S&W Seed Co Q4 FY2023 earnings call

Management Statement and Operational Highlights:

• Strategic Initiatives: Successfully launched Double Team sorghum solutions, saw gross margin expand from 8.9% to 19.8% in fiscal 2023, reduced operating expenses by nearly $7 million, and partnered with Shell for sustainable biofuel feedstocks (resulting in a $20 million benefit).
• Sorghum Technology Pipeline: Double Team forage sorghum to launch in 2024, prussic acid-free trait pilot in 2024 with commercial launch in 2025, and development of second-generation post grass herbicide trait and insect tolerant/resistant traits in discovery.
• International Operations: Evaluating potential value unlock in international operations, focusing on growth and efficiencies despite geopolitical risks.
• Partnership with Shell: Vision Bioenergy Oilseeds LLC (VBO) on track to plant over 7,000 acres of Cambelina for biofuels, with Shell under an offtake agreement.
• Operational Initiatives: Focus on seed life cycle management, rationalization of low-margin product lines, and cost controls to achieve best-in-class cost of goods and operating costs.

Segment Performance:

• Double Team sorghum solutions: Sales increased to $6.5 million in fiscal 2023 from $2.4 million in 2022, contributing to a significant gross margin improvement. It now accounts for an estimated 6% of U.S. grain sorghum acres.
• International operations (Australia subsidiary): Fiscal 2023 revenue was $43.6 million. Guidance for 2024 is $45 million to $50 million. Geopolitical risks in certain jurisdictions are a consideration.
• U.S. forage operation: Fiscal 2023 revenue was $10.8 million, expected to be $9 million in 2024.
• Gross margins: GAAP gross margins were 19.8% in fiscal 2023, up from 8.9% in 2022, driven by increased sales of high-margin Double Team sorghum and improved inventory life cycle management.

Guidance:

• Revenue: Expected $76 million to $82 million in 2024, an increase from $73.5 million in 2023.
• Double Team sorghum: Sales expected $11.5 million to $14 million in 2024, a 77% to 115% increase from 2023.
• Gross margins: Expected 24% to 26% in 2024, up from 19.8% in 2023.
• Adjusted EBITDA: Negative $7.5 million to negative $4 million in 2024, an improvement from negative $9.3 million in 2023.

Risks:

• Geopolitical risks in international markets where the company operates.
• Complexities and logistical delays in international seed shipping.
• Uncertainties in unlocking value from international operations due to various factors outside the company's control.

Question and Answer: Q: Ben Klieve asked about Double Team performance, legacy sorghum revenue, and exited business revenue.

A: Mark Herrmann discussed Double Team's growth curve, legacy sorghum revenue expected to shrink with Double Team's growth, and ongoing evaluation of exited businesses with no direct revenue figures provided yet.

Q: Nelson Obus asked about R&D spend, EBITDA projections, international logistics, and cash flow expectations.

A: Mark Herrmann mentioned relatively flat R&D spend, Vanessa Baughman discussed order-to-cash process streamlining for international logistics, and both noted the $6 million Shell payment should help with cash flow breakeven in 2024 and potential positivity in 2025 with no expected further dilution.