Q1 2024 S&W Seed Co Earnings Call
Good morning, everyone and welcome to the F. N. W. C Company reports first quarter fiscal year 'twenty 'twenty four financial results conference call.
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At this time I'd like to turn the floor over to Robert Blum with Lytham partners.
Sir you may begin.
Alright, Thank you very much and thank you for joining us today to discuss S. W. Seed companies first quarter fiscal year 2024 financial results for the quarter ended September 32023.
With us on the call representing the company today are Mark Hermann Chief Executive Officer, and Vanessa Bowman the company's.
Interim 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 our prepared remarks. Please note that statements made by the bands Madiba Best W. Seed company. During the course of this conference call may contain forward looking statements within the meaning of section 27 a.
<unk> of the Securities Act of 1930 threes embedded in section 21 E of the Securities Exchange Act 1934, as amended and such forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements describe future expectations plans results or strategies and are.
Generally preceded by words, such as Bay future plan or planned will or should expected anticipates draft eventually or projected.
There's 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 forward looking statements as a result of various factors and other risks identified in.
The company's 10-K for the fiscal year ended June 32023, and other filings subsequently made by the company with the Securities and Exchange Commission. In addition to supplement S. W's financial results reported in accordance with U S generally accepted accounting principles or GAAP.
You will be discussing adjusted EBITA on this call. These are non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measure and are not prepared already comprehensive set of accounting rules or principles, a description of adjusted EBITDA and reconciliations.
Historical adjusted EBITDA to net loss are included the divested debuts earnings release issued earlier today, which has been posted on the Investor Relations page of <unk> website.
Cardio recording and webcast replay for today's conference call Walt will be available online.
Company's Investor Relations page with that said, let me turn the call over to bark permit Chief Executive Officer, Brett W. Seed Company Mark. Please proceed.
Thank you Robert and good morning to all of you in this call comes on the heels of our year end conference call that took place about 45 days ago I'll keep my comments today, a bit more brief than I did the last quarter, but I'm certainly available to expand on any details during our Q&A session of today's call at a high level we.
Made solid progress during the first quarter instituting key operational initiatives to drive the business towards profitability in the near term, including the initiatives that I laid out on.
On the year end calls such as improved lifecycle management to reduce obsolescence costs, the rationalization of certain low margin forage product lines and seed treatments suspension of our stevia development program and the overall seed manufacturing cost reduction plan these initiatives along with.
Early sales of D T and higher margin alfalfa sales resulted in a gross profit margin of 35%, which is 780 basis point improvement compared to a year ago first quarter and a point.
Point 2 million dollar improvement in our adjusted EBITDA as most of you know the first quarter of our fiscal year, which ends in September is seasonally one of our smallest quarters, consisting primarily of forged shipments to that point forwards revenues were approximately 86% of the revenues during the first quarter.
Given the strong progress made during the first quarter, particularly on the gross margin front I believe the stage is well set for continued improvement throughout the year, especially during later quarters of the fiscal 2024, when we ramp up shipments of our double team George Sorghum solutions, our focus is.
Our management team has been to to define our business strategies with financial targets that will be delivered based on operational effectiveness by optimizing our two key areas of focus.
Our sorghum technology solutions and forge products to that point, the result of first quarter.
Quarter fall within our expectations and support the annual guidance that we provided during our year end call Vanessa will expand in more detail on the numbers momentarily.
Beyond our focus on operational excellence to align us N W with best in class seed industry standards.
Within both sorghum and forged product lines, we are making continued developmental progress to build off that momentum of our first trait technology solution double team grain sorghum.
As most of you know double team is truly special and unique product as the only product available to control grassy weeds in sorghum, which rob's a water nutrients and ultimately yield from the crop since its limited launch in 2021 and broader commercial launch in calendar year 2022.
Double team Green sorghum accounts for what we estimate to be 6% of all grain sorghum acres in the United States today, and believe we will grow to more than 10% next calendar year based on demand for the product. This is not only a tremendous achievement for our sales team, but also highlights the value of <unk>.
And for innovation in this critical crop, which has been void of any innovation to this point by the large agricultural companies in my conversations with double team customers since taking over as CEO. The response has been universally positive.
I have said in the past corn soybeans and cotton growers have all benefited from research investments in advanced tools for weed control technologies. However, sorghum simply has not benefited to this point from innovation, despite being the fifth largest cereal crop globally. That's N. W is ideally positioned to benefit from there.
Yes.
While we ensure we execute on our fiscal 'twenty 'twenty four sales objectives for double team grain sorghum remember we are expecting total sorghum create revenue to be between $11.5 million to $14 million, which would represent a increase of 77% to 150.
<unk> per cent compared to fiscal 2023, we are also looking to continually innovate with sorghum through the introduction of new traits first in the queue is the expansion of double team weed control system being introduced in Ford sorghum with initial sales expected this year.
Early demand has been strong and we expect it to sell out of its inventory this year and continue on a penetration curve similar to what we have already seen with double team grain sorghum.
Second we are set to commence a pilot launch of our pressing acid free trade for sorghum, what we previously called Darrin free with a few thousand acres being planted this year, we plan on commercially launching our prestwick acid free trade in 2025, initially as a solo trade and then shortly after that.
We expect to be providing a stacked trait with double team.
Finally in our trait pipeline, we are developing a second generation post grass herbicide trait, which we planned to launch in 2025 and in discovery stage for an insect tolerant resistant trade AR and a broad spectrum herbicide trait as well.
We are clearly becoming the key technology provider in sorghum, a key global crop that can be used as a substitute for many of the grains on the market today due to its key nutrient profile and ability to handle higher temperatures in dry climates better than other crops.
While our focus today is on driving sales of these trades through our S. N W owned sorghum partners brand and through partners.
With domestic independent seed companies, we remain focused on the international expansion of our traits as well as I mentioned last quarter. There are approximately $8 7 million acres absorbed on being grown in four key countries, Mexico, Argentina, Brazil, and Australia remember there are.
About $6 5 million acres in the U S. At this would more than double our addressable market opportunity.
And these non U S regions, we will look to align with independents see companies with current market leading brands.
To maximize market penetration through licensing S N W germplasm and traits.
This process is underway and while it may not be a 'twenty 'twenty four contributor to revenue as the breathing process typically can take about two to three years is a long term growth and valuation creation driver for us that we are focused on executing with.
Within our forage operations I recently came back from spending two weeks in Australia, a key focus of mine was to implement many of the same strategy internationally as we have in the U S to drive growth and efficiencies in this segment, specifically, we are looking to optimize our production capabilities to draw.
Down cost of goods sold while developing a sales and marketing approach that highlights the benefit of our forged solutions around the world.
One of the key elements of this strategy is to remain tightly focused on the core drivers of profit.
Which is both us Australia, and and domestic alfalfa sales and also export alfalfa sales into me not region to help support their strategy. The Australian business has begun the process of right sizing its supply chain footprint into more streamlined and efficient operations. The result.
This is the closure of some underutilized facilities, which include some head count reduction and reinvestment into existing facilities that can accommodate more throughput at reduced overall cost.
Further to this as the Australian business has reaffirmed its commitment to the forge and pasture seed portfolio and is making sure all product categories now aligned with this affirmation.
As a quick update to our partnership with shell for renewable Biofuels you may have seen the press release, they issued announcing that B B O and Adam one of the world's leading crop protection companies entered into a joint development agreement to bring to market a suite of new crop protection solutions for Camelina.
Growers as a background Adam is also partnered.
With our double team sorghum cropping solution with their first backed herbicide. We're excited to see this development and the dividends that can be brought to developing the gambling industry and two V B O farmer customers.
As I Hope you took away from the last call and this one as well we are keenly focused on operationally, becoming the best in class C Company.
Every organization a decision we make is data driven to ensure it will have a positive impact on our customers and shareholders going forward, we haven't still to increase engagement with the finance team and financial analysis with all decisions that impact cost margin cash management.
The operational initiatives, we have instituted are geared to drive the business towards both customer satisfaction and allow for shareholder value creation in the both near and long term.
I am pleased with the results of the first quarter, particularly on gross margin improvement, but we know there's still a lot of work to be done.
Let me now turn it over to Vanessa to review the financials in detail I will then provide a few final words and then we can address your questions.
Yeah.
Thank you Mark good morning to everyone on the call today.
Let me run through the details at the quarter starting with revenue.
Total revenue for Q1, 'twenty 'twenty four was $16 4 million compared to $19 9 million in Q1 up last year breaking it down further international for each sales were $11 6 million compared to $14 3 million last year.
U S sports sales for $2 4 million compared to $3 8 million.
And sorry can sales were 2.3 million versus 1.8 million last year.
This double team with a half a million in sales.
Since having basically no sales in Q1 the prior year.
Mark said fiscal Q1, it's primarily for each quarter.
Looking at it geographically, we saw a $2 9 million decrease and Mena as we maintained our decision to not discount non dormant alfalfa, it's cheaper European C disrupted the market.
We had a 1.6 million decrease in Mexico, non dormant alfalfa due to wet conditions, causing next planting.
We also had a 0.7 million decrease in Asia due to prior year and logistical challenges related to COVID-19 using inventory carryover into fiscal 2024, leading to lost sales.
And is 0.4 million decrease in Australia start in sales was due to dry planting condition.
These decreases were offset by a 1 million increase in South Africa. So I can sales from the addition of a new customer.
Eight 0.7 million increase in alfalfa sales deliberate in Q1 of 'twenty 'twenty four that had historically been pushed into Q2 of 2024.
The previously mentioned 0.5 million increase in tablets in Silicon Valley.
As Mark mentioned, we are maintaining the guidance we provided in September.
Revenue for fiscal year, 2024 expected to be between 76, and 82 million, which represents an expected increase of 2.5 to $8 5 million compared to fiscal 2020 threes revenue of $73 5 million.
As a reminder.
Oregon related revenue is expected to be between 22, and 23 million in total compared to 18 and a half million in fiscal 2023.
With its Oregon, we are anticipating double team failed to be $11 5 million to $14 million, an increase of 77% to 115% compared to fiscal 2023.
On the international side, we are expecting revenue to be 45 to 50 million compared to $43 6 million in fiscal 2023, and finally on the U F or borage operation, we see revenue of about 9 million compared to $10 8 million last year.
Now turning to margins.
GAAP gross margins for the first quarter fiscal 24, or 35% compared to 22, 7% in the first quarter of fiscal 2023 P.
The improvement in GAAP gross margin was primarily driven by improved non traded still work on margin improved non dormant alfalfa margins due to pricing in the global market.
And increased sales of our higher BOE team margin sorghum solution in North America.
Sure there are.
Our LCM charges continued to decrease highlighting the quality of our inventory due to better inventory lifecycle management.
I do want to know.
That we are seeing some recent activity within the alfalfa global market, a discounted seed hitting the market from certain competitors, we will look to manage our focus on maintaining strong pricing against inventory management to ensure we achieve the best return on our invested capital.
Looking at fiscal 'twenty 'twenty four despite the strong first quarter, we want to maintain our expectations for full year gross margins inclusive of any LCM charges.
Be between 24 and 26%.
Remember this compares to 19, 8% in fiscal 2023.
To the extent that we have more clarity on the alfalfa market in the coming quarter or two we will look at any potential needs to revise these expectations, but we believe we have taken a rather conservative view to account for these factors.
Now I will transition to operating expenses.
Operating expenses for the first quarter were $7 9 million, which is consistent with the first quarter of last year.
Can get down to that we saw 0.4 million improvement from R&D expenses.
And as 0.3 million improvement in depreciation and amortization.
This was offset by a 0.7 million increase in selling general and administrative expenses.
Again this is consistent with our expectations provided in September which calls for total operating expenses for the fiscal year to be 30, B $32 5 million, which is inclusive of depreciation and amortization.
Now to EBITDA adjusted.
EBITDA for Q1, 2024 was a negative $1 4 million compared to adjusted EBITDA of negative one 6 million in Q1 fiscal 2023.
And improvement there.
Point $2 million a full reconciliation.
Filiation is available in the press release.
Again, we are maintaining our guidance for fiscal 2024 and negative adjusted EBITDA to be between negative $7 5 million to negative four point million. This would represent an improvement of approximately 225 and a half million.
Impaired to fiscal 2023.
Finally on the net income line.
Net loss for Q1 fiscal 2024 was a negative $6 million or a negative 14 cents per basic and diluted share compared to GAAP net loss of negative four 5 million or a negative 11 cents per basic and diluted share in <unk>.
Q1 of the last fiscal year.
As discussed in previous calls, we will incur a loss in equity method due to our interests in V B L.
In Q1 of this year that amounted to 0.8 million there.
This is a noncash expense to S. W. We have provided a reconciliation in our press release not only for adjusted EBITDA, but for non-GAAP adjusted net losses as well.
Mark touched upon this last quarter, but just to confirm the partnership remains on track with initial grain production to be carried out later this calendar year.
The more than 7000 acres of Camelina plants at.
She always expected to buy all of the grain that D. B O produces through the off take agreement that is in place and therefore, we will see some level of adjustment to debt and our equity method number in the future.
That said it will be similarly noncash.
Non cash number and as such we will continue to adjust it out in our adjusted EBITDA and adjusted net income calculation.
As we also discussed last quarter, we are scheduled to receive that 6 million payment from shell in February of 'twenty 'twenty four despite our negative adjusted EBITDA expectation, which translates rather closely to our cash utilization get payment from shell is expected to come.
Any cash operating needs this year.
Beyond fiscal 2024, if we're able to continue the growth in our storage technology portfolio and achieve the benefits of that stability and cost containment initiatives across the remaining parts of the organization. It is thought that will be in a positive cash flow position in the near future.
Again, I am happy to follow up with any of any questions or any of the details we went through.
With that let me turn the call back over to Mark.
Right.
Right.
Thank you Vanessa I, just wanted to wrap up by stating that my excitement to be leading us in W. Today is even higher than when I took over in July the passionate dedication from this team and their commitment to create a best in class C company across all functions is evident.
Especially after my recent trip to Australia, I am pleased with the progress, we're making to drive innovation in sorghum, a crowd set up until as soon debuts recent progress with severely underserved from a technological standpoint, and therefore is ripe to benefit from the trades, we have introduced to date and plan to introduce.
So in the future, we look forward to making continued commercial and development progress throughout the fiscal 2024 with a laser focus on operating S. N W. With best in class practices from top to bottom.
Thank you for your continued support of S. N W and I look forward to taking your questions.
Operator.
Ladies and gentlemen at this time, we'll begin the question and answer session.
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Our first question today comes from Bank Levy from Lake Street. Please go ahead with your question.
Alright, Thanks for taking my questions first I'd like to ask a couple on the Australian Operation Mark You noted your recent trip to Australia, and making some kind of restructuring efforts down there.
Given that Theres, an ongoing strategic review of that operation does does the fact that there is kind of an ongoing restructuring.
The shift to the expected timing of news flow out of that which was.
Which had last been communicated as a kind of late calendar 'twenty three type of event.
Yeah. Thanks, Ben I appreciate you being on the call with.
With the trip down there I would say, it's consistent with what we've talked about the evaluation of Australia have opportunities to create value and one of the key opportunities is a high level of efficiency and a strong margin position. So I was there for two weeks Ben and traveled to every site with the exception of our.
And your position with Triangle research station, but are the others every one of them. We had a visit which is significant miles as you stretch across to Australia, there's there's opportunities been regardless of any other turn.
As I look at the Australia business. There was a lot of businesses acquired are several and brought together, but it seemed like there was a lot of opportunity and actually looking at the new organization and putting plans in place to to highly streamlined those as it looks at all facilities all team members how it works together.
And as I traveled with Cameron Henry Who's the lead for our Australia. He's got to he's got a strong handle on opportunities for efficiencies improvement of profitability that we are going to be moving forward with and we'll have announcements as we go through the year of <unk>.
Oh, what those actions are as as they take place.
But I think it's consistent with what was talked about before because it's if you recall it was looking at all opportunities, including and probably primarily needs to be how to run the business highly efficiently and effectively that are that drives contribution to gross profit into.
Overall company profits going forward.
Okay.
Mark.
On the on the Alfalfa business, you called out a kind of a increased.
Low cost supply coming in that that could impact the alfalfa business here.
For the next several quarters can you elaborate a bit on this is this a is this a are you know the dynamic that you're taking maybe you said may be sustainable for you know kind of in the mid term or is this a is this a kind of a short time event that could maybe just impact the business here for a couple of quarters.
Yeah, and it's it's it's definitely something we'll continue to watch, but as you heard with our even our call last quarter. We talked about are the fact that we had derisked our guidance based on concerns with the mean to a geography, right, which obviously for the Geo political pressures have not by any means less.
And over over recent weeks or months. So we've seen some volume shift and the alfalfa of missed orders that would be pretty typical in a time period, but the orders and the quality of orders that we have built in the alfalfa market. We have not participated in the low price low margin position, which has actually led to.
Better profits and better margins, which is which is positive in our mindset as we go forward. The upsell. So our business has shifted significantly over recent years. So I'm sure. The individuals on the call are all aware that a court Teva has again exited the alfalfa business selling a portion.
<unk> of the germplasm and varieties as well as a portion of the inventory to D. O S. But that also leaves are the ones that weren't acquired by D. L. S. Still in question as to what happens with those products and what happens with that volume. So there's there's clearly at least a short term risk that.
The margins get cut as some of those volumes potentially go out at a below cost of production.
Price point, so it will be we'll be monitoring that but then as you you mentioned looking at a longer term at least now the alfalfa business with really only three major players in it a S N W being one of them.
And no multinational a significant player with now core Teva again exiting alfalfa. So it could it could actually offer more stability longer term to that marketplace. So it's something we're going to monitor very very closely we've chosen not to participate in the low margin we've got Uh huh.
Quality and in a very high valued varieties in our lineup and we're working to maintain our pricing position on them to drive profitability versus versus.
Versus volume plays or was purely revenue plays.
But it's something we're going to have to monitor both for the region.
And then also for the change in the L. A market in general, but I see the longer term change sit.
Signaling more positive future.
Not.
But the short term, having having potentially.
Some volumes out there that could drive margins down.
Got it helpful helpful comments, Thanks Mark.
One more for me and then I'll get back in queue, you called out project free acid.
King of Prussia cast and crew excuse me.
<unk> plans to the tune of several thousand acres. This year can you characterize you know that level of acreage how much you have earmarked for kind of ongoing R&D or the testing.
Testing type uses versus inventory build for a head of the commercial launch.
Yeah, we really didn't build any plan for production for just inventory build for next year, because we can build that into a production plan as we look forward right now for next year's sales for 25.
<unk> sales, so really all the volume that.
That is being targeted for production. This year was either going to be for broader grazing trials customer our views are as well as testing pieces.
Which is why we positioned it as a pilot a pilot launch and then we'll be ramping up production as we look at next year for a broad a broad farm broad acre a launch as we move forward and it is a technology, particularly in the Ford Circumcised, we're really excited.
To see come forward and it also offers us a stacking opportunity to quickly add D T and press like acid free two Ford sovereigns, which I think will we'll continue to add to the product value to farmers as well as the margin opportunity for S and W. P.
Got it okay.
That's helpful very good well a good good start to the year. It seems I appreciate you taking my questions and I'll get back in queue.
Great Hey, Thanks, Ben.
Once again, if you would like to ask a question. Please press star and then one so as to all your questions you May press star and two.
Again that is star and then one.
To ask a question.
And ladies and gentlemen at this time in showing no additional questions I'd like to turn the floor back over to management for any closing remarks.
Well one I appreciate everybody, joining but I didn't get a question on it but is as we were going through the conversation I thought a point that maybe could have been brought up the leadership team and S. W are taken significant moves also in implementing our cost savings efforts and I know for this year.
We'll only get a portion of those cost savings because they're being implemented mid mid year.
As we go forward they should be significant contributors to what Vanessa pointed out that as we look to to next year as well, we should be moving into a cash positive or profitable position.
Position us well as we look at next year there'll be full year contributors.
To our overall results, which were also very excited about moving forward, but again I want to really thank everybody for joining the call and look forward to ongoing discussions as we move forward.
Ladies and gentlemen, with that we'll be concluding today's conference call and presentation. We thank you for joining us.
May now disconnect your lines.