Q3 2022 S&W Seed Co Earnings Call
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<unk> statements such as the company's revenue guidance for fiscal 2022 and statements regarding the achievement of the company's business objectives, and our recent strategic review.
There is a caution 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 Companys.
10-K for the fiscal year ended June 32021, and other filings made by the company with the Securities and Exchange Commission.
In addition to supplement Sw's financial results reported in accordance with U S. Generally accepted accounting principles or GAAP. The company is reporting non-GAAP measures during this call, including adjusted margins and EBITDA. These non-GAAP financial measures are not meant to be considered in isolation or as.
As a substitute for comparable GAAP measures should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles a description of these non-GAAP measures and.
<unk> of non-GAAP to the nearest comparable GAAP measures are included at the end of the company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website.
That said, let me turn the call over to Mark Wong Chief Executive Officer for Us in WC. The company Mark. Please proceed.
Thank you so much Robert and welcome on this happy Monday morning.
To everyone who's on the call today.
It's that time of year for Ssw when.
When we book our sales in the third and fourth quarter.
And that's because in the northern hemisphere, and remember that our offices are in Longmont, Colorado, what I'm, calling you from.
We are planting like Crazy and then because our business in the Australian market or other big market as winter planting boards crops. We're also planting crops with farmers and so that's why our third and fourth quarters are always the largest for us.
So as Robert said, we have a.
Presentation for you today you go on the website, please and get that in.
I am going to be referencing slides as I go through the presentation today, it's a little bit.
A lot I hope a new way of looking at our business for those of you who are shareholders or followed the company and we're very excited because we think it's a much cleaner way to match our opportunities and our expenditures for the future.
Ill go first in the presentation to slide three.
And you'll see in slide three that were trying to break our business down after.
<unk> strategic review with senior management here at SW, we're going to sort of talk to you know this year and in the future about our four key centers of value.
And on slide three.
Our presentation again, if you go to the website and pull that down you'll see that.
Those centers of value, our U S sorghum and sorghum technology.
And then forage products international fluids products in Australia, and the middle East or.
Our specialty crops, which I'm going to talk a little bit more about which our stevia crop, which I've mentioned before I think but not giving much detail which is camelina.
And then I'm going to talk about for U S forage in alfalfa.
So.
If you all stay with me on that presentation, and I will reference the slides as we go along.
So on slide four you'll see that.
Focusing on these four.
Four major.
Places of opportunity businesses of opportunity. We also think that we are going to be able to.
Reduce our opex about $5 million and you'll be hearing about more about that in terms of details in the future.
A lot of USDA, we've announced a partnering of our wheat program.
With a couple other companies that have formed a JV called triangle.
Genetics and were going to call that triangle.
Australia.
They are a worldwide wheat breeding company with operations in Europe , and in South America and <unk>.
And they bring to the partnership also a gene for <unk>.
Drought tolerance called CD four.
Excuse me HP for and that gene is included in our partnership and we will be developing that gene.
In Australia in wheat.
We have also made.
The streamlining of our European Sunflower operations, we've talked about a little bit about that before.
In the process of.
Selling some of that germplasm in the form of germ plasm licenses to various companies, but we have basically.
Rationalized, our Hungarian operations and saved about $700000 a year in operating costs.
And then.
We are still.
Losing a little bit of money we've raised.
About $11 2 million through our ATM through the months of February and March So a very busy time for <unk>.
Lots of fronts.
I'm going to give you a little bit of a description of each of those four growth areas. So on slide five the first one is a little bit of discussion about the U S sorghum technology in our <unk>.
Double team trade you've heard me talk about this trade before it's basically a trade where that we have embedded in grain sorghum, which allows the farmer to spray over the top and kill grass weeds and that's important because sorghum is itself a graph and you would kill the sorghum and all of the grass weeds without the protection of our.
Jim and so that has been a product that farmers have been.
Really.
Signing up to buy.
We're basically sold out again in the 'twenty two season as we were in the 'twenty one season, and we're looking to the 23 season as our first really big year of sales and that's because it.
It takes just that long to grow the hybrid.
Mom and dads seeds that you need to produce the hybrid that youre going to sell to a farmer.
So on that slide five youll see some numbers.
Our sorghum business.
$10 million in sales in 2020, moving to 11, where we had a little bit of.
Double team sales to $13 million. This year, we had a few million bucks of double team sales to $22 million, where we're going to have a significant amount of double team sales and obviously in future earnings calls, we'll be talking about our progress there.
So we also think that we have additional genes coming we've talked about that also before.
<unk>.
So it's a robust R&D platform.
Basically the second gene we've talked about is that during.
<unk> three gene.
That the usefulness of that gain wide the farmers want to buy that.
<unk> three is a precursor to hydrogen cyanide obviously.
Compound that can either kill and make.
And sheep very sick.
And so our hybrids do not have any during in them their door and free and so they don't.
Make the cast sick because they don't have any I don't have the precursors to.
Hydrogen cyanide so.
So we're pretty excited about that crop and that club continues to be in development, it's still probably three or four years.
Out from the first sales, but we.
We'd like to have additional genes coming.
We were sort of burst in the cradle of Monsanto were stacked genes were really important so we know the value of.
Additional genes in each of our crops.
Going onto slide six just a little bit about.
<unk>.
International forage business, so really that's our business that we have in Australia.
A lot of these crops are fall planted crops, so theyre planting.
In the southern Hemisphere now as we plant in the spring crops in the northern Hemisphere, and we're talking about Alpha Alpha in the <unk>.
Debt.
And <unk> cereals, and grasses and other pasture species like that.
As you guys know who have followed the company we are.
We're fairly dominant in that market in Australia, we have a relatively large business there with the strong distribution and then we also sell from Australia to 30 other countries.
Including the middle East mainly to the dairy industry.
And it's mainly.
Alfalfa.
Varieties that are used in the dairy industry there.
Moving on to slide seven if you are following me in the deck. This is a little bit of a new description for everybody. So I've talked about these crops before.
Before but now we're we're grouping them in the category that we're calling specialty crops.
So.
<unk> is the first one on the left there of that slide number seven and it is.
You all know.
Non caloric sweetener with a very fast growing market around the world and.
And we have our agreement with ingredient to test our materials.
So that ingredient can basically grow stevia leaf in the United States, and then process that Leif and sell it to the U S stevia market, which is the largest market in the world.
It doesn't take much imagination to look at the 200 ships outside of Shanghai Harbor and understand that making supply.
Closer to the market building supply closer to the market is something that everybody is trying to do right now and we think producing your stevia in America for the U S market is going to be the simplest easiest and most profitable opportunity for stevia leaf.
And the next decade.
But the crop that I really want to spend a little time talking about which ive.
Mentioned before is camelina. So camelina is in the Brassica seed family. It's in oilseed crop. So it is in the same family.
Canola seed and mustard seed has a very yellow flower like mustard seed and <unk>.
No.
The crop itself is planted.
As the second crop so our parents always told us.
They werent, making any more acres of farmland well so farmers around the world are going to take that same acre where they grow food as their major crop and they're going to plant a second crop winter crop.
That same acre after corn or wheat or soybeans or or.
Sorghum.
And they're going to plant something like Camelina.
Camelina is cover crop that.
That people, who have been reading about but its harvestable club crop. It's a useful cover crop. It produces oil that you can that you can harvest and send to a biodiesel facility and make into.
Hello.
Ci of low carbon fuel.
Like diesel or you can frac it to jet fuel.
It's it's.
It's a huge opportunity to basically provide vegetable oils is the source of transportation fuels, rather than soft petroleum out of the ground, which is going to release.
On a carbon to the air and.
And make the problem of global warming more difficult.
We basically use the sunlight to grow these oils in a second crop. So we don't compete with the food industry for that acre. The farmer gets the benefit of planting a second crop, which we can sell and he can make additional revenue on and that's going to be just a huge opportunity.
Unity.
For the world and for U S farmers in particular.
It's our calculations actually because that diesel market is so large in the U S that if you planted camelina as a second crop on every acre. So you still have all the food acres about 360 million acres of food acres.
In the U S, but if you planted camelina on every acre.
<unk>.
Crop land Thats farmed in America, you still could not produce enough oil to supply all of the diesel needs.
In a typical year of of America. So it's just a huge opportunity.
<unk>.
It's catching a lot of interest from lots of companies.
So I'm going to go onto the next slide where I just given you a couple of.
Recent industry deals activities.
And these are all from the month of February of this year, so sort of 60 day old kind of stuff.
Chevron purchased the company.
Company called renewable energy group.
We're about $313 2 billion in February .
Signed the deal with new seeds.
To produce.
These kind of renewable fuels and jet fuel.
From a company that has a cousin of Camelina called Coronado in Australia, where we also obviously have a big footprint on the farming industry and hope to move our.
Biofuels business not just in America, but to Australia eventually and.
That deal was also done in February .
And.
The third deal I've listed there as Exxon invested the $125 million.
And global clean energy a company that they have an off take agreement with previously, but thats to use camelina.
To produce biodiesel in their Bakersfield, California plant so lots of.
<unk> of deals being done lots of oil.
Oil companies looking around for partners.
<unk> fewer partners in the AG space than there are oil companies looking for partners, we've actually been talking to partners for about a year, but we haven't come to an agreement with anybody because we.
We want to choose the right partner so.
That will be news hopefully coming here reasonably soon about who that partner might be.
Going on to slide nine now I'm on the fourth of our four.
<unk>.
Key businesses growth areas. The U S forage in alfalfa business. This one is kind of got a mixed report card, we're trying to figure out what.
Sort of do there.
Basically.
The problem is that the dairy industry, which used to be a northern U S industry sort of Michigan, Wisconsin, New York State think about those places.
It's a dormant alfalfa market that means that the alpha can survive the winter because it goes into dormancy.
You guys on the call might remember I was in the dairy industry previously.
Milking about 10000 calves down in Florida.
Love the dairy industry, but the dairy industry has changed over the last few decades and those cows those dairies are moving south.
And so the state of Colorado, New Mexico, Arizona, Texas.
Have been the growth areas for the dairy industry in those traditional states of Michigan, Wisconsin, and New York State have been losing dairy cow head count.
And the problem for US is the dormant alfalfa people. When you go to those warm states you don't need dormant alfalfa anymore, you need non dormant alfalfa and so.
We're trying to figure out and deal with that I'll, just give you a little bit of a feel based on my dairy experience. So those.
Northern Dairies, if you can get 60 to 75 pounds of milk per cow per day.
Sort of metric for measurement of your efficiency of feed conversion.
A pretty good yield on cost, but in the warmer states because of the cows like it.
Going on vacation to Florida, the cows are happier they they yielded 100 pounds of milk.
Per cow per day, and instead of that 65 to 75 and Thats why the industry has migrated south because of the higher feed efficiencies and the higher milk yields per cow.
So the dairy industry is more profitable in those warmer states than it is in the cooler states in the dairies are bigger.
So that slide shows.
Our sales being kind of flat around that $11 million.
Revenue range, and we will be sort of trying to figure out.
What to do with those assets there we have the assets include a big Jeremy.
Germplasm base that we purchased from pioneer so there's many many decades of pioneer plant breeding embedded in that germplasm base in the germ plasm has the reputation of being the most disease resistant germ plasm.
Around the country.
So we're looking at options for that and we also have.
State of the.
Sure.
Our state of the art breathing station Thats, two or three years old up and up and Napa, Idaho and then we have a production plant that can be used to clean seed.
Both alfalfa and then this camelina that I've mentioned.
The oilseeds second crop.
We're looking for Biofuels.
So all of those very exciting things and I'd, just like to summarize kind of where we are and just say that.
Youre going to hear be hearing more from us about these four areas.
Four key centers of value and that would be again, the U S saw them with jeans business. The number two the international barge business that is basically our Australian business and Australian export business.
Specialty these two specialty crops that we're so excited about <unk>.
In Camelina and then.
Forage U S forage alfalfa business that has seen Cal migration and is challenging us to.
Decide on what opportunity really we should make of that.
And so we are realigning our cost structure to support these four businesses.
And to reflect what we think is the opportunity in each of those.
<unk>.
In the short run as you saw from the double teams slide.
We're expecting.
A big growth in double team sales next year will be our third year in the market.
Finally, our seed production is catching up to the demand and we can supply more bags of hybrid seed to our customers and we expect a significant amount of.
Market share gain there and if you go to slide five you can see our sales numbers there so.
With that I'm, just going to add.
In my part of the conversation here and turn the whole presentation over to Betsy Hu, our CFO will go through the numbers in some details with you Betsy please.
Okay, great. Thank you Mark and thanks to everyone joining us on the call. This morning.
Let's start on the revenue line.
Core revenue, which excludes revenue revenue to pioneer was $23 2 million for the third quarter.
Decrease of two 9% compared to $23 9 million in the third quarter of the prior year.
The decrease in core revenue for the quarter was due to a few factors.
First a decrease in Australian domestic revenue of approximately $2 5 million due to nonrecurring discounted stock sale that occurred in Q3 of 2021.
Second timing per se pushback about Australia domestic sales due to the unseasonable heavy rainfall.
And stared half a million lower services revenue quarter over quarter.
These three factors were offset by higher U S sales this quarter compared to last year.
Both from ETE, sorghum sales and alfalfa sales into the middle East.
An important note we've made in the past that I want to reiterate today core revenue and total revenue will be the same number in fiscal 2022, we will continue to reference core revenue as long as you are comparing against fiscal 2021 numbers.
Our prior year Q3 results include revenue from.
From pioneer of $8 5 million.
Which brought year ago total revenue to $32 4 million.
As was discussed during the last few calls we like many other companies are experiencing certain supply chain and logistical challenges, which is resulting in a shift of the revenue to the right.
You may recall, we had about $5 million of revenue are slated for Q4, 'twenty, one which shifted into Q1.
Then in Q1, the amount of shifting for rate relief to $3 million.
We're now.
Seeing that 3 million still being delayed into Q4.
Limited availability of overseas containers and ongoing congestion in the quarter continues to delay shipments and complicate our operation.
We have tried to be as transparent about this shift as we can and expect these dynamics to 2%.
The annual revenue guidance, we have put forth of $80 million to $85 million and takes into account. These dynamics to the extent, we can forecast there.
Therefore, we have already accounting for certain shifts shipment.
It has historically made in June that will likely shift into fiscal 2023.
Now turning to margins GAAP gross margins were 11, 7% compared to $19 one in the prior year's third quarter.
Adjusted gross margin, which excludes the impact of inventory write downs or $16 six in the third quarter compared to adjusted gross margins of 20% in the third quarter of the prior year.
However, if we were to exclude the contributions from pioneer from last year's results, which again were not repeated this quarter adjusted gross margin last year, what has been only 15%.
So when you look at the improvements made during the quarter on a relative apples to apples basis margins improved by 160 basis points.
Unfortunately, this margin improvement is disappointing and would have been better by 500 500 basis points. However, unexpected.
Unexpected higher production costs impacted our margin given the lower than anticipated volume.
Inflation and logistical costs.
We have also implemented a new inventory reserve process in Q3 that added to our inventory write down.
Historically the company has taken write downs at the point at which the requirement for the lower of cost or market adjustment have been met.
Going forward in consultation with our auditors when youre going to accrue for a reserve each quarter with the goal of better matching the timing of the costs with the benefits.
We believe this will minimize the large one time inventory write down that has been prevalent in our business.
Now I will transition to operating expenses.
Our GAAP operating expenses for the third quarter of fiscal 2022, or $8 9 million compared to $8 2 million in the third quarter of the prior year.
Please remember that last year, we had a $1 $3 million gain on disposal of property plant and equipment that was reflected as a reversal of operating expenses.
When you exclude that gain we showed a decrease in opex by about $600000 for the quarter.
This is from lower R&D and G&A expenses across the company at the beginning of the work that Mark mentioned, we are aligning our cost structure to support our key centers of value.
As such we have a plan to operate to reduce operating expenses by about $5 million annually as Mark mentioned.
I'll go into a bit more detail on this momentarily.
At the adjusted EBITDA line, we had a negative EBITDA of $4 $5 million for the current quarter compared to negative EBITDA of <unk> 2 million in the prior year.
Excluding pioneer margin in the prior year quarter was negative EBITDA of $2 6 million.
The biggest impact to EBITDA with the decrease in gross profit discussed a moment ago.
Given the impact of revenues and gross margins I've walked you through when you fell short of our adjusted EBITDA and cash flow targets this quarter.
As a result, we have worked with our U S lender and have entered into amendments and waivers with them to address the noncompliance with certain financial covenants as of March 31 2022.
I can tell you as well that we are actively pursuing refinancing of the CIBC that facility at this time.
I Wonder if I can get back to the slide presentation posted on our website and that Mark went through a moment ago.
In the deck, we have begun to break out our revenue by our key crops or region.
U S sorghum international storage, our U S. Alfalfa, and then our specialty crop area, which at this point.
Still in development stage.
This is the first time, we've done that and we believe it provides important insight into the business.
But you're also trying to provide some insight into what FY 2023 revenue could look like from these three areas.
I want to make a very important note here that we have not included revenues from our specialty crops area in the slide presentation or any potential licensing transaction transactions. We may enter for various crops such as <unk> and therefore this is not formal guidance for FY 2023.
We will introduce guidance in September in connection with our year end call.
Carl.
This is a bit of a view into how we see the various businesses.
So as Im sure most of you have done and adding up to three areas. We provided today were estimating around $90 million in total revenue, but it may not include other revenue that can be generated from specialty crop.
Additionally, I want to point out that when you look at fiscal year, 2022 expectation and adding up to three stacks and you'll get to $77 million the delta between the $77 million in our guidance it sales into non core key centers of value such as revenue we have recognized so far.
This year from Sunpower.
And others that contributed a few million dollars.
Let's go into each section a bit more in detail from a numbers standpoint.
As you can see on slide five which highlights U S. Sargon, we've seen steady growth in the last few years, but anticipate a significant uptick in revenue next year of more than $9 million or 69%.
Due to the high margin nature of that will team, which is the clear driver in this area.
We'd like to note that we are also anticipating a significant increase in gross profit.
It is this driver that will largely help us achieve our goals and driving towards profitability.
We believe <unk> will continue to grow in the years to come and the continued growth and profit driver for us.
Transitioning to slide six we see stable growth in our international business.
We believe we will see 8% revenue growth in this division in fiscal year 2023.
As Mark mentioned, we benefit from significant competitive advantage.
<unk>, a 40 year operating history and.
And it provides significant value to this area.
I will skip over specialty crops and move to our U S Alfalfa Division.
As you May recall this is largely our dormant alfalfa seed business, which we originally purchased from Dupont in 2014 for about $42 million inclusive of a supply agreement, bringing facilities processing facilities and germplasm.
It was a 10 year supply agreement from which we profited over the first five years of the agreement and then subsequently exited that agreement in May of 2019 preceding $45 million and the sale of remaining inventory of $25 million.
We continue to own all of the germplasm and breeding station processing facility and a business that is doing about $11 million per year in revenue.
Since that facility is not running and its normal optimum capacity margins in this business are not where they could be.
That said this is a high asset value business with a strong operating history. Our goal is to leverage the assets going forward, which may include our camelina biofuel opportunities.
As Mark mentioned, we also plan to monetize assets that don't fall within our key centers of value.
Such as our wheat program.
We know that there is a lot of work ahead of us, but I believe we have a clear focus and a strong set of assets that have significant operational as well as inherent value.
With that I will turn the call back over to Mark.
Thanks, So much Betsy I just wanted to make a couple of concluding comments.
One is just that.
We absolutely believe.
That we can concentrate on the first three of our.
For areas of interest.
And that would be the sorghum technology in the U S. The international forages.
Specialty crops and then try to work hard to figure out is Betsy suggested what we do with that asset base in the U S forage alfalfa business that we have we'd.
We'd like people to remember and use our wheat JV.
A real example of the kind of things that we believe our technology and our years of experience in the industry allow us to achieve.
In that case, we partnered with the people that we've known for many years.
Yes.
Sold part of our wheat business in the form of a JV and kept the peace.
<unk> reduced our investment and we were able to harvest some cash out of that deal and strengthen our germ plasm position on a worldwide basis and also have our partners contribute their H before gene.
Which we believe is going to be valuable as we see more climate change.
In each of the decades going forward and it's in a crop that obviously has gotten a lot of press and wheat, which because of the war in Ukraine.
Selling at the $11 $12, a bushel soy.
Sure.
Most double of what it was last year before the war and it just points out that the supply chain issues.
As well as weather conditions can really effect.
The amount of grains available on the world market. We just think that these kind of strengthening moves on our part where we enter into really a smaller share of our bigger business a better business as the kind of thing that we're looking to do so.
Thanks for joining the call today, we're really excited about the opportunities to increase the profitability and ssw and at the same time controller cost or reduce our cost commitments.
And support our four.
Focused centres of value.
Thank you so much for being on the call and we'll be happy to take questions and I'll turn the call over to the operator, thanks so much.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
Once again that with Star then one to ask a question and at this time, we will pause momentarily to assemble our roster.
And our first question will come from Ben <unk> of Lake Street Capital markets. Please go ahead.
Alright, Thanks for taking my questions on plenty to talk about here, but I'd like to start with one on the quarter itself and back to the comments you made around the inventory write down issues.
This has been one item that does kind of come up quarter after quarter here for some time and I appreciate your comments here.
I'm wondering if you can address kind of how the changes in calculating this.
Are going to be really affecting the financials going forward here.
Hi, Ben Thank you for the question.
So in the past, we will always follow the lower cost or market.
<unk> and work with our auditors to measure germ and to look at.
The inventory each quarter and then reflect any any write downs that are needed along the way I think what we recognized in the industry is that best practice is to not only do that that practice, but also to look at.
The estimate of what you what we think.
A certain portion of inventory will be subject to that.
Through the lifecycle of that seed so rather than waiting until that derm.
That at that point in time with crops, especially like start on that.
You have a lifecycle of the product wanting to put in a reserve to match the cost of that inventory.
No.
Degradation I guess at the end of the lifecycle throughout the entire time that that we are selling the product and kind of matching that while we're taking.
The revenues and the margins from from the product.
At the beginning of the lifecycle. We're also building a reserve to have onboard.
At the end of the lifecycle if that makes sense.
So I think what it's intended to do is like I said map see that cost with the benefit but also to smooth things over a little bit I know in the past you've had some pretty chunky chunky write off.
And wanting to kind of recognize those throughout the life rather than having them all at once once those Jeremy happen.
Okay, and then I guess a quick follow up question. So that all makes it makes it makes good sense should we consider this then something that.
Kind of $2 million to $3 million a year of inventory write downs that you've had historically.
Some level like that we're going to see but just kind of want a smoother run rate basis or do you think.
Do you think that the level is going to be.
Meaningfully above or below that.
I think probably our historical one does a good place to start we're also doing a lot of efforts around our lifecycle management to try and.
Reduce that amount over time, but I would say our history is probably is what we're using history as what we're using for our estimates for the reserve going forward. So it's a good place to start.
Okay, Alright fair enough.
So a lot of a lot of developments here to discuss a I'll try to limit my questions here, but first one.
On Camelina, Mark I wholeheartedly agree with your comments around.
On the opportunity provided by this crop I'm curious one if you guys have done any work with this crop historically, maybe baked into the kind of broad kind of forage.
Category that you've discussed and I know contains a number of different species.
So so curious if you've done any work on this crop historically and then to around your thoughts on kind of penetrating this market.
From a greenfield perspective versus partnering with one of the couple of players that are that have been working on developing this crop.
Here over the last few years.
Sure Ben.
So we have a long history in Camelina with Don Panter, who actually.
Ran in Camelina company about a dozen years ago.
And we have been breathing the crops were a few years now and we have our own germ plasm.
Base to begin work on them.
I would say that for sure, though we're going to have a partner right I mean, it's a big market and.
We're.
Full of opportunity, but were relatively small company.
So we're trying to figure out whether it makes more sense to work with the big National.
Oil and gas petroleum company or a regional one of the U S and.
So those are kind of the discussions that we're in right now.
And it's.
No.
It's an opportunity that we've been talking to people about for a year and.
Like I said in my presentation in February a bunch of deals were announced so it's pretty clear that everybody's lining up under this whole idea of.
Second crop for fuels is not in competition with food production.
That's where the.
Petroleum industry wants to go they want to use vegetable oils as much as possible.
Because of the low carb, so we're trying to figure that out.
Best opportunity for us at <unk>.
Right right no I think youre right thats become increasingly clear here over the last over the last few quarters.
One more from me and then I'll get back in queue on H before it sounds like you guys are expecting.
Potentially a little bit of near term cash inflow here for your contributions to the JV I'm wondering if you can outline a couple of things one on kind of the immediate term.
Cash flows either inflows or.
Potential outflows here as this initiative takes off.
And then longer term I'm wondering mark if you can talk about that.
The challenges or maybe not challenges, but the different.
Business model that Australian wheat has.
With.
With us.
And point royalty system and the degree to which you think that H before is something that can can be.
<unk>.
Effectively.
Commercialized in that market or if there will be no.
That will represent a challenge.
Yes.
So we did receive some cash upfront for selling the 60% of the of our assets.
In the JV to our partners.
And of course, we'll be receiving some cost savings over the.
Current and future years, just because we're only a 40% shareholder and we're only paying 40% of the ongoing costs.
So we received cash and we reduced our expenses and we strengthened.
The germplasm base of the company because.
Our partners are weak guys in Europe , and South America and <unk>.
And they've been working on in those markets for many many decades.
On H before.
The issue the challenge of all genes in food crops.
What will the regulatory.
[noise] environment would be like and what will be allowed.
And H before for sure is the GMO and so how Australia and.
Consuming countries will look at that gene is.
<unk> is and has been strong debate around the world.
Clearly as.
Supplies of we'd go down and the price goes up there is more incentive to allow.
Genes that would either reduce cost of production or increase yield in <unk>.
Water stress genes. So it's really a good June four.
The current global warming situations, where you have parts of the world that are getting drier and drier.
So we're pretty excited that and we didn't have to do the work.
Developing a gene and everybody on the call knows how much work. It is to develop a gene we have our <unk>.
<unk> and <unk>.
Sorghum and.
This is between.
US and our partners. These are really the only two genes that are being developed by the smaller middle market companies that are big for and so we're pretty excited that our partners are pretty innovative in that.
As the crop that we didn't have to spend the money and the time to develop the trade, but we have the ability to help market the trade and get the some of the value from the trade. So we're pretty excited about that.
Very good well thanks for that.
Create your comments I'll jump back in queue.
Sure. Thanks, Dan.
The next question comes from Kurt Caramanlis of Carl M. Hennig, Inc. Please go ahead.
Alright, thanks for taking my call.
Good to see you getting into Camelina business I've been following that through another company they've got in the renewable diesel market seems to be in high growth mode biodiesel.
This is probably a bigger market right now, but that seems to be a long runway. So a great opportunity for you.
My question is with your financial plan are you confident.
Basically.
Am I thinking about this right really getting to next year or double team really helps the whole, bringing the whole boat up and.
It gives you a lot more stability.
Yes. Thanks for the question I mean, yes, we are confident and as Betsy said, we're in the process of.
Renegotiating some of our bank agreements and stuff and we've been raising money in the market equity money in the market to fund our losses. So yes, we are confident that.
Next year is going to be a really good year for us in the double team is down but you also said lead the way.
<unk> ability.
As we've said before its a 70% margin kind of product in there.
A majority of those.
Sales gains that we showed on slide I think it is five.
Really double team so.
We're very excited about that and.
We think it's going to make a significant difference in our EBITDA.
And combined with.
Our efforts now to reduce some of our costs and to do it through some of these.
Kind of JV.
<unk> right, where we basically get some cash upfront and we said some of the money because we are a partner also paying some of the costs and.
If there is a long time to product.
Sales like in sunflower would not against.
Frankly closing something down and.
Reassessing, where our best opportunities look like we always have a lot of irons in the fire that's kind of what I've been used to doing over 40 years and.
With that as you can get.
Sort of.
Too many things to do and so we're in the process of.
Cutting some of those back or JV and those with some with different people. So that we can improve the strategic fit that we have in our market improve the germplasm base, but there is always the most important thing in the seed industry.
Concentrating on these.
Businesses that we really have the most opportunity.
Great and then with the Camelina be calendar year 2023, possibly as far as what you're working on.
Yeah, we've grown camelina as a service for other companies, which were not permitted to disclose but we have provided some of the camelina seed to the camelina sort of slash bio diesel industry already and it's because.
We're in the perfect place to grow it up in Idaho in our plant.
In the perfect location to process it and.
All of those things are our cost advantages that.
That we think will continue to be part of our plan in camelina.
Great. Thank you very much.
Youre welcome.
The next question comes from Jonathan Fite of KMF investments. Please go ahead.
Hey, good morning, Mark Good morning, Betsy I appreciate your time.
I had a couple of questions.
The savings opportunities and kind of the value drivers in these noncore areas. So when you all talk about potentially capturing $5 million in savings or those things.
Cash savings of the divesting of some assets, you're just capturing some depreciation savings I was wondering if you could just kind of characterize the $5 million savings opportunity.
We have that target is a real cash reduction of our overheads.
So it's real cash, it's not depreciation or a noncash item.
We think that in realigning for the best opportunities.
Which all companies should be doing and we will.
Also for certain should always be doing that there is an opportunity to save some cost there is the opportunity like in the week deal to improve your strategic position and save some costs and get some cash upfront.
And so we look for deals like that too, but we're not against closing something down.
Save money, if we think that.
Money is better spent in one of the other core areas.
Our view of some of these things continues to change a couple of questions.
And those are asked on this call the Camelina thing it's just.
So fascinating opportunity I mean, as you look at global warming and you see the commitment of oil companies big oil in regional oil companies too.
To look at these.
Stable base fuels and you see the deals that are being done.
There's just not enough oil they'll never be enough oil from egg.
And the <unk>.
It is going to be real interesting to sort of see how clever.
The AG industry is about increasing oil yields as of second crop and some of these <unk>.
That's like Camelina and how.
However, the industry is also about making.
Corn oil.
And soybean oil available.
And yet still satisfy food demands.
It's going to be an interesting and interesting next 10 years for sure.
Yes, it seems like a very interesting opportunity if we can get there.
Can we talk about the value drivers on the non core area.
If someone else were looking at those assets that the revenue opportunity there pretty significant asset base that comes with that that has.
Maybe kind of some balance sheet value that maybe.
You know kind of hidden behind accumulated depreciation I was just wondering what kind of the asset base that comes along with that couple of million dollars of revenues that are in that other non core sales arena.
Sure.
The the best opportunity for us as a joint venture or seller.
Acquirer.
As to find somebody who.
Has incremental value and assuming the whole business right and they would be a company that's in that business already.
And we'd be able to overlay our sales on top of that.
Current sales force and produce the seed through our plants and do their research and our research facility and get some synergies from a combination. So that's the type of partner that we look for first but then as you said the asset base is pretty strong. So is germ plasm in these in these different.
The areas of business that we have there can be production plants.
So some people that will be more of interest, but clearly on the overall value basis, it's always better to find someone who wants the business as an ongoing business and fees.
Synergy profits.
Acquiring it.
And do you foresee a potential JV or sales in that space offsetting the cash burn over the next couple of quarters or you know until we kind of reached the breakeven point, maybe sometime in 2023 or later, what's the strategy for alleviating the cash burn as it continued private placements or do you think these.
Asset sales cover that cost.
Okay.
The potential that the asset sales could cover the majority of those costs.
<unk> the question right because these.
Kind of deals have a little bit of a life of their own you can't sort of always get them done on a timeline that.
Sort of needs.
All of your own requirements and.
It's also.
No.
The cash burn is pretty well understood by us. So that's why we're trying to cut real expenses to cut into that cash burn and that's why we're pointing.
But towards double team with its high margins and going in our sorghum business from <unk>.
13% to $22 million, that's a lot of EBITDA.
So.
All of those things together, we think are going to contribute to that.
We're cutting that EBITDA loss and getting much closer to breakeven or profitability here in the next couple of years.
And then just one final question I guess are the assets on the Australian forage crop business portable to the U S. S.
Our U S business is probably doorman I'm, assuming that the Australian forage crop business is largely non dormant as that portable into this market. So that we can take advantage of the dairy shifts to the south or not really.
It's really kind of not portable and.
But youre right in asking the question. That's an excellent question I mean, we are in the.
Non dormant alfalfa business in Australia or selling it to.
The middle East selling those kinds of fleets to the middle East. It's very interesting we account for about half of the production of dormant alfalfa and Gumming up of seed in Australia. So we're a huge market share controller.
In Australia.
<unk>.
There really isn't the capacity.
Even if the costs.
We're okay and with the with transportation costs being what they are.
It really doesn't make much sense to spend Australia non dormant to the U S for sale.
And we have.
And with supply limited frankly in Australia, obviously, we can grow is going to the middle East.
Okay. So we have no more capacity.
Well, good luck and I think they'll transition to at least eliminating the cash burn is pretty critical to them.
Make it to the other side to benefit from these opportunities are in the pipeline I appreciate your efforts.
Thank you I appreciate that.
Once again, if you would like to ask a question. Please press Star then one.
And our next question comes from Brett Reiss of Janney Montgomery Scott. Please go ahead.
Hi, Mark Hi, Betsy.
Good morning.
I'm just curious with the Camelina initiative.
Is that going to produce.
Carbon credits that could possibly.
Be sold on these nascent.
Carbon credit exchanges is that a potential.
Incremental source of revenue to the company.
Sure. So right now I think it's good to focus on the near term.
Sort of couple of years and the real benefit.
In the next couple of years is having.
Source of biodiesel that basically has ICI.
As high carbon intensity so that.
Low carbon intensity is beneficial in terms of carbon that's released in the atmosphere.
But.
Biodiesel market is pretty on fire right now just because everyone's looking for these kind of tools that really are environmentally more friendly.
Then regular diesel that's made from petroleum extraction.
In the in the <unk>.
Longer term, maybe after three and so there are government.
Programs and some of those crops are blending credit theres a seat for.
Credit is given based on what kind of production you have converting the oils to the biodiesel.
And eventually there will be carbon credits, but the industry is trying to figure out how to measure the carbon that actually is sequestered in soil each year and as those technologies get better.
Those carbon credits will become available and they will become more robust in the sense that people will really believe that that amount of carbon has actually been sequester then those carbon credits will sell.
On the carbon exchange and the farmer will get the benefit of that and potentially we could.
Also participate in that market in some way, which frankly, we have not decided yet but.
Yes, the pharma for sure it will generate a carbon credit and he will get benefit from that in addition to having a so he will have on every acre of food crop.
Our second complex camelina or Coronado.
Is in oilseed crop and he will get a carbon credits.
That is the future of agriculture.
Interesting things happening so yes, Gary on Sir.
Youre very generous, but yes, we are very excited I mean.
I mean, some of the callers have pointed out our losses and we take those seriously and we're trying to.
Figure out now that we've spent all the money in developing all these new products like double team, we definitely need to cut our cash burn and our EBITDA loss, but.
We have so many opportunities.
It's just a fascinating time to be in agriculture, I'd been in agriculture as everyone knows many many years decades. This is really fantastic and a lot of fun.
Thanks for taking my question.
Certainly.
This concludes our question and answer session I would like to turn the conference back over to Mark Wong for any closing remarks.
So I just wanted to thank everyone for attending the call today, hopefully we presented some information with a little bit more detail that gives everyone.
All of our investors and all our perspective.
Prospective investors are bigger insight into what's happening in our.
Traded U S sorghum business in our <unk>.
International fluids business, and our specialty crop business, which as you've heard we're very very excited about.
We're trying to do deals like in our U S forage in alfalfa business that mimic what we did in wheat, where we basically get some cash upfront we minimized.
Our burn because we are a partner.
A patient and we strengthen our germplasm position. So we're more competitive around the world. Those are win win win situations for Ssw. So thanks, everyone for being on the call and.
We look forward to talking to you all next quarter. Thanks again.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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