Q2 2023 S&W Seed Co Earnings Call
Yeah.
Good day and welcome to the S. One W seed companies second quarter of 2023 financial results Conference call.
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I would now like to turn the conference over to Robert Blum from Lytham partners.
Robert Please go ahead.
Alright, thanks, so much and thank you all for joining us today to discuss F. W. Seed companies second quarter fiscal year 2023 financial results for the quarter ended December 31, 2022 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 of Essent W. Seed company. During the course of this conference call may contain forward looking statements within the meaning of section 27, a you have the Securities Act of 1933 as amended and section 21 E of the.
The Securities Exchange Act of 1934 as amended and such forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements describe future expectations plans results or strategies and are generally preceded by words, such as may future plan or planned will or should expected anticipates draft eventually or projected such forward looking statements on this call include.
<unk>, but are not limited to our guidance on revenue and adjusted EBITDA for the fiscal year ending June 30th 2023, the expected timing of initial grain production by the JV.
Anticipated impact of the JV on our business and future prospects, including our positioning to be at the foremost of sustainable low carbon energy solutions as well as our financial outlook going forward the ability of shelf cash contributions to the JV to fund the Jv's operations for a few years.
Our focus during the second half of fiscal 2023 on the JV in our four key centers of value and our plans for the advancement of our business strategy 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.
Tier really 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 ending June 32022, and other filings.
Sequent, we 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.
And 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 should be read in conjunction with <unk> consolidated financial statements prepared in accordance with GAAP has no standardized means.
<unk> prescribed by GAAP and 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 relation.
Page of Essent debuts website SW has not reconciled its guidance for adjusted EBITDA for fiscal 2023 tuned out loss because of the reconciling light items that impact net loss are uncertain or out of its control and cannot be reasonably predicted the actual amount of these items during.
Fiscal 2023 will have a significant impact on net income or loss. Accordingly, a reconciliation of this non-GAAP measure is not available without unreasonable efforts.
Audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page.
With that said, let me turn the call over to Mark Wong Chief Executive Officer for Us in WC. The company Mark. Please proceed.
Thank you Robert and good morning to all of you.
This is really an exciting call for us on a number of topics. We continue to meet our 2023 goals on double teams sales margin improvement and cost savings.
We had another strong quarter of operational execution with growth in revenue and significant improvements in our gross profit margins, which were up 820 basis points.
One 6 million decrease in our operating expenses, which all translated into a 1.9 million dollar improvement in our adjusted EBITDA.
Thank you of course will go through all of these numbers.
One important item to remember is that Q2 is seasonally our lightest sales quarter of the year.
So for this level of improvement on a low revenue quarter shows the leverage we are building through our operations.
Research production and sales and marketing are all hitting their targets this year.
Now I would like to spend some time talking about the joint ventures, we have closed this quarter.
We finalized the joint venture with drag all genetics to develop and market high performing wheat varieties for the Australian market, leveraging <unk> existing commercial breathing and footprint.
With Florham, Underpraise wheat, germ plasm base and.
And bio series crop solutions H before gene for drought tolerance.
This is an exciting opportunity for all parties and we look forward to benefiting from the group's collective capabilities going forward.
But the most exciting new partnership announced last week as our worldwide joint venture with shell for the purpose of developing novel plant genetics, increasing oil seed crop.
<unk> covered crop acres and managing the crushing up these new acres for Biofuels Green diesel and jet fuel production.
Importantly, we are partnering with a world leader in shell that allows us to leverage our seed production processing and genetics.
<unk> genetics capabilities to.
To be at the forefront of evolution taking place.
To produce sustainable low carbon energy fuels.
From novel crop species like Camelina.
I have talked at a high level for more than a year now about the formation of our partnership with Big oil, where <unk> would be a significant player in this market.
At last week's announcements certainly validates the value that <unk> brings to the development of more environmentally friendly green transportation fuels.
The name of the new venture is vision bioenergy, oilseeds, LLC or we call it for short video.
So let's dive into this opportunity in a little bit more detail.
As I said, a moment ago. This is a worldwide joint venture.
Focused on developing novel plant genetics, starting with Camelina.
And moving to other oils.
C cover crops in the future.
S and W will contribute our expertise in seed genetics research.
Technology production and processing to VB.
Including our seed processing research facilities in Napa, Idaho.
W will also contribute.
Camelina germplasm and key personnel and research and production have agreed to move from <unk> to <unk>.
Don Panter.
EVP of <unk> America.
The Americas unit will become the new CEO of.
<unk> bio energy Oilseeds LLC.
With this joint venture <unk> received $13 million 7 million upfront plus another $6 million on the one year anniversary of the signing of this deal.
And we'll have the remaining position of our mortgage under Napa facility paid off amounting to approximately $7 million.
Also together altogether, a $20 million payment.
Now for those not familiar Camelina is regarded as a scalable and commercially viable oilseed crop with the potential to be a sustainable feedstock source for.
For the energy trends position to greener transportation fuels.
Camelina is also.
Is recognized as a low greenhouse gas cover crops around the world.
Cover crops are planted between the main crop growing seasons with the aim of not influencing the price.
Or availability of crops grown for food and feed.
Using effective controls and management Camelina has the potential to provide <unk>.
Stable feedstocks and create social and environmental co benefits by diversifying farmers income streams and reducing soil erosion.
Okay.
Biofuels such as those made from Camelina oil can be an effective way to help decarbonize customers and hard to update REIT sectors, where energy density and fuels is key.
Including the aviation Marine and heavy duty road.
Transportation sectors.
The basic model is as follows.
<unk> will use its plant breeding expertise and molecular biology to improve camelina seed.
V B O starts off by growing Camelina seed.
Same as we do for our other seed crops and cleaning it in the Napa plant.
We are currently in the second crop year of Bbl Camelina seed production.
Production.
The seed is sold to farmers, who grow large acres of Camelina great.
Next BVO Hello by every bushel of Camelina grain from the farmers. The grade will then be <unk>.
<unk> in our central grain storage elevator and sent for crushing.
V B O will contract with industry partners to crush the Camelina grade and separate it into its oil and meal fractions.
The oil will be transported and converted into biofuels biofuels by shell North American facilities. The Camelina meal byproduct will be sold for animal feed.
In terms of the B O ownership shell will initially 166% of the JV with SW owning 34%.
Upon the achieve.
The achievement of certain specific milestones, we are eligible to receive up to an additional 10% interest in the JV.
In addition, <unk> will have the option to purchase a 6% membership interest from shell any time up to the fifth anniversary of the signing of this agreement.
This could eventually put us at a 50 50 ownership percentage in <unk>.
Sheldon.
<unk> would be equal partners.
In addition to the $13 million in cash payments that shell is making to <unk> and W. P.
Plus the 7 million pay off of the Napa mortgage shell is also contributing an additional $25 million in funding to.
Through the operations of BDO.
One additional point is important to make is that under a production agreement <unk> will continue to utilize the napa facilities to process, our alfalfa seed.
In fact, we believe that the cost associated with processing our seed.
Actually decrease under this arrangement since the facility has largely been underutilized and the overhead cost were creating a drag on our cost of goods and alfalfa.
So the big question of course is what does this look like in the future.
We expect <unk> to carry out initial grain production in late calendar 2023, which is the middle of our fiscal year 2024.
The numbers still will be nominal to start, but we are expecting a ramp up quickly.
The expectations, we have are that DBO will be cash flow positive. After the first few years.
And that shell funding of the $25 million of ABL will cover our expenses during that period.
I, though we will not provide any.
Ongoing guidance right now.
But we will be talking about that.
Future projections in the coming quarters and years.
Now if we as we have talked about over the past year or so.
We are all about creating centers of value.
This announcement now create a new high value opportunity for us in W. With an agreement that was a long time in coming.
I just couldnt be more pleased to be working with the team at shell.
Its exciting opportunity going forward.
Yeah.
Now let me cover some of the other key centers of value.
Yeah.
Double team.
Obviously in the short run is a huge impact on our team's sorghum operations.
As I have said before we believe double team has the potential to revolutionize historical market in the same way other weed control technologies have been enhanced yields for crops, such as corn soybeans and cotton.
During the quarter, we recognized revenue of $1 billion on double team.
Remember the fulfillment season normally starts.
And then in about February so for us to ship $1 million in December .
Ending quarter really highlights the demand for the product and the fact that farmers want to get their hands on it early in order to confirm their supplies.
As I have stated in the past one of the big Hindering factors. We have is the availability of seed.
This past season, we maximized our seed production to ensure we have adequate.
The supply for the projected demand up double teams circles.
Following a successful harvest of high quality double can seed our finished feed supply is more than enough to hit our 12 million dollar revenue target.
These expected sales translate to over 750000 acres of double team to be planted by farmers in 2023.
Yeah.
We talked about this some last quarter, but in addition to selling double team and the <unk>.
W Sorghum partners brands.
Currently have private label partners rules that are willing to sell double team also.
At the moment, we have an agreement with seven different label partners.
It is our expectation that nearly a third of the $12 million, we expect to sell in fiscal 2023 will come from a private label customers.
The ability to leverage private label partners and utilize their expertise in distribution systems.
In other key geographies should be beneficial to us.
We are also beginning to formulate our double team strategy for South Africa, South of excuse Me South America Asia and Africa.
In addition, we are piloting double team sorghum forage sorghum this spring.
Two our double team grain sorghum pilot in 2021.
We have the potential to sell about 1000 acres of forage sorghum with double team. This spring.
To remind everyone. The reason we are so excited about double team is a significantly enhanced margin profile of the product.
Based on our outlook for $12 million of double team sales in fiscal 2023.
We expect about 50% or $6 million to drop to the EBITDA line.
The majority of which will occur in the second half of this year.
Transitioning now to international and U S forage.
As I mentioned at the beginning.
Is seasonally our lightest quarter of the year.
So while it is a bit hard to extrapolate certain data points.
What the year might be.
Let me just make a couple of comments on the international and domestic forge operations that I think are relevant to how we see the back half of the year, possibly shaping up.
Yeah.
First we are seeing an increase in demand in Mena in alfalfa, but also increasing.
Icing.
This increase in alfalfa pricing, coupled with the tighter control cost controls and inventory management, we put in place our resulting in a nice improvement in our margins.
Additionally, the international shipping challenges.
Yeah.
Counter as recently as a few months ago are starting to ease.
Which we hope will assist in our ability to quickly turnaround seed crops and get them out the door to prior to the end of June .
But there still may be risks in the supply chain and we remain cautious here.
I mentioned this last quarter, but it bears repeating the devastating flooding across <unk>.
Eastern Australia has severely impacted bat areas of cropping land and mixed farming.
Enterprises.
This has led to a slow start in our Australia and domestic business.
Also once the water received we believe there will be opportunities for sustainable remediation required.
Including replanting of crops and passengers.
So on the heels of a very strong quarter, we feel the trends within our storage business remains good both internationally and domestically.
I'll, let you expand a bit more on the numbers.
As we talked about during our year end call in September and our Q1 call in November .
For fiscal year 2023, we are focused on commercial commercial execution as we begin to leverage all of the work that has been done over the past five years.
Simply put it's about driving towards and beyond profitability in the near term.
Yeah.
We remain intensely focused on four key centers of value, we have outlined previously including.
Our sorghum technology operations led by double team and next generation non GMO hybrid excuse me a herbicide tolerance sorghum solution.
Our international forage operations, which primarily operate out of Australia and provide products around the world.
Our U S forage operations.
And lastly, our specialty crops, which now include our JV with shell for Camelina biofuel applications as well as stevia.
We are reiterating our guidance for the year as a reminder, on the high end of guidance, we are expecting $92 million in sales and a negative adjusted EBITDA of $2 million.
On the low end.
It is $80 million in sales and a negative $7 million and adjusted EBITDA.
Yes.
Becky will once again expand on this momentarily and walk you through the bridges.
With the progress made during the first half of the year, we see a path to achieving something closer to the high end of guidance and with it having a company that will soon be self sustainable from a cash flow standpoint.
Let me now turn it over Betsy, who will walk you through the numbers in more detail and we'd be happy to answer questions at the end of her presentation Betsy. Please.
Thanks, Mark and thanks to everyone joining us on the call. This morning.
Let's start on the revenue line.
Revenue was $12 $9 million for the quarter, an increase of two 4% compared to $12 $6 million in the prior year's second quarter the.
The increase is primarily attributed to a $1 million increase in North American sorghum, and sorghum sales associated with the company's <unk>.
<unk> team next generation non GMO herbicide tolerance in sorghum solution as well as an increase of $1 9 million in alfalfa sale to the Mena region.
This was offset by a decrease in sales of sorghum semina of $1.4 million.
A point $7 million decrease in alfalfa sales to the Americas, and acquaint 7 million decrease in service revenue.
Mark hit on the revenue guidance, but to reiterate what we discussed last quarter, our fiscal year 'twenty. Three revenue guidance is currently in the range of $80 million to $92 million.
As we look to bridge from $71 million in fiscal 2022.
To $80 million to $92 million in 2023, we are making the following growth assumption.
On 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 growth. We are assuming approximately $9 million in growth from international Orange operation with about half coming from pricing improvements and half coming from volume.
And then about $3 million in sales growth from our traditional non DTE related sorghum operation.
Now turning to margins gross margins were 21, 3% in the second quarter of fiscal 2023 compared to 13, 1% in the prior year's second quarter.
The key driver to the 820 basis point improvement in gross margin was the increased sales of the company's higher margin double teams Oregon's pollution improved alfalfa margins in the Mena region due to improved market pricing and the minimization of inventory inventory write downs.
Okay.
Now I will transition to operating expenses.
Our GAAP operating expenses for Q2 of 2023 or $9 million compared to $10 6 million in the prior year second quarter, a decrease of $1.6 million.
A little over half of the expense reduction came from SG&A with the remainder coming from reductions in R&D spend.
For Opex for the remainder of the year, we are still on track for a $5 million and Opex savings.
One thing to keep in mind is there.
With the creation of both of our J D Triangle, Australia after wheat and Bbl for Biofuels, we will be playing an administrative role for both new ventures handling things, such as finance and accounting HR and I T under our service level agreements.
Therefore, we will have some expenses that we will incur within our operating expense line, but then we will be reimbursed by the joint ventures.
And this service income will show up in the other income line.
So when we think about the way that this will flow through the income statement next quarter, we will talk about making some adjustments to account for these nuances to confirm that we are meeting our stated goals.
For the year, we believe operating expenses, including stock based comp of about $2 million will be maintained at our previous guidance of about $27 million. Once you add back the adjustment for the reimbursement that will likely flow through with other income.
To be clear this adjustment will come into play in Q3, but wanted to give you a heads up.
Now back to EBITDA at the adjusted EBITDA line, we had a negative adjusted EBITDA of $4 6 million for the second quarter compared to a negative adjusted EBITDA of $6 6 million in the prior year second quarter, an improvement of $1 $9 million.
This $1 $9 million improvement.
Layers onto the $2.4 million improvement.
At EBITDA that we saw in the first quarter of this fiscal year.
Before I share our outlook for EBITDA for the remainder of the year, Let me talk more about the joint venture with shell vision, bioenergy, oilseed or V B L.
As Mark mentioned I think that you.
Has received well received $13 million 7 million of which was received upfront.
That's another $6 million, which we will receive in one year and sell also paid off the remaining portion of our mortgage on the nampa facility of about $7 million.
We filed our pro forma balance sheet effective September 30th 2022, and the 8-K that was issued in connection with the agreement and while we are now discussing the quarter ending December the general guidelines remain the same.
As you may have seen in the pro forma adjustment there was of course, the $7 million increase the cash plus the present value of accounts receivable for the $6 million cash payment shall will make to us in one year.
There is a $5 5 million reduction to our property plants and equipment from the transfer of the Nampa facility.
And a corresponding 7 million reduction in the long term debt, which was paid off on the facility.
There was also a $22 8 million increase to other asset which was the calculated fair market value of the company company's retention of our 30% ownership in <unk>.
In terms of the impact of SMB to use financial reports on an ongoing basis shall have funded the operations of ABL with a $13 million at close and will infuse an additional $12 million on the one year anniversary in 2024.
Because we are a minority owner in the JV, all income and loss will flow through after operating income and we'll classify as an equity investment.
The JV is of course expected to lose money in the first years.
However, we expect this will be a noncash impact that I think that Houston. The JV has been adequately funded.
As Mark stated the expectations, we have either the JV will be cash positive after the first few years.
At that time any profit will likewise, likewise flow through as equity and net earnings of affiliates.
Any distributions of cash from the JV I think that you will be at the option of the JV board of directors.
There's a lot to discuss here details are in our various SEC filings and if you have any additional questions. Please let me know.
Now, let's turn back to our EBITDA guidance.
Similar to what I did last quarter, let me bridge out how we look to achieve our adjusted EBITDA guidance in fiscal 2023.
Let's start with the high end of our assumptions, which is a $2 million adjusted EBITDA loss for the year.
Starting out a negative adjusted EBITDA of $24 million for fiscal year 'twenty Q, we assumed the following for fiscal 'twenty three.
A $5 million improvement to our lower cost or market or LCM charges.
$7 million in incremental gross profit due to D T and traditional sorghum revenue growth.
$5 million improvement in international forums gross profit due to both the higher end of our expected growth as well as overall improvements in our production costs.
And a $5 million improvement from our cuts to our operating expenses.
All of that gets us to an expected 2 million adjusted EBITDA loss for fiscal year 'twenty three.
For the low end of our adjusted EBITDA guidance I'll remind you what we did for the low end of our revenue guidance. We simply took into account incremental revenue growth attributable to double team and assumes flat revenue in the rest of our operation on the low end of our range for adjusted EBITDA. We did the same and assumed only growth in <unk>, which would be at.
6 million adjusted EBITDA loss.
We made some additional assumptions $2 million of the international forage benefit would be captured due to the increase in margins and between our lower of cost or market charges in opex combined we have $9 million of benefit versus 2022.
This would end with an adjusted EBITDA loss of about $7 million.
You will notice that the grades does not include I think that your share of video loss for fiscal 'twenty three as we've noted we anticipate the venture to incur losses in the first few years and that 34% of that will flow through our income statement during equity investment mind. However.
However, given that the venture is adequately funded for these investment years before becoming cash flow generating it is a noncash impact of asking W. And we plan to exclude it from adjusted EBITDA.
Please note that for the triangle, Australia, Jamie we are not going to exclude it from adjusted EBITDA, because we do anticipate capital calls, albeit minor amounts.
Now I realize this is a bit complicated but wanted to share. These factors ahead of the second half of our year.
Netflix, let's talk about our bank agreement.
In December CIBC extended the maturity of our $21 million credit facility on March 23rd 2023, and that's P. Our largest shareholder continuing to show their support for S. N W by extending the maturity of the $12 million standby letter of credit Tabak, our CIBC facility.
We continue to actively pursue long term refinancing with replacement lender and appreciate the partnership from CIBC to allow us the extra time post our video transaction to close a new deal prior to this extended maturity.
So definitely a great first half of fiscal year 2023. It remains a lot of work ahead of us, but we are extremely pleased with the progress and pathway. We believe it provides us going forward.
With that I will turn the call back over to Mark.
Thank you Betsy.
A few closing remarks, and feel really great about the progress made so far this year and we're especially excited about the new biofuel JV with shell.
Many people in our company have worked very hard to make all of this come true for us.
With two consecutive quarters, highlighting significant improvements in our operating results and now the execution of the critical jbs.
I feel we are really beginning to benefit from the groundwork that has been laid over the last few years.
As always we thank you for your continued support of Versant W and look forward to your.
Questions in the call.
And now I'll turn it over the operator, and we'll collect your questions. Thank you so much for attending the call today.
Okay.
Thank you very much we will now begin the question and answer session.
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Okay.
We have.
First question coming from band Cleave from Lake Street capital.
Ben Please go ahead.
Alright, thanks for taking my questions.
First a couple of questions on the shell JV and I guess first of all congratulations on getting the finish line here.
First question is given the complexity of.
Disagreement.
Coupled with the fact that you also signed the JV with Perrigo were there any kind of.
Elevated costs in the second quarter or maybe the first half of the year run like legal expenses or anything of that nature of that.
That arose as you guys are getting to the finish line.
Let's see I'll, let you answer that.
Yeah, Yeah. Thanks, Ben for the question Yeah. We did have some one time transaction costs I'm forgetting both transactions across the line.
You'll see that.
In in our Q that we have it as a one time 157000 for Q2, you will see amount in Q3 as well probably a similar amount more related to the shell JV come through but we are excluding okay.
Given that there are one time, a one time charge.
Okay got it I'm, sorry, if that was outlined.
Outlined in the press release, I apologize I missed that.
Okay very helpful. And then a question Mark you referred to the kind of global.
Implications of the shell JV, and starting with Camelina, but moving into other oilfield.
As a vast universe can you provide a bit of context around kind of crops youre looking at but the extent to which <unk> has been working with these crops already.
Any any kind of.
You know any kind of help on that would be it would be great.
Yeah. Thanks Beth.
It's really important to have kind of a measured.
View of these markets. These markets are just gigantic.
You could grow a 100 million acres of these oil seeds that are cover crops in the U S and you wouldn't have enough to supply the U S diesel market. So.
You were talking about the acres that are now planted more than the acres planted corn.
There are huge markets.
Says something about how.
Our society.
<unk> energy to support.
Support their standard of living.
And we are trying to with shell basically focus in.
On what we both do well right in what we do well is we apply science and we improved seats and then we produce the seeds and we clean them and then we sell them the farmers to increase acres, what shell does well is they refine liquid fuels and then they distribute and sell these fuels too.
Their customer base and so you know, it's it's really a joint venture and this is why we're so excited about it.
Both companies are doing what's down the sweet spot of there.
Experience and that's why we're so excited about these to answer your question specifically you know we're concerned about the U S.
But we're also.
Focused on the opportunity in the sense of that.
As Betsy said, we'll probably have a losses the DBO for the first couple of years as we ramp up but.
We've also been in seed production with shell with two years now we grew our clubs last year, which will be planting and grain to get the production that you mentioned this year and we have a current seed crop in the ground, which will allow our big expansion for next year. So you know.
This whole time.
We've been talking about our potential joint venture and obviously, we couldnt name names until the deal was done but we that doesn't mean, we weren't focused on it and we weren't.
Laying the groundwork because time is so important in agriculture and show, what's not working with us even before the agreement was signed.
So we're really focused on camelina in the U S.
Other oilseeds that people have talked about or Coronado.
Which is a cousin to camelina.
And a few others right now soybeans are being used a lot for oils for diesel production, but we're not probably going to get into the soybean business. We like these cover crops that are planted after food crops because they.
They give us a second they give the farmer and US a second source of oil production and they don't affect the price of crude.
In 2024, so the geographic <unk>.
Implication of your question, we will start looking at Camelina in Australia, So shell has a.
Conversion plant for <unk>.
Biodiesel Green diesel.
In Asia in Singapore, and and wants us to supply <unk> to supply.
Oil to that plant next and.
We'll be working on other facilities and other geographic region regions over the next decade that the shell also has other production facilities.
So we're not so we're now focused on really improving camelina and geographically.
Spending our production out of the U S. Other worldwide markets will start.
You know breeding programs on other.
Seeds.
But we haven't.
<unk> done more than collect germplasm and do the normal things that a company does on the other crops.
But it's a big it's a big opportunity and we're sort of so thankful that we have this.
Our joint venture with shell and all.
All excited about what that means in the future.
Got you know, it's it's certainly is exciting.
That's helpful context.
One more question from me and then I'll get back in line the millions of dollars on double team revenue that was realized in the second quarter.
Certainly.
Appears to be more sooner than you would've expected can you.
Is there anything to read into that.
That was it were there the farmers distributors that were just.
So eager to get this gets us in hand that they bought this earlier than was expected or or was this kind of a random occurrence I mean, what what really what drove it the premature realization of that of that initial piece of revenue for this year.
Yes. The market is very very excited about double team and they saw it last year in small amounts.
And our philosophy is if.
If we haven't talked about it as we basically go to farmers and we say a show us the acre of your that you're reading.
And by double team for that and if we can solve your grass weed problem on that we the acre than maybe you should consider.
Planning double team on the rest of your farm and so the small number of farmers, we had last year.
You know, we're very impressed with the performance of the product.
In herbicide resistance is.
As I've seen over the.
Over the decades since I've been doing this.
Once a pharma converts to one herbicides, we usually only once that one herbicide in his own farm. So we won't keep a couple of different kind of herbicides because these concerns that maybe someone who works for him.
Mike spray the wrong herbicides and so he converts everything to one herbicide and hopefully that's what we're going to start seeing in the next couple of years. So.
Yes.
Current year that we're in where we're at.
Estimating our 750000 acres you know it's more than acres, we want to get out with a lot of farmers because we want next year would also be another big year, and it's really just the people excited about the product and willing to if youre a distributor take it and put it on your in.
In your flat storage, so farmers can come and get it if they need it.
And then if if you're a farmer, it's sort of lining up your supply because everyone. As we said before knows that we're still short on seed.
For this year and so they're trying to make sure they have the supply.
Got it got it very good Walker is a great start to the year on that then.
Alright, well, that's plenty more to talk about that's probably a good place to leave it I'll get back in line. Thanks for taking my questions here.
Youre welcome.
Thank you.
I remind you that if you wish to join the question queue. Just press Star then one.
Our next question is coming from Gerry Sweeney from Roth Capital Geri. Please go ahead.
I'm sorry, Jerry.
Okay.
Yes.
Oh.
Pardon me.
Jerry are you there I am yes.
Thank you thank you pardon.
No worries no worries Mark Betsy Thanks for taking my call.
Good morning.
Just one.
One more question or two on the shelf.
JV is there any type of exclusivity in terms of regions or.
Crop type or anything with shell anything that we should be aware of.
We actually <unk> actually has the right to sell.
Camelina grain to other.
The company's other international oil companies.
She is an opportunity there.
So it's sort of the reverse of exclusivity, but it's our belief that these markets are so vast and shell is such a huge footprint.
In the diesel market that will be producing for shell.
For the next decade, and there won't be any extra green leftover to to sell to anybody else.
Got it.
Practically it's.
It's an all share deal and we're more than pleased with that because.
As I've said before you know.
We basically develop season, then so great the farmers and and now we're going to accumulate that green and buy it back from the farmers and then get it crushed and then sell the oil does shell and shell has just this vast.
<unk> network of well.
Our conversion plants, the diesel and jet fuel and some will be hard pressed DBO it will be hard pressed to supply that demand michelle's, creating.
Got it switch.
Switching gears to D T sorghum in the Pea.
Past, we've talked about I think the number of acres.
Our planet.
Sorghum planted in the United States could you go over where that is and we also talked about the economics of corn versus historical them and how that also plays into some of those acres.
Right sure.
So I think last year USDA said, we had around these are round numbers 6 million acres.
While grain sorghum.
There are additional also acres of board sorghum, and we mentioned that.
We will also we believe provide a big financial.
Improvement with farmers and forage sorghum. So we think that's our next.
D T market in the U S is to introduce the June towards sorghum lines.
But the big forge the big grain sorghum states of the dryer states so slogan.
Acquires about 25% less water than corn to make a crop.
So the states like Kansas, Nebraska, Texas.
Eastern Colorado those are the big sorghum state sorghum is used for both animal feed and ethanol feedstock in those states I think the USDA is projecting that acres are going to go up maybe the $7 million this year.
In sorghum, just because of water issues and so we think.
That.
Well for our sorghum product line.
To your question of how to serve them compete with corn.
I think we're just starting to learn that in the pharma community is starting to learn that they just didn't have an option before to control grass weeds and so they planted corn because at least they can could couldnt control grass weeds in corn, but now we're giving them an option for sorghum. So let's just.
Tickling sort of that demand and farmer thinking piece.
On corn versus sorghum, and we think sorghum is going to win but.
It also depends on the price of corn relative the sorghum and that depends on the Chinese market and lots of other things so.
But in general the water problem as a benefits of sorghum, and we think that we're going to start seeing that in the.
And your future.
Water issues in the production states are tougher and tougher in the U S.
Got it and then on the on the <unk> side I believe the.
Your forged product helps with digestibility and I'm curious if sort of the next steps sort of the roadmap is it similar to the D. T sorghum, the harborside resistant version.
Craig C to get Marcia.
And get out to the market. So you know when I when I said on Monsanto's Board.
We were at the point in time that Monsanto, where we were developing these trade stacks and <unk>.
Trade stacks are incredibly valuable.
The farmer gets to to access these new technologies that.
Basically they all make any money in one way or the other right and so.
D T. It's a it's grass control with.
The new digestibility genes.
We're looking at one in particular.
<unk>.
To be able to see the storage excuse me of forage crop to his cattle in the U S. It would be mainly cattle in Australia, where we're also looking at it its travelling sheep, but.
The cows don't get sick and.
They just.
There's no.
To make the cast sick, we find in our trials that we have a real problem with the other.
Animals rabbits, and other things because during my guess must takes tastes. So good that they just come and eat it so to.
To figure out how to keep the visa [laughter].
Wild animals out of our seeds fields because we.
We did have some places where the animals basically a dark cloud because it tastes. So good so.
And they didn't get sick. So it's a it's a fascinating opportunity to put a basically a digestibility gene on top of our herbicide gene.
There'll be the two genes will be stacked in some markets with two genes will be separate in other markets depends on whether there's a grass problem or not.
We've been through this before at other companies. So it's not new to us the thinking that we have to do but it's a great opportunity and we're super excited that.
Uh huh.
New digestibility gene will sort of be where next year, it'll sort of be DTE was two or three years ago. So it's got it it's very exciting times.
In the near term for sorghum for us.
On the herbicide you alluded or mentioned at least I should say I had alluded to but going international.
Yeah, how do you do that you know.
Well I mean, I don't want to get the cart before the horse it sounds like sales are pretty high here in the U S. But.
What should we be thinking or what's the market opportunity and how do you attack that market. If you go internationally.
Yeah, I mean, I want to remind people on the call that you know there are long development times in egg and it took us five years of investment.
Double team.
<unk> is making significant.
Contributions to our EBITDA and those giant losses that we incurred.
Now are getting smaller and smaller and we expect profitability here hopefully next year.
And and cash sustainability also and that's obviously really important in this market where.
Funding is difficult to raise so where we're trying to focus on the.
The near term opportunities and what is going to really make us money and control our cost as we do that and control our.
Inventory obsolescence.
Since and stuff like that you know.
As you might imagine.
Though we have a very strong position in Australia were probably in the top three companies in Australia, we actually have more Australian sales. If you count the sales to the middle East, which we manage out of Australia than we have in the U S.
But our U S margins with double team are a bit higher.
So.
We're putting Ah trial amounts of.
Double team hybrids into the Australian market, we think that it's going to take some work to make sure that they perform well in Australia there'll be some selection needed.
So it's not going to be as quickly as a new gene like during free that we're introducing in the U S, where we understand the germ plasm really well.
We're just going through that process in Australia. So.
The bad thing is it takes a little bit of time. The good thing is the markets once they respect your trade.
Look forward to a long long harvest of the value I mean, monsanto harvested their trade stacks for.
More than 20 years before our competitors had a stack to put into the market.
So.
Thanks.
The stack trading businesses.
The real improvement over just a single gene trait like <unk>.
Got it one last question then I'll jump back in line.
Talked about licensing.
So how does this double team.
And like everything else.
A little bit of a process I was curious if you could give us an update on if that's still part of the strategy.
Yeah. So we're still definitely a strategy. It was the Monsanto strategy to both include the trades in your own bags of seed plus license new traits to your competitors.
Because the profit margins are so big on these trades that there's enough margin to basically allow your competitors to make a profit and in the pharma obviously two.
Two to make money on the acreage that he buys and and still have margin left for the originator of the gene.
Again I'll state, it's very very unusual for a small company like us and W to originate genes.
Fact that we have double team and then we have another gene I mean in grain sorghum, and we're looking at forward sorghum and our worldwide strategy.
All of that is something that big companies do not small companies but.
We've been doing this a long time the management staff at SW, and we're comfortable with what you need to do technically to sort of get performance in the farmers' field in that rate and then get regulatory approval and then increase the amount of seed, but these are all things that give you protection against other people trying to come up with.
Similar genes and like I said the the.
<unk> is basically this is such a difficult process of the industry basically licenses the genes from the gene leader rather than try to develop their own that's been the model for the last 25 years, and we think that that's going to continue and we think that.
Right now we're in discussions with a couple of our competitors and hopefully in the next year or two we'll have some announcements there on people, who believe that the double team or something that they should license and put it in their own product lines.
Okay got it I appreciate it thanks for the update.
Youre welcome.
And let me remind you again press Star then one to join the queue.
Our next question comes from Brett Reece from Janney Montgomery, Scott Bret. Please go ahead.
Hi, Mark and Hi, Miss Houghton and how are you.
Good morning, Brett.
You know in doing my due diligence on the.
Seed opportunity with bio fuels.
You know run into the this castor bean is that something you're looking at or have you just decided that the AR call Molina or is just the better go to see for the opportunity with the Biofuels.
Camelina is our first choice right now.
There are lots of different reasons.
So again we.
Look for areas to produce camelina that.
We can do it as a second crop right as our fathers told us they're not making any more farm acres. So we need to.
I believe as we need to farm every acre twice basically you know once.
A year for food crop and once a year for an oil crop.
And those areas up in Idaho, as an example, Montana.
The eastern part of Oregon, and Washington that are pretty dry.
Those areas are pretty key opportunities for camelina.
We could obviously look we will look at other crops, but it's a little too early to say, whether castor bean is going to fit into what we think is a product line that has broad appeal and but yet concentrates on the geographic areas, where we have strength, where we have relationships with farmers.
That's always important we have to have a reputation hopefully a good reputation with farmers and so when we.
Or trying to get them to try a new crop that they are willing to do that and so we have to be a little bit careful how widely spread or net geographically because we do want to concentrate on the areas that grow best Camelina to start with.
We'll be looking at potentially Castor bean and others in the future, but it's a little too early for us to sort of.
Talk too much about what other oilseed crops might be in our portfolio.
Hey.
With the infusion of capital.
To S N W with the shell venture.
We'll lap.
Really improve your negotiating.
Cloud that I assume is ongoing with the <unk>.
See I B C.
I'll, let <unk> answer that question Betsy.
Yeah no. Thanks for the question Brett.
It certainly improves our situation overall right. It takes out the mortgage that we had on Minneapolis facility in and.
Allows us to take a facility that was underutilized, but just using for alfalfa and to get the processing services that we need from DBO at a more market rates.
So it improved cash flow and improve our debt situation as well by taking out that mortgage.
In addition, the cash that's coming in and that has come in and will come in in one year.
Also improves our situation from a banking standpoint, so with all of that continuing to discuss with lenders.
And make sure that we get a good refinance in place ahead of the CIBC maturity, that's coming up here. This spring.
Great and one last one just a brief update on the Stevia initiative.
Yes, we're still talking to ingredient about the stevia opportunity.
There are.
Real opportunities there and the situation with the China political he seems to get beginning no better with balloons and other things flying over.
North America, and the Air force being forced to shoot them down.
You just can't afford to have Europe full supply of stevia leaf being in being grown in China, and that's a situation that ingredient finds themselves in so these but these things take a while.
I mean are.
We meet with shell, we negotiated over a year.
To accomplish that and that's why I gave my thanks in the call at the end of my statement to all of our <unk> people.
Who helped us get there we had over 50 meetings with shell.
And.
Uh huh.
Because it was a complicated deal.
Because it involved a worldwide.
Relationship with shell not just the North American relationship.
They had to make sure that we were the right partner and we had to make sure that they were the right partner in the sense that.
Obviously as I stated.
We're both doing what we were wondering kind of the sweet spot of our execution right, where we're seed company that then sells to farmers in there.
Basically a liquid fuels company that refined themselves because their customer base and you know.
This isn't about companies trying to.
Do something where they had not have maybe not much experiences both of the companies in the sweet spot of what they've been doing for decades, and so we're just more than pleased that that show came about and we take those lessons as we talk to ingredient about stevia. So I have nothing new to announce on stevia to your question.
But we're still working on that we still think it's a great opportunity.
We've been bleeding breathing that crop for 12 years, and we think there's a lot of value there and we'll continue to work with and greet arguably.
Remember who is the market leader in the U S. U S markets about six to 800 million.
Stevia sales finished product sales and we think it's a big market and we've been engaging onto the right partner, we just haven't come to an understanding of what each of the company's contribution is going to be yet.
Thank you for taking my questions and a good show on the shell deal.
No more than welcome. Thanks again, we appreciate that.
And this concludes our question and answer session I would like to turn the conference back over to management for any closing remarks. Thank you.
So thanks, everyone for being on the call. It's one of those calls that hopefully, we'll all look back and it's a point in history that a that is a change maker for S and WCS, we remain focused on the near term on our on our traits in sorghum.
D T. This year and the new trades coming and where we're.
Focused on cost control and building sales and making sure that.
We can.
Get to profitability as quickly as possible. In addition, though the shell thing is just a huge opportunity the markets are gigantic and you'll be hearing more about that opportunity from us over the next earnings calls.
As we work with shell and define the.
Details of our plan and are in.
In real time, so thanks again, everyone for being on the call and Uh Huh.
We look forward to speaking with you in the next couple of quarters. Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.