S&W Seed Company Q1 FY2025 earnings call

Management Statement and Operational Highlights

• VA Process: S&W Australia entered Voluntary Administration (VA) on July 24, 2024, expected to conclude in November. The focus is on creating a going concern for all entities involved.
• Sorghum Business: Double Team grew 68% from fiscal 2023 to 2024, planted on 10% of U.S. green sorghum makers in 2024, expected to be on 12%-14% in 2025. Key initiatives include launching a pilot program, realigning the sales organization, progressing with global partners, and expanding sorghum products like DT2 and Prussic Acid Free Trait.
• Forage Business: Americas forage sales are expected to be $8.5M-$9M in fiscal 2025, international forage sales ~$4.9M, with slight declines due to market conditions.
• VBO Joint Venture: Maintains a 34% minority interest, focused on camelina and oilseed species, with camelina seed demonstrations showing glufosinate herbicide resistance.

Segment Performance

• Americas Operations: In Q1 2025, sorghum sales were $550,000 vs $2.3 million in Q1 2024. Double Team grew from $6.5M in fiscal 2023 to $10.9M in fiscal 2024, contributing ~70% gross margins. Americas forage sales were $3.4M in Q1 2025 vs $2.4M in Q1 2024.
• Australia Operations: Australia domestic and international revenue declined from $43.6M in fiscal 2024 to $29.1M in fiscal 2024, a 33% drop. The Australia business is now classified as a discontinued operation.

Guidance

• Revenue: Fiscal 2025 ongoing business revenue is expected to be between $34.5 million and $38 million. Sorghum revenue is projected to be $20.5 million to $23.5 million, with Double Team (DT) accounting for $12 million to $14.5 million and Prussic Acid Free sales at ~$200,000. International forage sales are ~$4.9M, and Americas forage sales are between $8.5 million and $9 million.
• Gross Margins: Ongoing business gross margins for fiscal 2025 are expected to be between 33% and 36%, compared to 26.2% in the prior year. Excluding international operations, Americas sorghum and forage gross margins are projected to be 35%-39%, up from 28% in the prior year.
• EBITDA: Expected to be between negative $5 million and negative $3 million for fiscal 2025, with Q1 already recording a negative $3.1 million.

Risks

• VA Process Uncertainty: Uncertainty regarding the outcome of the VA process and potential financial impact, including the parent company's $10 million guarantee obligation.
• Market Conditions: Fluctuations in commodity prices, market demand for sorghum and forage products, and potential effects of international trade restrictions.
• Operational Risks: Challenges in streamlining operations, achieving cost efficiencies, and maintaining product quality and compliance.

Question and Answer

• Q: Australian VA process liability? A: Negotiating with administrators representing creditors, including NAV. The parent company may have a $10 million guarantee obligation, with more information expected after VA conclusion this week.
• Q: Cash flow and working capital? A: Working capital needs will improve due to reduced international forage sales, but ongoing corporate costs remain. Funding needs are tied to the VA conclusion.
• Q: Sorghum acreage outlook? A: United Sorghum Producers Association expects increased sorghum acres for the upcoming year due to favorable ROI and market conditions.
• Q: VBO revenue timeline? A: VBO is focused on trials and ramping seed production; meaningful revenues are still some time away as they progress with camelina and oilseed development.
• Q: Employee structure post-VA? A: The U.S. business is unaffected, with a clean separation from the Australian business following the VA process.