading the needle of the past year or so, and I want to personally thank the entire team here at S&W for their exceptional work. With that as a backdrop, going forward, we are now exclusively focused on our core U.S.-based operations, led by our high-value sorghum trade portfolio with Double Team, as well as our biofuels partnership with Shell for Camelina. Why we are so excited about the new S&W is really driven by where we believe the market for sorghum is headed over the next decade, but more importantly, what our position in this market is. As some of you are aware, sorghum historically has not benefited from significant research investment. Broad acre crops such as corn, soybeans, and cotton have received. S&W is working to change all of that. In the four years since we first commercially introduced Double Team, we have grown from no acres to approximately 10% to 12% market share of the U.S. grade sorghum acres this year. Based on expected adoption rates, we believe Double Team sorghum can capture 25% to 30% of the US sorghum market share over the next eight years, which would generate about 70 to $78 million in traded sorghum sales. This translates into a figure of about 16 to 18% through 2033. At this scale, we estimate that we would generate gross margins of approximately 76 to 81% on the traded products. Key to this growth is to build on our strength of our initial double-team product with continuous innovation. We currently have multiple new products set to be launched over the next decade, including the commercial launch of our second-generation double-team, or DT2, grain sorghum and PAF, or pressic acid-free forage sorghum, in fiscal 2025, and DT2 forage sorghum in fiscal 2027 in the U.S. The commercial launch of DT2 plus prussic acid free grain sorghum in fiscal 2028 in the U.S. S&W will be extending our trade portfolio to targeted countries through our licensing strategy and agreements to leading independent seed companies as we receive regulatory labels and registrations. The commercial launch of broad spectrum herbicide tolerant sorghum in fiscal 2031. in the U.S. and certain other countries in fiscal 2033. And finally, the commercial launch of insect-tolerant sorghum in fiscal 2031 in the U.S. and certain other countries in fiscal 2033. It's important to note that the pathway to these adoption rates is validated by adoption rates of similar technologies and other crops where leadership positions have been established and a multi-strategic go-to-market model has been enacted. This established roadmap we are following utilizes a combination of a robust direct technical sales team, private label licensing partners, and distribution partners with some of the largest ag-cam retail distributors in the U.S., along with an asset-like model in a TAM through collaborations with leading seed brands via licensing. In our view, there is not another company in the world that boasts the Sorghum capabilities that we have, providing a very strong first-to-market position with an impressive pipeline portfolio to continue to build on our market strength. So that's the long-term look as we see Sorghum. Consistent 16% to 18% decade-long CAGRs, high 70% plus gross margins, driven by strong R&D pipeline and an established commercial model. Near-term sorghum, we are focused on executing against our outlook that we have established for fiscal 2025, which includes global sorghum sales of about 24 to 27 million, of which 12 to 14.5 million of that is treated technologies. Looking at the numbers through the first six months certainly isn't indicative of our outlook that we have for the year. Last year, we saw a lot of early sales in during the December ending quarter, which was somewhat abnormal to the normal purchasing patterns, which tend to occur in the March through June timeframe. Therefore, we certainly expect to see the normal significant ramp here to the coming months as we look to achieve our targets. Our confidence in the future of double team is being driven by the very high grower satisfaction results received from user market research with an extremely high percentage of growers reporting a positive experience. Overall, the majority of growers who have tried double team seek to increase acres. Simply put, farmers that have tried double team love it. Now I'd like to... be remiss if I don't exhibit some level of caution in the near term from a few of the macro factors that impact farmers' decisions, namely the potential impact from tariffs, as well as the rise in alternative crop prices as of recent. As most of you are aware, as a country, the US is a net exporter of sorghum, with the primary importer being China. Further alternative crop prices relative to sorghum could impact sorghum acres planted this coming season. As we have discussed in our private label, business model is moving from selling in inventory to licensees fully loaded with production costs, germplasm royalty, and trait royalty, to selling with production costs and moving the germplasm and trait royalties to a grower point of sale invoice. This effectively keeps inventory management at the licensees while aligning the royalty payments with timing of sales to farmers. This model will enable our strategy to realize significant sales growth in market penetration and align revenue recognition with timing of grower sales. The model transition will be completed in 2027 planning season with all but three licensees expected to be operating under this model in 2026. As you know, with the USC business, our third and fourth quarters, which run from January through June, are our key quarters and we are in full court press mode to ensure that our sales and logistics teams are in sync to get product to customers in a timely manner. In fact, we just completed a multi-day strategic sales meeting with high levels of enthusiasm from the organization. Clearly, the next few months will be busy for our teams and I'm confident that we are well positioned as we can be to execute on the plans that we have put in place. Let's transition for a moment to VBO. While there's not a lot of new information to report, everything related to our biofuels joint venture with Shell remains on track. As a reminder, we own a 34% interest in the JV. A quick reminder of this past fall, BVO introduced camelina seed to farmers, which carries resistance to bupossumae, an effective broad spectrum over the top weed control system. There are currently promotions ongoing with them directly working with farmers into the spring months. I hope to be able to share more with you in the upcoming call. Before I turn it to Vanessa, let me just briefly comment on the announcement we made in mid-January regarding the commencement by the board to explore and evaluate various strategic alternatives that may be available to S&W in an effort to enhance shareholder value. As you can imagine, there is not a lot I can share with you besides what the chairman, Alan Willits, mentioned in the press release. which is that we believe we have taken decisive actions to strengthen the company, much of which I have discussed today, and that the board supports all initiatives that optimize shareholder value and will consider the full range of potential strategic alternatives to ensure S&W Seed is best positioned for future success. As always, there can be no assurance that the review process will result in the company pursuing any transactions or any other strategic outcome, nor as to the form or timing of any of the foregoing. The Board has not set a timetable for completion of this process, and we do not intend to disclose further developments unless and until it determines that further disclosure is appropriate or necessary. Let me turn the call over to Vanessa for a full detailed review of the financials, including our outlook and guidance for the upcoming year. I will then provide some brief closing comments and turn it over for any questions you may have. Vanessa.