Q4 2020 S&W Seed Co Earnings Call

This conference call.

Participants will be any 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'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please so that's about as being recorded I would like now to turn the conference over to Robert Flamm with some partners. Please go ahead.

Thank you so much operator, and thank all of you joining us today to discuss the financial results Brett W. seed company for the fourth quarter and fiscal year at <unk>, which ended June Thirtyth 2020 with us on the call representing the company today are Mr. walk Warren President and Chief Executive Officer, Mr. wrap your dog Chief Financial Officer.

Yes, Sir.

At the conclusion of today's prepared remarks, we will open the call for a question and answer session.

Before I begin with prepared remarks, we submit for the record the following statement.

Statements made by the management team about the <unk> seed company. During the course of this conference call may contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 934 of the 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 a draft eventually or project.

Good.

They 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 Companys 10-K.

Fiscal year ended June Thirtyth, 2019, and <unk> other filings made by the company with the Securities and Exchange Commission with that.

With that said, let me turn the call over to Mark Watson, Chief Executive Officer about W. seed company Mark. Please proceed.

Thank you very much Robert and welcome everyone to the call today.

I'd like to just start out by reminding everyone that the company up three years ago that we had when I first became CEO is a it is a lot different today than it was then remember that we have three main strategy issues that we laid out.

Three years ago that were continuing.

To pursue because we think that they're working on their generating a huge sales growth numbers for us all around the world. So just again to review those for everyone's sake, you know we've expanded from just.

Just being an alfalfa company three years ago to now having five main species alfalfa sorghum sunflower, we eat a path.

A pastor products until a much broader product line that we're taking to our pharma customers.

Secondly, we've diversified our sales channels weve invested heavily in sales and marketing both in the U.S. and Australia.

To be able to reach farmers.

We in Australia purchase.

The past your genetics company, which has very strong and well known.

Reach to a distribution to farmers through basically the distributor network in Australia remember, it's a one step distribution in Australia, not necessarily to step like in the U.S. and our original acquisition chroma 10.

Well, we where we acquired there a farmer dealer network, which we put a lot of effort into.

Broadening and strengthening and also oh, broadening and strengthening our ability to reach farmers through large distributors in the U.S.

Also remember that on the sales and marketing side. We are we do acquire companies to move ahead our progress.

Progress in the markets quicker, but there's always a danger that you don't integrate those companies well and we've space.

That special attention to integrating all of those brands and distribution that we've acquired on a worldwide basis. So I'm happy to just remind everyone that a absent W. Brand is now the <unk>.

The brand we sell under in all of our international markets and all of our U.S. based markets and Americas market. So there are some sub brands, but all the sub brands are sold under Oh, you are asking w. brands worldwide now.

Also the third piece of our strategy was to invest in R&D create basically proprietary products through plant breeding. So all of our five crops that we're in are supported by a plant breeding efforts I'll give you a little bit more detail on that later on in the call and it is.

Really the basis of our product performance in the field right Oh, we do believe that spending money on plant breeding generates higher performing proprietary products.

And also you know where you'll start to see in a.

2021.

Traits coming out of our trait development program as I said previously we're working on a presentation that we will make public that talks about the three traits were currently working on and has a little bit of an assessment of value when timeline. So that you all.

All more informed on what the expectation should be for our trait pipeline.

So in 2020, we're happy to report that the sales growth was very very strong remember this is in the market.

Were cobot 19 is reading on all company, it's an AG companies are not excluded from that even though they're essential industries. It's much much more difficult for us to get meetings with our customers to introduce our new products to talk through why they should be buying more.

More of our proprietary high yielding.

ER product line.

But nonetheless, our sales were up 58% in 2020, a core revenue without acquisitions in there and remember again the main acquisition was pastor genetics in Australia.

Core revenue was up 27%.

And if you look at the the growth rates that the big four which are you know buyers Syngenta <unk> cortiva.

You will not see those kind of growth rates. So you know focusing on the mid term crops. The middle market crops. We call them does offer a we believe a significant advantages in growth rates.

And so you know that's why we focused on those products.

And we're going to talk a little bit about our expectations for next year.

Matt will we'll do that in his presentation, but we're also projecting a very strong growth in 2000.

In 2000 fiscal year 2021.

Uh-huh again.

You'll be hearing more about trade. So herbicide resistance is our big freight that we're introducing.

In 2021, they'll be some small sales there we havent apart a partnership we've announced with Adama and.

And ER and we will be giving you some more detail on that as we go forward in the next month or so.

Oh, So you know any every seat company needs to manage its balance sheet inventories always.

A difficult thing to see business, you tend to either not have enough or have too much and that's because we only get one chance at crop production in each hemisphere. So one chance to plant in the spring.

In the northern Hemisphere, one chance the plant in the spring and the southern Hemisphere basically.

Few of our crops can be planted in the fall, but in general it's one spring planting per year.

And we're doing a good job mainly working off some legacy alfalfa inventory that we had to generate cash that's not necessarily a big issue in the sense that all see companies manage their inventory and manage their production cost obviously because that.

Gross profit margin, but also you know you always get into these situations, where you can be short of inventory and missed sales and you can be long on inventory you have to go through a process of working that out and so you've got to various markets.

That you have access to all around the world.

But in general I I believe that the three years old or a bus working on these core strategic principles have Jeff.

Generated a powerful and diversified agricultural platform. We believe that we've followed some of the learnings that the bigger companies have been shown over the last 20 years in corn and soybeans and cotton both the plant breeding while.

In freight and that we have also incorporated some of the learnings from my personal experience in the seed business, which as you. All know is a decades long my last company or emergent genetics or had a very diversified geographic strategy and we followed.

That with Aesynt W. Since Oh, we believe.

We believe that that allows superior growth, but also mitigate some of the risk of as an example, this inventory that I've. Just described because you can go to many many more markets because you have access to many many more markets.

So we're very happy with our strategy, we're very happy with our 2020 fiscal year growth rates.

Again, that's going to give you a little bit of a guidance on 2021, but we think you know we're going to be in that sort of 20% to 30% a growth range low side high sides.

And.

We're working hard to make sure that happens.

Again.

Three or issues to or or strategies to remember when you think about Aesynt W. You know we are a seed biotech company. So those kind of companies eventually get superior margins as the products flow through their R&D pipelines and reach farmers that can.

Be a fairly long process.

Four to six years in some cases and that's why you buy companies that already have established pipeline. So first thing to remember you know we've invested in strong R&D and that that is what is producing our proprietary products through plant breeding and trade additions.

Secondly, you have to know what the farmer wants and you have to be able to sell your improved products to farmers and so having a broad and deep sales access up to your pharma customers through and being able to show them. The performance of your products through field trials.

That is an important part of extending R&D developments into real products that rate make real money and that people are willing to buy and so we have invested heavily in our sales and marketing really to go along with our investment in R&D you cannot do one without the other.

Thirdly, you know diversified production I mentioned do you only get a.

One crack and thus at the northern and southern Hemisphere in general where most of our crops.

But you know Weve continued to focus on.

Hi seed production rates in these various countries and reducing our cost per pound of the C that we sell to farmers. That's one way to obviously improve your margins, but it also.

It's very difficult because you don't get very many chances to do production. So it adds to the risk that you're going to have maybe low inventories are high inventories. So we try to manage all of those issues to have the right amount of inventory that matches our sales forecast.

A little bit of detail, maybe ER on those kind of Ah issues. So the sales and marketing area just to give you. Some specific numbers in 2020, we spent 7.6 million on sales and marketing that's about 6 million more than we spent when I arrived.

Three years ago.

Remember, we've also made a transition from a company that sold just alfalfa through distributors worldwide to a company that sells six five or six product lines. If you can't Steve you had six.

And you know, we're selling that through sometimes distributors, but sometimes more direct to farmer dealers to our farmer customers.

And you know we've done that by really are in the U.S.

Purchasing [noise] through chroma the chromosome an acquisition there pharma dealer network and also improving the distributor and co op customer relationships that we've had historically and we've done that in Australia by purchasing passenger genetics, which is one of the best known sales and marketing company.

He is.

In Australia, and and the you know, we're obviously very very pleased with how that integration has gone into essence W.

As I said before we sell under the Aesynt W. brand now in all of our companies. There are some sub brands in the U.S., we sell sorghum partners sorghum, we sell alfalfa partners alfalfa.

Sunflower partners around the world and we sell gold strike a seed coating product that we developed a.

HM.

All of our crops.

And you know we are.

Moving forward with the simplifying always our message to the farmer whether that be.

Through our printed media or are much much enlarged effort in social media.

No one takes lessons from the past, but one must also into.

Integrate new techniques into both the breeding production and R&D efforts that we're doing.

So I just wanted to I'll, just conclude before I turn it over to Matt just by saying again that Ah I believe our strategy is generating a large sales gains I believe those are a bigger then.

Bigger than other companies in our industry are generating and I'm very pleased.

Very pleased that our employees basically in this very difficult market you know the U.S. is probably a bit more difficult than other countries in the world just because cobot 19 is Ah so.

Seemingly everywhere in the U.S. and obviously affecting away we deal with our customers.

Customers, but also you know in the U.S. is still a pretty tough AG market.

Farmers, we're not making money in most of the major crops recently, China started to buy some soybeans and that's and improve the price there. So soybeans looks like a profitable crop right now at least but it's a very tough AG market in general and to show these kind of games I'm very thankful to all of our employees.

He's especially our people in sales and marketing and R&D for the price.

The progress that we have.

So with that maybe alternatively, the presentation, Matt over to you and you can go through some of the the details on that on the financial numbers for us and W. Thanks, So much.

Great. Thanks, Mark [noise], keeping and thanks, everyone for joining us on the call. Today. So you know just jumping into the financial results core revenue, which is total revenue excluding revenue to pioneer was $23.8 million for the fourth quarter, an increase of 120% compared to 10.8 million in the fourth quarter of the prior year.

As we mentioned in the press release, we recognized 6 million in revenue during the fourth quarter from pasture genetics, which we acquired in February of this year.

Passion generics will be including our core revenue going forward now if you exclude the pastor genetics revenue core revenue for Q4 was up 64% versus the fourth quarter of the prior year.

And for the full year core revenue, including pasture genetics as Mark mentioned was up 58% versus the prior year and if we exclude the jet harsh Patrick genetics partial period contribution core revenue for the year was up 27% versus the prior year.

Total revenue, which includes revenue the pioneer was 25.9 million for the fourth quarter compared to 46.8 million in the prior year for the full year total revenue was 79.6 million versus 109.7 million in the prior year. The prior year results include non recurring license revenue was 30.

4 million so excluding this nonrecurring revenue in the prior year total revenue in fiscal 2019 was 75.5 million as.

As a reminder, we entered into a termination agreement in Alfalfa license agreement with pioneer or now called Cortiva and May of 2019 and court.

And Cortiva paid its 45 million in May of 2019, as well as 20 million over last year and we are also entitled to receive an additional 4.6 million and payments and then January and February 2021 time period.

Now as a reminder, a year ago, when we first laid out our expectations for core revenue growth for 2020, we thought we would grow between nine and 16% so.

So to deliver core revenue growth and 27% excluding the acquisition is quite an achievement.

Now as we look to 2021, we expect core revenue to be within a range of 73 to 79 million and this represents an anticipated core revenue growth within a range of 20% to 32%. This rapid growth is expected to come primarily from our two key home market, the U.S. and Australia.

Now, including the contributions from pioneer we expect total revenue for fiscal 21 to be within a range of 88 to 94 million.

Now moving to gross margins adjusted gross margins, excluding the impact of inventory write downs was 21.7% for 2020 compared to adjusted gross margins of 20.3% in the prior year.

The increase in adjusted gross margins for fiscal 2020 is primarily driven by improvements in alfalfa.

We are expecting gross margins in fiscal 21 to show meaningful improvement over 2020.

We're currently projecting gross margins for 21 could be in the range of 24% to 25% and this improvement is expected to come primarily from growth in our higher margin trucking products and improvements in our alfalfa margins now that our long inventory situation has improved.

Moving to our backs our adjusted operating expenses for 2020, or 32.9 million compared to 26.4 million and 2019. The increase in operating expenses for fiscal 2020 can be attributed to additional expenses from the newly acquired acquisition pastor genetics and as Mark talked about the additional investment.

It's in our sales and marketing and R&D functions.

As previously mentioned over the last several quarters, we have made several investments and purposeful Sun purposeful style, excuse me and sales and marketing and product development.

So when you think of the past three years, just as a point of reference we have increased our sales and marketing spend from 1.7 million in 2017 to 7.6 million and 2020, an increase of nearly 6 million and at the R&D line item. We've increased from 3 million in 2017 to 7.3.

$3 million and 2020, an increase of over 4 million. The aggregate of these investments is greater than our adjusted EBITDA loss or 2020. These are clearly investment that are being made to position STW for the next stage of our development and we will we believe we will see the positive impact from leveraging both of these investments in 21 and beyond.

Now I wanted to provide some guidance as we look to 21 from an operating expense standpoint, including the passion genetics acquisition.

We project full year fiscal 21 operating expenses as follows.

She may will be approximately 23 million, which includes pasture genetics for the full year as well as non cash stock based compensation.

Research and development will be approximately seven and a half million and 21 and depreciation and amortization will be approximately 6 million.

At the adjusted EBITDA line, we had negative EBITDA of 9.7 million for 2020 compared to positive EBITDA of 19.2 million in the prior year again, the prior year was impacted by the 34 million of nonrecurring licensing revenue. According to court T.

As we leverage our infrastructure delivered core revenue growth our goal continues to be driving towards positive EBITDA contribution over the coming periods.

Now quickly moving to the balance sheet I, just want to point out that we continue to make progress in reducing our inventory levels and freeing up working capital as I had mentioned over the last three quarters, we planted very minimal acres of alfalfa production as we continue to work through our existing inventory levels. So when you look at our inventory levels from June 2020 versus June of now.

Hi team, our balances are down by 7.4 million or 10%.

But that's even after taking into account the increase in inventory from the recent past Virgin Annex acquisition, so I'd like to discuss their alfalfa inventory balances have decreased approximately 21 million or 32% over last 12 months and we are expecting this trend to continue into 2021.

This reduction is a reflection of our ongoing efforts to reduce alfalfa inventory balances and convert this inventory to cash while more work is definitely ahead of US. We believe we are on track and we made significant progress to reduce our balances to more optimal levels over the next 12 months.

So in recap we're executing on the various initiatives we set out we're very excited about our recent acquisition and how that integration is going and we're very hopeful that the progress that we've achieved over the last number of months will continue into 21 and beyond.

So with that I'm going to turn the call back over to Mark.

Thanks, Matt and I'd, just like to conclude the call by just thanking all of our employees for all of their efforts.

In 2020, and I'd like to also give my appreciation for all of our customers who allowed us to have a kind of sales growth that Matt and I have delineated in this call. We do believe that we built an integrated seed biotech knowledge of the company that will continue with those kind.

To have growth rates into the future and we're very happy with our basic strategy of a strong R&D marketing spend to reach customers and a diversified worldwide production effort and all of our now five major crops, so with that I'll.

And the call and we'll be happy to take questions operator, turning it over to you.

We will now begin the question and answer session Task. A question you May Press Star then one on your Touchtone phone [laughter], if you're using a speakerphone. Please pick up your handset before pressing keys. If at any time. Your question has penetrated and he would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Sure.

Our first question comes from Sarkis Sherbetchyan from B. Riley circuits. Your life. Please go ahead.

Hey, Thank you and good morning, Thanks for taking my question here.

Good morning.

So good morning for some <unk>.

Morning, So can you maybe provide us with with the sales mix by product line for for the fourth quarter or for the year, if that's easier. Please.

Oh, yes, turkeys for 2020 on an overall basis.

Roughly including the pioneer inventory, a pioneer sales I should say as well as our other alfalfa sales that represented about 64% of our of our revenue is.

And between forage grain and on sort of them sit down and that was another almost 17% of our revenues.

And the rest of Rusty the next really came from other products coming from the ashes genetics portfolio that we acquired.

Thanks for that and.

For the sales guidance for fiscal 21, you can you maybe give us some some assumptions or our growth drivers between the product lines for example, alfalfa sorghum, a wheat and pasture genetics.

Well I would say sorry, Keith that overall, we're projecting growth across all of our product lines on a percentage basis were certainly four inch affords for them in grain services on a percentage basis is probably a bit.

Probably the biggest striving factor over all collectively our our sorbion product lines are likely.

Likely going to be up close to 50% year over year and you know, it's pretty substantial growth and you know as Mark talked about we're expecting total core growth core revenue growth anywhere between 22 and 32% for the year.

I didn't but it's really coming across the board, but sort of on being the most prominent.

Got it and sorry, just to clarify that's five zero, 50%.

Oh, that's right.

Okay, that's really good.

And just kind of moving to inventory levels. I know you guys kind of talked touched on this on the call. So you know what products are you maybe short on you know currently that Youd like more of as you kind of go into the next kind of planting cycle and then you know maybe how many quarters do you think you have for today.

To get the alfalfa seed inventory down to levels, where you can generate some healthy turnover there.

Yeah, Let me jump in first so I think in general other than alfalfa being still in a bit of surplus, but clearly or less than that in the last couple of years.

Everything is pretty much in balance.

If there's one crop it's a little bit short I'd say, a sunflower and you know we still have small amounts of sunflower. Our programs just developing there were in sort of your five breathing wise. So we're just coming out with a the best new material, but our sunflower sales are a little bit short, but in general.

So everything is in balance right now.

Hi, good production years everywhere.

That sounds good and one last one for me ill hop back in the queue can you maybe provide us with a framework to understand you know what the herbicide tolerance trade for sorghum, specifically the agreement you had with Adama could mean for us and W. In terms of sales or gross margin or kind of profitability.

Yeah. So we're working on that deck now Sarkies and you know so in a month or hopefully I'll be able to answer that question with a you know well thought through piece that answers those questions. We have clearly had.

Many questions about the value of that trade, we think that its important to control grasses remember that sorghum is a grass itself and so those are that's the worst combination right was when do try to control grass weeds intergraph's.

And you know.

You know early when the sort of complaints are small that's when you get the best benefit of being able to spray over the top.

And basically not affect your crop of choice, which is sorghum, but kill all the week. So we're working on.

We're working on that I don't really want to get ahead of ourselves sort of talking about any margin percentages, but you know in general you you get an extra.

Uh huh.

Kick in the sales price because you're generating value for the farmers. So they're willing to pay for that you know it's a it's a net some games have you generate a dollar that rule of thumb in the industry as if you generate a dollar the farmer keeps about 15% to 20% of that distribution gets 10% to 15% of that.

And the trait providers.

In this case, mostly us but also on the <unk>.

Chem side Adama with would share the rest and we have an agreement with Adama that signed that are that we haven't made public the details of that beat that describes exactly what we get and what they get a in our partnership in terms of margins.

That's fair thanks for that.

Yup.

Our next question comes from Ben Klieve from National Security script venue I live. Please go ahead.

All right. Thanks for taking my question. This morning first that one question regarding the fourth quarter, specifically Madam, having a difficult time kind of parsing out gross profit or gross margin excuse me in the fourth quarter.

You've given kind of the puts and takes between pioneer and inventory write down can you talk a bit about kind of what what gross profit margins really looks like in the quarter. If you exclude kind of all the various one time you know one time or nonrecurring items and then talk about maybe any any headwinds that you guys faced in the fourth quarter.

That that may be limited the upside there.

Yeah sure Ben I mean, I think Ah you know Q4 margins did come in lower than expected, but it was really it's really a combination of three main driving factors. One we did take an inventory write down of almost a million dollars of lower germ or out of spec alfalfa inventory during the quarter.

So that certainly had an impact also you know mark touched on this earlier, but our higher margin sorghum sales that were slated for the U.S. market were hampered by our.

The various stay at home measures and other disruptions due to called it. So I mean as a reminder, bad Q4 is the key sales season for us and although we we met our topline revenue objectives for the year. We were certainly planning on additional market share gains in sorghum during Q4 and so this growth is now being pushed out to next sales season, but it goes higher margins.

<unk> that didn't materialize in Q4 did have an overall impact adverse impact on margins and then you know obviously as we you know we're we're really.

Happy with the progress, we're making in reducing our long alfalfa inventory situation, but as we work through that long position. We did end up selling some higher cost alfalfa, which was produced in prior years and we <unk>, we sold that true up.

Lower value markets and a while we anticipate continuing to work through this inventory over the next 12 months. We certainly we certainly don't expect that that's going to have the same margin drag as it did in Q4.

Got it got it thanks.

It's very helpful on it turning over kind of the outlook for 21 I appreciated your comments regarding the Isle what kinda by crop, but I'm wondering if you can elaborate a bit on on geography, and specifically on what looks like Saudi Arabia Post you know nice a nice improve.

Nice improvement year over year and 2021.

What assumptions do you have baked in for Saudi Arabia and growth and also for growth in ancillary markets that are effectively just act sporting exporting their sales to Saudi Arabia.

For next year.

Mark did you want me to take that one yes.

Yeah sure.

So Ben we yeah, we did see a we did see a pick up in business in Saudi Arabia over the last 12 months. A we are you know cautiously optimistic that we're going to continue to see.

A rebound in Saudi Arabia, but I would say from a geographic standpoint, the majority or the most significant amount of our growth that we're projecting over the next 12 months is coming back from our home markets. Both in Australia as we capitalize on the Apache genetics acquisition and of course as we as we leverage the investments we've made in the U.S.

And our sales and marketing function.

So those are the two regions that are going to be driving that because a lot of growth over the next 12 months or so.

Got it and then last question from me I'll get back in queue.

Can you elaborate a bit on the on amendments to the credit agreement in kind of what what the outlook could be forever for future M&A.

You know as a function of a you know of any adjustments to the credit agreement.

Well our current agreement currently we need to get consent from our lenders to pursue any material acquisitions. So I would say that our existing credit agreement do not allow for M&A growth. It's certainly there are banks had been good partners and.

If we identify an opportunity that we think is going to be very accretive than we think our banks will be supportive and those initiatives, but yeah without a specific example, I can't I don't know if I can give you much more details on that.

Okay, No fair enough okay.

Okay.

I think that does it for me thanks for taking my questions I want to get back in queue here.

Thanks, Matt.

As a reminder, if you'd be like Tad to the the question queue. Please press Star then one on your Touchtone phone. Our next question comes from Gerry Sweeney from Roth capital Cherry or alive. Please go ahead.

Good morning, Mark and my Thanks for taking my call major.

Just wanted to poke around that a little bit on the sorghum herbicide resistance product as much as you can talk about a little bit more but.

Obviously, I think you got some high expectations developing for the product and.

Fiscal year and going forward.

Any key milestones that we should keep in mind or keep an eye out for you know broadbrush wise.

18 months.

Yeah, I mean, we're still early on in the process right. So we have many field trials out a where we have sprayed.

The product on you know real sorghum crops, so we choose and plant a broad variety of different hybrid sorghum.

These are mostly grain sorghum, so that we could see if there's any genetic difference between how the sarcomas are reacting to the herbicide remember in a in a normal state without the gene herbicide would kill the sarcoma. So.

And we obviously that's not good.

But we have a higher standard than that right you can't even sort of make the sorghum will look we'll see because you know farmers don't like that right. They start to think that that their yields are depressed and so sorghum is an easy crop to measure yield because you you use a grain harvest or in all the grain go.

It is over a wage scale at your Ah harvesting the field. So farmers gather very very good information we gather the same information on our trials, obviously, they're smaller acreages and a real production sorghum grain field, but nonetheless, you know its statistically valid data.

And.

You know we are we like to see a safety margin right. So we like to see that when we spray on multiple doses.

Doses of multiple concentrations of the herbicide that the that the assistance to the harvest.

Herbicide resistance shows no effect in the sorghum. So you you want a lot of protection and so that's where we think we are on the product. We're evaluating that now there's always some fine tuning on when you can spray and whats true leaf stage. It passed the prop has to be island. All these things that.

When farmers understand and that's what makes the introduction so technical but you know.

Those are all coming along well and we went.

The Puerto Rico with a special seat increase a this year. So we would have more material to trial. So we're trying to gain time over what would be a normal a timeline introduce a trait like this and that's why we have enough seed to put.

Put out the trials or this that we planted this spring and 2020 and we're harvesting those and gathering data right now because it's sort of harvest Ah Ah Ah harvest time and saw them in the northern hemisphere. So we're very happy with the results. So far we don't see any problems.

And you know, we'll go forward with a selling in the spring of two.

The spring of 2021 of them, but the inventory that we have but understand it's a it's a limited amount of inventory at this point and what we really want to do is get some seed into the hands of many farmers right. We want the farmers who are what we call Bell cow farmers you know the farmers that in a in a regional air.

Other farmers listen to we want those farmers to have our herbicide resistant sorghum in their fields and make a personal evaluation audits effectiveness and make a personal evaluation on what yield they get out of those fields and you know that's useful information.

And for them and obviously for Us also.

So.

That's why.

We're working on the stack right because the economics and the farmer's fields still are not totally know right. So what we can really charge for.

You know the trade that's a fair price to farmers that allows them to make money and allows us.

Developer and our partner Adama as the chemical suppliers to all make our fair share of the money you know that's still a calculation that we're working on and that we will be working on for the next couple of years because it just.

As you see larger amounts of acres go in you know, obviously, you'll get statistically better and better numbers.

So that's a normal thing that's what everybody's done that's what the big guys do and they put a new trade in you know we have a we've been in business a long time, we put trade 10, when we were at other companies, we know the rigor and ER, but it doesn't happen overnight. It takes some effort.

And I know that.

Everybody keeps asking you know one of the benefits and we're not trying to keep it a secret but you know we are gathering information and that does take some time and multiple years, but that number should get better over the next year or two.

Got it that goes back to the <unk> dollar you mentioned earlier and just trying to figure out how much improvement to the farmer to how much you sort of.

Collect offer that thought that improvement.

Yes, we will in this presentation, where we are.

Presentation, we're working on we will step out on the diving board and make some projections for margin and timing and all that kind of stuff. So I just ask everyone to be a little bit patient and I know I've asked that before but yeah. We don't we'd like to have all of these different analyses wealth.

It through and you know we have teams working on this and it's important that in turn up to the company we vet.

What we're doing so that so that we get the best result.

Got it switching gears, obviously growth was very good on the on the core business.

Yes, you have the former dealer network network that you got chroma 10.

It's got integration with brands here Patrick genetics.

If I could.

Could you maybe give us a little bit of detail you know, maybe whats gone really well, what maybe need some more work or or all items really kind of firing on all cylinders and just trying to get a sense of maybe pulling back on you are getting.

I mean, it doesn't matter anymore.

So yeah as Matt said, you know our our growth and 21 is going to be in our two major home markets right, Australia and the U.S. If I I think I saw new farm, which is Oh, it's just the big Australian company that sells both seed and AG Chem products just came out with their 2020 resolved.

They had a 7% growth rate. So you know our our growth rates are fourx fivex. Other people, obviously were a smaller company. So I'm not saying that you know overtime when worth hundreds of millions in sales will be able to make those kind of percentage growth rates, but you know we have super high.

Growth rates compared to the industry and its a broad.

Category of games right. It's it's.

It's some of the as Matt said at some of the alfalfa markets may be coming back in Africa, and the middle East, It's a sort themselves around the world. It's a a few places like Asia, Pakistan, where we're selling sunflower are at a pretty heavy.

Yep.

We expect better royalties from our wheat program in Australia, that's looking pretty good there and it's raining in Australia now in wheat crop is making and so.

Well no in the next month or so what the harvest really look like so you know it's it's a really you don't make those kind of games without sort of every crop contributing and that's kind of where we are and of course it varies around the world in which geography, you're talking about but.

The main growth is in.

Like Matt said, Australia, and the U.S., but we're getting good worldwide growth everywhere and we're starting to open up South America. So.

It's a pretty broad the sales gain in most markets and most crops.

Got it I went there I would focus on it I would focus if I could if I if I had one place where I thought we would have more significant breakthroughs in other places, but let's forget that kinda sales gain you you're sort of firing on all cylinders on all crops in all markets frankly.

Got it.

And then you know just impacting inventory.

For your Matt.

Yeah, what would be.

How much excess inventory of alfalfa remain I'm not sure if you want to throw a dollar amount on it.

Total inventories down to almost 64 million from 71, a change just.

I'm curious.

Maybe if you could bracket or as much details you want to provide on that front.

Matt you want to try to answer them.

Yeah, I mean, as Jay I don't know if there's a specific dollar amount of inventory because as we as mark talk about the the growth rates that we're achieving that.

That.

It's going to require us to carry higher levels of inventory now with that being said we've talked about for quite some time that we've been long enough and alfalfa inventory I mean.

Significant amount of progress there.

And I would say that probably 12 months from now we think we're going to be pretty darn close to optimal levels, there and it's like that and Mark alluded to before as you know the pendulum can swing the other way. So we're really careful about that as well.

It's hard to find that perfect mix that perfect.

You know, obviously that sucks up some working capital, but is that a fair way to say you know maybe alfalfa comes down and maybe.

You know that this frees up cash for some other inventories and some higher margin higher growth.

Well, so maybe we see adjustments, but it also could be shifting around.

Shifting around to some.

Different areas as well yeah, I think that's totally fair Jerry I mean look we're more biased towards our higher margin crops, right and grain sorghum to the highest margin crop so.

So and if there's an old seed added you can't sell out of an empty wheelbarrow [laughter]. So you know as frankly as we pulled down you know 25.

25% to 28% margin alfalfa, we're going to reinvest those dollars and 45% or margin grain sorghum, especially grain sorghum with a trade, which is going to have higher margin than that like you know.

So you'll you'll get my projections for that in the next hopefully 30, 45 days, but yeah, clearly there will be much higher than even the 45% on grain sorghum. Today. So you know every seat company is always making those tradeoffs right and we have we released the crop you know for production. This is a seed crop now.

Now you know we look at the margin right were always more willing to run out of something that has relatively low margin than something that has relatively high margin and we're always trying to bias our product line to the newer material right. So if.

If we have something that's five years old and something that's brand new we will grow 100 or 200% of the new.

Product and will grow 80% of the old one try to always move the product line towards.

Newer material with better performance and better margins, that's what see companies do that's what that's what we've learned to do overall the decades, we've been in the business.

Okay guys I appreciate it thanks for taking my yes, a good question story as you.

As usual.

This concludes our question and answer session I would like to turn the conference over to Marc Hong for any closing remarks.

Thank you, Matt So again, everyone on the call. Thanks, so much for following essence W. We think it's a great story building every year momentum both on a sales basis, which we've proven it but on a margin basis too we are.

In closing our losses, and we will be profitable or in the next a year or two and so or that we appreciate everyone everyone's interest in Essen W. And we look forward to talking to you about our results in the future. So thanks, everybody very much for being on the call today.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

[noise].