SANW - Earnings call transcript Q1 2020

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Operator

Good day, and welcome to the S&W Seed Company Reports First Quarter Fiscal Year 2020 Financial Results Conference Call. All participants will be in 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 with Lytham Partners. ahead. go Please

Robert Blum

XXXX much, us so S&W all you fiscal of Company XXXX. Thank to and discuss joining year of quarter today the for September the for XX, for you first thank ended financial Seed results

representing the the session. and Wong, today’s Officer; Company today Szot, prepared conclusion call of Chief question-and-answer Financial remarks, With President call are Chief open and for us a the on the we’ll Executive Matthew Mark Officer. At

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

the differ the materially year other XXXX describe Company’s Exchange are are expectations, of projected with multitude that the anticipates, in may, statements, result from generally June risks as risks the or that those by those results results differ planned, including made preceded such future from that cause other forward-looking projected. could plans, strategies a circumstances, and for such materially filings are fiscal plan in or the and Listeners or may the results risks eventually XX-K future identified and projected should, and by and to as XX, words forward-looking draft, or will subject expected, Company the to in or factors cautioned Commission. Securities various statements future, uncertainties statements of a ended statements Forward-looking actual events

turn Seed the Mark, to let call for S&W Mark said, Company. Executive please Chief With Officer proceed. over that me Wong,

Mark Wong

morning, everybody. Good very you much. Thank

here the announcement is think, business. on It people first our S&W at Longmont, I is our moved front also we to And Colorado within least XX customers Americas Corn International say about closer the our DIA now for on quarter. just this that Colorado for home in the thing which have to range of to Belt says commute and much our the easy Central key Airport then Longmont, and Corn Belt. is Western of

executives So, to we’re that Longmont, in Americas happy all move here me us Colorado. Group senior of behind have and with in our the

to everybody And little just and on continue remind that a in last just the history to of of what’s a same like happened year note, I’d half. year,

remember, As in Chromatin a you bankruptcy. we purchased

our Most It it U.S. we’ve sorghum. acquisition Pioneer. that in. own all sorghums, of It sales of we in work, distribution. that all include did we’ve of forage which Sorghum us is of crops our in cheaply. now in breeding people line or directly that technology it in But which sales much understand of our that and that the a the brought and all the we and our the have the not needs brand crops now, were sorghum brand an which operations acquisition in little sales means brand the organization, we brand, before. new herbicide So, organization in to we’re us brought That putting industries, Partners, brand although and it these to along make resistance grain production, called Partners. that sure are brought in got basic straightened that and all sorghum been And are lines, some came markets a product a with moving those our have us before Americas a those we do marketing S&W R&D, improved forward reasonably area. matches had second alfalfa, with brought our And alfalfa our through us Alfalfa sales in bit we and the we contract

very our U.S. sales XX% where year, realigned And, year. business all far, ahead So, at last by in were of last our in in those reps. pleased filled over of programs. very, We least sales comparison we we’re the We’ve the to our we’re so all territories significantly core

sales for company. winter quarter, optimistic. is seed very kind we’re It of first well, always quarter small remember -- fall But, that is So, for the quarter a any quarter.

December. Our kinds in of discounts U.S. order shipping starts for and those programs discounts early

we the as like head as the our sales we the real and towards quarter the planting second know really So, April quarter in more of we get into looking what in times to U.S. should in start meat

going are We they plants using Americas sold are that the international off business. a that assets we to X.X We of the extra in are in as well station. business. in million in are sell continuing not about And, optimistic we’re core things our pretty breeding

that then to drought on of the think country, our northern are does is economy all part the We not So, in of where the an sales sorghum, fodder the are for country, though feed animals international in northern and especially in the a very, couple is happening raised Australia to part is of needs part Australia. that the side, in What’s water of when animals? the have that the There continues Australia, crops very a hay And one drought strong. feed details. part to which there’s the country has grain just and southern of sorghum part of a grow water. the hay as fodder

agriculture. So, that in way it’s always

bad company weather so an it’s and crops. to another build be in That’s why important area’s be sales in international one area. Sometimes diversified to

so, from in And business. we’re benefits seeing that, our some Australia

and we Dow that very, to the continues Remember business wheat promising. quarter, bought look very also last that

DS to endpoint Bennett And come believe days this the year during going start season DS varieties field from Australia. leading harvest that having two we that the and We’re Pascal. demonstrate with royalties got see we’re we program, to of that to

of Sorghum pretty internationally, and like good also sales have in been places mainly Africa. Pakistan parts

for that varieties seeing trials introduced And next there. some to we’re markets. registered new have We in years in sales we’ve the that hopeful those we’re materials few going start those from two

And as status is kind our of business you that know, just all in the to note, markets. of many

growth have markets reasonable on. We these breeding the the effort that time seed kind at through put to in now of and to the seed introduce we’re get the to in produce the pattern is cost,

our the so, being are and hybrids many introduced many, varieties lots And world. around of and markets crops to

In that now and is introductions XXXX have sunflower of A our varieties includes our Europe Remember have Eastern released couple to Slovakia. That first Romania, also business. been there. we target our market. Hungary

So, that looking forward to we’re also.

the coming and the again there Alfalfa is South some pressure. still supply than market pressure competing fact now, is with more there’s demand. American that us are The under alfalfas In this other is in now from European case, places.

watch our is couple to strong. forage our very, business, an issue of sorghum next sunflower that beginnings So business in and our of seem sorghum to the business, the quarters. But, be very

give results you of you with who much. So, Thank over I the will financial of that, will think, take the very presentation Company. the through some Matt, to I

Matthew Szot

on the Thank thanks call today. to And everyone you, Mark.

somewhat accelerated and Pioneer As transaction, we skewed flows our not discussed to which into detail cash due the last and revenues in results XXXX, year-over-year fiscal quarter, comparable. are financial

track of basis. now Core business go a provide disclose Now, as performance Revenue metric we transparency, a will our greater on to to forward

Core product licensed to and Revenue revenue revenue, defined as is excluding Pioneer. sales

in The Core Australia sunflower and from XX%. operations year-over-year quarter prior million of our concentrated Mexico. million our we $X.X $X quarter, year, October acquired coupled the Core were was million the operations million in XXXX. million The in with the operations, During from in Revenue and totaled which sorghum an to alfalfa driven Revenue increase $X.X compared $X.X of $X.X the by first improvements increase MENA,

that operations are few trend revenue the from growth over pleased the the once business. in organic quarters be two last we made to our core decreasing given transition with Now, driving last during of our again we’ve years,

The the includes was growth first $XX prior $XX.X to in mentioned. offset in the total decrease by partially by first Pioneer, year Pioneer, quarter, I the just revenue driven shipments sales for revenue which the to was of Total product quarter versus million. million decrease organic

million previously $XX revenue compared to XX%, XXXX, to we approximately Revenues any reiterate of million Including excluding are Core expect million. X% range acquisitions, continue XXXX XXXX. in for million, issued fiscal which of total to to would from our contributions to guidance of $XX we for We fiscal represent $XX $XX estimating to be revenue a growth organic Pioneer, fiscal

in with compared in all margins, gross total QX were quarter The margins initiatives our the hybrids this of in year. believe prior was We indicator XX.X% of realized to gross crops, margin place XX.X% our showcase turning across and gross a first the value profit margins gross sunflower. proprietary improvements the for varieties. board including put is the the to of of Now, attributes strong in sorghum, alfalfa, increase the better profit in core improvement and we

as sorghum experience for expecting pricing XX% the continue full XXXX, margins we approximately look Now, strong year, we proprietary fiscal hybrids. we of our to gross are to as and in sunflower

and to quarter expenses operations, R&D in expenses additional quarter the from to Adjusted be could sales sorghum of $X million the compared million our were our The and investments prior $X.X attributed increase newly first operating during and functions. acquired the first additional year. in marketing

we with sunflower have what and over our discussed consistent front, R&D quarters, increased the investment in we’ve programs. sorghum few the last hybrid On

we in expect programs. We XXXX to R&D increase to for these invest continue growth spend fiscal as

like the reiterate fiscal Given XXXX operating to recent events, guidance for expenses. we’d

includes million of depreciation approximately Again, approximately and be acquisitions we may we $X which enter we we summary, million; SG&A amortization for be approximately to and to fiscal the in to R&D compensation expect expect $X stock-based XXXX. $X.X excludes approximately potential this $XX So, into. XXXX, million; million, any be expect

the quarter the for in $X.X million was EBITDA first the positive compared $X.X first year. loss EBITDA prior of Adjusted to million quarter of

the have our essentially reminder, a the our between infrastructure revenue cash and balance years. earnings agreement This cash dramatically created otherwise flows we accelerated Pioneer near-term with our sheet, disconnect strengthened of would flows and and the realized operating license but a five over base. transaction next also the acceleration it As

So, investment no transition XXXX for and will of a year be doubt us.

there’s of return organic opportunity we coming the believe complete available We simply if acquisitions the XXXX, significant periods. existing utilization in operations. strategic increase platforms, and our are expecting from in And us, to a we positive EBITDA fiscal our to

Now, and in a with the acquisitions, should and drawn to the as $XX on the drive items enable did one These capital. and briefly capital last these received going lines. in accretive properties, capital be significant our deploy turn Arlington, subsequent will and U.S. the We Mark. of we in mentioned, end, approximately on million quarter for the to $X.X earnings end, call of we working couple Mark which and working one credit and remain At used lines And pay properties, availability drawn million I Wisconsin approximately place, to back zero line. with quick growth. over had Australian We line ended further $XXX,XXX us the quarter before debt quarter two and remaining from long-term note, Texas. into down to sell another two Plainview, on revenue

focus improving continue to of sheet. strength the to going We’re leverage our efficiency the and on balance for operations

And with over to said, that it turn I’ll back Mark.

Mark Wong

Matt. you, Thank

Just just remind high the of in summary, the call. like to I’d points everybody of

off So, quarter But, start. that our in would the is it such smallest to good the I gotten we’re very year. everyone excited year’s caution that a

on our this But, guidance sort to two obviously important $XX year. acquisitions, feel the the this million of core And is that before very acquisitions. success business couple not stated definitely a but our So, next will we’ve year. this of did for to overall quarters mention we’ve I million of been level I be comfortable also hard working that very, $XX achievable

world, the We companies one profitable, and least And companies in of buyers. seed in market frankly, million to weak eventually in And $XX acquire all are the going in give seed opportunities, we of want middle expect to point. year. this market general, the And after $XX million very lots and people the range those of usually because to fiscal very, there’s only so sales, profitable trouble, we’re this in few agriculture, that’s at one turns. market especially in think we close around is us at to the

year. So, we’re this about excited very very,

home We’re excited about Longmont. new in our

year both good far have next we on acquisitions in and the of And to expect a couple having news in some margins. quarters. sales We’re so

it turn who you field I’ll over will with questions. And the operator Thank much. that, so to your

Operator

first now session. Instructions] B. will the We Sarkis begin ahead. go Sherbetchyan from question-and-answer [Operator Riley. Please question Our with is

Sarkis Sherbetchyan

question my here. for taking thanks And morning. Good

business fiscal you core guidance and guidance $X So, gave the of $X to encouraging the for soft, think certainly as call, saw mentioned. the top-line fiscal loss for that is last for of this Is on about you quarter’s year. also kind the for EBITDA which On reiteration quarter, to framework of ‘XX? the results million still million seasonally

Matthew Szot

Obviously, Yes. quarter improve this I that think, first of Sarkis, to assume. that’s given to year. that throughout in only we’re stage, assume. the that’s range to to I year, we’re going to think at continue reasonable be range trying the the a But, good a that

Sarkis Sherbetchyan

gap it. And the positive business. year the the the help of again, Is on? margin EBITDA from Right? confident in few help Is just the you’re that drivers loss product lines the this in EBITDA Just Got for story? mentioned next ‘XX, of year? organic kind return that. bridge you EBITDA to Kind to in positive remarks, single-digit-million that kind versus fiscal a us us which between prepared very of returning a understand

Matthew Szot

Sure, Sarkis.

So, XXXX. expectation that get guidance certainly, we’re the to not is into return providing going going But specific to profitability. to business for is our legacy

continue our margin class only our which experiencing of in in we’re expecting those also top margin to of growth the improvement, revenue we’re thinking will to sort not XX% crops, well. we’re XXXX our of returning revenues projecting really improvement, margin XXXX, core across driving similar concentrated that line as as what are but all factors are hybrid carry meaningful that margin improvement We’re more higher profiles, profitability. the much to to closer range, into And,

Mark Wong

Sarkis, I issues decision margins simpler. that crops jump basis, the per definitely management pound, Company of to much if on a move much part on per the are to I that on higher is So, in, the the mean, kilo the hybrid can based inventory and fact are

have in three-year a also a So, even you Whereas, can one contract than year up to you the that’s longer a which which sometimes, be or hybrid Australia, alfalfa crops, in before in have contracts, the annual contract. is perennial, production production had it contracts that.

seen alfalfa turn really decade on industry off side. in of after is the what once the has hard that supply it’s growth to is a the So, that spigot over, growth

We market or careful about in want with are side the situation have four price leading to the absorb. can the sort we’ve alfalfa be write think alfalfa, so which And market. So, We face, situation. don’t that’s alone more we for Obviously, selling off. that the that are overhang you large pressure surpluses we’re not this worldwide than on don’t three as huge we disciplined of alfalfa to seed that the know, of germination. the inventory that got companies the giant alfalfa about But, industry. into there’s

market and large not we it be that in. are our any in world, every we worse shape of the believe make on going they’re competing Everybody’s difference. to kind doesn’t And that competitors we but that’s are, after sale, a some is than the And all of price. around sale like

and so, system an markets, strategically problem. precludes of hybrid, that and these sorghum chosen to in endpoint not wheat, seed like sunflower kind it has royalty we’ve Australia a although And company other enter this

people So, don’t our in that’s going. the profitable is And don’t in that’s understand, time more that to for the mix been over in sales. we’re we’ve I’ve and understand, that I that be something seen that think the XX but more that maybe going years is sure, And industry. something investors direction stable

Sarkis Sherbetchyan

Thanks explanation, that Mark. for

it it, seed angle, right like the those outlined? especially to from you sorghum be way Is the given sales. to and year think likely next think, driven it I margins about from our upside sunflower is to seems call that

Mark Wong

about way think to it, Sarkis. right Yes. That’s exactly the

Dow. know an we’ve products, sunflowers have like in now for Pakistan our option sorghums just don’t program a got or it’s us the early, The that from Australia interesting We are We whether really yet. and Eastern Europe in weeks it’s in Africa. of lot

to kind could sales. a two see introductions We’re we But, kind of see of tough a And new in Right? two first share. of they these of or or will we better some improvement I’m we or go for have year successful time substantial will before our some confident, market year the have be projections so markets. really as we shots some on and as be than average, we be on not but in many can we close hopefully think. achieve will goals, good to pretty And think all these of could what

and way experience the But, us we’ve a have gross people successful number to my bet strategy. And that be we different after experience, kind experience our efficiently that the purchased. that from many we’ve and markets of in sort the to they be strengthening will that but build dealers, for talked about sales bet. seeds of to a in But, we of and sales turn it’s of breeding, we’ve us cost, basically brought costs maybe too into experience, lines. allow much it’s doing market the these having poor maybe our the before bet, the or Company our distributing basis now. have have But, farmer good to to that dealers, worldwide out bet, to the of that out that depth not positions add reasonable per that problem But, part these our and production will that it all on we’ve the turn that’s crops S&W product now it’ll can historical been implementing unit given to be profits marketing then the cost of

happy time now. pretty we’re right S&W a It’s optimistic. at So,

Sarkis Sherbetchyan

low about talk trait, or you’re the Calyxt. one launch Can line? Thanks. how -- calendar just remind and ‘XX? Just with in us I’ll me do for last about that one collaborating portfolio that we hop in for alfalfa think sorry, the Is maybe or about And digestibility you queue. digestibility the

Mark Wong

Yes.

to We’re until substantially their margins. on our in introduction on-farm But, pushing but volume sales it’s hard probably farmers alfalfa? have accretive to in are small the pressured going ‘XX. again, being ‘XX not to situation an in Right? be So, understand

you badly are here distribution suffering. So dairy is biggest I think, industry U.S. -- huge else milk, of the the saw to the I and U.S. you milk the going day, Dean trying how whole they is dairy and sell indication That’s because the suffering they’re probably think other how I a have in that coop heard bankruptcy the company to farmers that into in just distribution And they U.S. tells and XX% market. badly everything the Foods

So, money when farms, The make producing, going farms. milk is or especially pressure and lower remember, definitely sort market on the the farmers they’re know dairy head out industry. that farm business. in of that many, can’t family highest huge XXX dairy alfalfa’s are And changing under we many of to is and use

day, slaughter ability So, to business that’s on per that on when of the that already, send main are hamburger the under to obviously which business, weight when dairy money a value is produce XX% to more of after amount milk of business, money there cow left year dairy spend is their their XXX is improve of pressure, metric four. cows amount farmers they per of making technology the margin they the cow, that’s milk going when aren’t we the the about although per

time traits see the penetration. competitors We introduce dairy the very very, give farmer, value with to new a farmer. to our market difficult It’s hard very that having

historically, the penetration are giant big of is almost about for the soybeans, XX%. And four corn, rate XX% of market that our four one selling competitors cotton, over every the quickly traits out alfalfa for market at penetration years those crops, in topped canola, years, three have crops. which in So, are the GM

going a that that have good. through very an market we thing believe sort Those we taking going don’t be we this needed trait to is to But, trait have a to alfalfa strategy. is to the our the that easy very, do introduce. no difficult. introducing very that think is system going very, very to is developed developed commercialization to we we’ve alfalfa So, in and implement germplasm, in we’re extremely I thought Even things to very be And though, be very, are And technology; difficult marker helpful. lightly. a

that look And so, to trait trying trait the make a of all and of other things at we’re successful. pricing the

those in difficult We’re market at trying alfalfa. the a look very to in of context very,

our very, problem. do downer sort any calls had But in But, we’re these not But, all rest wheat, never year other not same all move And look the of the made that something don’t why crops in be sorghum, a because there. before, admitted to can that’s of it multiple crops, market. I want bad, a we’ve very in hand, on I’ve in businesses, one direction and one any the sunflower, good. be

Sarkis Sherbetchyan

I’ll candor the hop Thank back you in there. the for queue.

Mark Wong

Yes.

Operator

next with [Operator question Klieve go Please from Corp. Instructions] ahead. Ben Securities comes National Our

Ben Klieve

for Thanks questions. taking my

of couple a me for quick Just ones here.

the revenues When to of one of the million the quarter. First in with to the on -- divestiture regards $X.X going payment be XXth. Pioneer that May, in when was announced September waterfall was -- first agreement kind

were today Pioneer $X million. noted something kind those or missing $X.X and that Am change? schedule in revenues million, timing numbers comparing itself of the that from has You two I like

Matthew Szot

Yes.

contractually the day. those they’ll you’re flow to And Ben, be and cash referring picked to the are So, streams. defined

cash So, again, payments. And next we January scheduled payments and of February receive then those will million we’ll and September, of in in receive year, did $X.X fiscal receive into XXXX. similar

the timing actually previously timing seed to departure when dependent to of as to Pioneer. disclosed, there’s is we Just deliver no revenue that receipts, cash Pioneer but of flow is recognition that, on the

completely So, streams they’re two different there.

Ben Klieve

it. Got

Okay, perfect.

Mark Wong

on tells we when marketing when it depends sale, So, us Pioneer’s seeds. organization the a to ship book

and the is the is it’s going in. have And how for the season locked U.S. U.S., in the so, contractually how cash all seed weather But, because that on actual variation can their depending is little a

take understand going come So, whether those are in or seed announced we they that you that payments to the not.

Ben Klieve

And the headquarter that to that the or there other that the was itself, a that to up brought are some kind to CapEx balance bit. Can was of ticked of a little what for other the driver your CapEx move I year? a question on bit? assume quarter up then, CapEx Longmont One to as follow-up that, tied little expectations

Matthew Szot

Yes.

I in so, here million. out build of QX primarily approximately $X a the the we’re was roughly our for of Colorado probably year Yes, for office in think, improvements Longmont Ben, at CapEx looking spend CapEx leasehold coupled with And machinery best-in-class to enhancements standards. infrastructure the in the some money made some to sort IT bring that to we throughout going also really be of we’re year, Australia. our up additional spending of remainder

Ben Klieve

And then, first did seeing you EMEA are really headwind think in or that you kind concentrated pressure you’re increased last a one pressure, particularly for of One, on that region? peers, is of -- second, increased that me. Mark, can from degree on And elaborate European in the what seeing in of to going wondering you’re do your fronts kind you the couple South comments you I’m see really if one. be competitive kind quarter? to on pressure of then, America, the

Mark Wong

question. great Yes,

Pioneer’s first our that best purchased resistance we right? program program we would ago, was even disease the remember that And want that we have deemed And the because sales we for variety, to industry alfalfa it’s by the alfalfa before that that So, it years resistance. profile in though which be some program, had breeding to hoped obviously disease six for in our beginning growers have. of of Europe, get industry or five reason,

contract germplasm for had take or it our companies to we us a where increase and with five program had European four sales. production we so, And under

have So, the where afford put to margins to thin because into sold be are it’s you seed so to can’t going freight you that produce it.

of have traditionally prices a They on have kind the very also very, production. So, because now Okay? of are those crazy. cutting and hold alfalfa their Europeans surplus like plans cheap

And might on one, those haven’t. we number because efforts, about are hold kind Europe hold, asked take programs you so, our in frankly, thought that markets of

more European But, markets, bigger time, is surplus, and both market the the And also. this from big, in alfalfa, does, a the important U.S. per which And being really Argentina cost probably in a that’s seeing alfalfa in not prices Brazil are Mexico, than we’re kilogram and really alfalfa, pressure although from has in biggest still affect and under it’s big unit America. is and Argentina, a of price bit that. which cheaper from pressure U.S. it’s South

Ben Klieve

Got it. That’s helpful.

that I for me. you I’ll back for does queue. And Thank it jump think in time. both your

Matthew Szot

on being again You’re the welcome. call. Thanks for

Operator

the concludes I’d Officer, Chief to our over turn question-and-answer Mark back for This Executive closing to conference like session. any remarks. Wong,

Mark Wong

Thank you very much, operator.

And thank are so like optimistic and And, We’re optimistic We’ve been S&W. in come U.S. people Pioneer with call I real building opportunities sheet far. you’re are the pleased to mentioned, and best year. contract production the we’re Partners and under Sorghum And interest we’re sort R&D who all years, of for Alfalfa on yet today optimistic, the that production selling Chromatin we’re as with our And, worldwide, this acquiring sale couple balance for even I we’re us. obviously you the program though our all as very the obviously back is it’s our where a intact, facilities market company, say. the all of poor a there think progress to strengthening ag assets, Partners the the we kept now which of brands in to

So, everybody. thanks rest again, the have And a good of day.

Operator

is for presentation. attending concluded. conference now today’s Thank The you

may You now disconnect.

S&W Seed (SANW) 13 Nov 192020 Q1 Earnings call transcript