Q3 2024 S&W Seed Co Earnings Call

Participants

Mark Herrmann; President, Chief Executive Officer; S&W Seed Co

Vanessa Baughman; Chief Financial Officer, Corporate Secretary; S&W Seed Co

Robert Blum; IR; Lytham Partners LLC

Ben Klieve; Analyst; Lake Street Capital LLC

Kurt Caramanidis; Analyst; Carl M. Hennig, Inc.

Presentation

Operator

Good day and welcome to the S&W Seed Company third quarter fiscal year 2024 financial results conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum

All right. Thank you very much and thank you all for joining us today to discuss S&W Seed Company's third quarter fiscal year 2024 financial results for the quarter ended March 31, 2024. With us on the call representing the company today are Mark Herrmann, Chief Executive Officer, and Vanessa Baughman, the company's Chief Financial Officer.
At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If you're dialed into the call through the traditional teleconference line, as the operator indicated, please press star then one to ask a question. If you are listening through the webcast portal and would like to ask a question you can submit your questions through the ask-a-question feature in the webcast player, and we'll do our best to get to as many questions as possible.
Before we begin with the 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 27-A of the Securities Act of 1933 as amended and Section 21-E 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 plan, will or should, expected, anticipate, 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, 2023, and other filings subsequently made by the company with the Securities and Exchange Commission.
In addition to supplement S&W's financial results reported in accordance with US Generally Accepted Accounting Principles or GAAP, S&W will discuss adjusted EBITDA on this call.
This non-GAAP financial measure is not meant to be considered in isolation or as a substitute of the comparable GAAP measure and is not prepared under any comprehensive set of accounting principles or rules. A description of adjusted EBITDA and reconciliations of the historical adjusted EBITDA to net loss are included at the end of S&W's earnings release issued earlier today, which has been posted on the Investor Relations page of S&W's website.
An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page. With that said, let me turn the call over to Mark Herman, Chief Executive Officer for S&W Seed Company. Mark, please proceed.

Mark Herrmann

Thank you, Robert, and good morning to all of you. I'm excited to be speaking to you today. To set the agenda for this call this morning, let me first provide a high-level overview of the progress we have made during the past quarter, including the commercialization of Double Team, which has gone exceedingly well to date, with the technology expected to be on more than 10% of all green sorghum acres in the United States this year.
I will also talk about our technology pipeline with the new traits that are being launched over the next year to drive incremental growth. I will expand on the disruptions we've talked about in the Middle East, which are impacting our operations there and how we have largely mitigated the impact of these disruptions as it relates to our adjusted EBITDA guidance for the year.
Finally, I will provide an update on our vision biofuels oilseeds, VBO joint venture, and some of the activities taking place there. Vanessa will then run through the financial results in detail, including our guidance for the rest of the year. We will then close the session with any questions that you might have. So let's start with Double Team.
As mentioned, moments ago, the commercial launch of Double Team has gone exceedingly well with expectations for the proprietary high-value sorghum trait technology to be planted on more than 10% of all acres in United States in 2024. This is approximately double of what was planted just last year. As mentioned in the press release, we are maintaining our guidance for Double Team growth for fiscal 2024, with revenue expected to be at $11.5 million to $14 million, representing an increase of 77% to 115% compared to fiscal 2023 for the product line.
We expect incremental stair-step adoption over the coming years with a goal of 25% market share by 2027. We will look to provide more formal going forward guidance on our year end call. However, it's fair to assume that this growth puts Double Team as one of the fastest growing trait technologies on the market today.
The reason for this rapid growth to date and why we are so confident in the future market share gains is that until S&W's development in sorghum technology, sorghum has been without significant research investments to successfully support step change development to improve the crop productivity.
As farmers are increasingly recognizing the value of new management tools, corresponding risk reduction and yield enhancement through controlling grasses and more robust crop grazing safety technologies, these superior traits are expected to drive greater numbers of sorghum acres planted in the future.
As I touched in detail, on during our last call, in numerous field trials, Double Team has proved to deliver increased yields with reduced risk of crop failure to growers, providing them with high levels of satisfaction. Sorghum is a great crop to meet current worldwide trends and that it is uniquely equipped to handle higher temperatures, drier climates better than many other crops, contributing to sustainability and food security.
To date, Double Team has only been available on grain sorghum crops, as you hopefully saw from our press release last week, we have now launched Double Team into the forage sorghum market as well. We are expecting about $500,000 in DT forage sorghum sales in its introductory year this year with expectations for similar step change growth in the coming years, much as we have seen and experienced in the grain sorghum market with DT.
Beyond Double Team, which gives grain sorghum growers and over the top non-GMO grassy weed control option, we are expanding our focus on sorghum through the pilot launch of our Prussic Acid Free Trait this year. Prussic Acid Free sorghum is designed to remove naturally toxic metabolite stressed sorghum for safe, worry-free grazing and hay.
We expect a commercial launch in 2025. We will then look to stack Double Team and Prussic Acid Free Trait, which is expected to be commercially available in 2028. I am sure it goes without saying, but beyond the strong return on investment, these traits provide growers, they also provide a significant return for S&W and its shareholders as well.
Double Team gross margins are currently around 60%, which we expect will increase in the future due to efficiencies and the ability to supply. We are beginning to recognize the benefits this year with year to date margins of 29.2% compared to 23.2% in the previous year. As total revenue in the future continues to shift more towards our robust sorghum technology portfolio, including product line extensions and new technology offers are over our next year, we expect to see continued margin expansion and profitability.
High-value trait technology solutions will be the key driver to S&W long term success. And it is clear that we are becoming the key technology provider at sorghum. As I mentioned a moment ago, Double Team continues to be on track for expectations that we provided at the beginning of the year. The same can be said for our broader Americas business as well, which of course, includes Double Team, but also our conventional sorghum products as well as alfalfa.
As a whole, for fiscal 2024, we are reaffirming our Americas combined revenue expectations to be in range of $32 million to $33 million. Beyond the fact that we are hitting the revenue expectations in Americas, we have enacted a number of initiatives to improve efficiencies, including improved life-cycle management, increasing inventory utilization, reducing product skews and obsolescence costs.
We are also implementing the rationalization of certain low-margin forage product lines and seed treatments, suspension of our stevia development program costs and an overall seed manufacturing cost reduction plan. I am pleased with the progress the team is making in the Americas and look forward to the continued positive momentum in the years to come.
Let's now transition to our international operations. As we talked about last quarter on the conference call, there are a number of headwinds in the markets that we operate within, particularly in the Middle East, Northern Africa, MENA region that are impacting us directly. And unfortunately, they've gotten worse since our call in February.
The key disruptions that have centered around expanding conflicts in the MENA region, in particular, the war in Ukraine, the Sudan Civil War, two key results have occurred. The first has been the transition of many alfalfa growers in the MENA region to plant weed this upcoming season, which have caused disruptions to normal farming operations and seed distribution channels.
The second is that the Department of Ministry in the Saudi Arabia market has recently discontinued their approval of import permits for all forges, which includes alfalfa and all grasses as a means of water conservation. Combined, we expect to see an impact of approximately $6 million to $7 million in revenue from our previous stated guidance. This decrease is within our mid margin alfalfa products and will affect both volume and pricing expectations on a go-forward basis globally for the remainder of fiscal 2024.
Also, as we have signaled in our previous earnings call, we have seen a shortage in supply within our Australia pasture products, which has limited our ability to meet demand in Australia. This will result in a $3 million to $4 million revenue reduction in the third and fourth quarters of fiscal 2024 with in our low margin pasture products. So all told, we see a $9 million to $11 million revenue impact to our international operations.
That said, and as Vanessa will discuss in detail. despite the revenue impact, we are only making slight adjustments to our overall adjusted EBITDA guidance. In fact, the midpoint of our new adjusted EBITDA guidance is still within range of guidance we provided at the beginning of the fiscal year. As we have introduced in previous calls, we have identified and pursued several actions in Australia to prove it to improve margins.
Terminating business projects that have development costs or OpEx costs with low prospect to contribute solid margins and EBITDA in the near future as well as numerous efficiency measures with facility streamlining such as the closure of the Winfield facility, consolidating activities into alternative S&W facility.
So while we're frustrated with the disruptions, I am pleased we have operated at a high level across the rest of the organization, having implemented a number of initiatives that have helped to largely mitigate the shortfall.
Now transitioning to a couple of quick updates since our last call regards to our vision bio energy oilseeds business, VBO, the partnership with Shell for biofuels. VBO recently signed an exclusive license for glufosinate resistant Camelina trait, which its research team is moving all efforts to integrate into high-value germplasm and hybrids for commercial use.
Glufosinate is a broad-spectrum herbicide that when utilized with resistant crops provides an effective over the top weed control system. All of VBO development efforts will now pivot to fast-tracking this high value trait into leading products to offer growers. Currently, VBO will be putting out pre-commercial demonstration blocks to highlight the technology value with growers in 2024 and '25.
Move to commercial launch for limited trials fall of 2025, and then wide scale plannings in 2026. With this significant technology advancement, VBO has decided not to expand commercial or conventional Camelina to focus on launching this breakthrough [impossinate] resistant Camelina technology trait.
Further, VBO has a technology pipeline in development to continue to advance high value products, which will contribute to biofuels for the future. Beyond the development progress made within VBO, we successfully achieved our stated objectives required of S&W for our part of the partnership and received a $6 million payment from Shell in February 2024 helping to bolster our balance sheet.
Speaking of partnerships and balance sheets, as I introduced earlier, streamlining efforts in Australia, we have made the decision to sell off the remaining portion of our Australia partnership with Trigall Genetics, a weed development partnership. Since the beginning of January, we have received a total of $1.4 million in consideration as well as a significant reduction in research and OpEx expense that will start being recognized immediately.
With that, let me turn the call to Vanessa to review the financials. I will then look to quickly update things and take your questions. Vanessa?

Vanessa Baughman

Thanks, Mark. Good morning to everyone on the call today. Let me run through the details of the quarter starting with revenue. Total revenue for Q3 2024 was $18.3 million compared to $17.7 million in Q3 of last year. Breaking it down further, sorghum sales were $8.3 million versus $7.7 million last year, an improvement of $600,000. Of this, Double Team was $3.4 million versus $3.8 million in Q3 of a year ago, a decrease of 10% or $400,000.
International forward sales were $6.9 million compared to $7.7 million in Q3 of last year. A decrease of $800,000. And in the Americas, forage sales were $2.8 million compared to $2 million in Q3 of last year, an increase of $800,000. Looking at it geographically, we saw $400,000 increase in total US sorghum sales in Q3 year over year, with Double Team down approximately $400,000.
This downside of $400,000 was offset by an increase in Non-DT sorghum products of approximately $800,000. This is due to the timing of the mix of products shipped in Q3 with Double Team product shipped in earlier quarters in fiscal 2024 versus fiscal year 2023. The Americas also had a $1 million increase in non-dormant alfalfa in Q3 year over year. This was primarily due to the timing of shipments in the later quarters of fiscal 2024 versus fiscal year 2023.
Also, we saw a $400,000 decrease in MENA for the reasons Mark discussed earlier. We had a $600,000 decrease in Australia forged cereals and pasture products due to the shortage in supply. And finally, we had a $200,000 increase in Asia. Again, the key point here is that margin growth is attributable to Double Team sorghum revenue being up year to date, which is offset by the macro drivers impacting MENA in our Australia operations.
Due to the dynamics in the MENA region that Mark discussed, potentially impacting international alfalfa operations, we currently expect fiscal year 2024 revenue to be in the range of $67 million to $70 million. This is a change from our previous guidance, which was $76 million to $82 million. As Mark discussed, we remain on track in our Americas business, which includes our Double Team sorghum.
The change in guidance is entirely on the international side of our operations, where we expect to see an impact of approximately $6 million to $7 million in revenue from our previously stated guidance as a result of the geopolitical activities worsening in the MENA region and that $3 million to $4 million impact within our Australia pasture products.
Breaking the guidance down further, we expect sorghum related revenue to continue to be between $22 million and $23 million in total compared to $18.5 million in fiscal 2023. Within sorghum, we anticipate Double Team to still be within $11.5 million to $14 million, which is an increase of 77% to 115% compared to fiscal 2023.
On the US forge operations side, we continue to see revenue of about $9 million compared to $10.8 million from last year. And adjusting for the aforementioned change within our international operations, we are expecting revenue to be between $35 million and $37 million compared to $43.6 million in fiscal 2023.
Now turning to margins. GAAP gross margins for the third quarter of fiscal 2024 were 27.4% compared to 25.1% in the third quarter of fiscal 2023. The improvement in gross profit margin was primarily driven by an improvement related to Australian receivables for contracts denominated in USD, coupled with cost savings and production that improves storage margins.
This was offset by inventory write-offs of dormant alfalfa as well as a slight increase in sorghum margins due to a Double Team decrease in volumes sold. And finally, a decrease in non-dormant alfalfa margins in Australia's domestic market. Year to date, gross margins are 29.2% compared to 23.2% from fiscal 2023. Looking to fiscal 2024 as a whole, we continue to expect gross margins to be between 24% and 26%. Recall, this compares to 19.8% from fiscal 2023.
Now we'll transition to operating expenses. GAAP operating expenses for the third quarter were $7.7 million, which is consistent with the first and second quarters of this year and an improvement compared to $8.3 million in last year's third quarter.
Breaking it down a bit, we saw a $300,000 improvement from research and development expenses and a $300,000 improvement in selling general and administrative expense. Consistent with our expectations provided last quarter, we continue to believe total operating expenses for the fiscal year to be at $32.5 million, which is inclusive of depreciation and amortization.
Now to EBITDA. Adjusted EBITDA for Q3 2024 was a negative $1.2 million compared to adjusted EBITDA of negative $0.4 million in Q3 fiscal 2023. A full reconciliation is available in the press release. Again, as Mark mentioned, despite the change to our revenue guidance for this year, we are making modest changes to our adjusted EBITDA guide as much of the revenue impact was within our lower to mid margin product.
With the improvements in operations in both the US and Australia and OpEx costs, this has allowed us to mitigate much of the impact towards our expectations.
To reiterate our adjusted EBITDA guidance, we are now expecting fiscal 2024 to be in the range of negative $6 million to negative $8.5 million. This compared to our earlier range of negative $4 million to negative $7.5 million. All told, even at the low end of our current range, this would still be an improvement compared to last year's adjusted EBITDA of negative $9.3 million as we continue to drive organizational efficiency.
Finally, on the net income line, our GAAP net loss for Q3 fiscal 2024 was negative $5.5 million or negative $0.13 per basic and diluted share compared to GAAP net income of $32.1 million, or $0.74 per basic and diluted share in Q3 of last fiscal year.
Please recall that we generated $38.3 million in income from last year's third quarter due to the sale of our business interest as part of the VBO transaction. And as discussed in previous calls, we will incur a loss equity method due to our interest in VBO. With Q3 that amounted to $1.8 million year to date. This is a non-cash expense for S&W. We have provided a reconciliation in our press release, not only for adjusted EBITDA, but also for non-GAAP adjusted net losses.
As we've discussed last quarter as mentioned in the press release, we received a $6 million payment from Shell in February of 2024. We also received a combined payment from our Trigall JV of $1.4 million. Despite our negative adjusted EBITDA expectation, which translates rather closely to our cash utilization, the payment from Shell and Trigall are expected to cover any operating cash needs for this year.
Beyond fiscal 2024, if we are able to continue the growth in our sorghum technology portfolio and achieve the benefits of the stability and cost containment initiatives across the remaining parts of the organization, it is our thought that we will be near a positive cash flow position in the near future. Again, I'm happy to follow up with any of the details we went through if you should have additional questions. With that, let me turn the call back over to Mark.

Mark Herrmann

Thank you, Vanessa. Couple of quick recaps before we turn it over to your questions. First, our high value high margin Double Team sorghum trait technology solution remains on track to achieve the rapid growth and adoption we expected at the beginning of the year. Since its introduction just about three years ago, it is expected to be on 10% of grain sorghum acres this year.
Second, with the launch of our Double Team forage solution this year, coupled with the introduction of our second key sorghum trait next year, Prussic Acid Free, we are becoming the leader on sorghum technologies. Gross margins have improved substantially during the fiscal year, and we have built on the progress made last year to reduce operating expenses.
As DT continues to grow, we believe the margin profile of S&W continues to improve. While Double Team and our broader Americas operations continue to meet and exceed many of the operational metrics we have set forth for them, we are experienced the impact of the disruptions in the MENA region from the various geopolitical issues. Despite the impact to our revenue, we have largely mitigated the impact to our adjusted EBITDA expectations for the year.
That said, we understand the need to get to profitability in the near term and will ensure the organization is appropriately positioned to achieve that goal. As always, I am appreciative of the continued interest in S&W. And with that said, I look forward to taking your questions.

Question and Answer Session

Operator

(Operator Instructions) Ben Klieve, Lake Street Capital Markets.

Ben Klieve

All right. Thanks for taking my questions. First, a couple on the Double Team. You've talked a lot about the immediate, midterm initiatives throughout this platform between 25% market share in grain sorghum, plus a couple of novel products coming in behind it in the forward market and Prussic Free.
I'm wondering if you can talk about the degree to which you think you will need to invest in OpEx in support of growth coming out of this portfolio over the next few years?

Mark Herrmann

Hey, good morning, Ben. Appreciate you joining this morning and in your question. I think that's a great point to look at and the ability for us to expand without significant OpEx increase is really driven by our combined brand as well as licensed approach. So right now, in the US, we've got 10% market share. We've also now signed on 15 independent seed companies that are also offering a private label offering of DT through their brands.
As you know, I ran the licensing business for Montana, the Corn States business, and it's a very efficient process, particularly when you have a breakthrough technology that really high benefits come from fast penetration rates. So these 15 brands are really managed and serviced by our current commercial leadership with about three people with direct involvement and then just support in the field through the current sales organization that we have.
But, between sorghum partners brand and the market positioning aggressively sorghum partner hybrids as well as DT, the other 15 brands in the marketplace can help us accelerate this very quickly.
And I'd add as well as we look at global markets, our main approach is working with market leaders, preferably global companies that already have a high presence, high share, strong germplasm pool in those markets of Mexico, Brazil, Argentina and Australia, and then through license agreements with those companies, they carry our technology to the marketplace, report sales and pay us a royalty based on acre or hector based on our evaluations of that the trade brings.
The ones that we'll be working with in the near future, our DT. and then DT-2 comes, which will allow for earlier spraying of grass weeds in the sorghum growth cycle. Then it is PAS and then we'll have DT and PAF stacked, which will bring additive value and won't force farmers to choose between two very valuable options of being able to apply herbicides to control grass as well as the option to use a PAF to where they can harvest and quickly put livestock into the field without the concern of Prussic Acid in livestock safety.
So we really believe part of our advantage being focused on a technology platform will be able to expand across all key sort of markets with very limited OpEx and CapEx as we go forward.

Ben Klieve

Great. That's good to hear. The scalability you think is coming kind of on this brand. On another Double Team question in the very immediate term. But by my count, you guys are roughly $7.5 million a Double Team revenue year to date through the third quarter.
Well, on your way to your guide. 'm wondering if you can talk about the big variables that would drive the lower end versus the high end of your revenue guidance for this product in fiscal '24?

Mark Herrmann

Yeah, I'd say the biggest risk we have, particularly since we're just in the US markets, will be as the year unfolds, commodity markets change. Will the 6.5 million acres of sorghum go up or down based on market conditions and cropping conditions? We believe that DT helps increase the interest in sorghum as it gives farmers tools to control grassy weeds, which were up yield that they didn't have before.
But I would say that's our biggest, that's probably the biggest risk factor. And unfortunately, as we're just entering the planting season and the planting season will be very active, really right through our year end of the end of June and into early July, it's a hard call with our year end being the end of June.
We'll be right at the tail end of the season as we're trying to assess and accrue for things such as returns in actual planting piece, but that would be the number one risk to the business.

Ben Klieve

Got it. Very helpful. Pivoting to the international dynamics, which all of these issues that you outlined are very much understandable. I'm wondering if you can help us frame full year contributions maybe in fiscal '23 that came from these markets that you're seeing significant pressure?
I'm just trying to understand, looking forward, how big of a revenue bucket all of these issues represent. I appreciate your update to the guidance, but I'm wondering on a full year basis going forward the magnitude of all these issues.

Mark Herrmann

Are you asking us the magnitude for 2024, Ben, or looking on towards the '25 and beyond?

Ben Klieve

No. Yeah, I'm more looking '25 and beyond. You guys gave very helpful guidance this year, which helps frame the immediate term. But I'm wondering more on a full year basis going forward -- because your updated guidance is only going to be for less than for a fraction of a full year.
So I'm just wondering if you can give me some kind of general framework for the magnitude on a full year level that all of these international challenges represent in some way?

Mark Herrmann

Yes. So I would say, and I hate to say it as a worst case. But I would almost say this year is a picture of either a worst case or a steady state, right? So if we don't see the Middle East MENA market return, which has been really very consistent marketplace for non-dormant alfalfa for probably the last five years. If we see it stay with the current conditions in really all three, Saudi Arabia, Sudan as well as Egypt and the Middle East.
I mean, they're pretty key customers, but I would say that this year captures the majority of all ongoing risk, right? And as we're building out our plans for the next year, we're trying to be very, very realistic. Last year, if you remember that the budgets were pretty well finished by the time I and Vanessa were involved.
But as we're working with the teams to assess, we're not trying to build in any wild optimism that there are no challenges in the MENA market going into next year. Now we felt like we had built some of the downside, particularly Sudan into this year's number, but unfortunately, it expanded and then the latest position of easing blocking import options orders we had on the books to be delivered to Saudi Arabia, we basically, in our numbers we communicated now, taking those completely out.
So I believe we've tried to build a realistic deliverable. Hopefully there aren't any other expanding surprises as we look at that marketplace.

Ben Klieve

Okay. That's helpful. And then one more for me on the Trigall Genetics. I want to make sure I understand, you said you received $1.4 million to date from exiting this plus a reduction in OpEx. I'm wondering if you can, one, comment on -- if you have a sense of that $1.4 million of cash received is going to grow here in coming weeks and months? And then, two, talk about the OpEx that was dedicated to this initiative that that's being removed from the model?

Mark Herrmann

Yeah. So the $1.4 million is the complete exit with the 20%. So we're no longer a part of the JV at all within Trigall. And then the savings for the remainder of this year is $200,000 in OpEx. And then there would have been ongoing annual costs to support losses through expenses in both research and other up OpEx pieces that the Trigall JV were accumulating, right?
And there'd been a change in strategy scope of the business. And as we evaluate it for our continued involvement, it clearly was the best decision as we really work to focus in on some areas we see as very high margin, very high demand.
We've got a deep portfolio of high margin products to move into the marketplace and really focus on our growth in our profitable engine, right? So it will be another step of taking costs out. And I'd actually use the Trigall example, just an example as we're evaluating the international Australia business.
Anything that we're evaluating that isn't contributing positive margins that contribute to take EBIT drivers, we're taking a hard look at what expenses are happening within those either product lines or business entities and deciding to move aggressively to streamline expenses.

Ben Klieve

Got it. Thank for explaining it.

Mark Herrmann

Another example would be, we bought company that had some manufacturing sites relatively close together. So we've completed the first step of several of the Winfield facility, which was within 30 minutes of the Penfield facility, which we closed. The Winfield facility, we had a exit expense with buying out a lease, but the annual savings, both in some personnel savings as we consolidated those activities into the Penfield facility, which like I say, is only 30 minutes away we move forward.
So we've still got several initiatives such as yet to really work to tried to drive the Australia domestic business to a positive EBIT as well as cash generating business, which being the product lines are lower margin is a key effort that we need to make.

Ben Klieve

Very good. Well, I appreciate your efforts there, and thanks for taking my questions. I'll get back in queue.

Mark Herrmann

Thanks a lot, Ben, thanks again.

Operator

Kurt Caramanidis, Carl M Hennig Inc.

Kurt Caramanidis

Thanks for taking my questions. Did you say you're going to have a glufosinate ready Camelina for '26?

Mark Herrmann

Yeah. For '26, the research team with VBO has already acquired the exclusive license and the research team is aggressively working to move it from germplasm that is currently into a lead germplasm and lead hybrids. So this year, actually there will be demonstrations. This coming fall to demonstrate to farmers into the market the value of broad-spectrum post weed control program on our resistant Camelina crop.
And then the development process for the inbred to move into hybrids will be a total focus of the research and tech group. So by '26, the belief is that they will have Camelina with glyphosate resistance or glufosinate resistance ready to position for the planting season and '26 in the fall.

Kurt Caramanidis

Would that be exclusive or other people have the same thing?

Mark Herrmann

This trait that is licensed is licensed exclusively.

Kurt Caramanidis

So nobody else has that type of product because no other people I think are working on Camelina?

Mark Herrmann

If they come forward, it would have to be a different event approach. But I do know that this is a key target for Camelina to really be able to be a broad acre, very efficient biofuel feedstock. So it is a very important development as we go forward.

Kurt Caramanidis

Great. Then the question is, what kind of levers do you have to pull for liquidity to get to '26 when you would start making money on VBO? That's accurate, but in fiscal '25 and to get maybe that gap filled the market, clearly his challenge challenges there. What do you have levers to pull to maybe get us to -- there's quite a bit going on the positive side, obviously, some near-term negatives with the around the world stuff. But what do you have levers to pull to kind of get us to where you are in a better position?

Mark Herrmann

Yes, I would say near term is going to continue to have OpEx and research expense and that revenue won't cover it. But we'll have more update to that as we go forward. Midterm and long term, I think it has a fantastic opportunity and outlook.

Kurt Caramanidis

And I'm just wondering maybe just as a company in general, how is your liquidity position looking for the next 12 to 18 months? And what levers do you have to pull to kind of help that out?

Mark Herrmann

And you're talking VBO specifically?

Kurt Caramanidis

No, not the whole company.

Mark Herrmann

As you know, we are a 34% shareholder of the VBO. 66% shareholder would be show we've got two members on the VBO Board as part of our as part of our investment. If they're working through the business direction, the liquidity piece, Shell would be responsible for 66% and S&W would be responsible for 34% as operations moved forward.
And if you remember in the in the JV development that Shell contributed through the cash flow needs of the organization early in its time period. I can't speak exactly to where they're at or what the exact deliverable is. Post it, in the near term as far as liquidity contributions, they're having their Board meeting, I believe the week after the S&W Board meeting. So in two weeks, which I'm sure they'll be sharing more information there.

Kurt Caramanidis

Okay. I'm sorry, I was saying for S&W for our liquidity separate from the deal, how are you looking at the next 12 to 18 months? If it gets tight, what kind of levers you have to pull outside of VBO or just the regular company?

Mark Herrmann

Yeah, for S&W for this year, and Vanessa touched on it as he went through it. Vanessa, please, if I don't cover it accurately, jump in when I'm done. But with the contribution, the $6 million contribution from Shell this February, as S&W hit all its milestones to drive that payment as well as the Trigall $1.4 million, we believe our results and our forecast should cover our cash flow needs for this year.
As we look to next year and we look at the continued growth, particularly of the high margin, sorghum portfolio driven by DT, grain sorghum and DT forage sorghum and PAF for next year. We believe right now that we should be able to cover cash needs for next year. And as we go forward, growth from the sorghum trait portfolio should cover cash needs. So Vanessa, that would be my shot. If I miss anything or misrepresented anything, please jump in.

Vanessa Baughman

No, that's accurate. And I would add, it is working capital management, so capital as well as OpEx. We continue to streamline and build efficiencies, both in our cost of manufacturing in OpEx as well as capital investments. So as we streamline and bring those down continuously into 2025, we believe we'll be at a net neutral position for cash for next year.
And that's what we've been working towards all through 2024 is to get our cost structure as lean and streamlined as we can and continue those improvements into 2025.

Kurt Caramanidis

Thank you so much.

Mark Herrmann

We started the year really heavily talking about S&W needs to address costs and cost sides and be a best-in-class seed company as you look at cost of goods and others. I do believe with the changes that have been made in operations with our production plan that we're building with the sales trend and sales plan we've got, next year we'll be at the lowest level of inventory carryover for several years and in pretty close to a seed industry optimal with some approximately 70% seed utilization within a sales year.
But I do believe then as we move '25 and beyond, we should be at a best-in-class costs in the operation business as we work through some historical higher cost inventory. So as we do move forward, I think we'll see contribution on both with the sorghum portfolio increasing its percentage of total sales as well as efficiencies through, particularly the sorghum production organization.

Kurt Caramanidis

Thank you so much for taking my questions. Appreciate it.

Mark Herrmann

You bet, Kurt. Thanks for joining us this morning.

Operator

(Operator Instructions)

Robert Blum

Betsy, this is Robert here. And to Mark and Vanessa, we've a just a couple of questions through the webcast portal that I'd like to make sure we get to. And if anyone else queued back up, we'll be sure to come back to him there.
Just a couple of questions here on Double Team and I'll tried to summarize a few of them here. Maybe talk a little bit about some of the on the ways to turn royalties, some of the licensing agreements. What's your -- any progress that's being made on that front as it pertains to Double Team?

Mark Herrmann

Well, thanks, Robert. And actually, that's a fantastic question. It really launches in as we've evaluated Double Team and look at what value does Douible Team bring farmers in the US? And we work with third party organizations trying to fully assess of the positioning. But as we look at yield loss due to grassy weeds in the US, the overall production loss through the 6.5 million acres is between a quarter and a third of $1 billion from the US, based on our best assessments.
And then really that drives what value Double Team has in the marketplace because clearly, from a lot of data, we know that farmers need to retain half to two-thirds of the value created to really justify and motivate their investment in the technology. Meanwhile we use averages when it actually plays out on farm, I mean, it does from slight yield decrease to total devastation of a crop, right?
But if you look at the average value across the US annual yield losses or production losses, it's a third of a $1 billion. So that really drives our position to then assess what value really needs to retain on farm for the right message, improved farm profitability, and then if it's S&W brand, how we price that to the farmer. And obviously, if it's S&W brand, we still have our channel being a dealer network and in other expenses running a brand and to operate.
If we go through licensee, which I talked about, we've got 15 independent seed companies that have signed a license for DT and actually sell 40% to 50% of our booked total DT volume in the US, but it's an incredible way to multiply your connection points to farmers and allow them to keep working with their seed dealer and their seed brand that they've worked with for years and know and trust.
But through that group, we also know there needs to be a margin in it for them as well. So through our licensees, the price would be less than S&W, but it would be appropriate for their covering their channels cost to delivered and connect and sell and service farmers as well as the company itself needs a level of profitability to really justify their taking risk in production, inventory and management of the skew to the farmer.
And we end up somewhere in that 75% to 80% range of the S&W channel value to farmers. So it's a very fairly sophisticated, but in my mind, it's a fairly simple thought process, but it's a fairly sophisticated process as far as really understanding the value delivered and how value is shared all the way between the farmer, S&W, seed companies that are partnering with us to deliver that in the marketplace and then cover costs and really drive towards profitability.
We've got 15 licensees in the US. We have contact for addressing the particularly Argentina and Brazil market of three to four key companies we would like to work with that would represent a significant portion as automakers there, as well as looking at two to three in Australia for the same approach. And then Mexico would be a blended between S&W brands working through Mexico as well as license markets.
So we really believe we have a very effective process and also a process that's much safer to ensure we get collections efficiently with companies that are already operating in international markets that are very accustomed to moving payment as US currency through the system.
So I think the license side, combined with our brand is a very important discussion, and I believe it also ties to what was discussed earlier as well as what the OpEx costs will be to see us continue to expand this trade. I talked about the value of DT alone as a quarter to a third of $1 billion of lost yield annually in the US. When we looked at all global markets, I mean it's a $0.5 billion trade across the 13 plus million acres we're targeting.

Robert Blum

All right. That's great. A lot of detail there. One thing, and I don't know if there's anything you can add on to this, but there was a question relating to energy savings, Double Team versus conventional. Is there anything that you can add on to the comment that you just made there, specific to the energy savings?

Mark Herrmann

Yeah, I think that's great. And to me, the first step of sustainability -- since a farmer is losing this yield and this value per acre because of grassy weeds. Being able to control those grassy weeds, all other input factors, land rent, fertilizer, irrigation, land control, every other expense stays the same. So you're able to add that as significant profitability of farm, but you're also able to produce that much more productivity and fewer acres, right?
So if I look at the sustainability trait, to me DT falls right into it. If I look at sustainability as a crop, sorghum can produce a crop with significantly less water. So if you're dealing with a limited irrigation well or limited water or a little bit more marginal ground dealing with higher temperatures, sorghum is a much more adaptable crop. And if you look at corn, soybeans and other options.
So if you look at the full sustainability picture and energy savings, there's a great opportunity with sorghum to expand. And one of the reasons it hasn't is because of grassy weeds because there wasn't an option to come back and control grass and my sorghum basically because sorghum and corn are grasses.
So to be able to spray and kill grasses without killing the crop, you need some level of a tool that enables you to do that. And DT has been just a fantastic fit, which also explains why it's had very fast adoption, three years in the market and some 10% of the US sorghum acres.
And I'll just take us back to pre–DT. S&W seed only had 5% to 6% share of the total US sorghum market at that time. So in just a three-year period, it's expanded to a significantly bigger footprint than what S&W had for sorghum in the US prior to that, right. And I do believe we're just on the early test of market penetration, full market awareness of the value that it brings, but a key energy saver.
And also, even if you already have grain sorghum on a irrigated field, sorghum is a crop that if it's a deep well and you're pulling water from deep, obviously, energy to pull that water up is very, very expensive. So if you're trying to irrigate for corn, you've got to pull significantly more water up to finish a solid crop than if you're using grain sorghum.
So it definitely gives the opportunity to even pure energy of using less energy and less water to finish a crop and drive farm profitability. So this along with the next one PAF, is a very valuable tool as well. And once we stack it and you're able to have DT and PAF on the same acre, we believe there's a solid multiple as far as the value to the farmer with that technology as well as the value that can be shared with S&W and the rest of the channel that are supporting this technology pipeline.

Robert Blum

Fantastic. We'll go ahead now. We'll leave it there. Mark, Vanessa, I'll turn it back over to you for any closing remarks here.

Mark Herrmann

I just want to thank everybody for joining the call this morning. And I know we have some opportunities for follow-up discussions if you wanted to set those up through Lytham Partners as well. But I look forward to visiting with all of that are interested in a follow up. But my thanks, everybody, for the call this morning, and I look forward to hopefully speaking with you again soon. Thank you.

Operator

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