SANW - Earnings call transcript Q4 2018

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Operator

Good morning and welcome to the S&W Seed Company Fourth Quarter and Fiscal Year 2018 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Blum of Lytham Partners. sir. ahead, go Please

Robert Blum

the XXXX much to all for discuss the fiscal Company very us XXXX. joining are open today's on of call S&W question-and-answer Officer we President will you us for Executive call Mark prepared and for session. conclusion year-end representing the and Matthew quarter today At Szot, the the fourth Wong, Chief June the a and Chief and you Company XX, today Financial Officer. of With thank for Seed ended Thank financial remarks, results

Act the Securities submit of amended Before made XXXX of as the pursuant Section to XXA we Harbor XXXX Exchange Section within the statements begin made amended Act of the with prepared as management call the Securities this the the remarks, XXE are S&W Statements Private statements the we Safe may of statement. of Litigation meaning Company of Securities forward-looking Reform of during of for Act course the XXXX. following of team and forward-looking Seed record such by and conference contain provisions

Seed other for fiscal XX, result as in projected the year ended the Company's of planned, such Forward-looking and in XX-K are may statements circumstances, the results words actual those in from various and factors statements statements, subject identified or materially a June forward-looking XXXX statements results risks differ forward-looking future future, anticipates, turn the as call to S&W eventually made uncertainties should, filings or Company or events Executive to that the Mark? me to With those Commission. other the and strategies cause are may, risk such could Listeners results future that Officer projected that materially plan by over Mark said, preceded describe for a let and are multitude risks including that Company. Chief of cautioned differ expected, Securities the and generally Wong, from the expectations, or with draft, Exchange will projected. plans, by or

Mark Wong

Robert, been as markets, to over At political, our you, regulatory and we technologies well to strong over our same and time, these operations good higher seed focused. carry morning as geographical areas. become economic as focus alfalfa Since has a I little all. and acquire our making took certain risk. I am we to that more the Thank evolve value develop pleased beyond a want progress on dependence customer-centric which and year trait are each in ago, CEO of higher

greater purchase receivership the of Further, Seed a S&W you many we entered this at designated questions additional any the get assets discuss conference to time. some to will reserve in so, required that detail, until do a court approval, still near topic on steps operator, which for U.S. substantially bidder sorghum are call of period Illinois, Northern of but time. $XX.X million. the potential Court additional Bankruptcy As bid to need comments We District earlier until the conducting we entered of the stalking-horse the of at have was a the saw, in year. into to that future a to successful transaction all Company Chromatin, answering of U.S.-based hearing anticipate we reserve There

throughout we that can certain In be carry on development markets geographical beyond distribution our dependence beyond evolve our executed beyond strategy our which a plan risks, trait on germplasm political, Excluding operations, channels. on alfalfa and our the and historical position effectively Lead. and the marketing historic alfalfa of seed approaches dependence regulatory, to to on-farm breeding the the announced our Chromatin move number higher components we testing Nick S&W sunflower Willey and well achieve the sell interface efficiently of of research products of August, have with become impacts that higher package transaction, sales distribution evolve will potential aggregate will more appointment on economic S&W's leveraged as and sales Essentially, worldwide. Dow centric, Sales customer performance of of and value and pertinent Nick bridge participate act research Company’s sorghum, more as teams Nicholas assist Technology teams, a the to products, and connects to data AgroSciences as Company our capabilities teams. to veteran

Bazley, in New Will will for Callachor, Manager Field We Dave Shane also Hybrid South Manager Kable Australia. Territory Queensland. of Manager and Territory announced appointment of join Wales, as and for Crops; the Shane the the Nick the Sales state Commercial Company's

have is we different a discussed, reasons. many for point focal Australia as As important us for

First, political markets we compared also the to stable and global regulatory in. many of operate environment is

germplasm Second, the developed market, our well geography. characteristics of in the crops specifically three much of were fact Australian I across performed mentioned the the thus given and for very

fourth Third, We we of been is in one going to markets. A us us our while focus forward. will Australia ours believe importantly, the of believe most revenues. market drive And and a that opportunity has perhaps maximize returns for risk. of minimizing role key size the play an provides it to home exciting key

named products sale as As milestone seed two and marked research well the markets. many of ingredients successful Food the leverage S&W facilities AGT's development testing. continent processing AGT look of of to saw, throughout you significant SeedVision. in development, sorghum, joint at of the pulses, Africa market the between our to to AGT and to field develop this world. from we have represents a selected for Ingredients venture and the with a seed our to alfalfa commercialize and and as to facilities Africa JV We largest AGT for subsidiary pleased produce by for critically and and plants for sorghum the produce successful new and production believe we and of forward the in products. sunflower, market announced S&W suppliers in important value-added staple transfer foods, evaluation Calyxt SeedVision a created important hybrid are is Canadian-based with in to grain Transitioning collaboration large one Calyxt will collaboration proprietary The July sale S&W's food these forage and This export companies. trait

meet is productivity in develop for global produce XXXX, S&W between seed alfalfa on and focused The improved providing and background, proprietary alfalfa research, commercialized seed TALEN improved Calyxt growing to cost in and S&W's involving products Calyxt's demand alfalfa that quality and the drive industry-leading alfalfa S&W As collaboration decreasing Calyxt collaboration enhanced traits on while to embarked input a technology seeds. talents gene-editing genetics. can

to characterization of this on new look development the and will keeping varieties We posted enhanced you progress the digestibility trade. field now with throughout results. conduct States We open trials to the United forward

of the agreement to the stevia to with our stevia an collaboration objective perform products and improve of target The company finalized front consumer varieties. extension international is On traits. we of novel breeding existing an stevia

to potential products excited ultimately has the this agreement, around by world. are We world utilized in to expand which numerous be products around the the numerous

in and to development production the stevia research expertise based and us U.S. dynamics understanding Our opportunity. this has exciting brought

are in will expand stevia also further create working We agreements the U.S. that to

is is supply chain required you currently of integrated grown including processors China, happen. an most and system to growers stevia know make this in As most

system. working We that on creating are

profiles. made and further general in to target One primarily world, varieties propagation, in currently companies we for to with like upon seeded stevia the developing discussed drive the to of leading will markets, field key propagation item bankruptcy. further look of mention geographies is which clonal and very from to to we will other a with within briefly would strategy from production stevia I grain is that our regards are NexSteppe trials are move operations. including XXXX We trials the XXXX. will from how the field testing markets. certain had respond U.S. following Overall, determine NexSteppe dramatically many These Southeast our production, take which around in a last strong and of set development with production. with markets forage quarter, our progress new we place down being Specifically, to acquisition the bio-based cost good germplasm expand

Barbosa aid Mauricio the retained who We veteran within from profile expansion NexSteppe. in sorghum also of to its joined us breeding our industry seed capabilities Dr.

NexSteppe sorghum with initiatives. with instrumental history and germplasm, its be believe overall can long our sorghum he Mauricio's overall an -- Given we

the year is this expand launch operations high sorghum our the component a U.S. Our require in key we years goal of the that significantly earlier coming germplasm, another is strategy. to quality over of NexSteppe sorghum

last Saudi year just As impacted in and you This couple past environments. excluding remained see the fiscal Saudi million profitability. to essentially face from XXXX these decreased bottom is unprecedented market our results, in relatively conditions The we headwinds Arabia also year where down lining continue this XX XX.X silver decline to of and seed difficult and our million of years, we alfalfa year. that have Arabia million revenues X.X from to headwinds over hit flat despite the the the Saudi market to revenues

have entered a also Pioneer May that produce to extension GMO We into runs with through XXXX. varieties one-year

components that two for You one may there recall germplasm GMOs. of the one for conventional original are and agreement,

move expired reasons, year. earlier GMO had to elected in Pioneer For which not various the with forward the portion

proceed Pioneer now entered varieties how we may will The through firmly agreement going agreement with we conventional we remains continue this portion to However, and ongoing discussions have intact forward. specific have the one-year of distribution runs on with XXXX. this extension covering and

of call the results. who our Let review over turn Szot, me now Matt to financial will

Matthew Szot

call today. you, Thank everyone and the Mark, on thanks

quickly XXXX. provided we me for not recap the to a I have year. guidance that run results for of annual through like financial Let our note would fiscal

will guide acquisition the and you factors good plan on Given our planned we and upcoming that timing our directionally subject control, during the call. and insight to additional providing of is look of in conference QX guidance outside our interim of Chromatin

compared came to $XX.X million in year, the at the year. For prior million in revenue $XX.X

to experienced just compared year. prior decrease mentioned, we sales in a to Mark Arabia Saudi million $XX.X the As

during prior from sales for relatively in increase were approximately year our agreements production We've XXXX. our and year. the Excluding from distribution the of Pioneer million $XX.X was an decline revenue Saudi, of with million the recorded $X.X This flat.

year agreement related scheduled XXXX. is in May to an GMO to of traded the varieties terminate Our is with now which production for Pioneer extended was additional and

due As will next commencing terminates portion by varieties XXXX agreement year represent our Pioneer's of of continue approximately organic our sales a reduced concentration higher $X a reduction of that mix minimum a of improvement our acquisition for improvement to is XXXX of our expect points sales million XX.X% excluding were primarily year under margins gross the the any annually in coming sales purchase result, was commitments that to was decreased sales mix overall variety that estimate Pioneer slightly business We of to agreement sales XXXX. anticipated expectations albeit compared costs. margins GMO fiscal the conventional in a XX.X%, percentage Pioneer we as during only XXXX. our consistent Again, at sales from domestic come Gross revenue and to portion significant XXXX. as due and periods. to be Chromatin impact XXX portion the year through planned with as basis production of This to product may in coupled well was an distribution with fiscal total the from with levels

expenses CEO our million Now additional pertaining The reserve pertain as impairment XXXX receivable separation of $XXX,XXX sublease operating with uncollectable XXXX. to in an our and were nearly in $XXX,XXX to $XXX,XXX including as $XX.X prior previous million expenses. agreements operating expenses fiscal compared year for $XX.X well to

decrease the focus products a to 'XX, per was up well in total loss by was on intended compared XXXX net X.X EBITDA or share, year. we which to cost are was and $X.XX as offset driven catalyst million diluted SG&A. to expense maintaining $X.XX a from term. expenses hybrid and This for allowance Adjusted year-over-year. and Again, per Saudi deferred as or to continued and in $XXX,XXX in going see valuation GAAP long drive year basic continue investment sunflower margins. fiscal stevia and an our this fiscal items operating next in X.X and the of revenues gross profit programs generation and We're results, of X.X prior largely as these investment increased tax million Excluding due operating our a In the we growth to against efficiencies growth R&D controlling impact basic diluted recorded year-over-year developing sorghum was for while that our was of XX.X partially million, net million X.X decrease XXXX assets. GAAP loss 'XX. share in prior Arabia. for by compared million to to in loss sales $XXX,XXX

we quarters, sheet, carrying inventory. are we’ve balance last the the over to moving Now discussed as higher several levels of

production volumes the for We’ve line line to harvest decrease adequate XX the more of over provide balances inventory our from these year. see ability our stage production Accordingly, will acres We same a with decrease we flexibility we few historical us for for We plan the planned next and approach season. our planted up year. higher last new each reduce production to allow take million year. to inventory for carrying become to over XX sheet carry time increase and believe production we the in You'll upcoming for to and balance facilities cadence levels expect we XXXX are levels. year to or to that months very and the inventory contract XX similar that the increases and our next expect of crop next credit balances

providing I point mentioned although out to QX will do of sales extension want call. our guidance an conference agreement we as further Pioneer, on we that our plan of during Africa. down the our production them Now that The to will be given by I have earlier, they Australia in in both partially U.S. growth markets volumes have. and and domestic Pioneer the levels North inventory in to the offset in decrease revenue should year-over-year and current higher expected XXXX be

to ask. into a Now an accounting Xst any standard I that standard feel new not lot will an revenue with revenue have change I contract in adopted will during know so have impact Mark. of further ASC fiscal quarters however, please the will to recognition The data want timing from over on earlier if elaborate change on our in XXX, Pioneer. of went back a questions annual turn I’ll quarterly it recognition of July next highlight effective the do to to of of now, This results revenue call. result acceleration our basis; I specific a XXXX. year. new you this here, free our I through call And conference we

Mark Wong

of strong Thank see operations, structure. bring results our to legacy you leverage can our back operations you, operating And Matt. to profitability as operating our our our and business alfalfa is important and from diversify it to

us, non-alfalfa our the markets other are our development, focused to Chromatin diversification addition In potential overall the our to of geographical components which provide strategy carry acquisition efforts key track on including our lower of sales risks; economic customer-centric on become can commercialization and our push a trade our to regulatory political, stevia technology of and more of continued strategies expansion operations, modifying operations. sales

we the shareholders. Our believe and mantra year that are and just hope fact opportunity during back beyond. has for in look and this golden was doing a evolving you S&W its that history been We in

support want for continued As to Operator? call for always, like the open-up and I to would your thank questions. your now you

Operator

[Operator sir. from will will now the you, FBR. and question-and-answer Instructions] Please the be go Thank Ladies of first question gentlemen we Sarkis session. B. Riley begin Sherbetchyan ahead. And

Sarkis Sherbetchyan

can't annual you purchase or the just kind at guidance speak of the moment, but of understand thinking mean to I I guidance. that through first really Chromatin cadence So the

the the look or X you million Given and annually, purchases completed? like we just I year to expect do that suppose, fiscal agreement being down more this 'XX less DuPont,

Matthew Szot

Hello, Sarkis, Matt. is this

will in varieties be we did from of due conventional down with the that agreement general production the market, revenue higher being our in with distribution Pioneer, to through you and So XXXX. we But the extend agreement a our, those as May under noted XXXX. volumes had year-over-year oversupply said, domestic

of varieties. well, due they production sales GMO but agreement we we production Our Under also of take the that levels year. under the seed this simply down will to as produce production XXX% agreement GMO that be produced the that's

So XXXX. overall, see in a decline will fiscal year-over-year we

Sarkis Sherbetchyan

to And sounded offset this that have were kind Pioneer? to I expect going few that's there should understand it so to not growth mean just markets like of some enough that we decline might experienced for of be

Mark Wong

and North Latin Africa, Well, the U.S. the season, growing growth in there in in a and it's both been we are continued has focus America, Australia. expecting early on but

more that we be quarter in as but quarter overall update into we give the in an hopeful able and complete clarity the you and we're go will I QX. does to give So, offset first Pioneer, declines think first

Sarkis Sherbetchyan

the first you change And some XXX sales versus how can ASC second half, on as of of maybe does that kind it half relates the thoughts? initial allocation provide commentary, cadence to us maybe any

Matthew Szot

the on revenues QX quarters. traditionally our like recognition, cadence be but revenue crop, about clarity Sarkis, be Yes generate it dependent recorded XXXX from to is It's the more quarter. third annual be would the that of into the on XX% provide what when of will of we timing to a the on we receive pulling first of the revenue the the be going plan milestone an would definitely two further the on revenues future that versus will Pioneer we triggers harvest we which in look half for into accelerated that first basis year call And for periods. ultimately

Sarkis Sherbetchyan

from more the Got hop back I'll and it, me queue. one in

mean mentioned think points from on decline to 'XX that you give gross maybe margin a you basis we XXX magnitude levels XXX Can I color of? that think would be the order to I on can you'd any fiscal of decline, us some mix. expect more

Matthew Szot

Sure.

our for margin would be overall that product to so by put just revenues, anticipating Pioneer margin on move we and higher include the projecting Chromatin compared products our I Sarkis that a doesn’t have into to be flat basis highest that our will Pioneer profile or margins margin with drag are XX product individual launch to board this respect mix sales point, that to margins. mix say we're by happen along 'XX. sales And a be the with up would drag which overall impacted any revenues on come Sarkis, up; So should probably if we that lower we line, At will acquisition. however, FY changes obviously consolidated the the what point

Operator

And the question be next Instructions] ahead. from Craig-Hallum. Malouf of go [Operator will Please Mike

Mike Malouf

give you have know timing lot, and talked a questions. regards maybe Sudan that couple little just I of bit Saudi can as us look With just a update and us I on you we Arabia, about give a areas, alternative of Yes, market? an update to just into whole an

Mark Wong

still to you situation Sudan to is basically is in transportation to so, difficult changing Mike, is being water. of it's obviously an a off exactly whole alfalfa the East know and The seed on Middle exact so you per-weight on what's costs in situation moved places timeline. and there basis, high the you better cow, know the production happening And where are for you the closer are. the alfalfa know are

know So, been the there’s timeline water happens projects projects, big place as has going land, development slower. but big that is targeted Sudan and as for and you available there, sometimes a has in with

just down, to a all of getting be those in So, part have the able to be wells leveling, that are all putting directly we uniform circles a kind the the crop production things to of taking involved area, big seem And technical all planting to over in, obviously, land not longer. those.

delay know are also that, Saudi other that’s but customers have dairies world. the times, in said doing that as to moving parts many seems there. are we Our big of the you It the

so milk be available, and cows sort are feed move watching and those can of are Southern implementing or basically where produce have they so Argentina they believe places California now to seem to and that, they So that. we locations

We sales in to getting direct operations start of those some areas. are

than the market order goes you each the that though or piece a of purchase that dairies local of office situation It's areas. to those the question having having people not the issue? some That’s we with piece to are of the representatives of we're that of like goes with work the Does goes piece of Australia, in would on feel California, Sudan. from we not that additional answer So, from home to and each to the that kind blanket to your a dairies. develop ground the

Mike Malouf

it questions as look stevia on then out your that’s next two, think in a that. consumer is long stevia look years you then And you product number get exclusive how thanks. imagine And just three take to over into how One, to, helpful the I couple No get will as you do long the company? will of commercialization? you to

Mark Wong

Sure.

difficult for on company that is about of the them make to a the sugary just at issues the consumer company The exclusivity it's And are markets statement with products' issue general sweeteners some the in that arrangement of to triggered the these growing. is products It's other by got obesity clear a the is element. is exclusive the for that and in U.S. So market least the U.S. big or blanket that not. non-sugar focused drinks population amount public the are consuming. consumer

sugar a is market to stevia fermentation. no or is from all produced non-caloric products produced other other are high in chemically the sugar plant real comes cane are products there by plant product, So, push sweeteners end But is to go the which sweeteners produced. all big There which chemical products high the a obviously. other other they're than --

stories of and to the stevia of frankly there from and is labor, being brand labor pretty answer there a normal companies an to material, whole these supply that U.S. the system you into from to demand, One, source And are produced at source where consumer is big inputs you our China that as with the product. do one but in is is the new only while least are a no the strategy the quality much being know under want big issue reluctant put guys, are what exactly just there Asia. diet supply Where is control. is better kind raw prison issues. the of soda only make So China. launch commitments of product is products And example so

date planting here coming have month We the big in for next a us. is fall October

trials, are promising there of in in Carolinas, the some October, planting stevia Southeast, we've will field target field So, be evaluation of Georgia expanded do four all mainly lines kind to areas. the our production of October trials most our

how more our cost So, stevia is be can generate effectiveness per and we're material basis, to going to lines seed a the field to as what that. data we acre much and and trying gather on of efficiency technical of the really

So us moving prepared to big for to incur from in right is farmers seeds to the think the and the U.S. issues of that's that of seed. corn in stevia crop in cost XX% the way clones so grow seed the farmers that when one remarks, too just of or soybeans has That's a clones discussed can the ratio. relation or are plant that you now about provided cost a our bigger we look other high in at benefit to crops. some We

a that farmers with big you we're their cow farmers is in other that trials to what and Farmers are -- that your too able crop a and the part call with convince to make farmers. put that try want is a big reputations with areas. crop to can other farmer. as So doing what we lead Obviously, of out working be will this to farmers bell you money farmers these good

And bunch of loyal in second to effort putting get trials line. genetics out of October is comfortable the this so, our that's with a our stevia farmers big

understanding planting the looks like of the to with want fall same also We look are will economics performs following part in that the what like, planting markets, your for We all like, same what spring crop up farmers. with be. look what spring and yields crop of an understand crop the farmer versus how important to sometimes course be us what economics going that's and

least an Remember So, and X sorghum we such could current million billion, be about opportunity the material additional crops big opportunity us, even of if think our compared major stevia at that's and going to focus. a we're from that. that and alfalfa XXX pretty excited are other is to sunflower about for sources that the all sales important generated U.S.

Operator

over management the ladies gentlemen, hand would our And back question-and-answer conference session. for like to conclude comments. to will and closing I this

Mark Wong

much. very you Thank

time in tariff of So, and couple of our tariffs the very giant The up I war just with my I a to want that's with happening to a whether this is make China, or sort up to farmers with it's effort not difficult I what’s any issues am mean about comments, good a U.S. statements make for our not. to to It's U.S. going there’s beliefs seems the me, not done the is the change China. and sector, between Unfortunately and way President is a trade and China problem he ag real the also in getting serious for meat in export, commodity China about that. we a of cotton, soybeans, for the demand and beef. the hogs, terms U.S. products chicken, of market products, that some but corn,

and it's process just So, time having in is U.S. the agriculture we'll closed. bid are more creditors We secured to which us a we in the difficult -- Chromatin close And do with think call our for they it's a a our things There efforts actually we tough unsecured but about before the once time ag, opportunity. time have basically it's a for winning transaction. of with so makes of conference with talk obviously the court some progress more

Sometimes we to to be equity and when the is time buying, purchase seed able companies pricing. be markets think worst the in we’re fortunate attractive it raise are have market to very that

And performance quarters, stated focus few had that quarter-to-quarter as that think I the being on to fact everyone some have aggressive. last like we in appreciate we’re the but has our we difficulty so own we'd

acquisition. our and that I to we're focus through alfalfa, on CEO, the about as and we've trying same we're assets, the build than We’re internally business so business buying to since talked theme main on trying our we’re came new sorghum, building stevia, build strategy sunflower, and

in be in the we about that hard the opportunities are just I sometimes, patience So, be thing Seeds. want the us. find and with future remind to the markets financial know be to to excited patient I can everybody a again. in but really think we investment term everybody thank the the call intermediate going that, an and for for to we appreciate And with for Thanks you S&W. And sure, it's interest of S&W excellent people.

Operator

Thank Thank gentlemen, conference you, presentation. for attending has concluded. Mr. Wong. the today's now and Ladies you

now may your lines. You disconnect

S&W Seed (SANW) 20 Sep 182018 Q4 Earnings call transcript