Q1 2023 S&W Seed Co Earnings Call
Good day and.
And welcome to the <unk> first quarter fiscal year 2023 financial result.
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I would like to tell the conference over to Robert Blum.
Please go ahead alright, thank you very much and thank you all for joining us today to discuss Swc companies' first quarter fiscal year 2023 financial results for the quarter ended September 32022.
With us on the call representing the company today are Mark Wong, President and Chief Executive Officer, and Betsy Horton 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 My Best W. 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 1930.
Four as amended and such forward looking statements made 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.
Or should expected anticipates draft eventually or projected.
Such forward looking statements on this call include but are not limited to the advancement of <unk> business strategy <unk> financial guidance for fiscal 2023, and Thats, what <unk> expectations regarding its lender relationships and planned use of loan proceeds 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 Companys 10-K.
For the fiscal year ended June 32022, and other filings subsequently made by the company with the Securities and Exchange Commission.
In addition to supplement Ssw's financial results reported in accordance with U S. Generally accepted accounting principles or GAAP asset W will be discussing adjusted EBITDA on this call. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for the comparable GAAP measure.
Be read in conjunction with <unk> consolidated financial statements prepared in accordance with GAAP.
Has no standardized meaning prescribed by GAAP.
And it is not prepared under any comprehensive set of accounting rules or principles a description of adjusted EBITDA and a reconciliation of historical adjusted EBITDA to net loss is included at the end of <unk> earnings release issued earlier today, which has been posted on the Investor Relations page of <unk> website.
<unk> has not reconciled its guidance for adjusted EBITDA for fiscal 2023 net loss because the reconciling line items that impact net loss are uncertain or out of its control and cannot be reasonably predicted.
Amount of these items during fiscal 'twenty three we will have a significant impact on net income or loss. Accordingly reconciliation of this non-GAAP measure is not available without unreasonable efforts.
An audio recording and webcast replay for today's conference call will also be made available online on the company's Investor Relations page.
With that said, let me turn the call over to Mark Wong Chief Executive Officer for Hudson W. Seed Company Mark. Please proceed.
Thank you Robert and good morning to all of you on the call today.
As we talked about during our year end call in September for fiscal year 2023, we're focused on commercial execution as we begin to leverage all the work that's been done over the past five years simply put it's about driving towards and beyond profitability in the near term.
Sure.
We are doing this by being intensely focused on the four key centers of value. We have outlined previously including number one our sorghum technology operations led by double team. Our next generation non GMO herbicide tolerant silicon solution.
Number two our international <unk> operations, which primarily.
Operate out of Australia.
<unk> products around the world number three our U S porridge operations and number four are.
Our specialty crops, which include <unk>.
Camelina or biofuel applications and Steve.
I'll review the process progress of each of these.
Areas during my presentation.
Q1 of 2023.
At a high level I am extremely pleased when we started the first quarter off on a very high note. Our first quarter revenue of $19 9 million was an increase of 28% compared to Q1 of a year ago, but as we discussed on our last call fiscal 2023 is not simply about.
Revenue growth.
But our efforts to drive margin expansion and improvements in adjusted EBITDA.
Compared to Q1 fiscal 2022, we achieved a 260 basis point improvement in gross profit margins and a $2 4 million.
Improvement in adjusted EBITDA up from negative 4.0 million to negative $1 6 million.
<unk>, we had a $4 3 million increase in revenue nearly 60% of our.
Our revenue growth drops to the adjusted EBITDA line.
One item I want everyone also to remember is that the first quarter is typically a heavy alfalfa quarter.
Very little of our high margin sorghum or double team sales occurring in this quarter as.
As we entered the back half of the year, we see potential for further significant gross margin and adjusted EBITDA improvements.
Beyond sales execution and margin controls, we are executing on the cost control initiatives.
We discussed earlier this year.
SG&A and R&D each dropped by $500000 during the quarter or about a $1 million in total compared to Q1 fiscal 2022.
Overall, we expect our opex spend will be much lower than last year.
So operationally versus Q1 last year.
28% gross revenue growth.
260 basis point improvement in gross profits.
$1 million decrease in operating expenses.
And a $2 4 million improvement in adjusted EBITDA.
Needless to say, we are very pleased with our progress in the first.
So let me talk a little bit about the four key centers of value again.
The first being our U S sorghum technology double team business.
First let me discuss what.
What I believe.
To be double teams potential.
To rebel II revolutionized historical market in the same way other weed control technologies of enhanced yields.
Such as corn soybeans and cotton.
For from a number standpoint during the last year, we sold approximately $3 million of double team.
But as we have stated one of the biggest hindering factors, we have is availability of seed.
On that front, we have materialized our seed production they have.
Taken steps, we believe are appropriate to limit the risk natural risk to farming that we can see such as freezes in excess.
To date, we have not seen quality concerns and our ongoing production harvests remains on track to support our 12 million revenue target.
Yes.
As expected sales translate to about 500000 acres up double teams being grown by farmers in 2023.
Operationally the first half of our fiscal year is where we are booking preorders for the first quarter of the year initial IND.
Indications are very positive and with a third of our expected crop already preordered the positive experience and word of mouth across the industry is truly benefiting us this year.
We talked about this same last quarter, but additionally, selling double team and a S. N. W. Sorghum partners brand. We are also looking at a number of private label opportunities, which we believe can expand distribution.
We currently have many more private label partners looking at packaging and selling double team.
We are.
Spect that about a third of the $12 million of expected sales for.
For 2023 will be to these private label customers.
The ability to leverage key private label partners and utilize their expertise in distribution systems and other key geographies should be of.
Huge benefit to us our private label partners will be important next year. When we again expect double team sales to grow significantly in the American market.
And we are also beginning to formulate our doubletree and strategy for South America Asia and Africa.
We remind everyone the <unk>.
Season, we are.
So excited about double team is significantly.
Excuse me. The reason we are excited about double team is significantly enhanced.
Margins for the product based on our outlook of $12 million of double team sales in fiscal 2023, we expect about a 50% was $6 million to drop to the EBITDA line.
In summary at the moment, we feel we are well positioned to hit our outlook for slug of them. This year.
I want to give an update on our historical product technology. We've discussed previously that plays in the <unk> space. The technology is what we have previously called <unk> free and we continue to believe that it has some real potential in the global forge markets.
And we are renaming it practic free to reflect the fact that right now.
The trade eliminates prestwick acid in sorghum.
Farmers are more familiar with prussic acid terminology and with the fact that this naturally occurring compound.
Under certain conditions occur in conventional sorghum, endangering grazing livestock classic free trade will eliminate this risk and the law.
<unk> worry free use of sorghum forage sorghum, regardless of growing conditions.
Have introductory amounts of seed.
That we're growing this year and we will.
Have enough parent seed to produce a lot more seeds for next years.
Crop year and expect to rollout in the U S.
Solid demand.
Our second center of value International forage.
It's also a very positive upswing with key drivers for improvement during the first quarter.
With alfalfa.
Particularly from international.
Our international Forge operations.
Not from sales in Australia remember this is traditionally a quarter, where about 75% of our sales our alfalfa as I mentioned, a moment ago. This isn't just about sales, but gross margins as well our alfalfa business has margins in excess of 22% for the quarter the highest quarter.
The margin for alfalfa that we have achieved in several years.
We believe that the strong <unk>.
<unk> prices globally are underpinning continued strong growth in all of agricultural inputs and that I'll stop and that the thoughtful market is no exception.
Pricing is up 22% compared to a year ago in the.
The same period.
On the flip side, our tighter cost controls and inventory management that we have put in place we are achieving the forecasted savings outlined earlier in the year, leading to the improvement in margins.
Further the international shipping challenges we encountered.
As recently as a few months ago are starting to ease looking.
Looking ahead devastating floods, though.
Eastern Australia has severely impacted vas.
Swaths of cropping land and expect and mixed.
Gives me.
Okay.
Mixed farming up.
Mixed farming.
Enterprises once the water receipts, we believe there will be substantial remediation required including the planting a.
Crops and passengers. This has led to a slow start or Australia domestic business, but we expect it should benefit from in the Nashville Forge operations later in the year.
While one quarter does not make a year recall that the high end of our original guidance called for approximately $9 million in growth from international Forge operations, while the low end had a assumption of flat revenues, while we believe our shipping issues have somewhat eased we.
Still face risks of delay on future shipments in future quarters, However, with a $3 5 million first quarter increase in international <unk> sales. We believe we are starting the year off on the right foot.
Commenting now on our third center of value our U S.
<unk> business, it's pretty much steady state as it goes we continue to encounter headwinds that have we have discussed in the past based on decreasing U S alfalfa acres.
We have a nice base of business within this segment, though and as our customers desire or Jeremy Jeremy.
Jerome Pleasant base with an emphasis on high yield and for its quality with resistance to diseases and stress.
Operationally about 10 to 12 $11 million or so of annual revenue is what we continue to expect from this sector. However, beyond the germplasm base. The real assets you remain our breeding station and processing facilities in Napa, Idaho, which we believe can be utilized for biofuel species.
Camelina.
And then onto our last center of value, which is the specialty crops.
And again the topic of Biofuels.
I don't have any real update since our last.
Report, but let me remind you of what we have discussed last quarter. It is our intent to partner with a large.
Large energy companies for biofuel production, leveraging our capabilities and production processing packaging of Camelina.
Due to our unique position as an integrated global seed company with specific expertise in leading production sales and distribution of small ceded specialty crops, including Camelina, which are highly desirable for biofuels production, we believe will be an ideal partner.
As I mentioned last quarter, we're planning about 300 acres of timberland at this fall with seed harvest next year.
And it remains our goal to enter the camelina market as a seed and technology provider with multiple industry transactions.
To provide a potential roadmap we are optimistic that there is a mutual beneficial agreement to be had in the future I look forward to hopefully being able to provide further updates on this in the next couple of quarters.
Just an update on our week J D.
We're targeting to finalize the deal in the second quarter of this fiscal year. So the next couple of months.
Combined our wheat efforts in Australia with try Gal genetics as we've mentioned previously it's a JV between bio series.
<unk> crop solutions and for them on the prey European wheat breeding company, we believe that the joint venture could significantly strengthened <unk> position in wheat, enabling us to benefit from the worldwide exposure.
Find entity would provide further we would all allow us to focusing our efforts internally on our key centers of value.
Our banking update for me usually Betsy.
Normally with hit most of the banking updates, but I just wanted to point out a few.
Hi points since we've made a lot of progress in this area.
Wanted to highlight how pleased I am to have entered into a new increased and extended credit facility with National Australia Bank for up to $48 million, Australia, which is an increase of $9 million Australian from our parents.
<unk>.
Further at the end of October our largest shareholder.
<unk> partners increase their letter of credit from 9 million to $12 million, allowing us to increase our CIBC loan from 18 million to $21 million.
We believe these increased credit facilities reflect the support these groups have been our strategic plan going forward and we as we grow revenues and drive towards profitability.
Before I turn it over to Betsy just let me remind everyone of our outlook for fiscal 2023.
On the high end of guidance were expecting $92 million in sales and the negative adjusted EBITDA of about $2 million on the low end.
$80 million in sales and a negative $7 million and adjusted EBITDA.
Low end of the guidance assumes only growth from double team and slot revenue through the rest of our operations.
Other things the higher end assumes $3 million in growth from traditional sorghum and $9 million and growth from our international for its operations.
He will give you more detail and expand on this in her presentation.
With the progress made during the first quarter were international Forges up 3.5 million, we see a path to achieve.
Believe something closer to the high end of the guidance, but as I said earlier, our quarter does not make a year.
Still have a lot of work ahead of us to achieve these results.
Yeah.
And one additional item I would point out is that we have made zero assumptions for any biofuel stevia related agreements for fiscal year 2023.
Guidance, which may prove.
The offer upside opportunity for the company.
So it's a great start in the year on all fronts and let me now turn it over to Betsy to walk through the numbers in more detail and then we will be back to and happy to answer any questions, let's see I'll turn it over to you. Please.
Thanks, so much Marc and thanks, everyone for joining us on the call. This morning.
Let's start on the revenue line revenue was $19 9 million for the quarter, an increase of 27, 9% compared to $15 5 million in the prior year's first quarter the increase was.
Primarily attributed to a $3 $5 million increase in our <unk>.
International Porridge operation, which was driven by strong international I'll tell her adult and offset by a reduction of almost $1 million or not.
In our Australia domestic business due to the wet weather conditions that Mark mentioned.
We also had a $1 million increase in revenue across sorghum and alfalfa.
North America.
Well, we did see a shift in revenue from the fourth quarter of fiscal 2020, which in this quarter, which we talked about during our year end call. Please remember that we also had a shift from fourth quarter of FY 'twenty, one into last year's first quarter, which essentially canceled out when comparing year over year.
Another way to look at it is that two years ago core revenue in Q1 'twenty.
2021 was just $9 million. So excluding this shift we still achieved significant growth on a more normalized basis this quarter.
Yeah.
Mark hit on the revenue guidance, but to reiterate what we discussed last quarter. Our FY 'twenty three revenue guidance is currently in the range of $80 million to $92 million.
As we look to bridge the $71 million in fiscal 2022 to $80 million to $92 million in 2023, we are making the following assumptions.
And the low end of the guidance, we are simply taking into account $9 million in incremental revenue growth attributable to double team and flat revenue in the rest of our operations.
At the higher end of the guidance. In addition to the $9 million of double team grows we are assuming approximately $9 million in growth from international mortgage operation with about half coming from pricing improvements and half coming from volume.
And then about $3 million in it and growth from our traditional non DTE related sorghum operations.
As Mark stated given the $3 5 million growth in international for interest during Q1, we are starting the year off strong.
Now turning to margins gross margins were 22, 7% in the first quarter of fiscal 2023 compared to 21% in the prior year's first quarter.
The key driver to the 260 basis point improvement in gross margin was alfalfa, which was up over 1000 basis points over the last year and accounted for nearly 75% of Q1 sales.
Well something I wouldn't normally highlight given our recent history I think it warrants mentioning is that we had inventory write downs of about $500000. This is much more in line with what we would expect in a normal quarter compared to what we saw in Q4 of 2022.
You may recall that we have been very focused on inventory management and really digging into our inventory valuation.
We know the inventory management and sell incredibly critical for our industry and we are extremely focused on improving our lifecycle management. So we cannot really big write downs in the future.
We therefore have established a reserve process, whereby we match the timing of the reserve with the revenue generation period of the lifecycle of these hybrid.
Having some inventory write downs as part of participating in the seed industry. However, through this reserve methodology in our lifecycle management efforts, we should avoid the large one time impacts that we had experienced in the past and instead see Mount more likely do this quarter.
Now I will transition to operating expenses.
Our GAAP operating expenses for Q1, 2023 were $6 6 million compared to $7 6 million in the prior year's first quarter, a decrease of $1 million.
Half of that expense reduction came from SG&A with the other half coming from reductions in R&D we.
We do have some timing differences, where we will catch up on the understand later in the year, but we believe we are on track to achieve our goal of $5 million in annualized cost savings outlined last quarter.
For the year, we believe operating expenses, including stock based comp of about $2 million will be about $27 million, which is consistent with our earlier guidance.
At the adjusted EBITDA line, we had a negative adjusted EBITDA of $1 6 million for the first quarter compared to negative adjusted EBITDA of $4 million in the prior year's first quarter, an improvement of $2 $4 million.
As Mark pointed out its $2 4 million dollar improvement to adjusted EBITDA was achieved on a $4 3 million increase in revenue so with improvements in margin nearly 60% of the revenue increase drops to the adjusted EBITDA line.
Yeah.
Similar to what I did last quarter, let me bridge out how we look to achieve our adjusted EBIT guidance in fiscal 2023.
Let's start with the high end of our assumptions, which is at 2 million adjusted EBITDA loss for the year.
Starting at a negative adjusted EBITDA of $24 million for fiscal year 'twenty. Two we assumed the following for fiscal year 'twenty three.
First a $5 million improvement to our LCM or lower of cost or market charges.
Second $7 million in incremental gross profit due to ETE and traditional sorghum revenue growth.
Third a $5 million improvement in international Orange gross profit.
Both the higher end of our expected growth as well as overall improvements in our production costs.
And fourth a $5 million improvement from cuts to our operating expenses.
All of that gets us to an expected $2 million adjusted EBITDA loss for fiscal year 'twenty three.
Yeah.
For the low end of our adjusted EBIT guidance I'll remind you what we did for the low end of the revenue guidance.
We simply took into account incremental revenue growth attributable to double team and assumed flat revenue in the rest of our operations on the low end of our range for adjusted EBITDA. We did the same and assumed growth only in D C, which would be a $6 million adjusted EBITDA loss.
Some additional assumptions.
Negative $2 million of the international Orange benefit would be captured due to increase in margins and between our Lora costume market charges and Opex combined we would have at $9 million benefit versus 2022.
This would end with an EBITDA loss on an adjusted basis of about $7 million.
These are only assumptions and there are a tremendous number of variables, but we believe it is important for investors to understand the methodology behind the numbers we provided.
Now, let's talk about our financing.
As Mark discussed in late October , we announced an extension and increase to certain of our credit facility with National Australia Bank.
Or.
Two a combined maximum borrowing capacity of $49 million Australian dollars or approximately 31 8 million USD as of September 32022.
This is an increase of Australian $9 million or approximately $5 8 million U S dollars compared to our prior facility.
The modified credit facility included seasonal credit facility, which is comprised of a borrowing base line and an overdraft facility.
We also have a flexible rate loan.
And in the end the master asset finance facility with expiration dates ranging from September 2023 to may of 2026.
We plan to use the increases in our credit facilities to support our growing international forage operations based out of Australia.
We are grateful for the relationship we have had with NASA more than 10 years and look forward to a mutually beneficial relationship for years to come.
Additionally, as you might have seen from the 8-K, we filed on November 1st we've amended our couple of our other financing agreements and that's P. Our largest shareholder continue to show their support for asking that you like issuing a $12 million standby letter of credit to back our CIBC facility. This was a $3 million increase from what was it.
Place previously.
L C allowed us to increase our total revolving loan commitment.
Commitment with CIBC to $21 million up from $18 million.
We felt this was a relatively non diluted way to improve our balance sheet and we thoroughly appreciate the ongoing support from MSP.
We continue to actively pursue long term financing with replacement lender with an expectation that a non bank lender is likely a better fit for us at this point in time and expect to close a new deal prior to the maturity of the CIBC facility at the end of the calendar year.
We know Theres a lot of work ahead of us, but we are extremely pleased with the progress made during the first quarter and the pathway. We believe it provides us for a potentially strong fiscal 2023.
With that I will turn the call back over to Mark.
Thank you Betsy.
Just in closing we feel very good about the progress we've made so far in the first quarter. We remain focused on developing the four key centers of value. We've outlined previously and continue to focus on we have executed on the alignment of our cost structure to support these key centers.
Further we are assessing potential value generating transactions intended to drive the business towards profitability.
Our international <unk> operations had a very good quarter and initial indications on preorders are double team indicate that our assumptions for growth are reasonable.
We thank you.
And for your continued support of our vessel W and look forward to taking your questions.
Operator.
Thank you.
We will now begin the question and answer session.
Ask a question Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble roster.
Our first question comes from Ben Clean Quick Lake Street. Please go ahead.
Alright, Thanks for taking my questions and congratulations on a good quarter, especially on the margins on the capital.
Capital availability side.
A couple of questions for me first of all on the Camelina initiatives that Mark I'm wondering if you can update us on.
Expectations for planting.
I assume going on as we speak here.
For Camelina as a cover crops. So if you could update us on kind of acreage and locations of expected planting that'd be great.
Thanks, Ben and I always appreciate your questions.
I've said, we've got about 300 acres of seed.
Molina, so that would be the amount of Camelina that then we produce seed that we sell to our farmer partners and then they grow the grain can just press for oil.
So that's a pretty big bite them.
We're just starting.
Starting the program, but where do you think that the biodiesel market is going to be a huge opportunity theres, obviously, a lot of other companies working in other crops and all around the world.
We believe we can participate in that early on so we're pretty excited about that we also believe that the Idaho.
Occasion, where our breeding station and production plants are are ideal for producing camelina. Some of the companies that are also in the U S market are a little farther north and we are we think that the.
That adds some.
Whether risk to the seed production and so we would prefer to frankly produce it in a little.
Better weather environment, even though it might be a little higher cost because the.
Compete.
Competing crops earn more from the farmers. So we have to pay a little bit more for our camelina, but you know as everyone on the call knows the.
The AG business AG seed business is a long product line business.
We've been doing this now I've been CEO for five years and now we're finally hitting our stride to.
So the genes that we put into the market to these opportunities like Camelina and you know.
We think that having stable seed supply is more important than a couple of pennies per pound cost savings at least at the beginning of the cycle where.
Demand is higher than than capacity to produce the seed. So we're really excited about what's.
Whats happening on the Camelina in the biodiesel side.
It's pretty clear that.
In the U S market, there won't be enough oilseeds to satisfy the diesel market for many many years to come maybe never.
And so we think it's a tremendous opportunity to produce oils that have a much much improved carbon footprint.
Versus petroleum based diesel and at the same time, not obviously affect the cost.
Food because it's.
Camelina has grown as a second crop basically over the winter.
So we're pretty excited then.
Took a big bite, putting 300 acres in the ground and we will.
We'll be updating you know in the next couple of quarters as to.
Status of the seed production and what the actual farmers were able to produce in whatever the winter weather is going to be here.
And the next three or four months.
Very good alright, well I appreciate that won't stay tuned for more updates.
Next our next spring.
Pivoting over to sorghum.
So Mark you commented that you've got expectations at about a 30 year.
The double team is going to be in the form of private label can you just kind of talk about.
Just kind of a different business model of private label versus selling direct to farmers in kind of the challenges around around the private label.
Process here in the very early stages and kind of your expectations for that private label business you know over the next two to three years.
Yes, Great question, Ben and it's good that you pointed out to look forward into the future because of our decision to.
Frankly sell a little bit more of our available inventory through private label is one that is based really on the future. So I said that this spring planting.
Based on our sort of 55000.
And kind of estimate of absorbed them that we're going to sell.
That it's a roughly 500.
<unk> thousand acre crop that's on a historical base in the U S of 6 million acres right. So that's a fairly significant piece.
But we.
I think that.
Obviously, we have to sell that and we have to distribute it and it has to get planted but we think based on the demand there's going to be a huge opportunity again to increase our sales in 2024.
And maybe up to a million acres so will we.
We're in.
<unk> production.
In terms of.
The male and female lines that we need to produce our hybrids and stuff to have enough hybrid seed two are in the 2020 for spring planting. So that's next year.
Basically be targeting close to a million acres and that would be.
Really significant given the 6 million acres, that's on the basis of $6 million because of existing grain sorghum.
Things in the U S.
We think as the 2024 expected planting rates for farmers.
So you know.
One of the big.
<unk> for us is to use the bigger customers, who one private label.
To basically use their sales forces too.
Continue to improve the penetration rates market share rates that we get for a double.
Double team grain sorghum and so.
One of the big reasons, why we're putting more.
Of our available seed this year, it's a private label is that we think in 2024, that's going to help us improve.
Improve and increase.
Two 1 million acres, our penetration rates.
So that's really one of the reasons, it's not just for 2000.
23 sales, it's really looking forward to 2024 sales and again I can't say this enough times.
Product.
And life cycles are really long for AG and so.
It's just we're always looking forward a couple of years as your question pointed out you can't just focus on the year that you're in you have to focus a couple of years ahead. So that's the reason why.
We're a.
Very very bullish on all of the interest in private label. We didn't have this interest last year right because of the crop was.
People were just assessing our gene and stuff, where you remember we sold to about a six of the fee that we're going to sell in 2023 last year and so people are just getting used to seeing double T grain sorghum, but but the overwhelming.
The response of the farmers.
I want to purchase it is really uplifting to all of our employees, especially the R&D guys, who have been working on this for seven eight years and our production guys, who put the stuff field.
Our sales team who's who's selling it today. So we're looking forward to 2024, that's the real reason to put more of our available seed.
Sales and inventory through private label, rather than our own branded chosen partners brand.
Okay.
Got it it makes plenty of sense.
Very good.
Plenty more to talk about that's probably a good place to leave it. Thanks for taking my questions and I'll get back in line.
Good morning welcome.
Again, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Jonathan Fite with KMF investments. Please go ahead.
Great. Good morning, Marc Good morning, Betsy Thanks for your time today.
Good morning, Jonathan.
Just wanted to start high level, if we go back to kind of your technology presentation from December of 2020, you all outlined.
Kind of some some growth areas that you all were going to focus on some areas that you had intended to divest.
I'd put a flag in the ground as far as kind of where you thought you'd be in 2020 for 2026, I know, it's way too early to be giving guidance for next year, but just directionally, what's changed and what is still on track from your mind in relation to the kind of where you thought you'd be two years ago.
Yeah.
So.
You know like all.
Is it a business that has long product development timelines.
You know facts in the market do change your opinion and I would say at this point the percent of product.
Our proprietary are based on.
Oh.
That person is pretty good estimate.
We think that that number three on spot and were excited because when we did that.
Hum.
Technology gross three five year plan, we didn't understand during free slash now prussic acid.
The opportunity that we were going to have in our forage sorghum and so.
Having two trades following each other is always a huge huge.
Benefit to the farmers and to the company frankly, because we are getting a reputation in the surgical market as a technology leader.
We have a lot of ongoing discussions with.
Every single one of the.
Other sorghum companies around the world that are fairly major in sorghum grain sorghum and sorghum sales.
And we just are very optimistic that.
There was a technology plan that our R&D from biotech and from our standard plant breeding.
Going to yield us continued products in the future on that.
Downside I would say that our estimates of kind of our general sales growth is going to be a bit slower than in that plan. So.
Think that the sales number is probably high in that plan, but the profitability is probably a pretty good estimate we are.
When we get the chance because we've been pretty busy.
To redo that plan when we are going to issue one is not totally clear to me but.
Hopefully by the end of this fiscal year, we will have the time to put out all of our teams together around the world.
NSS, both the interest of.
Other seed companies for license and our own direct sales.
And we will.
No.
Three to five year technology plan that will give you.
Your question a much more thorough answer than just sort of Uh huh.
But it's something we spend a lot of C.
Got it.
Okay.
The new plan will be.
On the same lines.
I'm outlining I think it will have lower total sales.
Have about the same amount of sales and technology based products and about the same efforts.
EBITDA.
That we outlined in the three to five year plan.
That's that's interesting I mean, so that's a significant step up and our cash flow over the next 18 to 24 months. So given that you also plan to burn a fair amount of cash. This year can you talk to the balance sheet data as of seven.
As of September 30th I don't think comprehended some of the latest.
Line adjustments in facility adjustments can you talk to if those adjustments give you enough working capital to kind of manage the cash burn this year or asset sales or other items are really going to be needed to kind of bridge that.
Great.
So I think that the.
Obviously, we're working on increasing our.
So as Betsy pointed out and as I pointed out.
In two phases, one with the Nab in Australia and more.
Okay.
And so.
Yes.
<unk> that we're going to have.
To.
Yeah.
Good books that were.
Okay.
Nationally.
MSP has been just incredibly supportive.
Of our plan and I think they understand that these things take a number of years and.
Now we are.
And that part of the cycle, where we've spent.
I need the time the effort the sweat blood to.
To create these opportunities and now we need to be a profitable company and to your point Jonathan.
<unk>.
And then 2020 for frankly.
We don't have obviously detail.
You May 24.
Now you would depend on how well, we do with double team 23, but.
<unk> profit margin does it what he knows who's on the call today.
So.
Large compared to forage margins gross profit margin percentages that you don't know.
It's just what you need for working capital if we get a huge boost in cash for the same exposure of sales and that's those are the products that makes the company is profitable and those are the kind of products that we've been managing towards end.
And looking towards in the five years that I've been with the company.
Are there any other I mean, I think you've talked about some additional partnerships perhaps.
You've talked about some of Camelina partnerships, but are there other noncore businesses that you would think.
Kind of ripe for some business development just to provide a cash infusion to bridge over the next 18 months.
You know we think that the.
Opportunities that we have are so big.
Especially for a company our size under 100 million in sales.
That we are just absolutely focused on bringing those home.
Right.
As I said, we've sweat blood and tears on the ground to get to where we are.
Double team is going to be a good year in 2024.
Well other companies wanted to do about licensing but that could be.
The way that that.
We add a huge amount of market share and remember the Monsanto strategy was always to put the trades and your own seed bags, but also license traits to your competitors because of the trades are so profitable that it's better for you to get the market share penetration from your competitors than it is to try to use the traits too.
<unk> generated.
Market share only on your part.
We've learned those lessons over the years remember I sat on Monsanto's board for part of those times.
It was a long process with the industry to figure that out some of the industry Giants did not license their trades to other companies and I think the.
The conclusion of that.
Was that the Monsanto strategy was the one that generated the highest amount of.
Cash flow in the long run for the company, who owned the trades. So that's the philosophy that we're.
We think that the oil company sort of market.
Or are you going to grow vegetable oils.
Uh huh.
50% better carbon footprint than petroleum based diesel.
That is just a gigantic market if you look at some of the studies.
People are trying to use soybean oil right now but.
By 2035.
Market penetration is in the billions of dollars.
Relatively like 15% of the available.
Additional market in the U S, which is just a gigantic cute.
Used for.
Large ships, but it's also used for trucking.
And it's probably not going to be substituted by electric.
Our motors and stuff like that yes for light trucks for delivery trucks for vans electric motors work, but for cross country.
Delivery of goods.
Do you need diesel so, it's a huge opportunity and where.
Very close to signing a deal that we think is going to be advantageous to us and W. We've been working on it for over a year.
These deals are difficult to do because they are so.
Potentially big.
Everybody is looking at you know, what's my benefit going to be from from signing this and are you. The right partner and we think we found the right partner and we think we're here.
Do you have a good relationship and finalizing a deal so.
So that will also allow us is as we pointed out in our earnings.
Earnings discussion this quarter to.
Supply other.
Diesel companies with with vegetable oil so it's all encompassing deal not just focused on what the company, but on the industry.
So we're very excited about and it's frankly.
To your question as you know everything we can do and we're also working.
The ingredient deal.
Uh huh.
Good progress on that that needs as everyone remembers a production plant to be.
To be established in west there is some good reasons for that I E. The relationships between China and the U S are such that you can't depend on the source of supply from China and all the leaf right now.
<unk> pros this thing is coming from Dana so they do want another source.
It's a pretty big.
Capital investment and.
I'm traveling today, but he can.
But we're excited that that's going to be.
Thank you.
And the next.
Combined with ingredient.
One of the.
Uh huh.
And effectively do.
With the staff that we have.
<unk> expenses basically.
All the projects that in my management.
We have lower potential markets and lower returns so we've.
Fine tuned with a scalpel or <unk>.
Focus on the biggest opportunities and.
We think that's plenty to do for now and that will be.
Plenty to do for all of our employees.
Management here in the next couple of years without looking at too many new opportunities.
Great. Thanks, Mark I, just had one quick follow up.
And the bridge the EBITDA bridge.
Given the upper end of your guidance I'm getting from negative 24 last year down to negative two.
I think I heard $5 million and kind of LCM benefit $5 million in gross.
The profit on the forge market side $5 million and cut operating expenses and I'm, sorry, I didn't catch the $7 million category or was that tied to.
Five 6 million was due to be T and another $1 million from our traditional sorghum portfolio.
Yeah.
$6 million from what was that.
Double team.
Okay great.
Yeah Yeah.
Have a good day.
Thanks, Jonathan.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Mark Wang for any closing remarks.
Well, thanks, everyone today for getting on the call hopefully it was a very informative.
You know Betsy and I and the board really do appreciate the support from the market and we felt that going to explanation of our potential.
Short term this year.
And the next year or two in terms of both sales and EBITDA now is hopefully beneficial forever, everyone understanding the real opportunities that CDW has got before it we.
Think that.
There is just going to be a huge explosive growth for the company both in sales and profitability and we really do appreciate all of those of you who.
While the company and our shareholders. So thank you very much and thank you for attending the call today.
Bye Bye now.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.