Robert Blum - Lytham Partners, LLC, IR Mark Grewal - President and CEO Matthew Szot - Chief Financial Officer.

Brett Wong - Piper Jaffray Mike Malouf - Craig-Hallum Capital Group Andrew O’Connor - Bank of Montreal Ian Gilson - Zacks Investment Research.

Good afternoon, and welcome to the S&W Seed Company fourth quarter and fiscal 2014 financial results conference call. [Operator instructions.] I would now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead..

Thank you, operator, and thank you all for joining us to review the financial results of S&W Seed Company for the fourth quarter and fiscal year 2014, which ended on June 30, 2014. With us on the call representing the company today are Mark Grewal, president and chief executive officer and Matthew Szot, chief financial officer.

At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today’s call does not have a full text copy of the release, you can retrieve it from the company’s website at www.swseedco.com or numerous financial websites.

Before we begin with prepared remarks, we submit for the record the following statement.

Statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 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 may, future, plan or planned, will or should, expected, anticipates, draft, eventually, or projected.

Listeners 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 in the 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 30, 2014, and other filings made by the company with the Securities and Exchange Commission.

With that said, let me turn the call over to Mark Grewal, chief executive officer for S&W Seed Company.

Mark?.

Thank you, Robert, and good afternoon to all of you. As always, we thank you for taking the time to participate on today’s call, and we appreciate your continued interest in S&W Seed Company.

During the call today, let me spend a bit of time updating you on the results of the fourth quarter including an outlook on the markets we serve, and discuss a number of initiatives the company is undertaking to further expand the alfalfa speed and stevia platform that we are creating at S&W.

We will have Matt Szot, our chief financial officer, go through some of key financials, and we will then open the call for your questions. As everyone likely saw in this afternoon’s press release, we reported record revenues for the fourth quarter of $19.6 million. For the fiscal year as a whole, we recorded record revenues and record adjusted EBITDA.

These were solid results, but we recognize there is much work to be done in executing our strategic plan to build on these results in the coming years.

To that extent, we have identified certain areas that we can do a better job to overcome some of the softness in select markets that impacted us during this past fiscal year and continued to impact us into the first quarter.

Specifically, we are looking to expand our distribution footprint to be in a stronger position to not be as dependent on certain key markets.

Clearly, during this last fiscal year, there were markets that became disrupted due to the glut of lower-priced proprietary and non-proprietary alfalfa seed that came from a stronger harvest out of Australia a year ago.

This placed pressure on pricing at the lower end of the market and had an impact on a portion of our group stock varieties, specifically, some of our varieties that come from Australia and those that come from our Imperial Valley seed operations.

Our agreements in Argentina with Bioceres and in Pakistan with Maxim and other agreements like the domestic distributor we announced last quarter that expand our customer base will prove instrumental to maintaining better margins as well as expanding our volumes. I will go into more detail on our Bioceres joint venture shortly.

It seems clear that our positioning of the superior traits provided by the lead S&W varieties is resonating with the marketplace, which we feel good about.

While we saw pricing headwinds at the lower end of the market, we were successful at maintaining relatively strong pricing for our lead S&W varieties, reinforcing our underlying strategy of transitioning as much of our production base to these elite varieties as quickly as we can.

We made good strides in Australia during the off season to increase our production acres of elite S&W varieties, with approximately 1,000 new acres planted in the country.

We were successful at securing seed acres both at our prime growing region of south Australia as well as a relatively new seed growing region for us in southern New South Wales and northern Victoria. We are pleased with this initial expansion in Australia as it is a key driver of our ability to enhance gross margins.

We expect to further transition production acreage in Australia to elite S&W varieties in the coming seasons. We also made strides in our dormant capabilities during the fourth quarter with the first sale of our dormant varieties into China.

While the numbers are not large, we believe that China can represent a significant opportunity for us as we increase our production capabilities into the future. Let me turn the call over to Matt for a review of the quarter in more detail and then I will come back to review our research, biotechnology efforts, and expectations for the first quarter.

We will then turn the call over for any of your questions.

Matt?.

Thanks, Mark. Since everyone should have access to the summary financials in the press release, let me provide some additional details in a few areas. For the fourth quarter, revenues totaled $19.6 million, compared to $12.7 million a year ago, an increase of 54%.

For the fiscal year, revenues were $51.5 million compared to $37.3 million in the previous fiscal year, an increase of 38%. Revenues were slightly below our original expectations for the quarter as certain orders slated for Saudi didn’t materialize as expected toward the very end of the quarter.

This was the largest quarter in the company’s history, and highlighted our ability to process and distribute a large volume of seed, but it also brought a few areas to our attention where we can improve. Gross margins in the fourth quarter totaled 18.6%, which is consistent with our expectations.

This, compared to Q4 of the prior year where adjusted gross margins were 20.4%. As we communicated during recent quarters, gross margins can vary quarter to quarter based on the mix of seeds sold. During the fourth quarter, there was a higher percentage of lower margin seeds sold, which brought the overall gross margins down slightly.

There will continue to be quarterly fluctuations in gross margins based on revenue mix in any particular quarter. However, with the initiatives in place, we expect to see continued improvement in gross margins on an annual basis, as we move forward.

SG&A for the fourth quarter totaled $2 million, compared to $2.7 million for the comparable period of the prior year. This $700,000 decrease in SG&A from the prior year was primarily due to a decrease in stock based compensation as well as the inclusion of $300,000 of acquisition-related expenses in the prior year results.

SG&A for the first quarter is estimated to be approximately $1.8 million. From an EBITDA perspective, we saw nice improvements compared to the fourth quarter and prior fiscal year. Fourth quarter adjusted EBITDA improved to $1.6 million, compared to $682,000 in Q4 of the prior year, an increase of 141%.

For the year, adjusted EBITDA was $3.2 million, compared to $1.2 million in the year ago period, an improvement of $2 million, or 167%. Now, let me spend a little time discussing our inventory balances and receivables.

Regarding inventory, we ended the year with approximately $28.5 million of inventory on hand, which is a decrease from $31.8 million at the end of March.

The June number includes our most recent Australian harvest, which happened in May, and approximately $4 million of work in process growing crop inventory from the California harvest, which we are wrapping up now.

But not included in this number is seed that we anticipated sourcing in a just in time format, which is part of the [IDS] business model, and likewise, it does not include the contractor grower seed from the California harvest, which we are just completing in September.

Our inventory level position should allow us to capitalize on the demand that our sales team is expecting to pick up in the coming months.

Now, moving to receivables, of the $24 million of receivables that we had on hand at the end of June, please keep in mind that nearly 85% of our Q4 shipments occurred in June, so the increase in receivables is consistent with our expectations, it’s within our agreed upon payment terms, and consistent with the competition in the respective regions.

Now, I’ll turn the call back over to Mark..

Thank you, Matt. To sustain a leadership position in the alfalfa seed space, you cannot simply stand pat and rest on the laurels of our current set of genetics. The world continues to be faced with the challenge of feeding a population that continues to increase, while doing so with decreases in arable land.

Tremendous strides have been made over the years to increase yields and develop traits to withstand certain diseases or otherwise enhance productivity. When you look across the spectrum of major agricultural crops, regulations in most countries have permitted the use of certain genetic modification.

Alfalfa, due to its cross-pollination, has been prohibited in most countries, except for the United States and Canada, and even within those countries there are certain counties that have continued to ban the use of GMO seed. But it’s my opinion that over the coming years, there will continue to be changes in the regulation of alfalfa.

There will not be a “one size fits all solution” around the globe for the ideal alfalfa seed development process. There will be a broad spectrum of development approaches to produce the varieties that will meet the needs of customers.

Our agreements with Monsanto and Bioceres, as well as others, that we are working on allow for us to take advantage of an evolving marketplace and to assume a leadership position in the alfalfa seed space for years to come.

With Bioceres, we have created a very unique joint venture that encompasses the biotechnology side of the business and expanded distribution capabilities in South America. Bioceres was created in 2001 by a group of farmers in the region to develop next-generation seed varieties to meet the challenges presented to farmers.

Over the years, they have acquired world-class research and development operations and are considered to be one of the largest and most influential agricultural companies in South America due to their large scale farming capabilities and their ability to work with the scientific and regulatory areas to bring a market products to meet the challenges of the community.

From a distribution standpoint, our agreement with Bioceres is a unique opportunity for S&W to further broaden our capabilities by moving closer to the end customer, therefore allowing us to take advantage of the incremental margin opportunity that distributors typically have.

From a development perspective, S&W and Bioceres R&D efforts will focus on developing traits that have abiotic stress tolerance mechanisms and can perform well in adverse conditions. Items such as drought and salt tolerance, as well other traits will be key factors to enhance productivity going forward.

Bioceres has invested significant resources in developing these traits, and we are confident that our development program will yield a new breed of products in the future.

With our Monsanto agreement, we are still conducting field trials on performance of our GMO varieties and expect commercial production acreage will be planted this fall for our first commercial harvest in the fall of 2015.

Once testing results have been approved, sales could commence as early as the fall of 2015, but may not start until 2016, which is consistent with our recent communication.

We are pleased with our current biotech trait development pipeline but believe there are additional opportunities out there to further enhance our capabilities to meet the challenges of farmers around the globe. Our tropical development program remains on track as well.

As I reported last quarter, we will be trialing the new tropical variety in the markets where we believe we will be able to develop a market while simultaneously increasing our seed production of the tropical variety in Australia.

Along the same vein of our alfalfa research development initiatives, we are in what we believe to be the final stages of our stevia patent filings. We are compiling data from our most recent field trials, which will be used to prepare the patent applications for new stevia varieties with improved taste profiles and enhanced yields.

While most companies have focused on the downstream uses for stevia, such as production, processing methods, or end products, there has been little focus on the actual stevia plant itself. We believe that there is currently only one other patent on file for a stevia variety.

If we are successful, we believe there are numerous ways to monetize our efforts and are working diligently to do so. As we look to the first quarter, which ends tomorrow, we are seeing a bit of continuation of what occurred in the fourth quarter.

Certain markets remain strong, while others continue to work through higher inventory levels of low-price seed. We believe that the markets in certain countries are beginning to see signs of strength that have been absent for a better part of a year. However, that will not be showing up in our first quarter results.

Overall, we expect revenues in the first quarter to be approximately $7.5 million.

While the markets remain dynamic, and quarterly variation should be expected, management believes that its recent initiatives, combined with strength in certain markets, will enable the company to reach its goal of approximately 10% organic revenue growth in the fiscal 2015.

I am confident that when the markets do begin to normalize, S&W is in a prime position to capitalize. There will always be a short term swing in any market, but I feel confident that the long term opportunity for alfalfa is firmly in place. Overall, we wish the markets were a bit more normalized at the moment.

We are pleased with the positioning of the company as a leader in the alfalfa seed industry. We also have a unique opportunity in the development of stevia to become a premiere provider in the industry. We are working tirelessly to drive enhanced value for shareholders, and look forward to what we believe can be accomplished in the future.

With that said, let’s open up the call for your questions. I’ll turn it over to Robert and the operator..

[Operator instructions.] Our first question comes from Brett Wong at Piper Jaffray..

First, I just wanted to dig into kind of what you're seeing in the Saudi market, obviously, still some weakness or softness there. Just wondering what your expectations are on improvements and when you think that lower price seed inventory is going to be worked down, and if we’ll be able to make that for the spring shipment..

Let me talk about the softness a little bit, and then I need you to rephrase or re-ask what the second part of your question was, on timing or whatever. Didn’t quite hear it all. What’s happening right now is we’re flushing out the end of the - the variety is not stated.

They’re all certified seed varieties, but the more publics and the more lower-priced seed, and we see that that is actually decreasing in inventory everywhere. And so our marketing team believes the market’s turning around, and they’re getting a lot of calls about orders.

Normally, we’re shipping 40 containers into Saudi right now, and we’ve only shipped six. And so we’re expecting that to turn around soon. But we’re also, at the same time, attacking other markets that could replace that volume.

Now, what was the other part, because I couldn’t hear you?.

I was just kind of wondering, on timing. With kind of this lack of demand there from that region to the six….

It’s going to be this year for sure, but remember, depending on southern hemisphere and northern hemisphere, you have a fall planning season and a spring, normally, and then some of those areas might be more determined by having to wait for water allocations in the spring, that’s why you lost the fall.

But we believe it will all happen this year, so if it didn’t happen right now, in all reality, it’s going to happen no later than the fourth. It could happen in the second. They’ll have to start shipping at the end of the third to get it there in time. But we believe we’re going to have another very strong fourth quarter.

And like I said, our Australian marketing team, our California marketing team, is very bullish on what’s going to happen..

And I guess can you just talk to what pricing is then right now, just for your proprietary varieties for S&W, as well as [Cup]?.

Personally, in the California market that I work in day in and day out, the contracted pricing to the grower is very similar to where it was last year. I do see a little bit downward on the lower end varieties, but they’re working those inventories out. Here’s what’s really happening.

This season, in Imperial Valley, guys that would normally convert to seed production stayed in hay, because hay pricing is so strong.

And then you couple that with the Australian crop that was more of an average crop compared to the above-average crop the preceding year, that is allowing this, I’ll call it, lower priced in market to deteriorate, because the inventory’s evaporating..

And is there any gap right now between S&W proprietary varieties?.

domestically, we’re very strong and we have very good pricing. I would say historically we’re kind of in the mid-fours level. And you know, we can work on that later on if you want to get into more detail..

And just wondering, you recently released a new distributor agreement in Pakistan. Wondering if you could talk a little bit about the opportunity there, how big of a market that is..

They’re a very large livestock company. So we’re looking at that those type of deals to be very important, because they’re basically exclusive and they want specific varieties. And it allows us to better anticipate what those market volumes will be.

And so we see that as a continual expansion and I personally believe that you’re going to see more and more of that in the coming months..

And do you see the opportunity, since a lot of that as you mentioned, is uncertified, that you’d have some pricing power there as your proprietary varieties get more embedded in that region?.

Yeah, especially where there’s marginal soils or any type of salt issues. You know, it goes back to the same thing that we’ve got to really focus on, and that is converting acreage into specific varieties that are really in high demand..

The next question comes from Mike Malouf at Craig-Hallum Capital Group..

I’m wondering if we could talk a little bit about some of the new initiatives that you have, in a little bit more detail. Starting with tropical. Can you remind us again what the timing is on that? When could that start impacting the P&L? And then the same for stevia. It sounds like you’re getting closer on the patent side.

So how soon after you get those filed before that starts to impact?.

Matt, do you want to take the -- you know the timing on the patent more, it's got to be this year, doesn’t it?.

Yeah, with respect to the stevia patent, we plan on getting those patents on file within the next 30 to 60 days. From there, there’s a number of opportunities that we’re seeing. There’s quite a few companies that are spending significant amounts of R&D in the various different cycles of stevia.

There hasn’t been a lot of work in the actual plant breeding of stevia. And we’re getting quite a few inquiries from other groups looking for us to assist them in that.

So when we think about potentially doing contract R&D or developing varieties with back end royalties for other partners, that’s something that we could see happening in the next 12 to 24 months..

And then tropical?.

The tropical is very similar to the GMO. We have to go out and expand the seed in FY15, and then the first sales and expansion into regions would be in fiscal year 2016..

And just so I understand on the GMO, obviously there’s a lot of changes that you expect to happen on the alfalfa market.

With Bioceres using biotech, does that fall into that GMO? Or does it circumvent the GMO issue with regard to new varietals?.

In a general sense, Bioceres would be GMO. Specific trait capabilities, maybe not. They have to get a registration process on it, but in general, that opportunity is really a GMO opportunity.

What’s important about that one is that their cost of being able to get something to the marketplace is far less than the cost in the United States to get the same product to the marketplace..

And just to clarify, on the Bioceres, the opportunity over the next three or four years is really moving S&W existing germplasm and building up a really strong sales channel in Argentina, partnering with Bioceres.

And then after that period of time, when we’ve built up the sales channel willing to pay a higher premium, at that point in time, the R&D work will be complete with our GM varieties, or we can continue to move those higher value products through that channel as well.

So we’ll be generating revenue from that relationship this year, and hope to grow that exponentially for the years to come..

You talked a little bit about moving a thousand acres over in Australia to your proprietary varietals. You said that you thought you’d be more this year, this fiscal year.

Can you give us a sense, a little bit of an insight on the acreage shift over the next year, or perhaps even year or two?.

The public variety in Australia is called [Sy] River. The majority of the S&W varieties that were trialed this past season surpassed that yield. So that allows growers to say hey, 20% of the acreage in the country is on this public variety Sy River.

We can grow S&W for actually a higher contracted price and make more money, and we know we’re going to get paid more than we did Sy River. So we believe that after this initial thousand acres is harvested that we’ll have a lot more growers wanting to expand their acreage base.

And at the same time, that will allow us to directly ship that instead of optimization and landing products in California and things like this. And we’ll gain the California premium exactly on shipment, right into the Middle East and North Africa..

The next question comes from Andrew O’Connor from Bank of Montreal..

Mark, wanted to ask, and mindful of your prior comments related to Pakistan, but can you guys better quantify Pakistani sales for 2015, next year, in light of the announcement recently made with Maxim?.

It’s going to be the startup, so they have to start the process of putting those in. So in a general sense, I would equate it to how the ramp up’s been to get S&W high end into Australia. So it’s going to take a couple of years to really ramp it up.

Matt, do you have any other [unintelligible] on that?.

Yeah, I would say, in year one, this fiscal year, it’s not going to really move the needle. We’ll be moving a couple of containers, and we hope to grow that exponentially in the years to come. But that’s normal sales cycle. When you go into a new market, it takes a couple of years to get some meaningful volume going..

So quantifying it, then maybe hundreds of thousands in terms of sales revenue? Or is it possible to take a stab at a number?.

I would say in year one you’re looking at maybe $400,000 worth of sales into Pakistan..

And then for SG&A, I thought I heard you say in the last call that SG&A for the fourth quarter would be $1.8 million. So it comes in a little bit higher than that.

Why was SG&A higher in the fourth quarter that you guys thought it would be?.

Two things. We took an $80,000 reserve on a receivable from a South American customer. And we did see a spike in labor costs for various initiatives that we’re working on..

All right, and then SG&A for the fiscal first quarter in 2015 will be?.

$1.8 million..

The next question comes from Ian Gilson at Zacks Investment Research..

What was the non-U.S. revenue in the fourth quarter? And then if we look at the yield by region, i.e.

Central Valley, Imperial Valley, and Australia, how has that yield changed over the past three years, year by year?.

Export revenues were roughly 80% of our overall revenues..

Can you go back to your question on yield? What’s the question on yield?.

If we take three years ago as a baseline of one or 100 or whatever you want, and then in the following two years, the following two series of crops, what was the direction of the yield versus the baseline? Up? Flat? Down?.

Well, if you take Australia in general, three years ago it was down. The following year, our first year with them, was a record, very high. And then this past year was a normal year. You know, historically speaking, if you look at SGI, they’re looking at an 8 million pound crop.

Historically kind of speaking, if everything’s on all cylinders, they were below that three years ago. They were like 11 million the year before, and then they’re right in there this year in that area.

So if you take Imperial Valley seeds or the Imperial Valley, the range of the VNS types, [lay], the varieties not stated, I would say quite frankly in that area, they’ve been just average, average, average, at best. And then the San Joaquin Valley is a little bit above Imperial.

And the thing about the San Joaquin Valley is what are you growing, what are the types, and where are they? Because you could have one field that’s a thousand pounds per acre right next to another field that’s 400 to 500 pounds. But historically speaking, the California average is around 600 pounds per acre..

So basically, the biggest [unintelligible] over the last couple of years in your yields has been your Australian yield?.

That is correct..

What basically determines the variability in that yield?.

Water, timing of water, pollination, and stress. Combination of heat, water, pollination, and the timing of the stress. And if you do get the timely water applications that’s necessary or some type of weather event. So it’s really weather oriented, and at the same time if you’d had to spray for something, what happens to your pollinators..

This concludes our question and answer session. Mr.

Grewal, would you like to make any closing remarks?.

Certainly. Thank you very much. Again, my thanks to everyone for participating on today’s call. We look forward to talking with you again at the conclusion of the current quarter. Hope you have a good evening. I’ll be getting married this weekend, so I hope everybody had fun. [laughter].