At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. Before we begin with prepared remarks, please note that the statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually, or projected.
Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk 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, 2021, and other filings made by the company with the Securities and Exchange Commission. With that said, let me turn the call over to Mark Wong, Chief Executive Officer for S&W Seed Company. Mark, please proceed.
Thank you. Thank you, and welcome everyone to the call today. First of all, it is my great pleasure to introduce everyone on the call today to our new CFO, Betsy Horton, who actually has been here now three months, so not that new. She came right after the last call, so you all didn't get to hear her. She is a wonderful addition to the S&W senior staff. She has a long history in agriculture. 20 years with Cargill, 3 years with a company called Miller Milling, which was in the wheat, obviously, business, and she was CFO there and that was a bigger company than S&W. She comes just with huge credentials, a lot of energy and the right background for the new S&W as we move into the future.
Remember that, in our model with Stevia and our Ingredion deal, we are not just selling seed now. We are also buying the leaf, the dry leaf, from our farmers, and we're selling that to Ingredion in back-to-back contracts. As we move closer to the consumer and we embed ourselves in the distribution chain of these products, we really feel very lucky to have Betsy with us. A person who has a long history with Cargill, where looking at supply chain and all of those kind of things for ag products was a big part of what Cargill does. Welcome, Betsy, and thank you so much for joining S&W.
Your energy and your inquisitive questions and your sort of making us all look at the industry that we've known basically for our lifetime is just a breath of fresh air, and we really do appreciate you joining the senior management of the company. Okay, onto my next point. I just wanna make a few comments. Since the USDA has just come out with some projections for net farm income, I wanna put this crazy market that we're all in with inflation and supply chain issues and all of sort of ag scratching their heads as other industries are. Just a few sort of grounding facts that we should all remember when we're looking at the industry and companies like S&W that are part of that industry.
The USDA is saying that net farm income for 2022 is projected to be $113 billion-$114 billion. That's actually down $5.4 billion or about 4.5% from the 2021 number of $119 billion net farm income. Remember, net farm income does include government programs and supports from the federal and state government. It is important, though, to put these sort of projections in context. 2021 was a big increase in net farm income for farmers in the U.S. Net farm income in 2020 was only $94 billion. Net 2021 was about a 25% increase in net farm income for farmers.
As I said, 2022 is about a 5% decrease. While farmers are very optimistic about the crop that's being planted this spring in the northern hemisphere, it's also good to look back on history to remember that there were, in recent history, both years of higher net farm income and years of lower net farm income. In 2016, 2017, 2018, farm income was fairly low, and in 2011 and 2013, farm income was higher than it actually is in 2022. It's a pretty profitable cycle for farmers in the U.S. in 2022, but not as profitable as kind of the best years of 2011 and 2013. You know, farmers are optimistic, but they're a little bit nervous.
I mean, farm income is projected to be down while expenditures, farm expenditures are projected to be up about 5%. The farmer is spending more to generate very good farm income, but it's less farm income at least projected by the USDA than there was in 2021. In that context of that general market, and I would say that Australia sort of while I don't have specific numbers and the ag business in Australia is much smaller than the U.S., I would say our opinion is that the markets in Australia also reflect these general conditions. Higher costs, very good income, but not as high as maybe some other years. Farmers are optimistic, but they're a little bit wary that their input costs are increasing.
Frankly, if you're in the animal protein business, it's feed that's higher. If you're in the row crop business, it's fertilizers really that have gone up in price because of cost increases. We all know what's happening to the price of oil and those kinds of things. That's the context in which we are operating S&W, in which I make and Betsy makes the report to you all today. In the Q2 , which is our smallest quarter, remember, and that's because in the Q3 and Q4 , we're really selling seed for the spring planting in the Northern Hemisphere in the Americas.
Because our business in Australia is really fall-planted pasture product, you know, it tends to overlap on our spring planting in the U.S. in the Northern Hemisphere. Like all other companies who ship things long distances on water and by rail and by truck, COVID and supply chain issues have been a problem for us. It's pushed our sales back a quarter in general, and Betsy will go into some details about that. Net of all those difficulties, which we're managing, I think fairly efficiently, you know, we're still holding our guidance for the year of $80 million-$85 million sales for the whole year of 2022.
We're also obviously still have EBITDA smaller and smaller every year, but EBITDA losses, so gross profit margins in addition to sales are a real priority for S&W. We believe that we have implemented price increases fairly across the whole product line that reflect our rising costs. We are also trying to control our costs at sort of all levels. That includes the cost of producing our seeds, the cost of running our own plants, our research and sales and marketing costs we are trying to hold tight on.
On freight costs, which, you know, gets a lot of public press, we've managed to try to control that in a couple of different ways, more efficient, and more people sort of looking at getting shipments out to customers, passing on those freight costs to some of our customers where that's appropriate, and just making sure that we are on top of on a daily basis the freight situation, both availability, and price as we move our products to the market. If there is a big mover, though, in the next year or two for S&W, it is our largest opportunity, the sale of Double Team sorghum. As you all know, because we've talked about it in past calls, having a trait that is a herbicide trait is very, very valuable.
There are a handful of traits in all of agriculture, and it is very unusual for a small company like S&W to have the wherewithal to spend the development time and have the management capability to basically bring a product like Double Team through the whole process and produce the seed and introduce it to our farmer customers. That's the process that we're in right now. We're in a bit of a rising market, so the wind is at our backs in sorghum this year. The USDA has announced that the sorghum crop that was planted was about 7.3 million acres last year, which is up 24% from the 5.9 million acres that were planted the previous year. Farmers are kind of voting with their feet.
Sorghum is a good alternative to corn and, you know, the input costs are less, the water required to make a crop are less, and the economics of the grain price give farmers an excellent profit. More acres of sorghum went into production in 2021, and we hope that continues in 2022 spring planting, which obviously for the U.S. will be sort of in the April, May, June time, depending on where you are in the latitude wise in the U.S. As I said, having a trait like this is very unusual for a small company. I can say in my career of 45 years doing this, I've been CEO of three other companies, and none of them owned their own trait.
We did sell traits at my last company, which Monsanto purchased, and they purchased it because most of the traits we were selling were Monsanto traits, and they wanted to basically keep that margin sort of in our product. They bought the company that I built there. We, at that company, which was called Emergent Genetics, we sold basically Monsanto and Syngenta traits. We did not have a trait of our own. The fact that S&W has Double Team is the thing that every morning I wake up with a smile on my face, and I thank all of our dedicated employees in research, marketing, and production who have helped us get through this 6-8-year product development cycle and bring this product to the hands of our farmers.
You'll be hearing more about Double Team as we make and take market share in sorghum. That's gonna be a recurring theme to give all of you an update on the progress that we're making in our most exciting crop. On the alfalfa side, we're seeing strong demand. You know, alfalfa's really first and best use is to the dairy industry. Dairy prices are up for milk and cheese, and you know farmers wanna buy a good high-performing alfalfa varieties because they can get milk yield from their cows by feeding the best high-protein feed. We are also seeing some rising prices, mainly because the last couple years where we had more inventory in the industry than really there was demand has finally sort of fixed itself.
As Cargill likes to say, high prices fixed the supply. The prices in alfalfa are rising because supply is limited. You'll hear from Betsy Horton a little bit that there are some positives and negatives about this. You know, for sure, we're shipping more crop out of our existing production for this year, so that's alfalfa seed production that's in the ground right now, yet to be harvested. The positive there is that we have more efficient use of our balance sheet, more inventory turns in alfalfa. The negatives are that timing is very important.
We have to harvest the seed, clean the seed, coat the seed, bag the seed, then ship it to our customers all before their spring planting seasons, which, you know, are mainly the Middle East and North African countries are the main markets that we're selling into with our non-dormant alfalfa product. On Stevia, we continue to move forward with that. As I mentioned in my opening comments, we are very excited to have Betsy's expertise in the company. We think that by basically selling seed to our farmers and then buying their output, which is the dry leaf that contains the Stevia sweetener, and then selling that to our partner Ingredion is a business that we wanna do more of.
As I've also said, you know, we're looking at other things, other than Stevia to produce that we can take a position in the output that our farmers have. Some of those might be, you know, fuel, biofuel, green biofuels, or green degradable plastics. Those genes are discovered already, and we're taking a look at those. You know, it's a great situation with Ingredion. We have a belief in our product line that says we can produce dry leaf in the U.S. on a cost per pound basis that's competitive with China. That's something that no one ever believed would be possible given the cost of Chinese labor.
As I've talked on other calls, we have developed with our proprietary germplasm a production system that basically farms Stevia as a perennial for a number of years. Then we're able to take multiple harvests off to spread the cost over more production and produce at a price that's competitive on a per pound basis with China. We also think that it's pretty clear from all the logistics issues that if you have a similar cost on a per pound basis, it's a pretty easy decision to sort of match local production to local markets, and that avoiding these supply chain issues, which, you know, are frankly not controllable by most small companies like S&W. We can get efficient there. We can control our costs as best we can.
We can work with our customers on all of that, but, you know, we're not big enough to rent our own ships or have our own containers or have a fleet of trucks, and so we're dependent on third parties to do all that. Having Stevia produced in the U.S. for a Stevia market that is the world's biggest. In the U.S., Stevia is about a $900 million value crop at the consumer level. Those are really, we believe, valuable things for the future of S&W. As we see these kind of opportunities, so Stevia, better pricing, which, you know, may not be a long-term thing in alfalfa, but for sure in the next few years, we believe we'll see that, and then the Double Team opportunity in sorghum.
It leads us to always raise the question that good companies have to ask, which is, you know, should we be restructuring, refocusing the business? I'll tell you right now, we're going through a process of taking a look at those three main crops that I've talked about, sorghum, alfalfa, and stevia, and making sure that we're doing everything we can to harvest the value that we're creating in those crops. If that means we have to pay a bit of less attention to some other things, we're gonna do that, and you will hear about that story in the next couple of calls. With that, those are my general remarks. Again, it is my great pleasure to welcome Betsy to the senior management team of S&W.
Betsy, I will give the podium over to you to make your comments on the financial specifics of S&W for this quarter. Thanks so much.
Thank you so much, Mark, and thanks to everyone joining us on the call this morning. With this being my Q1 as the Chief Financial Officer of S&W, let me express how delighted I am to join this team with all the opportunities we have in front of us. I believe S&W is uniquely positioned to benefit from some significant macro trends with our next generation products and a global infrastructure that allows us to become a leader in a number of key middle market crops. As Mark mentioned, my background is solidly in agriculture, first with 20 years at Cargill in various financial roles, and then the past 3 years as the CFO of a flour milling company called Miller Milling. I'm excited to bring that experience from a great risk management company like Cargill to help drive S&W into our next phase.
I thank Mark and the board for this opportunity, and I look forward to some fun things ahead. With that, let's run through some key financial items. Core revenue, which excludes revenue to Pioneer, was $12.6 million for the Q2 , an increase of 15% compared to the $11 million in Q2 of the prior year. The increase in core revenue for the Q2 came primarily from sales to the Middle East, Argentina, and South Africa. As we mentioned in the press release, the Q2 is seasonally a quarter which is characterized by lower margin international alfalfa seed sales and very little from our higher margin sorghum sales, which tend to occur in the third and fourth fiscal quarters.
An important note that was made last quarter that I want to reiterate: Core revenue and total revenue will be the same number in fiscal 2022. We will continue to reference core revenue as long as we are comparing against fiscal 2021 numbers. Our prior year Q2 results include revenue from Pioneer of $4.1 million, which brought year-ago total revenue to $15.1 million. As was discussed during the last two calls, and Mark shared again today, we, like many other companies, are experiencing certain supply chain and logistical challenges, which is resulting in a shift of revenues to the right. We previously had about $5 million of revenue slated for Q4 of 2021, which shifted into last quarter, and this quarter we had about $3 million in sales, which shifted to the Q3 .
The limited availability of overseas containers and ongoing congestion at the port continues to delay shipments and complicate our operations. At this point, we are expecting these dynamics to persist throughout the year. The annual revenue guidance we have put forth of $80 million-$85 million takes into account these dynamics to the extent we can forecast. Therefore, we have already accounted for certain shipments we would have historically made in June that will likely shift into fiscal 2023. We do see a risk of being able to process and ship the upcoming Australian harvest, which is coming out of the ground around April, and therefore the timelines to harvest the seed, clean, package, and ship is likely going to be more difficult this year than in years past when we had higher levels of carryover crop.
We are all optimistic that this global issue will be resolved and we will see a bit of catch-up, but the situation is fluid and impossible for us to control or forecast precisely. Now turning to margins. GAAP gross margins were 13.1% compared to 13.5% in the year-prior year's Q2 . Adjusted gross margins, which excludes the impact of inventory write-downs, were 16.6% in the Q2 compared to adjusted gross margins of 13.8% in Q2 of the prior year. Further, if we were to exclude the contributions from Pioneer from last year's results, which again were not repeated this quarter, adjusted gross margins last year would have been only 9.8%.
When you look at the improvements made during the quarter on a relative apples-to-apples basis, margins improved by 680 basis points. Considering the seasonality of the business, looking at the Q2 isn't always a full indication of the growth margin on an annualized basis. However, I believe the 680 basis point increase is a strong indicator of the progress being made to drive overall growth margin improvement. As a reminder, the key initiatives we are implementing to impact growth margins include price increases on the majority of our products to address overall rising costs and to more properly reflect the value of our proprietary products. We are also modifying the terms and conditions of standard customer contracts to address the volatility and increased costs of freight and transportation.
As we look at the rest of the fiscal year, we continue to expect strong growth margin improvement compared to the levels achieved in fiscal 2021. Now we'll transition to operating expenses. Our GAAP operating expenses for the Q2 of fiscal 2022 were $10.6 million, compared to $9.4 million in the Q2 of the prior year. The increase in operating expenses is attributed to a non-recurring $1.2 million increase in employee and severance-related expenses. R&D and other SG&A expenses remained flat compared to prior year quarter and up just slightly from the most recent Q1 . I know in the past we have provided a general outlook for our operating expenses on a full year basis and want to do so going forward.
As we look at fiscal 2022 as a whole, we expect SG&A to be approximately $26.1 million, which includes non-cash stock-based compensation of approximately $2.2 million. Note that the increase from last quarter is due to the employee and severance-related expenses I mentioned a moment ago. We expect R&D to be approximately $8 million in fiscal 2022, and depreciation and amortization to be approximately $6 million. At the adjusted EBITDA line, we had negative EBITDA of $6.5 million for the current quarter, compared to negative EBITDA of $5.5 million in the prior year. Now, recall what I said a moment ago about the non-recurring $1.2 million increase in employee and severance-related expenses. $700,000 of that is not excluded from adjusted EBITDA.
If we were to exclude it, since it is a one-time expense, the current quarter adjusted EBITDA would have been very close to the prior year. Once again, if we were to exclude contributions from Pioneer and look at this on an apples-to-apples basis, adjusted EBITDA last year would have been a negative $6.4 million. Therefore, the improvement would have been more than a half million dollars. I recognize there's a lot of moving parts there, but I believe this helps to highlight the operating improvement that may not be visible on the surface. As you can hear from the general guidelines we have provided regarding revenue guidance, gross margin improvements, and operating expense expectations, the second half of the fiscal year will show significant improvement on the adjusted EBITDA line. Now a few general comments on our future outlook.
We continue to be focused on driving improved bottom-line financial results. There are three key levers to this. We will increase sales and improve gross margins while maintaining or reducing operating expenses. We are gaining enthusiasm for our Double Team outlook, which we believe will be a key driver to both revenue growth and gross margin, as this product has margins far higher than the other products in our portfolio. Despite the logistical challenges, we are driving toward core revenue growth in fiscal 2022 and believe that number will ramp further in fiscal 2023 as we are able to increase our Double Team seed production. Simultaneously, we are focused on holding and reducing operating expenses where possible to ensure those margin improvements drop to the bottom line. I just want to reiterate my excitement in joining S&W and how much opportunity I see for this company.
I look forward to speaking with and meeting many of you in the near future. With that, I will turn the call back over to Mark.
Thank you, Betsy. I just want to conclude the call before we take questions with a couple of most important points, the sort of take-home message of this call. As Betsy said, we're going to drive sales, but we're going to drive them to more profitable sales mix, more proprietary products, with traits if possible, and fewer commodities. We think that has implications for our margin, and it has implementation issues for our whole business going forward. We believe that this kind of drive will improve margins and help us to also focus on our costs and allow us to spend our money where we're going to get the most return.
For the near future, the big, big opportunity for us is pushing proprietary Double Team into the market, selling alfalfa in a rising price environment, and moving forward with our production and partnership with Ingredion and Stevia. With that, we've concluded our remarks today, and I'll turn it back over to the operator, and we can take some questions. Thank you so much for everyone attending the call today. Thanks again.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. The first question today will come from Sarkis Sherbetchyan with B. Riley Securities. Please go ahead.
Hey, good morning, Mark and Betsy, and thank you for taking my question here. Just wanted to first talk a little bit about a statement I saw on the press release. It states that, you know, restructuring some key elements to improve financial results. Just wanted to see if you can dive into this in a little bit more detail.
Great, Sarkis. So look, as we gain market share in introducing Double Team and, you know, we see, as I said, even a rising acre market in sorghum. It's pretty clear based on, you know, I mean, we sell forage oats for gross profit margins of 17%-18%, and we sell Double Team in grain sorghum for margins of 70%. It's pretty clear that, you know, we need to maximize those high-margin crops, and we need to focus our efforts on those, and we need to apply our balance sheet because we're in a big growth phase for those products, and we're spending money to produce inventory. You know, we really.
It's more and more obvious that these great opportunities in sorghum are clear to us and we're gaining share that we should be refocusing the company on those high-margin crops. We should be selling out every year of the low-margin crops and carrying no inventory and not spending huge amounts of marketing dollars or production dollars to do those crops.
Got it. This maybe ties back to my next question. Reading through the 10-Q that was filed, you know, found a line that says that you're actively evaluating financing and strategic alternatives. Can you maybe give more color on that disclosure?
Yeah. I mean, you know, we're always looking at better opportunities as we're growing. You know, the question always comes up for smaller companies. How do you do that? You'll clearly, in this kind of market, you wanna maximize the debt that you have available to the company. Being able to use your receivables and inventory as the borrowing base for your revolving credit, which in the ag seed business is always a significant number. That's one thing that we're looking at. You know, we probably will need to raise a bit of equity just because of that revolving credit line will not cover all of the additions that we wanna make in Double Team. I'll
You know, we don't give guidance to earnings, but I'll tell you that, you know, it's a significant number. I mean, the Double Team sales that we're expecting, and we pointed this out in our December 2020 seed and trait development report. We said that revenue from tech products, seed and licenses, et cetera, in the three-year, you know, sort of short vision were gonna be $12 million. We think Double Team will be all of that easily. Easily in the sense that, you know, if we execute and, based on the reception we've had from farmers in the field, we think that, Double Team will make those kind of numbers.
You know, we're in a phase where we have a great opportunity in a high-margin product to really change our sales mix and to really increase our gross profit margin %, because this product is a high performer in the farmer's field and farmers wanna buy it. At these kind of margins, we wanna sell every bag that we can.
Thank you for that. That's a great segue into my next question where, you know, just wanted to kind of get a better understanding or a bridge, if you will, on what specifically needs to happen between now and fiscal 2024 for the company to achieve that $130 million in top line, boost the gross margin profile to 35% and generate those 10% EBITDA margins. I mean, those were the metrics you communicated in the December 2020 tech deck. Just wanna see if there's anything that you can give us from a glide path perspective. Thank you.
Yeah. I mean, the basic business has been growing 10% or so a year. That in our expectation will continue, but it's Double Team that's gonna, you know, make the big change. You know, companies are willing to invest the 6-8 years it takes to create these products and test them in the market and produce the seed because they're profitable. As I said, you know, in the whole of seed biotech agriculture, which, you know, is dominated by the big four, you know, you can count the number of genes that those companies offer on your hands and your feet after 20 years of doing R&D. So these genes are incredibly valuable, and they're valuable because the farmer will pay for them because the farmer gets higher yields and makes more money per acre.
Even though he pays more for that bag of seed, he makes multiples of that from each acre that he plants. If you look back historically at the Monsanto example and how they put multiple traits in the different crops and what that resulted in terms of earnings and eventually stock share price and their buyout, the buyer, we're not gonna have a pipeline of products because we don't have as big a R&D budget. In this case, for Double Team, it's a huge opportunity, and we're going to maximize the benefit to SW.
Herbicide-resistant traits are the easiest to sell to farmers, easier than insect traits because insects don't show up every year, and easier than some of the other traits for disease resistance and things like that because diseases also don't show up every year. They sort of depend more on weather. Weeds are pretty always there. Especially in sorghum, which is a grass, we have grass weed problems, and Double Team controls those grass weeds, and that's what farmers want.
Great. That's all for me. Thank you.
Thanks, Sarkis.
The next question will be from Ben Klieve with Lake Street Capital. Please go ahead.
All right. Thanks for taking my questions. Sorry, I had to hop out for a minute, so if I'm asking you something that you've already addressed, I apologize for that. A few questions from me. First of all, on the supply chain issues and the degree to which it's affecting Double Team, if at all. Are you expecting any issues whatsoever around the scaling of inventory for the seed side? And then on the chemical side, do you foresee any issues with the supply chain preventing farmers from getting the corresponding herbicide for?
Yeah
... for this upcoming, growing season?
Yeah. Great question, Ben. We don't. At this point, you know, what's limiting us is the biology of seed multiplication, right? Sorghum is a hybrid. It's a three-line hybrid, they call it, so you have to have a male line and a female line that you put in the field to produce the hybrid that we sell to the farmers. Then you need a third line because the female has no pollen to basically multiply the number of female bags of seed that you have. That's why they call it a three-line system. That's what's limiting our ability to produce bags in the market. We're basically producing at full capacity, you know, all availability of our three parent seed lines.
We're making some improvements each year, right? A product that we're selling today will be improved by the third year that we're selling it. Farmers, you know, understand kind of what improvements are coming because we talk about that in our trials that the farmers come to. When they see the crop, you know, they know our plan for the next few years. We're really optimistic because of the share we're gaining now and the farmer response that we're getting. We have four or five hybrids in the market this year. You know, we're getting good response to all of them. I don't expect that there's going to be any problems on the seed side.
ADAMA, our chem partner who's providing the herbicide, says that on their side, things are fine too.
Okay. All right, good to hear. Mark, you mentioned potential coming from, you know, from the biofuel angle or potentially integrating traits for bioplastics in the seed. I'm assuming, especially in the biofuel, you're looking to leverage your sorghum portfolio, but I'm wondering if you can talk kind of on a high level, you know, how you view your current product line with, you know, across those two opportunities, you know, or versus, you know, having to potentially bring in, you know, additional crops beyond the sorghum, alfalfa, Stevia.
Yeah. I mean, our basic premise, philosophy on the question that you asked, Ben, is we think that you have to plant a second crop after the primary crop. If a farmer is raising wheat or sorghum, our focus is producing a second crop with that farmer that is not a food crop that will therefore never make it into the food chain, so we can sort of use all the tools in our science toolbox, including GMO technology, CRISPR, whatever, and that we can create products because they're not going into the food chain. The benefit of that is clearly manifold, right? Number one, the farmer gets additional incremental revenue. Number two, that acre is producing a second crop that's really a cover crop that can be harvested for value. Right?
You're sequestering carbon, but at the same time you're making another commercial crop. You're just not making something you're gonna plow under into the field to increase, you know, the carbon content of your soil. You're actually producing something that can be sold for a profit. That's the philosophy we're going on. You'll hear more about that in the coming quarters, but you know, we're pushing hard to understand what the industrial benefits are of producing things in plants. You know, I've mentioned I think as you said, you know, bioplastics or biofuels, you know. When we started thinking through this, you know, it was not a popular thing.
Frankly, you know, I think it's becoming more and more popular, and you're seeing some of the big oil companies sign deals along the same lines that we're talking about.
Got it. No, interesting. I'm firmly with you on the benefits of a cover crop system. Very interesting. We'll stay tuned for more news down the road there. Betsy, I got one for you, and then I'll jump back in queue. You mentioned a couple times in your prepared remarks about looking to maintain or lower OpEx. Do you mean by that, do you mean on a percentage of revenue basis or on a raw dollar basis? You know, kind of. What do you see within OpEx having some kind of flexibility to look to maintain or reduce here in coming quarters or years?
Yeah. Hi, Ben. Nice to talk to you. Thanks for the question. I think we definitely see maintaining or reducing operating expenses as one of our key levers. I would say we're looking both at percentages as well as raw dollars. I mean, I think we have to reduce it as an amount of revenue. You know, with some of the growth initiatives we've had and things like Double Team, we've had to build SG&A ahead of time, to prepare for that and to make sure we've got the right, you know, R&D investments and the right sales and marketing team to support that.
As we see it launch and we see revenues come up from that, I definitely expect that we should be able to create more of that leverage over those costs and see the percentage of those costs as a percentage of the revenue come down. At the same time, you know, looking at them as whole numbers as well, and taking a look across the portfolio of things we're spending on and making sure that in some cases we'll be investing more in some areas and, you know, at the expense of others. That's definitely one of my key areas of focus, you know, coming in and taking a look at the company kind of with fresh eyes, and so something that you can expect to hear more from us in the coming quarters.
Got it. Very good. Well, we'll stay tuned there as well. That's it for me. Thanks for taking my questions. I'll get back in queue.
Thank you, Ben.
The next question is from Gerry Sweeney with Roth Capital. Please go ahead.
Good morning, Betsy and Mark. Thanks for taking my call.
Morning. Morning, Gerry.
Mark, back to sorghum. One big question.
Yeah
For me on that front.
Uh-huh.
Leasing thing.
Yes.
Talk about that. Yeah.
Um-
Go ahead.
Yes. You know, as I've said in previous calls, I was on Monsanto's board and a Monsanto first consultant and then employee during those times in the 1990s when all of the strategies for licensing traits and keeping traits for in your own product line were being sort of worked out. I mentioned that all of the traits in the whole ag feed industry can be counted kind of on your hands and your feet. That makes every trait super valuable. Monsanto came to the conclusion that because they're so hard to find scientifically, getting maximum market share was the right way to maximize EBITDA contribution to the company. They licensed their competitor. The competitors at the beginning were very hesitant.
They thought there was some, like, trick to the whole thing. You know, why would you license your competitors a gene that they didn't have and wouldn't have for maybe a decade? You were giving up all that advantage and time, as you all know, who are on this call, is everything in agriculture. Getting that share, and that's how their traits in their focus crops of corn, soybeans, and cotton, you know, have 97% market share penetration. On every bag of seed that every farmer plants in America, 97% of those have traits that generates revenue for Monsanto, now Bayer. You know, that lesson proved to be the lesson of maximizing EBITDA contribution.
Syngenta tried not to do that, and they tried to keep the traits for themselves because their market shares were a lot lower than Monsanto's, and so they wanted to drive their share up. While it did increase their share, it did not improve their bottom line the way Monsanto's strategy did. We're focused on licensing others. We have a small company that we're pretty much finished with our first license, and we're speaking to one of the big competitors about a license with them. You know, Double Team is a super valuable gene, and people want...
Farmers definitely want it, but our competitors are asking the question whether they wanna sell it, and some of them are coming to the conclusion that, yes, they do wanna sell it, and the best place to get it is from us because they're not gonna spend the eight years it's gonna take to develop a trait themselves.
What are the gates to maybe concluding those discussions?
Yeah. What normally happens is, as we gain more share, our competitors come to our trial. Usually, we have a separate trial for each competitor, so they don't see who each of them is. Everybody knows who's got the share in the market, right? It's not really a secret. It's kind of a smiley kind of thing. You know, everybody knows who our targets are. We know, they know. There's been historically in the market because I've been there so long and I've sold so many traits, and I've sold my three companies to, you know, Monsanto, two of them, and Dow, the third. Everybody knows the order, right? In previous companies, you know, I didn't have a trait of my own, as I would think.
I maximized the number of traits I sold that were Monsanto traits because I knew that Monsanto would buy my company eventually because they had to control the marketing at the farm level that I had created with their trait. You know, we're following that same path with Bayer. It's not totally clear that the Monsanto, you know, sort of the old Monsanto team is obviously gone now, retired. They made individually quite a lot of money, and so they're not working anymore. The Bayer team, you know, they're different people that are in charge now. They're a little more conservative than Monsanto was.
Corteva is really probably now a more important potential partner for us because they're frankly with their Pioneer brand a bit more innovative in the market. We're talking to everybody, and we'll see what happens. The timeline for that, Jerry, to your question, you know, once they actually get the gene, so we give them the gene in a donor line, and then they cross that donor line into their three parent lines. I said that in the call, you know, the-
Yep.
The male, the female, and the restorer line. That takes about 3 or 4 years. They're gonna be 3 or 4 years behind us. Even if we sign an agreement in the 2022 fiscal year for us, they're gonna be 3 or 4 years behind us. In those 3 or 4 years, we have the opportunity to gain share because we have no competition, and then they'll be in the market. We expect, you know, to take significant share in those first 3 years, and then have a big smile on our faces when they start paying us their royalties on the gene in their sorghum bag of seed.
Got you. It's a five-
It's three.
Yep, sorry. Go ahead.
Yeah, they're three or four years behind.
Got it. The key here would be them signing,
Yes.
a deal.
Exactly.
Got it.
Yep.
Suffice to say the targets for like fiscal 2024, that 10% EBITDA margin would not. You certainly don't need licensing agreements really to be kicking in to hit those targets.
We think we're gonna hit the targets with our own share gain.
Got it.
We don't need licenses to hit those targets.
Got it.
This is gonna be a big opportunity for us.
Oh, sure.
It's, you know, as the December deck says, you know, it's an eight-figure EBITDA opportunity for S&W in its own bags of seed.
Got it. Obviously, we're, you know, in fiscal 2022. You know, if we're looking at-
Yep.
2023, 2024 is right around the corner. You know, how do we look at the production of seeds this year versus next year in terms of like a step change of production and how does that sort of roll through?
Yeah. I mean, you know, our multiplication rates will allow us to produce 4 or 5 times more bags of seed than we have this year. It's a 4 or 5x what our sales projections are for this year.
Yeah. Okay. Does your farmer dealer network help you in this, you know, getting this out there? We haven't really talked about that quite yet.
Yeah. You know, you know, we're doing a lot of work on our farmer dealer network. It takes a lot of work to have a good one like Pioneer does or like DEKALB does. They're the dominant farmer dealer networks. Most of our sales still are through dealers and distributors, not our farmer dealers.
Got it.
They're really the chain that's gonna be most of our sales of Double Team. Frankly, it's not gonna be our farmer dealers.
Got it. All right. Just curiosity. Occupational hazard being
Yeah. No, it's a great question.
Occupational hazard of being an analyst, curiosity. Betsy, maybe a question for you. We talked a little about, I guess, the prepared market terms and conditions and just watching costs. I think on the last call prior to your arrival, there was one area that we talked about was freight and transitioning maybe some of the freight to the sort of FOB S&W's facility as opposed to S&W paying for freight. I assume that's might be part of the terms and conditions that we discussed or were mentioned then. Curious as to if that is, when do we start to see that kick in? Is that a 2022 issue or is this some of these terms and conditions really start to flow through into 2023?
Yeah, Jerry, that's a good question. It's kind of a couple different mechanisms that we've used depending on the market and how we're selling previously. For example, in the U.S., we used to give free shipping on things based on a weight basis, and we've now shifted that to be based on a dollar basis so that those small shipments used to, you know, when freight costs went up by a lot.
Yep
It really had a huge impact on us. In other places, we're just simply passing the freight cost on to the customer. The customer pays it instead of S&W. It really does vary. We went through that contract review kind of at I believe starting you know last August, September, October timeframe. A lot of the contracts for this year do have it in effect already. Then there's some that we had contracted already that are still coming through. We think you know looking forward the majority of it have used those different mechanisms to make sure that we are not you know solely carrying the risk of increased freight costs.
Got it. Okay. Well I appreciate it. We're hitting up on an hour, so, I'll save my other questions for later. Mark, Betsy, thanks a lot. Appreciate it.
You're welcome, Gerry.
Once again, if you have a question, please press star then one. The next question is from Jonathon Fite with KMF Investments. Please go ahead.
Hey, good morning, Mark. Betsy-
Morning, Jonathon. Yeah.
I had two questions for you. One more balance sheet related, the other is more forward-looking. You made some comments about maybe some strategic raising of both debt capacity and equity capacity to fund growth, which makes sense. Over the last quarter, y'all raised some equity to kinda cover the cash burn in the quarter. We're sitting at about $2 million of cash on the balance sheet as far as quarter end look. As we kinda roll forward to the back half of the year, with the deferral of some revenues into the back half, does that improve the cash burn rate, or are we?
You know, while growth is wonderful, we got the current operations that we have, how do we think about the cash burn and the balance sheet over the next quarter or two?
Betsy, I'll let you try and answer that if you can, please
Yeah. Yeah, definitely. Mark had mentioned earlier that, you know, we continue to work with our banks and lending partners to ensure that we're optimizing our balance sheet and have efficient structures for our credit facilities. I think there's some opportunity to better leverage the assets that we have from a collateral basis and matching ourselves up with a partner that can reflect the value of that collateral when it comes to lending facilities. I think that part of the picture when it comes into the back half of the year where we are, you know, shipping to customers, but increasing our receivables and waiting for that cash to come in.
You know, as a new CFO, I'm looking across the entire toolkit of products available to us. We have, you know, the raise that you mentioned was in October. We did a $5 million PIPE, and we were really pleased with the participation from our management team and board. We will continue to look at all the available tools in the toolkit to fund, you know, this period of cash burn and also the growth of the company that we see going forward, which eventually then turns to a cash flow positive situation.
You would appreciate that kind of general commentary. There's some other portfolio companies that we've looked at that in addition just to leveraging receivables and inventory from a collateralization perspective to kind a get an RBL or something in place. You know, whether it's production facilities, transportation movables, other assets that the company has. Do you see that as kind of an untapped resource to kind of collateralize as part of a debt package, or are you primarily looking at inventory and receivables as the main mechanism there?
No, we're absolutely looking at fixed assets as well, you know, and taking a look at some of the real estate that we hold and using that as collateral as well. So that'll be something over the, you know, in the coming year that I'm evaluating and just seeing, you know, what options are available to us for that.
Okay, great. Then Mark, as we look ahead, I think in the past you've provided some frameworks for how, you know, kind a what the appropriate revenue multiples are, for trait-driven businesses. In this kind a post-COVID world, is this useful? Do you still think that framework hangs together as you have seen it in the last couple of decades? Has it changed at all? Or is that still the model to think about kind a what the value of these traits are going forward?
Yeah, I think that's still the model, Jonathon. You know, it's hard to know sort of on a snapshot basis, you know, kind of what the industry's sort of doing. You know, the big four obviously are in a consolidation stage in the last couple, 3 years and, you know, just going from 6 to 4 companies. They're doing what normally happens with big companies when they consolidate. You know, they first look to hold revenue and margin and to save on expenses because, you know, they may have 2 sales forces or a duplicate research program or a production plant that has the capacity to do all of the production, and they can get rid of one.
You know, that's what they're all doing and I don't see the multiples on the traits going up or down much. But you know, I see more profits coming from the big four because of cost savings, frankly. It usually comes. There's usually a cycle that changes, and all those cost savings are done, and then everybody's going, "Well, you know, what can we do to increase revenue and margin now that we've taken advantage of cost saving cuts?" You know, that's probably what the big guys are thinking of now, and they're doing it in a context of you know, carbon credits and greener agriculture and what else can be made in plants, just like we're talking about on our call.
You know, these are not the S&W secrets or sole insights. I think the industry's going to be going the way that maybe the smaller companies go first because they're a little bit more flexible. You know, the big companies will come around. There's no question.
All right. Just kinda going back to the first question, is there any framing that you can provide on kind of the magnitude of the cash burn over the next couple of quarters until we see some of the step change of production that we might see next fiscal year?
I think we're still working through those calculations. You know, we're, you know, with ag, as you all know on the call, you know, we're still selling into the spring, North American market. You know, we're still booking sales. That seed's gonna be put in the ground April, May, for the most part. We have to put our seed crop in the ground April, May. We'll have a better view of that and be able to answer your question probably with more accuracy maybe in the next quarter or quarter after that, after we sort of see how many acres of the Double Team did we really plant, how many hybrids did we plant. You know, how does the crop look? Are we
You know, we have a crop release, but mother nature, in terms of number of bags, that's our target production, but mother nature has something to do with that, right? I mean, if the weather's bad, we get less. If the weather's favorable, we get a bit more than that. You know, that's a question I think that we'll have more insight on in the next couple of quarters.
Thanks. Appreciate it.
You're more than welcome, Jonathan.
The next question will be from Richard Dearnley with Longport Partners. Please go ahead.
Good morning. I am relatively new to your company. Is it plausible that in the fiscal 2023 year, you can get $12 million, which is the, you know, the bogey for new products, and
Yep.
You know, in sales in Double Team?
Yes.
Um-
Simple answer.
Okay. Good. Thank you.
You're more than welcome, Richard.
I was gonna follow with what would the, you know, investment in working capital be needed to do that, but you kinda just answered that with the previous question, so we'll skip that one.
You guys, you know. You know, you're all smart people on the call. You kinda know what our margins are, right? Therefore, you know what our cost of goods are. You know, you can. If you're following sorghum at all, you kinda know what a bag of seed is worth, the trade, and so you can sort of back into, you know, how many, what the working capital need's gonna be.
Right.
Okay?
Okay. Thank you.
'Cause we don't give guidance, right? It's not a secret, but, you know, look, we're a public company. We don't give guidance to EBITDA. So, you know, we have to presume that the smart people on the call are, you know, understanding what we're saying or following the company and appreciate our message.
Yep. Understand. Thank you.
Fantastic, Richard.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Yeah. Thank you everyone for being on the call, and thank you for listening to Betsy's first call. It's We're gonna go have a little cocktail tonight to celebrate that. She, as you can tell, has already a great view of the company and, you know, is gonna be a huge contributor to progress here at S&W. You know the take-home messages. It's really Double Team and sorghum improve margins in alfalfa, and continuing with our program with Ingredion and Stevia. We're focusing the company on those opportunities and maximizing the sales and the EBITDA that we can generate from those opportunities. Thanks everybody for being on the call today, and we look forward to the next quarter's report. Thanks again.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.