Q4 2021 S&W Seed Co Earnings Call
[music].
Good morning, and welcome to the Hudson W seed company fourth quarter and fiscal year 2021 financial results conference call all participants will be in listen only mode.
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After today's presentation there'll 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 Blum with Lytham partners. Please go ahead.
Okay. Thank you very much and thank you all for joining us today to discuss the financial results for us in W. Seed company for the fourth quarter fiscal year 2021, which ended June 32021.
With us on the call representing the company today are Mr. Mark Wong, President and Chief Executive Officer, and Matthew <unk>, 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 SW 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 $52.0 as amended.
Section 21 E of the Securities Exchange Act 1934, as amended and such forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
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 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.
The company's 10-K for the fiscal year ended June 32020, and other filings made by the company with Securities and Exchange Commission with that said, let me turn the call over to Mark Wong Chief Executive Officer, Preston WC Company Mark. Please proceed.
Thank you very much Robert and welcome everyone to the call today.
I'd just like to start out by saying, it's hard to believe after 18 months that COVID-19.
Still have such a.
Difficult stressful effect on all of our businesses, but we see that continuing frankly through the full fiscal 2022 year, so that would be.
The summer would be June of 'twenty two.
Calendar year.
So we continue to have logistics issues that we're managing we continue to.
As other companies have had.
Employment.
Mortgages and difficulty hiring and also we've had to increase wages.
So.
Again, we are assuming for our 2022 fiscal year that.
That COVID-19 will unfortunately be.
Our problem that that all businesses worldwide are dealing with and so the remarks that Matt and I are going to make today. Please remember that.
All made in the background of Covid continuing to put stress on our business.
With that being said, though.
Logistics are.
Reasonably under control, we reorganized the company to have.
Teams that look at the orders the big orders, especially going to the middle East.
South America and Asia.
We.
Coordinate those teams from the plant all the way through the <unk>.
Paperwork needed to get these shipments to the customers and.
Through booking the ships and dealing with any problems that happen because as you all know lots of ship schedules.
Hold in our changed at the last minute and it forces us to change our shipping instructions to our to our customers.
Net net though is very good news so far.
We have not had.
Delay. So we have had delays no question about that but we have not had to delay that forces us with a shipment to miss our customers planting date. So remember that we are in the agricultural business. There is.
In the northern and southern Hemisphere for each of our key crops dates, which the farmers like the plant the seed and so far although the seeds may have been delayed it has not missed the planting date.
Customer wanted to put that seed in the ground and in the end that of course is a very important fact, so we basically.
We continue to get the sales, but it might be delayed from one fiscal year to the other or one quarter to the next.
Even with these pressures, though I'm pleased to report that margins are improving.
They are.
Higher than last year, and we are continuing to believe that we will be able to.
Recognized higher margins for the full fiscal year of 'twenty two.
We put price increases on most of our products.
And we believe that.
The proprietary products that we sell will be able to hold those price increases and and given a market of high commodity prices that <unk>.
Farmers are able to afford those price increases and still see higher value.
In terms of returns per acre on the seats that we sell them for their planting crops.
In addition, double team are.
Grass herbicide.
And it's really full first year of initiation. So last year, we did sell some seed and we were sold out but this year, we have a reasonable amount of seed to sell and we have seen.
Very very favorable results in the field and what I mean by that is when you.
Look at a sorghum grain sorghum field that has been sprayed with our <unk>.
Double team product over the top of the sorghum.
Two things Youll notice number one in the weeds are under control there basically are no weeds grass weeds in the field and the sorghum looks excellent right theres not brown on the leaves theres not any dead plants for sure.
And so we're very very optimistic that the product really does perform well in the field.
The last step of course is now that we're in harvest in the western corn belt of the U S. So that would be the Mississippi River West too.
Rocky Mountains.
We're seeing.
Farmers harvest their fields, and we're starting to get back information on yields right because in the end the crop can look very good the herbicide performance can be very good in the weeds are nonexistent, but the farmer must get a good yield and so we're in the process of verifying that with real data from the farmers that purchased an <unk>.
<unk> our seed in the spring of 2021 calendar year.
So we're very very optimistic about double team and.
And very optimistic that the product once final data is in will have performed well in the field.
And that sales for this fiscal year 2022 will be excellent.
So.
The last thing I wanted to talk a little bit about with stevia. So as you all know we announced the deal with ingredient.
The largest stevia seller in North America and the World.
Right now most of the production of Stevia leaf comes from China.
So in China, the leaf is an annual crop.
Sure.
So they plant in the spring.
The crop has grown for one year and then harvested by hand, and then that Leif has taken to an extraction plant and then our purification plant to get the final stevia product that is sold in the market.
The markets are growing pretty fast.
1.3 billion dollar worldwide market $6 million to $800 million in the U S.
So the U S is the biggest worldwide market and.
We in ingredients have been working on a program to produce the stevia leaf in the United States and so our breeding program is in the southeast of the United States, where the conditions of.
Where the plants growing are very similar to where the plant was originally discovered in South America in Paraguay very.
Very humid.
Hot summers.
Stevia plants like but our system our production based on our proprietary germplasm, there's a little bit different.
And our commercial agreements are a little bit different so I just wanted to make sure that I gave enough detail. So people will understand that.
So we basically.
Harvest stevia for three years.
Stevia is by its nature a perennial crop.
So China does not take.
Full advantage of it being a perennial but we leave it in the ground for three years and.
And we and in our farmer customers have developed a machine that strips the stevia leaf leaves off of the stevia plant.
And it does not destroy the plants. So it doesn't rip the plant out of the ground. So the plant can produce stevia leaf again in the next year.
There's obviously some advantages on a cost basis you only.
Half the plant every three years and.
Farmer also has a cover crop.
<unk> is an acre of production for three years, and hopefully someday there'll be the ability to get some carbon credits for that part of the stevia production process, but right now the big goal is that we have convinced ourselves an ingredient that we can produce stevia.
Beef in the U S at a competitive cost per pound.
That competes with China.
And Thats, a big if that that the industry was always asking what would be the.
The cost of stevia leaf if there wasn't a.
Hand harvest if it was a mechanical harvest and who would develop the technology to mechanically harvest the stevia and also produce it at a competitive cost.
We have done that and that is the basis of our agreement with <unk>.
Ingredient.
Yeah.
On the commercial side, though what everyone on the call should understand is.
We buy the lease from our farmers and we have a back to back supply agreement to sell that leaf to ingredient.
And so we're not really a seed company, we've sort of taken one step up the vertical.
Later towards the customer and we now are the leap seller to ingredient who process that process is that lease.
Extracts the Steven.
And then.
<unk> sat in cells that to their customers in the beverage and food industries.
It's a model that we call a closed loop model, where basically our.
We don't really sell our seed we sort of rent it to our farmers who.
Sell back the stevia leaf under contract to us and they have to sell us all the leaf they don't have the ability to sell to a third party. So we maintain control of our genetics and we give the farmer a profitable product to produce at a worldwide competitive cost.
So we're very excited about that agreement and there'll be more news as we continue to develop.
To develop the markets in the U S. But the end result will be that Steve you will be produced in the U S at a competitive cost.
China and that as we've all learned with Covid.
The supply chains will be shortened ingredient will gain a source of production.
In addition to China.
In the U S.
And that U S production will supply the biggest.
The VM market, which are in the world, which is the United States market. So we're very excited about the agreement and as I said there'll be more announcements as we continue to make progress with ingredient, but that will be.
A big piece of our business going forward. These.
Closed loop contracts, where we are.
Buying the raw material and then selling it to the refiner or user.
And we like that model it makes it makes.
Or a bigger addressable market for us so it's not just the seed market, but in the case of stevia, it's the leaf market and we have other addressable markets that we're looking at where we think they closed loop system will.
Also increase.
Our business and our ability to earn profits.
So that's my update.
The call today.
Again.
Covid is going to be with us for a full 2022 years our assumption.
But even with those.
Stress four wins on our business margins look good.
Product performance with double team looks good in the field.
The TVA contract has finally been announced we've been working on it for many many years now and we're very excited about.
Stevia is going to be.
Taking.
Absent up are you in terms of new opportunities.
So with that I'll turn the call over to Matt Who's got some details on the financials and then I'll come back and just follow.
Up with some concluding remarks, thanks again.
Thank you Mark and thanks to everyone joining us on the call. This morning.
Starting with revenues core revenue, which excludes revenue to pioneer was $77.0 million for the year, an increase of 17% compared to $68.0 million in the prior year now keep in mind that we also delivered core revenue growth of 59% during fiscal 2020.
Our financial performance in fiscal 2021 was negatively impacted by the logistical challenges that were experienced widespread across the industry as a whole.
Limited availability of overseas containers and ongoing congestion at the ports of delayed shipments and complicated our ability to precisely forecast the timing of shipments in any particular quarter.
We're certainly working hard to overcome these dynamics now as Marc mentioned, we had $5 million of sales orders that were expected to ship in Q4 of fiscal 2021 that shifted into Q1 of fiscal 2022 and as of today all $5 million of these delayed orders had been successfully shipped in Q1.
Total revenue, which includes revenue to pioneer was 84 million for fiscal 'twenty one.
Compared to $85.0 million in the prior year.
And as we look to fiscal 2022, we expect core revenue and total revenue to be within a range of $80 million to $85 million.
This estimate represents core revenue growth of approximately 15% to 20% year over year.
I just want to stress that we wanted to conservative on our revenue guidance given the ongoing logistical issues that are widespread across the globe.
I also want to clarify that core revenue and total revenue will be the same number in fiscal 2022, but we will still referenced core revenue as long as we are comparing against 'twenty one numbers.
And lastly, the anticipated revenue growth in fiscal 'twenty, two is coming primarily from our two key home markets. The U S and Australia as well as we're projecting growth in Mena as well.
Now turning to margins our gross adjusted gross margins, which excludes the impact of inventory write downs were 18% and 21 compared to adjusted gross margins of 21, 7% in 2020.
The decrease in gross margins for 2021 was primarily compressed with compressed by gross margins in the Australia market due to sales mix as we sold a higher concentration of lower margin Ford Cheryl products. Additionally, as we've talked about over the last several quarters, we experienced numerous logistical challenges due to the limited availability of trucks.
Congestion at the Port and overall rising cost for shipping and transportation.
Clearly this is a fluid situation, but at this point, we do expect these logistical challenges to persist throughout 'twenty two.
Although we're working really hard to mitigate the impact to our business.
Now as we mentioned in our pre release announcement in August we are expecting gross margins at 22 to show solid improvement over 'twenty. One. This improvement is expected to come primarily from the various initiatives, we put in place, including the implementation of price increases on many of our products to address the overall rising cost.
We're also modifying the terms and conditions, our sales contracts to address the volatile and increasing costs of freight and transportation.
And we're focusing on other various operational efficiencies I also want to point out that our Q1 results, which are just wrapping up now will reflect meaningful improvements in gross margin versus 21, and this is further validation of the various initiatives we are putting in place.
Now turning quickly to operating expenses, our GAAP operating expenses for 'twenty, one were $42.0 million compared to $40.0 million in 2020, I do want to highlight that we recorded a nonrecurring gain of approximately $10.0 million on the sale of certain property and equipment as we sold certain assets and <unk>.
<unk> consolidated production facilities increase operational efficiencies and position us for longer term cost savings.
Now if we exclude the nonrecurring gain operating expenses increased $3.0 million from the prior year and this was driven by incremental investments in R&D of $3.0 million or <unk>.
500 dollar increase in SG&A due to the annualized <unk> of our pasture genetics acquisition and the remainder of the increase was noncash depreciation and amortization expense.
We are clearly focused on holding operating expenses and growing our revenue and margin line to demonstrate the operating leverage of our business.
Now as we move into fiscal 'twenty, two I'd like to provide guidance for operating expenses.
We project full year 'twenty to operating expenses as follows.
SG&A to be approximately $30.0 million, which includes noncash stock based compensation of approximately $2 million.
Research and development to be approximately $8 million and.
And depreciation and amortization to be approximately $6 million.
As you can see we're dedicated to the leverage of the business model in fiscal 'twenty two.
Now moving to EBITDA.
We had negative EBIT of $14.0 million for the current year compared to negative EBITDA of $16.0 million in the prior year.
'twenty, one was impacted by a timing shift of product revenues to 22 due to the supply chain issues, we mentioned and overruns on costs associated with the logistical challenges we've been facing.
As we leverage our infrastructure and deliver core revenue growth. Our goal continues to be driving towards positive EBITDA contribution over the coming periods.
So given the impact to revenues and gross margins primarily from a logistical challenges in 'twenty. One we did fall short of our adjusted EBITDA and cash flow targets for 'twenty, one and as a result, we worked with our lenders and entered into various amendments and waivers with them to address the noncompliance with the covenants at June 30th and also more importantly provide us with.
Further flexibility in the coming periods.
We are also in the process of renewing our facility with our bank in Australia and pleased to report that we expect to expand the size of our credit facility there and extend the maturity date to September of 'twenty three.
We are certainly grateful that our banking partners in both the U S and Australia or work with us and have been flexible as we navigate through these COVID-19 related logistical challenges.
But this is clearly going to continue to be an area of focus for us in the coming periods.
With that I'll turn the call back over to Mark.
Thanks, Matt and just reminding everybody one or two key points.
We're very excited about our stevia agreement with ingredient that's number one number two the story, we're seeing for 2022 as improved gross profit margin.
Over what we saw in 2021 Thats because we put in price increases that we think are fair to the farmer and we're doing cost control on our.
Our cost of goods. In addition of course the success of double team. This first.
Big selling season plus.
In the next few years in the future is adding to our gross profit margin as a percent.
Because.
The trades are.
Profitable and add to our gross profit dollars.
So we're looking for a good year in 2022, even with Covid sort of.
Casting difficult operating conditions.
Conditions on our business and other businesses around the world and we appreciate everyone joining the call today.
So thank you very much.
Everybody have a good day bye bye now.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The fresh the first question comes from Cherokee Sherbet.
Chen from B Riley Securities You May go ahead.
Hi, Good morning, and thank you for taking my question here.
Wanted to start off with the annual guidance right.
I look at the core $80 million to $85 million revenue guidance range that includes $5 million that slipped from the prior fiscal year into this year. So I guess, if I subtract that the real kind of sales number that you're expecting.
<unk> $75 million to $80 million, maybe if you can break down how that.
Guidance range for the top line relates to your.
Prior to the pre announcement guidance range of $78 million to $81 million for core sales and I have a follow up.
Yes, so sorry, Keith that is correct.
Your state, but I think it's important for everyone to remember that on the other end of the fiscal year for 'twenty, two so that would be the fourth quarter.
We are basically not projecting those sales that are that.
That flops over from 'twenty one.
Into 'twenty two we are not projecting those sales to be in 'twenty. Two we are projecting ourselves to be in 'twenty three.
Okay. So.
The amount of seed that we feel especially in alfalfa that we can ship at the end of the 'twenty two fiscal year, we're being very conservative and we're saying that.
That those sales are going to be in the 23 fiscal year and that's why the 'twenty two numbers a bit lower than.
I think some people expected.
There's a couple of reasons for that one is obviously key.
<unk>.
And the difficulty we are having with shipping schedules.
That's mainly.
Containerized shipments to the middle East.
Because most of that seed that we are not counting in 'twenty two that we move to 'twenty. Three is in fact outside of non dormant alfalfa, but the other reason is we've been pulling non dormant alfalfa inventories down and we basically on the non dormant side, we still have dormant alfalfa inventory it's been on the.
Non dormant side, we don't have any inventory left and we're going to be.
Shipping out of new crop production.
Mainly from Australia right remember.
As Matt said, we had some gains on sale of assets and that was one of our plants in California, and so we're shipping our alfalfa out of our Napa Idaho plant.
But we are.
Excuse me, our Boise, Idaho plant.
Boise Napa right between them, but we are.
We are not expecting that the new crops that comes off.
In Australia in sort of April may is going to be able to be cleaned on time and prepared on time in terms of coatings and blending and.
Bagging.
To make.
<unk>.
With these additional shipping problems because again, we're assuming COVID-19 for the full 2022 year.
That we will not be able to ship those.
<unk>.
Shipments that for the last three or four years, where in sort of the current fiscal year that those will be pushed back one fiscal year 2023, and in fact, that's why the numbers a little bit lower I think than most people are expecting from us.
Got it and I guess is there any type of a product line that maybe is underperforming relative to your prior expectations.
I think in the pre announcement you mentioned a few potential delays on certifications for some products et cetera.
Kind of delineate that and then as a kind of a follow on or add on to that.
What are you expecting double team sorghum azure contributes to fiscal 'twenty. Two sales can you maybe provide some numbers to the statements of it being essentially robust.
Sure.
So the.
The double team sales.
We.
Still as I said in the.
Three record.
Still awaiting for final yield data on each crop.
The crops that the key farmers that we chose to buy our seed. This year. Since we were sold out we were very.
Jude dishes on making sure good farmers, who are what we call Bell cow farmers. They are the ones that other farmers look too in their particular.
Region.
Those are good farmers or best farmers had access to the seed purchase the seed from us so that they could get a real feel for.
The performance of the product so it's hard right now too.
Give you too much guidance I think in maybe the second quarter, we'll know more although in the U S are we don't really start ups are sales booking season until December.
So that would be.
Tight sort of forecast, but by the third quarter, we should.
We have a pretty.
Strong view of what the double team sales are going to be for our fiscal year 'twenty. Two so I don't mean to kick the can down the road, but.
The farmers have to their sort of show me kind of guys and you got to have yield on top of how good the crop looks in the field in terms of no weeds and no damage to the sorghum, you still got to have a yield and until we get that data and which is coming in now through October.
It's hard to sort of forecast it so.
So sorry about that and your first question against Archie.
Hi.
Aside from the double team sorghum I was wondering if there are any other crop lines, which are potentially under portfolio. Yes, Yes, you said right I'll tell you a little bit lighter.
Yes.
The registrations are a problem as we've said before because Saudi has sort of changed the rules and.
What used to take what's kind of a desktop.
The operation or submission where you.
Other data from other.
Customers experience and then submit them to the Saudis are from our own R&D plots.
It's a bit more complicated process now so that's.
Moving ahead.
This is all in the spirit of trying to create a much more proprietary product line, especially in alfalfa and that is our goal because margins. We believe in alfalfa are too thin and we need to have more proprietary stickiness with the customer does that.
We can hold our prices in.
In all markets and that our average.
Gross profit margins will go up so that's really I said in my comments and I think Matt also echoed the comments gross profit margins look in the first quarter pretty good.
<unk>.
Sure.
Still the price increases.
That we put through and announce to our customer base won't really start hitting for another quarter or two remember those price increases are on new orders.
That are the.
The bulk of the 2022 fiscal year the old orders that were still shipping out of 21 bookings those are at reduced prices. So.
Margins in the first quarter have rebounded that's a that's a good thing.
And but they will even get better as we go through the rest of 'twenty two because we've got price increases coming.
In both the U S and Australian markets and as Matt said those are the two places that we expect.
In addition to the middle East.
To have the most positive sales gains.
Hope that answered your question.
Okay, I'm going to hop back into the queue to allow others to her section.
Our next question comes from Ben <unk> from Lake Street Capital Markets. You May go ahead.
Alright, Thanks for taking my questions first one regarding kind of the near term outlook and the logistical headwinds that you're facing can.
Help us understand the degree to which.
These logistical issues are impacting your ability to ramp inventory across your big product coming out of R&D.
Colons auto stevia herbicide tolerance, sorghum and IQ all five are those are those plans on track or logistical issues impacting that.
Yeah. So great question, Ben So you know.
One thing that's nice about our business is while the seed is in development and testing. So that process that you described where we're sorting through the genetic variation in our crop we do that with standard breeding techniques, but also we use molecular techniques to look at the DNA inside.
The inside the breeding lines all of that stuff is actually under our control right and its small volumes, so theres never a truckload quantity.
Until much later down the process when we're actually selling.
<unk> to our seed production growers.
So.
Those those things are not really very affected by COVID-19. So the fact that we have a product that when you plant. It grows into the product youre going to sell so we don't have any.
Real issues with people supplying.
Parts or chips or anything that we need like like automobiles to keep.
Keep our production line going where we're in charge of our own production line.
And we have the product that grows into the product that we're going to sell to a farmer. So that's actually.
Not a problem during COVID-19. The question you asked the problem is later when we have large amounts of seed.
And I should know how many containers per year that we sell but it's hundreds.
It's at that point that we're sort of at the mercy of changing shipping schedules and stuff like that and port closures in.
Re.
Infections of different populations around the world two of the ports in Australia or semi closed right now so.
Later on in the in the in the <unk>.
The <unk>.
Sales process as we bulk up to larger amounts of C. That's when there is a problem, but at the beginning when we're in control of the seed and making decisions about breeding and development.
That's pretty much not affected by Covid.
Got it got it okay. That's helpful and I think you've already answered this question, but I'm going to re ask.
Anyways.
When you look at the kind of geographical and product challenges that you're facing which everybody is facing I totally get it.
Is is it fair to say that the biggest challenges you face in here on the.
The international side and specifically within alfalfa.
And that maybe the domestic business, particularly sorghum is not facing as big of a challenge.
I think that's fair I mean, I would say it a little bit differently.
The international shipments, especially to the middle East that are coming out of mainly Australia and some out of the U S are the major problem trucking in the U S. It is a.
It's a problem, it's not like normal.
We opened in 'twenty, one a couple more warehouse sales depots, so that we could move product.
Back towards the Mississippi River, basically and and have that available for farmers. That's one place where we had some additional expenses.
That we didn't budget for in 'twenty one.
So, but well if the trucking issue right, it's not a container unloading issue those pictures that people see.
The ships in L, a waiting or San Diego weighting becomes into port and the train operators running at half capacity.
Crane operators are sick birds.
<unk> went to other jobs I mean, that's that problem. Obviously is that if you are.
Working with trucking.
But we do have some U S product that comes from overseas and that product is coming by ship and so that can be delayed.
But in general Yes, you are correct, it's mostly the container based international shipping in Australia, There's trucking issues also and we're moving distribution of our products.
Both the production of them and the distribution of them storage of them back to the eastern part of Australia, which are where the markets are.
Kind of the same philosophy that we have.
Taken in the U S b in the U S. We Wanna be close as we can to the western corn belt in terms of plants and office operations and sales operations and we're following the same thing in Australia, So, we're mitigate or moving a bit from the.
Adelaide area back East.
Australia, because it's really been the traditional alfalfa production area and we're moving back.
On a production basis, we leased a new plant.
Back in the end.
The eastern part of Australia, and we think that that's been it.
Yeah, but allow us to be able to control our costs and cut our delivery times to Australian customers.
Got it that's all.
That's all helpful context on I'll ask one more big picture question over the longer term and then I'll get back in queue.
All of these challenges that you're facing I mean, I get it I think everybody gets it.
You know everybody is facing it but curious are the degree to which you see kind of.
No.
These issues unfolding here in the context of your physical.
Kind of longer term outlook that you laid out for fiscal 'twenty four and beyond.
But you laid out last December when you provided an attack update is that kind of trajectory still online through 'twenty four as these headwinds that youre facing caused you to revisit that at all.
We think that trajectory is still in line obviously it was a.
A high growth high profitability trajectory, but we still think those numbers are.
Achievable.
On a sales and margin basis.
As I said double team is performing super well, so that's a plus and.
Steve you deal with ingredients at the time that we.
Did those forecast, we obviously, we're already talking to your ingredient, but now we have a much better feel for what the.
Sales growth.
Might be in our leaf sales because remember we're selling leaf not seed in that case.
Because it's a closed loop deal.
We were thinking that certainly by the end of that.
Timeframe that Steve you will have a significant financial effect on the performance. So that's W.
That doesn't from my best of luck.
All of these logistical issues I'll get back in queue.
Thank you Ben.
Again, if you have a question please.
Please press Star then one our next question comes from Gerry Sweeney.
You May go ahead.
Hey, good morning, Mark and Matt Thanks for taking my call.
Good morning.
Hmm.
Mark we've talked a little bit about the strategy and double team sorghum and part of that is licensing with two other.
Larger players and distributors because of.
Obviously their access to the market.
How is that strategy playing out right now or is that still sort of linked to waiting to see how this the yields come back on this on this harvest for the couple of team sorghum.
Yeah, it's a little too early to give you anything definitive but an excellent question.
We're following as I've said before kind of the Monsanto strategy.
That carried them to Super high profits.
In the two thousands.
We basically put these genes in our own seed and sell those to farmers because they are so profitable and it drives proprietary ness of our product line and cherish and share shift to us.
It differentiates us certainly from the.
Sorghum companies that are of our size.
But also we license those traits too.
Other companies in the two target companies are buyer and core Teva who have risk.
Respectively, the Dekalb and.
Pioneer brands Theyre, probably between them, 45% of the sorghum grain sorghum sales market, which is our main target for double team. So there are significant and that's why your question is an excellent one and so on point.
And we were waiting for yield data.
Obviously speaking to both of those companies, we know them well they know us well.
They want to see also.
But the farmers experiences and yield data is kind of the last.
Hurdle to move through in terms of.
Having people really understand that the that your trade that gives protection.
And that the farmer has a significant positive results and of course, you know as we see more years.
<unk> of <unk>.
Results in the field and we get more acres of double team and the market will begin to understand the.
Benefits of the trade and we will have.
Discussions about.
What is fair pricing and all of those kind of things for the farmer and.
We have been conservative on estimating what the benefits to the farmer are so we're hoping that as we learn more we'll find out that the product actually performs better than what our.
Forecasted estimates internally show.
Got it and then switching gears to the ingredient.
Yes.
Mhm.
Are the steps from say the agreement today too.
Harvesting someone leaves.
Sure.
So.
A little bit of background on the industry is probably appropriate so the leaf production basically that supplies most of the world market is done in China and other countries in Asia, but mainly China for.
For cost reasons, and ingredient purchased the company a year year and a half ago that basically.
The company is called pure circle, and they basically were in the leaf production and extraction business and so the only large extra.
Extraction plant for taking stevia out of leaf is in China, and the only purification plant for then.
Taking that material and processing.
Processing it into the <unk>.
Right powders that are sold to the food industry is.
It's in Singapore and Malaysia.
You know those are historical issues right now if you've built new plants you build them next to each other for logistics and cost reasons, that's what's going to happen in the future, but right now the only big extraction plant is in China, It's hard to believe that.
Given the sort of $1 billion market size plus worldwide that that's the case, but that is in fact, the case and so.
Our agreement is basically.
We grow under this very unique three year system that uses our proprietary germplasm and establishes a cost that's competitive with China, but the only way to get real production information in terms of yields of final amounts of stevia.
Is by taking your leaf to China, and having the leaf go through that production plant because there is no other production plant anywhere in the world.
And so that's what the first step of our agreement with the greedy on is with two basically.
Take our unique.
Germ plasm, that's been produced with this clever three year.
Production system.
And see what the real yields are but we expect that the yields are going to be as we have predicted because.
We have a good science and we know how to analyze stevia leaf and we breakdown.
Our production and yields into about 15 different robotic sites or Stevie annoyed and we follow each of them and all of our breeding lines and we have every expectation that the.
Out of the plant you're going to see the kind of yields that we're projecting from our breeding materials, but it's.
It's like everything else, you're not going to commit.
$250 million to $350 million to build a new.
Extraction and purification plant side by side and those would be built in the U S. So that's where the new plants would be built until you get just verifying data of our.
Of our reach of our.
Production.
Research production data at its scale up right. It's what I always goes through there are the scale up steps and this is the next one and that's what this deal with <unk>.
Ingredient.
We will get us through and then well.
We're in discussions about where our plant would be built and how big it will be in all of those kind of things. So.
That's expected in the future, but yes, we are in the world.
We're partners with a unique production in germplasm with the biggest stevia seller and there will be production in the U S and the only question is how long.
And how big will that production.
Got it I appreciate it that's it for me thanks.
Yeah. Thanks, Rick.
Our next question comes from Jonathan Fite of KMF investments.
Hey, good morning, Mark.
Good morning, Mark Good morning, Matt. Thanks for your time today I appreciate the updates yes sure Jonathan.
A couple of follow up questions are it's good to hear your discussions with both the U S and Australian banks are going well.
But given your prognosis for some degree of cash burn over the next couple of quarters as you guys kind of get to EBITDA breakeven.
And just looking at the June balance sheet with a couple of million dollars on hand.
Just wondering about the progression.
Accounts receivable collection, and mandatory conversion and kind of what kind of cash stands today in cash how you're looking at cash management over the next couple of quarters.
Yes sure.
Question and when a company has.
EBITDA losses like SW has its always a fair question and it's one that the investors.
Should ask.
So we obviously understand that.
The balance sheet is what powers the income statement and that's kind of what entrepreneurs do understand that maybe when theyre in a bigger company and you can just call treasury to the.
Come up with more funds you don't understand that but in a small company you do understand that so we've been pretty good at.
Creating opportunities whether they be through sales of assets or the new deals that generate cash that is non dilutive. So we don't sell shares to the other party to generate that cash and obviously, we are working on some of those things.
And if we can't raise enough cash through those means we expect more towards the end of the year that potentially there'll be small sales of equity.
To make sure that we do have enough working capital to continue the operations of income.
Okay, well look forward to those updates I appreciate that.
Thanks.
Becky.
Our next question is a follow up from Sarkies Sherbet Chen from B Riley Securities You May go ahead.
Hey, Thank you for taking the follow up just a real quick one I think we talked about gross margin in the prepared remarks and Q&A session.
Suppose.
Qualitatively.
It's gonna be good can you frame a number around that it sounds like <unk> is going to benefit from the $5 million incremental that slipped in from the prior quarter, but I guess either for the annual period or the cadence of margins can you guys just kind of frame frame a number to those.
So Matt maybe you want to try to answer sorry.
<unk> please.
Sorry, Keith as Mark mentioned, we certainly are seeing a nice improvement in Q1 gross margins and as a reminder to all Q1 is primarily a non dormant.
Fell for quarter, which historically has carried thinner margins but.
We're really encouraged.
The results are still fine or not are preliminary and we have shipments coming down to the two of them.
Right. So the line here for the next couple of days, but margins in Q1 will probably be up eight percentage points year over year for Q1, which is obviously a nice improvement and we're really encouraged by that and Mark talked about we're still sort of in the early innings of the various initiatives that we're putting in place too.
To expand gross margins and 22 and in future periods, but as we look out for the full year I mean, I think it's mid twenties, 25% range gross margins, which again is probably close to.
Eight percentage point improvement year over year is what we're expecting and.
And we're excited about the launch and double team and as we move more and more products to our proprietary nature of that certainly is providing D.
The runway to expand margins and you know get to those.
Okay. That's all for me thank you.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thanks, very much and I wanted to just thank everyone for being on the call today.
The messages I'd, just like to leave everybody with is that our.
'twenty two is also going to be another good year in terms of growth, but a better year in terms of margins as Matt laid out.
Potentially 8% improvement in actual margins gross profit margins for the 2022 year over 21.
<unk> team is looking really really good and as we gather more yield information will be updating investors on our view of.
Of how those sales and margins are looking.
And again stevia to remember you know, it's a it's a bigger addressable market for us it's moving up towards the customer in supplying raw materials to people, who then like ingredient make it into a <unk>.
Product that they sell to consumers and to the manufacturers.
We're excited about all of those changes it's.
And hard earned over the four years that I've been here seems really done a great job.
Yes, you know we had a little hiccup in 2021.
Uh huh.
And I think.
Covid has sort of kicked us and we've learned how to manage the business a little bit better.
We should when the businesses under stress and so we're looking forward to a good 2022, so thanks again everybody.
Thanks for being on the call Bye bye.
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