S&W Seed Company (NASDAQ:SANW) Q4 2019 Earnings Conference Call - Final Transcript

Sep 18, 2019 • 11:00 am ET

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S&W Seed Company (NASDAQ:SANW) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Analyst
Sarkis Sherbetchyan

P&L.

Executive
Mark Wong

Yeah. Sarkis, the license revenue was all recorded in 2019. We will be generating revenues for sale of seed to Pioneer in the 2020 and 2021 range. We're thinking that revenue will be roughly $22 million in 2020 with high sort of, say, 27% to 28% gross margins. So as we deliver seed to them basically from now through February of 2021, we'll be generating revenues, pretty much consistent with our historical margin profile of the Pioneer.

Analyst
Sarkis Sherbetchyan

Okay.

Executive
Matthew K. Szot

Does that address your question?

Analyst
Sarkis Sherbetchyan

Yeah. So the balance would be treated more like a product sale, and what we just saw was a license sale. Is that correct?

Executive
Matthew K. Szot

That's correct. That's correct.

Analyst
Sarkis Sherbetchyan

Okay, okay. And that's going to kind of be in line with the inventory to cash schedule that was previously disclosed in an 8-K?

Executive
Matthew K. Szot

That's right, Sarkis.

Analyst
Sarkis Sherbetchyan

Good. And then, just finally here, I know in the prepared remarks you mentioned that some of the transactions kind of created disconnect between the business's operating expenses and revenues, right? And so, even with kind of the product sales that flow in for fiscal '20 to Pioneer, you're kind of guiding to negative EBITDA here. What's the magnitude of the EBITDA loss? Is it a low single-digit EBITDA loss? Just kind of help us understand what we should be thinking.

Executive
Matthew K. Szot

Yeah, without any acquisitions, Sarkis, and this is certainly the short-term churn, but we're thinking that our EBITDA loss will probably be in the $6 million to $8 million range based on the revenue guidance we've given. And obviously we're working hard to close that gap quickly, acquisitions will help. And as I mentioned in our prepared remarks, the 2021 period, just from an organic base, is a period of time when we think that these operations will flip back to positive EBITDA.

Analyst
Sarkis Sherbetchyan

Great. That's all for me, I'll hop back in the queue.

Executive
Mark Wong

Yeah. Sarkis, let me add to what Matt said about the relative -- really I think you're question is relative weight of expenses versus sales. I mean, we moved all of those sales to Pioneer basically into 2019 were flipped in as Matt described, the remaining inventory sales in '20 and '21. As seed company, you always are looking to cut expenses when you lose sales like that, but breeding programs are very difficult to start, stop and then restart. And so, there is -- to maintain consistency and to have a product pipeline that is going to generate really competitive products in the marketplace that we can win share with, you've got to grit your teeth and buckle it up and keep spending that money in the short-term to have products in the intermediate term, and we understand that, that can be a bit distressing to some investors if they are not looking far enough ahead, but that's how the seed business works.

And I've had 40 years of experience. I've tried cutting expenses too deep and suffered the consequences. So we're cognizant of the