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00:04 Good morning and welcome to the S&W Seed Company Fourth Quarter and Fiscal Year twenty twenty one 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.

00:32 I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead..

00:39 Okay. Thank you very much, and thank you all for joining us today to discuss the results for S&W Seed Company for the fourth quarter fiscal year twenty twenty one, which ended June thirty, twenty twenty one. 00:52 With us on the call representing the company today are Mr.

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

01:06 Before we begin with prepared remarks, please note that 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 nineteen thirty three as amended and Section 21E of the Securities Exchange Act of nineteen thirty four as amended.

And such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of nineteen ninety five.

01:35 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 thirty, twenty twenty and other filings made by the company with Securities and Exchange Commission.

02:22 With that said, let me turn the call over to Mark Wong, Chief Executive Officer for S&W Seed Company. Mark, please proceed..

02:31 Thank you very much, Robert and welcome everyone to the call today.

I would just like to start out by saying it's hard to believe after eighteen months that COVID could still have such a difficult stressful effect on all of our businesses, but we see that continuing frankly through the full fiscal twenty twenty two-year, so that would be the summer or would be June of twenty two calendar year.

So, we continue to have logistics issues that we're managing. We continue to -- as other companies have had employment shortages and difficulty hiring and also we've had to increase wages. 03:19 So, again, we are assuming for our twenty twenty two fiscal year that COVID will unfortunately, be a problem that all businesses worldwide are dealing with.

And so the remarks that Matt and I are going to make today, please remember that they are all made in the background of COVID continuing to put stress on our business. 03:45 With that being said though, logistics are reasonably under control.

We've reorganized the company to have teams that look at the orders, the big orders, especially going to the Middle East and South America and Asia.

We coordinate those teams from the plant all the way through the paperwork needed to get these shipments to the customers and through booking the ships and dealing with any problems that happened because, as you all know, lots of ship schedules don't hold and are changed at the last minute and it forces us to change our shipping instructions to our customers.

04:36 The net-net though is very good news. So far we have not had a delay. So we've had delays, no question about that, but we have not had a delay that forces us with a shipment to miss our customers’ planting date. So remember that we're in an agricultural business.

There is – in the Northern and Southern Hemisphere for each of our key crops, dates which the farmers like to plant the seed. And so far, although the seeds may have been delayed, it has not missed the planting date that the customer wanted to put that seed in the ground and in the end that of course is a very important fact.

So we basically continue to get the sales, but it might be delayed from one fiscal year to the other or one quarter to the next. 05:27 Even with these pressures though, I'm pleased to report that margins are improving.

They are higher than last year and we are continuing to believe that we will be able to recognize higher margins for the full fiscal year of twenty two. We put price increases on most of our products and we believe that the proprietary products that we sell will be able to hold those price increases.

And given a market of high commodity prices that farmers are able to afford those price increases and still see higher value in terms of returns per acre on the seeds that we sell them for their planting crops. 06:21 In addition, Double Team, our grass herbicide product that's in its really full first year of initiation.

So last year, we did sell some seed and we were sold out. But this year, we have a reasonable amount of seed to sell and we have seen very, very favorable results in the field.

And what I mean by that is, when you look at sorghum grain, sorghum field that has been sprayed with our Double Team product over the top of the sorghum, two things you'll notice, number one, the weeds are under control. There basically are no weeds, grass weeds in the field and the sorghum looks excellent, right.

There's not browning on the leaves, there's not any dead plants for sure, and so we're very, very optimistic that the product really does perform well in the field. 07:19 The last step, of course, is now that we're in harvest in the Western Corn Belt of the U.S. so that would be the Mississippi River west to the Rocky Mountains.

We're seeing farmers harvest their fields and we're starting to get back information on yields, right, because in the end, the crop can look very good, the herbicide performance can be very good and the weeds are non-existent, but the farmer must get a good yield and so we're in the process of verifying that with real data from the farmers that purchased and planted our seed in the spring of twenty twenty one calendar year.

So, we're very, very optimistic about Double Team and very optimistic that the product once final data is in, will have performed well in the field and that sales for this fiscal year twenty twenty two will be excellent. 08:19 So, the last thing I wanted to talk a little bit about was stevia.

So as you all know, we announced the deal with Ingredion, the largest stevia seller in North America and the world. Right now, most of the production of stevia leaves comes from China. So in China, the leaf is an annual crop. So they plant in the spring and the crop is grown for one year and then harvested by hand.

And then that leaf is taken to an extraction plant and then the purification plant to get the final stevia product that is sold in the market. 09:02 The markets are growing pretty fast. It's a one point three billion dollar worldwide market, six million dollar to eight hundred million dollar in the U.S. So the U.S. is the biggest worldwide market.

And we and Ingredion have been working on a program to produce the stevia leaves in the United States.

And so, our breeding program is in the southeast of the United States, where the conditions of – where the plants growing are very similar to where the plant was originally discovered in South America, in Paraguay, very humid hot summers, which stevia plants like.

09:45 But our system of production based on our proprietary germplasm is a little bit different and our commercial agreements are a little bit different, so I just wanted to make sure that I gave enough details, so people would understand that. So, we basically harvest stevia for three years. Stevia is, by its nature a perennial crop.

So China does not take a full advantage of it being a perennial, but we leave it in the ground for three years. And we -- and our farmer customers have developed a machine that strips the stevia leaves, leaves off of the stevia plant and does not destroy the plant.

So it doesn't rip the plant out of the ground so the plant can produce stevia leaf again in the next year.

10:41 There's obviously some advantages on cost basis, you only have to plant every three years and the farmer also has a cover crop that is on his acre of production for three years and hopefully, someday there will be the ability to get some carbon credits for that part of the stevia production process.

But right now, the big goal is that we have convinced ourselves and Ingredion that we can produce stevia leaf in the U.S. at a competitive cost per pound that competes with China.

And that's a big if that the industry was always asking, what would be the cost of stevia leaf, if there wasn't a hand harvest, if it was a mechanical harvest and who will develop the technology to mechanically harvest the stevia also produce it at a competitive cost. And we have done that and that is the basis of our agreement with Ingredion.

11:53 On the commercial side though what everyone on the call should understand is, we buy the leaf from our farmers and we have a back-to-back supply agreement to sell that leaf to Ingredion. And so, we're not really a seed company.

We've sort of taken one step up the vertical ladder towards the customer and we now are the leaf seller to Ingredion who processes that leaf, extracts the stevianoids and then refines that and sells that to their customers in the beverage and food industries.

12:36 So it's a model that we call a closed-loop model, where basically our – we don't really sell our seed, we sort of rent it to our farmers, who sell back the stevia leaf under contract to us and they have to sell us all the leaf. They don't have the ability to sell to a third-party.

So we maintain control of our genetics and we give the farmer a profitable product to produce at a worldwide competitive cost. 13:06 So we're very excited about that agreement and there'll be more news as we continue to develop the markets in the U.S. But the end result will be that the stevia will be produced in the U.S.

at a competitive cost to China and that, as we've all learned with COVID, the supply chains will be shortened, Ingredion will gain a source of production, in addition to China-based in the U.S. and that U.S. production will supply the biggest stevia market, which in the world, which is the United States market.

13:46 So, we're very excited about the agreement. And as I said, there'll be more announcements as we continue to make progress with Ingredion, but that will be a big piece of our business going forward.

These closed-loop contracts where we're buying the raw material and then selling it to the refiner or user and we like that model, it makes us -- for a bigger addressable market for us. So it's not just the seed market, but in the case of stevia, it's the leaf market.

And we have other addressable markets that we're looking at where we think may closed-loop system will also increase our business and our ability to earn profits. 14:32 So, that's my update for the call today. Again, COVID is going to be with us for a full twenty twenty two-year is our assumption.

But even with those stressful wins on our business, margins look good, product performance with Double Team looks good in the field and stevia contract has finally been announced. We've been working on it for many, many years now and we're very excited about where stevia is going to be taking S&W in terms of new opportunities.

15:11 So with that, I'll turn the call over to Matt, who has got some details on the financials, and then I'll come back and just follow-up with some concluding remarks. Thanks again..

15:25 Thank you, Mark and thanks to everyone joining us on the call this morning. Starting with revenues. Core revenue, which excludes revenue to Pioneer, was sixty nine point eight million dollar for the year, an increase of seventeen percent compared to fifty nine point nine million dollar in the prior year.

Now keep in mind that we also delivered core revenue growth of fifty nine percent during fiscal twenty twenty. 15:49 Our financial performance in fiscal twenty twenty one was negatively impacted by the logistical challenges that were experienced widespread across the industry as a whole.

Limited availability of overseas containers and ongoing congestion at the ports has delayed shipments and complicated our ability to precisely forecast the timing of shipments in any particular quarter. We are certainly working hard to overcome these dynamics.

16:13 Now as Mark mentioned, we had five million dollar of sales orders that were expected to ship in Q4 of fiscal twenty twenty one that shifted into Q1 of fiscal twenty twenty two. And as of today, all five million dollars of these delayed orders have been successfully shipped in Q1.

16:30 Total revenue, which includes revenue to Pioneer, was eighty four million dollar for fiscal twenty one, compared to seventy nine point six million dollar in the prior year. And as we look to fiscal twenty twenty two, we expect core revenue and total revenue to be within a range of eighty to eighty five million dollar.

This estimate represents core revenue growth of approximately fifteen percent to twenty percent year-over-year. 16:54 I just want to stress that we want to be conservative on our revenue guidance given the ongoing logistical issues that are widespread across the globe.

I also want to clarify that core revenue and total revenue will be the same number in fiscal twenty twenty two, but we will still reference core revenue as long as we are comparing against twenty one numbers. 17:13 And lastly, the anticipated revenue growth in fiscal twenty two is coming primarily from our two key home markets, the U.S.

and Australia, as well as we're projecting growth in MENA as well. 17:25 Now turning to margins, adjusted gross margins, which excludes the impact of inventory write-downs were eighteen percent in twenty one compared to adjusted gross margins of twenty one point seven percent in twenty twenty.

The decrease in gross margins for twenty twenty one was primarily compressed – was compressed by gross margins in the Australian market, due to sales mix as we sold a higher concentration of lower margin forage cereal products.

17:52 Additionally, as we've talked about over the last several quarters, we experienced numerous logistical challenges due to the limited availability of trucks, congestion at the ports and overall rising costs for shipping and transportation. Clearly, this is a fluid situation.

But at this point, we do expect these logistical challenges to persist throughout twenty two and although, we're working really hard to mitigate the impact to our business. 18:19 Now, as we mentioned in our pre-release announcement in August, we are expecting gross margins in twenty two to show solid improvement over twenty one.

This improvement is expected to come primarily from the various initiatives we put in place, including the implementation of price increases on many of our products to address the overall rising costs, we're also modifying the terms and conditions of sales contracts to address the volatile and increasing cost of freight and transportation and we're focusing on other various operational efficiencies.

18:50 I also want to point out that our Q1 results which are just wrapping up now, will reflect meaningful improvements in gross margins versus twenty one and this is further validation of the various initiatives we are putting in place. 19:03 Now turning quickly to operating expenses.

Our GAAP operating expenses for twenty one were thirty three point nine million dollar compared to thirty three point seven million dollar in twenty twenty.

I do want to highlight that we recorded a non-recurring gain of approximately one point nine million dollar on the sale of certain property and equipment as we sold certain assets in California to consolidate production facilities, increase operational efficiencies and position us for longer term cost savings.

19:31 Now if we exclude the non-recurring gain, operating expenses increased two point one million dollar from the prior year and this was driven by incremental investments in R&D of one point two million dollar, a five hundred thousand increase in SG&A due to the annualization of our Pasture Genetics acquisition and the remainder of the increase was non-cash depreciation and amortization expense.

We are clearly focused on holding operating expenses and growing the revenue and margin line to demonstrate the operating leverage of our business. 20:01 Now as we move into fiscal twenty two, I'd like to provide guidance for operating expenses. We project full year twenty two operating expenses as follows.

SG&A to be approximately twenty five point five million dollar, which includes non-cash stock-based compensation of approximately two million dollar, research and development to be approximately eight million dollar, and depreciation and amortization to be approximately six million dollar.

As you can see, we're dedicated to the leverage of the business model in fiscal twenty two. 20:32 Now moving to EBITDA. We had negative EBITDA of thirteen point one million dollar for the current year compared to negative EBITDA of nine point seven million dollar in the prior year.

Twenty one was impacted by the timing shift of product revenues to the twenty two, due to the supply chain issues we mentioned and overruns on costs associated with the logistical challenges we've been facing.

As we leverage our infrastructure and deliver core revenue growth, our goal continues to be driving towards positive EBITDA contribution over the coming periods.

21:04 So given the impact to revenues and gross margins, primarily from the logistical challenges in twenty twenty one, we did fall short of our adjusted EBITDA and cash flow targets for twenty one.

And as a result, we worked with our lenders and entered into various amendments and waivers with them, to address the non-compliance with covenants at June thirty, and also more importantly, provide us further flexibility in the coming periods.

21:26 We are also in the process of renewing our facility with our bank in Australia and pleased to report that we expect to expand the size of our credit facility there and extend the maturity date to September of twenty three. We are certainly grateful that our banking partners in both the U.S.

and Australia have worked with us and have been flexible as we navigate through these COVID-related logistical challenges. But this is clearly going to continue to be an area of focus for us in the coming periods. 21:51 So with that, I'll turn the call back over to Mark..

21:55 Thanks, Matt. And just reminding everybody, one or two key points. We're very excited about our stevia agreement with Ingredion. That's number one. Number two, the story we are seeing for twenty twenty two has improved gross profit margins over what we saw in twenty twenty one.

That's because we put in price increases that we think are fair to the farmer and we're doing cost control on our cost of goods.

22:28 In addition, of course, the success of Double Team, this first – big selling season plus the next few years in the future is adding to our gross profit margin as a percent because the trades are very profitable and add to our gross profit dollars.

So, we're looking for a good year in twenty twenty two even with COVID sort of casting difficult operating conditions on our business and other businesses around the world. And we appreciate everyone joining the call today. So thank you very much and everybody have a good day. Bye-bye now..

23:18 We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Sarkis Sherbetchyan from B. Riley Securities. You may go ahead..

24:02 Hi. Good morning and thank for taking my question here. Just wanted to start off with the annual guidance, right? If I look at the core eighty to million dollar to eighty five million dollar revenue guidance range, that includes five million dollars that slipped from the prior fiscal year into this year.

So I guess, if I subtract that, the real kind of sales number that you're expecting is between seventy five million dollars and eighty million dollars.

Maybe if you can break down how that guidance range for the top line relates to your prior to the pre-announcement guidance range of seventy million dollars to eighty one million dollar for core sales? And I have a follow-up..

24:43 Yes. So Sarkis, that is correct, what you state. But I think it's important for everyone to remember that on the other end of the fiscal year for twenty two, so that would be the fourth quarter, we are basically not projecting those sales that flops over from twenty one into twenty two, we are not projecting those sales to be in twenty two.

We are projecting those sales to be in twenty three, okay.

So the amount of seed that we feel, especially in alfalfa, that we can ship at the end of the twenty two fiscal year, we’re being very conservative and we're saying that, that those sales are going to be in the twenty three fiscal year and that's why the twenty two number is a bit lower than, I think some people expected.

25:43 There is a couple of reasons for that. One is obviously, COVID, and the difficulty we're having with shipping schedules that's mainly containerized shipments to the Middle East, because most of that -- the seed that we are not counting in twenty two that we move to twenty three is in fact alfalfa, non-dormant alfalfa.

But the other reason is we've been pulling non-dormant alfalfa inventories down. And we basically on the non-dormant side, we still have dormant alfalfa inventories.

But on the non-dormant side, we don't have any inventory left and we're going to be shipping out of new crop production mainly from Australia, right? Remember, as Matt said, we had some gains on sale of assets and that was one of our plants in California.

And so we're shipping our alfalfa out of our Nampa, Idaho plant, but we are – excuse me our Boise, Idaho plant, Boise and Nampa its right between them.

But we are not expecting that the new crop that comes off in Australia in sort of April, May is going to be – able to be cleaned on time and prepared on time in terms of coatings and blending and bagging to make with these additional shipping problems because, again, we're assuming COVID for the full twenty twenty two-year that we will not be able to ship those shipments that for the last three or four years were in sort of the current fiscal year that those will be pushed back one fiscal year into twenty twenty three.

And in fact, that's why the number is a little bit lower, I think, than most people are expecting from us..

27:51 Got it. And I guess is there any type of product line that maybe is underperforming relative to your prior expectations? I think in the pre-announcement, you mentioned a few potential delays on certifications for some products, et cetera.

Care to kind of delineate that? And then, as a kind of follow on or add on to that, what are you expecting Double Team sorghum as or contributes to fiscal twenty two sales? Can you maybe provide some numbers to the statements of it being essentially robust?.

28:25 Sure. So the Double Team sales, we are still, as I said in the pre-record, we're still waiting for final yield data on each crop, on the crops that the key farmers that we chose to buy our seed this year since we were sold out. We were very judicious on making sure good farmers who are, what we call bell cow farmers.

They're the ones that other farmers look to in their particular region that those good farmers or best farmers had access to the seed, purchase the seed from us, so that they could get a real feel for the performance of the product.

29:12 So it's hard right now to give you too much guidance, I think, in maybe the second quarter we will know more although in the U.S., we don't really start our sales booking season until December. And so that will be a tight sort of forecast.

But by the third quarter, we should really have a pretty strong view of what the Double Team sales are going to be for fiscal year twenty two. So I don't mean to kick the can down the road.

But the farmers have to – there is sort of show me kind of guys and you got to have yield on top of how good the crop looks in the field in terms of no weeds and no damage to the sorghum. You still got to have a yield and until we get that data in, which is coming in now through sort of October, it's hard to sort of forecast it. So, sorry about that.

30:08 And your first question again, Sarkis?.

30:11 It's -- aside from the Double Team sorghum, I was wondering if there are any other crop lines, which are potentially underperforming [indiscernible] a little bit lighter..

30:20 Yeah. The registrations are a problem as we've said before, because Saudi has sort of changed the rules and what used to take what’s kind of a desktop operation or a submission where you gather data from other customers’ experience and then submitted them to the Saudi’s or from our own R&D plots, it's a bit more complicated process now.

So that's moving ahead. But this is all in the spirit of trying to create a much more proprietary product line, especially in alfalfa.

And that is a goal because margins we believe in alfalfa are too thin, and we need to have more proprietary stickiness with the customer, so that we can hold prices in all markets and that our average gross profit margins will go up.

31:24 So that's really, I said in my comments, and I think Matt also echoed the comments, gross profit margins look in the first quarter pretty good. And we're still – the price increases that we put through and announced to our customer base won't really start hitting for another quarter or two.

Remember, those price increases are on new orders that are the bulk of the twenty twenty two fiscal year. The old orders that we’re still shipping out of twenty one bookings, those are at reduced prices. So, margins in the first quarter have rebounded that's a good thing.

And – but they will even get better as we go through the rest of twenty two because we've got price increases coming in both the U.S. and Australian markets. And as Matt said those are the two places that we expect in addition to the Middle East to have the most positive sales gains. 32:33 So hope that answered your question..

32:35 Okay. I'm going to hop back into the queue to allow others to ask questions. Thanks..

32:38 Sure. Thanks..

32:42 Our next question comes from Ben Klieve from Lake Street Capital Markets. You may go ahead..

32:50 All right. Thanks for taking my questions. First one regarding kind of the near-term outlook and the logistical headwinds that you're facing.

Can you help us understand the degree to which these logistical issues are impacting your ability to ramp inventory across your big products coming out of R&D, so the clones out of stevia, herbicide tolerance sorghum and IQ Alfalfa, are those plans on track or logistical issues impacting that?.

33:16 Yes. So great question, Ben. So, one thing that's nice about our business is while the seed is in development and testing, so that process that you describe where we're sorting through the genetic variation in a crop.

We do that with standard breeding techniques, but also we use molecular techniques to look at the DNA inside the breeding lines, all of that stuff is actually under our control, right? And it's small volumes. So there's never a truckload quantity until much later down the process when we're actually selling seed to our seed production growers.

34:00 So those things are not really very effective by COVID. So the fact that we have a product that when you plant it, it grows into the product you're going to sell. So we don't have any real issues with people supplying parts or chips or anything that we need like automobiles to keep our production line going.

We're in charge of our own production line and we have the product that grows into the product that we're going to sell to a farmer. So that's actually not a problem during COVID, the question you asked. 34:40 The problem is later, when we have large amounts of seed and I should know how many containers per year that we sell, but it's hundreds.

It’s at that point that we're sort of at the mercy of changing shipping schedules and stuff like that and port closures and reinfections of different populations around the world. Two of the ports in Australia are semi-closed right now. So, it's later on in the sales process as we bulk up to larger amounts of seed, that's when there is a problem.

But at the beginning, when we're in control of the seed and making decisions about breeding and development, that's pretty much not affected by COVID..

35:31 Got it. Okay. That's helpful. And I think you already answered this question, but I want to re-ask or I'm going to ask anyways. When you look at the kind of geographical and products, challenges that you're facing, which everybody is facing I totally get it.

Is it fair to say that the biggest challenges you're facing here are on the international side and specifically within alfalfa and that the maybe the domestic business, particularly sorghum is not facing as big of a challenge?.

36:05 I think that's fair. I mean, I'd say it a little bit differently. The international shipments, especially to the Middle East that are coming out of mainly Australia and some out of the U.S. are the major problem. Trucking in the U.S. is a bit of a problem. It's not like normal.

So we opened in twenty one, a couple more warehouse sales depots so that we could move product back towards the Mississippi River basically and have that available for farmers. That's one place where we had some additional expenses that we didn't budget for in twenty twenty one.

36:46 So, – but it's a trucking issue, right? It's not a container unloading issue. Those pictures that people see the ships in L.A., waiting or San Diego waiting to come into port and the crane operators running at half capacity because crane operators are sick or went to other jobs.

I mean, that problem obviously doesn't exist if you're working with trucking. But we do have some U.S. product that comes from overseas and that product is coming by ship and so that can be delayed. 37:26 But in general, yes, you're correct. It's mostly the container based international shipping.

In Australia, there's trucking issues also, and we're moving distribution of our products, both the production of them and the distribution of them, storage of them, back to the eastern part of Australia, which are where the markets are. So it's kind of the same philosophy that we've taken in the U.S.

as we – in the U.S., we want to be close as we can to the Western Corn Belt in terms of plants and office operations and sales operations. And we're following the same thing in Australia.

So we’re mitigate – we're moving a bit from the Adelaide area back east in Australia because Adelaide has really been the traditional alfalfa production area and we're moving back on a production basis. We leased the new plant back in the eastern part of Australia.

And we think that that's going to – allow us to be able to control our cost and cut our delivery times to Australian customers..

38:41 Got it. That's all helpful context. And I'll ask one more big picture question for the longer term and then I'll get back in queue. All these challenges that you're facing, I mean, I get it, I think everybody gets it, everybody is facing it.

But curious, the degree to which you see kind of these issues unfolding here in the context of your fiscal -- the kind of longer term outlook that you laid out for -- into fiscal twenty four and beyond, that you laid out last, I guess December when you provided on the tech update.

Is that kind of trajectory still in line through twenty four, or is these headwinds wins that you're facing caused you to revisit that at all?.

39:24 No, we think that trajectory is still in line. Obviously, it was a high growth, high profitability trajectory, but we still think those numbers are achievable both on a sales and margin basis. As I said, Double Team is performing super well, so that's a plus.

And the stevia deal with Ingredion, at the time that we -- did those forecasts, we obviously, were already talking to Ingredion, but now we have a much better deal for what the sales growth might be in our leaf sales, because remember we're selling leaf, not seed in that chase because it's a closed-loop deal.

40:13 We're thinking that certainly by the end of that timeframe that stevia will have a significant financial effect on the performance of S&W..

40:26 That’s all from me. Best of luck and based on all these logistical issues, I'll get back in queue..

40:31 Thank you, Ben..

40:36 [Operator Instructions] Our next question comes from Gerry Sweeney. You may go ahead..

40:45 Hey. Good morning, Mark and Matt. Thanks for taking my call..

40:48 Good morning, Gerry..

40:52 Mark, will you talk a little bit about the strategy in Double Team sorghum and part of that is licensing it to other larger players and distributors because of, obviously their access to the market.

How is that strategy playing out right now or is that still sort of linked to waiting to see how this -- the yields come back on this harvest for the Double Teams sorghum?.

41:14 Yes, it's a little too early to give you anything definitive but an excellent question. We're following as I've said before kind of the Monsanto strategy that carried them to super high profits in the two thousands.

We basically put these genes in our own seeds and sell those to farmers because they're so profitable and it drives proprietariness of our product line and share shift to us. It differentiates us certainly from the sorghum companies that are of our size. But also, we licensed those traits to other companies.

42:00 And the two target companies are Bayer and Corteva, who have respectively the DeKalb and Pioneer brands. They're probably between them forty five percent of the sorghum, grain sorghum sales market, which is our main target for Double Team. So they are significant and that's why your question is an excellent one and so on point.

42:25 And we're waiting for yield data. We're obviously speaking to both of those companies. We know them well.

They know us well, but they want to see also what the farmers experiences and then yield data is kind of the last hurdle to move through in terms of having people really understand that your trait gives protection and that the farmer has significant positive results.

42:57 And of course, as we see more years of results in the field and we get more acres of Double Team in the market, you'll begin to understand the benefits of the trade and we will have discussions about what is fair pricing and all of those kind of things for the farmer and we've been conservative on estimating what the benefits to the farmer are.

So we're hoping that as we learn more, we'll find out that the product actually performs better than what our forecast and estimates internally show..

43:39 Got it. And switching gears to the Ingredion.

What are the steps from, say, the agreement today to harvesting some of leaves?.

43:54 Sure. So, a little bit of background on the industry is probably appropriate. So the leaves production basically that supplies most of the world market is done in China and other countries in Asia, but mainly China for cost reasons.

And Ingredion purchased a company a year, year and a half ago, that basically the company was called PureCircle and they basically were in the leaf production and extraction business. And so the only large extraction plant for taking stevia out of leaf is in China.

And the only purification plant for then taking that material and processing it into the white powders that are sold to the food industry is, I think it's in Singapore or Malaysia. 44:49 And those are historical issues.

Right now, if you built new plants, you build them next to each other for logistics and cost reasons, that's what's going to happen in the future. But right now, the only big extraction plant is in China. It's hard to believe that given the sort of one billion dollar market size plus worldwide that that's the case, but that is in fact the case.

And so, our agreement is basically -- we grow into this very unique three year system that uses our proprietary germplasm and establishes the cost that's competitive with China.

But the only way to get real production information in terms of yields of final amounts of stevia is by taking your leaf to China and having the leaf go through that production plant, because there is no other production plant anywhere in the world.

And so that's what the first step of our agreement with Ingredion is to basically take our unique germplasm that's been produced with this clever three year production system and see what the real yields are.

46:07 We expect that the yields are going to be as we have predicted because we have good science and we know how to analyze stevia leaf and we break down our production and yields into about fifteen different roboticize or stevianoids and we follow each of them in all of our breeding lines.

And we have every expectation that out of the plant, you're going to see the kind of yields that we're projecting from our breathing materials.

46:39 But it's like everything else, you're not going to commit the two hundred and fifty million dollars to three hundred and fifty million dollars to build a new extraction and purification plant side by side, and those would be built in the U.S.

so that's where the new plants would be built until you get this verifying data of our leaf -- of our production -- research production data.

It's scale up, right? It's what ag always goes through, there are the scale up steps and this is the next one, and that's what this deal with Ingredion will get us through and then we're in discussions about where our plant would be built and how big it will be and all of those kind of things So that's in the future.

But yes, we're in the -- we're partners with the unique production in germplasm with the biggest stevia seller and there will be production in the U.S.

and the only question is how long and how big will that production be?.

47:42 Got it. I appreciate it. That's it for me. Thanks..

47:46 Yeah. Thanks, Gerry..

47:50 Our next question comes from Jonathon Fite of KMF Investments. You may go ahead..

47:56 Good morning, Mark. Good morning, Matt. Thanks for your time today. I appreciate the updates..

47:58 Yes. Sure, Jonathon..

48:02 I had a couple of follow-up questions. It's good to hear the discussions with both the U.S.

and Australian banks are going well, but given your prognosis for some degree of cash burn over the next couple of quarters as you guys kind of get to EBITDA breakeven and just looking at the June balance sheet with a couple of million dollars on hand? Just wondering about the progression of accounts receivable collection, inventory conversion and kind of where kind of cash stands today and cash – how you're looking at cash management over the next couple of quarters?.

48:38 Yes. Sure. Great question. And when a company has EBITDA losses like S&W has, it’s always a fair question and it’s one that the investors should ask. So, we obviously understand that the balance sheet is what powers the income statement.

And that's kind of what entrepreneurs do understand that maybe when you're in a bigger company and you can just call treasury to come up with more funds, you don't understand that. But in a small company, you do understand that.

49:16 So we've been pretty good at creating opportunities whether they be through sales of assets or new deals that generate cash that is non-dilutive, so we don't sell shares to the other party to generate that cash. And obviously, we are working on some of those things.

And if we can't raise enough cash through those means, we expect more towards the end of the year that potentially there'll be small sales of equity to make sure that we do have enough working capital to continue the operations of the company..

50:00 Okay. We'll look forward to those updates. I appreciate that..

50:04 Thanks..

50:05 Thank you..

50:09 Our next question is a follow-up from Sarkis Sherbetchyan from B. Riley Securities. You may go ahead..

50:17 Hey. Thank you for taking the follow-up. Just a real quick one. I think we talked about gross margin in the prepared remarks and the Q&A session. I suppose qualitatively, it's going to be good.

Can you frame a number around that? It sounds like 1Q is going to benefit from five million dollar incremental that's slipped in from the prior quarter, but I guess either for the annual period or the cadence of margins.

Can you guys just kind of frame a number to those?.

50:46 Yeah.

So Matt, maybe you want to try to answer Sarkis question, please?.

50:51 Yeah. Sarkis as Mark mentioned, we certainly are seeing a nice improvement in Q1 gross margins.

And as a reminder to all, Q1 is primarily a non-dormant alfalfa quarter, which historically has carried thinner margins, but we're really encouraged for -- results are still fine or not the preliminary and we have shipments coming down to the line here over the next couple of days, but margins in Q1 will probably be up for eight percentage points year-over-year for Q1, which is obviously a nice improvement and we're really encouraged by that.

And Mark talked about we're still sort of in the early innings of the various initiatives that we're putting in place to expand gross margins in twenty two and future periods.

51:36 But as we look out for the full year, I mean I think it's mid twenty’s, twenty five percent range gross margins, which again is probably close to eight percentage point improvement year-over-year is what we're expecting.

And we're excited about the launching Double Team and as we move more and more products to a proprietary nature, that certainly is providing the runway to expand margins and get to those gross margin targets that we talked about in our three and five and ten year plan..

52:11 Okay. That's all for me. Thank you..

52:17 This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks..

52:24 Thanks very much. And I want to just thank everyone for being on the call today. The messages I'd just like to leave everybody with is that twenty two is also going to be another good year in terms of growth, but a better year in terms of margins.

As Matt laid out, potentially eight percent improvement in actual margins, gross profit margins for the twenty twenty two year over twenty twenty one. Double Team is looking really, really good and as we gather more yield information, we'll be updating investors on our view of how those sales and margins are looking.

53:05 And again, stevia to remember, it's a bigger addressable market for us. It's moving up towards the customer and supplying a raw material to people who then like Ingredion make it into a product that they sell to consumers into manufacturers. So we're excited about all those changes. It's been hard earned over the four years that I've been here.

Team has really done a great job and yes, we had a little hiccup in twenty twenty one. And I think COVID has sort of kicked us and we've learned how to manage the business a little bit better as we should when the business is under stress. And so we're looking forward to a good twenty twenty two.

So thanks again, everybody and thanks for being on the call. Bye-bye..

54:05 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..